Every weekday the CNBC Investing Club with Jim Cramer holds a “Morning Meeting” livestream at 10:20 a.m. ET. Here’s a recap of Friday’s key moments. U.S. stocks jumped Friday, with the S & P 500 on pace for its fifth straight week of gains. The government’s producer price index was cooler than expected, one day after a slightly hotter consumer price index. Bank earnings are the star of the show. During the Club’s Morning Meeting, Jim Cramer said Wall Street is “starting earnings season off with a bang.” Club stock Wells Fargo rose more than 5.5% after quarterly profit exceeded estimates. Check your email inboxes and your texts shortly for our full Wells Fargo earnings commentary. Jim said he would like to buy some more Advanced Micro Devices if he weren’t restricted due to the Club’s trading rules. AMD dropped 1% on Wednesday and then another 4% on Thursday following its Advancing AI meeting. Melius Research said the stock sold off because the market wanted to see another cloud giant in attendance. Jim said the AMD slide was a bit unfair because Jensen Huang, CEO of AI chip leader Nvidia CEO, sucked all the oxygen out of the room during a three-day roadshow. Palo Alto Networks stock is having a great week, up 10% through early Friday, and our best weekly performer. Morgan Stanley raised its price target on the cybersecurity stock to $421 per share from $390. That implies 14% upside from Thursday’s close. We battled the stock, buying some on the dip in early August and then taking some profits later in the month. Jim has been considering adding cyber rival CrowdStrike to the portfolio, pointing out that Bullpen name CrowdStrike didn’t lose customers after its glitch caused a worldwide IT outage in July. Stocks covered in Friday’s rapid fire at the end of the video were: JPMorgan , BlackRock , Tesla , Affirm , and Ferrari . (Jim Cramer’s Charitable Trust is long WFC, AMD, PANW. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
Every weekday the CNBC Investing Club with Jim Cramer holds a “Morning Meeting” livestream at 10:20 a.m. ET. Here’s a recap of Friday’s key moments.
“Buy-now, pay-later” firm Klarna aims to return to profit by summer 2023.
Jakub Porzycki | NurPhoto | Getty Images
Klarna said it posted a profit in the first half of the year, swinging into the black from a loss last year as the buy now, pay later pioneer edges closer toward its hotly anticipated stock market debut.
In results published Tuesday, Klarna said that it made an adjusted operating profit of 673 million Swedish krona ($66.1 million) in the six months through June 2024, up from a loss of 456 million krona in the same period a year ago. Revenue, meanwhile, grew 27% year-on-year to 13.3 billion krona.
On a net income basis, Klarna reported a 333 million Swedish krona loss. However, Klarna cites adjusted operating income as its primary metric for profitability as it better reflects “underlying business activity.”
Klarna is one of the biggest players in the so-called buy now, pay later sector. Alongside peers PayPal, Block‘s Afterpay, and Affirm, these companies give consumers the option to pay for purchases via interest-free monthly installments, with merchants covering the cost of service via transaction fees.
Sebastian Siemiatkowski, Klarna’s CEO and co-founder, said the company saw strong revenue growth in the U.S. in particular, where sales jumped 38% thanks to a ramp-up in merchant onboarding.
“Klarna’s massive global network continues to expand rapidly, with millions of new consumers joining and 68k new merchant partners,” Siemiatkowski said in a statement Tuesday.
The company achieved its adjusted operating profit “by focusing on sustainable, profitable growth and leveraging AI to lower costs,” he added.
Klarna has been one of the forerunners in the corporate world when it comes to touting the benefits of using AI to increase productivity and cut operating costs.
On Tuesday, the company said that its average revenue per employee over the previous twelve months increased 73% year-over-year, to 7 million Swedish krona.
It comes as Klarna tries to pitch itself as a primary banking provider for clients as it approaches a much-anticipated initial public offering.
The move highlighted how Klarna is looking to diversify beyond its core buy now, pay later product, for which it is primarily known.
Klarna has yet to set a fixed timeline for the stock market listing, which is widely expected to be held in the U.S.
However, in an interview with CNBC’s “Closing Bell” in February, Siemiatkowski said an IPO this year was “not impossible.”
“We still have a few steps and work ahead of ourselves,” he said. “But we’re keen on becoming a public company.”
Separately, Klarna earlier this year offloaded its proprietary checkout technology business, which allows merchants to offer online payments, to a consortium of investors led by Kamjar Hajabdolahi, CEO and founding partner of Swedish venture capital firm BLQ Invest.
The move, which Klarna called a “strategic” step, effectively removed competition for rival online checkout services including Stripe, Adyen, Block, and Checkout.com.
Apple device users will soon be able to tap into buy now, pay later loans from Affirm for purchases, the companies said Tuesday.
Affirm will surface as an option for U.S. Apple Pay users on iPhones and iPads later this year, the San Francisco-based fintech company said in a filing. Apple confirmed the news in its own update.
“This provides users with additional payment choices, and offers the ease, convenience and security of Apple Pay alongside the features users love in Affirm – flexibility, transparency and no late or hidden fees,” Affirm said in an email statement.
The move is a boost to Affirm and the buy now, pay later sector in general. When Apple introduced its own BNPL product last year, investors were concerned that the tech giant would crowd out stand-alone providers like Affirm. But the fact that Apple decided to also allow Affirm products in its ecosystem shows that the fintech company has something unique to offer.
For instance, while Apple’s BNPL loan lets users repay purchases in four installments over six weeks, Affirm has an array of longer-term offerings that can be repaid over a year or more. The companies didn’t provide details on the terms of the new loans.
“The bottom-line — in our view — is that Affirm’s strong brand and sophisticated underwriting technology have a moat that Apple likely could not replicate on its own,” Mizuho Securities analyst Dan Dolev said in a research note.
Apple also said that installment loans via credit and debit cards would be available on Apple Pay in the U.S. with Citigroup, Synchrony and Fiserv-related issuers. Traditional credit card players have begun offering BNPL-style installment loans after their popularity surged during the Covid pandemic
Synchrony said in an email that it was planning personalized installment loans with promotions based on the transaction size and merchant involved, with the possible use of promotional interest rates and loan durations.
“This announcement with Apple marks an opportunity for Synchrony to scale our flexible payment options and offer our merchants the ability to expand their presence in a growing mobile payments ecosystem,” Mike Bopp, Synchrony’s chief growth officer, said in an email.
Thanks to the ubiquity of the iPhone, Apple Pay has more than 500 million users around the world and a leading market share in the U.S. for its mobile payment and digital wallet platform.
Shares of Affirm rose 11% Tuesday, while Apple’s stock was up 7.3%.
Affirm’s stock rose despite the fact that the company indicated it would take time for the partnership to significantly boost its revenue.
“Affirm does not expect this partnership to have a material impact on revenue or gross merchandise volume in fiscal year 2025,” the company said in its filing.
Rohit Chopra, director of the CFPB, testifies during a House Financial Services Committee hearing on June 14, 2023.
Tom Williams | Cq-roll Call, Inc. | Getty Images
The Consumer Financial Protection Bureau declared on Wednesday that customers of the burgeoning buy now, pay later industry have the same federal protections as users of credit cards.
The agency unveiled what it called an “interpretive rule” that deemed BNPL lenders essentially the same as traditional credit card providers under the decades-old Truth in Lending Act.
That means the industry — currently dominated by fintech firms like Affirm, Klarna and PayPal — must make refunds for returned products or canceled services, must investigate merchant disputes and pause payments during those probes, and must provide bills with fee disclosures.
“Regardless of whether a shopper swipes a credit card or uses Buy Now, Pay Later, they are entitled to important consumer protections under long-standing laws and regulations already on the books,” CFPB Director Rohit Chopra said in a release.
The CFPB, which last week was handed a crucial victory by the Supreme Court, has pushed hard against the U.S. financial industry, issuing rules that slashed credit card late fees and overdraft penalties. The agency, formed in the aftermath of the 2008 financial crisis, began investigating the BNPL industry in late 2021.
The use of digital installment loan-type services has ballooned in recent years, with volumes surging tenfold from 2019 to 2021, Chopra said during a media briefing. Among CFPB concerns are that some users are given more debt than they can handle, he said.
“Buy now, pay later is now a major part of our consumer credit market as these loans provide a meaningful alternative to other options for consumers,” Chopra told reporters. “The CFPB wants to make sure that these new competitive offerings are not gaining an advantage by sidestepping longstanding rights and responsibilities enshrined under the law.”
It’s unclear how many BNPL providers don’t comply with refund and dispute requirements; on the website for Affirm, for instance, there are pages for both activities.
While the CFPB acknowledged that many BNPL players offer those services, the new rule will ensure that they are applied consistently across the industry, a senior agency official told reporters.
The new rule will go into effect in 60 days, and the agency is now accepting public commentary on it, the official said.
Shares of Affirm were off 5.2% Wednesday, while PayPal slipped 3%.
For some time, BNPL providers have anticipated greater regulation, including efforts to apply existing card rules onto the industry. In March, Klarna published a post arguing that its no-interest product was less risky for customers than credit cards — which can often come with steep interest rates — thus requiring less oversight.
“Instead of trying to jam BNPL into an outdated credit card framework that does little to actually protect consumers, leaders in Washington should draft and implement a framework for BNPL that is proportionate to the risk it poses,” Klarna said at the time.
In a statement provided Wednesday, Klarna called the CFPB move a “significant step forward” in BNPL regulation, adding that it already adhered to standards for refunds, disputes and billing information.
“But it is baffling that the CFPB has overlooked the fundamental differences between interest-free BNPL and credit cards, whose whole business model is based on trapping customers into a cycle of paying sky-high interest rates month after month,” said a Klarna spokesperson.
An Affirm spokesman said the company was “encouraged” that the CFPB was promoting industry standards, “many of which already reflect how Affirm operates,” and that it was engaged with the regulator on improving how it operates.
“Affirm’s success is aligned with responsibly extending access to credit as we do not charge late or hidden fees,” the spokesman said. “We urge other companies that offer buy now, pay later products to live up to the industry’s promise to provide consumers with a more flexible and transparent alternative to other payment options.”
The industry’s stance raises the possibility that, like other financial players including payday lenders, BNPL companies could push back against the CFPB rule by suing the agency.
The CFPB rule capping credit card late fees at $8 per incident, which was set to go into effect this month, was challenged and paused by a federal judge recently.
Customers shop in a Walmart Supercenter on February 20, 2024 in Hallandale Beach, Florida.
Joe Raedle | Getty Images News | Getty Images
Walmart’s majority-owned fintech startup One has begun offering buy now, pay later loans for big-ticket items at some of the retailer’s more than 4,600 U.S. stores, CNBC has learned.
The move puts One in direct competition with Affirm, the BNPL leader and exclusive provider of installment loans for Walmart customers since 2019. It’s a relationship that the Bentonville, Arkansas, retailer expanded recently, introducing Affirm as a payment option at Walmart self-checkout kiosks.
It also likely signals that a battle is brewing in the store aisles and ecommerce portals of America’s largest retailer. At stake is the role of a wide spectrum of players, from fintech firms to card companies and established banks.
One’s push into lending is the clearest sign yet of its ambition to become a financial superapp, a mobile one-stop shop for saving, spending and borrowing money.
Since it burst onto the scene in 2021, luring Goldman Sachs veteran Omer Ismail as CEO, the fintech startup has intrigued and threatened a financial landscape dominated by banks — and poached talent from more established lenders and payments firms.
But the company, based out of a cramped Manhattan WeWork space, has operated mostly in stealth mode while developing its early products, including a debit account released in 2022.
Now, One is going head-to-head with some of Walmart’s existing partners like Affirm who helped the retail giant generate $648 billion in revenue last year.
Walmart’s Fintech startup One is now offering BNPL loans in Secaucus, New Jersey.
Hugh Son | CNBC
On a recent visit by CNBC to a New Jersey Walmart location, ads for both One and Affirm vied for attention among the Apple products and Android smartphones in the store’s electronics section.
Offerings from both One and Affirm were available at checkout, and loans from either provider were available for purchases starting at around $100 and costing as much as several thousand dollars at an annual interest rate of between 10% to 36%, according to their respective websites.
Electronics, jewelry, power tools and automotive accessories are eligible for the loans, while groceries, alcohol and weapons are not.
Buy now, pay later has gained popularity with consumers for everyday items as well as larger purchases. From January through March of this year, BNPL drove $19.2 billion in online spending, according to Adobe Analytics. That’s a 12% year-over-year increase.
Walmart and One declined to comment for this article.
One’s expanding role at Walmart raises the possibility that the company could force Affirm, Capital One and other third parties out of some of the most coveted partnerships in American retail, according to industry experts.
“I have to imagine the goal is to have all this stuff, whether it’s a credit card, buy now, pay later loans or remittances, to have it all unified in an app under a single brand, delivered online and through Walmart’s physical footprint,” said Jason Mikula, a consultant formerly employed at Goldman’s consumer division.
Affirm declined to comment about its Walmart partnership. Shares of Affirm climbed 2% Tuesday, rebounding after falling more than 8% in premarket activity.
For Walmart, One is part of its broader effort to develop new revenue sources beyond its retail stores in areas including finance and health care, following rival Amazon’s playbook with cloud computing and streaming, among other segments. Walmart’s newer businesses have higher margins than retail and are a part of its plan to grow profits faster than sales.
In February, Walmart said it was buying TV maker Vizio for $2.3 billion to boost its advertising business, another growth area for the retailer.
When it comes to finance, One is just Walmart’s latest attempt to break into the banking business. Starting in the 1990s, Walmart made repeated efforts to enter the industry through direct ownership of a banking arm, each time getting blocked by lawmakers and industry groups concerned that a “Bank of Walmart” would crush small lenders and squeeze big ones.
To sidestep those concerns, Walmart adopted a more arms-length approach this time around. For One, the retailer created a joint venture with investment firm firm Ribbit Capital — known for backing fintech firms including Robinhood, Credit Karma and Affirm — and staffed the business with executives from across finance.
Walmart has not disclosed the size of its investment in One.
The startup has said that it makes decisions independent of Walmart, though its board includes Walmart U.S. CEO, John Furner, and its finance chief, John David Rainey.
One doesn’t have a banking license, but partners with Coastal Community Bank for the debit card and installment loans.
After its failed early attempts in banking, Walmart pursued a partnership strategy, teaming up with a constellation of providers, including Capital One, Synchrony, MoneyGram, Green Dot, and more recently, Affirm. Leaning on partners, the retailer opened thousands of physical MoneyCenter locations within its stores to offer check cashing, sending and receiving payments, and tax services.
But Walmart and One executives have made no secret of their ambition to become a major player in financial services by leapfrogging existing players with a clean-slate effort.
One’s no-fee approach is especially relevant to low- and middle-income Americans who are “underserved financially,” Rainey, a former PayPal executive, noted during a December conference.
“We see a lot of that customer demographic, so I think it gives us the ability to participate in this space in maybe a way that others don’t,” Rainey said. “We can digitize a lot of the services that we do physically today. One is the platform for that.”
One could generate roughly $1.6 billion in annual revenue from debit cards and lending in the near term, and more than $4 billion if it expands into investing and other areas, according to Morgan Stanley.
Walmart can use its scale to grow One in other ways. It is the largest private employer in the U.S. with about 1.6 million employees, and it already offers its workers early access to wages if they sign up for a corporate version of One.
There are signs that One is making a deeper push into lending beyond installment loans.
Walmart recently prevailed in a legal dispute with Capital One, allowing the retailer to end its credit-card partnership years ahead of schedule. Walmart sued Capital One last year, alleging that its exclusive partnership with the card issuer was void after it failed to live up to contractual obligations around customer service, assertions that Capital One denied.
The lawsuit led to speculation that Walmart intends to have One take over management of the retailer’s co-branded and store cards. In fact, in legal filings Capital One itself alleged that Walmart’s rationale was less about servicing complaints and more about moving transactions to a company it owns.
“Upon information and belief, Walmart intends to offer its branded credit cards through One in the future,” Capital One said last year in response to Walmart’s suit. “With One, Walmart is positioning itself to compete directly with Capital One to provide credit and payment products to Walmart customers.”
A Capital One Walmart credit card sign is seen at a store in Mountain View, California, United States on Tuesday, November 19, 2019.
Yichuan Cao | Nurphoto | Getty Images
Capital One said last month that it could appeal the decision. The company declined to comment further.
Meanwhile, Walmart said last year when its lawsuit became public that it would soon announce a new credit card option with “meaningful benefits and rewards.”
One has obtained lending licenses that allow it to operate in nearly every U.S. state, according to filings and its website. The company’s app tells users that credit building and credit score monitoring services are coming soon.
And while One’s expansion threatens to supersede Walmart’s existing financial partners, Walmart’s efforts could also be seen as defensive.
Fintech players including Block’s Cash App, PayPal and Chime dominate account growth among people who switch bank accounts and have made inroads with Walmart’s core demographic. The three services made up 60% of digital player signups last year, according to data and consultancy firm Curinos.
But One has the advantage of being majority owned by a company whose customers make more than 200 million visits a week.
It can offer them enticements including 3% cashback on Walmart purchases and a savings account that pays 5% interest annually, far higher than most banks, according to customer emails from One.
Those terms keep customers spending and saving within the Walmart ecosystem and helps the retailer better understand them, Morgan Stanley analysts said in a 2022 research note.
“One has access to Walmart’s sizable and sticky customer base, the largest in retail,” the analysts wrote. “This captive and underserved customer base gives One a leg up vs. other fintechs.”
The eToro logo is seen during the 2021 Web Summit in Lisbon, Portugal.
Pedro Fiúza | Nurphoto | Getty Images
Stock brokerage platform eToro is getting interest from bankers and investors about a public market listing after its scrapped plans to go public via merger with a blank-check company, CEO Yoni Assia told CNBC.
“We definitely are eyeing the public markets,” Assia told CNBC in an exclusive interview last week. “I definitely see us becoming eventually a public company.”
“When is the ideal time to do that? We’re always evaluating the right opportunity at the right time and the right market,” he added.
Assia said that his brokerage company has built good relationships with exchanges, including the Nasdaq stock exchange.
EToro has already put the work in toward becoming a public company, he suggested, and the question of listing is more a matter of when, not if.
“It’s our business, right? Retail investors come to eToro to buy shares of a public company. So we’re happy to engage and build those relationships over time as we scale more.”
Figures shared by eToro with CNBC exclusively show that the firm recorded $630 million in revenue in 2023, more or less matching the $631 million in revenue it attracted in 2022.
But the company reported more than $100 million in EBITDA (earnings before interest, tax, depreciation, and amortization), an impressive margin for a retail brokerage business.
The company did not provide a comparable profit figure for 2022.
EToro relies mainly on fees related to trading, like spreads on buy and sell orders, as well as fees for non-trading activities like money withdrawals and currency conversion.
EToro now has 35.5 million registered users, and over 3 million funded accounts. The company crossed $10 billion in total customer assets under administration in 2023, according to its financials.
Assia also disclosed that eToro has purchased a company called Deep, which focuses on content automation.
This is an area the company plans to focus on heavily in 2024.
Assia said eToro has been using AI heavily in its business, particularly in content and marketing. Around 80% of all of eToro’s marketing context, graphics, content, and localization integrates AI, he added.
AI is also serving a use case in investing and trading, according to Assia, with the company focusing heavily on integrating this into the product experience.
AI-related stocks, meanwhile, have generated a great deal of buzz among eToro’s userbase.
“If we think about AI, and what is the holy grail of AI for our customers, it’s obviously generating alpha in the markets,” Assia told CNBC.
AI has become a buzzy area for investors following the explosion of interest surrounding ChatGPT, the AI chatbot developed by Microsoft-backed company OpenAI.
EToro, which lets users buy and sell stocks via an online platform, was originally meant to go public through a combination with the special-purpose acquisition company, or SPAC, FinTech Acquisition Corp â which belonged to Bancorp founder Betsy Cohen.
A SPAC is effectively a listed shell company that’s set up with the aim of taking another target company public. The trend was immensely popular during a boom in such listings in 2020 and 2021 that saw companies from Virgin Orbit to Cazoo go public in much-hyped deals. The hype has since faded.
But eToro shelved these plans, which would have given the company a valuation of $8.8 billion.
Assia, who claims to have begun his trading journey from an early age, said eToro has learned a lot from the experience, which saw FinTech Acquisition Corp plummet and eventually dissolve and liquidate.
“We’ve learned a lot from the experience, looking at public markets in the U.S. and seeing sort of the bubble burst,” Assia told CNBC.
“We said 2022 is the year of education for customers to understand that the markets don’t always go up,” Assia said. “And I think 2023 is probably an educational year around the globe.”
“When everybody’s pessimistic is when markets actually do go up.”
Since its shelved listing plans, eToro in March 2023 raised $250 million at a $3.5 billion valuation in a deal backed by SoftBank Vision Fund 2, ION Investment Group, and Velvet Sea Ventures.
Financial technology companies have had a tough time over the last couple of years following a spike in interest rates, which have clobbered some risk assets. More recently, companies have seen a better time in the public markets, with shares of Affirm and Coinbase up 172% and 165%, respectively.
That hasn’t yet translated into private markets which, on the whole, remain depressed from levels reached during the height of the 2020 and 2021 fintech boom.
Assia noted that retail investors aren’t quite yet back in full in the stock market, and are still facing challenges given the higher cost of living.
However, he expects things to improve in 2024 with the expectation that interest rates will be lowered by the U.S. Federal Reserve.
Assia said eToro was focused heavily on product in 2023, prioritizing things like a better advanced trading experience and technical analysis features for its more hardcore user base.
Capital One’s recently announced $35.3 billion acquisition of Discover Financial isn’t just about getting bigger â gaining “scale” in Wall Street-speak â it’s a bid to protect itself against a rising tide of fintech and regulatory threats.
It’s a chess move by one of the savviest long-term thinkers in American finance, Capital One CEO Richard Fairbank. As a co-founder of a top 10 U.S. bank by assets, his tenure is a rarity in a banking world dominated by institutions like JPMorgan Chase that trace their origins to shortly after the signing of the Declaration of Independence.
Fairbank, who became a billionaire by building Capital One into a credit card giant since its 1994 IPO, is betting that buying rival card company Discover will better position the company for global payments’ murky future. The industry is a dynamic web where players of all stripes â from traditional banks to fintech players and tech giants â are all seeking to stake out a corner in a market worth trillions of dollars by eating into incumbents’ share amid the rapid growth of e-commerce and digital payments.
“This deal gives the company a stronger hand to battle other banks, fintechs and big tech companies,” said Sanjay Sakhrani, the veteran KBW retail finance analyst. “The more that they can separate themselves from the pack, the more they can future-proof themselves.”
The deal, if approved, enables Capital One to leapfrog JPMorgan as the biggest credit card company by loans, and solidifies its position as the third largest by purchase volume. It also adds heft to Capital One’s banking operations with $109 billion in total deposits from Discover’s digital bank and helps the combined entity shave $1.5 billion in expenses by 2027.
But it’s Discover’s payments network â the “rails” that shuffle digital dollars between consumers and merchants, collecting tolls along the way â that Fairbank repeatedly praised Tuesday when analysts queried him on the strategic merits of the deal. There are only four major card networks: giants Visa and Mastercard, then American Express and finally the smallest of the group, Discover.
Capital One and Discover credit cards arranged in Germantown, New York, US, on Tuesday, Feb. 20, 2024.Â
Angus Mordant | Bloomberg | Getty Images
“That network is a very, very rare asset,” Fairbank said. “We have always had a belief that the Holy Grail is to be able to be an issuer with one’s own network so that one can deal directly with merchants.”
From the time of Capital One’s founding in the late 1980s, Fairbank said, he envisioned creating a global digital payments tech company by owning the payment rails and dealing directly with merchants. In the decades since, Capital One has been ahead of stodgier banks, gaining a reputation in tech circles for being forward-thinking and for its early adoption of cloud computing and agile software development.
But its growth has relied on Visa and Mastercard, which accounted for the vast majority of payment volumes last year, processing nearly $10 trillion in the U.S. between them.
Capital One intends to boost the Discover network, which carried $550 billion in transactions last year, by quickly switching all of its debit volume there, as well as a growing share of its credit card flows over time.
By 2027, the bank expects to add at least $175 billion in payments and 25 million of its cardholders onto the Discover network.
The true potential of the Discover deal, though, is what it allows Capital One to do in the future if it owns the toll road, according to analysts.
By creating an end-to-end ecosystem that is more of a closed loop between shoppers and merchants, it could fend off competition from rapidly mutating fintech players like Block and PayPal, as well as buy now, pay later firms like Affirm and Klarna, who have made inroads with both businesses and consumers.
Capital One aims to deepen relationships with merchants by showing them how to boost sales, helping them prevent fraud and providing data insights, Fairbank said Tuesday, all of which makes them harder to dislodge. It can use some of the network fees to create new loyalty plans, like debit rewards programs, or underwrite merchant incentives or experiences, according to analysts.
“Owning a network allows us to deal more directly with merchants rather than a network intermediary,” Fairbank told analysts. “We create more value for merchants, small businesses and consumers and capture the additional economics from vertical integration.”
It’s a capability that technology or fintech companies probably covet. The Discover network alone would be worth up to $6 billion if sold to Alphabet,Apple or Fiserv, Sakhrani wrote Tuesday in a research note.
The Capital One-Discover combination could fortify the company against another potential threat â from Washington.
Proposed legislation from Sen. Dick Durbin, D-Ill., aims to cap the fees charged by Visa and Mastercard, potentially blowing up the economics of credit card rewards programs. If that proposal becomes law, the competitive position of Discover’s network, which is exempt from the limitations, suddenly improves, according to Brian Graham, co-founder of advisory firm Klaros Group. That mirrors what an earlier law known as the Durbin amendment did for debit cards.
Chairman Dick Durbin (D-IL) speaks during a US Senate Judiciary Committee hearing regarding Supreme Court ethics reform, on Capitol Hill in Washington, DC, on May 2, 2023.
Mandel Ngan | AFP | Getty Images
“There are a bunch of things aimed, in one way or another, at the card networks and that ecosystem,” Graham said. “Those pressures might be one of the things that creates an opportunity for Capital One in the future if they have control over this network.”
The biggest question for Capital One, its customers and investors is whether the merger will ultimately be approved by regulators. While Fairbank said he expects the deal to be closed in late 2024 or early 2025, industry experts said it was impossible to know whether it will be blocked by regulators, like a string of high-profile takeovers among banks, airlines and tech companies.
On Tuesday, Democratic Sen. Elizabeth Warren of Massachusetts urged regulators to swiftly block the deal, calling it “dangerous.” Sen. Sherrod Brown, D-Ohio, chairman of the Senate Banking Committee, said he would be watching the deal to “ensure that this merger doesn’t enrich shareholders and executives at the expense of consumers and small businesses.”
The Discover deal’s survival may hinge on whether it’s seen as boosting an also-ran payments network, or allowing an already-dominant card lender to level up in size â another reason Fairbank may have played up the importance of the network.
“Which thing you are more concerned about will define whether you think this is a good deal or a bad deal from a public policy point of view,” Graham said.
A young man holds a credit card and uses a laptop for online shopping.
Diy13 | Istock | Getty Images
Americans shopping online after midnight often make riskier transactions and are more likely to default on their loans, according to Affirm Chief Financial Officer Michael Linford.
The fintech firm uses the hour a consumer attempts a transaction as a key data point to help determine whether to approve loans, Linford told CNBC in a recent interview. Other factors include a user’s repayment history with Affirm and transaction data from credit bureau Experian.
“Local time of day is a signal that we use in underwriting, and most times of day have the same credit risk,” Linford said. Between midnight and 4 a.m., however, something changes, he said.
“Human beings don’t make the best decisions at two o’clock in the morning,” Linford said. “It’s clear as day â credit delinquencies spike right around 2 a.m.”
While the data is clear that late-night financial decisions are riskier, the reasons for it are less so. Shoppers could be inebriated or under financial or emotional duress and desperately seeking credit, Linford said.
Affirm, run by PayPal co-founder Max Levchin, is among a new breed of fintech lenders competing with credit cards issued by banks. The buy now, pay later industry offers installment loans that typically range from no-interest short-term transactions to rates as high as 36% for longer-term credit.
Firms including Affirm, Klarna and Sezzle have embedded their services in the online checkout pages of retailers.
A key to their business model is the ability to approve or reject customers in real time and at the transaction level, using data to help judge the odds of being repaid.
“We don’t need to know if you’re going to be employed in two years,” Linford said. “We need to know whether you’re going to be able to pay back the $700 purchase you’re making right now. That is very different from credit cards, where they give you a line and say, ‘Godspeed.'”
The use of buy now, pay later loans has grown along with the overall rise in consumer debt. While the industry touts up-front rates and fewer fees compared to credit cards, critics have said they enable users to overspend.
But Affirm manages repayment risk by either denying transactions or offering shorter-term loans that require down payments, Linford said. Last week, Affirm reported that 30-day delinquencies on monthly loans held steady at 2.4% during the last three months of 2023from a year earlier, even as total purchase volumes surged 32% during that time.
Affirm has little incentive to allow users to pile up debts, according to the CFO.
“If you can’t pay us back, we’ve lost, unlike with credit cards,” Linford said. “We don’t charge late fees. We don’t revolve, we don’t compound.”
The rates at Affirm are in contrast to credit card delinquencies at the four biggest U.S. banks, which have been climbing since 2021 as loan balances have grown. Americans owed $1.13 trillion on credit cards as of the fourth quarter of last year, a $50 billion increase from the previous quarter amid higher interest rates and persistent inflation, according to a Federal Reserve Bank of New York report.
“The job environment is good, so it begs the question, why are credit card delinquencies creeping up?” Linford said. “The answer is, they took their eye off of underwriting and from my perspective, they got aggressive in a time when consumers were beginning to show stress.”
Swedish buy now, pay later firm Klarna unveils a $7.99 monthly subscription plan called Klarna Plus
Courtesy: Klarna
Swedish fintech firm Klarna is launching a monthly subscription plan in the U.S. to lock in its heaviest users ahead of an expected initial public offering this year, the company told CNBC.
The product is set to be announced later Wednesday and will cost $7.99 per month, the Stockholm-based company said.
Users of the subscription plan, named Klarna Plus, will get service fees waived, earn double rewards points and have access to curated discounts from partners including Nike and Instacart, according to Chief Marketing Officer David Sandstrom.
Buy now, pay later services such as Klarna and Affirm have surged in popularity in recent years as more Americans rely on a new, fintech-enabled form of credit. The services typically break up a purchase into four payments.
When Klarna users shop outside the firm’s network of 500,000 retailers — at places such as Walmart, Target, Amazon and Costco — they pay $1 to $2 in transaction fees.
“The main proposition of Klarna Plus right now is that you don’t pay any service fees,” Sandstrom said. “So if you love Klarna and if you love shopping at Target and Walmart, it makes a ton of sense financially.”
Klarna’s monthly plan is the latest example of a fintech player building out its offerings to boost recurring revenue. Wall Street investors tend to favor subscription revenue because of its predictability versus one-time transactions. Rival Affirm has explored its own subscription plan, though it hasn’t released one yet.
The approach is especially timely as Klarna nears an IPO that could value it at more than $15 billion, Sky News reported in November. Klarna CEO Sebastian Siemiatkowski told Bloomberg this week that a listing in the U.S., the firm’s largest market, was probably imminent.
Achieving that valuation would be a redemption of sorts for Klarna. The company was Europe’s most valuable startup before a collapse made it the poster child for so-called “down rounds” of funding. Klarna’s valuation sank 85% to $6.7 billion in 2022 as rising interest rates reined in high-flying fintech firms.
Klarna Plus could help persuade investors that the company can grow beyond its core product. The subscription, which was piloted in Utah for six months last year, is a “no brainer” for about 15% of the firm’s heaviest users, Sandstrom said. The company said it has about 37 million American customers.
“The thing we need to prove to ourselves and to the market is that we can add a new kind of revenue stream to Klarna,” Sandstrom said. “That’s something that a lot of companies have struggled to do.”
Up next for the U.S. is a high-yield savings account, Sandstrom said. Klarna Plus customers would probably earn a higher interest rate on savings than nonusers, he added.
“If you look at our business from the outside, it looks very much like ‘buy now, pay later,'” Sandstrom said. But “a world of opportunity opens up with someone you’ve helped in a financial relationship. You get to say, ‘Hey, wouldn’t it make sense to get the Klarna card?'”
Correction: This story has been updated to correct that Klarna’s subscription plan, Klarna Plus, was piloted in Utah after the company corrected information it had earlier provided.
Two centuries ago one of the first economists, David Ricardo coined the still famous investment adage “Let your profits run (on).” Makes sense. All else equal, one would prefer to own or buy stocks in uptrends, and there have been some exceptional uptrends this year. Thirty-six Russell 1000 stocks are up more than 100%. What would Ricardo have done with his winners if he had options to trade? Here’s my take. Let ’em ride: Several of 2023’s best-performing stocks were grossly undervalued at the beginning of the year. In some cases for reasons that were easily identifiable both then and now. Arguably the best example is Meta . At its November 2022 low Meta traded down to $90 a share, less than 7 times the $13.71 in adjusted eps the company earned in FY2021. Although revenue growth paused in 2022 the company had a very strong balance sheet and had historically been a free cash flow generating powerhouse. The problem was that Mark Zuckerberg was losing billions, throwing money at his vision for the metaverse, and investors were concerned it had become an obsession taking precedence over the best course for the business. Many investors were quite vocal about their displeasure, but voicing their concerns was all they could do because Zuckerberg controls more than 50% of the voting rights through a special class of shares. So while investors recognized the company could deliver massive earnings and free cash flow, they were afraid Zuckerberg had gone off the reservation. Eventually, though he did elect to moderate his spending on his ambitious visions. The company has returned to record profitability and free cash flow generation and the stock has responded in kind, up 140% since the November 2022 low. While certainly not as cheap as it was a year ago, Meta remains cheap at not because it is trading at 20 times FY2024 EPS estimates of $18 a share, but because that represents 20% annual EPS growth. The stock sports topline growth, substantial margins, a strong balance sheet, substantial free cash flow, and a moat around its business. META’s biggest threat is itself, and as long as management doesn’t go back down the rabbit hole, it is a poster child for growth at a reasonable price (GARP). Other big winners for 2023 that remain well positioned for 2024 as long-term rates have dropped while unemployment has remained low include Vertiv Holding , Builders Firstsource , Topbuild Corp , and PulteHome . Nvidia and Uber are too, even despite the huge runs they’ve had at reasonable valuation given their respective growth rates, but bear in mind that some investors may have deferred taking gains in these and other large winners for tax reasons. Due to this and their high betas, any market choppiness in the market generally will affect these names more severely. It’s time to hedge some of those gains (or take profits): The second best-performing stock in the Russell 1000 for 2023 is Coinbase (COIN) . As of year-end 2022, COIN was down more than 90% from its November 2021 peak. Investors shunned the stock as cryptocurrencies had plummeted. Bitcoin, the most well-known cryptocurrency, had fallen more than 76% from peak to trough, and it would be reasonable to assume that if cryptocurrencies continued to perform badly, speculators would trade them less often which would hurt the business of a crypto exchange. It did. Revenues fell nearly 60% year-over-year between FY2021 and FY2022. The company, which had made $21 in adjusted EPS in 2021, swung to a $6.63 a share loss. Unsurprisingly, as cryptocurrencies rebounded in 2023, so did COIN. What’s surprising though is the degree to which it rebounded. Where bitcoin rose > 150%, COIN is up over 400%. Some businesses are indeed highly leveraged to prices for other goods or assets. Gold miners’ prices are levered to the price of gold, oil companies to the price of oil, chip makers like MU to the price of NAND and DRAM and cryptocurrency miners and exchanges to the prices of the cryptocurrency. The issue I have with Coinbase is that despite the sharp increase in cryptocurrency prices, revenues and earnings have not rebounded in quite the same way. FY2024 revenue expectations of 2.9 billion are more than 60% below the company’s zenith in 2021 of $7.8 billion. The company is expected to report FY2023 losses of 89 cents share. Street estimates are not forecasting a return to profitability until 2027. Why not? How is it that cryptocurrency prices can rebound so sharply and the company cannot return to the same level of profitability they saw in 2020 when the price of bitcoin for example was far lower than it is today? If I believed that Coinbase could reliably generate $4.7 billion in net income as it did in 2021 this thing would be ludicrously cheap, but it feels as if the landscape is shifting beneath the company’s feet. Other companies I place in this category include Roku and SoFi . The single best-performing stock in the Russell 1000 for 2023 is Affirm , up nearly 420% year-to-date. Affirm Holdings is a popular buy now, pay later fintech company. How popular? It’s growing topline at greater than 20%. Its popularity is understandable. In some cases, it offers purchases at zero interest, considerably more attractive than using a high-interest credit card. Additionally, these loans aren’t currently reported to TransUnion or Equifax, so the impact of taking the loan on the borrower’s credit score may be reduced, and in any case, borrowers may wish to preserve available credit lines for other uses. Likely, the company’s partnerships with big online outlets such as Amazon and Walmart are going to show substantial gains during this holiday shopping season. The market opportunity is also substantial relative to the company’s size. At $15 billion in market capitalization, Affirm is still tiny. To put things in perspective, the combined market capitalization of Visa and Mastercard is nearly $1 trillion. Paypal is nearly $70 billion. The problem here is that the idea of buy-now-pay-later isn’t proprietary. Affirm is likely to face competition from other payment players. Charge-offs remain low, but we know that consumer credit balances have been rising steadily and are now at all-time highs. Auto loan delinquencies have also been rising. If the other large credit agencies TransUnion or Equifax eventually join Experian and begin tracking these loans, that would eliminate a perceived benefit by consumers. Ultimately though it comes down to a question of whether I would prefer to own money-losing Affirm based on their topline growth, or profitable Paypal for 1/10th the multiple betting they’ll catch on to the portions of Affirm’s business that are growing. If you own, but don’t want to sell, consider purchasing the March $45/$35 put spread as a particle hedge, as illustrated below. The answer is simple, I’d much rather own PayPal (or the major credit card companies). Other names I place in this category include Palantir Technologies . Here too is a company that is growing, but it’s unclear whether the growth targets may be a bit ambitious. Palantir relies heavily on government contracts, greater than 56% by revenue. Government business can be great, but it does introduce concentration risk as that segment of their revenue share indicates. One final thing: hedge when you can, not when you have to. As I write this the VIX Index closed at 12.45, only narrowly higher than the 12.07 low for the year on December 12th while the S & P 500 is just slightly below its record high set on January 3, 2022. DISCLOSURES: THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL’S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.
CNBC’s Jim Cramer on Tuesday explained why the regional and national banking sector has performed poorly this year.
“When we look back at this era of stagnant bank stock prices, I think we may have to conclude that unless something changes, they’ve become an anchor to leeward in a market desperate for a broader firmament,” he said.
Cramer said part of traditional banks’ issues stem from fear of regulators, who have become more aggressive. Banks also ran into problems when they made investments in longer-term bonds while interest rates were lower, with these assets now worth less in a higher rate environment, he said. He added that regional banks should consider mergers to cut costs.
But Cramer also stressed many banks’ inability to modernize, saying they “simply missed an entire generation of customers.”
Banks should have tried to get in on fintech businesses with newer modes of money lending and management, he said, mentioning enterprises like PayPal or Affirm, which offers customers “buy now, pay later” services. Cramer also wondered why banks “ceded” point-of-sale business to companies like Toast, a cloud-based restaurant management outfit.
“I don’t want to hear that they aren’t allowed to innovate,” Cramer said. “These banks could figure out a way to do more — they could do it — if they were more creative, and they would have got permission. Heck, the government should want them to do it, then they could regulate these financial technology businesses.”
(This is CNBC Pro’s live coverage of Tuesday’s analyst calls and Wall Street chatter. Please refresh every 20-30 minutes to view the latest posts.) Some of Tuesday’s biggest calls featured upgrades on an aerospace giant and a key player in the buy now, pay later space. RBC raised its rating on Boeing to outperform, noting the setup for the stock heading into next year is improving. Jefferies also upgraded Affirm to hold from underperform as headwinds weighing on the stock ease. There were also some downgrades, however. UBS lowered its rating on ChargePoint, as the electric vehicle charging company’s struggles continue. Check out the latest calls and chatter below. 6:15 a.m. ET: Bernstein initiates Confluent as outperform Bernstein initiated coverage of Confluent with an outperform rating, categorizing the cloud provider as an “attractive revenue story with tailwinds from cloud adoption — a long-duration high-growth megatrend — with a durable competitive position relative to hyperscalers and new entrants.” Specifically, analyst Peter Weed pointed towards Confluent’s durable advantages versus newer entrants to the space. Weed’s $35 price target implies a potential 87% upside for the company. “We think several revenue-side controversies create an upside to consensus,” the analyst wrote. “There is debate about post-macro Cloud growth re-acceleration timing and pace — our model is more optimistic than some on the street.” Some investors are worried that Confluent’s strong correlation to cloud growth will break, but Weed disagrees, anticipating that this risk should decline as the company’s customer base continues to scale and diversify. — Lisa Kailai Han 6 a.m. ET: UBS downgrades ChargePoint and slashes price target Shares of ChargePoint may have plummeted nearly 80% this year, and UBS doesn’t see the situation improving anytime soon. The bank downgraded shares of the electric vehicle charging company to neutral from buy, simultaneously slashing its price target to a mere $2.25 from $9. This still corresponds to a 13% upside from the stock’s Monday closing price of $1.99. Analyst Robert Jamieson cited a “less clear” topline trajectory as a reason for the downgrade. While the company gained market share in 2023, Jamieson is more cautious on its growth growing forward. “As deliveries slow, we expect CHPT to see more material impact than other competitors that have lower L2 [Level 2] market share. We now expect FY24 and FY25 revenue of $515MM & $611MM, vs $628MM & $851MM, respectively,” he wrote. The analyst also highlighted ChargePoint’s weakness in the end-market fleet business, versus peers with more solid footing such as Blink Charging. “We expect a tougher competitive environment to pressure CHPT share in fleet,” Jamieson said. — Lisa Kailai Han 5:44 a.m. ET: Big banks see upside ahead for Broadcom following VMWare acquisition Broadcom’s acquisition of virtualization software firm VMWare should bode well for the combined company going forward, according to Bank of America and UBS. Following the closure of the acquisition, analysts from the two banks reiterated their buy ratings for shares of Broadcom and lifted their respective price targets. UBS’ Timothy Arcuri raised his price target to $1,125 from $925, implying upside of 18%. Bank of America’s Vivek Arya lifted his price target to $1,200, or more than a 26% increase from the stock’s Monday close of $950.24. Arcuri now predicts that free cash flow numbers for the combined entity will increase by 29% and 34% respectively for 2024 and 2025, allowing Broadcom to increase its dividends. Arya added that diving into the company’s business mix, VMWare changes Broadcom’s semis/software ratio to 60%/40% from 78%/22%. “On surface, it’s been tough to explain the synergy between the two segments, but we believe the underappreciated force has been AVGO’s power to leverage its enterprise CIO relationships and focus R & D/sales efforts into the right applications,” Arya wrote. — Lisa Kailai Han 5:31 a.m. ET: RBC upgrades Boeing, sees improving sentiment around the stock Shares of Boeing have been weighed down in 2022 and 2023 by execution and supply chain challenges and underperformance. But the setup for 2024 looks much more favorable for the company, according to RBC Capital Markets. Herbert upgraded Boeing to outperform from sector perform and lifted his price target to $275 from $200. That signals more than 25% upside from the stock’s Monday close of $219.30. “We believe we are in the early stages of a significant shift in sentiment on BA stock,” analyst Ken Herbert wrote. “We believe buy-side expectations for 2024-2025 [free cash flow] reflect conservatism, and as execution on the MAX and 787 continue to gradually improve, we believe the potential for positive revisions is growing.” Specifically, Herbert thinks strong demand in both the commercial and defense businesses — combined with improving production and delivery ramps — should bolster investor confidence towards an improving free cash flow outlook. — Lisa Kailai Han 5:31 a.m. ET: Jefferies upgrades Affirm Jefferies raised its rating on Affirm to hold from underperform and raised its price target to $30 per share. The firm said many of the factors pressuring the stock have “largely played out,” including “normalizing/deteriorating credit performance;” rising interest rates and “a trend of declining take rates given product and partner mix shift.” “Given that many of these factors have in one way or another come to play out, and given that we see stabilizing cost of capital and capital markets activity, stabilizing (if not improving for AFRM) credit performance and ongoing momentum in adoption rates for BNPL, we are moving our rating to Hold,” wrote analyst John Hecht. Shares of the buy now, pay later company have been on fire this year, surging more than 200%. Still, the stock is down 40% from its IPO price in 2021. Affirm closed Monday’s session at $29.37 per share. AFRM YTD mountain AFRM in 2023 — Fred Imbert
Amazon is unveiling its first buy now, pay later checkout option for the millions of small business owners who use its online store, CNBC learned exclusively.
The tech giant confirmed Thursday that its partnership with Affirm is expanding to include Amazon Business, the e-commerce platform that caters to companies.
Affirm shares jumped 19% on the news.
The service, with loans ranging from $100 to $20,000, will be available to all eligible customers by Black Friday, or Nov. 24. It is specifically for sole proprietors, or small businesses owned by a single person, the most common form of business ownership in the U.S.
It’s the latest sign of the widening adoption of a fintech feature that exploded in popularity early in the pandemic, along with the valuations of leading players Affirm and Klarna. When boom turned to bust in 2021, and valuations in the industry dropped steeply, skeptics pointed to rising interest rates and borrower defaults as hurdles for growth and profitability.
But for users, the option is touted as being more transparent than credit cards because customers know how much interest they will owe up front. That’s made its appeal durable for households and businesses coming under increasing strain as excess cash from pandemic stimulus programs has dwindled.
“We constantly hear from small businesses that say they need payment solutions to manage their cash flow,” Todd Heimes, director of Amazon Business Worldwide, said in an interview. “We offer the ability to use credit cards and to pay by invoice; this is another option available to small business customers to pay over time.”
Amazon Business was launched in 2015 after the company realized businesses were using its popular retail website for office supplies and bulk purchases. The division reached $35 billion in sales this year and has more than 6 million customers globally.
Amazon customer with access to a buy now, pay later option at checkout from Affirm.
Courtesy: Amazon Inc.
If approved, users can pay for Amazon purchases in equal installments over three to 48 months. They are charged an annualized interest rate between 10% and 36%, based on the perceived risk of the transaction, according to Affirm Chief Revenue Officer Wayne Pommen. There are no late or hidden fees, the companies said.
“The financial industry is not great at providing credit to really small businesses,” Pommen said. “They can’t walk into a bank branch and get a loan until they reach a certain scale. So us being able to provide this for purchases” helps business grow and manage their cash flows, he said.
The move is a boost in a crucial relationship for Affirm, which has had to search for revenue growth after demand for expensive Peloton bikes collapsed. Affirm first began offering installment loans to Amazon’s retail customers in 2021, launched on Amazon in Canada in 2022 and was then added to Amazon Pay earlier this year.
Affirm, which uses its own models to underwrite loans for each transaction it facilitates, decided to target sole proprietors first because they make up most small businesses in the country, with 28 million registered in the U.S., according to Pommen.
“We’ll see how the product performs and if it makes sense to expand it to a wider universe of businesses,” he said. “Our assessment is that we can underwrite this very successfully and have the strong performance that we need.”
Swedish buy now, pay later firm Klarna reduced its losses by roughly 67% in the first half of 2023, as the company dramatically cut costs in a bid toward profitability.
The company reported overall net operating income of 9.2 billion Swedish krona ($843.5 million), up 21% year-over-year. Failing to record a half-year profit, the firm posted a net loss of 2.1 billion Swedish krona for the period, down 67% from 6.4 billion krona between January to June 2022.
Klarna did, however, say that it recorded one month of profitability in the first half of the year, ahead of its internal target to post profit on a monthly basis in the second half.
Klarna CEO and founder Sebastian Siemiatkowski hailed the firm’s profitability milestone, saying that its results “clearly rebut the misconceptions around Klarna’s business model, evidencing that it is incredibly agile and sustainable,” and supporting a “healthy consumer base.”
“Some claimed Klarna would face difficulties in the tough macro-economic climate with high interest rates, but having led the company through the 2008 financial crisis I knew we had a strong and resilient business model to see us through. Despite the volatile environment, we have done exactly what we set out to do,” Siemiatkowski said.
Credit losses, a measure of how much the company sets aside for customer defaults, sank by 39% to 1.8 billion krona from 2.9 billion.
Buy now, pay later, or BNPL, firms allow shoppers to defer payments to a later date or purchase things over installments on interest-free credit.
These firms are able to offer zero-interest loans by charging merchants, rather than customers, a fee on each transaction — but as interest rates have risen, the BNPL funding model has been challenged.
Siemiatkowski previously told CNBC the company was planning to achieve profitability on a monthly basis in the second half of 2023, suggesting that an aggressive cost-cutting strategy in 2022 — which included hundreds of redundancies — had paid off.
Klarna cut 10% of its workforce in May last year.
“To some degree, all of us were lucky that we took that decision in May [2022] because, as we’ve been tracking the people who left Klarna behind, basically almost everyone got a job,” Siemiatkowski said at an interview in Helsinki, Finland, at the Slush technology conference last November.
“If we would have done that today, that probably unfortunately would not have been the case.”
Klarna said that cost optimization was a key factor behind its ability to churn out a monthly profit in the first half of the year.
The company said that operating expenses before credit losses improved by 26% year-on-year, thanks in part to its push into artificial intelligence.
Klarna said a recently-launched customer services feature “made solving merchant disputes for customers more efficient, saving over 60,000 hours annually.”
Like other fintech companies, Klarna has made a big push into AI lately, as it looks to capitalize on the growing boom in the industry’s growth, following the birth of OpenAI’s ChatGPT.
In April, the company revamped its app with a host of new personalized shopping features. It is trying to make the software similar to TikTok, which has a discovery feed for users to find content suited to their preferences.
David Sandstrom, Klarna’s chief marketing officer, told CNBC at the time that the aim was to “offer people products and brands before they knew they wanted them.”
Klarna last year saw 85% erased from its market value in a so-called “down round,” taking the company’s valuation down from $46 billion to $6.7 billion.
Some of the company’s peers, like PayPal, Affirm, and Block, also saw their shares plummet sharply amid a wider sell-off in technology valuations.
Klarna at the time blamed deteriorating macroeconomic conditions, including higher inflation, rising interest rates, and a shift in consumer sentiment.
Car-sharing service Turo filed its IPO prospectus in January 2022. A month earlier, Reddit said it submitted a draft registration for a public offering. Instacart’s confidential paperwork was filed in May of last year.
None of them have hit the market yet.
Despite a bloated pipeline of companies waiting to go public and a rebound in tech stocks that pushed the Nasdaq up 30% in the first half of 2023, the IPO drought continues. There hasn’t been a notable venture-backed tech initial public offering in the U.S. since December 2021, when software vendor HashiCorp debuted on the Nasdaq.
Across all industries, only 10 companies raised $100 million or more in U.S. initial share sales in the first six months of the year, according to FactSet. During the same stretch in 2021, there were 517 such transactions, highlighted by billion-dollar-plus IPOs from companies including dating site Bumble, online lender Affirm, and software developers UiPath and SentinelOne.
As the second half of 2023 gets underway, investors and bankers aren’t expecting much champagne popping for the rest of the year.
Many once high-flying companies are still hanging onto their old valuations, failing to reconcile with a new reality after a brutal 2022. Additionally, muted economic growth has led businesses and consumers to cut costs and delay software purchases, which is making it particularly difficult for companies to comfortably forecast the next couple of quarters. Wall Street likes predictability.
So if you’re waiting on a splashy debut from design software maker Canva, ticket site StubHub or data management company Databricks, be patient.
“There’s a disconnect between valuations in 2021 and valuations today, and that’s a hard pill to swallow,” said Lise Buyer, founder of IPO consultancy Class V Group in Portola Valley, California. “There will be incremental activity after a period of absolute radio silence but it isn’t like companies are racing to get out the door.”
The public markets tell an uneven story. This year’s rally has brought the Nasdaq to within 15% of its record from late 2021, while an index of cloud stocks is still off by roughly 50%.
Some signs of optimism popped up this month as Mediterranean restaurant chain Cava went public on the New York Stock Exchange. The stock more than doubled on its first day of trading, indicating high demand from retail investors. Buyer noted that institutions were also enthused about the deal.
Last Friday, Israeli beauty and tech company Oddity, which runs the Il Makiage and Spoiled Child brands, filed to go public on the Nasdaq.
That all comes after a big month for secondary offerings. According to data from Goldman Sachs, May was the busiest month for public stock sales since November 2021, driven by a jump in follow-on deals.
While investors are craving new names, they’re much more discerning when it comes to technology than they were at the tail end of the decade-long bull market.
Mega-cap stocks Apple and Nvidia have seen outsized gains this year and are back to trading near all-time highs, boosting the Nasdaq because of their hefty weightings in the index. But the advances are not evenly spread across the industry.
In particular, investors who bet on less mature businesses are still hurting. The companies that held the seven-biggest tech IPOs in the U.S. in 2021 have lost at least 40% of their value since their debut. Coinbase, which went public through a direct listing, is down more than 80%.
That year’s IPO class featured high-growth businesses with even higher cash burn, an equation that worked fine until recession concerns and rising interest rates pushed investors into assets better positioned to withstand an economic slowdown and increased capital costs.
Employees of Coinbase Global Inc, the biggest U.S. cryptocurrency exchange, watch as their listing is displayed on the Nasdaq MarketSite jumbotron at Times Square in New York, April 14, 2021.
Shannon Stapleton | Reuters
Bankers and investors tell CNBC that optimism is picking up, but ongoing economic concerns and the valuation overhang from the pre-2022 era set the stage for a quiet second half for tech IPOs.
One added challenge is that fixed income alternatives are back. Following a lengthy stretch of near-zero interest rates, the Federal Reserve this year lifted its target rate to between 5% and 5.25%. Parking money in short-term Treasurys, certificates of deposit and high-yield savings offerings can now generate annual returns of 5% or more.
“Interest rates are not only about the cost of financing, but also getting investors to trade out of 5% risk-free returns,” said Jake Dollarhide, CEO of Longbow Asset Management. “You can make 15%-20% in the stock market but lose 15%-20%.”
Dollarhide, whose firm has invested in milestone tech offerings like Google and Facebook, says IPOs are important. They offer more opportunities for money managers, and they generate profits for the tech ecosystem that help fund the next generation of innovative companies.
But he understands why there’s skepticism about the window reopening. Perhaps the biggest recent bust in tech investing followed the boom in special purpose acquisition companies (SPACs), which brought scores of less mature companies to the public market through reverse mergers.
“It seems the foul odor of failure from the 2021 SPAC craze has spoiled the appetite from investors seeking IPOs,” Dollarhide said. “I think that’s done some harm to the traditional IPO market.”
Private markets have felt the impact. Venture funding slowed dramatically last year from record levels and has stayed relatively suppressed, outside of the red-hot area of artificial intelligence. Companies have been forced to cut staff and close offices in order to preserve cash and right-size their business
Pre-IPO companies like Stripe, Canva and Klarna have taken huge hits to their valuations, either through internal measures or markdowns from outside investors.
Few have been hit as hard as Instacart, which has repeatedly slashed its valuation, from a peak of $39 billion to as low as $10 billion in late 2022. Last year, the company confidentially registered for an IPO, but still hasn’t filed publicly and doesn’t have immediate plans to do so.
Similarly, Reddit said in December 2021 that it had confidentially submitted a draft registration statement to go public. That was before the online ad market took a dive, with Facebook suffering through three straight quarters of declining revenue and Google’s ad sales also slipping.
Now Reddit is in the midst of a business model shift, moving its focus beyond ads and toward generating revenue from third-party developers for the use of its data. But that change sparked a protest this month across a wide swath of Reddit’s most popular communities, leaving the company with plenty to sort through before it can sell itself to the public.
A Reddit spokesperson declined to comment.
Turo was so close to an IPO that it went beyond a confidential filing and published its full S-1 registration statement in January 2022. When stocks sold off, the offering was indefinitely delayed. To avoid withdrawing its filing, the company has to continue updating its quarterly results.
Like Instacart, Turo operates in the sharing economy, a dark spot for investors last year. Airbnb, Uber and DoorDash have all bounced back in 2023, but they’ve also instituted significant job cuts. Turo has gone in the opposite direction, more than doubling its full-time head count to 868 at the end of March from 429 at the time of its original IPO filing in 2021, according to its latest filing. The company reportedly laid off about 30% of its staff in 2020, during the Covid pandemic.
Turo and Instacart could still go public by year-end if market conditions continue to improve, according to sources familiar with the companies who asked not to be named because they weren’t authorized to speak publicly on the matter.
Byron Deeter, a cloud software investor at Bessemer Venture Partners, doesn’t expect any notable activity this year, and says the next crop of companies to debut will most likely wait until after showing their first-quarter results in 2024.
“The companies that were on file or were considering going out a little over a year ago, they’ve pulled, stopped updating, and overwhelmingly have no plans to refile this calendar year,” said Deeter, whose investments include Twilio and HashiCorp. “We’re 10 months from the real activity picking up,” Deeter said, adding that uncertainty around next year’s presidential election could lead to further delays.
In the absence of IPOs, startups have to consider the fate of their employees, many of whom have a large amount of their net worth tied up in their company’s equity, and have been waiting years for a chance to sell some of it.
Stripe addressed the issue in March, announcing that investors would buy $6.5 billion worth of employee shares. The move lowered the payment company’s valuation to about $50 billion from a high of $95 billion. Deeter said many late-stage companies are looking at similar transactions, which typically involve allowing employees to sell around 20% of their vested stock.
He said his inbox fills up daily with brokers trying to “schlep little blocks of shares” from employees at late-stage startups.
“The Stripe problem is real and the general liquidity problem is real,” Deeter said. “Employees are agitating for some path to liquidity. With the public market still pretty closed, they’re asking for alternatives.”
G Squared is one of the venture firms active in buying up employee equity. Larry Aschebrook, the firm’s founder, said about 60% of G Squared’s capital goes to secondary purchases, helping companies provide some level of liquidity to staffers.
Aschebrook said in an interview that transactions started to pick up in the second quarter of last year and continued to increase to the point where “now it’s overwhelming.” Companies and their employees have gotten more realistic about the market reset, so significant chunks of equity can now be purchased for 50% to 70% below valuations from 2021 financing rounds, he said.
Because of nondisclosure agreements, Aschebrook said he couldn’t name any private company shares he’s purchased of late, but he said his firm previously bought pre-IPO secondary stock in Pinterest, Coursera, Spotify and Airbnb.
“Right now there’s a significant need for that release of pressure,” Aschebrook said. “We’re assisting companies with elongating their private lifecycle and solving problems presented by staying private longer.”
Founders: Travis Holoway (CEO), Rodney Williams Launched: 2015 Headquarters: Los Angeles Funding: $24 million Valuation: $150 million Key technologies: Decentralized finance (DeFi) Industry: Fintech Previous appearances on Disruptor 50 List: 0
The banking system leaves out a lot of people — cutting them off from access to capital, whether it’s for a new car, a house, or to start a business. Travis Holoway and Rodney Williams saw the negative impact this had on their friends and family who needed access to short-term loans but had to go without. The experiences spurred them to start SoLo Funds, a community finance platform where members borrow and lend to make a return or a social impact.
“We remembered being kids when our parents had bills due on Friday but didn’t get paid until Monday, so the lights would be shut off when we didn’t pay on time. That kind of experience is sadly very common for many Americans, so we wanted to create a solution that gave people a chance,” Williams said in an August 2022 interview.
SoLo is among the fintech firms trying to make the financial system more equitable so that more people want to be a part of it. It works by acting as a peer-to-peer lending platform. Would-be borrowers create a loan request and are matched with an investor, who can be an individual. The two parties agree on repayment terms though SoLo puts some guidelines around this.
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Since its founding in 2018, the company has gained more than a million users, issued $150 million in loans and run $280 million in transaction volume. The majority, or 82%, of its members are from underserved zip codes. At a time when the number of Black-owned banks has declined sharply, SoLo is looking to fill the void. The company says it is the largest Black-founded and led fintech or neobank.
The company’s mission has garnered support from prominent or celebrity investors such as Kesha Cash, the founder of Impact America, which is the largest fund run by a Black woman, and Serena Williams, who runs Serena Ventures.
But its growth has not come without controversy in the highly regulated industry of financial services. Critics and state regulators have come after SoLo for a model in which consumers were asked to pay tips for the loans they received. Most notably, Connecticut regulators issued a temporary cease and desist order last year, alleging that 100% of the loans to Connecticut residents originated on the platform from June 2018 to August 2021 required some form of a tip being paid — and that resulted in actual interest rates on loans pitched as 0% APR to range from 43% to over 4280% — and that it lacked proper licenses in the state.
SoLo co-founder Williams told American Banker, in response to questions about legal issues, that the company is “working through that process.”
It’s staffing up for the fight, too. In February, the company made several executive hires with experience in bank compliance and government regulation: Collin Schwartz, who worked for multiple global banks, as general counsel; Kyle George, who worked in the Nevada Attorney General and Governor’s offices, to head government & regulatory affairs; and Manny Alvarez, former official at buy now, pay later company Affirm, and former banking commissioner for the state of California.
At the time of those hires, Williams stated, “Too many policymakers don’t understand the challenges and opportunities faced by everyday Americans affected by their decisions, which is a major problem we are working to change.”
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Upgrade CEO Renaud Laplanche speaks at a conference in Brooklyn, New York, in 2018.
Alex Flynn | Bloomberg via Getty Images
The technology industry is known for innovation and spawning the next big thing. But at a time of economic uncertainty and rising interest rates, a growing piece of the tech sector is going after one of the most noninnovative products on the planet: yield.
With U.S. Treasury yields climbing late last year to their highest in more than a decade, consumers and investors can finally generate returns just by parking their money in savings accounts.
Banks are responding by offering higher-yielding offerings. American Express, for example, offers consumers a 3.75% annual percentage yield (APY), and First Citizens‘ CIT Bank has a 4.75% APY for customers with at least $5,000 in deposits. Ally Bank, which is online only, is promoting a 4.8% certificate of deposit.
However, some of the highest rates available to savers aren’t coming from traditional financial firms or credit unions, but rather from companies in and around Silicon Valley.
Apple is the most notable new entrant. Last month, the iPhone maker launched its Apple Card savings account with a generous 4.15% APY in partnership with Wall Street giant Goldman Sachs.
Then there’s the whole fintech market, consisting of companies offering consumer financial services with a focus on digital products and a friendly mobile experience instead of physical branches with costly bank tellers and loan officers.
Stock trading app Robinhood has a feature called Robinhood Gold, which offers 4.65% APY. Interest is earned on uninvested cash swept from the client’s brokerage account to partner banks. It’s part of a $5-a-month subscription that also includes lower borrowing costs for margin investing and research for stock investing.
The company lifted its yield from 4.4% on Wednesday after the Federal Reserve approved its 10th rate increase in a little more than a year, raising its benchmark borrowing rate by 0.25 percentage point to a target range of 5%-5.25%.
Fed Chair Jerome Powell speaks during a conference at the Federal Reserve Bank of Chicago on June 4, 2019.
Scott Olson | Getty Images
“At Robinhood, we’re always looking for ways to help our customers make their money work for them,” the company said in a press release announcing its hike.
LendingClub, an online lender, is promoting an account with a 4.25% yield. The company told CNBC that deposit growth was up 13% for the first quarter of 2023 compared with the prior quarter, “as depositors looked to diversify their money out of traditional banks and earn increased savings.” Year over year, savings deposits have increased by 81%.
And Upgrade, which is led by LendingClub founder Renaud Laplanche, offers 4.56% for customers with a minimum balance of $1,000.
“It’s really a trade-off for consumers, between safety or the appearance of safety, and yield,” Laplanche told CNBC. Upgrade, which is based in San Francisco, and most other fintech players keep customer deposits with institutions backed by the Federal Deposit Insurance Corp., so consumer funds are safe up to the $250,000 threshold.
SoFi is the rare example of a fintech with a banking charter, which it acquired last year. It offers a high-yield savings product with a 4.2% APY.
The story isn’t just about rising interest rates.
Across the emerging fintech spectrum, companies like Upgrade are, intentionally or not, taking advantage of a moment of upheaval in traditional finance. On Monday, First Republic became the third American bank to fail since March, following the collapses of Silicon Valley Bank and Signature Bank. All three saw depositors rush for the exits as concerns about a liquidity crunch led to a cycle of doom.
Shares of PacWest and other regional banks have plummeted this week, even after First Republic’s orchestrated sale to JPMorgan Chase was meant to signal stability in the system.
After the collapse of SVB, Laplanche said Upgrade’s banking partners came to the company and asked it to step up the inflow of funds, an apparent effort to stanch the withdrawals at smaller banks. Upgrade farms out the money it attracts to a network of 200 small- and medium-sized banks and credit unions that pay the company for the deposits.
For well over a decade, before the recent jump in rates, savings accounts were dead money. Borrowing rates were so low that banks couldn’t profitably offer yield on deposits. Also, stocks were on such a tear that investors were doing just fine in equities and index funds. A subset of those with a stomach for risk went big in crypto.
As the price of bitcoin soared, a number of crypto exchanges and lenders began mimicking the banks’ savings model, offering very high yield (up to 20% annually) for investors to store their crypto. Those exchanges are now bankrupt following the crypto industry’s meltdown last year, and many thousands of clients lost their funds.
There is some potential instability for fintechs, even those outside of the crypto space. Many of them, including Upgrade and Affirm, partner with Cross River Bank, which serves as the regulated bank for companies that don’t have charters, allowing them to offer lending and credit products.
Last week, Cross River was hit with a consent order from the FDIC for what the agency called “unsafe or unsound banking practices.”
Cross River said in a statement that the order was focused on fair lending issues that occurred in 2021, and that it “places no limitations on our extensive existing fintech partnerships or the credit products we presently offer in partnership with them.”
While fintechs broadly are under far less regulatory pressure than crypto companies,the FDIC’s action suggests that regulators are beginning to pay closer attention to the kinds of products that high-yield accounts are designed to complement.
Still, the emerging group of high-yield savings products are much more mainstream than what the crypto platforms were promoting. That’s largely because the deposits come with government-backed insurance protections, which have a long history of safety.
They’re also not designed to be big profit centers. Rather, by offering high yields for consumers who have long housed their money in stagnant accounts, tech and fintech companies are opening the door to potentially new customers.
Apple has a whole suite of financial products, including a credit card and payments app, that pair smoothly with the savings account, which is only available to the 6 million-plus Apple Card holders. Those customers reportedly put in nearly $1 billion in deposits in the first four days the service was on the market.
Apple didn’t respond to a request for comment. CEO Tim Cook said on the company’s earnings call Thursday that, “we are very pleased with the initial response on it. It’s been incredible.”
Apple savings account
Apple
Robinhood, meanwhile, wants more people to use its trading platform, and companies like LendingClub and SoFi are building relationships with potential borrowers.
Laplanche said high-yield savings accounts, while compelling for the consumer, aren’t core to most fintech businesses but serve as an onboarding tool to more lucrative products, like consumer lending or conventional credit cards.
“We started with credit,” Laplanche said. “We think that’s a better strategy.”
SoFi launched its high-yield savings account in February of last year. In its annual SEC filing, the company said that offering checking and high-yield savings accounts provided “more daily interactions with our members.”
Affirm, best known as a buy now, pay later firm, has offered a savings account since 2020 as part of a “full suite” of financial products. Its yield is currently 3.75%.
“Consumers can use our app to manage payments, open a high-yield savings account, and access a personalized marketplace,” the company said in a 2022 SEC filing. A spokesperson for Affirm told CNBC that the saving account is “one of the many solutions in our suite of products that empower consumers with a smarter way to manage their finances.”
Set against the backdrop of a regional banking crisis, savings products from anywhere but a national bank might seem unappealing. But chasing yield does come with at least a little bit of risk.
“Citi or Chase, feels like it’s safe,” to the consumer, Laplanche said. “Apple and Goldman aren’t inherently risky, but it’s not the same as Chase.”
— CNBC’s Darla Mercado contributed to this report.
Micron Technology headquarters in Boise, Idaho, March 28, 2021.
Jeremy Erickson | Bloomberg | Getty Images
Check out the companies making headlines in midday trading Tuesday.
PagSeguro — Shares popped 5.3% after Citi upgraded the Brazilian payment stock to buy from neutral. The firm called the company’s fourth-quarter earnings unsurprising and said it is still in rough waters, but shares were more attractive following recent underperformance. Stone, which was also upgraded by Citi to buy from neutral, edged higher as well on Tuesday.
Affirm — The pay-later service dropped 6.9% after Apple announced a competing service. Apple shares were down about 0.9%.
Occidental Petroleum — The energy stock jumped nearly 4% after a regulatory filing showed Warren Buffett’s Berkshire Hathaway purchased an additional 3.7 million shares for $216 million on Monday and last Thursday. TD Cowen upgraded Occidental to outperform from market perform following the news.
Micron Technology — The semiconductor stock was down 2.8% ahead of its scheduled second-quarter earnings report after the bell on Tuesday. Analysts expect revenue of $3.71 billion and a loss per share of 67 cents, according to FactSet. Micron’s shares have gained more than 14% in the last six months.
PVH — Shares soared 18.9% after the apparel company’s fourth-quarter adjusted earnings per share came in at $2.38, beating estimates of $1.67, per Refinitiv. Its revenue of $2.49 billion beat expectations of $2.37 billion. PVH’s guidance for the first quarter and full year also surpassed estimates.
Paramount — Shares of the media giant gained 3.6% during midday trading on a rating upgrade from Bank of America from neutral to buy. The bank highlighted Paramount’s strong lineup of assets that could help the business in the event it puts itself up for sale.
McCormick & Company — The spice maker’s stock price jumped about 10% during midday trading after reporting better-than-expected earnings for the first quarter. McCormick reported quarterly earnings of 59 cents per share, while analysts surveyed by FactSet expected 50 cents per share.
Ciena — The technology company advanced 4.9% after Raymond James upgraded the stock to strong buy from outperform.
Walgreens Boots Alliance – Shares of the pharmacy giant rose more than 3% midday after the company reported an increase in its quarterly revenue despite seeing a sharp decline in demand for Covid tests and vaccines. Walgreens posted revenue of $34.86 billion for the most recent quarter, compared to analysts’ estimates of $33.53 billion, according to Refinitiv.
Carnival Corp — The cruise operator’s stock price rose 5.9% on Tuesday after Wells Fargo upgraded Carnival to equal weight from underweight. The firm said it sees a more balanced risk/reward for the company
— CNBC’s Alex Harring, Yun Li, Jesse Pound and Michelle Fox Theobald contributed reporting.
Correction: According to FactSet, Micron is expected to post a loss of 67 cents per share. A previous version misstated the estimate.
The Nasdaq just wrapped up its fifth straight week of gains, jumping 3.3% over the last five days. It’s the longest weekly winning streak for the tech-laden index since a stretch that ended in November 2021. Coming off its worst year since 2008, the Nasdaq is up 15% to start 2023.
The last time tech stocks enjoyed a rally this long, investors were gearing up for electric carmaker Rivian’s blockbuster IPO, the U.S. economy was closing out its strongest year for growth since 1984, and the Nasdaq was trading at a record.
This time around, there’s far less champagne popping. Cost cuts have replaced growth on Wall Street’s checklist, and tech executives are being celebrated for efficiency over innovation. The IPO market is dead. Layoffs are abundant.
Earnings reports were the story of the week, with results landing from many of the world’s most valuable tech companies. But the numbers, for the most part, weren’t good.
Applemissed estimates for the first time since 2016, Facebook parent Metarecorded a third straight quarter of declining revenue, Google‘s core advertising business shrank, and Amazon closed out its weakest year for growth in its 25-year history as a public company.
While investors had mixed reactions to the individual reports, all four stocks closed the week with solid gains, as did Microsoft, which reported earnings the prior week and issued lackluster guidance in projecting revenue growth this quarter of only about 3%.
Meta was the top performer among the group this week, with the stock soaring 23%, its third-best week ever. In its earnings report Wednesday, revenue came in slightly above estimates, even with sales down year over year, and the first-quarter forecast was roughly in line with expectations.
The key to the rally was CEO Mark Zuckerberg’s pronouncement in the earnings statement that 2023 would be the “Year of Efficiency” and his promise that “we’re focused on becoming a stronger and more nimble organization.”
“That was really the game-changer,” Stephanie Link, chief investment strategist at Hightower Advisors, said in an interview Friday with CNBC’s “Squawk Box.”
“The quarter itself was OK, but it was the cost-cutting that they finally got religion on, and that’s why I think Meta really took off,” she said.
Zuckerberg acknowledged that the times are changing. From the year of its IPO in 2012 through 2021, the company grew between 22% and 58% a year. But in 2022 revenue fell 1%, and analysts expect growth of only 5% in 2023, according to Refinitiv.
On the earnings call, Zuckerberg said he doesn’t expect declines to continue, “but I also don’t think it’s going to go back to the way it was before.” Meta announced in November the elimination of 11,000 jobs, or 13% of its workforce.
Link said the reason Meta’s stock got such a big bounce after earnings was because “expectations were so low and the valuation was so compelling.” The stock lost almost two-thirds of its value last year, far more than its mega-cap peers.
Apple, which slid 27% last year, gained 6.2% this week despite reporting its steepest drop in revenue in seven years. CEO Tim Cook said results were hurt by a strong dollar, production issues in China affecting the iPhone 14 Pro and iPhone 14 Pro Max, and the overall macroeconomic environment.
“Apple is navigating what is, of course, a very difficult environment quite well overall,” Dan Flax, an analyst at Neuberger Berman, told “Squawk Box” on Friday. “As we move through the coming months and quarters, we’ll see a return to growth and the market will begin to discount that. We continue to like the name even in the face of these macro challenges.”
Amazon CEO Andy Jassy, who succeeded Jeff Bezos in mid-2021, took the unusual step of joining the earnings call with analysts Thursday after his company issued a weaker-than-expected forecast for the first quarter. In January, Amazon began layoffs, which are expected to result in the loss of more than 18,000 jobs.
“Given this last quarter was the end of my first full year in this role and given some of the unusual parts in the economy and our business, I thought this might be a good one to join,” Jassy said on the call.
Managing expenses has become a big theme for Amazon, which expanded rapidly during the pandemic and subsequently admitted that it hired too many people during that period.
“We’re working really hard to streamline our costs,” Jassy said.
Alphabet is also in downsizing mode. The company announced last month that it’s slashing 12,000 jobs. Its revenue miss for the fourth quarter included disappointing sales at YouTube from a pullback in ad spending and weakness in the cloud division as businesses tighten their belts.
Ruth Porat, Alphabet’s finance chief, told CNBC’s Deirdre Bosa that the company is meaningfully slowing the pace of hiring in an effort to deliver long-term profitable growth.
Alphabet shares ended the week up 5.4% even after giving up some of their gains during Friday’s sell-off. The stock is now up 19% for the year.
Ruth Porat, Alphabet CFO, at the WEF in Davos, Switzerland on May 23rd, 2022.
Adam Galica | CNBC
Should the Nasdaq continue its upward trend and notch a sixth week of gains, it would match the longest rally since a stretch that ended in January 2020, just before the Covid pandemic hit the U.S.
Investors will now turn to earnings reports from smaller companies. Some of the names they’ll hear from next week include Pinterest, Robinhood, Affirm and Cloudflare.
Another area in tech that flourished this week was the semiconductor space. Similar to the consumer tech companies, there wasn’t much by way of growth to excite Wall Street.
AMD on Tuesday beat on sales and profit but guided analysts to a 10% year-over-year decline in revenue for the current quarter. Intel, AMD’s primary competitor, reported a disastrous quarter last week and projected a 40% decline in sales in the March quarter.
Still, AMD jumped 14% for the week and Intel rose almost 8%. Texas Instruments and Nvidia also notched nice gains.
The semiconductor industry is dealing with a glut of extra parts at PC and server makers and falling prices for components such as memory and central processors. But after a miserable year in 2022, the stocks are rebounding on signs that an easing of Federal Reserve rate increases and lightening inflation numbers will give the companies a boost later this year.
