Power Lunch - The Blame Game, and Corporate Changes 3/28/23

Episode Date: March 28, 2023

A Senate hearing on the collapse of Silicon Valley & Signature Bank is underway in Washington today, with the Fed now becoming a target of ire. Where did it all go wrong? And more importantly, what can be fixed to prevent this from happening again in the future? We’ll explore. Plus, some big corporate shakeups are underway at a couple of former high-flyers. Alibaba is getting broken up, while Lyft is getting a new CEO. We’ll discuss the road ahead for both. Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

Good afternoon, everybody. Welcome to Power Lunch alongside Kelly Evans. I'm Tyler Matheson. Coming up, a Senate hearing on the collapse of Silicon Valley and signature banks taking place in Washington today. The Fed becoming a target, so where did it all go wrong? And more importantly, what can be fixed, Kelly, for the future. Plus, a big change for a couple of former high flyers. Alibaba getting broken up. Lyft getting a new CEO. We'll discuss the road ahead for both. Only one of the stocks higher right now, I believe. Let's get a check on the markets first, though, with all the major averages. lows. The NASDAQ is now down more than 1%. Well, let's get up to speed on the market and some of the movers there with Dom Choo and

Christina Parts in Nevelas. Dom, you first. All right, so let's do a little accentuate the positive on this more downside session so far. Three earnings reports are driving some of the bigger gains in the S&P, starting with Carnival Corporation up nearly 6% right now. The cruise line operator is bouncing back after a downday yesterday tied to what was viewed as a more disappointing current quarter forecast. Now, today, analysts over at Wells Fargo upgraded that stock to an equal weight from an underweight, citing a more risk-reward balance for shares at current levels, again, up 6%. Then you've got Dow component, Walgreens Boots Alliance, the healthcare, retailer, and pharmacy operator reporting better than expected quarterly results. Revenue was actually grew despite slower sales of COVID vaccines and COVID testing equipment.

Those shares up 3.5% right now. And we'll spice things up a little with our last mover. It's McCormick, the best performer in the S&P 500. The Spices and Seasonies Maker really reported a better than expected report. report as well helped along by its ability to raise prices for its products. So it looks like people are still grilling, cooking out more at home, some of those pandemic trends sticking. So we'll see what happens here.

But it's up at 8% right now. Now let's send it over to Christina Parts of Nevelas who may or may not like a little Montreal steak seasoning in her recipes. Over to you. If it has the word Montreal in it, I like it. But let's talk about semiconductor names right now, trading on the NASDAQ 100. All are in the red with the AMD, the biggest lagger right now. There's no major news catalyst, but they always usually fall in sync with rising treasury yields.

Micron, though, I want to focus on that because those shares are lower right now, down about 2.2% as the street, pretty much braces for the worst with earnings out after the bell. City, for example, is expecting a billion-dollar inventory right off. TD Cowan, in their note says they miss is why they expected. But overall, it seems like analysts are still just calling for a bottom in-memory prices. You got silicon carbide producer I want to talk about right now Wolfspeed, because that stock is trending almost 3% lower after President Biden is set to visit the facility in the next hour or so

to highlight how investments like the $53 billion chip sack are unleashing a manufacturing boom. Keep in mind that chipmakers still need to get approved for that government aid and they'll have to decide if they should continue doing business with China or risk losing funding. So none of this is guaranteed. Big picture, though, we zoom out. The SMH, which is a great barometer for chip names, it's an ETF.

is still tracking for its best quarter since Q4 2020 and its longest monthly win streak in over two years. Kelly? Christina, thank you. Let's get to the big event in Washington now, a Senate hearing on the recent banking crises. Steve Leesma joining us with all the details. And Steve, it sounds like the big takeaway so far is don't expect any big change in the way it's currently being done. No, they still have a lot of debate to do in hearings and things like that to figure out. But let's start with what top financial regulators were saying.

They acknowledged this morning that mistakes were made on their end in the recent bank failures, but Moes pointed the finger first at SVB's management, and what regulators say was a deeply flawed approach to handling interest rate risk. They were issued a matter requiring immediate attention based on the inaccuracy of their interest rate risk modeling. Essentially, the risk model was not. at all aligned with reality. We also heard dramatic new details about just how fast and furious events

were moving in the final hours of SVB before it was shut down. Fed Vice Chair for Supervision Michael Barr, who you just heard there, he told the committee that after $42 billion left the bank on the Thursday before it closed, $100 billion was scheduled to go out the door Friday morning, leading regulators

to shutter the bank before those deposits could flee. The detail highlights the speed with which deposits can now leave a bank as a result of technology and social media and then spread to other banks and the contagion risk or problem for which regulators at the moment, they seem to have no answer. Barr's testimony made clear also that supervisor cited problems at SVB numerous times from 2021 through 2022 and that the Fed Board itself was informed of the issue of interest rate and risk in Silicon Valley in February 2020.3, we don't know what happened after that.

Another key issue. New rules, get this, new rules adopted by the Fed in 2019, exempted Silicon Valley from stress testing for several years. But the Fed last year stress tested banks for falling interest rates in a year that banks were being stressed by surging interest rates. So even if SVB had been stressed tested, guys, they wouldn't have found the interest rate risk problem through the stress test. Well, it's interesting certainly that the Fed was notified or at least aware of the interest rate that they had in February of this year, and then who knows what happened. Things started to move very quickly there, obviously. I was texting yesterday, Steve, with a mutual friend of ours,

who should remain nameless for the purpose of this conversation. But he said that one of the contributing factors to the flight of deposits from banks and from Silicon Valley Bank in particular was the idea that bankers were unwilling, his words, too cheap, to pay rightfully higher monies on. deposits. And so people left to put money into treasuries and that that was one of the contributing factors. Do you see it that way that bankers own penny-pinching ways contributed to some of the deposit flight that we saw? I think that's right, Tyler. And one, you can also frame it as bankers made a choice to let deposits leave by paying those low interest rates.

And maybe part of the problem, Tyler, is bankers being a little old-fashioned because the rule in banking is that you get divorced before you change your bank. That may not be true these days, especially with the technologies that exist to move money around, the ability to quickly open bank accounts online, and also the possibility right now of getting higher interest rates through either treasuries or through money markets or other means. So I think the bankers, right, I think the bankers got caught asleep at the wheel in the changing economy. And of course, I think that as we heard this morning, it looks like the regulators did too. All right. Steve Leesman, thank you very much. We appreciate it.

Well, let's get some more reaction to today's bank hearings from our panel. Nicholas Veron is Senior Fellow at the Peterson Institute for International Economics. And Brian Gardner is Chief Washington Policy Strategist at Steefe. Welcome to both of you. Nicholas, let me start with you. I think in the wake of the covering of depositors at Silicon Valley Bank and others, There is this assumption that all depositors are going to be covered up to whatever amounts in all instances. Are we right in that assumption or is that a leap too far? No, I think that assumption is right, even so the communication from the U.S. authorities,

and particularly Treasury Secretary Janet Yellen, has been a bit unclear on that matter, because it seems the U.S. authorities don't want to fully own up to the consequences of the decisions that they announced on March 12 when they said, Silicon Valley Bank deposits are fully insured no matter how large, and we know that some of them were in the billions, not millions. But actually that's what the situation is. If another bank right now has a problem like Silicon Valley Bank, its depositors will be insured the same way. That's a very solid expectation, I think. And this is why actually we don't see that much panic in the banking system because everybody got that message no matter what Janet Kellynne says.

So, Brian, how do you react to that? Are we right in assuming that all banks deposits, no matter their size, will be. backed up by either the FDIC or the Fed. What about Congress? Doesn't Congress have the ultimate call here on what the deposit insurance limit is or should be? It does now. I mean, we used to have a construct before Dodd-Frank that the regulators had some discretion, which they used in 2008 to guarantee non-interest-bearing liabilities. That's gone away. And so Congress has to have a say. There's a there's a mechanism where regulators can start the process, but it still ends with Congress. I would take some exception to the previous comment from Nicholas about all deposits being

covered. My guess is if you surveyed community bankers, and I'm talking banks with less than $10 billion in assets around the country, and ask them if they think their deposits are guaranteed by the federal government, my guess, a healthy majority are going to say no. And I think that's where Yellen was getting in trouble last week with her testimony. She was trying to walk a tightrope and saying, well, yeah, we're going to guarantee deposits if there's a contagion risk like we did with Silicon Valley and signature. But I think you have a hard time. I think regulators would have a hard time explaining contingent risk and thus guaranteeing deposits if you start guaranteeing deposits at those smaller banks,

which then you ultimately get it back to Congress. It has to be a congressional decision of where deposit insurance levels should be. Although it doesn't sound like there's any appetite to change them right now, Brian. Am I wrong about that? And if so, I mean, that's, again, why we're seeing some pressure

across the regional bank complex, although this one might be less about immediate runs. There's an expectation. I think people have moved money around, created multiple bank accounts, whatever it is, might just be more about solvency in the longer run. So I would point out my colleagues, my steeple colleagues on our KBW platform did a great webinar with a group that helps manage

deposits across the system. And so there is a little fail-safe mechanism there that can help banks manage their deposits. Going into today's hearing, I was skeptical that there was enough political will on Capitol Hill to increase deposit insurance. It came up once or twice. The chairman mentioned it during the hearing. that was it. And to me, the fact that it was mentioned, deposit insurance was mentioned so infrequently, I think underscores the point that there is no political will currently to increase deposit insurance. With the caveat, when circumstances change, the political winds will shift. As you look out for the next month, where are we on deposit insurance? I don't see the political will to lift it. So, Nicholas, let me ask you just sort of the baseline question here as a freshman student in this.

Is there enough money in the... Where would the money come from? If really bad stuff happens, I almost didn't say stuff, if really bad stuff happens, and many banks find themselves in the same situation as SVB, either because of commercial real estate exposure or other kinds of exposures, where would the money come from to ensure those deposits

above $250,000, which, if I'm remembering correctly, are greater in volume than the amount of deposits under $250,000. There's really no reason to believe that the U.S. banking system is bankrupt, that a large number of banks are solvent. This is not the situation we're facing. We've seen a number of banks making poor risk management decisions. And the Silicon Valley Bank, of course, is a prime example of that.

But even so, the Fed has gone through an embarrassing. supervisory failure and today's hearing we're largely about that. I don't think there's any expectation, any realistic expectation that the supervisory failure of the Fed is still comprehensive that you would have a large number of banks that would be insolvent to an extent that the FDIC would not be able to cover the losses of deposit insurance, even of unlimited deposit insurance, with the resources it has with the supported get from the U.S. government. Now, what that may If you're in a very pessimistic scenario, what may happen, and this is not completely unsinkable, even so I think it's highly unlikely, is that the deposit insurance fund of the FDIC would be depleted. The FDIC would need to borrow from the U.S. government, and the FDIC would be able to borrow from the U.S. government.

It would be embarrassing for the entire system because it would signal that it doesn't work as intended, but it would not come to a point where the FDIC would be unable to provide the deposit insurance, even at unlimited levels that is now expected. Well, my bottom line takeaway from what you just said is I'm worrying about something that probably is very unlikely to happen, and I guess I take comfort in that. Nicholas, thank you very much, and Brian, always good to see you. Thank you. Appreciate it.

Still ahead, we're going to check in on some of the day's biggest winners to spite this down market. Alibaba's now up almost 15% after announcing a plan to split into six. McCormick is spicing things up after its earnings report. It's up 8%. And take a look at Viking Therapeutics. 65% gain. We have all of the details coming up on Power Lunch. Stay with us.

Welcome back. A big breakup within China's tech giant Alibaba. The company announcing the most significant reorg in its history, splitting itself up into six business groups, each with the ability to raise outside funding and to go public. The first is the cloud intelligence group led by Alibaba's current CEO. It will encompass AI and cloud technologies. Next is its Taubau-Timal Commerce Group, which has the online shopping platform. Local Services Group will focus on its food delivery service, as well as mapping. The Sinal logistics unit will be, yes, its logistics business. The international e-commerce

unit will be the global digital commerce group. And finally, the digital media and entertainment group is for streaming and movies. Alibaba shares searching almost 15% on this potential value creation. Here to discuss is Scott Kessler, global sector lead for tech, media, and telecom with Third Bridge. Scott, it's great to see you. And is this justification warranted? Well, I think it's big news for sure. And I think people are perceiving it as such. Look, Alibaba has been essentially a next generation digital conglomerate for some time. And I think a lot of conglomerates over time realize that perhaps they can actualize more value if, in fact, they separate out those businesses and provide them with independence. I heard David Faber this morning suggest, well, what if the purpose of six different units is to make layoffs easier?

Streamline, cost cuts. that wouldn't be quite as bullish, or maybe it would be given the year of efficiency that Wall Street's been so excited about here in the U.S. Yeah, that's an interesting take. I'm not so sure that that's the primary rationale here. I think, as Alibaba stated, they're looking to unlock value. And so one of the ways to do that is to enable the investing public to have a better sense of what these different businesses consist of. And to be honest, I think there is kind of a realization that there hasn't been much in the way of synergies across some of these businesses. If you think about small business e-commerce in China versus Alibaba pictures, I don't know that there's much of a connection in terms of what those and some of the other businesses are doing. Who's driving this, Scott? And what, if any, benefit, redounds to the government of China through this?

break up? How do you think they feel about it? Yeah, I think it's interesting, right? Because I think over the last couple of years, if you consider big tech in China, it's been hard sledding, for sure. I think the government has been very focused on kind of reining in the power of these big tech companies. It used to be in China. Big tech was really buy to Alibaba and Tencent, the bat companies, so to speak. And I think it's fair to say that there seems to have been a thawing of that kind of cold war that's been taking place between big tech and China and the government. I think this is a good indication of that because I don't know that Alibaba would have proceeded with this plan without at least the tacit endorsement of government interests.

So I also, and I love that point, Scott, about what might be going on here. It does seem odd because we already know that the Chinese government has shown an appetite for going after these big tech names, but we're also in the middle of kind of an arms race against the U.S. And do they ever, you know, feel the need to amass more power and kind of direct it more clearly? I'm just curious about that dynamic. Yeah, look, I think a lot of people have viewed kind of where Alibaba is based and the involvement actually or potentially of the Chinese. government as a possible risk. And we've seen that risk come into very clear focus for a lot of different companies and a lot of different ways over the last couple of years. It does seem like, Kelly, and I think you make a really good point, that the Chinese government seems implicitly to be endorsing its own kind of corporate champions in the face of, I think, a number of challenges coming from the West, not the least of which are some of the restrictions on the exportation

of technology, predominantly semiconductor technology in terms of what a lot of people have been thinking about over the last couple of quarters from the U.S. So let me just come back to my initial question there, which was who's driving this? Do you think that this plan originated organically and internally on the board of and among the executives of Alibaba? Was it investment bankers here or in China who said, hey, this is a great way to unlock value? Or was it Chinese government interest saying we like smaller tech more than we like bigger tech? That's interesting. That last point I think is pretty important.

Honestly, I think it had to have originated and ultimately is going to be executed by the company itself. Now, that doesn't mean they didn't take input from, say, bankers or third parties or what have you. But at the end of the day, this is a company that if you look at it closely, I mean, this is a company that was worth $850 billion at one point, I think in the fall of 2020 during the height of COVID. And more recently, it was under $200 billion in value. So I think a lot of people probably were sitting around saying, what can we do to unlock value? I think this is as good a plan as any. Interesting. Interesting. All right, Scott, thank you so much for your perspectives today. We appreciate it. Thank you. Scott Kessler. Lulou Lemon on deck.

Analysts expect a revenue beat. Inventory has been an albatross for retail. Will it hurt the results? We'll trade that name in three-stock lunch. We'll be back. Welcome back to Power Lunch, everybody. Stocks right now are in the red by about a third of a percent on the Dow, half percent on the S&P 500, and about a full percent on the NASDAQ composite. Let's try. Check things out at the New York Stock Exchange with Bob Pazani. Hi, Bob. Hello there, Tyler. We were positive on the Dow until about an hour ago. So Amex has been weighing on the Dow Visa. And United Health is also weak in the middle of the day on top of a few tech stocks.

I want to show you some sectors that are moving. Oil's having a good day. A great two-day run here for oil. 69 a few days ago, now 73. Occidental's up. We got an upgrade from Cowan there. Boy, Mr. Buffett's happy with that investment. Halliburton Hess, Fumbers, A, all nice, nice,

two or three day runs here for these companies that weren't doing that great. Rates rising, a big problem for the tech stocks. We talked about this on Friday, and it's sort of continuing through here today. If you look at some of the big names, AMD, META, Microsoft, all down. Remember, these were the big winners. They're up 10, 15 percent on the month, but all of them are down four, five, six, seven percent in the last two or three days as rates have been going up. Cyclicals, interesting momentum here. Now, they've had a terrible month overall. So I'm talking about industrials and names like mosaic material names here. Most of them are all down. We're at the lows of the month two or three days ago, and they have started moving up as well. Even the

airlines have started rallying a little bit. This is very just the last couple of days, but we'll keep an eye on that. That would be very interesting to see. And consumer stocks, which have done okay on the month, are also having a nice two or three day run here. So Bath and Body Works, AutoZone, Philip Morris, Dollar Tree, retailers, also two or three day runs. And Kelly, wouldn't this be interesting. You end the month with the biggest movers, tech to the downside, and some rotation into consumer names, as well as some of the cyclical names. That would be nice going into the second quarter. Kelly, back to you. Even energy has been outperforming the last couple of days, very different. Bob, thank you. Let's get to Meg Terrell now for a market flash on a major mover in biotech. Meg.

Hey, Kelly, well, we're looking at biking therapeutics. That stock up more than 65% right now. This company has reported a phase one trial small study in weight loss. It's one of these new class of medicines. People are very excited about that we've seen from Eli Lilly and Novo Nortis. This was an early study, but the results were promising enough that Vikings said they're going to start a mid-stage study this year. This is an injectable drug, but they also said that they have started a phase one trial with an oral drug, a pill version of this as well. So that is getting people very excited about this. You know, Jared Holtz over at Missoujo saying that this weight loss space is the real.

the one that investors are by far the most interested in health care, given the size of the market and the opportunity they see here. Tyler, back over to you. Wow. All right, Meg, thank you very much. And I will see you. I'm happy to say tomorrow for CNBC's Healthy Return Summit. We will convene CEOs, scientists, investors, and basically Meg will convene them.

We, it's mostly Meg who does the heavy lifting here. And innovators in health care to reflect on the progress made today to reinvesting. to reinvent the future of medicine, including the newest breakthrough drugs and device innovation. Scan the QR code right there. Right there. Do it right now. You've got plenty of time. I'm going to keep it up there for a second

to register to join us virtually or visit CNBC Events.com. I look forward to seeing you tomorrow, Meg. Likewise. Okay, good. Bond yields continuing to rise today. We're covering some of the ground lost in the banking crisis. Let's go to Rick Santelli in Chicago now.

Let's remind people that when yields recover ground lost, that means that ground is lost in the value of the bonds. Absolutely. That means price goes down and all these banks we're talking about that have hold to maturity securities while their losses get a bit bigger. Now, if we look at an intraday of fives, we do see that right around 1 o'clock Eastern, rates went down. They went down, not up.

And the reason they went down, a very small. successful auction. If you look at it when we chart some of the highest yields in this five-year note that we've had since last Wednesday, and if you notice on Friday, the low yield there was 323, which means we've moved 40 basis points higher. Is this auction giving us a signal? Tyler's talking about how rates have been higher and they have, but maybe the demand that this auction means they're going to cool off just a bit. Three months to two year. The distance between our two-year and three-month bills has collapsed. As a matter of fact, we are hovering at the closest those two have been in over 20 years. And finally, if we look at what's going on

with the dollar index, like many maturities outside of two- and three-year notes, it peaked in the fall, September. September. And that was a 20-year high at the end of September at 114. That chart certainly looks like the dollar index thinks the highest of rates are in the rearview mirror. Kelly, back to you. Thank you very much, Rick. Oil closing for the day, up more than 1%. I mentioned it earlier, but energy stocks again outperforming. Pippa Stevens, what do you make of it? Outperforming once again, and Occidental is the best performer.

As Bob was just talking about, Berkshire Hathaway bought another 3.7 million shares and now owns about 23% of shares outstanding. And T.D. Cowan upgraded the stock. David DeKlebaum said that this lends buying support to the stock and that the Berkshire Hathaway buying is showing no signs of slowing down. But one thing I did want to take a look at today is hedging activity across upstream producers. And that's because according to estimates from Evercore ISI, their upstream coverage is hedged about 16% this year.

That's down from 30% last year and 50% going back to 2021. And this is important because it speaks to this post-pandemic producer. They've paid down debt. They have lower capital spending, meaning they have lower required cash outflows. So they don't necessarily need to hedge because they can absorb the volatility of commodity prices. And while they do have very sophisticated hedging strategies, it typically means that to protect on the downside, you have to limit the upside. So if you don't have to do that, why would you necessarily spend the money? So does that mean if prices fall more, they're exposed to that?

Yes, yes. So they're more exposed to the spot prices of the commodity. And some might say that this is a bet that they see prices heading higher in the second half of the year. We have heard a number of executives say that demand is going to rebound. But I think it's more just that it adds complexity, it limits your upside. And with a lot of forecasts saying that, you know, even if we stay within this range, they're still doing okay, they're still bringing in cash. So why would you add on extra layers of hedging? All right, Pippa, thank you very much. Appreciate you being here. Thank you. All right, let's go to Bertha Coombs now for CNBC News updates. Hi, Tyler. Here's what's happening at this hour. A federal judge is ordering former vice president, Mike Pence, to testify in the special counsel investigation into former president Donald Trump's efforts to overturn the 2020 election.

results that according to NBC News. A spokesperson for Pence declined comment, but Pence has previously said that he would appeal the case all the way to the Supreme Court if necessary. Nashville residents have been leaving flowers at a memorial near the Covenant School to pay the respects to the six victims of yesterday's shooting. During a press conference near the memorial, police shared that the shooter had purchased seven firearms in recent years and was under the care of a doctor for what they called an emotional disorder. They did not disclose what that disorder was. Apparently, the shooter's parents were not aware of the gun purchases. Meantime, President Biden has arrived in North Carolina today to kick off his investing in America

tour. He's visiting semiconductor manufacturer Wolfspeed to tout the U.S. manufacturing growth and job creation being spurred by the Chips Act. Back over to you. Thank you very much, Bertha Coombs. Ahead on Power Lunch. Graph King's CEO's pay jumping to $48 million. That's a 238% hike. A little less than Kelly's pay hike in the most recent year and my, of course.

Despite the company losing $1.3 billion, facing some serious public outcry right now over that. Meanwhile, on the other side of the same coin, lifts co-founders stepping down from their roles as president and CEO. This comes after a 70% decline in the stock over the past year. We will discuss all of this when Power Lunch returns. Welcome back to Power Lunch, everybody. Lyft announcing a corporate restructuring as the co-founders plan to step down from their day-to-day responsibilities. And David Risher, formerly of Microsoft and Amazon, and a member of the board at Lyft, will take over as CEO. Shares were higher by nearly 10% this morning, but have since flipped and are now down about 4%.

Here's what the incoming CEO had to say on fast money yesterday evening to Deirdreboza about how he plans to make Lyft competitive with its rival Uber. I think you start by making sure you're priced competitively. At the beginning, if people are looking at both apps and we're not winning or at least matching, I think we got a problem. As you drive volume, assuming the economics super quickly are, every time a person takes a ride, we make a little money, right? So we've got to make sure that we get people taking a lot of rides so we can make a lot more money.

And then we've got to make sure that our cost position is appropriate so that over time we can drop that to the bottom line. All right. For more reaction, we're joined now by Bernie McTurne, a senior analyst at Needham. How do you react to this change in the executive suite? And is Mr. Risher, what is the hand Mr. Risher has been dealt to play? Yeah, no, it's a great question. And I think the important context here is that the company strategy has already been changing since the beginning of this year. And that's what David was just talking about with you guys on the fast month.

money last night where it's really lowering prices. And to quote him, you're not in the game if you have lower prices. So we actually run a mobility tracker. And even in January, it said that Uber was cheaper 60% of the time and they came faster, 67% of the time. And that's just, you know, that's tough for the number two operator to be facing against that competition. So since then, we've seen Lyft be more competitive offering things like 10% promotions. But that's the big question here is that can they be promotion and still get to profitability? I think, you know, less surge pricing or less prime time pricing is something that's weighing on their one-two-ebeda guide of only generating $5 to $15 million. So really that question on incremental margins this

year. And if we're heading into a price war, I think is the key debate on shares going forward. Well, that was kind of, as I was watching the interview with Mr. Risher last night, I kept thinking, you know, how does this company compete? You either have to compete on price. That's number one. Because they're basically commodity services, and a lot of the same drivers and cars work for both. You've got to compete on price or you've got to compete on, as you put out there, timeliness. Do they show up on time?

Do they get you where you say you want to go in a timely fashion? And if you can't win on those competitive things, you're not just not going to win. Well, and that's been the bare case on shares. And that that's the reason why this is, that's the reason why this. is, you know, people have been pointing this being a value trap. The stock's cheap, but that's one of the things is that I think the buy side is probably a lot lower than, you know, those sell sides of $260 million of EBITDA for 2023. That gets you to roughly a 10 times multiple. I think some of the bears on the stock are significantly lower so that multiple differential

with Uber on those numbers is actually a lot, a lot tighter. Would you touch, would you touch lift here? We have a neutral rating. And I think that that's the risk here, is that the incremental margins the year just going to be lower. And so you have a new CEO coming in. It allows you to, you know, maybe reset the decks and really go after market share because market share has been bleeding. It's, you know, 33% down to 25%. It really needs to stabilize and go higher for, I think, the stock to work for the long term. But the problem is, is that this isn't 2021 anymore, right? So EBITDA matters, free cash flow matters. And the stock's not going to trade on market share. It's going to turn EBITDA. So I think that balance is what's so difficult.

for the stock at this point in time. Bernie, you're a nice guy. Neutral is a very nice way to put it. Thanks very much. Bernie McTurnan, we appreciate it. Thanks for having me. Up next, not so nice, the backlash over the CEO of Draft King's salary hike.

We'll have details and we'll talk about why it happened. And as we had to break throughout March, we're celebrating women's heritage, sharing the stories of women leaders in business and those of our CNBC teammates and contributors. Here is Reshma Sawjani, Girls Who Code Founder. The advice that I would give to women as a CEO, is that all of us have power.

Our job is to find it and use it for good. As the founder of Girls Who Code, I used my power to teach girls to code so that they could find a cure to COVID, climate, and cancer. And now as the founder and CEO of moms first, I'm using my power to make sure that workplaces finally work for women so that we don't have to choose between our job and our child.

All of us have the ability to make a difference, to use our power to make a change. Welcome back, everybody. The CEO of Draft Kings got a 238% hike in salary while the company lost north of a billion dollars last year. Contessa Brewer is here to break things down for us and discuss. And I thought he was making a dollar a year, but is this all kind of... No, his salary is a dollar. His salary last year was one buck. Okay. His stock-based compensation was more than $44 million.

Wow. And then he's got all of this other compensation, too, you know, the rest of it gets made up in this other compensation that included more than $130,000 for travel and tickets and events for him and his family to go to the Super Bowl. And that has created all of this griping online. I mean, even, for instance, when you look at his compensation versus his median employee pay, $111, the ratio is $4.27 to 1. And the previous year, that ratio was 137 to 1. So while the company still is losing money, the ratio is increasing. And what the investors are pointing out is like, hey, number one, you guys haven't turned a profit yet. Number two, look at the stock price here.

Yeah, look at the stock price. That's what I was going to be. It's up 54% year to date. It's had a big rebound. But boy, was it under pressure since 2021. It had a high point of 74 was about it's high that it hit and has just been under pressure. Why? Because investors wanted this company to prove a path to profitability. And the company says it will be profitable in the fourth quarter of this year. Now, let's take, for instance, its biggest competitor, Fanduel, which now is a market share. It's the market share leader at 50% market share. The CEO of its parent company, Flutter, based in Ireland, makes, and we have a full screen for this,

he makes, and he just got a big raise as well. His stock-based compensation is up to 20%. $23 million, but his base salary $1.5 million. And they were the first U.S. sports book to post a profitable quarter. So you have a lot of investors now focused on why is the compensation going up so much. I did invite Draft Kings on for an on-air interview. I asked them for a statement. They declined it, but they pointed me to their proxy statement and the compensation committee that said, look, we are really focused on attracting and retaining the top talent that we need to grow this company. And two, we think that what we're going to do is over the long haul provide optimal return to our shareholders. Is it founder control? So in other words, if the shareholders or the board or whomever thinks, you know, the incentives are no longer aligned or it's egregious, can they change his pay? Or is this kind of like a founder control situation? He has all of the voting control in this company.

Jason Robbins says that's what you get. And the two co-founders, if you add in their stock-based compensation together, it's more than $100,000. $20 million. So the three founders of this... In the last year? For 2023. That's what this award... This is, according to their proxy statement that is just... Sorry, 2022 has just been filed in 2023 showing last year this is what their compensation was. And look at this by contrast. Now, Jay Snowden makes in total compensation more than Jason Robbins does, but Penn also has had a profitable quarter in its sports betting and it's bricks and mortar business is on fire.

Tom Rieg makes half of what Jason Robbins makes, his company keeps making quarter over quarter in profits and expansion in profit margin. So there you're seeing a big difference. Yeah, and the comp that high is going to pressure earnings, no matter how you slice and dice it over time, it absolutely well. It's not particularly ESG-ish, is it? No, not that either.

Governance. No. Contessa Banks. Contessa Brewer. Already after the break, we'll trade some key earnings, movers, and shakers in today's three-stock lunch. We'll be right back. Time for today's ever-popular three-stock lunch. Some of the movers today, Spice and Sauce Maker McCormick, I think they make francs, is surging after topping Q1 estimates this morning. Walgreens also popping on an earnings beat despite slowing demand for COVID tests

and vaccines. And Lulu Lemon set to report fourth quarter results after the bell today. Here to help us trade them all. Lee Munson, Chief Investment Officer at Portfolio Wealth Advisors. Lee, with McCormick. McCormick. This is Chalula. This is Frank's red hot wings sauce. These are basic staples of portfolio wealth advisors office kitchen. Here's a thing. Margins are what the issue are, right? They blew earnings last quarter. Nobody liked it. Today, they blew out the light. The stock is popping, but I'll tell you, there could be a lot of short covering in here. You know, over, you know, recently UBS got hit, hit him with a sell recommendation based on valuation, you

maybe. And then the CEO recently was saying, we're going to have to raise prices and we're getting pushback. So the bottom line is, this is a company that's already said, we're going to try to lower workforce by 10% doing some automation. And you want to see margins going up. They have. They bottomed out about 34% last year. They're up about 36%. This is a story about seeing those margins at 36% go back up to 40. A great stock going into recession. I can't get enough of that stuff. Oh, right. There you go. Neither can tie. by the way. I'm not a Chalula. No, you're not a Franks fan.

I keep a basic paprika, you know, stuff like that. They probably make that too. They make a version. What about Walgreens Lee? Walgreens is a different type of play. This isn't a recession play. This is a problem. The stock has two issues.

That's it. The first issue is that they got boots over across the pond. They need to divest boots. A lot of investors are waiting for when that's going to happen and how they're going to redeploy that cow. I'd like to see them sell boots and redeploy the capital in primary care. So the core growth of Walgreens, because remember, your COVID gravy train is over. They're still having problems with staffing and you have a structural issue with not enough

pharmacists and they're having to innovate, not just to cut costs, just to get the pills filled. So I would want to wait and see. I want to hang back. I don't want to buy it here if you want to hold it great, but you've got to believe that the primary care segment is going to be a huge, strong grower in the in the future. Right now they don't acquisitions, but if primary care doesn't continue growing, this stock is more bound, in my opinion. All right, let's talk about Lulu Lemon. That company, whenever I go in their stores, there are lots of people in them. Tell me about it. It is a premium experience. It's up there with Nike. They had some, you know, like Nike last quarter,

they were plus 20% same store sales. So here's the deal. You're never going to get this great you know, company cheap. So like a Nike or like a Starbucks, you want to buy it when they implode. Tonight, we're going to get earnings and we're going to see how much they want to throw that kitchen sink out the window. We're expecting that they're going to talk about margins declining all year long. And this is what people are talking about when they say there has to be this big earnings revision or slashing your earnings. And that's going to be the end of the bear market. This is what we're talking about. So if you're a value-oriented, more conservative investor, Watch this stock for the next week because you may get a chance to buy a cheap beat up because fancy yoga pants are always going to be in style.

Someone just asked me why Ryan Seacris was trading stocks with us. Oh, yeah. Oh, really? It's a compliment. Thank you. Lee, thank you, Lee Munson. A machine on the green up next. The master's planning to introduce AI-generated commentary.

We'll put that under Dom's microscope next. The hallowed, often stodgy grounds of Augusta National are not where you think major innovation might take hold, but the Masters is welcoming AI in a very peculiar way this year, and Dom Chu has it under his microscope. So this is by now, anyway, guys, a lot of us have seen that AI-related technologies can be tasked with not just writing stories. Now tech giant IBM is taking AI technology into sports and specifically at Augusta National for the Masters this year. Big Blue will unveil the technology that will actually generate automated spoken commentary for tons of highlight clips for both the master's website and the app. Take a listen to a sampling of what IBM has provided for what it could look like. Substrakha, 28 years old from Austria, is going to hit from the pine straw on whole one.

He took stroke two and the ball traveled 162 yards into the Greenside bunker. Okay, so that's an example. Why do they always have a British accent? Oh, I don't know if it's a British, it almost sounds kind of Scandinavian to me, a little bit whatever, right? Like vaguely European of some kind. But what's interesting about this is, there's a terminology, there's a whole vocabulary that goes along with golf at Augusta National. It's not the rough there. It's the first cut.

It's not the front nine and back nine. It's the first nine and second nine. And patrons, they're not fans respected, or they are patrons. So when you can algorithmically build that into something. And is that done in real time, in other words, was? No. So these are for clips, highlight. clips and commentary so it won't be like real time generated yet not not yet it's an

experiment but nice knowing you everybody well I know so your money nobody nobody better than Dom Chu thanks for watching power lines