Power Lunch - Power Lunch 11/4/22

Episode Date: November 4, 2022

CNBC’s Tyler Mathisen, Melissa Lee and Kelly Evans take you through the heart of the business day bringing you the latest developments and instant analysis on the stocks and stories driving the day���s agenda. “Power Lunch” delves into the economy, markets, politics, real estate, media, technology and more. The show sits at the intersection of power and money. “Power Lunch” gives viewers a full plate of CNBC’s award-winning business news coverage, plus a healthy dose of personality from the show’s anchors and the network’s top-notch roster of reporters and digital journalists. Hosted by Simplecast, an AdsWizz company. See https://pcm.adswizz.com for information about our collection and use of personal data for advertising.

Welcome, Brian. Welcome viewers to Power Lunch. I'm Contessa Brewer. Here's what's ahead. As the Fed hikes, rates, and yields continue to soar. Tech has taken a real beating this week. But one market watcher says there's some big opportunities in this sector if you know where to look. And bullfight. Two analysts valid out over the best semi-stock to own following a wild earning season for that group. We're going to get into that, Brian. All right. Thank you very much. Contessa, as far as the markets go as well. It's a volatile session for stocks today as we. We were up big in the morning. We're up 600 points of the Dow, then we went negative. Given all that gains right now, we're sort of in the middle, I guess. The Dow is up four points. The NASDAQ and the S&P are down, by the way. The move lower in stocks corresponding with a move higher and two-year yields.

If you want to believe that, two-year yield hitting the highest levels 2007, or maybe there's more sellers than buyers. Shares of block, by the way, are surging, not H&R block, but the company formerly known as Square, beating on the top and bottom line, subscription-based revenue and transaction revenue both rows. On the flip side, Twilio, absolutely just crushed after reporting a big quarterly loss, giving a weak sales forecast. And he pos a day for the semi-sector with all three semi-sector ETFs, he said by the seashore

with seashells, Contessa, moving higher by more than 2%. And stocks on pace for weekly losses on continued fears of rising rates. The tech space really feeling the most pain here. the S&P tech index down six and a half percent, multiple big cap tech stocks at multi-year lows, including Amazon, Microsoft, meta. Still, our next guest sees some opportunities in big tech, but he cautions against companies in transition. Let's bring in Michael Yoshikami, founder and CEO with Destination Wealth Management. Michael, good to see you.

Can you first of all give me some details about what you mean by companies in transition? Well, look, for example, what's happening with Twitter, for example, the transition that they're in right now, we don't really know exactly what that's going to look like. But clearly there's going to be a change in their business model. Look at a company like Meta, who was Facebook or is Facebook, but now is moving towards this sort of virtual thing. So I think companies, like, say, on Netflix, you're uncertain what this new rate plan is going to look like, I think that you're going to see. I think that you're going to see challenges for companies where investors don't have more certainty about what their business plan is and what their profitability will be. I think cash flow is really going to matter, especially if we go into a recession. Do you think that what we've seen, say,

for instance, on the jobs front with more jobs added than expected, the unemployment rate rising a bit. I know we're looking forward next week to consumer price index and what sentiment looks like moving forward. Do you think any of that matters to your thesis about opportunities and technology? No, I don't because I think if you're buying technology, depending on which technology you buy, you're basically in it for the long term and you're getting really an opportunity that has not been available to investors of quite some time based on the market rally. So I think that what's happening with the jobs report was kind of a, I guess it was kind of good news in terms of the unemployment rate clicking up a little bit. That'll certainly here in Silicon

Valley, you're seeing lots and lots of layoffs right now. But, you know, everything is really going to come down to whether or not we go into a recession next year, which I think we will. And in that case, you want to be in companies that are pretty strong and pretty balance sheet friendly. Including from Amazon, we just heard that concerning its corporate workforce. But you say Amazon is one of the companies, along with Disney and Apple, you think, that investors should consider buying? Why? Well, investors should look out on their doorstep right now and see if there's a package. I mean, that's how much people use Amazon as sort of a regular, sort of a regular weekly visit for people oftentimes. A company like Disney is not getting,

I think, the credit they deserve for what's happening in theme parks. They're constantly sold out. Yes, I know they have challenges at ESPN, but I think they'll resolve those challenges. And then Apple it's just a cash flow machine. There's a reason why it's Warren Buffett's largest position. We're a believer in that position, and we think they're going to continue to grow up the services space. And I think, hey, Michael, it's Brian. There's something important here, I think, from just a macro lesson perspective that maybe you could help our audience that we've got a lot of viewers and investors that have only been in the markets last couple of years. They've mostly only known good times. They hear recession. It sounds scary. But history also says that sometimes recessions,

can be the best time to buy stocks for the long term. Yeah, in fact, if you think about what's happening right now, Brian, I think the market is down because people think there is a recession now or will be in the near future. So I think that when you have down opportunities in the market and a recession or expectation of recession certainly does that, I think it's a great opportunity for investors to cherry pick and be selective, go slow, don't put everything into,

in portfolios in one day. But I think it's time to sort of drip into these sort of names as long as you're a long-term investor. Michael Yoshikami, real pleasure. Thank you. Good, good long-term macro lessons. I think they would say sometimes, Contessa, it's always darkest just before the dawn. They would say that. I don't know who they are, but they said that. All right. Those people in the back room. Those people. We want to pivot to the housing market now. Conditions, they're rapidly changing. Now, a few months ago, you couldn't find a home to And if you found one, basically you had to buy it for cash or bid up other people, 100 people at line for an open house, whatever. Now supply is growing at the fastest pace ever. And here's what

the CEO of TriPoint Holmes said earlier today right here on CNBC. Consumers on the sidelines. On one hand, they see and hear the headlines about rates going up. On the other hand, where are price is going to go? And we reported, orders down 50% year over year. Generally, the whole industry is selling at half of what it should be selling. All right, Diana Oleg joining us now with a lot more. Diana, talk to us about supply. We start to see a pop in available homes for sale. We absolutely are, Brian. Supply is still below pre-pandemic levels, but that is changing rapidly. The number of active listings jump 33 and a half percent in October from the year before, hitting the highest level in two years, and that's according

to Realtor.com. This even as new listings dropped almost 16 percent and pending listings dropped 30 percent. Well, why? Well, it's not a rush from sellers. More like homes are now taking longer on average to sell than last October, almost a week longer, and that is leading to price drops by sellers. 20 percent of all listings have now had a price cut, double the share from a year ago. And of course, all real estate is local. So among the 50, largest markets, 42 saw inventory rise. Phoenix, the most up 174% from a year ago. Raleigh and Nashville also saw triple-digit gains. Listings were still down in Hartford, Connecticut, Milwaukee, and Chicago. All of this, of course, because of rising mortgage rates,

which rose again this week, now at 7.29 percent, according to Mortgage News Daily. The increase since January has added almost $1,000 to the monthly payment on the median price home. And given the latest Fed commentary, it is unlikely mortgage rates will move higher significantly anytime soon. And $1,000 can really make a difference in what people are able to afford in terms of monthly payment. I wanted to ask you about Open Door because that company, Diana, is taking a huge write down on the value of its inventory. Can you tell me more about it? Yeah, Contessa, it's all part of this very swift slowdown in housing demand. Open Door is an eye buyer.

That's a company that will offer you cash for your home. you don't have to list it. They then rehab and sell the homes usually at a profit, but given the market turn now, Open Door is selling homes at a loss. It just reported a wider than expected third quarter loss and wrote down the value of its inventory of homes by $573 million. In a letter to shareholders, CEO Eric Wu wrote, navigating a once in 40 years market transition has been anything but easy. It has required us to operate with urgency and discipline to manage risk and overall inventory health at the expense of margins. Open Door purchased 45% fewer homes in Q3 compared with the year before. It also ended the quarter with 64% fewer homes under contract to sell and reported

laying off 18% of its workforce. It is now offering a new service where sellers can list their homes directly on Open Door site to see if they can get a better offer. Of course, Open Door will still take a fee. Back to you guys. All right, Diana, thank you for that. All right. So what does Open Door's warnings say about the prospect of all these online real estate companies going forward as rates may be rise or even rise even higher. Nick Jones, the equity research analyst, the JMP securities. Let's talk about outperform by the way, or Open Door, I should say, by the way, because Open Door stock, Nick, is gone from 39 to 2. At this point, what do we do? Yeah, so, you know, Open Door is exposed to the broader housing market. It's very cyclical.

We're late in the cycle. Rates are going up. Home sellers are looking at neighbors who sold their houses for all-time highs as home prices rapidly went up. And a lot of online real estate platforms benefited from this, right? So you had agents making more money. So they had more money to spend on advertising. You saw that benefited Zillow. Home prices were going up. That benefited the eye.

Oh, got to mute there. Those things are starting to come back down and we're seeing rapid month-over-month declines. And it becomes pretty difficult to project. and estimate what a, you know, reasonable fee is if you're seeing, you know, 7% decline since June and median home prices. When typically, you know, you see two Q and three Q increase, four Q declines, one Q declined. Yeah.

Nick, I got to just, let me just, let me just, let me just, hold on. Nick, I got to just jump in, by the way. Thank you for, when it went to mute, I thought, oh gosh, contesta. Do you hear that? Because I didn't hear anything. I thought it was just me. All right. The stock's down 95%.

So do you buy it and just say, I'm going to roll the dice. it's either going to go up or it's going to go away, right? I mean, at some point, housing will turn around. I can get it for two bucks if it can survive. Yeah, so that's the question. We think they have enough cash to navigate the near-term headwinds, and that's really the crux of the question here. Do they have enough cash to manage through near-term headwinds?

We think they do. So what does that mean? Well, when we kind of figure out where rates are going to plateau and potentially start pulling back, which I think some are projecting for the back half the next year, that should kind of help normalize the real estate market. It should make home prices a little bit more predictable. That should make the eye buyer platforms more manageable.

So near term, it's no doubt a challenging setup. I think even medium term, there could be some significant upside to shares and even multiple expansion as liquidity fears start to reduce. Nick, let me just ask you, because we're showing Zillow down right now, too, and I know that's a stock you cover. What are your thoughts there? Yeah, Zillow is a category winner. for lead gen, you know, they're kind of cleanly exposed to agent budget for ad spend. So

volumes are down and prices are coming down, agents are going to have less money. So they're more mature. They're in a bit of an innovation cycle to kind of find a new, you know, new legs of growth here over the next few years. You know, they're going to be exposed to the same headwinds, but they're more mature. So within the category, we really like the eye buyers. It's hyper-fragmented. Yes, it's very a tough setup into the first half of next year. But, longer term, there's massive upside for these stocks. Nick Jones with JMP securities. Thank you.

Can't be much more downside. I mean, you go down 95%. You go down 100%. I mean, that's, it's, the stock's down 95%. Well, sometimes... 95%. So to your point, does it just go away? Or is this an amazing bar?

I mean, sometimes when you go shopping for a bargain, you find one. And then it turns out that it's a gem. So that's, I mean, I think that's his argument that it is. We'll see. I've been doing this 24. You haven't seen it yet, but I'm still waiting. You never know. Coming up.

It happened. Not all chip stocks are created equal, so we're putting them head to head in our bullfight. One analyst makes the case for Nvidia and one for AMD. Plus payments, pumpkin lattes and playing your odds. We've got the trade on the three biggest movers, square Starbucks, and look at Draft Kings, just having an abysmal day. What's going on? That's your company.

I got it all for you still ahead. Here's a look at some stocks hitting all-time highs. Energy Patch, EOG, Chevron, Exxon, and Diamondback Energy. Welcome back to Power Lunch. Time now for a semi-showdown. Now, most of these big chip names already have reported Q3 earnings, and they're writing out a pretty tough year for the sector. Both AMD and NVIDIA are down more than 50% in 2022. Is there any opportunity in either stock? Here with the bull case for AMD is Harsh Kumar, senior research analyst at Piper Sandler, and in the NVIDIA camp is Chris Rowland, senior

analyst at Susquehanna Financial Group. It's great to see both of you today. All right, I want to start with AMD. Hars, give me a sense here of where you think there's upside with this semi-manufacturer. Okay, so thanks, Contesta, for having us on your show. When you ask us to choose between AMD and NVIDIA, it's literally two of the best semiconductor stock. So they're on losers here. I want to start off with that. Okay. We like AMD for several reasons. First, the near term is de-risk because they literally just reported earlier this week.

The PC segment, which is the problem child here, should be flushed or cleansed out by the end of the March quarter, or at least the bulk of it. Point number three, on the server side, they have two very powerful chips coming out in 2023, which is unprecedented in the industry by the same company. Genoa and Bergamo, both will be going

head-to-head simultaneously and taking share against Intel. And then Milan, previous year's chip, is also in the market, doing extremely well concurrently. And finally, the Zalings business, the what they call is embedded now is just a gem, solid business, very diverse, extremely profitable. You're getting this gem of a company for 13 and a half times normalized earnings and 3.3 times normalized price to sales for a 20% grower. I'm not sure how you can go wrong here. Okay. And so, harsh. On your note, I will just admit, yes, we've asked you not an open-ended question about the semiconductors, but what we've asked is an either or, which would you rather? Invida or AMD. On that point, Chris, you chose Nvidia. Tell me why that's your choice over AMD.

Yeah, as harsh was saying, we also like AMD, but we give the edge to Nvidia. And the reason being is we look for open-ended upside or asymmetrical upside, and we feel as though artificial intelligence is really the platform that we can kind of rely on here. So Cuda, which is Nvidia's operating system, essentially for artificial intelligence. It's the de facto standard out there. and we think the standard that really powers artificial intelligence for the remainder of the decade. Guys, I wanted to ask you about, and by the way, it's not that fun to call it a bull fight if you're not really fighting. It's bull.

Well, no, no, if two bulls are fighting. Right. Okay. No, you go first. No, you first. Well, I just want to ask about a couple of the other headwinds that are facing the whole group here. You've got the issue with clients getting too much inventory and sitting on all. this glut of chips that it seemed like last year at this time, we couldn't talk about them getting

enough, too, and then reducing the capital spending. We've heard it from Micron. We've heard it from Intel. We've heard it from Taiwan Semiconductor. Do these two companies, AMD and Invidia, are they facing harsh some of the same things? No, they're not. So they're facing definitely the consumer side weakness. There's no question about it. AMD is seeing that in its PC business, which I called out as a problem child. But they literally took the hatchet. to it in the last quarter with the pre-announcement, that business went from $2 billion a quarter to a billion a quarter. And it will run at that rate through the end of March, and then it will start to solidify and start to move upward in our view. As far as the capacity, they don't have a

problem. They go to TSMC. Everything has made at TSM for AMD, so that's not a concern whatsoever. All right. And Chris, what do you think is going to happen first half of 2023? We're talking about all these big macro headaches. What do you anticipate happens, not just for AMD and InVIDIA, but for the group as a whole? Yeah, we downgraded semis last year in spring, summer of 2021, primarily on multiples and on overordering of chips. We believe that a correction was coming. We now think we're two-thirds through that correction. So as we look out into next year, We think we could see a bottom in PC in Q4, Q1, a bottom in mobile, perhaps Q1. And we really are clearing the channel here for potential upside into the back half.

Harsh, Chris, you know, you guys, I came from regular cable news where we expected people to duke it out every day all the time. So this is just so symbiotic. Yes, it's so symbiotic. Thank you so much for joining us today. a great weekend. Sure. Have a great one. Thank you. All right. Maybe we will fight. Should companies be involved in politics at all? Mark Morial will join us with that discussion and debate. And here's a riddle for you, Contessa. Winner's stock market inflows actually outflows. I just made that up. The answer is ahead. Let's get to it. Our weekly ETF tracker. And this week we look at Chinese tech funds,

inflows of $176 million in the past week. The big gains in these stocks coming after some long declines. So a bounce back may seem natural, but also there are reports Chinese banks were ordered to buy stock to prop them up. China's COVID policy is also a huge factor here. And word those restrictions may be loosened. That sent the one sharply higher against the dollar today. And you can see huge gains this week, 18% for crane shares.

China Internet, MSCI, China Consumer Discretionary, up 16%. And this last one, EMQQ, the market's Internet fund, is more than 50% Chinese holdings. This data comes from our partners at Track Insight. More information available on the FT-Wilster ETF hub. Let's get to Kate Rooney now for the CNBC News Update. Hi, Kate. Hi, Contessa. Here's what's happening at this hour.

The FBI said it has identified a New Jersey man who had been making online threats against synagogues. Officials say they don't think he was planning to carry out a specific plot and then he no longer poses a threat or a danger to the community. United Nations Secretary General Gutierrez is condemning North Korea for its recent missile launches. Gutierrez also urged North Korea to resume talks aimed at making the Korean peninsula free of nuclear weapons. And a debate in France's lower House of Parliament grinding to a halt after a far-right lawmaker was heard shouting, go back to Africa while a black colleague was speaking. Proceedings were suspended for the day and the far right lawmaker has been temporarily banned and docked

a month's pay. His party is protesting the penalties and disputing what was actually said. Back to you. Oh, Kate Rooney, Kate, thank you very much. All right, coming up here on power lunch, corporate America has spent billions on causes and candidates of the midterm elections. But should companies be involved in politics at all? Tessa. And could tutoring be the best tool for fighting the massive learning loss suffered by kids during COVID? What if that tutoring was free? We'll talk to paper about its quest to improve the U.S. school system, one homework question at a time. We'll be right back. All right. Welcome back and happy Friday, by the way, everybody. 90 minutes left in the trading week. And we're going to get you caught up on the markets, stocks, bonds, and commodities, and also the intersection of politics and money, which sometimes there's wrecks.

Let's begin with Bob Pisani as the markets are closing with a week with a pretty strong rally. We'll see, Bob, if it can roll on. Well, it was a lot stronger earlier. I mean, our high print was essentially right at the open. And I have to say the action is not terribly helpful for tech stocks. The big story this week, Brian, is the market is essentially re-rating 2023 earnings estimates on really big cap names. This has just been a horrendous week for big-cap techs. Every one of these stocks here that you're looking at is down about 10% this week.

It's hard to believe. And look, today down four straight days and you can't really get much of a rally. Now, there's a modest rally in semiconductor stocks today, pretty modest given the declines that we've seen. I don't see this as any evidence that somehow people are going in buying big cap tech stocks at this point. Look at the XLK. This is the S&P technology sector down 9% this week. That is a big move. we're essentially at 52 week lows are maybe 1% away from that. Let's not quibble.

It's just been horrendous as the market now is finally doing what they did with Kathy Woodstock, taking down earnings growth estimates for 2023 for the big names. I've been asked a lot about why the VIX is down. So the S&P's down maybe, what, 5% for the week? Normally you think the VIX would go up, more panic. But actually, the VIX has been down about 3% this week. It's been down all month. And the reason this happens, Brian, is they, The VIX estimates what volatility is going to be like 30 days out.

The two big events are already pretty well known. Number one is the Fed meeting, which happened this week. And number two, the elections that are on Tuesday, everybody seems to believe that the House of Representatives will at least there flip to the Republicans. That means a little bit of policy gridlock. So there's a little less concerned about the two big events. One of them's already happened. The other is the election.

And remember, the next Fed meeting, Brian, is December 14th. That is less than one, that is a little more than one month away. So Vix is not terribly worried about the near-term outlook right now. Well, speaking of the Fed, Bob, I got to apologize because when I pulled to J. Powell, when I said strong rally, what I meant was everything's terrible. But, you know, that's how it works. Bob, have a good weekend. It's the bizarro world.

Everything I say, just do the opposite. All right, now to the bond market, the two-year yield hitting a 15-year high today, San Telly, Rick, tracking action, mercantile exchange of Chicago. Rick. Yes, and Sully, that short maturity two-year is the only maturity that really made a new cycle high yield closed this week.

As a matter of fact, if you look at a week to date of two-year, a couple of things should jump out at you. Right now, twos through seven, so two, three, five-severs are all higher price, lower yield than yesterday. Okay? The rest of the curve is still slightly higher in yield. And having said that, At 466, we're down a half a dozen basis points on the day, but we're still up 24 basis points on the week.

Look at a one month 10. As you see, there, we didn't quite make a new high closing yield for this cycle. However, at 416, its current trade, it's up one basis point on the day, up 14 on the week. It's those weekly numbers that I'm sure the NASDAQ's paying close attention to. Now, if we look at what is going on with the recession spread, here's two weeks of three months. to tens. It flipped positive yesterday, Thursday, after six continuous sessions being

inverted, I'm sure that when we get some Tee bill auctions next week, the tens will finish its outrunning of three-month bills, and you'll probably see inversion again. Hey, it's been all about the yuan today, whether onshore or offshore. Now, here's a one-month chart of the dollar versus

onshore. It's up a historic 1.6, 1.7%. The offshore one is up closer to 2%. These are big days, and maybe it's optimism about the reopening, but kind of been there, done that before, we'll have to see. And finally, the dollar index. God, it's clock clean today. Yet, it's still up just a smidge as you see on this week-to-date chart on the week.

And you want to watch that dollar index if you're trading stocks. When the dollar goes down, stocks have a propensity go a bit higher, although Bob's right. It seemed like that dynamic ran out the first hour of trade. Sully, back to you and have a great weekend. You too, Rick. Thank you very much, too. Appreciate that. All right. I want everyone to have a good weekend, and I don't want everybody to be mad at me, but I'm going to say this. The price of gasoline is probably going back up again. I know. We're just the messengers here because the price of crude oil

soaring lately. Price of crude oil is up four and a half bucks. It is not only back above 90, it's back above 92. Contessa, Tessa, as I call her, Brewer. As she mentioned earlier, COVID-China loosening its COVID lockdown policy. Hopefully, if that's the case, that is likely going to be a big boost for oil demand globally. U.S. producers are trying to respond to the White House's call for more fossil fuel production, but with shortages of labor and steel and even things like frack sand, we are increasing production, but maybe not as fast as the White House would hope, certainly White House calling for more fossil fuel production, news to, you know, good news to the ears of the industry, but just not able to respond maybe fast enough as demand is going.

All right. From Wall Street to Washington, we are just four days away from the midterm elections, and certainly a lot is at stake. A lot is at stake also for business. In fact, business has spent more and more time and money intertwined with politics, not only this year, but in the last few years. So we're asking, is it in any company's best interest to be involved in politics at any level. Mark Morial is the former mayor of New Orleans, the president and CEO of the National Urban League. And Mark, I'm all the one of to remember the Citizens United decision of what, 12 years ago, whatever it was, and everybody was screaming that basically now big business is going to be able to buy elections. Effectively, big business is getting more involved in

politics, money, messaging, whatever, should they be? it's being demanded by their customers, their employees, and in some respects by their investors who want business to stand for something. Some of these issues may be defined as political, but some of them are more what I call values issues, the issue of the protection of democracy, the issue of a woman's right to control the destiny of our own body, the respect and tolerance, for people based on sexual orientation. While politics may be where there's a debate about these issues, I think many companies have to not only hear what politicians may be saying, but they've got to hear with their

own employees, with their customers, and what their investors are saying. And many times it's two different things. And I think what I see from younger workers, I see from the emerging generation, they want to work, they want to devote their talent to companies that respect and embrace. their values. That's a new reality for American business. It may be not the way it once was, but this is the here and this is the now. But does that, does that imply, though, Mark, that every employee has to then think the same way? See, what the country is split. Every employee does not. Well, the country is split down the middle, right? Pretty much 50-50-50. The country is not necessarily

split down the middle. Well, according to, according to Congress it is. It's the closest Congress we've ever had. I mean, it's 50. But don't look at the country through the lens of Congress. Look at the country to the length of people. Everyone does not wear the political orientation on their shoulder. Correct. And you have Republicans who want to protect democracy and the right to choose. You have Democrats who may be prolette. These issues don't lend themselves to that easy divide.

And that's the thing that sometimes Washington politicians do not understand. Everyone does not walk around in American neighborhoods with a red or blue jersey on. They're thinking about what they think is best. So my message to businesses hear and listen. And you're right. It's tricky. People do have differences of opinion. But some issues are issues.

I guess what I'm worried about is if, let's say you have a CEO who's a far right whack job, right? Okay, just or far left, whichever one it is. And you don't agree with the CEO's very vocal position on certain things, but they're your boss. So you're going to, that's going to be. sort of forcing you to keep quiet because you're not going to speak up. You're not going to have a bumper sticker with the alternate position on your car than your CEO. And I just wonder, and then maybe, okay, so everyone, then you quit because you don't want to do that. So the company all has group think because they're all thinking the same way because the CEO has basically intimidated

everybody into thinking the same thing. I think, Brian, that most CEOs I know wherever they fit on the economic spectrum or thinking first about what's in the best interest. of their business, and how does that align with the future of the nation? And I have talked to CEOs who struggle with these issues because they want to be, they want to do the right thing, not only for now, but I think for the future. And so it means you've got to listen to multiple stakeholders. Elected officials are one set of stakeholders, but you may be a business headquartered in Florida, but you may be a business headquartered in Florida whose employees are all over the globe, whose investors are all over the globe, whose customers are all over the

globe. So you've got to balance, whether you genuflect to the politicians, or whether you try to find the right balance in terms of all of the constituencies. And I know business leaders are struggling with this all the time. And I think my encouragement to all of them is to stand on principle and stand on values, and you will never go wrong. Mark, tell me how that applies to Elon Musk's takeover of Twitter. Now, I know you've written a letter that you want to have a meeting. What do you expect out of Musk's leadership at Twitter? I expect Elon Musk to do two things. Number one, respect content moderation, that he does not want to preside over a site that's polluted with hate, racism, racism, the kind of shenanigans and confusion that led to content moderation

policies. Secondly, while he's engaging in wholesale dismissal of employees, the challenge is for him to build a diverse workforce. So we'll challenge him to do that because what I've seen from Elon Musk is on one hand and on one day he says something. And on the other day, on the other hand, he may say something else. So he's got an opportunity. This is not Tesla. This is Twitter. You are part of the public square of America in the 21st century. And you don't want to associate your reputation and your brand with enabling and basically encouraging hate speech, hate talk, and mistrules and conspiracy theories. Because for him, the impact may not simply be on Twitter. It may be on his other businesses as well. I hope that if you get the meeting with him, Mark, you come back on with us and follow up and tell us how

that went. Mark, Morya. Have a great weekend. Nice to see you. Thanks, contestant. Coming up, working lunch with the CEO of billion-dollar education technology startup, paper. Why 24-7 on-demand online tutoring might just be the key to increasing equity and test scores in the classroom. I wonder what he's got to say about motivating kids to do the homework in the first place. Are you speaking to two kids out there? I mean, they better not be watching me right now.

That's right. Do your homework. In school. We'll be right back. As the economy. seeks to recover from the depths of COVID. Schools face a daunting problem. Student test scores in math and reading plummeted.

This week, John Ford brings us up close with a CEO whose software, potentially, John, I understand, could be part of the solution to helping the future labor force catch up. That's a huge challenge. Yeah, especially given the test scores that just came in. Philip Koppler is co-founder and CEO of Paper, a Montreal-based educational technology company. Paper's getting pretty big.

It's raised more than $350 million. dollars serves more than 2.5 million students. Cutler got his start as an educator. He started his first real business in college to help his fellow student teachers get the required instructional hours working as tutors. He found the students online and took a cut of the revenue. I figured out how to make a buck. I wanted to pay for my education, you know, and this ended up growing into a business that allowed me to sort of pay for a lot of the stuff I wanted to do in university and college. And so I ended up growing to being a relatively successful business. But again, we were servicing typically wealthier families, right, who were paying $50,

$60 an hour for private tutoring. And it was only once I was actually in the classroom as a teacher that I realized that those students were quite well serviced. There are so many choices available to them. And I was like, wait a second, we need to solve the other, you know, we need to solve for the other 80 to 90%. And now with paper, he's working to do that by, by you. using software at scale. School districts buy paper to give students additional help and give teachers insight so that they can target instruction. So how's all that affected by the economic slowdown?

Well, Cutler told me paper raised a lot of funding before capital dried up. And because his customers are mostly government, demand for him is more stable. The difference for us is that, you know, a lot of the other enterprise businesses are much more impacted by some of the global macroeconomic climate that impacts, you know, a lot of the international business. In our case, it's not so, it's not so clear that that's hitting schools the same way just because of the way that they're funded, they have several years of funding visibility. So it's not so much that they're seeing, you know, that spending is going to change. I think the prioritization is what's actually changing. They're still going to be making those same purchases.

it just may not be the same order of priority that was 18, 24 months ago. So a couple broader lessons for investors here. One, even in tough times, some companies are better capitalized, have flexibility. Two, some technology companies that have domestic government business might have more predictable revenue than others, especially if they're providing tools seen as essential. And I talked to the Secretary of Education, Miguel Cardona, just last week, about the nation's report card and those low scores.

And he said, well, technology's got to be employed to help catch up. One question. In the services, my kids have just recently left public school for private school. In public school, those sort of tutoring services that were provided to all kids were funded by the Parent Teacher Association. How is it that school districts can afford this kind of service if they don't have active, invested parent teacher associations to raise the money? Well, in the case of paper, you've got whole school districts, including L-A-U-S-D. which is like the second biggest in the country, investing in this, paying for this so that all students have access to it. So it's not a kind of per school access to software. It's district-wide. And then teachers ideally can be trained on it.

And they've got to show the outcomes. Well, I was going to ask, then what do the outcomes show? Like when you have it, does it show a trajectory where the students are making up lost time? It does do that. And it shows teachers in the out-of-class time where students are struggling, what they're taking more time on, what they might need to focus in more on. especially during COVID, you ended up with students, maybe who did a little better at home, who had more help, those that didn't. So now teachers have to differentiate instruction, which is really hard, even more than they did before. Yeah. John, thank you. Great. Great interview. All right. Coming up in three stock lunch, we're going to be trading some of the day's

biggest earnings announcements. Those are Starbucks. Those are. Block. And your company. It's not my company. I just got to, it's not my company. just cover it. But it's getting demolished on the markets today. We'll be back in two minutes. Easy for you to say. We'll be back. We'll be back. Time now for three-stock lunch. This is a fun one today. We're looking at post-earnings movers, Draft King, having its worst day ever. Not fun for their investors. Well, it posted a bigger than expected loss, that's for sure.

Starbucks higher after topping estimates and blocks surging on top and bottom-line beats. Let's trade them with CNBC contributor Boris Schlossberg. managing director of FX Strategy at BK Asset Management. Boris, good to see you. Draft Kings. I just want to say the one thing that really stood out to me is that the CEO and the management is not pivoting on a path to profitability. They say the fourth quarter of 2023 where their competitors, like Caesars and Penn,

are talking about whether they can be profitable in the fourth quarter of 2022, depending on what happens with Mattress Mac and his Astros bet. Would you bet on draft Kings? Look, the problem with the whole business is the United States, it's very much a piecemeal business, state-by-state approval of regulators. So it doesn't give you the economies of scale. Customer acquisition costs are very expensive in that business. So it's going to take a long time for them to really become profitable.

However, there's one lottery ticket here, which is that California is doing Prop 27. It's expected to lose. But if it actually passes, if online betting passes in California, that's a $2.5 billion business, this stock will pop on that news next week. So if you're a punter in sports, you maybe want to be a punter in this stock as well. I would bet that it does not pass, but I would also bet that the fight is not over. Can you bet that bet on draft kings? Not legally.

I don't think so. Not legally. All right, Boris. Next up is Starbucks. All right, taking aside that, you know, venty, 20-ounce double-moving? Colcuccino with six whips that we all get every day, is it a good stock? It is a good stock. Two weeks ago, I was bullish on it.

I said it's a soft buy by selling puts on it. That turned out to be a very good idea. It's even better today because obviously they are enjoying price, the ability to pass on prices to the consumers. The consumer is really back post-pandemic. And most importantly, they have really acculturated the consumer to ordering ahead. This order automation movement, I think, has really improved their ability to service more volume and obviously to do it much more efficiently. Now the tailwind here is if China opens up,

that's going to provide them some very, very strong foot traffic in China. That should be very good for the stock. I still think it's more of a sell-to-put type of a situation because if China doesn't go, it could be a sell a little bit of a profit-taking. But overall, six to nine months forward, it looks like a very strong stock. All right. Let's talk about Block. This is formerly square. It posts a strong beat all around and the stock is way up on that news today. Yeah. My favorite stocks so far of all three today. The reason why is because they're building a fiercely loyal mom and pop customer base here and putting them all into the digital economy with very good tools, very quick reporting. And I think they're building a nice mode over here.

Forget their crypto business. Just simply the square business here could grow a double digits. Stock's been pounded to death. So it has tremendous possibility here to go maybe to 70 over the next six months. So I think to me this is one of the strongest secular growth trades that you can find in the market. Obviously, you can have consumer slowdown on the macro picture, but on a secular basis, this is very much a strong bio-life. Hey, Boris, great to see you. Thank you. Have a good weekend. All right, coming up, the answer, what you said, we asked a bunch of you on the Twitter. What would you do if you win that record $1.6 billion jackpot? Some of you had some really good answers. Some of you didn't. We're going to highlight,

like, the ones that we like next. All right, earlier today, we asked you, If you win this $1.6 billion powerball jackpot, what would you do? You had some great answers. One of you said, this is my favorite, came from R. Schauntz, who said, I would large-size my fries. All right, get better goals. Anyway, another good one, actually pay for Netflix. Ryan would build himself a refinery. There we go.

A couple of serious ones. I'd buy majority control of draft kings and fire the CEO. Zach would put all of it in a two-year treasury. and a Twitter user named Aman Javers says he would change his number. But don't worry, Amon. We'd probably find you and hit you up for a loan. Yeah, and we know how to find you, Aman, Javvers. Somebody said they would hire Brian Sullivan and make them their spokesperson.

For what? I don't know, but I would do it. How about the guy who said he'd share your 10% of his winnings with you? You're not. You wouldn't. You're not allowed to take that, though. That would be against company policy. Company, I can't, and they can't fly. I'd have to pay for my own hotel.

For 10%, you might be willing to bail. Good luck, everybody. Thank you for watching Power Lunch. Hope you have a great weekend.