A Tale of Two Very Different Earnings Reports, and Has the Market Re-Rated Meta? 4/27/23

0:01Right now and fast, Amazon's big beat the e-commerce giant popping after hours beating on cloud and advertising estimates will go inside the numbers coming up plus rally on the street the major averages surging with meta leading leading the nasa to a nearly 2.5 % gain. Are these tech gains breaking the backs of the bears? Plus, a weighty move. Shares of Eli Lilly popping on new data about their weight loss drug Monjaro. The CEO says this will be a blockbuster drug. Will the stock be one too? And later, Intel posts its largest quarterly loss in company history. Snap plunges on a Q1 revenue miss and Pinterest shares drop despite a top and bottom line beat.

0:36CEO Bill Reddy will join us later on the hour. I'm Melissa Lee. This is Fast Money. We're live with the Nasdaq MarketSite on the desk tonight. Karen Feinerman, Dan Nathan, Bono Anisen, and Jeff Mills. And we start off with an earnings alert on Amazon. The tech titans surging after its Q1 results. E-commerce giants cloud and ad revenue helping it beat top-line estimates. The stock currently trading at levels not seen since October. Deidre Bosa's got the very latest on this quarter. Devo. So, Melissa, let's call this part relief rally, part growth rally, because 9 % top-line growth is pretty good in this environment.

1:06And also this better-than-feared theme, It continues amidst the mega caps, with Amazon easing some worries about deceleration in the cloud and e-commerce momentum. Now, online store sales, they were flat year over year, but it did beat expectations for the first time in eight quarters, perhaps signaling that all that extra capacity that was built up during the pandemic is finally starting to get streamlined and more efficient, a process that Andy Jassy called regionalization in his annual letter. Now, Amazon's true growth engine, AWS, its cloud business, that continues to decelerate. But again, it was better than feared.

1:39I just spoke to the CFO, Brian Olsowski, and I asked him if that deceleration has bottomed out or he's seen stabilization. He said that he's not sure how the next few months will play out, but that new business is coming in. And he says it's the macro, not the competition, that is weighing and leading to that deceleration. Now, CEO Andy Jassy calling the economy uncertain in the earnings release and that wide operating income guide range reflecting that. It's between two and five point five billion dollars. But investors, they will take uncertain, especially if it's at least profitable. And like I said, Melissa, nine percent top line growth.

2:13I mean, that's not bad in this market among the mega caps. Nope, it's not. Deidre, thank you. Keep us posted. Deidre Bosa with the very latest on Amazon. We're getting some more comments here from the Amazon CFO. No shift in the competitive balance among cloud players. Still seeing a step down in discretionary spend in cloud. So some interesting commentary coming out still about the growth engine. Yeah, and I think the main point there as far as AWS is they still have a third of the market share there, right? So their growth has decelerated to nearly 16%. If you look at what Microsoft and what Google Cloud were able to pull up, it was like 27 % year over group.

2:46So they're gaining some share. And I do think it's important to note that, like, listen, they beat on everything. I mean, like this was across the board. Now, maybe expectations came down enough over the course of the last four months or so, but it's a really good quarter. And if you think of it on a relative basis, it has really underperformed many of these mega cap peers that have also put up some big numbers here. So, you know, listen, there's nothing to shake a stick at here, people. It's a pretty good report. I mean, the move in the after is extraordinary if you consider the move that it made in the regular session today, Bono.

3:18Absolutely. And then if you look at the year today move, it's been up 30 percent. And I think of the mega cap names, this was likely the one that we were all pointing to and saying if there's probably cracks in the armor, it's probably going to play itself off with this one. particularly given their exposure to the consumer here. But as Dan said, 15, 60 percent in terms of AWS growth is still, you know, nothing to kind of shake your head at. We were really concerned that this was going to be somewhat of a apocalyptic type of fall off, particularly given all of the inflows that we had seen to this particular concentration or concentrated cohort within the NASDAQ.

3:50And for them to be able to deliver alongside their other counterparts just kind of, you know, reinforces the margin of safety that these names do offer, particularly within an uncertain outlook. North America customers looking for value, putting off some discretionary purchases as we get some more commentary here from the company. Yeah, actually, I thought the retail part of the business wasn't bad, right? We're not even thinking about it or talking about it, but it is a gigantic business with very slim margins, although they did have a little bit better margin beat here. And it really has been weighing on the company a lot.

4:20They don't seem to care what margins they put up in the short term. everything seems to be in the short term for them. But that's a lot of operating leverage that they have the potential to, you know, they have a bunch of levers there. They built up way too big during the pandemic. Do you remember when they were actually selling some of the space for warehouses they had bought? And so you have now not just the cloud engine, which was at some points in time, more than 100 % seeming of the value of the whole thing. But now you remember have old Amazon, which also has potentially a lot of value and a very impressive performance.

4:52It was up on this potential news today already. So the bar was higher in the last 24 hours, and yet they stepped over it by a wide margin. Jeff Mills, you are killing it. You're killing it because you got Amazon in your acronym. It's the A in fame. You've got meta. Did you think that we see these outside moves? I mean, the expectations were so lowered, yes, but we were still sort of expecting that sort of cautious commentary from enterprise. We haven't gotten that cautious commentary about advertising. Amazon is saying for its part tonight that advertising is still growing here. We just haven't gotten sort of these worst case scenarios.

5:31No, listen, hey, I'm not complaining, but we talked about this last week and I was a little bit concerned that maybe these stocks had run too much into earnings and we might see a little bit of a give back. But in terms of why I have a name like Amazon, why I have a name like Meta in my fame trade, I've talked about this a number of times. But for Amazon specifically, it was all about this profitability disappointment last year. Karen said it, you know, huge spending in CapEx in reaction to the demand during COVID. That was sort of difficult to manage around. But my view coming into the year was that this focus was going to have to shift.

6:04And it has. You need to see gross margin expansion. I thought you probably would. And now you have AWS, you have Prime, you have advertising. That represents 55 % of revenues. It was 52 % last quarter. So So top line up 9%, cost of sales up 2%. That's exactly what we wanted to see here. Dan said it sort of beat across the board. So there's a lot to like. I think maybe the only thing you have to think about at this point is the valuation. I think it's trading at over 40 times. A lot of the peers that it gets lumped in with trading quite a bit lower. So the question is, what happens on the cost front?

6:38And what can they do on the growth side to justify that valuation? But certainly showing me everything that I wanted to see as we were heading into this year. Valuation is such an interesting one, especially when we saw these kind of moves out of Google and Meta. And I know, Karen, these are one of the reasons why you kind of felt OK with these names, because there was some downside protection as relative to some of these other. Microsoft's getting expensive. Apple is getting expensive. Amazon has always traded a bit as an outlier. One of the things I think will be really interesting as we go turn the page on this week into next week, we have this Fed meeting.

7:08The Fed, there's an 80 percent chance, the Fed Watch tool is saying that they're going to get to 5 percent on the Fed funds. It's starting to creep up for June here a little bit. But think back to late 2021, right, when the Fed said in terms of the chances for another rate hike. Yeah. Yeah. And think these results seem to seal that deal. And look at the jobless games that we're talking today. So there's this kind of like there's a situation here where valuation may come back into focus for one main reason, because of interest rates. Right. And so if you were worried in 2021 that things were getting a little too frothy, evaluations were getting a little too much.

7:39And just as a note that the Fed said that we are going to start raising interest rates after this long period of very low interest rates, it starts selling off stocks. Like literally, you know, they were tripping. People were tripping over each other to get out of these stocks for the end of 2021 into 2022. So I guess my point is at some point, if the narrative becomes the economy is OK, but rates are going to stay higher for longer, that might weigh on valuations a little bit. And if you just go back, I think Carter Braxton Worth had this chart earlier in the week. Just go back to the start of January 2022.

8:12If you look at these runs into earnings and the sorts of sell-offs that we had afterwards, I'm hard-pressed to think that we don't have a little fear put back in this market, especially when we have a lot of good news from some of the biggest players in the market that are dictating earnings growth and dictating the course of the market. Let's get some more on Amazon, specifically with Gene Munster, managing partner of Deepwater Asset Management. Gene, great to have you with us. obviously it was a good quarter pretty much across the board. A lot of beats, including operating margin, various geographies, beat, et cetera.

8:42How do you think about this in terms of the valuation, which is the question that was brought up here on the desk? I'm struggling with it. And ultimately, Deepwater does not own, get a little bit of feedback. Can you hear me okay, Melissa? Yeah, we got you. Okay. Deepwater does not own shares of Amazon for that valuation perspective. And just to put a finer point on it is that it's trading at, call it 45 times. That's more or less in line with NVIDIA. And then you have kind of a step down to Apple and Google at 18 times. And so I think Dan's comments kind of sum up where I'm at is that this was a good quarter.

9:19It was not a great quarter for it to continue to have a premium multiple. Historically, it has had that. But for that to continue. I think these numbers need to show more upside relative to what they guided to for the June quarter. How much do you weigh the context of the markets that were in, Gene, when you're thinking about these plays? Because there's been this perception and perception, you know, in the markets at some point becomes reality, which we've seen, that these are safety stocks and people are willing to pay up for them. And so therefore, you know, a premium valuation, a higher valuation, that's okay in this kind of market?

9:58It is okay in this kind of market. That's exactly what's happening, Melissa, is if you're a large cap tech company and you have an okay quarter, you're going to be rewarded for it. The rest of tech, I'm keeping a close eye, we're investing in a lot of those other companies. They're not doing as well with what I think are similar types of quarters. And so there is this flight to quality. And the piece that I gravitate back to is this. Typically, in tech investing, there's a pendulum in terms of where the momentum is, probably with the exception of Apple. Apple can have 30 % moves. But over the last decade, Apple's been relatively stable.

10:33But the rest of tech tends to have these kind of swings. And right now, the swing is in favor of large cap. So as we think about deploying, we're thinking more, this is an indication probably to start to do more work on some of the mid and small cap, because I think eventually we're going to see by the back half of this year some of that momentum swing back. It's just kind of how it goes. What do you want to hear on this conference call, Gene, from Amazon? Well, in the AI toy department, they sent a couple pieces in their earnings release about how AI is impacting their advertising business. We'd like to hear more about beyond that, how they're implementing it within AWS.

11:11And then separately on the cost side, how much more is that to go? We'd love to hear. They've given some high-level commentary on costs, but we just want to see where margins potentially could go in the middle and the back half of the year. All right, Gene, we'll check in with you a little bit later on in the show. Gene Munster of Deepwater. Thank you. Karen, what are some of the outstanding questions that you have about the quarter? Well, I wonder about what I really I guess on the call, I wonder what they're going to say about rationalizing the business at all. Right. This is, you know, obviously more pixie dust for being tech.

11:41Anytime they announce layoffs, it's a really tangible thing that you can put into a model, which is a lot easier than some of the other things. So I'd like to hear that. Amazon, I think, is more than any other company. Really, they don't care what happens this quarter. And I don't think they care what happens to the stock. And I probably wouldn't say the same of Microsoft, let's say. Yeah, I hear the concerns about growth and rightfully so. I think I'm most comfortable with this company kind of, as Karen said, right-sizing the business layoffs because they were so aggressive with CapEx spin and SG &A spin going through the better half of 2021 and into the beginning of 2022.

12:17So for me, that is more of them reaching equilibrium than them going out and laying off from a point of weakness. All right. Let's get to the other earnings alerts that we're watching after hours. shares of Intel on the move after reporting a beat on the top and the bottom lines. It had been in positive territory initially after the release, now trading lower. Christina Parts Nevelis got the details. Christina. Yeah, the bar was set really low with Intel already predicting last quarter revenue would fall 40 percent in Q1. Today, they posted a 36 percent drop in revenue. So that's a beat because of low expectations, with Pat Gelsinger saying on the call just now, we still have more work to do.

12:52Words we've heard before in the past, but the company posted net loss of$2.8 billion, which was the biggest quarterly loss in its history. CEO Pat Gelsinger adding to the PC bottom narrative by saying, quote, just moments ago, we are seeing increasing stability in the PC market with inventory corrections largely proceeding as we had expected. However, server and networking markets have yet to reach their bottoms as cloud and enterprise remain weak. And so that's why Intel has pretty a bleak outlook for Q2 margins as well as earnings per share. Both fell short of estimates, which is why Melissa said that's probably why you saw the reversal in the stock.

13:31First it was up and then it was down once investors and analysts realized this. Pat Gelsinger, though, is entering his third year as CEO and has previously said this is all part of his turnaround plan. And we expect him to weigh in on this huge quarterly loss tomorrow and closing bell overtime at 4 p.m. But you can see, like you mentioned, The stock is about half a percent lower right now as the earnings call is underway. Christina, thank you. Christina Parts Nevelis. Pat Gelsinger has also said that he believes that they were at the bottom Q3 of last year. So there's an issue here, Jeff. And I'm wondering what your take is on Intel here.

14:07Well, nothing, I guess, incremental for me, really. I mean, they're still bleeding share to AMD. And I just don't think they've given us a really compelling reason to own the stock. I mean, you got the read on data centers. Yes, it was a beat, but it's still down nearly 40 percent year over year. And this is a company that's spending. So you look out to that EPS guide in Q2. That's weak. I think the market's moving on that. And I've said this before, but manufacturing was their edge. And that has completely disappeared. So now you have a stock that's down, what, 60 percent from its high. and the P.E.

14:40is much higher. I think it's at a 20-year high. It's back below the 200-day. So after this earnings report, looking at the chart, all of these things sort of wrapped into one, it's just a stock that's still not interesting to me. You know, if you think I'm a value girl, but would I rather own Intel at a lower valuation or AMD at a higher one? AMD at a higher one. We'll see on Tuesday they're going to report, but I don't know. I just feel like this is just, I don't know, pushing a giant ball uphill and who knows what's going to happen when it gets to the top. We'll just roll back on him. Yeah, it's not an easy job.

15:14I'm sort of, you know, poking at Pat Gelsinger in terms of him having said that, you know, this is the bottom for the business. We're going to rebuild, et cetera, et cetera. It's a tough slog because this is the Titanic of chip makers. But at the same time, investors want to hear something that they can believe. Right. And I think you're what you just said is what a lot of portfolio managers all over, you know, the world are making that same assessment right here, especially as like AMD overtook Intel in market cap terms. It was kind of like a really amazing. It was just a really interesting sea change.

15:42And so to your point, if you're looking at the out year 2024 and you're looking at, you know, 20 percent expected EPS and sales growth and the stocks trading basically 20 times that or so, you'd probably rather go with AMD, where at least a suit has been an amazing steward of that business and overseeing this market share. I'll just say this real quickly on the SMH. It has doubled the performance of the NASDAQ off of the lows. It just broke that uptrend off the October lows here. So I think a lot of it is kind of on the weight of NVIDIA in Taiwan Semi right now. And I'm not sure you have to be in semis right now or adding to these positions.

16:15Quickly, just offering a counterpoint, Jeff mentioned that this company isn't really that interesting. My question is, who's the incremental seller? Who's interested in selling at this point, given all the news that we already know? So does that mean that you would take a flyer on this? If I right size the flyer, sure. I mean, I'd rather spend a little money buying it than I would short it at this point. Coming up, we have even more earnings action after the break. Shares of Snap and Pinterest, they're dropping. Snap down 20%. The latest out of the quarters next. Plus, Lilly getting some love.

16:45Investors piling in as the company eyes fast track approval for its weight loss drug. We're leaning into that trade when Fast Money returns.

16:57Welcome back to Fast Money. Earnings alert on two social media movers, both dropping in the after-hours session. Snap EPS coming in above estimates, but revenue is missing and declining year-on-year. The stock erasing all of its gains for the year. It is now down 20 percent. And Pinterest beating on the top of the bottom lines, but shares are also dropping on weaker than expected revenue guidance and growing operating expenses. Julia Borson joins us with more out of the reports. Julia. Well, Melissa, both Pinterest and Snap are suffering because of concerns about their future. For Snap, not only did its revenue decline by 7 percent, its first year-over-year decline ever, but its internal forecast for a second quarter revenue decline of 6 % fell short of the analyst consensus.

17:39The company also warning that it expects a negative$75 million in EBITDA in the second quarter. Snap CEO Evan Spiegel noting that the, quote, macro environment continues to be a headwind. He goes on to say that they are using this opportunity to make significant improvements to their advertising platform, including transitioning to a new ad format. Now, Snap's earning call is set to start shortly at 5.30 p.m. Eastern. Meanwhile, Pinterest call is underway. Those shares fell on concerns about second quarter revenue guidance missing estimates, while the company also warned that its operating expenses will grow in the mid-teens percentages.

18:20You see shares now down nearly 14%. Now, the company also announcing that it is opening up to third-party ad demand for the first time. And their first partner is Amazon, partnering with Amazon to bring those ads onto the Pinterest platform. So when users click on an ad, it can bring them back to Amazon to make a purchase. Now, we're going to be talking about all this and more with Pinterest CEO Bill Reddy. He's coming up later in this hour. Melissa? Julia, thanks. We'll see you soon with Bill Reddy. Julia Vorston, we were just talking about that during the break. How does Pinterest monetize? Is this one way?

18:56It seems like this benefits Amazon a lot. Right. And when you look at the growth that they're having and you look at the scale, and I think that the takeaway here is really scale. So look at what we just see this week from Google, from Meta, and from Amazon. Literally, it sounds like, oh, digital advertising is back. No, because they have the scale. They have the eyeballs, that sort of thing. And so I guess when you see a platform like Snap, for instance, that has 4.7 million in revenue expected annual this year, they just don't have the, you know, again, the scale. I'll just say this about Snap.

19:25And sorry about Pinterest. I don't know anything about Pinterest, so I can't really say much. I don't know how they monetize it. I don't use it. And I don't know how many people use it. You don't have a page. Yeah. But I know Snap. And I know all the kids today. And I got lots of them. I got two of them. And I see them all around. They are still addicted to this app. And I really feel like Evan Spiegel toiling it away, getting this team done, getting rid of some of these other things, really figuring. I think if you buy Snap at$8 tomorrow, I think you're going to have a really good shot if you wanted for a trade to sell it at$10 in the next month or two.

19:53And that has actually worked over the last two quarters or so. I feel like for whatever reason, people get geeked up about it. They want to buy it in the print. It goes down 20%. You buy it on that. And then a month or so later, you're selling it up 20%. Yeah, I mean, I wouldn't be surprised if that works out. Dan's been rain trading this thing beautifully. That$8 to$12 range that it's really been in since November of last year, I will say. And on the other side, looking at the ARPU, I think Snap has the largest ARPU between Meta, Pinterest. But that brings me to Pinterest. I think that Pinterest actually has a lot of upside if they're able to kind of drive up that ARPU dollar figure, particularly domestically versus internationally.

20:27So I do see a lot of upside, particularly so we've mentioned the Amazon partnership, but also this ramp partnership. If we're expecting ad spin to start to shrink, I think that, you know, corporates are going to be a lot more focused on the efficiency of the ad spin that they undertake. And I think that actually might be an interesting lever for them. Yeah. And as a Pinterest user, Karen, can you see that happening? No, I just I for both Pinterest and Snap, I just think, why wouldn't you be in Meta? Right. At a much better valuation and scale. I would almost say that I should buy one of them. Meta can't buy anything.

20:59I think no one's allowed to buy anything anymore. But I'd rather be in Meta. All right. There's a lot more fast money to come. Here's what's coming up next. Eli Lilly stock doing anything but slimming down. Shares jumping as it eyes fast track approval for its weight loss drug. A focus on the pharma trade next. Plus, Meta doing better. The social stock climbing to a 15-month high as investors reel over earnings. So is it time to rethink this name? the traders are digging into the multiple ahead. Fast Money will be right back.

21:41Welcome back to Fast Money. Eli Lilly is sizing up to an all-time high today despite an earnings miss. The stock surging 3.7 % after the company raised its full-year guidance. Lilly also reporting positive data on its weight loss drug, Munjaro, saying trial patients lost up to 34 pounds on average. So that's 15.7 percent of their body weight. They've also got some, you know, potentially positive news coming out of their Alzheimer's drug phase, trial phase later on this year, Karen. So where do you stand on this? Don't own it. I had sold it. I mean, I had a huge run up on not we'll go to zapatide, Majaro, as did Novotis.