All Eyes on Apple’s Earnings Report, and Is There Any Hope for the Regionals? 5/4/23

0:01Right now and fast, Apple on the move. Shares up about a percent after posting better than expected revenue and earnings. The company also upping its dividend and announcing a$90 billion share buyback. Plus, banking blues. The regional is getting hammered again as TD's deal with First Horizon falls apart. PacWest and Western Alliance also in the defense of what can be done to stabilize this battered sector. And later, the AI boom. Microsoft now set to be working with chipmaker AMD on a new specialized processor to help it compete with cloud rivals Amazon and Alphabet. AMD shares are surging. Plus, a major buzzkill for Paramount, erasing all their games for the year as streaming costs rise and dividends get slashed.

0:37The media ripple effect straight ahead. I'm Melissa Lee. This is Fast Money. We're live at the Nasdaq MarketSite. On the desk tonight, Jeff Mills, Dan Nathan, Tim Seymour, and Julie Beal. As we mentioned, regional banks getting wrecked again. Names like PacWest, Western Alliance, First Horizon, all seeing another day of steep double-digit declines. We'll get to that in just a minute, but we start off with an earnings alert on shares of Apple. They're moving around in the after-hours session right now up by 1.5 % as iPhone sales help drive a better-than-expected quarter. CNBC's Steve Kovacs got the number.

1:06Steve. Yeah, Mel, so better than feared. I think that's the headline here. Let's do a deep dive, though, into the segments of Apple and show where the pockets of strength and weakness are. iPhone, very strong, much stronger than feared. Revenue is coming in at$51.33 billion, showing growth up a percent and a half from the year-ago quarter. That was one that everyone is watching. But as feared, max sales way down from the year-ago quarter. This is something Apple had already warned everyone about, kind of baked in. $7.17 billion in sales there. That's down 31%. iPad revenues were down 13 % to$6.67 billion.

1:44Other products, that includes stuff like wearables, Apple Watch, AirPods, and things of that nature. That was down slightly year-on-year to$8.76 billion. And then services revenue showing pretty healthy growth there, up 5.5 % to$20.91 billion. And as you said, there's that announcement of the$90 billion buyback and an increase of the dividend 4 % to 24 cents. And I did talk to Tim Cook about these results. And I asked him about cost cuts and layoffs again, because as we see so many companies talk about efficiency and cost cuts, here's what he told me about mass layoffs at Apple. Quote, I view that as a last resort.

2:20And so mass layoffs is not something that we're talking about at this point. So still cutting costs, but no mass layoffs is the headline there. And then on iPhone sales, showing that strength, I asked him what was behind that. Here's what he told me, quote, well, it accelerated from the December quarter and it accelerated partly because of China reopening. Part of it is also because of the recapture of some of the loss in Q1 from the factory issue. He's speaking, of course, now about the shutdowns in China that caused him to miss some sales in the December quarter. Now, the call is just getting started.

2:53We're expecting some hint of guidance. They don't give formal guidance anymore during the pandemic. But any kind of hint at what sales are going to look like in the current quarter, that's what we're waiting for. I'll be back with more, Mel. Yep. A lot happens on that conference call. Steve, thanks. Steve Kovach. We've seen Apple shares move around a lot in the after-hour session in anticipation of that conference call. Dan, what do you make of this quarter? Better than feared, yes, but still the second straight quarter of declines in revenues. Yeah, so I think it's interesting, and Steve mentioned this, okay, so if that iPhone number, which was much better than expected, okay, but why is the services?

3:24Why was it down? I mean, so you would think that the services should be commensurate with that growth in the iPhone number. So if you tell me that they did better in China because of the zero covid ending and some of the factory issues they had there. So they had this pull forward that actually doesn't bode well for the current quarter. I don't think as far as services, five percent year over year growth, not particularly great to me either. So I would expect China to be a focus on the call. And I don't expect them to have a whole heck of a lot of visibility. We've been hearing this again and again about this China reopening is that they bought all the Macs.

3:56They bought all the iPhones. They streamed all this stuff. They did everything. Now they want to go out and they want to travel. They want to go out to restaurants. They want to go to movies. They want to do all this stuff that we have been doing over the last year or so. So to me, I don't think this is particularly great. And I said it last night. I think it's kind of a one up, two or three down sort of scenario. If there's any hints of any weakness in the current quarter, I think this stock probably does come back in in the not so distant future. Yeah, and think about this for a second. Where is the growth going to come from?

4:22I think some of the stuff that might get investors excited, India, AI, these are longer tail sort of situations that investors are focused on. And right now you have the biggest PE premium to the S &P 500 for Apple that you've seen since the financial crisis. So they're going to have to show investors something to eventually justify that premium. Now, I think the bull case for Apple might just be the flight to safety trade that we've seen. You know, relatively speaking, from a revenue perspective and an earnings perspective, they may be able to hold up as we continue to move into this slowdown.

4:51But to Dan's point, iPhone, if that was China, if that was some makeup from some supply chain issues, that may start to wane as we move through the next couple of quarters. I think we're starting to see cracks in the labor market. So my guess is growth is continuing to slow as we move through the rest of the year. And this multiple becomes problematic. Yeah, those are one offs in terms of growth in the quarter. Exactly. that won't be repeated in the current quarter. What did you make of this, Julian? Do you agree that, I mean, shouldn't Apple have a premium attachment? It's the bank of Cupertino.

5:20I mean, in a market where everything seems to be falling apart, there are a lot of doubts about the recession, there's banking crisis, et cetera, et cetera. Don't you want to be in safety and won't you pay up for it? Yeah, I mean, banks is a four-letter word, so I probably wouldn't attach that to them right now. But I agree with you. I think that people are, there is, we've seen a notable flight to quality and safety. And if you look at this company's margins through the last global financial crisis, they actually expanded and they're at a pretty high level. So to me, the mix is what's really important and understanding how they're able to expand their services portfolio.

5:54The iPhone is always going to be the freeway on ramp to services. And if you think of a brand that has more trust, it's it's Apple, right? It's Apple for financials. It's Apple for health care. I mean, I would really like it if there were a service where it would tell me I hadn't taken my ADHD medicine and it would just order an AirPod for me because I'm going to lose them that day for sure. That's what I would like from Apple. That would be useful AI. Tim, what did you make of the quarter here? And I mean, especially given the backdrop of Qualcomm last night, people were on edge. We saw Apple trade lower in the after hours in the back of Qualcomm.

6:25We saw it under pressure all day today. And the question is, where are we going to hear that Qualcomm warning that was implied against Apple? And maybe it's in the quarter to come. You know, the services growth of five and a half percent year over year is not the growth we saw when the stock re-rated on a services multiple. But on an installed base of 975 million, which Tim Cook just announced, which is up 150 million year over year. I mean, you know, this is this is why the stock gets what it gets. When you've got a services business that's now annualized at around$85 billion, it explains where we are.

7:00I do think the bank of Cupertino is underappreciated by investors, at least in terms of the impact it has on the stock. The shrinking share count, the EPS that continues to get goosed higher. So, look, I've said, like, you know, certainly some of the folks that believe Apple's best days relative to the market are behind it. I believe that. I look at a ratio of the Apple to the S &P, and I see it running into that resistance around 0.41. If you do that ratio of Apple to the spies, that's where you get. And I think that's the problem. I do agree. Jeff mentioned the defensiveness. There's no question.

7:34We had this chat last night. I think it will be. There's everything in these numbers that allow Apple to continue to be defensive. I just don't think you have to. I don't think the stock gets away from you here. And that's why I think you can own it lower. You know, it's interesting. So a month from now, they're going to have their worldwide developers for them. So when you talk about the things that can really get leverage off of that, you know, two billion plus installed base, it's things like you just mentioned. It's health care. It's finance. It's also this augmented reality VR headset that is hotly anticipated.

8:02It's going to be at a high price point. But I think a lot of investors like to see what is going to be the innovation over the next couple of years in a new buzzy sort of thing. And they have the potential to do that. There's not going to be anything in auto right now. But like some of those sorts of things, like, again, I think we're all saying this is like the stock is, you know, what, a few percent from its all time highs here. It's trading at a multiple to Jeff's point versus the S &P that doesn't make a lot of sense in this rate environment. So if this stock were to come in, it's really 35 percent off its January lows.

8:30Then you can get excited about a product roadmap. All right. We're going to get a lot more on Apple a little bit later on in the hour. But let's now turn to the other big story of the day, and that's the regional bank wreck. Take a look at some of the steep losses and names like PacWest, First Horizon, Western Alliance and others. The KRE Regional Bank ETF is down another 5 % today, touching its lowest levels since September 2020. Leslie Picker joins us now with the very latest headlines driving some of these stocks lower. Leslie. Hey Mel, a lot to unpack in the regional banking space today. PacWest lost half of its already depressed market cap today after reiterating from our reporting last night that it has hired advisors to explore strategic options, including a potential sale.

9:10Western Alliance also sharply lower after saying the opposite, that it's not for sale. It hasn't hired advisors and an FT report suggesting otherwise is false. First Horizon also very much in the red after the bank announced this morning that their$13 billion merger agreement with TD Bank was terminated over a lack of regulatory timeline for approval. First Horizon CEO Brian Jordan telling CNBC that Washington needs to act to quelch the crisis of confidence that's embroiling many of these regional bank names. There's a tremendous amount of uncertainty about the banking system in total, and people are trying to figure out what does this mean at an institutional level.

9:55I think it's a real opportunity to articulate a long-term deposit insurance strategy. Congress will have to act on that and bring certainty back. So just the latest bit of evidence that the chorus is growing ever louder about the need for Washington to potentially get more involved here, Mel. In the form of unlimited FDIC insurance, in the form of a ban on short selling of these stocks, I mean, all of the above. All of the above, the potential for a capital infusion, kind of akin to TARP like we saw in 2008, 2009. I think the key question is, are we at that point where things are bad enough that Washington really needs to take these drastic measures that many see kind of reserved for some severe financial crises?

10:42Are we at that point now? Are they kind of waiting to see if that's necessary? You know, obviously bailout is not a, you know, a popular word in Washington these days. So there are political dynamics at play as well. Yeah. Well, Jay Powell says there's no problem. So I'm sure everything's fine. Leslie, thank you. Leslie Picker, let's get a trade on the regionals here. Perception right now is everything, Jeff. Perception is reality, and there's a negative feedback loop going on right now, whether it's short selling or the market just selling all these names at once. It doesn't really matter, but you start to see these names crash, and depositors get nervous, and they pull money out, and then it starts to become a real issue.

11:21I think the good news is that this is not 2008. It's not a credit issue. You know, the securities on these banks' balance sheets, they're going to mature at par. They're not difficult to value. I think we've said this time and time again, but in my view, of course, there's idiosyncratic risk. We've seen it and we probably haven't seen the last of it. But it really is lending standards and what that means for the acceleration in the economy. When we were already slowing down, now small businesses, consumers, they're going to have a more difficult time getting credit. And for me, that only exacerbates the slowdown that I've been talking about for months and months.

11:53Our next guest warns regional bank chaos is destroying credit creation and fears it will have painful consequences for the economy. Stuart Sopp is the CEO of fintech company Current. Stuart, good to see you again. Mark Zandi of Moody's has said that the coming credit tightening is like three hikes. Howard Lutnick this morning on Squawk Watch says it's 100 basis points. How do you see the impact playing out? Yeah, I think right now from a consumer standpoint, like the Fed interest rate policy has a lag of about 12 months. And so consumer credit is now starting to hit. I think when you look at the specific names that we're seeing now, the regional banks that are starting to sell off today, like PacWest, we're seeing something like 50 percent off, 50 to 60 percent off.

12:38This is a different problem than we saw from Silicon Valley Bank. This is short sellers coming in. They're driving deposits away. And that's a very different dynamic. It's a different, also a different bank dynamic because these are regional banks that are focused on local lending and local businesses, which is very different from Silicon Valley, which was mainly centered around tech. And I would say people who have money over the two hundred fifty thousand dollar FDIC deposit level. What have you seen? We've heard from many banks that the flight of deposits out has stabilized. Did you benefit from some of that flight out?

13:12And what are you seeing right now? Yes, I think fintech in general has a payments model, which is slightly different to the long duration model that we're seeing right now. It's like 2008. If I was a Wall Street trader for 16 years and when I put on that cap, I get PTSD a little bit from what's happening right now. But that was a credit problem. And so we're not seeing the same kind of credit problems. Banks are in a much better state than they were ever before. But what we're seeing right now is a duration bubble. It's the everything bubble. And this bubble is bursting right now. And I think there is contagion, not within the banking sector, but across sectors.

13:49Auto loans, credit cards, real estate. This is something that's happening right now. And I think that's why the regulators are really struggling to get a hold of this. Stuart, when you started Current, I mean, you really wanted to take on some of the incumbents, right? You wanted to serve a consumer that you didn't think was being served well by these massive money center banks. When you look at what's going on right now, it just seems like they are the beneficiaries of everything that's going on with the regionals. What does that mean? We spent a lot of time talking about fintech or we have over the last few years.

14:18What does it mean to someone like you who has been building and you've been kind of trying to go after these sorts of guys? But it seems like they're going to come out of this much stronger. Yeah, I think it's down to the demographic that you serve. And so in fintech and neobanks, we're focused on blue collar workers, people who are living paycheck to paycheck. The normal American, right? I wouldn't say average, normal American person. When you're talking about Chase and these big money center banks, they're trying to bank everyone, which means that it doesn't really fit for everyone. Regional banks are obviously more specialized, more niche in terms of how they lend.

14:50I think there's a big gap that's being built through their business model that is coming about that the big money center banks won't be able to fill. And I think it's our time, it's neobank's time through a payment model, primarily a different business model to really fulfill that need. And you're starting to see that even with the earnings today with Block and Coinbase and such. And if you compare that to the Q1 of what's happening with regionals, you're starting to see a differentiation in financial services. Put your trader cap on because you mentioned 16 years. You also got the financial services sort of credentials here.

15:20So meld them together. How do you see this ending? I mean, do you think that FRC going to receivership and JP Morgan picking up the assets with the help from the FDIC, is that the playbook here? Are banks just waiting on the bigger banks waiting on the sidelines for these under duress regional banks to find the same fate for them to pick up the bones out of receivership? Yeah, you saw TD pull back today on First Horizon. I think that was a smart move by them. They really have the pick of the bunch. If you're in the market to pick up a regional bank, you really do. You should wait. I think there is a structural problem, the moral hazard that we've all talked about through the FDIC and maybe the administration really waiting for receivership.

16:01There is no auctions happening. Even the J.P. Morgan deal with FRC, there was no auction. And so it was really a forced marriage and there was a good deal for J.P. Morgan. So if you're in the market for a regional, the regulators are telling you and the administration is telling you, wait, we'll sort this out. So there's no impetus. We'll share the losses. We'll lend you money. We'll raise deposit caps for you. That's right. All right. Stuart, great to see you. Thank you. Thank you. Stuart, stop. Tim, what do you think? I think that regional banks are just a very different investment because they're not going to be giving back capital.

16:33They're in capital accretion mode. They're not there. There'll be no buybacks. And I think they become a different investment. And I think that's part of it. The other part is the unknown regulatory environment. And I think I don't think anyone's saying this. Don't worry about credit. But let's be careful not to say that this isn't a credit moment. And SVB was a credit moment. Let's be clear. I mean, and to say that securities, even if they're government and agency securities, if you're levered or if you're extended on some level, that is a credit dynamic. So I think part of the problem here is we still have to wait and see where some of the follow through from 500 basis points of the Fed and some of the consumer regional credit issues and and frankly, some of the institutional issues, I think, are yet to play out.

17:16That's why people are scared. I think the FDIC doesn't have to be a permanent solution. But yes, I think a two year blanket, some type of insurance is what the banking system needs. And everybody said it. It's terrible for the economy. And at this point, it's too late. You're going to already see that contraction. Coming up, we've got much more after hours action after the break. Shares of Coinbase and Lyft moving in very different directions after the bell. The details from the quarter's next. Plus, Chip Finance, shares of AMD surging on reports Microsoft is footing the bill for a move into the AI space.

17:48The details on that one when Fast Money returns.

17:59Welcome back to Fast Money. We've got a pair of earnings alerts starting with Lyft shares plummeting despite a top line beat the company's slash guidance for the current quarter, roughly having its bottom line outlook. Deirdre Bosa's got the details. Debo. Melissa, you know, new CEO David Risher, he's only about three weeks into the job, but on his first analyst earnings call, he addressed the elephant in the room and he said, I'm very aware of our current levels of growth and profitability. They are not acceptable. I also know that investors are waiting for long-term updated long-term targets.

18:29But he says that he's still new and he wants to be confident that he can deliver when he gives those longer-term targets. And certainly investors are struggling to figure out if he can deliver also. Stock is below$10 in the after hours. I also spoke to him, the new CEO, David Risher, today, and it is clear that he's going to be prioritizing growth over profitability. He told me that the cost savings from the big round of layoffs he did as his first move as CEO are going right back into the business to riders and drivers. So essentially, they're going to be spending a lot more to win back some of that market share from Uber that it's lost over the last few years.

19:02The analyst call, though, it was still focused on those unit economics and how Lyft can differentiate itself from Uber. On that front, Risher, he was very light on specifics. He talked a lot about the brand and serving drivers. But Mel, I've covered this space for a long time. I know that riders, They just want the best price and drivers. They want to get paid. And that comes down to money, capital. And that is going to hit that profitability, at least for the foreseeable future. Back to you. Yeah. Deidre, thanks. Deidre Bosa. Julie, that's not the kind of stock people in general want to be in this kind of rising rate environment to sacrifice margins in order to gain share because you're in growth mode.

19:40Yeah, it's like, am I in 2021 all over again? I think the Lyft has a lot of problems, right? The fact that they are having to plow money back into both the drivers and rider incentives tells you that the strength of their network is very, very weak. And this business model is entirely dependent on the strength of their network. And so until they're able to really restore that, there's no interest on either side. And I think, you know, trying to just chase after that business with zero profitability, it's not going to help the stock either. That's for sure. Uber share is not moving in the after hour session.

20:13I heard those words from Debo and I thought price war immediately, Tim, and I got worried about both of them. No, this isn't macro issues that were confronting ride share during COVID and even coming out of COVID and things related to drivers and even regs. This is a Lyft specific story. And to the extent that Q1, they saw a ride share grow for the first time in a couple of years in that quarter. That's good news. Are they still losing market share? That's the real question. And right now, it appears as if they are. I think the story ultimately is going to be about profitability. And it's with some irony that they were really the first ones ahead of Uber that we're talking about where they were going to be both on unadjusted.

20:55And now that U.S. Gap comes into play, it seems like it's missing. I think this guide is very conservative. He made it clear he was going to be conservative because he wants to beat. So I think I think this is an overreaction. Again, this was the L in the LAGS acronym that I chose. So I'm going to stand by this one. Yeah, it was in yours too, right? My TLSQ. Yeah. And I'll tell you why. It wasn't, listen, I think a solid number two in any innovative space makes a lot of sense. But I also see this thing with a$3 billion enterprise value. I see it with the new management. I see it with what Tim just said.

21:30I think they just lowered the bar so they can meet the next couple of quarters. I think you could probably, but look at that picture right there. I think you could - I think you could probably buy the stock here. And, you know, the stock is down, what, 10 % of the year or something like that. It's not a disaster yet. Let's give this guy a little bit of honeymoon period. There's a lot of year left, Jeff Mills. There is. He's willing to put Dan's acronym and Tim's acronym down when you are in the leading spot right now. I have to enjoy it while it lasts, right? Then what's the point if I'm not? But to your point, if you look at the charts of Uber and Lyft, Lyft obviously being at the low end, there might be some upside here.

22:04But they said the exact opposite thing that you want to say in this market. And the stock is going to have a knee-jerk reaction the other way. Other companies have talked about efficiency and cost-cutting, and you're getting the complete opposite reaction. For me, it's a pricing pressure issue. I think driver supply is pressuring surge pricing. They've had to cut pricing just to compete in the market in general. So how are they going to justify the growth trajectory and the current multiple? That's going to weigh on the stock. All right, let's get to Coinbase now. shares are popping in the after our session after posting a revenue beat in smaller than expected bottom line loss.