10AM Hour: SpaceX-Tesla Merger? Netflix’s Next Episode, Philip Morris CEO on Earnings 10/21/26

0:27This episode is brought to you by Schwab Martin's CEO. An original podcast from Charles Schwab. Schwab Market Update, an original podcast from Charles Schwab, provides an information-packed daily market preview on stock updates, U.S. and global economic news, monetary policy decisions, and key results and statistics that may impact your trading. Download the latest episode and subscribe at schwab.com slash marketupdatepodcast. Or find Schwab Market Update wherever you get your podcasts. Good Wednesday morning. Welcome to Squawk on the Street. I'm Sarah Eisen with Carl Cantini and David Faber. We are live, as always, from Post 9 of the New York Stock Exchange.

1:04Coming up, SpaceX shares at session highs now up 11 percent this morning, more than that, as strong earnings and merger talks from Elon Musk propel the stock. We'll talk with early investor Peter Diamandis about why he says a tie-up with Tesla is a certainty. Plus, Netflix moving the other direction, adding to big losses on the year as Wall Street worries about guidance and the ads business. We'll talk to the company's former content acquisition chief about what it can do to rewrite the narrative. And the CEO of Philip Morris joins us after just posting results saying it's a strong demand for its smoke-free brands, though it did warn that global wars are impacting the business.

1:40Since we are knee-deep in earnings season, guys, I wanted to take a look at what CEOs and companies are saying about the economy and the macro dynamic. I always look for the macro in the micro. And there were some surprising winners from the AI build-out. We know that that has been fueling the economy. It was mentioned in the Steel Dynamics call, for instance, the CFO, when it comes to demand, said long product steel markets also remain incredibly strong, supported by healthy activity and non-residential construction. Customer demand continues to be exceptionally robust, with order backlogs extending well into 2027.

2:14That bodes well for manufacturing. I think it has to do with the AI boom. Data center and AI infrastructure investment is also having a positive impact, according to genuine parts, on the broader manufacturing economy. We saw growth of 12 out of our 14 end markets we track, which is up from 11 in the second quarter and seven in the same period of the prior year. During the quarter, we saw notable growth in equipment and machinery, which was up high single digits. I just picked those because they aren't your typical AI winner stocks. We know Caterpillar, for instance, is playing into the AI buildout, but here's genuine parts and steel dynamics as well.

2:49So that's one part of the demand equation, which is strong manufacturing, data center buildout, AI boom. And then there's the consumer, And the demand environment there remains pretty strong. I mean, we heard from some of the airlines, Carl. CFO said if you look across the routes, there's some routes that were on the lower end. They got pushed into not profitable when fuel spikes like this. Not a lot because, as I said, the consumer's been incredibly, incredibly resilient. But there is some marginal routes that don't make sense in a higher fuel environment. So that's expected. We know the airlines get hurt when the fuel prices go up.

3:26But overall, you know, the demand picture continues to sound solid. Yeah. Yeah. Revenue, as we said at United, of 17 and trying to keep pace with what oil's done has been a challenge for the legacy carriers. And they do. They do trim the guide a little bit. Yeah, I guess that. And then on the consumer front, you're always looking for signs of stress. Consumers that have to borrow to pay or delinquencies. But you didn't get it. Capital One. I don't know if you caught this one. The CEO on delinquencies on the call said charge-offs are benefiting from the steady improvement in delinquencies that we observed in the first half of the year and from strong recovery performance.

4:01The delinquency rate was 3.74 percent at quarter end, up 35 basis points from the quarter before that, but importantly, down 15 basis points from a year ago. So we watch these to see for signs of stress. And maybe there's some movement higher with rising oil prices as things become less affordable. But, for instance, looking back to last year, overall looks good. And then GM, too, really strong. We continue to believe that 2027, according to General Motors CEO, will be another strong year and better than 2026, assuming customer demand remains strong and commodity logistics and other recent cost pressures moderate.

4:38Not bad. No, not bad. Unless you're in France, then it's bad. Yeah, I figured you'd go there as well. What do you got there, Carrefour? Yeah, Carapar, which is, you know, second biggest grocer in France. It would be huge and ugly today in terms of price action. They did cut guidance, and they blamed what's happening there with the violent protests. The CEO actually came on the call and said, I wasn't even expected to be on this call, but I wanted to speak directly to you. They said that thousands of stores across France were attacked, products robbed, and for some stores, equipment was destroyed.

5:17So that's going to be costly. for them. And for those that were saying this is a peaceful protest that was isolated, not so much, according to this big grocery store. By the way, speaking of grocery stores, we've got an exclusive with the CEO of Kroger. So we'll dive deeper into consumer demand, grocery prices, how they're engineering a turnaround, essentially, to try to get growing again, both profitability and sales and compete with Walmart. They have this new CEO who we haven't heard from before. He comes from Walmart previously, a long time ago, and now he's ready to talk. He spoke to investors yesterday and he's with us in the next hour.

5:53They're also involved in that litigation that's happening right now with Albertsons. Not an insignificant amount of money at stake there. Like nine billion or so dollars. Yeah, I don't know how much he can say about that given that it's going on right now. But yes, it wasn't his, obviously, decision or anything else. But nonetheless, it is something shareholders should be aware of. But they are investing $5 billion to try to take some share, laying off a third of their corporate workforce? Yes, it's productivity and it's investing in prices. So they're basically diving deeper into cutting prices and value instead of promotions.

6:27They're getting rid of promotions, they think, because it's kind of been confusing to the consumer. And this is a consumer that is seeking lower prices. And so, yes, that's the market share story. And then productivity, cost cuts, layoffs, but at the corporate level. We'll ask him about all of that and, you know, going deeper into AI for productivity as well. eBay, too. This Reuters piece cutting 9 % of corporate. This is three, I think, on Kroger. According to a company memo. For more on today's market action, with Unlimited ETF's co-founder and CEO, Bob Elliott, joins us today. Bob formerly worked as the research head at Bridgewater.

7:02Bob, always good to have you. Welcome. Thanks for having me. I know you've been watching the reports of this Anthropic S1 and sort of looking at the internal stack and wondering how that does get you to$2 trillion. Well, I think we're slowly but surely getting more and more actual information about what's going on in the company. And I think the most important thing to be seeing is that we've transitioned from a period of what looked like parabolic growth to then linear growth. and for Anthropic in particular, given the competition in the market, we're kind of seeing pretty mediocre growth here.

7:36You know, 7 % quarter over quarter ARR growth does not put them on the path to get anywhere close to the type of revenue necessary to justify a$2 trillion valuation. I actually like to go to the actual models, the LLMs, and ask them, if I saw a software company that had the revenue that they have and the growth rate that they have and the margins that they have, what would it look like in terms of what the IPO valuation should be? And they came back pretty much to a T in the$600 to$800 billion range, which suggests that it's basically one-third reality and two-thirds dilution in terms of a$2 trillion market cap.

8:17What about their obligations on compute spend? How reliable are those? Well, I think it really comes down to what the end user is willing to pay up for here. And I think that's sort of the problem in aggregate across the overall AI industry is we've seen that flatlining of what corporates are willing to spend. Like, it's true, token growth is going up considerably, but the price per token is falling considerably as people shift to smaller models, cheaper models, open source models. which means that the overall spend is basically flatlining for almost four months now. And so if you have that circumstance, it's going to be very hard to justify the type of CapEx that we're seeing with the hyperscalers and the type of commitments that the model creators are making towards the compute ahead.

9:09You know, if Anthropic is slowing their overall growth at$16 billion a quarter, how are they going to pay for hundreds of billions of dollars of compute that they've committed to? It's going to be very challenging for sure. So then, I mean, what do you do with the public portfolio at this point now if you feel that way? Well, I think overall, the market has become one big bet on AI in a way that I think it's challenging for most investors because they see some small scale productivity. They see revenue that's rising, like, you know, SpaceX revenue went up and was pretty strong relative to expectations last night.

9:50But I think the challenge is they're looking at something where, you know, SpaceX is an example. Their revenue needs to grow 18x and fast to get to something close to the, you know, the 1 trillion ARR necessary to justify a$2 trillion market cap. And that's the problem. We have an expectations gap. And so moving away from the high-flying AI mania and looking for other areas of the market that are better value, for instance, in commodities, health care, areas like that, more defensive sectors or commodity-sensitive sectors, or, dare I say, buying bonds might be a good choice in this environment.

10:31That's the other thing, Bob, when we talk about credit in the AI space. I mean, the argument's been made that it's not just that credit's been re-rated here in these last several weeks. It's that we have another year and a half of supply on the way. I just wonder how you think about both of those things. Well, in general, we're seeing a circumstance where you'd see this in all sort of bubble build-outs. Folks who were around in the 2000 cycle would be familiar with this, which is there's a lot of hope, there's a lot of capacity that is brought to the market, and a lot of borrowing, increasingly borrowing to bring that to the market.

11:09And eventually you get to the point where the capacity build basically undermines the pricing power as well as totally outstrips demand. We're targeting something like that happening in the next 12 to 18 months. And if that's the case, then the significant borrowing that has occurred in order to build out all of this compute is going to be disappointed, let's say, because the revenues aren't going to come. And if that happens, there's going to be credit problems. The good thing is most of this lending is not concentrated in the banks, unlike some previous cycles. And so the sort of systemic risks that we see, that we've seen before in other credit cycles are probably lower now.

11:51But it doesn't mean there's not going to be a lot of defaults along the way. Yeah, I mean, the scenario you're describing in terms of a significant slowdown may not cause systemic issues in the financial system. We certainly hope not. But it certainly could cause a recession. Yeah, I mean, I think that goes to the consumer point, which is, look, while there's a lot of focus on AI, the reality is the U.S. economy is driven by the consumer. And the consumer has, over the last 24 months, been spending, their spending growth has outpaced their income growth considerably. And why has that been the case?

12:24Well, they've been able to do that because asset prices have strengthened on the back of all of this AI hope. And so the challenge we have is these two things are intersecting with each other, which is you're not going to continue to get strong consumer spending in an environment where asset prices are flatlining or weakening, and you're having high oil prices basically erode their purchasing power. And so while some of those consumer companies sort of talk about reasonable demand over the summer, I think what's interesting is we're actually starting to see meaningful cracks in the consumer in the timeliest data.

12:58For instance, September and October data suggests that consumers have cut back their spending, have slowed their spending enough so that basically there's no growth outside of the higher gas prices that they're paying. That would be quite a shift relative to what has happened over the last 24 months. And I think it's only now starting to be recognized sort of on the leading edge of the data. Bob, appreciate it. A lot of a lot of unanswered questions going into these last 50 or so sessions of the year. Talk soon, I hope. Thank you, Bob Elliott, this morning. Here's our roadmap for you for the rest of the hour.

13:32After the break, early SpaceX investor Peter Diamandis will join us. His first reaction to the strong results and why he says a merger with Tesla is a foregone conclusion. Plus, we will talk to the former head of content acquisition at Netflix. That stock is adding to more losses on the year. That follows, of course, earnings from the company last night. And two big CEO interviews this morning with an eye on the consumer, including the head of Philip Morris on the back of their results. And as Sarah mentioned, the CEO Kroger, fresh off of its investor day as the Dow goes red here. Squawk on the streets back in a minute.

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15:48I think some people out there assume that a SpaceX and Tesla merger is a certainty, and I think that would be overstating it. The, you know, do I think it would be a good idea? Yes. but at the end of the day, the shareholders have to be supportive of this. And particularly on the Tesla side, we will need a 50 % vote of all shares, not just those who vote, but of all shareholders. And that's quite a high hurdle to try to achieve. That was Elon Musk last night, of course, on SpaceX's conference call, giving us a lot more specifics about something we've been speculating about for months now, namely a deal in which SpaceX would acquire Tesla.

16:37He owns 19.8 % of Tesla shares, but he does not have voting control of Tesla. His economics are his vote there. Not insignificant, but again, not control. Interesting to note, of course, when he talked about 50 % of the outstanding shares, not just those voted, but we are assuming that he would be able to vote as well, and certainly in favor of a deal with his 19.8%, making the hurdle a bit less there, but not insignificant, of course. Again, you get special committees on both sides. They employ bankers and lawyers to help them. They start negotiating, and they try to get to some sort of an exchange ratio that makes sense.

17:15As Musk indicated, that has yet to take place in terms of coming to some sort of an agreement on a potential price. Then you put it to shareholders, the key vote for which would be Tesla holders, as I just said. On the SpaceX side, he does control the company. He has the vote. There's not a question as to whether he'd vote in favor or anything else. You could go on the Tesla side to make an argument, if you want to try and avoid as much litigation as possible, that, in fact, he shouldn't even be allowed to vote his shares, but that raises the hurdle considerably. Then there's also the China question that I brought up.

17:46Sarah, you know, Chinese approval would conceivably be needed, given, of course, the significant presence Tesla has in that country for any deal. And he is arguably one of the most powerful men in the world, and goes far beyond his enormous wealth, as we've seen with Starlink in Ukraine. And so you do wonder how the Chinese will approach that. Yeah, that's a big question, Mark. But I think what investors are focused on and encouraged by was the revenue forecast, right? I mean, what they said about first quarter 2027, 33 to 37 billion. I think the street estimates were in the 20s, right, in the low 20s.

18:21So that was, I think, pretty bullish and is helping the entire AI complex. Now, I guess the risk there, David, is, you know, if OpenAI and Anthropic have to cut back on their dramatic spending to build out compute because of, I don't know, credit concerns, funding concerns, lack of revenues, like that's all in the mix right now. But for now, what we're getting is just another much stronger than expected take from SpaceX on what compute demand looks like right now. Enormous. And that is the key for the differential in terms of what analysts had estimated. Of course, he's selling his compute at multiples of what some of the others have sold in terms of contracted longer term deals, as much as 50 billion for a gigawatt of compute, which is far above, again, what deals that OpenAI may have signed in the past and things of that nature.

19:10They are shorter-term deals, but they've had an enormous impact. As we said in the last hour, of course, they will come along with an enormous CapEx bill for the company as well. Although the ARR numbers he mentioned leading out at 27 were almost hard to imagine, but half a trillion dollars to more, to as much as a trillion dollars in potential revenue. But I think his flying car really gave the best case for the SpaceX-Tesla combo. That, to me, was because they used that technology. I mean, it was a rocket. You turn a car into a rocket ship. Yeah, but it's so much more about AI than it is about cars at all.

19:46But that was quite a spectacle. It was. We could watch it over and over again, and we will. Let's continue the conversation, though, with Peter DeMandis. He first invested in SpaceX in 2013, also an early investor in Tesla and Google, and the founder of XPRIZE. Peter, good to have you. What do you think of SpaceX buying Tesla? Are you in favor? I am. It's the ability for Elon to integrate his incredible empire, but pull all the technologies together. Ultimately, he's building a company that is integrated up and down the superintelligence stack, both in digital intelligence and in physical intelligence with Optimus and CyberCap.

20:27There's never been a company like this. You know, I posted yesterday, I think SpaceX becomes the first$10 trillion company and then$100 trillion company. And then you saw the tweet Elon put out, I don't know, about two weeks ago, that he expects SpaceX to be worth multiples of the entire Earth's GDP, which is extraordinary. If you do the math, that's a quadrillion dollar company. So we have a lot coming. It's a good thing he's going to give it to the kids, some of those shares. And that was a great move, right? I mean, right now, instead of just giving cash, which gets spent, giving equity that compounds and teaching kids that, you know, holding equity in these technology companies, they own part of America's future and part of humanity's future.

21:15And, you know, my kids have put their capital aside for investments, philanthropy, savings and spending. And right now, like me, all of their investment capitals at SpaceX. Now, those are enormous numbers you shared, but another enormous number is just how much they're going to have to continue to rely on the capital markets to fund this build-out. Orbital data centers don't come cheaply. Neither does establishing a terrestrial wireless network if they choose to really move fully in that area. What are your expectations when it comes to just the CapEx spend and their ability to continue to get that capital?

21:51Yeah, well, I mean, you have to understand SpaceX has stopped being just a rocket company. It's now a super intelligence company. It's a global communications company. It's a dominant infrastructure company. There's nothing like this. And they've got revenues and they've got profits. And this is going to be part of fueling it. And they have, at this point, very good insight into where their revenues are coming from. Again, across intelligent sales. And we've also learned that chips are no longer the bottleneck. It's energy and infrastructure. And nobody is better at building energy systems, infrastructure systems than Elon.

22:31And I think the capital is going to be there for him. I have very little question. He consistently hits his targets. Sometimes they're a little bit off. But I think what we saw with Glenn's presentation and Brett's presentation, they've got very solid insight. And they've become a buttoned-up company financially. So do you think there's risk there on the side of the compute? I mean, just forget SpaceX for a moment, but some of these customers, the open AI and the anthropics and what's happening with questions around whether they'll be able to fund the multi-trillion dollar build out. Yeah. I mean, first of all, they're a customer for their own compute, right?

23:14His goal is to make Grok the number one large language model on the planet. GrokBot going just not to consumers, but now going to enterprise. I think there is a non-quenchable desire for compute on the planet. And he's going to be generating revenue again up and down the stack. He'll become his own customer for it. He's got a multitude of players from Anthropic and so forth. They're about to go public. They're about to get a large amount of capital to buy compute on the market. and with what he said, 13 gigawatts of compute coming online with potentially as high as 20 gigawatts of compute coming online.

23:53There's nobody building it out faster than he is. And I think that is the security that the market needs to see, that the compute and the energy is there. Again, the integration between SpaceX and Tesla enables him to generate, you know, the turbine blades. He talked about that. We're being able to generate energy. He's made a commitment both on SpaceX and Tesla side to build out 100 gigawatts of solar, which is likely to be the fastest ramp up of energy on the planet in the near term before we hit fusion and fission and geothermal. So a lot to like there. So you seem to believe, and again, you mentioned, I mean, Elon does come out with targets sometimes that leave us a bit agape, but that he could hit what, I don't want to put words in your mouth.

24:44Do you think it's possible he could get a trillion dollars in revenue for this company in 2028 or 2029? I do, 100%. He's operating in the largest marketplaces on the planet. You have to understand Starlink is going to be, his goal in three years is 100 times the capacity of Starlink today. It's becoming the de facto nervous system of the planet. And as you also said, we're going to start to see the traffic for Starlink go up 100x based upon the need of agents to communicate with each other. They will become the dominant use of capabilities. And every company on the planet has their agentic first strategy.

25:29And so where is that comms going to come from? It's going to come from Starlink. And besides that, you know, these companies are going to either transform themselves into AI-first companies or they're not going to stick around. We're in the steepest part of the curve here. One other risk I don't think people are talking about is, and we've seen this impact Tesla before, is political risk. I mean, this is a very supportive administration for Elon and what he's doing. But, you know, this climate could change after midterm elections, after the next presidential election. And I do wonder, especially if these two combine, how investors should process that kind of risk.

26:08Well, there's no question there is some level of political risk. But again, the government side of the business versus commercial versus consumer, it's spread broadly. And there's nobody else that's going to supply this. So if they say they're going to try and break up the company, they're going to try and throttle the company. I think that there's too much dependency on SpaceX over the next three years to do anything like that. It's going to be operating all the major infrastructure parts of the superintelligence revolution coming our way. If there were other players that could provide anything close to this, then I might be concerned.

26:51But there aren't, at least not my view. Yeah, I mean, I'm curious as to how you view, though, the enormous power he has. Our colleague, Eamon Javers, was talking about it. In terms of a businessman, it's arguably the most powerful man we've ever seen in history. Evidence of that just simply in the war in Ukraine and what he's able to potentially do there. I'm curious as to how you view it. Somebody's obviously followed him, known him for a long time. And, you know, how you view that enormous power in the hands of a private citizen. I get it. And I've known Elon for 27 years now. And no, he's not, in my personal opinion, having known him, having spent a lot of time with him.

27:33He's driven by wanting to solve problems. He's not driven by wealth. He's driven by where are the problems that the planet has that need to get solved? And that's always been his sort of mantra. And he's just the ultimate engineer. And as a result of that, he's building the best systems. I mean, Elon builds the machines that build the machines. We're going to see that with Optimus facilities coming online very shortly, with this TerraFab coming on. I mean, there's nobody that's got a bigger vision. I mean, I guarantee you other countries on the planet wish they had someone like Elon to drive their economy.

28:10And he's going to be responsible for a lot of it. I don't think we've seen a fraction of what SpaceX is going to deliver over the decade ahead. Is there a risk? Of course, but it's also probably the greatest upside I've ever seen. OK, we'll leave it there. Peter, thank you. Pleasure. Also reinforces the key man risk, which is also unlike anything when it comes to the stock, which we talked a lot about around the IPO. Up next, we'll be joined by the CEO, Philip Morris, the parent company of Marlboro and Zinn, lowering its guidance, saying global wars are disrupting the business. Plus, we'll get to Netflix and its new content chief's timeline for a turnaround.

28:51And will meta results spark another rally for the stock? We're going to look at what to expect from that one, which shares up more than 20 % from their August lows. We'll be right back. Ever notice how every new AI tool asks you to explain your business to it all over again? Google Workspace with Gemini skips that. You get Google's AI built right into the premium versions of Gmail, Docs, Sheets, and more. No new tools, no extra logins. Just one subscription that gives you personalized AI right inside your actual workflow. Make work less work. Try Google Workspace with Gemini at goo.gle slash workspace with Gemini.

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30:08Right. Okay, we can't afford that. You know what? Forget the music budget. We're going to stick with whatever's in the public domain. Give it a try at mintmobile.com slash switch. Upfront payment of$45 for three months,$90 for six months, or$180 for a 12-month plan required. $15 per month equivalent. Taxes and fees extra. New customer offer for initial plan term only. Greater than 50 gigabytes may slow when network is busy. See terms. Time for ACNBC News Update. Dom Chu has that for us. Dom. Good morning, David. Russia freed an American teacher today who spent more than four years in detention in the country.

30:4174-year-old Stephen Hubbard was held on charges of fighting as a mercenary in the war in Ukraine. President Trump said he asked Russian President Vladimir Putin to release Hubbard during a phone call last week and that the U.S. had not released anyone in return. Hubbard met today with U.S. Envoy Steve Witkoff, who is in Russia for talks on ending the Ukraine war. The Justice Department's internal watchdog has declined to investigate the handling of the criminal case against the former Olympian accused of vandalizing the Lincoln Memorial reflecting pool. U.S. Attorney Jeanine Pirro later dropped the case against David Hearn and said the damage was caused by a botched installation.

31:21His lawyers requested the review over allegations of professional misconduct. And Pope Leo held his first audience at the Vatican today since undergoing lung cancer surgery last week. The 71-year-old pontiff waved to pilgrims and blessed babies from his open-air Popemobile and then thanked the crowds for their support and prayers. And perhaps he even had his spirits lifted seeing his fellow Villanova alums on the New York Knicks get their championship rings and raise their banners despite the loss to the Sixers. Guys, I'll send things back over to you. All right, Dom, thanks so much. When we come back, Netflix pacing for its sixth straight post-earnings decline.

31:59We'll be joined by the company's former head of content acquisition with this take on how the company plans to win back some viewers. Next hour, don't miss the first on CNBC interview with the CEO of Kroger, just unveiling a new growth plan at its investor day. We'll get the outlook for food inflation in the consumer as we're kind of back to flat here on the S &P, roughly 77.25. Stay with us. Welcome back to Squawk on the Street. Take a look at shares of Netflix today. Under pressure, this is about a 24-month low, as the company's third-quarter report did little to quell concerns around engagement following a bleak year for the stock.

32:32Streaming giant says it'll cut its 2026 advertising forecast and is telling investors it expects revenue growth to slow for the fourth straight quarter by the end of Q4. Joining us this morning is SPG global principal and former Netflix and Hulu executive Simon Gallagher, whom we've had many discussions with over the years about the company. Simon, welcome back. Thank you. When it comes to that ad guidance, were there certain expense timings that make that picture not so easy to understand, or was this a real slowdown? Well, they suggested as much. It just seemed a bit vague in terms of it's not dramatically lower than what you would expect, but 10 % lower.

33:10It's something to think about. But I would expect you, I was sitting here thinking, is it the overall market or is it just Netflix? And I think that's something we need to learn a little bit more about as we go through the earnings season. What does your gut tell you about that? My gut says that they did reference some applications that they were delivering on the ad side that hadn't been introduced as quickly as they thought. So I do have a little bit of concern that there are some internal challenges. Do you think content is their main problem right now? It's been strong. I think everyone would agree there's been some things we've all watched on Netflix this year, but there hasn't been that iconic water cooler conversation type programming.

33:53And they need to find their way back to that, particularly with the challenge that's going to be coming from Skydance and their associated companies. So do you think the strategy is to double down on better content or try to broaden the envelope of content into more live, more sports? I think they're doing a good job dipping their toe in the water on sports. I don't think they want to go for a huge volume of content. I don't think they need a whole season-long package. I think the special event programming they're doing in sports is a clever strategy. But I do think there's some untouched opportunities or areas that they could go into a little bit more aggressively.

34:32And one of those in particular is some of the premium user-generated content we're seeing on YouTube. Those deals are done on a non-exclusive basis. So there's nothing to suggest that Netflix couldn't have deeper conversations and in some ways build a better mousetrap for some of the user-generated content that's out there. What about the miss on ad revenue? I mean, And that was seen as a key catalyst. What's going on there? It was. And that was a real positive in previous earnings where everyone's been encouraged by that. That's been the growth area. And but they were protected in some way because there wasn't any softening on the subscriber numbers.

35:09So, yes, it's a miss on where everyone didn't expect the miss, but there wasn't a miss on those subscriber numbers. They've held up very well. I just I wonder what the bigger picture here, you know, this great growth company for so many years that obviously was the leader, really created in many ways, streaming as we know it. Do you feel like, though, it's kind of run out of room for really significant growth and it should be viewed differently, not as a still as a great company, but just in a different way? It would disappoint me if that was the case. You know, that was such an innovative company that really changed the way that we all consume media.

35:45And I still think that there are opportunities out there for them to find their way back to that. But I just worry if they've become a little too comfortable. Yes, they have great free cash flow, but I would hate to see them viewed as that type of a company. I still would love to see them as the innovative Netflix of old, where they think about how can we change the way that people consume media. And as I say, I think that they need to look at YouTube for some inspiration on that front and be a little bit more aggressive in that area. Well, what they were really looking at was, of course, Warner Brothers Discovery.

36:17They didn't end up buying it, but we've made the point here over and over again. The stock has never recovered from when it was clear that they were not just interested, but then moving forward to buy it. What do you think that signal has been that certainly the market has picked up on? I think the market picked up on, did they need the IP that Warner Brothers was going to deliver? I don't think they do, because I have a concern that the Warner Brothers IP is aged and aping brick. But certainly you've got things like Harry Potter. But I don't know that it's as strong as the purchase price justifies.

36:50So I think that Skydance is going to do well with it because of the volume of content they're building a much bigger entity. And they are going to be a real challenge to Netflix. Because I would also go back to the fact that they have different licensing agreements with content creators and producers. So there's going to be a real decision that needs to be made by some of the leading filmmakers and series creators. where is the best deal for me? Is it a Skydance-type deal where there's more potential upside, or do I go with the traditional Netflix mob? So that's going to be very interesting to see that unfold through 2027.

37:23Nobody talks about it, but you know how Netflix always in their shareholder letter would say that the competition is like sleep and video games and everything else. I do wonder about AI. Like, I just think about my own personal habits, and sometimes instead of watching Netflix shows at night, I'm having a deep conversation with ChatGPT about, I don't know, like what I'm going to make my kids for breakfast the next week. You know, I do wonder if like the time element is becoming a bigger competitive threat. I'm sure it is. And you might recall, we've talked many times about Reed Hastings, his famous quote for wanting to win that moment of truth when people sit down on the couch at eight o 'clock at night.

38:01And what remote or what device do they pick up? And there's certainly more and more challenges pre-pigain. And also an unwillingness to, there hasn't been enough long-form content to really engage on Netflix. So people need to, the service needs to find its way back, have that, as I said, I want to call it type content, where people really feel they have to engage and they're willing to devote an hour an evening or two hours to that particular content rather than other platforms. Yeah, and that's not even getting to the notion of agents and muse and whether or not that customer inertia of subscription renewal gets disrupted and churn goes up.

38:38That's the discussion we continue to have more and more by the day. Simon, really tough time for the stock. Appreciate it. Thanks for the help. Simon Gallagher. Pumpkin spice protein pancakes, in case you were wondering. That's what I'm trying to take on this week. When we come back, a look at the implied move for Meta when it reports results. tonight after the bell. Plus, next hour, do not miss NHL Commissioner Gary Bettman with us on the league's new collective bargaining agreement and the upcoming media rights deal. We'll get into the business of hockey when we come back. Investors musing over Metta's AI spending plans ahead of its results after the bell today.

39:12Let's get to Oliver Rennick at Seabow in Chicago. He's got to look at what the options market is signaling. Oliver. David, Metta options are taking a sharp, bullish turn this morning. Volume is slow, but the trading is very lopsided toward bullish call buying. About 17 ,000 calls were likely bought this morning compared to just over 7 ,000 puts, and more put trading was initiated by sellers than buyers. This isn't totally new. Meta options have been generally bullish since the stock's March low, when the put-to-call ratio of open contracts plunged to 0.5, meaning two calls for every one put open, and that hasn't budged much since.

39:51Still, this morning's volume ratio towards calls is one of the highest all year. Maybe it's excitement spilling over from SpaceX. Maybe it's because MetaShares did take a decent hit the past week after failing to break out to new records, despite that big rally following the launch of Muse. Market makers right now are pricing a 6.5 % swing for Meta after earnings, a little under the 9 % or 8 % average the past four quarters. This morning, the premium spent buying calls was close to$100 million compared to$40 million spent on puts. And the most popular contracts to buy, guys, the 800-strike call expiring Friday.

40:33That costs$1.40 and needs Meta to rally 14 % into the weekend. Carl, back to you. Got awfully close not too long ago, up above near 780. We'll see what we get tonight, Oliver. Thank you, Oliver Rennick. When we come back, the CEO Philip Morris is with us as the stock does pull back a bit on earnings, although still up 20 plus percent for the year. They lower the range for their outlook as the company says that global conflicts all around the world are disrupting business and driving up costs. Welcome back. Take a look at shares of Philip Morris, the company behind brands like Marlboro and Zinn.

41:06Lower this morning despite reporting a beat on the top and bottom lines in the quarter. but warning that input prices and cost pressures from inflation could worsen in Q4 due to the ongoing war in Iran. Joining us now in a CNBC exclusive is Philip Morris Group, CEO Yachik Olchik. Yachik, welcome back. How do you describe the overall demand environment from people around the world of what you're seeing in terms of both the combustibles, the smoking and the non-smoke? Good morning. Well, the demand is very strong, especially on the smoke-free products. I mean, you mentioned that the PMI stands for the great brands like Marlboro and Zinn, but actually our largest brand in the portfolio now is Hit Not Burn Proposition Icos, which is by far the industry leader in this category.

41:52And the growth is very strong. I think the smokers are looking more and more across the globe, including the U.S., obviously, for smoke-free alternatives. And then you have a pouch, a Zinn, you have a heated tobacco product, you have eBay, etc. So on the demand side, I look extremely optimistic, right, in terms of, you know, reflected in our performance and outlook. What is happening below the revenue, right, the geopolitics, the mounting cost pressures coming from an oil, etc. I mean, that's something which, you know, on one hand, we should remain optimistic as always. But I think these are the times when we should add the cautiousness to our optimism.

42:33And so what is the price, the input price inflation environment like? How bad is it? Where do you see it? And what's going to ultimately happen to prices that consumers pay? I think if we take a year as such, the full year as we see, 2026, I think it lowers our growth rate on the bottom line at about the one full point. And we're still delivering very strong results. But they could have been even better if we wouldn't have this. You know, these things are lasting for too long, in my view. And you have conflicts, you have oil, you have inflation, you have the European Union. We know what is happening in France, you know, how that starts having an impact on the euro exchange rate, etc.

43:18You know, companies, they have a high degree of resilience and agility. But I think it's the time when we start talking about these things, that the world is not free of choppy waters. And there was a lot of choppy waters wherever we looked, left around. Although, I mean, not to get too deep about it, Jacek, I mean, the world's always been a messy place. Philip Morris has been around a long time and survived a lot of cycles. Are you arguing there is something unique about this particular period in history? No, we just thought that it's, you know, we also, you know, on the one hand, as I said, I mean, we always should stay optimistic.

43:57I'm very optimistic. The company is doing very well. You know, we are in the specific sector, which always was more somehow prepared for the, you know, more challenging, difficult times. But having said so, wouldn't the life be better if we wouldn't have that many choppy workers? It would. What about Zinn in particular? I think a lot of questions because it was such a hot, you know, consumer product here in the U.S. But now shipment growth has slowed 4.2 percent. is the pouch category slowing? What's happening there? Now, the category still grows in the strong double-digit numbers. I mean, when you look at the 4 % ZIN, I mean, we're having a very unfavorable comparison to last year.

44:42The underlying growth is very strong. We're very happy that in the last few months, thanks to the FDA authorizations, we could essentially double the portfolio, the number of offerings to that, It's people looking for the nicotine pouches, and that's very good. Obviously, you need to build awareness. This requires investment. Just also rolling out the great when it clicks campaigns. I believe it gives another nice tailwind to the growth of Zin. So I think Zin has the good future. It requires investment, but category has the, you know, there's the strongest growing category in the smoke-free, in the nicotine space.

45:24Well, it is interesting that cigarettes' revenue growth was faster than the smoke-free. And I know you want to reverse that and have been reversing that. Why not just get rid of cigarettes altogether? This one, I'm open for the last 10 years to have these conversations with all the stakeholders. But, you know, the unfortunate situation is that the growth is coming also from the places which have a full ban on restrictions on a smoke-free product. So this is where we come after 10 years, more than 10 years of transformation. that we're trying to be focused on opportunities the smoke-free products are offering to the smokers.

45:59So we're prohibiting the smoke-free products. We have excessive regulations, including the bans, but we're still OK when the cigarettes are there. And we have been saying this for the last 10 years. If we do nothing, cigarette sales will continue to grow, and X years from now we will have all more smokers than ever before. And I think it's finally coming the high time that we reflect, wake up and make the right choices. I mean, the U.S. is on the right side. Japan is on the right side. Many geographies are on the right side, and I think there's an opportunity. But you have a lot of geographies, which if you do nothing, sales of cigarettes will continue to grow.

46:36Very sad. Yeah, we'll continue to follow the progress and the transformation as we talk to you through the quarters. Thank you, Yachik. Appreciate the time. Thank you very much. Yachik Olchik. All opinions expressed by Squawk on the Street participants are solely their opinions and do not reflect the opinions of CNBC or its parent company or affiliates, and may have been previously disseminated by them on television, radio, internet, or another medium. You should not treat any opinion expressed on this podcast as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of his opinion.

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