prices salesforce is up there a story they'll deal with "techcheck." with that, let's send it over to "techcheck," which starts now. good monday morning i'm carl quintanilla. with deirdre bosa and jon fortt. six percent of spotify employee's cut and wayfair two upgrades from sell to buy. >> let's check the markets as we kick off the trading week, we are in rally mode. stocks are near session highs. you can see the nasdaq leading the way, outperformer despite a rise in yield. materials, your laggards >> we begin with some activist

action on this 34monday morning elliott investment has made an invest in salesforce this comes as the stock has continued to underperform and the company announced layoffs. frank holland is here with details. >> you know, let's start with salesforce outperforming the nasdaq elliott management taking a stake in the giant we got a statement saying the respect for founder and ceo mark benoff and saying we look to work constructively with salesforce so one area that analysts and other investors have mentioned is the underperformance when it comes to shareholder value one area is free cash flow generation you look at salesforce compared to cloud peers, service at 17% rival service now and adobe at a

higher percentage. we don't know exactly how elliott plans to proceed faber says he believes they're not 100% how they're going to do it elliott seeks a seat on the board, pushes for a review of asset and increase in shareholder returns that can include dividends. an example is ebay it sold off a stake in february of 2021, after shares surged more than 100% and during that time they added jessie cohen to the board and sold stub hub. so the question is can you push him to do other things, like at dell spinoff at vm ware. b benoff a different animal.

>> what this is coming down to is this is not cutting enough is what the activists are saying across the board two ways to do it, cut more people than salesforce planned or spinoff businesses but in this market environment not clear what you'd get for them. >> one more before star board announced it was taking a stake, salesforce did announce measures in long term terargets to expand margins and reduce their sales and marketing spend to about 35% of revenue those plans were in place. clearly these activists investors saying that's not good enough. >> thank you for more on salesforce, let's talk about this and bring in analyst brad zelnick. i assume you were listening to the conversation what do you think here, what can they achieve that mark benoff isn't already doing?

>> good morning, thanks for having me. i would say that there's nobody inside salesforce than mark himself. i think there's a margin opportunity here that everybody sees when we reflect on what most would agree is one of the greatest software companies of all time you realize they've done a phenomenal job executing against their opportunity. i would say that the only margin impediment at the company is really cultural more so than structural for that reason, the company talks about a 25% margin target and i think that could be 30% or greater and that's the opportunity they were already pursuing. >> so why is elliott taking this stake and pushing more more change do you think benoff would do something like spin off an acquisition. or can you even push him, it leads to that conversation we were just having. >> elliott scott, the great track record, a great eye for value. so it's not surprising to me that they've identified

salesforce as an opportunity that said, a quote from jessie cohen at this point we don't know what they have in mind. but it's hard to imagine other than leveraging up some stock and accelerating the pace of head count reductions. these are things that have to be on the table in terms of divestitures, they've acquired a lot of great companies over the years you can't just punish them for what's not working today but you have to reflect back on -- you know, over the last decade plus. companies like exact target, like mule soft i don't think there's anything that's very obvious to divest candidly that's the right scale and capture the right market for where they would realize any value that would make sense. >> how do we get here? overspending on the more recent acquisitions, overhiring on people >> i think it's really that

simple i think when you reflect on the environment, 2000, 2001, you can appreciate nobody knew when the party was going to end if you thought it was getting frothier in 2019, early 2020, you would have been too early. >> so tell me this, then why the kinds of cuts that we're seeing from the likes of salesforce there's this talk about you want to cut once so you cut as deep as you can smaller companies talking 20%. when it comes to google, alphabet, salesforce, these cuts could be argued, based on the pace of requiring, are modest and you have activists saying you're not doing enough. why are they in that position that they're doing less than some would think they need to? >> you have to do it in measured fashion, right and because of the uncertainty, you can't go out and just, you know, placate what investors want to see this quarter or this

year you have to see what -- you know, take these measured steps and measure the response from the environment. and so, i suspect, we would see more from salesforce beyond their fiscal year end which is in about a week. so it's unusual in the first place to announce a 10% riff in the middle of q4 your most important quarter. i have to imagine and if you listen to what mark benoff has been quoted as saying taking out as much as 3 to 5 billion in expense, it's a massive opportunity they're already doing. >> people are layering on the ideas that the reduction in force happening. consensus is already getting there. that the activist track record brad, in software, tdoesn't exactly excite people. i wonder what you make of that notion >> i think jessie and the folks

at elliott, early on, i've been around long enough to remember the early successes, they've done well, a company like novelle, they held these companies accountable for underperformance and miss management where there's cons of recuring revenue. but they don't have the discipline to capitalize on that i think over time, the opportunity and the track record, quite frankly, i'm not picking on elliott, is not as pristine and the path these activists would expect no doubt an opportunity in salesforce these are the smartest guys in the room and i think they ultimately succeed but nobody has more at stake than mark benoff himself >> i want to put this up against news from microsoft this morning. they are making that rumored

multi-year multi-billion dollar investment in open ia, which, of course, is the parent of chat gpt. they aren't announcing the terms but this is that one that was rumored to be a bunch of profits and end up with 49% of the company. this investment in ai, at a time when microsoft and other companies are trying to cut multiple billions of dollars in people costs, how should investors think about this ai investment to me it seems like this is about margins, about ai being able to do the work of people within software in the future. >> this is about changing the world, right and a company like microsoft clearly isn't going to be short sided at the expense of the next five or ten years to come. ai has been around for decades, it's obviously in the hands of you, me, and everybody else, but i believe that, you know, you're

talking about two different conversations, apples and oranges. the cash flow, balance sheet characteristics of microsoft they will continue to invest in the future and the future is ai. i don't see that at odds with the near term discipline and profitability. it's healthy and what companies should be doing now, given the change in demand, more about the change in demand than it is what wall street wants. >> it's fascinating to see what wall street wants on the ai front. we know they've wanted it for a long time. brad, thank you. let's turn to more cost cutting and technology spotify today whereby julia has detailed. >> spotify shares are up more than 3% on the news of layoffs to focus on margin and product

innovation this after spotify shares have lost half the value in the last 12 months. it's laying off about 600 employees. dani daniel ekc saying in 2022, the growth of spotify's opex outpaced our revenue growth by 2x that would have been unsustainable in any climate but with a challenging macro environment it would be more difficult to close the gap also announcing the departure of dawn ostroff, she will be a senior adviser to manage the transition and nordstrom being the business officer. key bank estimating spotify will achieve 95 million euros in savings. saying that they do expect

spotify to be resilient this year because of subscription model and the base with potential revenue catalyst around product and pricing >> julia, a question to you. i wonder how you grade spotify's podcast efforts. they paid millions to get people like joe rick ogan, the ringer is this something that gets scaled back? >> it's interesting because daniel eck praised the podcast business, really making spotify a destination not for all podcasts but specifically their exclusive and premium podcasts what insulates spotify here is that it is in many ways seen as a utility. with streaming services you might sign up for netflix and have a couple other services that you add or drop different

times of year depending on the show, spotify, apple music people have a service and be loyal to it, it's not the thing they want to drop if cash gets tight. they may be looking at other areas of entertainment spending. i think the podcast if they have a loyal fan base lock people into the system. we may see fewer of the high price exclusive deals simply because there may be less of a direct line to a direct payoff to them. >> i wonder, we talked about head count reductions in technology at large, software, for example, but does this open a new door, green light for companies in media to make cuts in this size >> we have seen so many cuts in the media space. i think we'll hear about job layoffs from disney when they report earnings we'll see what numbers they are talking about, we saw sum lome layoffs but sma

numbers at nbc universal, in the hundred range at nbc universal the numbers are higher in the speck spa tech space because they hired so many people. the layoffs in the tech space are bringing them back to where they were two years ago or prepandemic. not going back to levels before that >> julia, thank you very much on those spotify layoffs. up next, many large wall street desks say chances of a recession are falling. but like we talked about, job cuts keep on coming. who's right? we'll discuss. stocks going higher as the hour begins nasdaq higher by 2%. the dow up around 370 points "techcheck" is just getting started.

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as the new year kicks off, fewer on wall street are expecting recession to hit this year according to the most recent

survey from the national association of business economics. only 56% of respondents see a recession on the horizon j.p. morgan tells a similar story, 7 out of 9 asset classes saw recession odds drop below 50%. and then you have the treasury secretary expressing bullishness as well saying she expects a strong labor market and progress on inflation looking at the fourth quarter, two thirds of companies have topped expectations for q4 but that is coming against the backdrop of thousands of job cuts across one of the biggest sectors of technology. it's going to be a key debate whether or not the recent performance and opt mim can offset what we've seen in the way of job cuts. >> somebody is wrong

just saying there were recessions in large parts of the world. you heard what spotify just said we were talking about salesforce a lot of the sunniness seems backward looking to me in the sense that we don't know how much the economy is slowing down, but we do have estimates that the consumer is going to run out of money about mid year. we know the credit card interest rates are creeping higher. we'll see what that does. >> it's interesting a lot of that optimism is coming from the sell side on the street and the ceos, more cautious. you have bill mcdermott who was optimistic compared to when he spoke to us a few quarters agos i was listening to "squawk box" this morning, one of the few voices saying the fed should be cutting by 50 basis points said they're probably going to cut by

25 but they shouldn't. another voice like that is dan niles. talk about history, the '70s when the fed paused and reversed too quickly, leaving to going back and hiking by double digits. >> i remember dan telling us on this show, guys, it can't be about big tech firms laying off people you have to see small and medium size businesses laying off despite the market outperformance so far, tech could crumble. expecting the tech to drop nearly 18% this year and seeing retail names down more than 80% year on year and we'll get a lot of those numbers this week. joining us with his expectation, jonathan gahl is with us are you net net worried about

this particular quarter? >> i'm not worried about the quarter overoall. but i think there's something different in the tech area than the broader economy. if i was a tech ceo i would probably say i think this looks recessionary they overhired there was a huge pull forward of activity during the pandemic and that's left a dearth of demand in its aftermath their margins are getting squeezed very aggressively much more than other sectors it's the only area in the s&p that's expected to see margin contraction in 2023. so i think that we have to be really careful to extrapolate what's happening in tech land to everything else. >> when you fold in things like financials with a similar story there in terms of head count how far does the bleed go?

beyond financials? does it go into travel, manufacturing, how much of this earnings recession -- how far does it creep? >> obviously talking about earnings recession versus people, if you look at from an earnings recession point of view, if you took the s&p 500 and you threw out tech and tech related companies, this earnings season would be expected to grow 5% and including tech it's expected to grow negative 2 1/2. so you have these very, very different worlds we're not used to, carl, is an environment where tech is the thing that's dragging down the entire outlook from a corporate perspective -- from a corporate layoff perspective, from a margin perspective and it's a bit unusual i think it's probably going to last not forever but the next couple of quarters >> that doesn't seem like that

long, jonathan it seems like the thing the market would begin to price in now, sort of this relative underperformance in technology say through the summer. >> you know, maybe, carl, if you looked in the last you know, couple of months or maybe more re recently, you've had -- tech has staged a comeback on some of the names so it's possible they're sniffing out, maybe the worst is in the quarter one of the things we look at closely is earnings revisions. basically there's an earnings estimate that people on wall street have, is that number adjusted up or down. those numbers if you look within the tech landscape, there are areas like software and hardware that are actually seeing better previsions than the rest of the s&p. but then you have semis which

are terrible in terms of the numbers being revised lower and then you have the internet names, whether they're retailers or social media companies, and they're getting revised down much more aggressively so there's -- even within tech, there's haves and have notes >> right does it surprise you then at least the names that people care about, large cap technology have been relative winners so far i know the year is early and there's a lot of weird dieynami, but there's obviously companies that are doing better than the market. >> it does surprise me, carl because the mega cap tech names in general, it's skewed towards certain, you know, internet areas and things like that but the stocks are generally doing much better and their earnings revisions are much worse and it's something that i think, you know -- i think a

number of bearish investors are looking at this as kind of a freighting opportunity the stocks are holding up better than the earnings on some of those internet and semis, you know, kind of names. but i think that this -- as we move forward in the year, things will get -- we'll get a little bit more footing on here, and the thing that tech is expected to deliver, which is what they've always delivered is faster revenue growth as the year progresses. and something that creates a positive to this otherwise negative story is that revenues are probably likely to outpace the rest of the market as the year progresses. but we're not seeing that right now in this earnings season and i'm not optimistic about the first and second quarter >> interesting we have to read every word of every earnings call. at least this week we'll see what it is in the

weeks to come. after the break, it's risk on way on wayfair surging after two upgrades shopify getting positive commentary as well we'll look at those names in two minutes. tesla bulls going full speed with the stock seeing another pop, up 12% this year, up almost 6% today are earnings going to justify "ty iseeth wk? echcheck" is back in two [music playing] ♪ imagine something of your very own. ♪ ♪ something you can have and hold. ♪ ♪ i'd build a road in gold just to have some dreaming, ♪ ♪ dreaming is free. ♪ accenture, let there be change. with gold bond...

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welcome back let's get a gut check on shares of wayfair, soaring following two double upgrades of the stock this morning as can you see, up more than 20%, b of a and jp morgan turning bullish overnight. the catalyst there, both firms have price targets in the 60s and that is still above the price that it is trading at

today, even after the more than 20% jump another catalyst the job cuts that amounted to about 10% of wayfair's workforce. the second in the last year, which is painful but you look at the bigger tech companies the letter from tci to alphabet saying 6% wasn't enough. reduce head count by 20% that's painful but it raises the question are the bigger companies, are they done, could there be more? >> i go back to that -- that estimate around the consumer running out of money in the middle of the year with the savings rate coming down does that get resolved somehow the cost cuts interesting, but the expectations as jonathan was just talking about, about a rebound in the second half of the year how does that happen without the consumer or does the consumer find more money? does the labor market adjust in

way it's not too hot but hot enough the consumer has more money? i don't know >> we just had chris from j.p. morgan who authored that upgrade of wayfair who said they're leaner and meaner but seeing consumers who make more than $100,000 a year graduate down to names like walmart, wells last week with a cautionary note about costco, saying the general merchandise stories we've seen at a firm like target they're not necessarily immune so that's key for the quarter. >> wayfair part of first in, first out story from last year let's get a news update now. be bertha coombs that has that for us. here's what's happening. zylem is the worst performer in the s&p 500 today, down % after saying it would buy evoqua for

7.5 billion dollar a former high level fbi agent has been arrested for violating u.s. sanctions against a russian oligarch charles mcgonagle. a former head of current intelligence has been charged with money laundering and providing services a court interpreter was also charged. disney's "avatar: the way of water" has hit $2 billion in the box office the sixth movie ever to reach that milestone cameron said the movie would need to gross at least 2 billion in order to break even so it's all gravy from here. >> don't bet against james cameron. beyond bah ba, looking for

opportunity in opportunity. a 2% pop this morning after a 2% jump on friday. so so far this year big tech is ki aomack. we're back after this. doors lead us to places we've never been.

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welcome back to "techcheck." a couple hours into trading today, checking the markets. stocks just off the highs of the open but still a nice pop here. you have the dow up almost 1%. s&p back about 4k well above the

200 day moving average, which has been resistance for a couple of weeks leading the charge, the semis are there play, getting a nice boost led by amd, barclays bullish on a bunch of stocks and looking at the chinese stocks continuing with tencent, jd.com seeing a bump. goldman says it expects china to outperform the u.s. this year but what if you want to invest without getting into the internet names. >> the reopening is driving the momentum, hedge fund exposure to chinese equities has jumped from a low of 7% to 13% the high back in 2020 was 15%. that analysis according to goldman. wisdom tree has increased the health care weighting in the past six months while tech has

gone up by only 1% a reopening is extremely positive and driving sentiment, longer term a crackdown of big tech is still a risk recommending clients to find names that benefit from more consumer activity on the mainland like yum china, and beers. and nike citing names like adidas and puma as likely ben fishes. with the chinese new year under way we're tracking numbers on the day-to-day basis and 40 million passengers traveled this past saturday. higher than last year, yes, but nearly 47% lower than the same period in 2019, that's why some people are saying it will take time for china to get back to the pre-pandemic levels. >> we don't know the extent of the covid outbreak over there.

great look at where you can invest beyond tech. look for where you can find value in china with our next guest, ben harberg great to have you on the program. if you're looking for value in china, is it actually wise to maybe avoid tech over the last few years we've seen beijing have more influence than many expected culminating with the golden shares that gives them special interest. are you looking at better ways to play the china story? >> consumer led names are going to do well in the last six months prior to the ending of zero covid you had no foot traffic in malls because people didn't know where the next paycheck was coming from, so little discretionary spending and a fear you might get caught up in an outbreak at the mall. so people steered clear. you are going to see a consumption rebound.

e expected it wouldn't show up in the numbers until the end of q2 because you have this health situation right now. but following that, most china names regardless of the sector are going to see significant rebounds off of the lows particularly in the technology sector where the government has called out the names. >> we've seen many of them in overbought territory looking at your portfolio you have airbnb and uber the way to play the china reopening is through international names, the idea of revenge traveling, booking airbnbs, using ubers when they travel outside of the country? >> there's going to be a huge exodus of demand, there's three years of being locked in the chinese snow globe so people are traveling, eating, able to spend again. so i think they will benefit

but domestically companies are seeing huge games. >> so some of the names that maybe investors aren't quite as familiar with. but i wonder, has your confidence holding tech names changed over the last two years at all, given the interference or control exercise by beijing >> certainly 2022 was a challenging year when many investors deemed the chinese market uninvestable because of zero covid, geopolitical action, regulatory interventions i believe the worst is behind us now. we heard from the december 2022 central economic work conference, a vision of supporting the large platforms in china, super apps, and i believe many of those will be rolled back in the name of highly necessary growth. >> so you're taking beijing at its word which has been a tricky

thing to do for many years but if that risk is off the table, what about the risk of more u.s. restrictions are markets complacent on that front or will the u.s. continue to ramp up the efforts and geopolitics is going to play a part >> i believe there will be some part of a u.s. capital ban, some type of name and shame exercise that is likely launched within february but that said, that would be targeting very specific sectors in the core technology space that may have military ap applications it won't affect other big tech names like tencent and alibaba >> thanks for being here, ben. what car prices are telling us about the state of the consumer and why the best deals may not show up until the summer stay with us

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welcome back new auto prices are holding strong despite headlines warning of a consumer slow down. phil lebeau is with us with more on what inventories in the auto space are looking like right now. >> if the consumer is slowing down we're not seeing it on the dealer lot j.d. power which crunches the number for retail transaction prices look at this, it shows that last year we hit an all-time high for

transaction prices for new vehicles and about the same for the month of january down little. the problem is this, auto production right now continues to run below the expected demand level. demand this year expected to be about 15 million so the new model inventory has not changed since november it remains the same. you have global ev investments ramping up and the one area you are seeing greeter demand is electric vehicles. this continues through the rest of the decade. look at the forecast about 9.4% of sales last year were evs here in the u.s as you look at a couple of key stocks for later this week you have gm and fords, a big part of their earning next week are focussed on what's happening with their ev investments, what pressure you might be seeing on their margins because of tesla which reports after the bell on wednesday. the focus, how much of the price

cuts, their gross auto margins how much compression are they seeing now those are the stocks in focus over the next week and a half. >> the journal does a piece on how the sell side hasn't loved it this math the price cuts wreaking havoc on used car lots lowering the price of teslas by thousands of dollars overnight, what's going on >> look, i'm not surprised we did this report last week about what we're seeing with used tesla prices. they're going to come down you cut the price of a model y by 15,000 new, the price of the used ones are going to plunge. that's not a surprise there. i'm not surprised the analysts are as bullish as they are on tesla, it has the production, the supply chain, and basically it has the brands when it comes to electric vehicles, guys if people are in the market for an electric vehicle they first talk about tesla and then

another auto maker >> phil, it's going to be a big week, especially as we await the tesla results. still to come this hour, wells fargo, bank of america, j.p. morgan working on new digital wallets. paypal outperforming the banks to start the year but this is a company down big over e stthpa 12 months. so don't go away good luck. td ameritrade, this is anna. hi anna, this position is all over the place, help! hey professor, subscriptions are down but that's only an estimated 15% of their valuation. do you think the market is overreacting? how'd you know that? the company profile tool, in thinkorswim®. yes, i love you!! please ignore that. td ameritrade. award-winning customer service that has your back.

some big banks are teeming up to enter the digital wallet world including wells fargo, bank of america, and j.p. morgan chase, working on a product to compete with apple and paypal. shares of paypal coming off session lows the stock was down over 1% on bank. our next guest says the competition threat is likely being overblown. kate, let me start with you. you and i have been cover ring this area for a while, and i remember when everybody was friends and then they were fr friend aphaez. >> yeah, it's key because zelle is mobile payments, and it's the same thing as venmo. this is going after online checkout, which is paypal's bread and butter and has been for 20 years when they started

back with ebay from google pay, if you log on to google chrome, the ease in which you can enter your credit card information is astounding the customer relationship is the other thing i want to point out. the banks don't want to just be a commodity. it has been playing out and seems to be one of the motivations. >> darren, you have seen more big banks do acquisitions and trying to do more with consumer tech, and are big banks good at consumer fen tech. >> i think over time i think we have seen a lot of banks try to compete and have not done the best job you look at the growth of banks going through the texts, even if

it's block or square, it generally is three to four times faster because they know how to reach consumers in a more efficient way using technology we don't think the banks have a good track record to compete effectively. >> darren, it seems like most people with a lot of money in the u.s. have iphones, which means they have apple pay. who are the banks going to get on this thing? >> no doubt banks -- i mean, they definitely get a little nervous, as kate was talking about, about big tech companies inserting themselves between them and the consumer, and they don't want to lose that relationship digital banks now are about 35% of total financial services downloads versus the largest banks. that's up from about 10%, going back three years ago >> what i mean, though, who is left do you have to dislodge apple

pay for the premium banking consumer if you are going to succeed here what are the chances of them being able to do that actually >> i don't see that happening. use of apple pay at the point of sales up 60% yearover year it's easy. paypal is investing heavily in improving their own experience >> especially after goldman reported $3 billion in losses over the last three years. yesterday, they have been better at reaching the consumer and making apps to use easy is there an argument to be made that maybe the big banks are well positioned now? >> yeah, that benefitted venmo

in thepast they have benefited from the cool factor, and they spent a lot on customer acquisition and partnerships with rappers and musicians and that seems to be slowing down it's the way they get people onboard. if you are using venmo and you want to pay your babysitter or anybody you know, or introduce your parents to it, there was a moment in time where you saw this affect, and they relied on that a little bit more, and zelle has benefited because they have the existing hundreds of millions of users. the point is can they keep up with the customer experience you want the easiest fastest thing when you check out, and that's whares about. >> you and i were joking zelle is for boomers and venmo is for millennials >> yeah. darren, do you agree with that assessment >> yeah. for what it's worth, when you use apple pay, it makes the

checkout process faster by 48% i still have a hard time imagining the banks getting it right too soon, because they are focused on other things. >> thank you very much for being with us. talk to you soon speaking of fin check. he will join us for a tech check live stream after the show as well we have more on microsoft's big eche" bnt when we come back "thcckisack after one more break i'm so glad we did this. i'm so glad we did this. i'm so glad we did this. i'm so glad we did this. i'm so...

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one more thing microsoft announcing the multibillion dollar investment in open ai, as the cloud partner for the company chatgpt. it's the third time microsoft invested since 2019, looking to increase the use of artificial intelligence across the consumer

and enterprise lineup, carl. over the weekend it appears that chatgdp was able to pass a licensing exam, and that goes to the question of what is this for? cutting margins -- raising margins, i should say, if microsoft software can be used by doctors in that way in combinations with the likes, the nuance, that is all they can do. >> white paper suggested it would get maybe a "b," maybe a "b" minus but would pass basically a good piece over the weekend. it will turn a lot of students from writers into editors where it gives you an early draft and it's up to you to fix it >> that's the premise, right it's not displacing people but displaying certain tasks and freeing employees and students up for a lot of things a lot of anxiety around it carl, excitement around this

although it could have been a $10 billion investment reportedly microsoft reports later this week and i don't think investors want to hear about too much spending, but open ai gets a pass >> pretty constructive start to the week let's get to the judge and the half >> carl, thank you very much welcome to the ""halftime report." we debate and discuss with the investment committeeing. jason snipe, stephanie link and joe tear nova here in the house. 4025 on the s&p. the