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Are so many big names reporting earnings this week. We've got Nvidia coming up. We've got Walmart, we've got Target, we've got Palo Alto Networks, cross sectors. The list goes on. It's that final sprint before Thanksgiving. But for now, let's take a look at two companies that reported earnings this morning before the opening bell. Starting with that bellwether stock, the home improvement giant Home Depot. John, give us some perspective on just how enormous this, this company is. I forget always just how huge it is actually.

C (4:05)

Yeah, absolutely. The market cap is $343 billion for this company. They operate over 2,300 Home Depot retail stores and their website boasts that they have approximately 475,000 quote orange blooded associates, which I don't know how they feel about that. Also worth mentioning, last year the company acquired RS which has 1200 stores that serve specialty trade operators, roofers and plumbers. That's in addition to the Home Depot outlets. And in this past quarter, Home Depot acquired GMS for about five and a half billion dollars. GMS is a distributor of specialty building products. Think drywall ceilings, steel framing. So they're definitely expanding beyond the DIY homeowner.

B (4:46)

Yeah, absolutely. Diversify something actually that we have seen with other home focused retailers. Williams Sonoma, for example, which owns West Elm and it owns Pottery Barn. Their earnings actually out this week too. We've seen them shift towards even doing interior design for things like cruise ships and office spaces. So a different version of it, but nevertheless we're seeing B2B growth. The one thing I don't think I share this with you actually. So back in the day, one of the deals I worked on was taking private a distribution company called Interline Brands. And the way we exited that investment, actually we sold it to Home Depot. I think this was back in 2016. So this is an area that's near and dear to my heart. I love outsourced business services, as we know. Well, sales for this quarter, again, just the magnitude of this company, Home Depot, 40, $41.4 billion GMS was 900 million of that. So just that integration, its contribution, operating income did disappoint the street. $5.3 billion down 1.2% year over year. And that magic number for retail six same store sales barely up, just eked out a positive growth number of 0.2%. By the way, that was sort of the overarching story in Home Depot today. The company did lower its full year comparable sales growth outlook to be only slightly positive down from its previous forecast of going to be up a full 1%. So the market did not like this.

C (6:08)

Yes, a little disappointment there. The the stock was down 6% today and that brings it down about 13% year to date. On the earnings call, Depot CEO cited ongoing consumer uncertainty and housing pressure. We'll come back to that. But he also said, quote, our results mixed our expectations, primarily due to the lack of storms in the third quarter which resulted in greater than expected pressure in certain categories.

B (6:35)

It's so interesting that he got Home Depot saying the absence of bad weather. Yes, hurt us. We recently heard Six Flags say the presence of bad weather hurt us. It actually said that one of the reasons that Six Flags had a weak quarter was that you didn't have as many people, people going to their theme parks, Home Depot blaming, as we said, good weather. I got to tell you, and I said this when we talked about Six Flags, only landscaping companies should be placing the blame on their performance with this kind of emphasis.

C (7:02)

To be totally honest, I remember you saying that. But Home Depot is making a good point because if you think about it, if you're talking about stormy weather, there's sheets of plywood maybe to cover the windows if there's a hurricane coming. Selling power generators, doing roof repairs after the fact. And those didn't happen.

B (7:17)

Well, that being said though, that was up until September 30th and weather has actually been dicey in South Florida and other places since then. So we'll have to wait and hear what it's what it's been like for the quarter to date to see if the weather has actually had a different impact, but just to sort of again put numbers around it. The 2024 Atlantic hurricane season was extremely active. It was actually devastating, the third costliest on record. There were storms in 2025 in the United States, not with the same impact. And again, you do just get these companies like Home Depot that are more levered to it.

C (7:47)

Mm. And back to the macro trends. Home Depot CFO said, quote, our customers are homeowners. They are seeing home prices now decline in more markets than rising. And we know they have job concerns. This all comes together in the form of hesitation to take on larger financial commitments. And that's talking about kitchen repairs, bath remodels, those big sort of home projects.

B (8:07)

Which sort of explains actually the strategy here of Home Depot to diversify away from that consumer focus to make sure that they are going business to business. You know, just one of the things that this really drove home to me. There's a lot of discussion at the minute, the moment around this K shaped economy. The idea that the higher income demographics are doing well. Everyone else is struggling and Walmart emphasized that. By the way, Walmart earnings out this week as well. Again, a bellwether, bellwether stock meaning as goes these large names. So often the market thinks go other parts of the economy. But Walmart and Home Depot sort of saying the same thing, which is our customers are feeling compression, there is uncertainty around jobs and there is hesitation to take on larger financial commitments. Something that we'll come back to. CF CFO of Home Depot, Richard McPhail also said that one of the key things, one of the key indicators they've got Hawkeyes on is mortgage rates. Quote, we're watching movements in mortgage rates closely. So far we have not seen them catalyze demand. He's talking about some reductions in mortgage rates in home improvement. Now, Home Depot stock, as you said, John, ticking down as much as 6% today. One of the things worth bearing in mind, I thought when I was looking at this, you know, Home Depot, when everyone was super convinced there were going to be three rate cuts this year actually had a pretty decent run as a result. That December rate cut that we're all sort of saying maybe it's not going to happen anymore. This is the kind of Stockholm Depot that certainly feels a bit of pain when that uncertainty around the rate direction kicks on up. Well, let's talk about Klarna for a bit of a different perspective on what's going on with consumers and consumer access to credit for things like their home improvements if they want to do it right.

C (9:45)

It's a Stockholm based payments company, trades on the New York stock exchange under CLAR and the company just IPO'd back in September.

B (9:53)

That's right.

C (9:53)

And was valued at that time at about $15 billion, down to about 12 billion today. And the highlights from the earnings report, revenue was 903 million, up 51% in the US and up 28% globally.

B (10:07)

Now it's made its name as a buy now, pay later service. Everyone say affirm Klarna afterpay in the same breath, but it's actually been doing a lot more, becoming a global digital bank.

C (10:17)

That's right. I saw an ad recently for Klarna and I thought wait, that's buy now pay later that they're describing because it just sounds like a credit card.

B (10:23)

Yeah, yeah. The credit card sort of confluen, you know, credit card world and buy now, pay later world sort of slumping on top of each other is becoming more and more widespread. So if you take a look at what Klarna's been doing, you're right. Actually it did launch an actual credit card in July and has had 4 million signups which I thought was a pretty impressive number. And this credit card accounts for 15% of all of Klarna's global transactions at least last month. That's pretty meaningful. And the company's co founder and CEO Sebastian Siemiakowski told Bloomberg today, quote, we are accelerating, trying to get to the same amount of acceptance and merchants as Visa and Mastercard which is obviously very, very high ambition. I would say it's naked ambition like he's making no secret of the fat.

C (11:09)

To your coming for you.

B (11:10)

He's coming for them, he's coming for credit cards. Now one thing that's really interesting and we've, we've been so lucky to talk on this show and sort of sister podcast to folks who are trying to do disruptive things in the world of consumer credit. We've talked to upstart for example, which is trying to think about different ways to underwri right that the consumer can get debt. For these startup companies or just these younger tech enabled businesses, one of the key insights that they really need to manage how much profit they make as a function of how much risk they take on and manage is really trying to determine how much they can lend to customers. How much can they do with as low risk as possible. And that means that they really need to build longer term credit profiles for customers using their services. Now, Klarna today talked about posting a net loss of $95 million, which I think is probably worth sort of digging into a bit. Right.

C (12:01)

And I learned about this today. Financial institutions have to set aside a portion of their profits as an expense to cover potential future loan losses, like you're saying if a borrower defaults. And that's called provisioning. And so Klarna's last quarter provision for loan losses came out at $235 million and that was above analysts expectations. But the CEO points out that these provisions are costly up front. The loans have a much higher margin long term, saying it's an expected profit lag. And what happens when you grow fair pacing at this pace?

B (12:32)

Yeah, and actually there's one analyst at Morningstar who said if you look at actual performance rather than quote accounting metrics, the quarter was good. So just a couple of comments there. I'm going to nerd out a little bit as I want to do. These provisions are often on cash. Right. So it's an accounting provision. And so really what the CEO was trying to say was as time goes by and the loan actually ends up performing as we'd expected, you'd sort of reverse, you would unwind those provisions and actually that profit gets released back into the company as you see the actual cash come back on in. I think the reason that the shares were down 10% this morning. But I do want to talk about valuation. But one thing is when these provisions happen for loan losses, particularly when these companies are as recent to the public market as Klarner is, investors sort of go, well, hang on a second, are they just being conservative? Are they being cautious? Are they making sure there's enough buffer? Or in fact, are they lending to riskier customers? And just I think while the market's trying to get more data to try to figure out, well, which one is it? This one's going to be a little bit of a gray area for Klarna for, for a minute.

C (13:35)

And Klarna is, would point out that they're using AI to try to assess that risk. And they would say that they're more advanced than some of the more traditional lenders in their ability to assess risk.

B (13:45)

Yeah, that's exactly. Such a great point. Now, in terms of another competitor doing that and also just worth looking at side by side with Klarna, it'd be great to touch on, affirm for a moment so affirm is the US sort of foil to Klarna. Klarna as you said, based in Stockholm, although listed here. Now I just want to talk about the comparative trading valuations of these companies right now. But stick with me because we. This may feel technical but it is an interesting comparison. The enterprise value not the same as the market cap. The enterprise value of Klarna is $8 billion. It's $28 billion for a firm. It's sort of easy to forget that one's got a much bigger valuation than the other. Klarna is trading at 13 times 7 EV to EBITDA. It's a measure of the trading multiple of profit. A firm on the same multiple is trading at 31 times. Klarna though has got $2.9 billion of revenue which is incredibly close to the 3 and a half billion dollars of revenue of a firm. So it's interesting you've got a similar sized business trading at totally different multiples. So I wanted to just nerd out for a moment on why Klarna, when you just cut through all of that is basically trading at a discount to a firm. That's really the punchline. And there's a couple of reasons why investors rewarding a firm's faster revenue growth. It's got a slightly longer track record of profitability. Klan is still on its way there. You've also got a firm getting a decent portion of its revenue from higher margin interest income where Klan is more reliant on fees that are coming from merchants who are basically compensating them for this pay and for installments model. You've also got the fact that a firm's primary market is the United States. We can argue as their home bias because US investors want to invest in U S companies. That's one theory. It's not always true. Klarna dominant in Europe, it is expanding into the US and then there's just sort of sentiment. Some people argue that, you know, Klanda's management opted for a more quote, conservative IPO valuation at the time though as you said at the top, John, that share price is in fact down from the ipo. I'm going to keep watching this one because I do find these direct comparisons really, really fascinating and particularly at moments like this where we've seen a sell off in the broader market. I know we're going to get to that and people are hunting around for value. These are the moments when folks really digging into the details and trying to say, well, which one's the outlier and which One's basically the sort of bargain basement discount. Well, let's take a quick break and when we come back, my conversation with Karen Seidman Becker, the CEO of Clear and Big Tech's latest investment binge. And now a word from our sponsor, Vanguard. This one's for the financial advisors out there. Hear me when I say stop falling for flash. A few flashy funds aren't enough to give a firm credibility when it comes to bond markets. Something with more substance. Look to Vanguard.

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We like to shine a spotlight each week on a CEO of a public company. And today I'm delighted to be joined in studio in fabulous denim looking terrific by Karen Seidman Becker, chairman and CEO of Clear since 2010 when she actually bought the business out of bankruptcy. It's come a long way now. Clear is expanding with B2B partners across travel, health and sports. But for right this moment, for today's show, we're quickly going to focus just on the company's presence in airports. Over 60 of them.

E (17:53)

That's right.

B (17:54)

So, Karen, we feel like the world is reopening. The government shutdown is over. Just under a week since the reopening. From your seat is traveling back to normal.

E (18:05)

So I think traveling is back to pretty much normal.

B (18:08)

Pretty much.

E (18:08)

I think the question is, what's normal? Travel was hard and getting harder before the shutdown. We're now heading into the holiday season. Travel is bustling. Airports are bursting at the seams. People are hitting the road for both business and leisure. So it's happening.

B (18:22)

So talk to us about it, what it does to your business if we go beyond the headlines. And I know that you can't perhaps be specific on numbers, but do you see catch up in travel because you had people like me who avoided traveling during the shutdown. I suffered through some of it. And do you see a sort of revenge travel phenomenon that comes on the back end of it going to the holidays?

E (18:41)

So we saw strength throughout the shutdown. I think at the end of the day, you know, we reported 7.7 million active subs. It's not like we have a billion subs. So there's still a lot of opportunity for growth. Almost 3 million people a day are going through airports every single day. So whether it was up or down a few hundred thousand, they're still bustling. And I think what people are seeing or what we're seeing is a new expectation in travel. People have frictionless experiences. I often talk about Uber transformed the cab and doordash transformed the food delivery. Right. There's an instant on total control, total visibility and transparency into your experience. I would say travel and also health care. You do not have that. And so people want control. They want a home to gate app. We launched concierge. They want a concierge to come take them through. We launched E Gates. Like, people want control. And I think they're more dissatisfied with the experience that they've been having in travel. And I think this shutdown and the pictures which freaked everybody out, everybody only reminded people that they want and deserve more. Right. In Doha and Singapore, Tokyo, London, you have better travel experiences. And the more people see that, the more they're like, what's happening here? And our goal is to transform travel to make it secure and frictionless here in the US make our infrastructure sparkle.

B (19:56)

And people are willing to give up privacy to do that.

E (20:00)

The answer is people are willing to enroll in Clear because they trust us and they know that their privacy and their data are secure. With clear, I think we've been at this for 15 years, very public and very transparent. And people are willing to be part of programs if they're getting something wonderful in exchange. And if you're going to protect their data. We do not sell or share data. And privacy is job one. I mean, we're partnered with the Department of Homeland Security.

B (20:25)

Well, last year there was a proposed bill in California that would have banned Clear, saying it was an issue of quote, equity for those who are unable to afford it. Now, the bill was ultimately pulled, but how much are you trying to win over hearts and minds and try to fight a perception. Or maybe you don't want to fight the perception. Maybe you want to be seen as a luxury. But there is a segment of the public that thinks only rich people get to cut the line. And Clear helps them do that.

E (20:49)

You know, it's an interesting point. Clear is on average less than $10 a month when you look at our ARPU. So it really is affordable, I would say luxury. And the other thing is that we offer free trials in the airport, so everyone gets to try it. In addition to that, things like precheck, which we can now enroll in, enroll people in. So that's $75 for five years, $15 a year, $1.30 a month cheaper than a cup of coffee. So we're really focused on helping travelers have better experiences, enhance security. And, you know, I think California was a great example of a lot of misinformation. And ultimately, we're in Orange County Airport where we just launched. And so we're really proud of what we're doing and the price points that we offer. Clearit.

B (21:33)

Here's just one operating question for you, Karen. When you see something like the shutdown coming or even a busy holiday season, and maybe there are air traffic control issues, there are still shortages, as we know. As a CEO, as an operator, how on earth do you contingency plan for this kind of event?

E (21:49)

Right? So I think that looking around corners and risk management is the job of a leader. It's what we did during COVID And I think you always have to be having one and a half feet on the gas and a half a foot on the brake to understand what's happening. And so that's the job. One of the beauties of a public private partnership is that we can staff up. We can staff up for F1 races or Super Bowls or World Cups that are coming. We partner with our airports. So we actually added staff to the floor to help partner with the TSA and the airports to help serve customers in that shutdown. And I think that was really important. The power of public private partnerships is so massively important today. And by the way, we do all this at no cost to taxpayers. So I absolutely think that's the job of a CEO. I always. Your job is not to bury your head in the sand. I'm always surprised when people are surprised.

B (22:39)

Did you have to pick up any of the staffing bills in the airports when things went down during the shutdown?

E (22:45)

We staffed up our teams.

B (22:47)

Your teams more. Right?

E (22:49)

We staffed up our teams more to make sure that we were meeting people where they were, whether that be we had record concierge appointments in some markets. So that was staffing. Whether it be just helping with divestment after, you know, into physical screening and helping people lift bins. My mom's 80, she needs help. And so, so, you know, it's about keeping the process moving, however we can help.

B (23:09)

So does that mean we can expect to see your cost base having ticked up a little bit over the 43ish day period?

E (23:14)

We're very focused on efficiency and proud of the margin expansion that we showed in the quarter and that we continue to show.

B (23:20)

There we go. Like a couple of final questions for you, Karen. Number one, we do have holiday season coming up. What are you expecting in terms of travel levels these holidays relative to what you've seen in other years?

E (23:30)

We are expecting record travel. You saw that this summer when many days looked like Thanksgiving did many years ago. So we are expecting record travel and Thanksgiving into Christmas. I think the thing that people continue to not totally get their hands around is that the Airbnbs of the world changed travel forever. In terms of capacity, there's infinite rooms. You used to, you know, if you couldn't get a room at the Marriott, you couldn't go, well, there's infinite rooms now. And so I believe that travel will continue to grow the experience economy where people are putting their dollars. And I think business travel is back. And so, you know, we expect to see record travel and we expect to see the expectations of travelers ever higher, which means that we continue to build new products and drive innovation to create frictionless home to gate journeys for travelers.

B (24:17)

And do you still remain positive even when you look at sort of key markets like Las Vegas, having seen weakness this year?

E (24:23)

I think we look broadly and so sometimes there's weakness in one market, but you see enormous strength in other markets. So we have markets that are up 50 to 75% year over year. And then you have markets that, you know, might be a little bit lighter, but as a nationwide network, we continue to see, you know, very good strength.

B (24:41)

So I have to ask you the last question. Where are you traveling to for this holiday season?

E (24:45)

We are traveling to Portugal, my new favorite spot. So, yes, I'm very excited.

B (24:51)

Brilliant. Well, we might see Karen then standing in line going through one of those clear systems at an airport over this upcoming holiday.

E (24:57)

One of our E gates.

B (24:58)

There you go, one of your gates. Thank you, Karen. There's the closing bell. 4pm on the east Coast. The markets are wrapping up for the day. We don't have a ticker tape, but we'll throw it over to our human ticker, our producer, John.

C (25:09)

That's right. The sell offs of the market continued. The S&P 500 finished down 8, 10. The NASDAQ was down 1 and 2, 10 of a percent, and the Dow was down 1%. Quick market headline. Meadow won a key lawsuit today in a case originally filed in 2020 when the company was still known as Facebook. A federal judge ruled that the company's acquisitions of Instagram and WhatsApp don't violate US antitrust law. Shares and Meta briefly recovered morning losses, but end of the day down near a third of a percent.

B (25:37)

There we go, that sell off across the tech space. At the moment, it feels as though people are calling into question a little bit that AI trade. Nevertheless, even though the stocks are not necessarily reflecting the sentiment that we're seeing at the corporations themselves, we did see a deal announced today and that is Microsoft, Nvidia and Anthropic getting together with a 30 million deal. And that specifically is the commitment that Anthropic has made to use Microsoft cloud services, Azure in return, Microsoft investing $5 billion into Anthropic. That's the, that's the Claude model provider Nvidia, you know, just throwing around $10 billion investment chips these days, pumping in that money into Anthropic as well. Just another example of these massive AI investment deals being done within a pretty small community of companies. If we just look back in time a little bit, you'll recognize this lineup. They've done deals with OpenAI, which incidentally signed a $38 billion deal investing, I'm sorry, not investing rather, but committing to use Amazon services. So the idea here that there's a bit of diversification going on. There's a lot of coverage of this in the press today. Nvidia, Microsoft saying, you know, this is one way that we're going to make sure that we're building alliances across the ecosystem. Others saying this is another example of the circular A ideal and a potentially another example of a couple of players becoming too big to collectively fail. I even split the infinitive to get that sentence out there. That's it, folks, for today's Brew Markets Daily.

C (27:08)

Brew Markets Daily is hosted by Anne Barry and produced by John Crateau, Tarek Abdelatif and Emily Milian. Our technical director is Lonnie Fiskus. The president of Morning Brew is Devin Emery. We'd love to hear from you if you have a feedback, a company you'd like us to cover. Send us an email or voice memo to Morning Brew show at Morning Broadcom.

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