Confluent CEO Jay Kreps on Earnings, Robinhood Beats Estimates in Q3 & Equinix CEO Charles Meyers on Latest Results 11/3/22

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I'm John Forte. You're listening to CNBC's Tech Check. Our show is live weekdays at 11 a.m. Eastern. Listen in.

Good Thursday morning. Welcome to Tech Check. I'm Carl Quintanilla with John Forte and Deirdre Bosa. Today, the Fed raising rates for a 6th time and no signs they're stopping anytime soon. What that means for the mega caps later on this hour. Plus, more on the consumer as names from Qualcomm to Peloton slump on disappearing demand. And a look at the key tech names poised to benefit or take a hit as rates go higher, along with some of today's big movers and their There are plenty of them, D. Plenty of them.

We're going to kick it off, though, with a look at big tech. The FANG+ index losing all of its gains since July on the heels of the Fed's fourth 75 basis point rate hike in a row. Names like Amazon down 11% just this week, as we've talked about, losing that $1 trillion status. Apple, Microsoft also down big this week. While many expect more big rate hikes to come, tech names are already taking the hits. They're already tightening their belts. There's been almost 10,000 job cuts in the sector for October alone and a slew of names continuing to cut guidance as they report. Qualcomm, Roku, Fortinet, Qorvo, just to name a few. Guys, only in the last 24 hours, speaking of layoffs, it was Stripe this morning, still private company, really known as a darling here in Silicon Valley. In a note to staff, the CEO Patrick Collison pointed to big tech earnings last week as evidence of all these macro factors that they're feeling in the private markets that their public counterparts are feeling. And guys, sectors that we thought were safe like cloud cybersecurity, how resilient are they really? The CIBR ETF, that's a cybersecurity ETF. It's down nearly 8% this week. And I can't stop thinking about this idea, John, that Cramer brought up a few days ago that we may no longer be in the early innings of cloud.

Hmm.

I think we're still in the early innings of the, the digital transformation that's affecting enterprise software. I've been saying for a while that cloud is a useless term at this point. You know, is it platform as a service? Is it, you know, software as a service? Is it infrastructure as a service? Now we've got DevOps to think about. We've got, you know, enterprise services, that sort of flavor that stretches across small business. We've got payments technologies that are really fintech that are for specific little areas. All that's getting lumped into cloud and all of its very different, and that's gonna be important tonight, by the way. We've got Atlassian reporting as well as GoDaddy and Build.com. All of those get lumped into cloud, but all of them are different. Overall, we've seen some upside surprises, relatively speaking, thus far in earnings. I think from the likes of eBay, even from the likes, I mean, Robinhood is up 10% this morning. That doesn't mean that that stock is so great overall, It's just a reflection of what expectations were. So, you know, in the show today, Carl, I think we're going to comb through and try to give viewers some sense of what's happening in different areas and what's to come with a lot more reports tonight.

Yeah, we talked with Kramer this morning about the narrow universe of companies that did well during the pandemic and then have managed to adjust to do well post-pandemic. He pointed to Etsy as a key example. We're watching Wayfair as well. But It depends, depends on, on your vertical, your space. Clearly chips are having a different story this morning. And John.

Yeah, for sure. Speaking of Qualcomm, down this morning off the lows, but still down about 6.5% after missing on first quarter guidance. On the call, CEO Cristiano Amon said the company has implemented a hiring freeze, will cut OpEx as needed as interest rates rise and consumers slow down. He warned device maker inventories are going to take a while to pare down. Based on our current assessment, we estimate that there are roughly 8 to 10 weeks of elevated inventory in the channel. While the environment is very dynamic, based on the information we have today, we believe this may take a couple of quarters to work itself through, with more than half of the inventory drawdown completed in the first fiscal quarter. That's not Cristiano's voice. That's the CFO. But they agree with each other here. Yeah, I would point out that part of what's happening here with this inventory overhang, this isn't done yet necessarily. We got to see how this plays out through Q4, Dee, because what could happen is if these device makers don't sell as many devices as they expect in Q4 and they've got overhand— overhang of finished devices, it's going to take them that much longer to then build and work through the inventory of Snapdragon chips, other chips that they have. And so this estimate of being able to work through a portion of that in calendar Q1 may or may not materialize based on that. And that's going to have ripple effects throughout tech.

You know, when we were in the chip shortage not all that long ago, I remember you in particular, John, were asking some of our guests, does that lead to a glut later on, which is where we are now? We talk about inventories. You see all of this spending come down. Qualcomm last night saying that they're spending— they're planning spending cuts for certain products. Could be further cuts to come. You're seeing the likes of that from many other of the big chip companies. They're planning on manufacturing as well. Carl, it begs the question, you know, such a cyclical business. Do we get back in the same situation down the road? Because many of that plan, that spending is planned to take effect, give us chips years in the future. Where do we end up here? It's an interesting time for the chipmakers, but I don't think anyone thinks we're at a bottom quite yet.

We will see. Turning back to the broader market today, the Nasdaq now down almost 6% on the week after yesterday's rate hike and no signs of that pause or pivot that some of the bulls had hoped for. Should investors— how investors navigate this new normal for tech is a key question. Joining us this morning here at Post 9, Wells Fargo Global Internet Investment Banking Chair Bob Peck. It's great to see you, Bob.

Thanks for having me. Appreciate it.

So we've been talking about rightsizing, right, and cost management and expense reduction. The Stripe example is a good one, as Dee pointed out, because they talk about sparser startup funding. We think 2022 represents the beginning of a different economic climate.

Yeah.

You think that's true?

Yeah, I think it's interesting. Just taking a look at yesterday and the reaction to the interest rates. Right. So the whole FANG group traded off 4 or 5%. And obviously with tech, you know, you have longer duration cash flows. So the more rates go up, the more the impact to your valuation. So you've seen that this year with the Nasdaq being down 30% while— 33% while S&P is only down, you know, low 20s, give or take. What I think is interesting, though, is each one of those FANGs, each one of these larger tech companies, sort of also has their own thing they're addressing.

Right.

So it's not just the broader picture that's taking place. So in Facebook's case, it's spending on You know, virtual reality in Google's case, it was YouTube being down for the first time ever on the advertising side of things. And cloud— Microsoft talked about PC sales. So you are seeing an impact across these large tech companies, maybe from recession you're in or just the general economy or anticipation of a recession or a broader pullback in the markets. But it's interesting how you're seeing all these large companies being impacted, but for very different reasons.

Right.

In addition to the macro. Exactly. Got specific stories.

Yes.

And universal stories.

Exactly right.

Yeah.

On M&A, your general view is that next year is going to be better than this year. And that's not saying that much. Yeah, but that there will be a ready population to consider investing in M&A situations because, because alpha has been so lean.

Yeah, it's really interesting. A lot's been going on in M&A.

So first of all, we're coming off the record year, right?

$6 trillion of global M&A. And this year we're down about a third, give or take, still making it the 4th or 5th best market in M&A of all time. Right. So I think that's interesting. Very front-end loaded this year, right? You obviously had Broadcom, you had Microsoft and Activision, Twitter, all that stuff that happened in the beginning of the year, but a very decent year overall. What I think is interesting, though, is just the valuation parameters that boards and executive teams are thinking about, right? So one good example recently is Hellman Friedman bought Zendesk, right, down 50% from its all-time high, $10 billion deal. So a very big deal, right? But you're still seeing a reassessment of what's a true valuation multiple now. And maybe not pinning or going back to the October, November timeframe last year where things are at all-time highs. So we're seeing our clients, our C-suites, our executive teams sit there and think about maybe we weren't worth 30 times revenues, maybe we're only 20 times revenues, or pick your numbers to fill in there. But we're seeing much more engagement now and much more of embracing the new reality and what that means.

Bob, it's Steve. I want to get your take on a conversation we had just at the start of the show. I'm not sure if you heard it, but we're talking about where we are sort of in cloud. Kramer brought up this idea that we may not be in the early innings anymore, at least when it comes from going from on-prem to cloud. Where do you think we are? What does that mean for the markets, especially some of these massive hyperscalers that drive so much action?

Yeah, yeah. On cloud, I still think there's a massive opportunity there. Having said that, near-term here, as companies seek to reel in costs, right, and maybe push out further expenditures into later next year or when the economy is better. I think you could see some near-term pressure. I think that's what we heard, quite honestly, from Microsoft, from Google, as they sort of tried to gauge what the near-term trends would be. But the economics there, the efficiency of it all, provides a long time for these companies to ultimately benefit from.

Okay. So who's better positioned in a potentially slower economic environment? Is that the hyperscalers that have consumption-based business models or the REITs, the data center REITs that maybe have more fixed contracts?

Yeah, I think they'll both do well. But the hyperscalers is really where I think there's a lot of opportunity as they have that robust growth and as consumption, as, as usage and utilization increases, their models will benefit from that. And the one broader thing is you take a step back from tech is that overall we can skip looking at this quarter or next quarter, but longer term, just the growth in tech and the growth of consumption, the growth in utilization and usage is going to be just tremendous for all these companies to benefit from, specifically the clients of these companies as well.

Bob, staying on that for a moment, I wonder what you think. My take is that the term cloud is increasingly just cumbersome and kind of useless. We used to have software as a service, infrastructure as a service, platform as a service we talked about. And sure, you know, when it comes to infrastructure, a lot of people are using that. But now it seems to me investors have to think more deeply about DevOps, about platforms for cybersecurity, about software for SMB that gives them the kind of capabilities that enterprises traditionally have had when it comes to back office and when it comes to things like fintech and payments. And there's still a lot to go in those kinds of deeper categories.

Couldn't agree with you more. I think you're spot on there. I think you're seeing some of those subsectors of quote unquote cloud have a much much longer runways or more larger TAMs that have yet to be tapped into. So I agree with you, you're going to have all these somewhat subsectors of quote unquote cloud and there should be a long runway there.

Bob, appreciate that. A lot to get to and next year is going to get really interesting. We hope you'll come back.

Yeah, thanks again for having me. Appreciate it.

Bob Peck.

And after the break, what to do with Roku as shares plunge there. Plus, the CEO of data player Confluent as it heads in the opposite direction. And cloud revenues, well, they popped triple digits year over year. A big show still ahead. Tech Check is just getting started.

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Roku on the rocks this morning as shares plunge on those weak results amid some downgrades as well. Julia Borsten has more on the gut checks today. Hey, Julia.

Hey, that's right. Roku shares are down more than 8% on guidance that fell far short of expectations. The company forecasting a revenue decline of about 8% in the fourth quarter instead of the 3% revenue growth that analysts were projecting for Q4. While the company's projected loss for the last quarter of the year is more than 3 times what analysts had anticipated, Roku warning that they expect the macro environment to further pressure consumer discretionary spend and to degrade ad budgets. Roku shares are now down about 80% year to date, and we have seen a number of analyst downgrades this morning. Guggenheim downgraded to neutral, writing, quote, we lack visibility into key business drivers, including advertising revenue trends, let alone types of ad revenue, international growth, specific investment goals, and long-term profitability objectives. Moffett Nathanson with an underperform on the stock, noting that all players in the ad market have either posted disappointing third quarter ad results or weak fourth quarter guidance. They also note that Roku and Snap's disappointing results show that smaller platforms without a true upfront mechanism to pre-sell ads, that those are the ones that are easiest for marketers to cut and the first to get cut. Guys.

So, Julia, Roku was obviously very pessimistic, but there are a few in the space that are a little bit more optimistic, like Netflix, for example, that launches its ad supported version today, saying that it's seeing strong interest from advertisers. You also had Fox's Tubi growing at a pretty good clip. So what do you think the distinction is here? Is Roku highlighting what's to come, a better view of what's coming down the pipe, or is it unique to Roku?

Well, look, I think that Fox is really the outlier here. You know, it's interesting you mentioned Fox. Fox has been really bolstered by political advertising. And so they are the one that has really given the most robust view of the ad market. I think that Roku plays into this whole idea that the ones that have the— that are most experimental, maybe have the youngest ad business, those are the ones that are going to get cut first. And I think it's going to be really interesting to see sort of what the adoption is of the ad-supported platforms for Netflix as well as Disney. And we'll talk about that more later this hour, just to give a little tease there. But I think it's about the health of the ad platform as it exists, how much these platforms can show measurable return on investment because that's what brands want right now. And then understanding that if it's really easy to turn on advertising on a platform, it's also really easy to flip the switch and turn that off. And that is what we've seen with Roku and also Snap.

Yeah, Julia, thanks. And we'll see you in just a bit. Meanwhile, other side of the coin, a name very much in the green, Confluent jumping this morning up more than 12% after beating on the top and bottom lines. The real-time data streaming platform also forecasting beats on guidance for next quarter, the full fiscal year, as cloud revenues came in, well, more than twice where they were a year ago. Joining us now, Confluence co-founder and CEO Jay Kreps. Jay, first want to get some sense of what went so right here, even though you've got increasing deal scrutiny Customers at $1 million or more, up more than 50%. What's the, what's the tradeoff that you see in kind of more spend with some customers, but also more hesitation overall?

Yeah, I mean, there's no question it's, it's a difficult environment to operate in. And, you know, we felt that same as everybody else. You know, I think this is definitely a time where, you know, the value of what the product actually does for the customer, you know, do they need it? Are they getting the full value that ends up shining through? And so everybody's getting more inspection. I think we're lucky that, you know, we tend to be attached to these mission-critical use cases that are the things that are going to go through. They're going to be the last to get cut. You know, that helps in the retention of customers, that helps in the expansion, that helps in ensuring, you know, this goes in as a net new thing, you know, for customers. I think that is a little bit about our space and the evolution of data streaming where it kind of came a little bit out of the lab but has moved kind of very into the mainstream and in what customers are doing.

Something that's raised my eyebrow this earnings cycle is the impact of this overall economic slowdown on net revenue retention, which is, you know, a number that a lot of us are looking more at, you know, particularly in ZoomInfo's results. It jumped out at me that as consumption decreases overall and as companies either hire more slowly or even reduce their workforces, you get, you know, seat growth slowing down or shrinking, uh, and, you know, lower usage overall the same product. And that can affect net revenue retention even if they still like your product just as much, and even if they're adding incrementally some new features, right?

Yeah, you know, there is a dynamic of that. You know, we've got a lot of questions. We have a consumption model for our cloud product, and the question investors have is, hey, are these models are great in boom times What do they look like in tough times? You know, does everybody pull back and use less? And, you know, the answer is it depends, right? If you've sold a lot of stuff that isn't really creating value, you are going to see some trimming and optimization and cutback, maybe large, maybe small. But that's not inherent to the model. If anything, I think a consumption model is an asset in these times. You don't want to be incurring a lot of risk on the customer side when they're thinking about the next new thing. That next expansion. This is a way to take that risk off the table and say, hey, look, we'll take a portion of the value we create, but we're going to go do that together. I think it ends up being a huge asset if it's done well.

So, Jay, you're seeing your demand remains strong. However, it looks like your costs are rising too. You missed on operating income what the Street was expecting and your free cash flow down 120% year over year. What do you attribute that to?

Yeah, you know, we did have a dynamic with free cash flow where we had a different schedule of payouts of our bonuses. And, you know, so that, that is kind of a one-time impact, but it really is just a pull forward of spend. So, you know, on the whole, we were super pleased with the progress on efficiency. This has been a big focus for us, as you can imagine. You know, we've shown 14 points of improvement year over year in non-GAAP operating margins. And that comes out of a lot of hard work on driving efficiency in sales, driving optimization in our cloud platform. You know, so that's obviously part of a larger progress towards being operating margin positive coming out of Q4, which is something we've talked about quite a bit, you know, with our investor base.

Jay, spend some more time there with us because today we've got the news of Stripe cutting 14% of its workforce. And yes, it's a private company, but it's the size of a young public company like Confluent. Certainly gets a lot of attention. How are you approaching hiring right now? Qualcomm's another one. Just a few weeks ago, Cristiano Amon was talking about continuing to hire, but now they got a hiring freeze in place. Even though your top line continues to do well, your business overall feels healthy. Are you still hiring? Are you still spending at the same pace as you see revenues going?

Yeah, we are still, we are still hiring, but we have made a set of optimizations. And you know, what you say is exactly right. You look across tech, there's layoffs. There's hiring freezes, there's big pullback. People are dropping areas. What we've done is try to be smart. You know, we're in high growth. We don't freeze all hiring and slow ourselves down inordinately, but we want to be smart about where we're making investments. And we made significant shifts in, hey, where is headcount going? What are the highest ROI segments for us? What are the must-do projects? And we've been very smart about how we deploy that. And I think that's what's led to the kind of year-over-year improvement for us. That's obviously an ongoing process. It's nothing new, but I think it's made extra important in this environment. And the plus side is, you know, if you have areas where you're growing, there's amazing people on the market. You know, used to be in tech, the reality was there was 17 jobs for each available candidate and everyone could put in their bid. You know, that has changed. So now we're able to really hire amazing talent that's out there. And there really isn't as much as big tech has slowed down. You know, a lot of the startups are in freeze mode while the late-stage funding market is, is kind of settling out. So in a sense, it's actually a great time to be growing if you're doing it in a smart way.

All right. Well, investors recognizing those results today, Jay, with Confluent stock up more than 13%. Jay Kreps, thank you.

Thank you.

Still to come this morning, it's a long road ahead when it comes to interest rates. Don't miss the key names poised to win or fall as things go higher coming up next. Don't go away.

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Welcome back to Tech Check. I'm Carl Quintanilla with Deirdre Bosa, John Forte, and Julia Borsten checking in on things about half past the hour here. We have shaved some opening losses. Dow now down fewer than 100 points as the 10-year yield has come back to just under 4.14. Julia's got some more on Netflix as the company finally sees the debut of its ad tier service in a dozen countries. First, though, let's get a news update with our Bertha Coombs. Hey, Bertha.

Hey, Carl.

Here's what's happening at this hour. Zootis shares cratering as much as 15% before turning losses. The pet health company posted weak quarterly results. More importantly, it lowered guidance, citing supply chain issues, forex headwinds, and shortages of veterinary doctor workers, rather. Under Armour shares are popping 50 15%, though profits and sales topped estimates. The company also gave strong full-year guidance despite expectations of more discounting to clear inventory. Tune in to Closing Bell at 3:00 PM Eastern for an interview with Under Armour's interim CEO Colin Brown and also founder Kevin Plank. And carmaker Stellantis is urging owners of more than a quarter million older vehicles to stop are driving them after Takata airbags apparently exploded, killing 3 more people. Cars include certain Dodge and Chrysler models from 2005 through 2010. All had been recalled back in 2015. Fatalities bring the death toll from exploding Takata airbags to at least 32 worldwide.

Oof.

Best to get that checked.

Carl?

John? Uh, yes, Bertha, thanks. Fed Chair Powell signaling that no pivot or rate cut is coming anytime soon, even after the Fed's fourth 75 basis point hike yesterday. So are there key tech names at risk here? Dom Chu takes a look. Dom.

So, John, we're looking at a key metric here. Valuations, of course, in the market have been— become even a bigger focal point given yesterday's Fed announcement. Higher rates do mean lower market multiples and lower stock prices. Now, For the Nasdaq 100 index and the ETF that tracks it, we've seen a roughly 35% decline since the highs we saw back in November of last year. Now, during that span, per FactSet data, the amount of price that you pay today for a dollar of next year's expected earnings was 30, kind of at the highs that we saw, and now is trading at closer to about 20 times that forward price-to-earnings ratio. That's something to keep an eye on for context. Now for the biggest stocks in the market, we've seen valuations come down in a big way as well. Apple's forward price-to-earnings ratio is now closer to around 22. It was 31 at the highs of the year. Microsoft is currently at around 22 times forward earnings as well, down from 35 at the highs. Alphabet is the relative discount play here. It's around 16 times forward earnings. It was 26. Amazon is at 58 times forward earnings. It was, again, probably 96 at the highs. And then Tesla is 39 times, down from just around 157 at the highs of the year. To give you an idea of the context, remember the NASDAQ 100 trades at roughly 20 times forward earnings. Now we took a look at some of the other forward PE stocks for the NASDAQ 100. Among some of the highest were MercadoLibre, which trades at around 70 times forward earnings. You've also got CrowdStrike, which is around 85 times forward earnings, and then Zscaler, which trades at roughly 107 times forward earnings per FactSet data. Now, all of that can shift around as analysts change their views, but if you are curious, uh, guys, about what some of the other higher valuation NASDAQ 100 stocks are, just head over to my Twitter feed @thedomino. I've posted the highest 25 valuations in the NASDAQ 100 over there. So, Deirdre, just to give you an idea of the context You can check out that particular piece of data. I'll send things back over to you.

I'm glad you bring up those cybersecurity names. You mentioned that at the beginning of the show, Don, that those are some of the ones that are being hit hardest in the market. And you tell us exactly why those forward P/E multiples still relatively high. Thank you very much. Well, one silver lining of higher rates, higher yields for fintechs like SoFi and Robinhood, with the latter name headed higher after beating estimates this morning. Kate Rooney joins us with that story. Such an interesting dynamic playing out here because they have been some of the highest valued, unprofitable, but higher rates actually help their core business.

There's sort of two sides of this. Rates are hitting valuations, but at the same time in the quarter we saw rates really help Robinhood and they were a meaningful boost to Robinhood's results and are set to play a bigger role going forward, especially as its core business and core trading business slows down. Net interest income jumped 73% from the prior quarter. Executives called out rate hikes as a driver of that revenue beat. It made up more than a third of income and was one factor that helped shrink some of the losses at Robinhood. The company was profitable on an adjusted EBITDA basis. Robinhood does expect net interest income to jump by $25 million or so in the current quarter, and it's got about $17 billion in interest-bearing assets on that platform. It may even be in a better position than some of its fintech peers. Yes, it earns interest on cash accounts. That's about $3 billion, but it's getting the bulk of that yield from securities lending. It also is raising the interest rate on its sweep accounts to 3.75%. These higher rates are now becoming a way for fintechs to really compete for customers. We heard that from SoFi this week, too. It saw a similar rate-related boost and a jump in customer accounts thanks to those higher rates. Executives are welcoming the help from higher rates as it helps offset some of that trading slowdown. But of course, On the flip side, as I mentioned, those rates have hit markets and trading volume as well as some of the valuations here for a lot of the money-losing stocks like Robinhood. A bit of a catch-22 there. The big theme this year for fintechs— we've got some names reporting after the bell— it's all about cost discipline and reining in spending. Robinhood stock did get a boost after it lowered its outlook for operating expenses and stock-based compensation.

The irony of this is not lost on me. These companies, these disruptive fintechs are being rewarded not for being disruptive, but for essentially holding cash. Yeah, being valued kind of like a bank or what a bank would do, making money off the net interest income. So break that down for us. I know you mentioned that Anthony Noto interview at the beginning of this week. He said that he actually was pulling in a lot of those big bank customers. Yeah, it's interesting that they're not doing anything. The big banks, I guess they don't have to because traditionally it's been really sticky. It's hard for people to change accounts even if they're getting 1 basis point on their savings account. Do you think that that's shifting, though, in this environment? There's more fintechs than ever, of course.

Yeah, it's not clear how much of a threat the fintechs are to banks. If they were, you might see Chase, you know, move up its interest rate or do this as more of a loss leader, which is what the fintechs do. A lot of them will raise the interest rate knowing that they're going to lose money in the near term, but that it will attract customers. The other side of this, too, is, is that a sticky customer? The person who's willing to leave their traditional bank for a higher interest rate, is that the person who's going to get a home loan or refinance their student loan on your platform. So the question is, are these going to be sticky accounts? On the SoFi side, they actually get better economics because technically they are a bank. So a lot of these fintechs don't have access to the same rate boost as a SoFi. Robinhood has the securities lending side. So some of these just partner with banks. They're not going to be in as great of a position to benefit from this rate hike.

Right. Which kind of begs the question, how do you value them, right, as traditional finance or as technology companies? As you said, though, they're all trying to cut costs, which kind of fits into that question. Also, we talk about the big tech giants freezing or slowing hiring, but they're actually cutting jobs. Robinhood, Stripe this morning. How does that help their balance sheets?

Yeah, well, Robinhood was 23% layoffs and they did this about 6 months ago. You had Stripe this morning. The big thing is stock-based compensation. Compensation. So there's a lot of dilution in these startups that went public that gave a lot of equity to to either early employees or just the overall employee base. So that's a way to lower expenses. And that's a big operating expense line item. And so while it's a tough thing for employees in the near term and it's— you can say what you want about what it means for the economy in terms of what it means for the stocks. Wall Street really likes to see this type of discipline and see these layoffs happening, especially in the public names. Although Robinhood said sort of we've done all the cost cutting, we're kind of at the ceiling here.

Okay. Well, Kate Rooney, thanks for breaking it all down for us. Looking forward to those earnings. John.

Yeah, and turning to some more earnings still ahead, we're going to get a read today on how small and medium business technology demand is holding up and on an important enterprise upstart when we get results from names like Build.com, GoDaddy, Atlassian, and PayPal this afternoon. And while higher rates have caused havoc for some consumer names this quarter, Etsy and eBay jumping this morning on the back of relatively strong results. From both names. So I'd point out Etsy still off 55% year to date, eBay off just over 40% year to date. But Carl, GoDaddy and Bill, you know, you don't always talk about Bill.com when you talk about fintech, but it's a fintech company, not for consumers, but for small, medium business. So let's contrast that and see how they're doing sort of as a back office software cloud play there? Are businesses, smaller businesses, still moving to them as they might need to at a time when there's a lot of belt tightening?

Yeah, I was just looking at Morgan Stanley on Etsy. Higher income consumers showing some signs of slowing incrementally, D, and then frequency per buyer, GMS per buyer does appear to be retreating. Habitual buyers declining maybe sequentially for the first time in about 4 years.

Yet prior to the news conference yesterday from Fed Chair Powell, you saw investors sort of picking at some of these unprofitable tech names that we've seen this year, like Uber earlier this week. You have to wonder if, you know, that hawkish outlook scares some investors away. PayPal will be interesting. It's down 60% year to date, Carl. Some have called it now a value stock. What will we see on the back of earnings?

And don't forget about Atlassian. That's kind of the poster child for product-led growth. The idea being they don't spend a lot on marketing relative to what they spend on R&D. In tough times, can they afford to continue doing that? Is their top line going to be strong, Carl? I think that's going to be an important one to watch for enterprise and cloud overall.

Yeah, well, Atlassian is one good example of some green today. If you're looking for some of the green arrows on the, on the tape, check out the top gainers on the NDX. Pinduoduo bookings on there, AMD, even Lucid. And then farther down the list, you do have some Zoom videos, Honeywell, and Intel. Stay with us. As you're well aware, we're just 5 days from midterms. And while the races are heating up, one tech billionaire has played a pretty big role behind the scenes. Our Elon Mui has more on that this morning. Hi, Ylan.

Well, Carl, the Senate race out here in Arizona is extremely tight. Incumbent Democrat Mark Kelly does have a slight lead in the polls, but his GOP challenger Blake Masters is literally giving him a run for his money. Now, if you look at how much each candidate has raised individually, doesn't seem like much of a contest. Kelly has raked in $82 million. Masters has just brought in $12 million. But Masters has a secret weapon. In Peter Thiel. The PayPal co-founder has reportedly deployed $20 million in this race through his PAC Saving Arizona, and overall the PAC has brought in $26 million. It's the biggest Republican spender in the Senate race here, booking $8 million in ads during the general election alone. Now, Thiel has also hosted private fundraisers for Masters, who's running as a hardline conservative. I went to one of Masters' campaign events where he slammed Democrats on everything from from border security to gas prices and inflation.

So they destroyed our energy independence and then they printed $7 trillion, between $6 and $7 trillion in the last 20 months. And apparently the PhD economists on Biden's staff don't understand how this causes inflation.

Democrat Mark Kelly is running as a moderate focused on bipartisanship. Remember, he was instrumental in getting that CHIPS bill passed because semiconductors are such a big industry here. So guys, Kelly has some CEOs in his corner as well.

Yvonne Man, thank you. And speaking of Peter Thiel, check out shares of Palantir. They're 70% off their highs of the year, though the average price target on the street, $10 a share or 25% higher from here. We'll bring you the latest on that name. Reports results on Monday. More market action after the break. Nasdaq down 1 and about 1/5 of a percent. Stay with us.

Let's get a gut check on Netflix, hovering near flat today but down well over 50% year to date. Today launching its new $7 a month ad-supported subscription option. That's $3 less than the basic subscription service without ads. Netflix tells us there will be a limited number of titles that aren't available due to licensing restrictions, which they say that they are working on. But they also tell us that the titles available on this new ad on the ad-supported service represent between 85% and 95% of what people are most likely to be viewing on Netflix right now, depending on the country. Now, today's launch comes about a month ahead of the launch of Disney's $8 a month ad-supported tier. It also marks a new phase in the streaming wars, a fight to hold on to consumers looking to cut back on spending. All these platforms are giving them cheaper options. Now, Netflix warned that this would be a a slow ramp-up of its ad-supported business. But once Netflix with ads is at scale, we'll have to see if its ad inventory steals share from Hulu, Peacock, Paramount Plus, HBO Max, or even YouTube. Tech Tech will be right back.

Let's take a look at Equinix, the company, a data center REIT, a frequent target of legendary short seller Jim Chanos. No weakness there this morning, though. Shares are popping on strong results, up 6.5%. Let's bring in Equinix CEO Charles Myers for a closer look in a CNBC exclusive. Charles, good morning. Thanks for joining us. On your morning call— on your earnings call last night, you were very optimistic. You said that you don't expect any significant churn and you will be able to pass along price increases as they relate to energy and other things without any issue. But we are entering the softer macroeconomic backdrop and even the hyperscalers were more measured. So What gives you this confidence? What is the bear case and how are you preparing for it?

Yeah, I mean, look, we're like other companies, very highly attuned to the realities of the macro climate. And I think we're adjusting our execution accordingly. But, but we're also very pleased, tremendously pleased with the performance of the business. And I think it's a— I think it's a reflection of how people are thinking about the role that Equinix can play in helping them support digital transformation. And again, I think they're, they're, they're remaining very committed to digital transformation and see us as a big partner in that.

Right. But what gives you the confidence that you're going to be able to pass along these price increases? I know that you've said historically demand has been very inelastic, but a lot of the growth we've seen in the cloud has just happened over the last few years. So is that really the best indication? What gives you that confidence that customers are going to just accept these price increases and not taper demand somewhat?

Well, again, I think it's a reflection of how they're using us. The digital transformation is a huge priority for them. And so I don't think— I think as they think about how to respond to the current macro climate, doing more with less. Digital is a fundamental part of that. And so I think they're keeping that very much at the top of their, their list. And also, I think our experience empirically in terms of when we've rolled through price increases, which we've done a couple of times over the last several years, you know, we've, we've really demonstrated that, that the demand profile for the business continues to be very, very strong and inelastic.

Right. I understand, you know, digital transformation is top of mind for— still top of mind for many CEOs these days. But do you allow that this business is perhaps more cyclical than previously thought, especially after we saw cloud slowdown, moderation in growth from the hyperscalers?

Yeah, I mean, I think companies are absolutely still navigating how they're going to most effectively use the cloud. You know, we hear every day from our customers that they're deeply committed to cloud-first architectures, but that they're also concerned about the level of spend on cloud. And I think that just means they're going to continue to look to optimize that. I mean, it's a business that has grown to $400 billion over the last handful of years. And so I think inevitably in that there's a— there's some room for optimization for customers. But I think if you look at it, they're adding $3 to $4 billion of incremental revenue a quarter. I think there's still a huge commitment to cloud as the long-term architecture of choice and the role that Equinix plays in terms of thinking about hybrid and multi-cloud, which is really what our customers are thinking is their, their preferred architecture.

Charles, you, you guys at Equinix have a notable amount of debt. Although your, your, your rating just got upgraded. How is that going to affect your capital spending plans given the rising interest rates? And how is that going to affect your growth?

Yeah, John, good to see you. I think that we have, you know, we've done some work to continue to fortify the balance sheet. As I said, we're very attuned to the environment. And so we're taking steps that we think are necessary. And, you know, we've got a ton of liquidity, $2.5 billion of cash, a $4 billion undrawn line of credit and we're much less levered. We had about 3.5 turns of leverage and, and I think we've got a lot of room there. And so I think that, you know, we're— and all of our debt is almost, almost exclusively fixed rate. I think we're in a really good position from a balance sheet perspective. And again, with demand as strong as it is and the kind of returns we're seeing, I think we're going to, you know, we want to continue to be in a position to invest in business.

And what are you doing on the cost side for the costs that aren't fixed when it comes to headcount, things like that, even as you look to expand? Are you, are you growing there? Are you paring back, holding steady?

Yeah, I mean, I think we're— it's a balanced approach for us, which is I think that absolutely companies need to be cognizant of what's going on, managing expense tightly, only adding where we are confident we're going to get a return on that investment. I think we're going to be very tight on G&A. I think that's showing up. We're demonstrating operating leverage. We were actually flat on SG&A quarter to quarter despite the fact that we are adding, you know, quota-bearing headcount and other investments in our go-to-market engine based on a really strong pipeline of demand. But I think other areas of the business, we got to continue to do what I think, you know, everybody is doing and really be prudent in an environment where there's some uncertainty.

Charles, finally, you said on the call last night your business is much more fixed contracts. The hyperscalers offer consumption-based models. Could that put you at a disadvantage in this environment, especially when companies are looking to scale back their cloud costs? Are you reconsidering that?

No.

I mean, I think there are elements of our business that are usage-based models. I think that we have a— you know, we're actually in a good position in that people have made the investments in terms of the fixed costs associated with our platform. And I think they're just looking to get the most out of that. But I think, you know, I think our model, you know, has fared very well over the last several years.

Charles, thanks for being with us today.

Charles Meyer, thanks again.

Today's losses leaving Peloton down 90% over the last year. Is the company just spinning its wheels? We'll discuss on the heels of their quarter when Tech Check comes back in a minute.

Some breaking news to bring you on Lyft this morning. The rideshare company will be cutting 13% of staff as soon as today. Lyft has more than 5,000 employees. And today's announcement, it follows a 2% cut that it made back in July. CEO Logan Green and President John Zimmer telling employees that the cuts will impact every team across the company and they are proactive. Guys, it's always difficult when they do this in waves, not at the same time. The stock recovered a little bit on that, but it's still down 2.4%. And I think this kind of tells you that investors are just not excited about this name. It has been losing ground, or the thought is that it has been losing ground to Uber this year. Maybe it was later to make those cuts and start getting proactive. Remember, we had that note from Dara Khosrowshahi earlier on in the year saying that they were going to freeze hiring and take those necessary steps. These two companies used to trade more in lockstep, certainly very similar businesses, but not at all this year. Lyft is having a much rougher time if you're long this name in the market, John.

Yeah. And if you're tracking tech layoffs, I would point out Stripe is actually bigger than Lyft, even though Stripe is not public at this point. One more thing. Meanwhile, before we go, Peloton having a rough ride this morning, plunging after missing estimates across the board. It is off the lows, still down more than 5%. Stronger subscription numbers offsetting a little bit of nearly 60% slide in hardware revenue as the company becomes the latest reflection of a consumer slowdown. Shares are down 90% over the last year, but Barry McCarthy still bullish, saying the company's results make a strong case that we will beat the 1-year timeline and deliver on our turnaround goal.

Carl, brace for Starbucks tonight and of course, Jobs Friday tomorrow.

You've been listening to CNBC's Tech Check. You can always catch us live weekdays at 11 AM Eastern.

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