Musk pay package, cruise line pressures: Market Domination

On today's episode of Market Domination, Yahoo Finance's Julie Hyman and Josh Lipton break down the trading week's biggest stories from Tesla (TSLA) CEO Elon Musk's pay package to tumbling cruise line stocks.

The major indexes (^DJI, ^IXIC, ^GSPC) are mixed after June's consumer sentiment data hit its lowest level since November. CFRA Research chief investment strategist Sam Stovall is concerned that markets may have "to endure another decline" before the following year sees substantial market gains.

Tesla shareholders approved CEO Elon Musk's controversial $56 billion compensation package at Thursday's shareholder meeting. Financial analyst and YouTuber "Meet Kevin" Kevin Paffrath was in favor of Musk's pay package, explaining, "the deal was made in 2018 and it was very public... Frankly, if that same deal was made today at those prices then, everybody would look at that as a shareholder and go — well, at least 70% like we had then — 'Of course, we're going to support if you can move the market capitalization of this stock essentially exponentially. Of course, we're going to support paying for you.' So receiving that and then being frustrated about Elon in the short term, I don't think is fair. I think it hits on an element of justice."

As the summer travel season heats up, top cruise line stocks (CCL, RCL, NCLH, VIK) dipped in Friday's session after Bank of America analysts found cruise prices to be "modestly softer" in June.

On the airline side, issues with Boeing (BA) are preventing companies from accessing new planes, stunting growth amid high demand. Peter McNally, Third Bridge Global's Head of Industrials, Materials, and Energy Sector, explains, "companies like United (UAL) who've got very ambitious targets out to 2026 that they've had to temper that a bit... It doesn't seem like Boeing's problems are going to be sorted anytime soon, and it's not like Airbus (AIR.PA) can go any faster than they already are."

Shares of Shopify (SHOP) rose after Evercore ISI's Mark Mahaney upgraded the e-commerce company to Outperform from In Line, citing an attractive entry point for investors following a slight decline in the share price. Tempus AI (TEM) shares also popped after making its trading debut on the Nasdaq via an IPO.

This post was written by Melanie Riehl

Video transcript

Hello and welcome to market domination.

I'm Julie High and that's Josh Lift in live from our New York City headquarters.

We are giving you the ultimate investing play book to help tune out the noise and make the right moves for your money.

And here's your headline blitz getting you up to speed one hour before the closing bell rings on wall.

When you look at the Tester story, autonomous FSD, I can argue.

It's one of the best A I plays in the market.

When you look at next 234 years, this is just the start of the next chapter of the next book.

Is, it must call it in the t of Grosser.

I think it is one of the best disruptive names in the world.

It doesn't appear that the technology in this A I story is approaching uh uh uh a level where it's going to solve.

It looks like it's still morphing into other things.

The only thing sustaining current economic growth is a wealth effect from the bull market and consumer spending.

The asymmetries of risk are that the economy can do much worse than consensus far more easily than it can do much better than consensus one hour to go until the market close.

So let's take a look at the major averages right now.

We are losing a little bit of steam today after the rally that we've been seeing in recent days right now, the dow off by nearly 100 points, it off by about a quarter of 1%.

The S and P 500 after four consecutive record closes is not on track to repeat that feat today down about 1/10 of 1% or so, NASDAQ though, maybe we've got right now.

It's very little change.

So we'll see where it trends in the last hour of trading.

And by the way, the NASDAQ return over the past five days looking like here better than 3% looking over at some of the components of the NASDAQ.

You know, it's been so interesting.

We keep talking about this broadening of the market.

Uh We talked to our Josh Schafer yesterday that a lot of Wall Street stra just are calling for that broadening in the second half of the year.

But we have seen really some of the large cap tech continue to lead some of the gains that we have been watching.

Here's the Weekly.

Look, here, you look at an NVIDIA of 9.2% Apple of nearly 8% Microsoft gaining and you see what's been going on there.

Another name I wanted to call out here is Netflix up about two and three quarters percent today.

And trading at a, uh, looks like maybe on track for a record close in today's session.

We're gonna keep an eye on that to see if it makes it there the year to date return for Netflix some 38%.

We also continue to watch the sort of market cap race if you will here, uh, for many of these companies, um not seeing the market cap here come up on this one, see if it will, if we switch it around a little bit.

No, it's not coming up.

But anyway, you see what these guys have been doing on a daily basis here.

There's the market cap.

So we've got a Microsoft back in the top position, Apple now in number two, NVIDIA and number three, but we continue to have that sort of neck and neck race uh for market cap between those tech giants, Josh.

All right, Julie stocks are fighting for gains today as consumer sentiment tumbling in June.

This comes as the S and P 500 NASDAQ have each nailed record closes this week for more on the latest market moves.

Let's welcome in Sam Stonewall CFR, a research Chief Investment strategist, Sam.

It is always good to have you on the show.

So as Julie was pointing out, maybe we're taking a, a bit of a pause here, Sam, of course, we've got a, a strong run.

What do you make of this market, Sam, just where we are and where you think we're headed?

Hey, Josh, good to talk to you again.

Um, yeah, I think at least in the near term we're probably headed a little bit higher.

Uh, but I am getting increasingly concerned that we, uh have to endure another decline of 5% or more before the year is out.

Uh I point to history for making that statement.

This was the, uh, the 11th best first quarter return since World war two.

Uh And of the top 1514 of them had declines of 5% or more.

And then if that decline was actually less than 10% we had a repeat.

Uh And the average decline was about 12.5%.

The good news, the silver lining is that each one of these 15 years posted full year gains with the average being above 20%.

So that seems to bode well, Sam, but in the meantime, when you talk about the possibility of that pullback, what are your main contenders for?

What could trigger it?

Well, I, I guess the, the real problem is that, uh, the market tends to get tripped up by unanticipated events and unanticipated events are hard to anticipate.

But I would tend to say that if we end up just moving too quickly.

Right now, the S and P 500 is trading one standard deviation above the average difference between its 200 day moving average and the index itself.

So I just feel that if we get too far above, we're time to have some sort of resetting of the dials digestion.

If we start to see other economic indicators, that point to an economic slowdown that causes investors to worry that maybe we are headed for a recession rather than and simply a soft landing.

Let's face it.

Today's consumer confidence was something that was not anticipated.

Uh But at the same time, I still feel that these kind of resetting of the dial are healthy for the market also, Sam, you know, so you, you're talking some technicals there are also interested though Sam just to get your take on valuation here for the market at these levels.

How's it looking?

Uh looking pretty pricey?

The S and P 500 is trading at a 30% premium to its 20 year average pe uh we're also looking at tech that's trading at about a uh multiple of 30 which is looking sort of like a very firm ceiling uh for that group.

Uh Also trading at a hefty premium to its uh longer term relative pe those groups that are actually attractively valued from a relative pe discount perspective, not surprisingly mid caps, small caps energy stocks uh as well as utilities.

Um and let's talk about the other side of that coin, right?

And big uh big cap tech as I talked about earlier, they continue to be dominating returns here.

Uh, when you look at the major averages, accounting for a lot of the gains we've been seeing.

Where do we go from here on that front?

I mean, these guys are still setting records.

Oh, they sure are.

Uh, technology was the best performing group on a year to date basis.

Also, just in the past week, technology was up almost 6% while the S and P was up less than uh 2%.

Uh And technology was the only outperforming sector.

So I guess another worry could be uh how long can this Jumbo Jet fly on only one engine?

Uh But my, my feeling is that um historically in election years, when you do have the uh top three performing sectors midway through that year, they tend on average to be out performers for the second half as well.

And Sam just one other sector I wanna kind of dig deeper with you on is utilities.

Uh because we said we've had some, some smart tragedies come on the show and really pound the table on that one saying, you know, it's a smart way for investors to kind of play offense and defense at the same time, but you're actually underweight that sector.

How come Sam?

Well, because what we look at is not just the momentum of the group but also uh the percentage of stocks in the category that have buy and strong buy recommendations.

Uh And our analysts basically are pointing to the fact that only three of the uh 31 companies in the S and P 500 utilities sector index are really A I related and are posting above average returns, take out those stocks and the sector would be underperform.

Uh So I think you do have to be fairly selective.

Yes, there will be increased power needs for uh the data centers, et cetera.

Um But I think you have to be very selective as to what stocks to go for.

Sam, one of the things that we've noticed as of late um among some of the law cap tech, but just more broadly, our our new stock splits being announced and I don't think the numbers necessarily absolute on an absolute basis are going up, but we've got a lot of high profile companies, you know, we had uh NVIDIA, we had Broadcom announcing them.

Does that say anything about the sort of general vibe of the market at all?

I think it does.

I think it indicates that uh company management is feeling more optimistic about the future.

And so they are willing in a sense to make their share prices more accessible uh to a greater number of investors, institutional investors focus more on the dollar value.

Uh But retail investors uh look to the price of the underlying stock.

Uh Remember, you know, I go back a long way uh and it used to be that a stock wanted to have uh split if it got between 40 $80 a share to make it more appealing and affordable for investors.

Because back in the sixties, seventies, et cetera, uh uh prior to commission free trading, it was a lot less expensive to buy a round lot or multiple of 100 than it was an odd lot.

Uh Also now today, however, with commission free trading with uh the shares, uh basically, it's not much of a concern but it is more of a psychological tailwind for that company.

Sam Shifting gears a bit here.

I'm, I'm also interested to get your take on politics and just sort of the kind of political uncertainty we're now seeing really kinda on both side, the Atlantic Sam, you know, of course in Europe, um you saw what happened there, things to be, seem to be on the move, maybe a real shift to the right there.

Of course, here we have the election coming up.

How is a market strategist, Sam?

Are you trying to think through all that?

Well, that's a good point.

I mean, we do have our Washington analysis arm, uh which monitors all of the uh the bills going through Congress, but also monitors uh the polls to see which candidates are ahead.

Uh And right now the uh the thought is that if the election were today, Trump would be the Victor and the US would too also be shifting more toward the right.

What it reminds me of our years, like 68 9, like 1980 like 1948 when you actually had third party candidates involved.

Uh, and, you know, basically, uh, with Robert Kennedy Junior now in the race, along with Trump Biden where they are split evenly right now.

Um, I, in many ways it's anyone's guess historically, it used to be that, uh, the markets return from July 31 through October 31 was a very good indicator.

An upward move pointed to a re-election, a downward move pointed to a replacement.

Um But with asterisks, usually the third parties can be disruptors.

That is really interesting.

Sam, we will keep an eye on that return with the asterisk in mind.

Good to see you.

Thanks so much and have a great weekend.

Thanks, you too.

Well, let's check in on one of the top trending tickers on the Yahoo Finance home page.

Now it's another ticker being fueled by A I.

We're talking about Adobe shares have been soaring today.

David Wadhwani, the president of the company's digital media business says we're excited about the accelerating pace of innovation across the digital media business and pleased with the adoption of A I functionality that has something that propelled the numbers higher in the quarter and also propelled the forecast and Josh as we discussed yesterday a little bit, it is not something that investors had taken for granted.

Yeah, I mean, this is, it was such an interesting earnings point because there had been these real worries about, um, and really two big ones, one of those was the macro and just the choppiness we're seeing in other software names.

But the guidance they offered seemed to put that worry to rest, at least for now and then there, obviously there have been these concerns about gen A I comp competition too.

But I think people looked at this print and thought, you know what it looks like, at least based on this report, they're finding real traction with, with their A I features here.

Yeah.

And the stock gain, by the way, that is on a single basis, the biggest gain in four years.

So really um the stock jumping here, although it has been down this year, it was up big last year than has fallen this year because of these, some of these concerns around some of the issues that we're talking about.

Um and really what the company emphasized in its call and the forecast is that it expects things to accelerate um with that annual revenue in digital media through the course of the year.

Yeah, the team at Jeffries led by the Great Brent till telling the clients today there was little to poke at in these results that Adobe appears to be finally reaping the fruits of investing in A I and digital content creation and marketing tools just when content demand is exploding, seems like at least A few people agree with them today.

Yeah, it definitely looks that way.

All we're just getting started here on market domination.

Coming up.

Elon Musk has won the shareholder battle to keep his record breaking pay.

So what now what's next for Tesla and its CEO will discuss on the other side?

Plus it's the latest edition of our series.

Goodbye or goodbye will take a deeper dive into two stocks to help you make the best moves for your portfolio state t more market domination.

On the other side, the votes are in and Tesla shareholders approving Ceo Elon Musk's controversial $56 billion pay package Musk taking the stage after the results and offering some characteristically optimistic goals for the EV maker.

It's within, within the realm of possibility uh for Tesla to achieve evaluation 10 times that of the most valuable company today.

And if you just plot the points on the curve of how well autonomy is progressing and just believe the curve um it's headed towards uh unsupervised, full self driving very quickly at an exponential pace.

It, it actually gets way crazier.

Uh w when you think about the, the optimist uh robot, which is really a humanoid robot that is intended to um you know, be able to do anything you wanted to do.

Joining us now is Kevin Paffrath Financial Analyst and youtuber, meet Kevin Kevin.

Um Let me take it off here, right?

We're, we're gonna have self driving cars Robo Taxis where we let Tesla like navigate our cars around.

We're gonna have a, a robot that does everything for us, I guess.

And the value of Tesla is gonna be some, you know, whatever trillions of dollars here.

What do you think?

Well, I think there's a lot of hope built into that but uh let's say, look, the shareholder vote now behind us is great news.

It's a big negative catalyst away for Tesla.

But you're right, Elon has grand visions that you won't have to drive anymore, which frankly cars driving themselves in the long term, probably going to be a lot safer for the entire world.

They already are today on FSD financially safer.

So I think it's a great thing and we've seen a lot of progress in full self driving.

I question the exponential progress.

Uh that Elon is talking about this idea that oh FSD is growing exponentially.

It's it's growing.

But what we know with artificial intelligence, which Jensen Huang uh showed us in one of their artificial intelligence presentations was that the costs for artificial intelligence go up exponentially but progress actually more s curves and then Peters out so you get less progress with more costs.

And so going forward.

Yeah, Elon's right.

We are going towards an autonomous future and it's so great to see shareholders reaffirm their trust in Elon.

I just don't think it's going to happen as fast as he's suggesting.

And I don't think it necessarily is going to be as large in the long term.

But that's ok. We can be bullish on the stock in the next 2 to 4 years.

As Tes Tesla still has probably the best moat in full self driving that exists.

It's not as big as it used to be.

I'd put it at about 18 to 24 months ahead of some of the competitors, what we're seeing out of Byd in China Xing Motors.

But we're definitely still ahead and Kevin, you did mention that pay package and it didn't get approved.

And so I'm just curious, Kevin, is that what you expected?

And, and as a, as a shareholder, is that what you supported Kevin?

Yeah, it is.

So I did this little tax loss harvesting event for my fund PP the pricing power ETF where uh we sold uh in mid March and then bought back in at roughly the same price in mid April, but we missed the vote deadline by one day.

Uh That said I did make public that I was in favor of the vote passing and that I would vote for it if I could.

Now with this book, I can ask you, Kevin, how come it was?

Let me just get your take.

Why Kevin, why did you support it?

Oh, absolutely.

Well, so first of all, the deal was made in 2018 and it was very public.

This was like a YOLO cull option for Elon to go for this frankly, if that same deal was made today at those prices, then everybody would look at that as a shareholder and go well, at least 70% like we had.

Then of course, we're going to support, if you can move the market capitalization of this stock essentially exponentially, of course, we're going to support paying for you.

So receiving that and then being frustrated about Elon in the short term, I don't think is fair.

I think it, it hits on an element of justice, but we could really go into sort of AAA different world there.

I don't think justice was served by what the Delaware Judge conducted.

Uh that said long term, we've got to look at Tesla as this is how I value it.

I don't look at it as a 30 to $50 trillion humanoid optimist, you know, program look, that's great.

That's wonderful.

Sort of icing on the cake as a financial advisor and running A I, I can't price that in.

So what I do is I look at data, I look at quarter to data bottoming early sales data indicates that Q two is not going to be as bad as feared.

I think it's because of the financing.

They finally realized that offering people a lower monthly payment just 0.99% APR in May.

Now they're at 1.99.

Uh in June is a sign that people are payment sensitive, not necessarily price sensitive.

And I think that's actually going to help skyrocket Tesla shares and form a bottom here in delivery numbers.

We already know that margins have bottomed.

They're the only auto company to have over 18% gross margins excluding the cyber truck on vehicles, especially electric vehicles, most companies lose money on these.

So really what Elon's doing here is he's creating a bottoming process in the actual manufacturing of electric vehicles.

At the same time, he's rehired back the charging team, which is great, most of them at least.

And all of the other electric vehicle companies that I'm studying, Ford GM, they're all scared, they're reducing their exposure to electric vehicles.

Elon is creating a massive United States electric vehicle mode for Tesla and Tesla shareholders that said 11 last thing quickly.

If, if China were able to sell evs here, I would not own Tesla.

So you are relying on the government to protect you a bit.

Well, and, and when you're looking at how the company is valued though, I mean, just to compare it to Toyota just to give one example here, uh you look at the market cap of Tesla versus a Toyota.

Um You know, there is a big gap here, Tesla, uh a bigger market cap.

It's the gap has been bigger in the past.

Uh The revenue Toyota though is not quite three times but close to three times the margins to your point at Tesla on an automotive basis are higher.

But, you know, if you're just looking, we, we always call it an EV maker, but if you're just valuing it and even if you're just valuing it as an EV maker, it doesn't seem to account for how the market is valuing it.

It has to deliver on all this stuff and it, it doesn't seem to, I mean, can it be in 2026 or 27 or 29 or whenever the stuff that he's promising is actually gonna happen?

Well, I, I like to look at sort of what do I think Tesla is going to deliver versus what Elon promises because I think there's a large split between those.

Don't get me wrong.

I appreciate the optimism of the CEO I would expect that.

And you're right, Toyota would have been a much better stock frankly to own for the last three years than Tesla.

Tesla has just been on a straight downtrend.

And it's very unfortunate the difference between the two companies is growth.

I value Tesla had a peg ratio of 1.67 assuming we can get about 30% growth.

Once we bottom out from here, Toyota is growing in some years, it's projected to grow negatively but more reasonably, it's growing somewhere between 5 to 6% which is barely above the rate of inflation.

So that's one of the reasons you see the valuation disparity, but it's also one of the reasons you've seen a lot more downside with Tesla because we did have to go through a few negative growth periods.

24 is going to be the big one.

Now that said, here's how I think someone could hedge themselves, obviously not personalized advice, but I think you can go short and people get mad at me for saying this, but it's just a hedge, it's a macro hedge.

You go short, Bitcoin, you could use a fund like bit I I'm not affiliated with them as a negative one.

The reason for that is when risk assets sell off Tesla goes down.

Look at what's happening today, the French sovereign debt crisis, you've got risk assets selling off when risk that sell off.

Bitcoin goes down as well.

But look at NVIDIA, it's up.

So you don't want to short the whole market for a hedge because that's not going to work.

You specifically want an offsetting risk hedge and I think Bitcoin is the perfect way to hedge your Tesla position.

Interesting.

That's not what I've heard before.

Sorry, Kevin.

Kevin, thank you so much for joining us.

We always appreciate your time.

Have a good weekend.

Thank you.

You as well.

Let's check in on some more trending tickers starting with micro strategy shares, jumping company announcing it's raising $500 million in a bond sale in an effort to buy more Bitcoin.

So this one Julie, um let's keep it simple.

Basically, they, they boost their convertible note offering by about 40%.

And company says they're gonna use the proceeds to, you guessed it buy more Bitcoin.

Of course, Michael Saylor, co founder and chairman here started buying Bitcoin in 2020 has become certainly one of the better known Bitcoin Bulls out there and it is up about 600% since Mr Saylor first started piling in here.

Yeah.

And you know, micro strategy now owns about 1% of all of the Bitcoin that's ever been created, which is amazing.

At the same time, we've got Gautam Chaan over Bernstein initiating coverage of micro strategy.

Um and he's positive on the stock but not just positive on the stock.

His price target is $2890 which would be about 80% higher than it is right now.

And it's so interesting micro strategy is quite controversial to be clear, right?

There are folks who have shorted the stock.

There are people who have criticized the premium at which it trades to Bitcoin.

If you look at how micro strategy has done this this year versus how Bitcoin has done this year, it's up a lot more and it holds a heck of a lot of Bitcoin on its balance sheet because as you see there, almost all of the cash it has is in Bitcoin compared with other companies that you think of as being pro Bitcoin like a Tesla or a block, all of this is something that choi likes and thinks that their leverage strategy is a good way for people to kind of get in on Bitcoin.

And by the way, you mentioned the team at Bernstein initial coverage here, they gave you some Bitcoin targets as well.

You see that in the note, they revise up our Bitcoin price expectation and now up to 200,000, they say cycle high by 2025 led, they told their clients by unprecedented Bitcoin demand via those shiny new ETF S and Bitcoin supply being constructed.

What's interesting to me is one of C's um the reasons he's bullish on micro strategy is he says investors are willing to pay a premium in view of scarcity of Bitcoin corporate investment vehicles.

Now there is that scarcity of corporate investment vehicles, but to your point, there is now no shortage of ETF investment vehicles.

So the whole argument for a premium because of micro strategy being this rare leverage way to play Bitcoin or rare even way to get access to Bitcoin without buying it directly.

That has gone away a little bit, a little bit of a hit.

Yeah, so we'll see if that keeps up that premium continues to widen.

Let's also talk about Rh it's in focus today after the furniture retailer reported a wider than expected first quarter loss here.

Uh The shares down the most in a single day, going back to March of 2020 basically the company has been on a big expansion, right?

It's expanded into Europe, although it at first expanded into some secondary markets in Europe, sort of as a test case.

It's building itself up as the broader luxury brand like a Ralph Lauren, for example, it's open restaurants, it has these fancy new show rooms, um and it seems like it's costing it a lot of money and that then feeding through to the results.

And by the way, Co Gary Friedman on the call, you hear him mincing, no words on the fed uh saying I think they're gonna be, this was on a call with analysts, of course, I think they'll be behind the curve.

He says it relates to inflation.

So I think it could be behind the curve as it relates to timing of when to to cut those rates.

So in our view, our view is probably a little bit more negative than it was a quarter ago.

I think a quarter ago he told the street we were feeling a little bit more optimistic that there would be rate cuts in the housing market.

We begin to mink, we move in a sustained manner.

Well, that would be in his interest, wouldn't you would cut sooner and get not sounding happy.

Although he is also so really trying to cater more to ultra luxury at this point.

And you could argue that those folks are not as sensitive to changes in interest rates.

So does that also say something about that strategy?

Leather Couch.

You're saying it's not as, not as sensitive.

I, you know, if you're buying, what is it?

$5000 couches and up.

Yeah, there was a $14,000 couch.

I saw cited in one article.

I bet it looked nice.

I bet.

So.

Sure it did.

All right.

Moving on, Tempest A I making its Wall Street debut.

Trading started today on the NASDAQ.

The company pricing its offering at $37 per share.

So this one was um an instrument so it makes, it makes its debut.

Um They're kind of, they're using A I to process medical data.

Um They've actually been around for some time, Julie, they were actually found in 2015, described their businesses creating intelligent diagnostics for precision medicine in terms of the financials posted revenue of 532 million in 2023.

That was up from 321 million the year earlier.

It looks like they're still losing money that lost about roughly 200 million and 23.

Of course, not unusual for a tech company to go public uh posting losses and investors will often look through that, especially if you have A I in the name.

Yeah, although it's become less typical, I feel like you have more companies more at a more mature level coming public and maybe posting profit.

But this not at that case, it is, it it sounds interesting what they do.

They connect your lab results to your personal clinical data to kind of analyze, I guess using A I.

So, you know, we'll see uh how they continue to go.

They did rise as much as 18% at one point during the day.

But as we could see they're up about 10.5%.

CEO Eric Lefkofsky also, by the way, co founder Groupon, fact, interesting, very different business.

I don't know what lessons he's applying, but he must be applying.

Hopefully he'll come talk to us and we can ask him.

So that's a formal invitation to Eric.

There you go.

All right.

Still to come.

It's the latest edition of our series.

Goodbye.

Goodbye and take a deeper dive into two stocks to help you make the best moves to your portfolio.

Stay tuned, more market domination on your friend.

It's a big noisy universe of stocks out there.

Welcome to, goodbye or good bye.

Our goal to help cut through that noise to navigate the best moves for your portfolio today.

We're taking a look at business strategies of two companies in the tech realm.

I'm here with Red Needle Ventures founder and very good to see you.

Thanks for being here.

So let's get to your by stock.

First of all, here, we are looking at Palo Alto Networks and this company it's up over the last year, although it's a little bit of volatility as we can see from this chart.

Cyber security has been a really interesting space and we've seen some sort of volatility within it as well.

Let's talk about platform.

I, I even have trouble saying this word platform which I started seeing a lot more in the discussions of companies like Palo Alto and Crowds Street.

What, what does this mean?

It's a lot of syllables to say, small businesses, enterprises want to buy their cyber security solutions from one place from one company right now, historically, you know, businesses have had to go out and put a hodgepodge of different pieces of the elements of cyber security together.

And they're saying, you know what it's really inefficient, it creates vulnerability.

We want to go to one place and Palo Alto has really been leaning into being a solutions provider hitting on a lot of those different vertical solutions.

Well, that explained it better than any of the companies that I heard themselves discussing it.

And Palo Alto has also been winning big contracts from big companies, big ones.

We united health Care is a big one that got announced a big strategic relationship announced also recently Julie with IBM and what Palo Alto is going to be doing is providing a lot of the cloud and cybersecurity solutions that IBM is going to its consulting clients and saying, look, this is the go to place to come to.

So that was a big one from a go to market perspective.

And then finally, also, there's the free cash flow that we are seeing at the company that it could potentially be growing.

Yes, I love this.

You and I talked about this a lot.

I'm a free cash flow girl, 37% free margin for Palo Alto Networks.

That's right now, that's before they continue to see some of the efficiencies.

They're very focused on cost a lot of the young businesses, the start ups, the growing companies I speak to if they could pick their acquire, they'd like to be bought by Palo Alto Networks and these guys have got the cash and it's growing.

So you think if they're going out there to make acquisitions, it's going to be of technology, it's going to be of start ups rather than other like rather than a big sort of acquisition.

I think.

So, I think that actually if you look at value creation over time, finding homes, finding tons where you can really get synergies without the risk that comes from doing a big merger of equals or consuming a massive acquisition with a potential class of clash of cultures.

I think Palo Alto is going to be able to get some chunky, some sizable acquisitions but nothing that's too big to swallow.

And that way you add to the functionality of that big platform as well, filling in those gaps.

We like to talk about the risks potentially here and you know, they're spending money, they're being aggressive.

One of the downsides of that.

Well, this one way is one where you have to believe in execution.

You've got to believe you've got leadership setting clear goals, holding their teams accountable and making sure that they're super focused on how they're actually doing what they say they're going to do.

It sounds simple.

It's very hard to do.

In practice.

In this case, Palo Alto has been going after a really bold I think strategy to get market share.

They've been going to some big potential clients and saying if you are using an existing alternative provider, we will on board you and take you on for a couple of months for free so that you're not doubled, you know, you're not double spending as long as that is an incentive for you to move over.

That's pretty bold.

It means a couple of losses on some of those accounts as they win them, but it's working at the moment.

It has to continue for the share price to keep heading up into the right.

And before we head to your goodbye, the do you hold Palo Alto?

I do hold Palo Alto and I've been adding that share price you had at the beginning when you've seen those dips.

I've been going back.

Oh, interesting.

All right.

Let's get to the stock you're avoiding and that is paypal and you're not on avoiding this one.

The stock is down over the past year.

But let's get to why you're avoiding it here.

While Palo Alto has that strategy, you don't think paypal has it.

Here's the thread.

Both of them are execution plays.

I'll come back to that.

But this is also about paypal.

When you take a big step back, this is a business that touches 25% of global e commerce.

I look at that and say this thing should be winning, it should be winning on data aggregation.

It should be winning in A I applications.

It should be winning and gaining share and cross selling.

This new CEO has now been in the seat about nine months.

I've been waiting to hear.

Here's the big bold vision that we've got a la pala ala networks.

Crickets haven't heard it yet.

Yeah, I mean, part of that, I guess is a go to market strategy now.

We, we've been talking a lot about go to market strategies with these.

Yeah, enterprise players.

Basically what it means is sales strategy.

How do we, how do we get our product out there to more people and sell more stuff?

That's exactly right.

And so what paypal has been doing is moving the deck chairs a little bit.

They've said that we're going to go after market verticals, we're going to stop selling on a product by product basis and selling on a solutions basis to the different user bases.

But again, if it's not going behind a big strategy that what you're doing feels a little bit like tweaking around the edges and I haven't seen really groundbreaking results coming out of these tactics so far.

Well, and to your point, paypal is enormous.

I mean, I can't, I can't tell you how many times I click on that check out using.

But, you know, if they, if they don't do these other things, maybe that market share dominance will not last.

Well, I think that's right, Julie and also this is one where I've looked at the rise and rise of stripe, for example, I've looked at the rise and rise of the B NPL players like a firm after Pay cloner.

And I look at that and I sort of want to tear my hair up because I'm like, where's paypal?

Right?

They had the first mover advantage to be able to take what are products.

What I've just said a firm after pay, those were products.

They didn't have to become enterprises, had paypal got its act together and gone after it and it didn't.

So I'm concerned about market share and then on the flip side, what could work for paypal, I guess to put it simply is if start doing all this stuff that you're talking about.

Well, exactly.

So Alex Chris again, I have deep respect for him.

He got into the seat four months ago.

He went on TV and he said we're going to shock the world, right?

We've got this great stat, start with this huge amount of penetration.

We're going to shock the world.

Well, you know, I'm ready to be shocked.

Let's see it.

Yeah, it's still, he came, he then came out with an, I don't even remember what the announcement was.

That's innovation.

I don't really remember.

Exactly.

That's the point.

There's a shrug.

There's a bit of a shrug when it comes to some of the paypal innovation and I'm ready to be shocked even if it's got risk.

Right.

I like the fact that Palo Alto Network says risk to the strategy, but at least it's got one.

Yeah, they're taking, they're taking that risk any position in paypal one way I sold out.

So I think my money's been doing what I'm saying.

Ok. And good to see you.

Thanks for coming in and thank you so much for watching.

Goodbye or goodbye.

We'll be bringing you new episodes next week at 3:30 p.m. Eastern.

All right, let's get to our call of the day.

Check out Sheriff of Shopify.

They are on the rise is coming after a new note from evercore.

I si upgrading the name to outperform from in line and this is ever core's Mark Mahaney, of course, well known, well respected analys to folks pay attention to Mahaney does upgrade this one to outperform price target.

75 says there's been this pull back on this one and, and the stock is down about 12% this year and that offers Mahany telling his clients an attractive entry points, his valuation and estimates he thinks now sufficiently de risk.

Yeah.

And he's looking at the long term here when he's looking at the stock, he says there is a very resilient long thesis and he talks about a couple of things that support it.

He talks about the very large total addressable market, strong competitive position, up market activity and clear track record of successful product innovation.

So he's got a lot of reasons he likes it.

He was just sort of, it sounds like for this entry point with the stock.

I mean, it's come back a little bit lately as you can see from that chart, but also still is kind of weak year to date.

Yeah, maybe not, not on an island.

I mean, most of the financial analysts come this name do think it's A B Yes, we'll see if it goes to that $75 price target.

Here we go.

Still to come, get out the sunscreen and pack those bags.

We're taking all, we're talking all things travel from cruises to airlines next on market domination.

Shares of cruise lines hitting choppy water in today's trade Viking holdings.

Royal Caribbean carnival cruise lines in Norwegian.

They all came under pressure after B of A analysts called out what they said was modest softening in ocean cruise prices during the month of June.

So it was interesting here, Julia, I mean, the the companies obviously had been reporting earlier results.

And I thought, you know, the kind of message of the takeaway was it was broadly positive.

I mean, there's still lots of talk about record bookings, for example, but here comes B of A and their team gets to work, pull out their pencils and then conclude that in June, there was indeed they say modestly softer pricing um in ocean markets relative to early May.

The analysts saying 40% of cruise itineraries had softer pricing compared with 33% in May.

Um And you saw the stocks reacting to that.

I mean, on the flip side, if you dig into, I mean, it feels like yes, there was a sell off on this but also maybe there were other reasons buying the sell off.

I mean, if you dig into this and you can see from that chart it's really volatile according to their survey, at least if you look at the pricing that was negative um in the past month, that 40% figure you get 33% the month before that 21% 60% 24.

You know, it's, it's, it bounces around a lot and it seems like that the cruise lines are very reactive when it comes to pricing, dynamic pricing.

That's something we've heard from them before that they do.

So it's hard to know how seriously to take this.

I mean, one interesting minor note from this is that they also did a survey of Viking pricing for the first time.

Viking, the European river boat uh operator that just came public and they said there's less volatility in that market.

I mean, there aren't, there isn't as much competition, I don't think in the river cruise market.

So maybe that's part of the reason why, but it had flat pricing essentially also as to that chart pointed out.

I mean, some of these names have had some World Caribbean more than 50% in the past 12 months.

Well, sticking with travel, Josh Airlines have a potential problem, travel demand is projected to hit a record high this summer based on earnings forecast.

But the issue, ongoing problems at Boeing are hindering airlines access to new planes and limiting potential for growth.

Potentially we're looking at how to navigate the big picture with the Yahoo finance playbook joining us now, Peter third bridge, global sector lead for industrial materials and energy alongside George Ferguson Bloomberg Intelligence, senior analyst covering the aerospace defense and airline industries.

Guys, it is great to see you.

Thanks for being here.

I think you guys have a little bit different views from each other on the capacity constraints that are out there.

Peter, I want to start with you and and how you see it for the industry there.

What's the demand supply match up looking like right now?

Well, demands been healthy.

It's been growing for four years now.

Um The problem is, you know, airlines do want these new planes, they can't get them, they're keeping the ones that they do have in the air longer for sure.

But there's still some maintenance constraints too that need to go on, particularly around, around engines.

So it is, you know, capacity is growing.

It's just not growing as fast as the airlines hope.

And you've got, you know, companies like United who've got very ambitious targets out to 2026 that they've had to temper that a bit.

So, you know, we'll see, it doesn't seem like Boeing's uh problems are gonna be sorted anytime soon and it's not like Airbus can go any faster than, than they already are.

A and George Le le let's um get you in as well.

Maybe we'll start there with that same big picture question.

George demand supply dynamics.

How are you thinking about it?

Yeah, so we put a report out this week on, on this question because it's been overhanging the market here for, I think, you know, for months now.

Uh there's definitely a lot of concern that there's not enough lift.

We basically analyze profitability for all the major airlines globally.

And we looked at their ebita margins which would be margins before, you know, you pay for any changes in your capital structure because debt, maybe you took on during the pandemic or whatever.

So we looked at ebita margins compared to last year compared to 2019 and 2016, 2 of the best years in the last decade and most airlines aren't achieving those margins.

So, I'd say there's record travel and that's because the airlines are putting, putting record schedules up into the air.

But probably, thank God they can't get all those airplanes because they cross margins even more.

When will they slow down?

I think when they start having uh losses and they, they're not there yet.

But we, when we look at profitability and return on invested capital measures, they are just not performing like they did last decade, there's too much capacity.

That's so interesting.

And I mean, the airlines have always sort of struggled with this capacity, how to get that balance.

Right.

Peter, are there any airlines that are, are navigating this better than some of the others?

Either because of the circumstances, they're not as exposed to say Boeing or because execution wise they're doing a better job.

Well, I think the, the one of the big problems that are not talking about that make airlines less profitable than they were pre panic is labor costs.

You know, you've negotiated with the union, you step up 30 to 40% which has been the rate what you've seen and then you stay there, you know, so this has been a dragon, whether it's pilots, mechanics, uh flight attendants, they're all getting, getting more money.

But uh you know, Delta Airlines has been the one that has found a way to navigate this uh better, better than others.

Um, extremely loyal business, uh travelers, a very good fleet, clean balance sheet.

Um, no real need for like major investments.

The way, let's say American had to do a, a big refresh on their fleet prepa uh borrowed a lot of money to do things like that or United as we talked about a bit earlier with this aggressive uh growth strategy that they have.

But I think kind of the unhidden or the, you know, the unappreciated asset that Delta has is their tech ops business that allows them to do their own maintenance, repair and overhaul, which, you know, we started seeing engine problems last summer um that has grounded a lot of Airbus planes, you know, they had uh jetblue and, and a few others a bit more, but uh Delta seems to be the one that has navigated best.

You, you, you agree with that George, would you, would you say um Delta, if you were to look across, you know, the industry seems to be navigating this mo most effectively?

Definitely, I, I we totally agree there.

So I think if you look at the US market, it's Delta and United that are performing better than all the, the other airlines, I think that's a function of premium, both premium leisure travel and business travel demand.

Uh and long haul, I think long haul is generally performing better than short haul now.

Right.

So if you're going inside a continent.

I think things are very competitive because there's a lot of low cost carriers that will compete uh you know, with you, even if you're a full service carrier uh to carry those passengers.

So, fares are under pressure.

But I, I think still this summer you'll see good fares into Europe, pretty good fares uh into Asia Pacific.

And that helps Delta and United the most in the US.

George.

Do you think that the whole labor issue here and both the difficulty of flying, finding staff and also the higher wages to pay them?

Do you think that that is a problem?

That's just here to stay.

So I do.

And so we've written a report on this as well.

It's under the Bloomberg uh service.

Uh, so when we looked at, uh, retirements that were coming, um, we use Airline Pilot, central.com, which I think is fairly reputable.

But I, I will admit, you know, we, we could sort of dive in and get the, the numbers exactly ourselves.

But when we looked at their numbers on retirements, we think retirements are going to peak 2026 2027.

I think it, I think it's sort of similar to the dynamics in the rest of the economy where a lot of people, boomers came in a lot of these businesses and they're retiring now in, in larger numbers, pilots are really hard to replace because they're highly trained, takes years and years to get trained up to get into a cockpit.

Uh, and they're the ones getting sort of the 20% increases at the last, uh, pay negotiation.

I suspect they may get that similar number actually, maybe not as high as 20 but they may get pretty high numbers mid decade when they, uh, when they do this again.

So, yeah, that, that's a big problem right now with airlines.

11 other question I have Peter.

Um and I realize this sounds like a smaller question, but just from a consumer point of view, I'm interested to get your take.

You see this trend of airlines raising bag fees, is that, is that a smart way to raise more revenue or do you risk alienating your customer?

How do you think about it?

Well, you know, look once, once, you know, one airline does it and it follows another and then, and then another, it's just gonna be the way it is like we eliminated change fees, you know, during the pandemic at some point that's going to come back to it is a, it is a valuable source of revenue um that the airlines, you know, will, you know, will pull on at some point.

You know, it's part of the prescription.

I see that Elliott as you know, the activist for Southwest is to, you know, introduce more bag fees.

But uh these companies are, you know, are trying to grow profits and that's one more way to do it, I mean, George, it's not just the bag fees.

Right.

I mean, at this point I feel like I'm paying up to not sit on a cardboard box on the plane.

You know, it, it's got, like there, it's, everything is, is in these tiers and I sort of agree with Josh here.

At what point do you risk alienation?

Although I guess your choice is just not to fly at all.

Yeah, I think that's about right.

I think everywhere you go now the revenue managers are looking for different ways to slice and dice the airplane cabin and figure out what they can get people to pay for.

Right.

And so the challenge is to find more things to sell and in the old days those are things you and I just got, I guess got for free, got by luck when we got, you know, an, an exit aisle or something like that.

Uh And so that's the new formula for increasing revenue.

Delta.

Does it?

I think better than uh most others?

I think it may be here to stay and hard to avoid.

Peter George gonna leave it there.

Thanks guys for joining the show today.

Appreciate it.

Thank you.

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