tv Tech Check CNBC July 13, 2022 11:00am-11:47am EDT
up right now, up nearly 7%, speaks to what investors see as the strength of twitter's case guys, we have to remember on the downside, this whole process has been a major distraction i'm hearing from sources about how distracting this is for everyone at the company. it comes as ceo agrawal attempts to reinvent and dealing with an overall add contraction that the whole industry is dealing with >> julia, are the people you're talking to talking about this main issue, about reinventing the business if they're going to pursue this suit which they think is so strong, might they win the battle versus elon musk but lose the war for the business revival of twitter do they have to keep the business pretty much as it is as a cost of arguing that elon should buy it? >> look, it sounds like you're asking me, john, whether or not
they'd be better off to settle so they can focus on fixing up the business i asked this question of some of my sources one thing i kept hearing them come back to is this idea of they do have an airtight case. if they do, they'd be crazy for the benefit of their shareholders not to pursue that $44 billion and simply because of their fiduciary duty to their shareholders, they have to go forward with the suit for the $44 billion. who knows what's going to happen now? there could be a sale and we don't know what elon musk is going to do. still plenty of unknowns i think their confidence in the case and the fact that they feel like they've done every possible thing they could do to make sure that they were following every part of the terms that elon musk had agreed to means they're moving forward with that in the meantime, yeah, jon, there are industrywide issues such as add contraction and the fact that prague agrawal has
been working to improve the fundamentals of how this company operates. >> julia, fascinating story. obviously a big part of the s&p gains today. that's our julia boorstin on twitter. after a steep drop, nasdaq back in the green why that kind of volatility leads to, quote, bs in investing coming up next "techcheck" is just getting sta started. [sfx: street ambience] ♪ ["fly me to the moon"] ♪ ♪ ♪
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let's get a gut check on stitch fix shares are surging after benchmark's bill gurley reupped his stake in the company by a million shares, paying over $5.00 for each that purchase nearly doubles his position in stitch, giving him about 3% ownership it's a tough year for the company, 70% in 2022 alone
we're dchl watching some of the insider buys. >> katrina lake no longer running the company day to day the bs in investing. our next guest is highlighting how the investment industry has been ridden with bs ranging from overoptimism to outright fraud, especially the case when it comes to tech since investments in the sector are largely based on uncertain future success. how do you spot the red flags? joining us, the author of that piece, ben even fert of qvr advisers, a san francisco hedge fund great to have you with us. isn't this just another name for risky investments? some don't work out, the promise of the yields can be unlikely, people are going to take advantage. what makes this different? >> thank you for having me it's great to be here. it's a topic i care a lot about. there's a few different issues there are always risky investments in the world risk is not the tproblem, technology isn't the problem
technology changes the world for the better and creates productivity in valuable companies like google and facebook but at the same time it enables a lot of bad actors because ultimately people can't judge earlier stage new technologies on cash flows and simple things. it becomes about narratives and you end up with hucksters able to take advantage. i think the big problem areas to look at are areas where effectively people are being pitched extraordinary returns way outsized relative to history and believing that because of narratives or being pitched relatively high returns on an apparently low-risk or risk-free basis which is almost always a major sign of a problem. >> i'm reminded, if things are too good to be true, they're usually not true let's look at one of these areas, crypto. we've had this initial washout,
likely not over. you are seeing some companies try to separate themselves, if they had been able to not go bankrupt we had block phi's zach prince on saying they got a bailout and they're still operating. he described them as the goldman sachs of the industry, not the lehman brothers. what do you make of these claims when we're trying to figure out these businesses, especially lending and the high yields how they're able to give to customers at crypto lenders? >> it's the right question i think ultimately there's very smart people doing some interesting stuff in crypto, but i think a lot of what we've seen over the last few years is to your point the development and offering of what sounded like innovation which is, hey, here is this 10% or 20% yield that you can get. it's really not that risky in d phi or c phi when you look into it, the vast
majority of these type of products, yield has to come from somewhere. typically it's coming from some combination of new inflows into the yield products which can pay out in a bit of a ponzi-like structure or it's coming from risky lending to edge funds for leverage or other retail investors for leverage that's much like the shadow banking system that blew up in 2008. the self-referential uses of enabling financial speculation with leverage is a very dangerous house of cards you saw with 3ac going down and causing massive losses across a huge number of the big blue-chip crypto firms is what you're seeing play out here. >> ben, i love this topic. singing my tune here i think we've been articulating this in ways for a while the main phrase that to me encapsulates your point is it's different this time. when people start saying that, believing that about an asset
class, about a technology, when they start judging the cheapness of an individual crypto or an individual tech company just based on comps because something else is wildly inflated, then it's okay that this thing is, when they think old methods of valuation are never going to set in again, heading into a bright new future with no rules, that's when people's bs meter ought to go off >> i think that's right. it's rarely inherently different. we develop new technologies and they're very promising some develop and become massive companies. you have to think about the possibility and ways in which that can happen. you have to also identify the fact that when people are making so much money so quickly, the amount of follow-on scams and hype-based efforts that aren't really producing anything. one tricky thing about crip poe is crypto on purpose brings --
as opposed to building a big company that becomes very profitable and that's how you get rich you issue a token, sell that token to investors based on promises of what you say you're going to do, but you can get rich just by selling that token to retail in the first place before you make it anywhere down the line a meaningful project. the more the world looks like that, getting rich the adam newman way by being a really good hype man as opposed to building something really valuable, i think the more of this kind of scam and fraud stuff gets attractive. >> lots of hype men in this business ben, thank you very much, ben eifert, qvr investors. >> thanks for having me. why unity's purchase of iron dl ironsource may be a big deal the nasdaq is still in the green but barely
s&p down about a third of a%, dow down about .5% "techcheck" is back in a moment. (vo) introducing welcome unlimited from verizon. at our best price ever. just $30 per line. (fran) for real? (vo) for real, fran. $30 bucks. (fran) nice! (vo) keep your phone and we'll help you cover the cost to switch. (ned) easy peasy. (vo) just $30 dollars a line. only from verizon.
welcome back to "techcheck." i'm carl quintanilla with jon fortt and deirdre bosa stocks reversing to the upside after early losses, although still in the red dow down 211 cpi down on the year the ten-year done a complete reversal, back to 295. first a news update with christina. >> good morning, carl. here is what's happening at this hour president biden says the 9.1% jump for june consumer prices is
unacceptably high but also out of date. in a written statement released by the white house, the president notes today's number doesn't fully reflect recent price drops for energy even so he calls inflation the country's most pressing economic challenge. based on today's inflation report, the 2023 social security cost of living adjustment may hit a record high. the senior citizens league estimates it could be 10.5% increase -- a 10.5% increase unless price pressures cool in the coming months. canada's central bank is out with a surprise interest rate hike today, a full percentage point. it hopes to avoid higher rates later on an cool inflation without causing a recession. >> kristina, thank you we've mentioned it, unity buying ironsource, big deal literally in gaming, steve kovach with
more >> i think shares are down about 15% or 16%, jon. think of ironsource as the salesforce of gaming ironsource was an 11 million spac when it went public it's an all-stock transaction. this comes, like we were talkingal earlier. it's also another example, guys of gaming consolidation. earlier this year, a huge wave of m&a activity. microsoft buying activision, take two buying zynga and sony buying bungee. more expected to come. other announcements, existing investors in unity, sequoia and silver lake putting in another combined $1 billion into unity
after the deal closes. like we've been saying, unit shares falling about 15% on this deal despite that new billion dollar investment, and they're revising guidance down for the year, now guiding up to $1.35 billion which previously that was the low end of their guidance. by the way, unity is not alone coming off a round of lay-offs like so many other tech companies. the rest of the tech sector is seeing the same thing. unity is off 75% so far this year, carl i'll send it back to you >> steve, important story today, thanks we'll stick with software and deal making. our next guest sees more consolidation in enterprise names, predicting companies will look to acquire cyber partners amid an evolving threat landscape. joining us gug en heim senior director robert bartlett thanks for joining me. >> thanks for having me. >> consolidation, why cyber now, especially since it feels like we're seeing fewer high-profile
events. >> yes in general i think the urgency of cyber and having a cyber plan and cyber is projected to be up even with everything in the broader economy and with tech in general. cyber still growth and spend is continuing to trend up. >> ideas, names, who do you think would be in play more than others >> i can't get into specific names. i can talk about trends though i think in general folks will be looking for one solution and one throat to choke, so to speak cyber has a lot of small different areas, and consolidating that into one. to the extent you have a large cyber player with expertise in one vertical, whether that's firewall or end point, branching out and providing other solutions as well. >> robert, as we continue to look at a slower macro environment and companies look at pulling back spending plans, i don't think anyone thinks they'll pull back on cyber because it's such an important area, do you think there's risk
of that if we do hit a recession or what would put that at risk >> great question. right now we don't see any suggestion that there's a pullback in cyber spend. i think we recently did some research and looked at guidance and where people are seeing macro impact in cyber there's virtually none at this point. what i think could change that over time is if it winds up being a prolonged recession or some exogenous event that we don't see right now that comes in right now cyber seems as solid a place as any. >> robert, taking a step back and talking about software for a bit, it seems to me that we're in this moment where we're seeing things that typically happen in the private markets happening in the public markets. if you look at unity ironsource, for example, putting those two companies together and putting money in is something private equity would be. if you look at the vcs looking to put money in public companies they previously backed because maybe they're priced below the
ipo price. bill gurley and stitch fix, for example. what does that signal for retail investors who might be scared of the market right now >> i think if you look at it, the smart money, the large institutional money is looking to deploy more and more into the public setting i think the public valuations have corrected and they have not seized into the private markets. that's created a situation where exactly your point, where traditional private investors are pivoting and investing in the public markets because, frankly, the value there is better as a retail investor, i think that's where the smartest money on the street is focused i think that's a pretty good sign for them as well and pretty bullish in general on where we are in the market as relates to software. >> to the degree we see this happening, are they cash deals mostly and what kind of premiums do you put on some of these names where valuations have created -- >> it's a great question
cash deals could involve stock, typically cash is easier to do unless you're using a public stock as a currency. in terms of valuation historically, 20 to 30% is what you see. in markets heavily sold you can see 40%, 50%, greater upside to the premiums in a market that's as sold off as this one. >> finally, i know this is not particularly your universe margate was freaked out by service now's comments about europe do you think it gets incorporated into what m&a may or may mott do >> absolutely. i think in general the private capital is very bullish on acquiring right now, and i think that said, the longer that this kind of overhang stays with us and fears about a recession, anything that might validate that, that can cause people to back off right nowi think the institutional money is very focused on where values currently are.
bitcoin fell sharply after today's higher-than-expected inflation number but has seen a bounce back with the broader market, but down a bit again as i'm speaking crypto-related stocks like coinbase, robinhood and block seeing similar moves, lower on the print, slow climb back but then down a bit. we're still early in trading these similar patterns to growth stocks, high multiple stocks, the ibg opened down about 2%, slowly approaching the flat line right now. hey, it's not noon yet, dee. >> it is early we talked about cost cuts and layoffs at crypto and high-growth firms. the uncertainty hitting tech, too. google planning to slow the pace of hiring and investments as the economy looks at costs per an internal email, patch chai called on employees to be, quote, more entrepreneurial.
microsoft layoffs this week. we talked about the facebook memo to identify weak employees. in that memo, guys, he finished by telling employees, scarcity breeds clarity those are the same words that google co-founder used back in his 2008 investor letter it also underlines the fact that alphabet has been through this before many other firms vice president. it now plays such an important place in the broader markets carl >> it's interesting, b of a does a nice job bringing together all the memos, the ones from meta, from uber, from sequoia, now the ones from alphabet even bill mcdermott from service now, they say we're in the confronting reality phases that kind of makes sense when you think about everything that's come together to work against companies on a macro level. >> i still think we're just shaking hands with reality at the beginning of a cocktail party, because we had gotten so
disconnected from it, especially when it comes to labor if you think to what extent it's been a seller's market in labor recently, where people can decide whether they're coming in to work or not, some people were working a shadow job while at home i'm not saying that's the norm or anything. but for some of these high demand professions, that has certainly been a reality, dee. yes, we might be starting to confront reality, but i think it might be a long and store read confrontation from here. >> we're going to get big indications in the weeks ahead, carl we've got to get through the big banks and then weave got tech. it could be a rude awakening for some investors and some employees to your point, jon. >> yeah. after we work our way through the banks beginning tomorrow meantime, revelations from twitter's lawsuit against musk next we're back in a moment online u.s. stocks and etfs.ar
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let's turn back to twitter this morning as you know by now, filing a lawsuit against elon musk. sources from the company say their case is airtight even if that's true, will musk have to comply with the order? our next guest started his career in m&a law at the firm representing twitter in its legal battle with musk vanderbilt law professor joining us now
i wonder what you think is interesting when we're talking about specific performance and order compliance how much of this is truly new? >> well, it's not new. the delaware courts have been asked and on occasion ordered specific performance in m&a deals. it's really unusual. there's a couple of cases in the past 20, 25 years in which the courts have actually ordered it. so it's an extraordinary remedy. i think that's the big question in this case, not so much the contractual merits it seems twitter has a stronger case on the contractual merits, but what remedy the judge will order. >> in reading the piece yesterday, did you see any holes at all >> no. we really won't see the holes until we see the answer which will be filed in the near future by musk and his lawyers. but it's a strong complaint.
it argued most of what you would expect to see based on what we've heard already from musk and his lawyers about their basis -- supposed basis forgetting out of the deal i thought the complaint was really solid. >> morgan, we're looking at shares of twitter, and the market agrees with you up nearly 7% on the perceived strpgt of that case. let's walk through this. let's see elon musk is forced to buy twitter. what do we think he's going to do with it isn't that sort of the worst-case scenario, being forced to buy something he doesn't want what does twitter want to get out of this? >> they want the deal closed, that's the best case scenario for shareholders i think the stock trading at 36 goes to show that the market does not have a lot of confidence that that's actually going to be the remedy that is ordered and that actually comes to pass. so they want 54.20 then the question will be
whether the court actually orders him to do that. if it does, what happens then? ban vaccination to comply. elon has to fund his equity commitment that has to be paid out to the twitter shareholders there's a lot of steps that have to take place and a lot of uncertainty around how that plays out. >> morgan, what if this is a case that will take years to see conclusion if it, in fact, plays out the courts which seems almost certain does twitter, in order to pursue this case, have to keep its business largely unchanged even if an order to do what's right in the tech universe, they ought to make enormous cuts or shift the business model can they argue that elon musk has to fulfill his commitment and fundamentally change twitter at the same time >> it won't take years the court is going to rule, the chancery, the delaware court,
rules on these cases very quickly. it's a stellar court, the best business court in the nation they'll probably hold a trial in september and complete it in september. to give them enough time to have it appealed up to the delaware supreme court which will also rule very quickly in a case like this, a big important case the courts themselves are not going to want to allow this to be in limbo with all the damage that that entails for years. i think this is going to be measures more in months than in ye years. >> morgan, i wonder how you think the twitter board balances trying to expedite this case, as you say, close the deal, minimize the ongoing damage being done to their advertising business with the danger of maybe not getting 54, maybe settling for something less and opening themselves up to shareholder lawsuits for not fulfilling their duties. where is the line on that? >> the board is in some ways in
a tough spot they really do need to pursue the lawsuit and try to get the 54.20, try to make the best case they can they're almost certainly going to get sued by shareholders in any event just because that's what happens in these kind of situations they're going to go through to try to get the 54.20 in terms of settling, they're going to have to make a judgment along with their lawyers about what the likelihood is that they'll get a specific performance order and it will actually be carried out. that judgment about that likelihood is going to determine what they would settle settle f whether they're willing to settle in the first place. >> morgan, this case is so high profile but it's also so unusual. i wonder what kind of precedent do you think it could set? does this have broader implications for the future of m & a activity >> you know, i think it does it certainly has implications for m & a practice
if i were an m & a deal maker these days going forward, i would certainly with certain types of buyers not limited to elon musk, but insist on a much higher termination fee that's in this deal. a billion dollar reverse termination fee may sound like a lot of money but it's worth a buck or two in twitter stock price. twitter will be trading in the low to mid-20s if the deal fails so a dollar or $2 is no substitute for getting $54.20 on closing. in terms of m & a practice, i think you're likely to see parties less confident in specific performance because of the uncertainties about how that's going to play out in this case and i think we'll see higher reverse termination fees going forward. >> that would make sense of the by the way, 20 is a lot higher than some bear case stabnd-alone scenarios that we've heard on our air the last couple of
weeks. morgan, appreciate the guidance, hope you'll come back. thanks very much. >> thank you. baird like snowflake and ngb. mood tech check is back in two. k, s hd over 7 million kids develop their passion for learning. and now we're providing 88 billion dollars to support underserved communities... ...helping us all move forward financially. pnc bank: see how we can make a difference for you.
price target of 140 and a price spend on its market share expansion opportunities just a couple of reasons behind the bullishness. the $30 billion company up a percent in today's trade and it is higher than it was 12 months ago, dee. as we head to break look at stocks not helping the tech rebound. a bit of a mishmash of names arista up 0.2 of a percent "tech check" is back in just a moment only at vanguard you're more than just an investor you're an owner. that means that your priorities are ours too. our interactive tools and advice can help you build a future for the ones you love. that's the value of ownership.
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quick check on unity and ironsource unity now down 17% investors clearly have some concerns with this deal. ironsource up nearly 50% both of those ceos are coming on to talk about it 2:00 p.m. eastern today on "power lunch. you do not want to miss that, carl deal of the day, maybe the week. >> and so many different cross currents regarding spacs and m & a. one more thing, guys apple is ending its consulting agreement with former design leader jony ive. he's behind many of the iconic designs from the imac to the
apple watch. they signed that contract back in 2019 when ive left the company to pursue his own design firm the contract which made apple his main client was valued at over $100 million at the time. really good color in the book, the way ive was raised by an engineer dad, showed genius even as a kid wanted to give apple a shot. and how much of the early success was really driven by his hunger for perfection. >> that, but it's interesting. jony ive was at apple before steve jobs came back he was one of those undiscovered gems steve jobs discovered it was his talent that wasn't being given room to breathe. but this is the end of an era, pa perhaps in a positive way. tragically steve jobs is gone. jony ive no longer associated but look at how well the company
is doing, and their design has more to do with utility than miniaturization, which some had criticized ive for focusing too much on that. >> likely to see his influence extend past his time too there was some reports that the apple autonomous vehicle sort of had a hand, at least a design from him guys, as well he's working with the likes of airbnb so putting those skills somewhere else. you realize, carl, some firms you may not think they're focused on design, but pre-steve jobs it is important for them and airbnb would make that argument. guys, we've got retail sales coming on friday and of course the banks tomorrow and friday. let's get to the judge and the half carl, thanks so much welcome to "the halftime report." i'm scott wapner what another hot, hot, hot inflation report means for stocks they have been mostly lower today and now big-time earnings are looming. we have the investment committee. bryn talkington, jason snipe,