Power Lunch - Netflix’s Numbers, Amazon’s Smile and a Shutdown Showdown 1/19/23

Episode Date: January 19, 2023

Netflix set to report results after the bell. What are the metrics investors need to watch for? Amazon ends its charitable giving program, AmazonSmile. Will this result in bad PR sending shoppers elsewhere? Plus, potential market impact as the U.S. heads for another showdown over the debt ceiling. Hosted by Simplecast, an AdsWizz company. See https://pcm.adswizz.com for information about our collection and use of personal data for advertising.

All right, everybody, welcome to Power Lunch, along with Contessa Brewer. I'm Tyler Matheson. Glad you could join us, too. But coming up, everybody, watching Netflix, the streaming giant out with results after the bell today. It's been a high-flying stock recently, but will the password crackdown and the ad tier platform slow the companies grow? Plus, Amazon is losing its smile, doing away with the popular service that donates a portion of sales to charity. Amazon says, you know, it really wasn't effective. Is there more to it? We're going to dig in. First, let's get a check on the markets here. Stocks are lower for the second straight day. You can see the red across the board Dow off by half a percent, the S&P 500, same NASDAQ off by 7 tenths of a percent,

and the Russell 2000 off by three quarters of a percent. For more on the markets, let's bring in Mike Santoli now. Mike, what's driving this move lower? Well, contest, I think it's a combination of, in the last couple of days especially, just some digestion and profit taking off of a very strong start to the year, 4 percent higher in the S&P 500. in the first two weeks. We've given back a little more than half of that. Actually, a bit stronger on the NASDAQ side, all of that combined with what I would say is the familiar anxiety about whether the Fed is going to be able to thread the needle and slow the economy and restrain inflation without really causing a sharp downturn. This is the hard, soft landing debate. I don't think it's going to be resolved anytime soon. In the absence of high conviction about

which way that particular debate breaks, the market sometimes default to trading kind of technically, kind of mechanically, and we did that. This rally ran right up to a level on the S&P 4,000, which a lot of people said, okay, that's going to be the wall for now. That represents the downtrend from last January. Maybe that's where we paused. So far, I don't really see this pullback as being too material. It has not broken anything decisively. Although keep an eye on treasury yields, they look like maybe they've fallen enough in the short term. They're firming up today. As well as the U.S. dollar has really come down a lot in a short period of time. And so the falling yields, falling dollar, have been tailwinds, arguably, for the stock market in the last few months.

We'll see if that continues. And there you're seeing the yield on the 10-year now right now, 3.4% and the yield on the two-year, 4.1, 2%, 3%. Mike, thank you for that. Well, let's move on to another top story today, and that is the big earnings on deck after the bell from Netflix, the streaming giant, making a comeback after some earnings missteps last year. Investors are watching some key issues here. subscriber numbers, obviously, password sharing and how they're going to crack down on that, and the impact from the new ad tier. Julia Borsden has more on what to expect.

Julia. Well, Tyler, Netflix is expected to report some top and bottom line declines. Revenue growth is anticipated to slow to 1.7%. That would be the company's lowest rate of revenue growth since it went public, while earnings per share are expected to fall by about two-thirds to 45 cents. per share. But Netflix itself guided to accelerating subscriber growth to four and a half million subs anticipated to be added in the quarter. But going forward, Netflix will not be giving subscriber guidance. There are two key factors that are in the spotlight right now. First, early

traction of the company's new ad-supported service, and second, the impact of its crackdown on password sharing. And peer analysis reports that the launch of its ad-supported plan drove Netflix's highest daily subscription sign-up rate since April of 2020. It's worth noting that Netflix shares are up about 8% so far this year, but that's only after the stock lost about 50% during 2022. Tyler. All right, Julia, well, Julia will stay with us, but we're joined now by Michael Pactor, an analyst at Wedbush Securities, and Sean McNulty, the correspondent for the Ancler. Welcome to you both, gentlemen. Michael, let me begin with you. You see this stock going to $400 a share? Why? I think that when they stopped growing, investors just gave up on them.

They're trading in the high 600s before. Fundamentally, there's value here. And you know, I hated this thing for 10 years. So I only upgraded from sell to buy in 2022. But the fact is that they finally turn the corner on cash flow. They are generating positive free cash flow. they've gotten religion on costs. So they're kind of trimming their production costs. They're trimming their staff costs. And they're starting to actually focus on profitability. And it looks to me like the steps they're taking with ad-supported tier and password-sharing crackdowns are going to drive subscriber growth back to acceptable numbers. So there'll be a slow growth, but still growing, very profitable company. And I think people will pay 25, 30 times earnings for that. So again- Sean, how do you react to what Michael just said? And of the things he identified, which is subscriber growth, ad tier, password sharing crackdowns, and the slowing of the content pipeline or the reduction of spending on content, which of those is the most important for Netflix to get a hold of?

Well, the ad tier is the big thing because a lot of people are trading down from that $15 a month to the $7 a month. that's a problem because you're going to lose a lot of revenue that way. If people are coming in on the $7 new people who were not subscribers, that's great. We don't know that. We don't know that information. And that's what we'll find out hopefully today. But if there are a lot of people are trading down, Tyler, that's a big problem for them because that's where the revenue comes to be a problem. And remember, over half of their revenue comes from overseas. So again, you have these, the strong dollar, the FX changes, which are still going to be a big factor in your year over year comparison. And back to spending, they just released their film slate for 2020. It's at 49 films. It was at over 80 last year. So you're starting to see the austerity start to work in a little bit here. Sean, do you think that they're going to tell you how many of their subscribers traded down to the ad tier?

I mean, if they're stopping, Julia pointed out, they're not going to give forward guidance anymore on subscribers, on new subscribers. So why would they give you that kind of detail? Well, if you're looking to reassure investors about this is your new products. They said they never do it. So everybody's asked.

what is the impact on your business? And if revenue comes in low, people are going to ask why. That could be a real reason as to why they're not. If they missed the target, you're going to have to explain what the reasons are. So the number contestant may not be there, but if the trend is there, that's important. To be clear in the last earnings call, they were asked this question and they believe, they stated that they didn't believe a lot of people would trade down. So if you see that, that also contradicts what they said just a quarter ago.

So I'm with you, I don't know if they're going to tell us that. They're going to tell us that. It's also only been about eight weeks contest of the Q4. Remember, launched in early November. They may say, hey, that's a Q1 call thing we'll do. We're going to hold off on that for now. So that's entirely, entirely possible. Julia, when you're talking to the company about that content pipeline,

I mean, clearly, Harry and Megan got so much attention. And I think it's reasonable that there would be people who would sign up simply to watch that document. series. Do they think they have those other projects in the pipeline that could still drive people who don't pay for Netflix? I don't know anybody who doesn't. I know people who don't pay for Netflix, but they're all sharing somebody else's your password. Yeah, right. It's all on Mike. No, no, don't say that. And Netflix, don't look at Contessa Brewer's Netflix account. Well, they are going to be cracking down. But it's so interesting because there are so many different

studies that show that people who are borrowing someone else's password, seven out of ten of them. One of the studies found seven out of ten of people who are borrowing passwords would be willing to pay. But I think the idea is to have a really diversified assortment of content. They had this show Wednesday. That was a massive hit. They also have films like Glass Onion, which are also incredibly successful. So I think this idea is having a variety of content. So you might sign up for something like that Megan and Harry show and then stick around for other content.

I think one thing that was a surprise advantage to Netflix is they found that local language content, like some of that Korean language content, did have a very broad appeal. And so they were able to create values from some of those content investments in more ways than they would have anticipated. So I think that there is this focus on making sure they're creating the right type of content, both to add subscribers and to retain them,

and also thinking about how to exploit that content. And I mean, exploit in a good way, exploit that content around the world. So, Michael, let me get you to react to what Sean said and Sean's concern about the idea that people would trade down from 15 to 10, for the ad-sponsored tour. I mean, ad-sponsored tier. Netflix's play here, isn't it? Is that, number one, they're going to add more subs at that lower price point than they might

lose in trade-down. And number two, that they're going to make up for those losses in ad sales. That's a needle that would need to be thread. Can they do it? Yeah. First of all, I will tell you exactly how many ad-supported subs they have, tomorrow morning in my note, because I'll be able to figure it out. But Sean's right that people will trade down, but you're right, Tyler, that, you know, Hulu generates about $10 a month per subscriber in ad revenue. So no reason to believe that Netflix will generate less than that in a year or so. It's going to take them a while to ramp.

So that $7.99 customer absolutely replaces the $1549 customer if he trades down. I think what Sean didn't mention is that there are. people who quit every quarter, and it's millions of people every quarter. The old churn rate was over 3%. And so probably five or six or 10 million people quit every quarter. And if Netflix can convince those people to substitute quitting with an ad-supported tier, they're going to keep that revenue. So my bias is net net their revenues go up as their subscribers grow up by more than the subscriber growth. Arpoo goes up. And then the last thing is password sharing, the solution. is just offer us, you know, a family plan that has four separate accounts, regardless

of location, and let us pay 20 bucks a month. I would absolutely do that. I do that with Spotify. I pay $7 a month more for the family plan, and my daughter's in college use Spotify and their cars, and it works, and I'm happy to pay it. Gentlemen, Julia, thank you very much. And Michael, we will see you later as we discuss another topic on the program. That would be Amazon. Thanks, folks, appreciate it. Coming up, it's electric. Hertz partners with Denver to get more charging stations for electric vehicles, not just for its rental cars. We're going to talk to the Hertz CEO coming up. And Amazon turning smiles to frowns, ditching one-way customers were able to donate to their favorite charities. Why those who closely followed this company say, boy, is that a bad move?

Stay with us. Welcome back to Power Lunch. As electric vehicle interest continues to grow Hertz, is teaming up with the city of Denver to build out its charging infrastructure. The rental car company plans to add more than 5,000 EVs to its Denver fleet for daily customers. Here with more on the partnership is Steven Scher, the CEO of Hertz and our own Phil Leboe. Phil, take it away. Thank you, Contessa. Stephen, thank you for joining us today. You heard Contessa set up this agreement with the city of Denver, adding vehicles, adding charges, targeting underserved areas.

What's behind this agreement? So this is all business, Phil, and good to be with you. We, as you know, have been a first mover in electrification, and we are at about 40,000 electric vehicles now on our way to 80,000 at the end of this year, and heading for 25% of our fleet to be electric. And so it's important that charging stations and networks get developed. As you know, we have a partnership with BP Pulse to develop them, and part of the reason I'm here at the conference of mayors here in Washington.

is we're looking to partner with as many cities as we can on the development and proliferation of charging stations. And Denver is our first partner. And what we're doing is working with the city. We're going to put cars, electric vehicles, into those cities. We're going to look to develop charging stations with the benefit of the partnership we have with BP. We're going to look to educate through community colleges to get technicians more educated on the electric vehicle project and we bring data and telemetry on the cars, not about the driver, but about the car. We know where the car is going. We know where the car is dwelling. We will help cities determine exactly where to build those charging stations. And that's just simply good business for Hertz

as we roll out and want to make our customers or put our customers in a position where it's easy to charge. Sure. Stephen, how good is the data that you have right now from cities like Denver or other cities about where EVs are being driven, where people want charging stations. Do cities have much of a roadmap, if you will, in terms of EV use and EV adoption? So left alone, the cities are rather blind as to where cars are going. Obviously, hurts with telemetry and all of the electric vehicles we have. We know where they're going and where they're moving. And I'll tell you an interesting part to this, Phil, which is that we obviously rent to leisure customers,

We rent to corporate customers, but we also rent electric vehicles to Uber drivers. Uber drivers tend to live in neighborhoods that are largely underserved and would be in the development and rollout of charging stations. Those cars are unaffordable for many of them to buy, but they're very affordable for them to rent through Hertz, and they make 10 to 15 percent more in take-home income a month when they rent an electric vehicle from Hertz. but importantly to the city, creating some sort of equitable outcome on the distribution of charging stations across all neighborhoods is important. For us, it's good business. These Uber drivers are customers of Hertz. They are in our car. We know where those cars are dwelling and going overnight, where they need to be charged. And so it's in our interest to put and see those charging stations put in neighborhoods that might otherwise be overlooked.

Stephen, you mentioned the Uber drivers, but also you mentioned that you have corporate customers, leisure customers who are renting EVs, whether it's a Tesla or a Polestar. What does the data show you in terms of if I were to go, let's say I'm taking a vacation somewhere and I rent an EV? Are the people renting the EVs renting them for longer periods of time as compared to an internal combustion engine vehicle? What does the data show you? Sure.

So I would tell you a couple of things. First of all, when you look across the whole of our fleet, electric vehicles are held almost twice as long as a combustion engine car. Now, that number is skewed by the dominant sort of component that Uber drivers represent, because an Uber driver is going to keep that car upwards of four weeks. Obviously, the rental of a conventional leisure or corporate ride is much, much shorter than that. But it skews longer. Part of the reason we're able to offer more affordable pricing the Uber drivers is because they keep the car longer. Therefore, our cost, the number of times we're touching that car comes down quite meaningfully, and we pass much of that along.

But if you just look at the leisure sort of component or corporate, it's roughly the same. And I'll tell you on corporate business, particularly around electric vehicles, what we're seeing is more corporate customers are compelling their employees to rent an electric vehicle. vehicle because it satisfies much of their own ESG objectives, wholly independent of what Hertz is doing, but this is a good way in which they can fulfill that. Mr. Scher, I'm fascinated to hear that Uber drivers rent from Hertz and then use those cars. I did not know that, and it's learned in the category of learn something every day. These new charging stations, will they, two questions here, will they operate with all of the EVs that you will have in your fleet, whether it's a Tesla, a Polestar, a GM, a Kia, a Hyundai,

whatever. That's number one. And number two, I think about Denver airport. It's 45 miles or so from downtown Denver. By the time I drive to Denver, I will have drained a good hunk of my battery. If I continue driving to, say, veil or steamboat or wherever, I will have drained it even more. Will there be sufficient charging stations en route for those travelers who are coming to Denver and then using the car for a longer trip? Well, it's a great question, and obviously you know Denver well, but for those that are renting, particularly on the leisure side and want to head off skiing in the mountains, I'll say a couple of things. First of all, the duration of a fully charged electric vehicle will get them there.

And equally in many of the ski towns, there are ample charging facilities to get it charged. Part of what's going on in Washington, though, particularly around, you know, the various infrastructure bills and the like, is there's quite a bit of federal money, particularly earmarked for federal highways. So along the interstate, I-70, in and around Denver, you'll start to see more and more charging stations develop over time by dint of what the federal government is doing. In terms of what the city is up to, obviously the airport is a component of it, but Hertz, for example, has upwards of nine locations in and around greater Denver. We intend to use those locations as real estate on which we,

and BP will build a charging network and those charging stations at that location or at those locations will be available not just to Hertz customers but open to the public and I think that's part of what's attractive about the venture or the partnership that we're developing first with Denver and with others and so over time you'll see the proliferation of it but I think equally the duration or the distance you're capable of going in these cars will get you to the ski slopes and there's some charging stations that are there all right and they will and they will and they will work with all different brands? So we are moving now and we're seeing more interoperability among the various charging

network. So Tesla, for example, has a large network. In Europe, where it first began, interoperability was there. We're now seeing it in the United States. And so as we take on more Tesla's, Polestar's, and as you know, we committed to buy 175,000 electric vehicles from GM over the next five years, interoperability and our engagement on behalf of our customers with any and all networks that are being developed, you know, will put us in a place to make it easy for our customers to get to a charging station.

Steven Scher, Phil LeBoeh, thank you very much. Appreciate the conversation. Thanks. And still to come, we will continue to watch markets, the Dow, off the lows of the day at this point. One key front capturing the markets' attention is Washington and that debt ceiling showdown that's brewing. We're going to discuss what a shutdown could mean for the economy when power loans. returns. Welcome back to Power Lange. I'm Bertha Coombs, and here's your CNBC News update at this hour.

Indiana Supreme Court is hearing a challenge to the state's near total ban on abortion. Critics of the law want the high court to find the law violates the state's constitution, even before lower courts fully consider the case. Lawyers for the state want an injunction, blocking the law to be lifted. W.W.E. Executive Chairman Vince McMahon has reportedly paid millions of of dollars to settle a rape accusation from a former wrestling referee. That, according to the Wall Street Journal, the news comes as McMahon is pursuing a potential multi-billion dollar sale of the company. And the Agricultural Department is strengthening rules on what foods can be labeled

organic. The new guidelines are meant to raise consumer confidence in organic foods. It's one of the biggest changes to oversight for the organic food industry. decades. I know a lot of us look for organic. You kind of hope that they're really telling you the truth, right? Well, it's a lot of trust, isn't it? Thanks, Bertha. Ahead on Power Lunch, hard to grin and bear it. Amazon closing the doors on its charity business. Amazon smile users are not happy. It could reveal issues, though, with Amazon's broader business. We'll get into that when we come back. Coming up on, coming up on half past the hour now, and let's check on the bond market yields are rising today, the 10-year back above 3.4% ever so slightly.

The latest jobless claims falling to the lowest level in June, showing that the labor market is still strong and potentially here giving the Fed some cover to keep raising rates or higher for longer seems to be the mantra, Tyler. All right time now to get a check on commodities oil higher today, right around $80 a barrel. Pippa Stevens joins us now. Hi, Pippa. Hello, well, stocks are down, but oil is up. And that is despite another big inventory build. If you look at the chart of WTI, you can see right at 11 a.m.

When that report was released, it did briefly fall into negative territory. But then quickly reverse those gains and it's now holding higher. And that's actually pushed up R. Bob futures. So gasoline future is now up 20% in the last month. And I hate to be the bearer of bad news, but that probably means that prices at the pump are going back up. Now, one name we are watching today is Kinder Morgan. that is the best performing stock in the energy sector. They reported earnings which were largely in line with street forecasts.

Revenue missed a little bit. They also increased their buyback program from $2 billion to $3 billion and announced a new CEO. And they pointed to LNG as a key growth area. You know, the U.S. is in some ways coming to the rescue of the rest of the world. And so they are poised to take advantage of that market, which they see doubling in coming years. Pippa, I'm looking at solar stocks here just getting really crushed today. Can you pinpoint a catalyst? Yeah, so the TAN fund down 4%.

And it is true that these stocks always move in excess of the broader market. So if the S&P is down, these stocks will be down even more. But if we look on a more granular basis, it is the Rezi home installers. So Sanova, Sunpower, and Sun Run are down really, really sharply. And one person I spoke to said that this comes down to consumer weakness. We heard from Procter & Gamble today that consumers are cutting back. And so this could be around fears that, you know, if people are raining and their spending, then maybe solar panels will be one thing they decide, you know, not right now.

They'll postpone that or the generator or whatever it is that they would do it. Pippa, thanks. Pippa Stevens. First now, let's go to Bob Pizani at the New York Stock Exchange. As stocks once again are in the red, the industrials off about 100 points. Bob. And we are starting to actually move towards the green. The low point of the day was just prior to 1 o'clock Eastern time, and that's just about what Lail Brainer started speaking. And there was nothing particularly bearish, or at least that we hadn't heard before, in her speech. And stocks started lifting very soon after that. If you take a look at the risk on, risk off sectors, well, the semiconductors have been a tough time throughout the day, but they moved

pretty well to the positive side in the last couple of weeks. Industrials, another group that was near 52-week high, has been down all day, but also starting to rise. And the banks, three days in a row to the downside, more defensive sectors like health care and utility, have generally outperformed. If you wanted one sector that's really the big story of the day, it's all of the credit cards. We had Discover out with earnings after the bell yesterday, and there was net chargeoffs were a little higher than anticipated. We have seen this before with the banks, so this is adding to concerns the consumer might be slowing down. Amex has been a drag on the Dow all throughout the day, synchrony, Capital One, also to the downside. Finally, just on the

S&P 500, again, we started lifting in the middle of the day after Brainer finished talking and still a lot of resistance around the 4,000 level. That's about 17 and a half times forward earnings. That's a little bit rich now for a market. And remember, Contested, to argue that we should have a somewhat higher multiple going into a potential recession, well, that's a tough argument to make. And frankly, it looks like a lot of people are having a hard time swallowing that idea. Contessa, back to you. Bob, thank you for that. Well, as we were just talking about here, you've got the Dow falling for a second straight day, nearly erasing all of this month's gains as Wall Street worries that the Fed will over-tighten

despite signs of slowing inflation. And we heard that Brainerd was talking about that slowing inflation coming down, but that it needs to be more. Our next guest is seeing potential for a rotation back to high-quality, reasonable growth stocks. Let's bring in Marianne-Maintain, Portfolio Manager with Gradient Investments. It's great to see you. This seems like a no-brainer to say, Hey, you want high-quality growth stocks at this point. But what are you looking for?

What are the characteristics that you're looking for when you're suggesting that, Marianne? Well, some of the things we're looking for is the ability to meet or exceed earnings expectations and grow backlogs faster than the overall market indicating they're taking share. And one of the companies that personifies that is Service Now. They have been doing just that beating on quarterly results, beating on their, orders or backlogs. They have controlled expenses better than most in their sector. And also, they have taken market shares because their customers look to consolidate the number of vendors they're using. Service now is a beneficiary. When you're looking, we're looking at Procter and Gamble,

and there's been a lot of talk about this today, 160 point basis point hit to operating margins, despite the restructuring that had provided some tailwinds. Does that indicate to you that there will be other consumer companies to get hit down the road this earning season? Well, what it indicates to me, first of all, is that they're taking a lot of pricing, in their case, 10%, which hits their volumes by about 6%. And as their commodity pressures roll off, we would expect that trend to reverse. And they, in fact, raise their numbers for the full year, which ends in June, to say that they're now going to be flattish. They had expected volumes to be down in. as much as 3% for the full year. But it looks like they're on an improving trend if they could

have that kind of confidence in their June numbers. Talk to us a little bit about Amazon. You have a hunch, I would put it, about a possible transformational change there. Explain. Yeah, well, the chairman, Jeff Bezos, is sitting at his board meetings and he's got to be truly frustrated with what's going on with the market capitalization. And some of the, I call them, ancillary businesses. AWS is doing very well. It's probably, in my thinking, going to go back into the hands of Mr. Jazzy and just kind of stay there while Bezos comes back and runs the rest of the companies.

It's a maneuver that's worked very well for Starbucks in the past. In the case of Disney, they brought back the chairman recently. I can't say it's been great for shareholders, but it certainly stopped the hemorrhaging and the stock price of Disney. We just heard from Mike Santoli, sort of a rundown on the day and the declines that we've seen now for the second day in a row, Marianne. And he says, without the absence of a catalyst, it looks like, you know, we may see the hedging and hemming and hawing in the markets right now. What do you think comes down the pike in the near term? Well, I think we're just right smack in the face of earning season right now.

And I think it's going to be an unusual management team that guides – revenues and earnings up versus expectations for the year. So I think with that Darth of positive news, the market will probably languish in here for a bit. Great opportunity to buy some of those large-cap, solid quality growth names, and not all growth names, but the ones that are reasonably priced and a lot of value stocks. So I just expect the market to languish in here for a while and just kind of bounce along in the range it's been in since the start of the year, providing some good buying opportunities. Marianne Muntane of gradient investments.

Marianne, thank you. Thank you, Contessa. All right. Still to come, a death ceiling showdown brewing in D.C. Would a shutdown further weaken the country's already shaky economic backdrop? That is in meaning a government shutdown. And as we head to break, check out some of the big laggards in the semi-space, Wolfspeed leading the way up 6%. No, it's down 3%. We'll be right back. We'll get it right.

Time for today's three-stock lunch and we're taking a look at some movers here. Allstate down 7% today anticipating and pre-announcing in fact a fourth quarter net loss of nearly $400 million. Sun Run leading the solar decline down nearly 10% today. And Comerica shares up 6% beating earnings estimates for the fourth quarter. Let's bring in Victoria Green. She's CIO of G-squared private wealth and a CNBC contributor. Boy, we don't see moves like this in insurance very often, but it was travelers before. Now, Allstate down almost 7% on the day. What do you make of it? They just weren't ready for the mayhem. That was Winterstorm Elliott. You know, that's their slogan, and they just, they weren't. They weren't prepared for mayhem that happened.

It was a surprising swing to losses. They also are struggling with their auto loan underwriting. They cannot make that profitable. They're going to try. They've gone back to hike rates again, but behind the curve, auto loan underwriting was bad. They had like $77 million in catastrophe losses well above what was expected. They just weren't ready for it, and they need their auto loans to perform better. I think they're in a downside right now, and it's not a buy for me. I think you need to stay clear for now. I will also point out they've had, they've gone to the state regulators. They've asked for rate changes. On average, it's 11 percent. Wells Fargo's analyst says, That's not enough.

And their claim severity and frequency is still very high. How'd they get it so wrong? How'd they get it so wrong? I think they were just mispricing it. And I think their underwriting needs to re-look at their algorithms and how they're doing it and figure out how they're mispricing these loans so badly. They have states they're well over 100% in what they're losing. And they need to reprice.

They need to do it aggressively. 11% wasn't enough. But you also have this kind of double-edged sword that they may end up having to lose customers if they hike too aggressively. and somebody else can swoop in. So it's kind of a lose-lose for them, and it's surprising analysts how poorly auto loans are going. Just to pile on them, just for the record.

I'm tired of the mayhem ads. Let's move on to Sun Run, shall we? What do you think there? It's not a buy for me right now. I think they're fighting rising rates, rising costs. If you look at what they were getting on their advance, it's now 75, 85%, it used to be 95, 100% on their advances. And they're just struggling with the rising rates,

rising cost of capital. as well as it's not just sun run under pressure today. It's all of solar. It's very difficult to sell expensive solar, which we're looking at a recession and people are starting to pinch pennies and not looking to make a major change to their home. They're very, very exposed, almost 100% residential solar. And so I think they just may struggle to keep up the sales, as well as they're seeing these rising costs of capital bite into their margins. So they're kind of lose-lose on both ends. If they see a slowdown in sales, they also may struggle to cross-sell. They want to sell their batteries and inverters and really kind of get the whole home solar. are going. And I think that's difficult in a recessionary environment when the consumer is squeezed. And with the rates going higher and with what Bernard said today, I think people are looking at the

solar sector specifically sunrun with this residential exposure and saying, not right now. I think you could see this retest down to the 19 and a half, 20 level. I think it's just hard for them to make money in a rising rate environment. All right. Our final name today is Comerica. We got a beat on earnings here, which really stands out among the banks. Yeah, it was fantastic. Their net interest income actually outpaced their costs. They're one of the only financials. That's why you're seeing the nice rise today in the stock price. I think the stock has finally bottomed out. I think it's got room to run. You know, it's down about 36% over the year. If you look at it, we could see it retesting kind of the 75, 77 level. Their net interest income is expected to grow 17 to 20%. They've done a good job also increasing revenues from other fees. So it's not just the interest income. And they've got a quality portfolio. Their loan loss provisions, yes, it climbed slightly, but that's done a good job. That's, I think, them being prudent. They only have less than a half a percent of loan losses.

And they're trading it at an 83 PE with a 386 dividend. It is a solid quality stock, and it's executing very well. And it should stand out that while other financials struggled and saw that their profit got eaten into by rising costs, if America managed their rising costs very, very well, as well as expanding their loans and minimizing the loss of deposits. Victoria Green, good to talk to you. Thank you for your insight. Happy to bring some mayhem. Coming up, the looming debt ceiling showdown and its potential ripple effects in the markets.

Power Lunch, back right after this. All right, welcome back to Power Lunch. The U.S. set to hit its debt limit today, raising the risk of the government defaulting eventually on its obligations. And this is forcing the Treasury Department to take extraordinary measures to keep paying the bills while Congress tries to hammer out a deal on raising the $31.4 trillion debt ceiling. Our next guest says prepare for a bumpy ride. Joining us now is Wells Fargo economist Mike Puglesi. Mike, welcome.

Good to have you with us. I'm going to start with a somewhat inside out question. I've read a lot of stuff about this, and there are a lot of people. Let me just label them the hysterics who say that if the U.S. defaults on its debt, even a little bit, even for a day, that, to use the All-State commercial, mayhem will happen in all the markets, the world over. Do we know that? Yeah, well, thanks for having me on, Tyler. And I think what I would say is we don't know it for sure,

but to some extent I think that's where some of the fear comes from. It's fear of the unknown. We've had a lot of close brushes with default, right? 2011, I think being one of the more recent and more serious examples, but it's never happened before. What I can say, though, is it's certainly understandable from where all the fear comes from. The U.S. Treasury security market is the biggest and deepest

and most liquid bond market in the world. It's the oil and the lubricant that, really keeps the financial system going and running. It's a major source of liquidity for financial institutions, pension funds, corporations, obviously money market funds run into the trillions and are a major source of cash for a lot of individuals, companies, state and local governments. And so you sort of start to step back and you ask yourself, if that did come to pieces, what would it mean for financial markets in the economy? I think it's really hard to make a case that it would be a good thing. You know, it's interesting because I feel like for most of my adult career,

debt ceiling limits that come into play, and the fact that Congress keeps having to come to the table and can you use it to extract a promise to cut spending, which is right now what a core group of Republicans in the House is trying to do? I'm just curious, what would happen if there were no longer a debt ceiling? What if we could just borrow whatever we need to borrow for that year? What happens? Yeah, I think what would happen is these fights would go away. You know, when I think about what the debt limit is, it's just a legal limit on how much money the government can borrow. It doesn't have a whole lot to do with authorizing new spending. When I think about why the government spends what it does, whether it's Social Security or defense spending or Medicare or all the various

things the federal government spend money on, that comes from previous laws, maybe passed recently, you know, maybe as big as, you know, as recent as the omnibus bill from December, or maybe passed decades and decades ago. But ultimately, that's what's authorizing this spending, and the debt limit is just putting a ceiling on how much borrowing can be done. Are you as- And because the government needs to obligate those previous, yeah, go ahead. Well, Mike, I'm just curious, are you as concerned with the national debt? I mean, if we're at $34 trillion, is that to you a real risk to our future as a nation?

Yeah, I think it's a risk. I think of it more as termites in the foundation than I do a wolf at the door. I don't think it's something that's going to cause a crisis today, but it's really hard to know exactly how much, you know, how much debt is too much debt when it comes to, you know, GDP as a share of total debt, it's around 100% or so. That's the biggest it's been since World War II. And I do think that's a concern, but it's the kind of thing that just, you know, we don't know when it will become a major problem.

It may not be today. It might be down the road, but it definitely does concern me. How concerned are you that there really may be this catastrophic moment that will come sometime between June and August of this year, by most forecasts, when the ability of the Treasury to do sort of clujy fixes to this run out and and that the moment comes where a bond is defaulted upon. What will the ripple effects be? And what are the odds of that happening?

It would seem to me that you may have a very strong political presence on the right wing of the Republican Party that wants concessions in return for raising the debt limit. But there may be many more moderate Republicans who really think. that that would be a bad idea to go into default. Yeah, so the way I think about this is I think the odds are elevated relative to some of these past fights, whether it was one the year ago or, you know, the one we had right before the pandemic in 2019. And I think the odds are elevated for a few reasons. One, the makeup of Congress right now looks a lot like the makeup back when we had more close brushes with default

in the past, like 2011, like 2013. In terms of what it would look like, you know, if we do get to that point where, you know, I think the true default date is probably around early August or so. That's the thing. No one knows. I mean, even if the Treasury was able to prioritize payments on principle and on interest, someone is still going to get shortchanged somewhere, whether it's Social Security beneficiaries, Medicare benefits, military pay, other non-defense sectors. And we just don't know what that would look like. How would it be prioritized? How long could that last? And I think that's where a lot of that fear comes from. And when you have such small majorities in the House and in the Senate and the two sides are so far apart. They can't even agree to negotiate at this point. It's

certainly something that caused a lot of trouble for me, particularly when we're already talking about recessionary risk later this year, even beyond the debt ceiling. Mike, thanks very much. Mike Bouglisi with Wells Fargo. And Amazon wiping that smile off its face, the company discontinuing its charity service that you may know about, but while it may help with finances, could it do lasting damage to the brand and its image? That's next. Welcome back to Power. everybody. Amazon discontinuing its charity donation program called Amazon Smile amid a sweeping review of the company's costs. Here to discuss is CNBC.com technology reporter Annie Palmer. And back again is Michael Pactor analyst at Wedbush. Annie, let me ask you how this program worked and how widely used it is and by whom?

Yeah. So through this program, Amazon would donate a portion of prime members purchases to a charity of their choice. And it was launched back in 2013, and over that time, Amazon says close to half a billion dollars was actually donated to charities worldwide. What percentage? Is there a percentage amount? Like in other words, if I spend $100 on Prime, is it 2% of my expenditure that goes to the charity? What is it? Yeah, so it was a little less than that. It was about half percent of purchases. And I think it would vary depending on the purchase, but most of the time it's about half. So Michael, Amazon wants to curb this. Are they being penny wise and pound foolish? Yeah, it's peanuts. And I think what this is telling you is that Andy Jassy is at his fire phone moment where he's got to make a decision about continuing to do stupid things at the expense of shareholders. And he's grasping at straws because I think he genuinely doesn't want to lay off

any more people. So, you know, Amazon has about the worst HR department I've ever seen. I mean, they have no clue what they're doing. They don't pay their people nothing in cash. and they pay them way too much in stock. So when the stock price goes down, employees get upset and they start to leave. And he's seeing people heading for the exits. He's trying to shore up the share price. He just picked the wrong thing to cut. Cutting a half a billion dollars over the last 10 years?

Who cares? I mean, it's peanuts. I know. Wait, wait, but Michael, this is a company that is notoriously conscious about costs and rains in what the travel expenses are. for their investor relations. And, you know, you had Jeff Bezos driving an old beater around because he's cost conscious.

So half a billion dollars, while it may be trump change in the bigger picture, if you're worried about whether your people are taking black car Ubers or UberX, don't you think that makes sense to do that rather than cut more jobs? He has 300,000 corporate employees. And that means people who don't work in fulfillment centers. That's too high by 200,000. I mean, it's a crazy number. And I defy you to find a company as 300,000 people, you know, who work in offices.

That is just crazy talk. And it's because nobody in Amazon talks to anybody else at Amazon. It's a bunch of walled garden silos. And it's just not an efficiently run organization. He's got tons of room to cut people. And he's also got a bunch of skunk works projects. I mean, they cut the Alexa Division finally because there's no business model there. they could cut on Amazon Prime Video.

Do you know that free-Vee and Prime Video people don't work together, don't talk to one another? That's crazy. I assume they expected Alexa to be a selling device, in other words, that I was going to place orders on Alexa. I got multiple Alexas. I've never bought anything on any quickly. We heard from a guest earlier today who hazarded a guess that Bezos may come back as CEO. Are you hearing that? So far, no, I'm not hearing that.

I think the, Jassy still has some time to show that he can take the company in the next direction it needs to go. And I don't think folks are clamoring for Bezos to come back yet. Andy, thank you for that. Michael, thank you for joining us again. Appreciate that. Michael always speaks his mind, man. Love it. Thanks for watching Power Lunch, everybody.