All Eyes on Amazon and Apple Earnings, And What the Bond Markets Are Telling Investors 8/3/23

0:01Right now and fast, Apple beats the street thanks to its services sales but revenue declined for the third straight quarter. its longest lump since 2016. All the details on that quarter coming up. Plus, Amazon popping on a big beat. Sales growing double digits in the company, giving optimistic guidance. We'll go inside those numbers straight ahead. Later, bond bet as rates on Treasury surge. Noted hedge fund manager Bill Ackman believes the 30-year won't stop heading higher until it hits 5.5 percent. We'll break down his bet. And turbulence in the travel trade. Shares of Expedia plunging more than 16 percent.

0:32Is this another sign that the post-pandemic travel boom is running out of gas? We'll break that down. I'm Melissa Lee. This is Fast Money. We're live at the NASDAQ MarketSite. On the desk tonight, Courtney Garcia, Karen Feinerman, Dan Nathan, and Guy Adami. We start off with a huge slate of earnings. Apple and Amazon headlining the after-hours action. We've also got results from Block, Coinbase, DraftKings, Airbnb. They are all on the move. Full team coverage on all these names. Deirdre Bosa, Kate Rooney, and Contessa Brewer are standing by. But we start off with Steve Kovach in Apple's big quarter.

0:59Steve. Yeah, Melissa. It is, like you said, the third quarter in a row of falling sales with revenue still beating estimates, but down 1 % year on year. So revenue is coming in at$81.8 billion. Street was looking for$81.69 billion. And the EPS was a bigger beat there,$1.26 versus the$1.19 expected. But iPhone, slight miss coming in at$39.67 billion. Just a couple hundred million short of expectations there. But of course, the story today is going to be services hitting a new record of 8 % year on year. Growth accelerating there, booking$21.21 billion in revenue there. And gross margin, I want to point out the expansion there, also beating expectations 44.5 % gross margin.

1:51And it's up from 43 % a year ago quarter. So services really helping out there. And I got to speak to Tim Cook about these results about an hour or so ago and talking about what really drove those services results we're seeing here. And basically reversing some of the trends we've seen. Here's what he told me. Advertising has definitely accelerated from before and the App Store has definitely accelerated from before. So a reverse of that trend we've seen over the last couple of quarters, slow down in advertising, slow down in App Store spending. And then I also picked his brain a little bit about AI and the latest thinking of how that technology will play in at Apple.

2:28Here's what he told me, quote, we've been doing research on AI and machine learning, including generative AI for years. Adding later that, quote, and we're going to continue investing and innovating and rolling these things into products that enrich people's lives. end quote. Also telling me, you know, products like the Vision Pro just wouldn't be able to exist without the AI and machine learning technology that Apple has developed. And then I also had to ask him about the Fitch downgrade. Of course, we've heard from a couple other executives like Warren Buffett and Jamie Dimon kind of brushing off concerns there.

3:00And Tim Cook sounding the same, telling me it's not something he's deeply concerned about. Melissa, back to you. All right, Steve, thanks. Steve Kovach, let's trade this. You know, it is important to keep mind that we're you know apple in the after our session is about ten dollars away from a record high so we are very still close right to that high but we have to call we always caution wait for the call they could say a lot of other things i mean i think that it it was a very good quarter a lot to like tiny miss and iphones um service is great as steve said and obviously the margin there is I don't know, triple or whatever.

3:38It very much adds to the gross margin average. And greater China was actually, I thought, a little bit stronger, I think. It was. It was up 6.7 percent. And consensus, I mean, it was nearly two billion greater than what consensus was. Right. So I think put all that together, though, and at this price, you had to have a very good quarter. So is it good enough? I don't know. I mean, it's OK. The market's telling you, well, we don't know what yet to make of it. It wasn't a giant beat, maybe a little revenue, but, you know, EPS beat. But let's see what they have to say and let's see how they, you know, I don't know that they'll give great forward guidance that we can really count on.

4:20But I want to hear the tone. I want to hear that, you know, how they feel about business. I guess my point about the record high was that, you know, you would think maybe that Apple would see a bigger sell off given it. Oh, given that it was already. It wasn't a perfect order. And we are so close still to record highs. I think that's a fair point. I think the fact that now services are 25 percent of overall revenue is great. That's the highest number I think we've ever seen. It would be greater if it was doing it on revenues that were increasing sequentially, but revenues, which is fine. I'm not going to sort of want to equivocate here, but I'll say this.

4:52In terms of valuation, it's an expensive stock given the metrics that we're seeing. Again, single digit EPS growth, high single digit, single digit earnings growth, high single digit against a stock that's probably trading close to 30 times next year's numbers. So the question is, is it in the stock now? Now, I thought that was the case a while ago. And here we are. I think a logical place for the stock to trade down to, to sort of amplify what you're saying, is sort of that prior all time high of like 176 or 177 or so, which isn't crazy. And in the context of what we've seen historically with Apple, it's not out of the realm of possibility.

5:29Yeah. Courtney? Yeah, I think realistically, and I think we've all echoed this, but Apple is pretty expensive. So I think at these valuations, realistically, one of two things has to happen. Multiples have to come out or earnings have to come up. And I think the reason the stock probably isn't really moving a lot right now is they get a lot of their business from slowing markets, right? PC demand and phone demand has actually been coming down. We saw that with Qualcomm. They were actually having some negative news there, which I think people were expecting that with Apple. But I think seeing how much their services is making up for that, I think that's actually really what people are liking to see here.

5:59And we're going to have to see how much. That in China is the big story with them. So the fact that they had beats there, even though they're missing in other places, I think is why people are not as negative on this right now. It's interesting. I mean, we've had a lot of time to digest that Taiwan Semi, you know, guide. And, you know, Apple's a 23 percent customer. And to your point, what we saw out of Qualcomm. And, you know, you'd say that, you know, they missed on iPhone. And, you know, it wasn't a great quarter. but they also know that in September they're going to introduce the iPhone 15.

6:25So I don't think it's the sort of thing that investors are not going to hit the sell button on and that sort of miss. I agree on China. It's really good. I mean, if you're trying to figure out what the bugaboos could be, that would clearly be one of them. You know, I'm sure the dollar weakness has probably been helpful to them. We know how much sales they get outside the U.S. But I'm kind of a guy on this one. I just don't know why you would buy this stock at 32 times here, given the sort of growth rates that we have. Obviously, that increasing, and Gene's going to talk about this, and I've heard him talk a lot about it, and he's been totally right on this.

6:58It's like, if they can continue to grow this iOS installed base, and the services continue to become a greater part of the revenue, and that's better for the mix shift with margins, that's the story from here on out. And anything else that they introduced, a new product that actually takes off the way AirPods did or something like that, is just gravy. And the advertising stuff, I hope Gene talks a little bit about that because that's been a really good lever for Amazon. We know that their retail business is not particularly great, but look at all these companies that we're not relying on advertising.

7:26Netflix is another one. It's a good business, especially if you have the eyeballs and you have the credit cards of the people there and everything like that. So to me, it's fine. I have a small position in the Apple. Carter showed us a chart that finally a perfect 45 degree angle. Okay. A perfect 45. It just broke it the other day. I don't think this is a good enough quarter to keep this stock going back towards those prior highs. But in terms of commentary, Karen, what do you want to hear from them in terms of the tone or specific areas? I mean, I would like to hear a little bit more about China.

7:55What do you see more recently after the quarter close, especially when there are some concerns about incentives and promotional activity in China to get those sales up? I want to hear that. And also, I mean, how much are they continue? How are they? Are they how much of the business is being manufactured? Rather, how much of the products are being manufactured? Also, is that the plan that's got to be expensive in the short term to do. And then the AI is both how much they're going to spend on it and how they think they could generate revenue. It's not quite as clear to me, but they will find a way, I think.

8:25Earlier this week, Terry Gao, the founder of Foxconn, said that if war broke out between China and Taiwan, it would be catastrophic for U.S. stocks. Foxconn's a huge supplier of Apple. What are your thoughts on that? That would be my question. See the way I did? That was pretty good. It actually sounded like I'm halfway intelligent there. But that would be my question, and it's legit. If you go back and listen to what he said, he is clearly concerned. Kyle Bass talks about it all the time. There's been this escalation. The United States just gave$345 million worth of military aid to Taiwan. I mean, this isn't getting better.

8:57It's getting worse. We're not talking about it, and I don't hope this to happen, but clearly something is going on. Well, the hope is they transition off their manufacturing to India in the meantime. It takes time. before this sort of war, if it happens, happens. But that is a risk. It's clearly been a risk. Yeah, and actually, it's funny you bring up India because actually that's also one of their big markets right now where they're starting to get more into. And I think that's something that could be a larger long-term catalyst for them is if they can get more into the iPhone space in India, which is a much younger population and a very growing population right now.

9:29That actually could be a catalyst for them too. I think it's still early, but it'll be interesting to see if there's anything there. All right, Apple stock down 1.4 % ahead of the call. Let's, meantime, get to the other big tech earnings report. Amazon popping in the after hours on a top and a bottom line beat. The tech company also forecasting growth will accelerate further in the current quarter. CNBC's Deidre Bosa has got the details. Debo. Mel, the takeaway here, better efficiency in the core e-commerce business, leading to better profitability overall, and importantly, stabilization in AWS.

9:57That ascending share soaring. I just got off the phone with CFO Brian Olsowski, who said that they are seeing stabilization at the current 12 % growth rate in AWS. And that is, of course, down from more than 30 % a few quarters ago and at lower margins, but perhaps some relief or optimism here that it will not fall into the single digits. That's what investors were worried about. Also, this idea that generative AI will require more compute power and thus give Amazon's cloud business a boost in the future. Also underpinning the gains in the after hours is Guidance Prime Day. Remember, it falls in the current quarter Q3, and the company is expecting between$138 and$140 billion in sales.

10:34That's better than expected. Also better than expected, operating income between$5.5 and$8.5 billion. That's a significant pickup considering they were delivering net losses just last year. The company will point to regionalization as the main driver of that. They spent huge, remember, to double their logistics network over the pandemic. regionalization is the process of making it more efficient, more profitable, leading to faster delivery times, which they've been touting. Olsowski also telling me that he's pleased with the progress, but he sees more opportunity to drive more cost efficiency.

11:05Back over to you, Mel. Debo, thanks. Deidre Bosa, you said that Carter had made a bold call yesterday. Yeah. Yeah. Get rid of Apple and buy this one. He's good. That guy, Carter Braxton. The best. He is on your mouth, right? There you go. Both of them. You know, it's funny, And I love it when he comes on and we're talking about, like, the quarter and this and that, whatever, and then he refers to them as the funny mentals. He doesn't care about that. He cares about the pictures, right? And so, like, this was one he just said. It was consolidating here a bit. We know the sentiment wasn't particularly great relative to some of the other cloud players when we saw what Microsoft has been able to do and what Google Cloud has been able to do.

11:39And Debo just said it. I mean, that's part of the story, seeing stabilization, telling a story about how their customers are going to be using these tools and more compute, that sort of thing. I totally get it. I'm not chasing it here. I don't think you have to change any of these stocks here. I don't think like you had all the time in the world if you wanted to buy Amazon, you know, over the last six months or so. And I don't think there's that much of this kind of AI pixie dust in there. If they can stabilize this AWS, regain some share against some of these other players. You know, these guys have been investing billions of dollars in machine learning for like over a decade.

12:10I mean, they're going to be just fine as it relates to AI over the next 10 years. What we've learned about Amazon is they can turn the dials when they want to. And I'll give you through the operating. 5.7 % operating margins were crazy compared to distributors at 3.6. And year over year, it's up from, I think, 2.7%. Obviously, the market likes that. But if our crack staff in EC, that's Englewood Cliffs, could do a year-long chart, go back to August of last year, you will notice that this 140 level-ish is where actually we stopped at this time last year. So if you were long the stock, if you listen to Carter Braxton Worth, this is a logical place to take money off the table.

12:44Yeah, they could benefit from AI, but they also have to spend. Yes, they do. Right. And so I think, though, the street will have a lot of patience for the spend. If they can start to show they don't even show how big if they can start to show. And then maybe this is starting to show a little bit. Right. Remember, there was that interview with Andrew Jassy where they were saying you're late. You seem late to the party. And he's like, you know, this is we're in inning two or whatever it was very early. So I'm going to give them the benefit of the doubt. It's not cheap. I'm long. I'm staying long.

13:16Even I don't love going against Carter, but it's just also funny. I mean, the$53 billion part of the business is, you know, a nice little part of the story. It was better, but not so relevant, which is kind of amazing how extraordinary, huge this business. You're with Carter. Oh, is Carter a long Amazon? He's long of. Yeah, Apple, I'm going to be called away, and I'll probably, that'll be it. Court, where'd you make it the quarter? Yeah, I mean, I think this is very impressive, especially after Microsoft really warned of a slowdown here in their computing business. This is very impressive. I do agree with Dan, though.

13:49I wouldn't be chasing these things. I think this is fantastic. I think it's trading up for very good reasons because it is beating expectations. But it is very expensive. The good news is it is a very high portion of the S &P 500. So when Apple and Amazon do well, you're going to see the overall markets do well. But yeah, I wouldn't be chasing it here, not at these levels. For more on Amazon and Apple's big earnings, let's bring in Fast Money friend Gene Munster. He's a managing partner of Deepwater Asset Management. Gene, great to see you. I don't know where you want to start. We've got so much to deal with tonight.

14:16Let's go with Amazon here. Is it worth this 8 % pop? It is. And ultimately, Debo framed it in perfectly is that that AWS stability commentary was powerful. That led investors to look for accelerating AWS growth in the back half of the year. And then separately, what we saw in the profitability, that shift to earnings, I think that's an important, powerful segment that has not been part of Amazon's story. If we look back over the last seven years, the average EBITDA margin on their retail business is 2.6%. If they can add some efficiency to that, this can be a 5 % business. This is a segment that investors have longly forgotten about, the retail opportunity.

14:57So I think that's a big piece, a big opportunity relative to where Amazon is today. I would say this, Mel, is that Amazon had a better quarter tonight than Apple. It's pretty clear to me. Apple is in line. But if you look at Apple versus Amazon and which of those two companies to own for the next five years, I would take Apple over Amazon in a heartbeat. Would you rather if you were by Gene Munster? He's allowed to do that. I guess he is. Just did. But why? I mean, is Amazon going to be just lumpier? I mean, we've seen this. You know, they turn the spigot. They turn it off again and again and again.

15:29And so it's a little bit more of a roller coaster. And Apple's sort of been steady Eddie. You said the perfect words there. Lumpy is not good for investor confidence. Steady is. And Apple hit it right at the top. Dan mentioned I was going to say something about this and you read my mind. is that the key takeaway from Apple's quarter isn't the results. It's that active and stalled base grew. They said that in the headline. They know how important this is. That means that the business, the flywheel is working. That means that the business has continued to be steady. And that is opportunity for a multiple expansion.

16:06I know that sounds hard to believe. But the second piece, and your astute panel has been orbiting this topic, but I want to put some finer point on it, Melissa, is the India opportunity. China in 2010 was a$3 billion business. In 2016, it was a$59 billion business. It grew basically$55 billion over six years, now 19 % of total sales. India today is about a$12 billion business. It's 3 % of revenue. If it gets to the same size as China over the next six, seven years, that alone, India alone can add 3 % annual revenue growth to Apple Store for the next seven years. This company doesn't need to grow at 15 % for investors to be happy.

16:50If it can nail between 5 % and 7%, I think the stock continues to move higher, and they can do a lot of that on the backbone of India. Gene, it's Karen. Thanks for being on tonight. So you said Apple multiple actually could be higher, even though that maybe sounds kind of surprising. Where should the multiple be? It's pretty high. It's high. I'll let kind of the broader investors put that together. I would just say this. There's no other company that has the stability that Apple has and the optionality around revenue growth. I put this in the same category of Procter Gamble, Coca-Cola, Clorox, those kind of steady consumer staples.

17:27But none of those have the upside opportunity. We haven't even talked about Vision Pro. Don't get me started. I've used the device. I think this is something that's going to be additive. It's going to be a few years from now, not to mention if they do something in automotive. And those other consumer staple companies don't even they're not even close to that conversation. So I'm looking at this over the next three to five years and thinking about where the conversation is going to go. And I think when you put that together, it warrants a higher multiple. So, Gene, let's talk about Amazon for a second here.

17:58When you think about AWS and, you know, accounting for 70 percent of their, you know, of the base of their operating profit. OK, and we know that we just saw on the retail side, Guy just mentioned the operating margin better on the retail. What excites you more about this story is maybe the operating margins getting better on the retail front or a stabilization in the AWS. And they see a really nice growth trajectory as there's a lot of excitement in and around demand for their compute as it relates to AI. Or are they both really good? I'm more excited about retail. I understand that that is a standard deviation, a light year away from what most investors are talking about today.

18:36Retail is 75 percent of their business. I talked about the margin profile over the past five years, 2.5 percent. It was 4 percent last quarter. If they can sustain 5 percent plus with some of these efficiencies that they're starting to drive in their distribution, you can kind of circle back to the retail business being an exciting part of the story. And I buried the headline is that retail units grew 9 percent year over year. It was 8 percent year over year in the previous quarter. And that's with all the proper comps with Prime Day and that those Prime Day all hits in the September quarter. So ultimately, I think the retail business is is the crown jewel of Amazon and hasn't had the flash that AWS has.

19:15But ultimately, that's I think what's going to drive shares higher in the long term. I still positive on Amazon. I would take Apple ahead of Amazon. Gene, thanks. Catch up with you a little bit later on in the show after you jump on those conference calls. Gene Munster, Deepwater Asset Management. Would you agree with Gene, Apple over Amazon? Yeah, that time frame? Yeah. Absolutely. How about a shorter time frame? Our show's a shorter time frame. And, you know, what we mentioned is that prior high in Apple, I think, was 178-ish from December of 2021. I don't think it's unreasonable to think the stock can go back there.

19:47We have seen sell-offs larger than that in terms of magnitude many times before in Apple. Again, the quarter's fine. We're not – it's a great – all those things are great. It's about trading the stock into here and now. And I think it goes to 176 before it goes back to whatever that prior high was, 198 or so. All right. Coming up, there's still a lot more earnings action coming your way. Block, Coinbase, Airbnb, DraftKings all on the move. We've got the details in the quarters ahead. And speaking of earnings, shares of Expedia dropping after its report this morning as a travel trade in for more turbulence.

20:18We'll break that down when Fast Money returns.

20:27Welcome back to Fast 20, a pair of earnings alerts in the fintech space. A beat for Block briefly boosted the stock, but shares are falling into the red. Gross payment volume slowed during the quarter. Shares of Coinbase also volatile in the after-hours session. The company beat on the top and the bottom lines. Kate Rooney joins us now to break down the results. Kate. Hey, Melissa. Let's start with Block. That company upping its full-year forecast thanks to recent cost-cutting. The stock turning a bit lower, which appears to be about slower growth in its July update. Payment volume was also a slight miss.

20:54Jack Dorsey's payment company expects to see positive adjusted operating income for the full year, had previously forecasted a loss there, and it's upping its full year adjusted EBITDA guidance. As far as that July update, guys, it's looking for 21 percent gross profit growth. A report of that, which was down from what it saw in the second quarter. Gross profit for Cash App, meanwhile, was up 37 percent in the quarter. It now has 54 million monthly transacting users, or MTUs. That was up 15 percent year over year. CFO Amrita Ahuja pointing to some of the growth and saying that that was thanks to some of the strength on their banking side and those offerings, as well as cost cutting and efficiency there.

21:36On to Coinbase, a narrower than expected loss for the second quarter. Revenue also coming in above expectations. Stock coming off that initial pop a little bit. Trading for the quarter was muted as expected. Spot trading down 48 percent in the quarter. Monthly transacting users fell 19 percent. Consumer trading or retail trading volume that was down 70 percent, while institutional volume was down about 54 percent. interest income for the stable coin that they partner on. USDC was also down while the take rate is up. So helping profitability a little bit there. CFO Alicia Haas telling me we've navigated down markets before.