Amazon Reports Earnings.. And The Fed Decision On Deck 4/30/24

0:02Live from the Nasdaq market site in the heart of New York City's Times Square. This is Fast straight ahead. Plus, rate cuts on the horizon. Chances of the Fed making a move lower this year have been coming down. One top strategist says the central bank may need to act as soon as July. The layout is case minutes from now. And later, lighting up the DEA making a big move to reclassify marijuana, and that is sending pot stocks well into the green today. But the move means for the road to legalization and for trading in these names. I'm Melissa Lee coming to you live from Studio B at the NASDAQ on the desk tonight.

0:46Tim Seymour, Karen Feynman, and Steve Grasso. Stocks closing out a rough April on a down note, with the Nasdaq sinking more than 2 % and the Dow shedding 570 points, accelerating the last 10 minutes of trading. All three major indices closing near their lows of the session and well in the red for the month, each ending five-month winning streaks. The Dow posting its biggest monthly loss in September of 2022. We'll dive more into what is behind these moves later this hour, but we've got to start off with Amazon. Shares are higher, though off their best after-hours highs. The company reporting a beat on the top and the bottom lines and higher ad revenues and sales at AWS.

1:21Guidance for Q2, though, came in below expectations. Kate Rooney joins us now with all the details from the quarter. Kate. Hey, Melissa. So cloud growth was the key story here. AWS sales, that's what folks were watching. 17 % growth. That was better than the 14.7 % Wall Street was expecting. AI appears to be driving a little bit of that. The company says AI and Gen AI is now a multibillion-dollar revenue run rate business. This overall AWS revenue is now at$100 billion in ARR. CFO Brian Olssofsky just on a call with media talking about what he called the cost optimizations diminishing. He said here there's going to be a level of ongoing cost optimization.

1:59He says they think the majority of the recent cycle is behind them, and they are likely closer to a steady state of optimization efforts. You remember they were talking for a while about attenuating. attenuating. They now say that's diminishing, so it looks like cloud demand picture looking a little bit better. Quickly on CapEx as well, he said they do anticipate overall capital investments to meaningfully increase year over year, primarily driven by higher infrastructure. CapEx to support growth in AWS, including Gen. AI, really lines up with what we heard from the rest of big tech. Total revenue for Amazon, that hit an all-time high,$143 billion for Amazon, up 13 percent.

2:34The North American business, when it comes to revenue, that was$83 billion, up 12 percent. advertising revenue, another high margin part of this business. That was stronger than expected, grew 24 percent. That was double overall sales growth. Advertising came in at$11.8 billion. And then keeping a bit of a lid on some of the excitement was a miss on guidance. For the current quarter, guidance was a bit light. Sales look to be coming in between$144 billion and $149 billion. Analysts were looking for$150 billion. Profitability also looking better. Free cash flow improved to an inflow of$50 billion,$50.1 billion for the trailing 12 months.

3:11That compared to an outflow of$3 billion a year ago. Operating cash flow also jumped by about 82%. So the profitability picture looking better as well, guys. Back over to you. And, Kate, when we hear cost optimization, that really means from their customers, correct? That's right. Yeah. Ways to save from their customers. Exactly. Exactly. From their cloud customers, from enterprises out there. So there is a little bit of a read-through to the rest of the software space. If you're hearing that from the biggest player out there that, you know, guys, it's looking better than it was a year ago, it could be good news for the rest of the software players out there.

3:41All right. Kate, thanks. Kate Rooney, keep us posted on the conference call details here. But so far, as she mentioned, a mixed bag here. What do you make of this quarter? It's a mixed bag, but it's amazing how we can applaud the expenditure and the investment in CapEx as it relates to AI and everything else. And yet, you know, Metta was not. But but but and yet it's so consistent with what we heard from Microsoft and from Google in terms of their cloud business and what this means. And and it just it always feel like this earning season, especially I go back to that time when when NVIDIA had that first blowout number and they guided to where demand was.

4:15And I had chips in the world woke up. But really, the analyst community and the street woke up and we woke up and said there's going to be a CapEx cycle like you haven't seen before. And this was at a time we were worried about growth. This is, you know, this is back when I think people were very concerned about where there really was growth overall in the economy, but even within the tech sector. So I love the fact that Andy Jassy really has been focused also on making this company more profitable. So that operating profit, which was expected to be 11.4, comes in at 15 billion. The dynamic, I think, around the core business and and the levers that Amazon at some point really can pull in terms of profitability.

4:49That's also been something. I think it's also just interesting to note that after the stock going up 130 percent, it's at the same multiple it was at the low before it made that move. In other words, it's growing into a bigger multiple, and yet it's not a bigger multiple. Yeah, I mean, the bar was high. We had already a Microsoft beat, a Google beat when it came to the cloud revenue. And here we are with an Amazon beat on AWS beat on cloud. So at least that was a big sigh of relief. But what do you make of the move here? Do you think it's a confirmation of that big stock that we've seen over the past year?

5:18I mean, what is it in your view? Yeah, I think was bad tape, right? So nice to hear that pop of good news. There was AWS was certainly good news, but it's already, I think, been up on the same news of everyone else doing well. And it would make sense that everyone else cloud business is really strong, as is there. So that's good. I don't make too much out of the guidance being a little bit light. I feel like I don't know where in the guidance that is, whether that's on the retail side or in the cloud side. It makes a big difference. But I to the extent that's weighing on the stock, I sort of think that it shouldn't.

5:50I feel like it's just sort of happening under the weight of being last in what has been a positive tape for cloud growth and this market today. AWS, that was fine. They're the largest player there. So for that, it just had to keep growing at a certain point because then you get to that. I hate calling a law of large numbers, but they're so much bigger than everybody else. They really need to leave a mark there. And then how about ads for Prime Video? They started that in January. I just noticed it, by the way. that's going to be another revenue generator for them. And they could turn that toggle switch on and off.

6:24And then prime membership is up to one hundred and forty dollars. Another thing that I just recently noticed. When you open up your credit card bill. When you open up your credit card bill. I thought it was still one hundred bucks or thereabouts. So long ago. I know I haven't looked in a while. So so there was a couple of things they had to hit. Plus the efficiencies and fulfillment right before the pandemic or during the pandemic. They really overloaded in fulfillment centers. They have 750 ,000 robots in their fulfillment centers. So their fulfillment costs aren't keeping up with their revenue.

6:56That increases their marginability. So everything looks good. But if you look at the stock price, it's fading. 5 % or 6 % once they print, and then it comes back. So as Karen said, bad tape. But if you look at Microsoft and you look at Google, they reported. They skyrocketed. And then if you look at the chart, they both came in. So maybe people are saying, hey, good print. Let me let it breathe a little bit. Maybe I'll be able to pick it up on a discount if the overall market sells off. Now that we have the luxury of having seen all three of the quarters from Microsoft Alphabet as well as Amazon, which do you think was the best?

7:30Oh, boy. Or less of stock reaction, which quarter was the best? Well, I think it was Google because I think relative to expectations about their core business, I mean, it was an emphatic, yes, we are kicking it. But it's fair. I mean, you know, we're now we're a week into digesting this group of the largest companies in the world who we all know are giving us 80 percent of the earnings growth for the S &P. We expected a lot here. I just I get back to a company like AWS or like Amazon. But with AWS, with the retail business in North America, that operating margin up almost six percent, well above expectation.

8:06I mean, I love the fact that Amazon can give you the profitability at a time when they're investing in their business. And I think, again, they have been investing. They haven't fallen asleep at the switch. I think Google also. I mean, maybe the expectations were lowest for them because they have stumbled a little bit. And to just have positive momentum in all parts of their business. And then also to say, you know what, we hear you, Street. We're not doing as much as our balance sheet as we could. We're going to address that. And I hope there's a year of efficiency in there somewhere. For more on Amazon, let's bring in Brent Thill, Managing Director and Tech Sector Leader at Jeffries.

8:39Brent, great to see you. What's your take? What do you make of this light guide for Q2? Hi, Melissa. The guide doesn't really matter. They always guide conservatively, so I kind of wash that out of the mix. I think the most important thing was AWS, which is 50 % of their market cap, had 17 % growth. Well, had their backlog growth last quarter foreshadowed that AWS was going to be good, booking over 40 % growth. and backlog, you're going to have revenue growth reaccelerations. So we're seeing AWS inflect. We're seeing the international business become profitable, which we were expecting a loss.

9:15And then the third is the ad business. Ad advertising was ahead by a bit. So I think you have effectively a game of inches on the beat. You don't have a blowout here, but you have consistent, steady recovery. And all eyes were on AWS. So that's been phenomenal to see. Now it's going to shift to AI. You know, where are they at? They're behind Microsoft. How are they playing catch up? Jassy said last quarter, this is going to drive billions of dollars, trying to get more color on that. So everyone's going to go direct to AI and what's the next leg for this. But overall, a really solid print. Again, I don't pay too close attention to the guide.

9:53They've been blowing out the guide every single quarter, and they've had a really disciplined focus on the bottom line. So we're encouraged by what we're seeing. we're not encouraged by the stock reaction and welcome to be a software internet analyst right now. No one wants to talk to us because everyone wants to be a semiconductor analyst. So that's the only downside right now. Your day will come, Brett. I'm sure it will. In 20 minutes time or so, what do you want to hear Amazon talk about in terms of the next leg for AI instead of just providing the cloud services that are needed to support AI?

10:25What do you want to hear from the company? Number one is time to revenue. So we are in this biggest type cycle ever for AI. When is this actually going to result in revenue? Number one. Number two, what is the differentiation against the rest of the competitors? Third, Microsoft is going up and down the stack. Security applications, the productivity tools, they have an advantage in the world of AI because they can go up and down. EWS doesn't play in the app scheme. So how can they enable broader adoption by these enterprises? Because right now, Microsoft's running away with the show. And so how do they come up with something that's unique, exciting, interesting, that's going to catch people?

11:08And right now, I don't think we've necessarily maybe heard that. They probably have that behind the scenes. We haven't heard it from them. So we'd love to see that. But I think it really goes down to the reason why tech investors are so disinvolved with or excited about what's happening in the internet and software right now is that hardware, all the AI is in the infrastructure category. It's at Dell, it's at AMD, it's at NVIDIA. And right now, it's really hard to get the interest of tech investors because that's where they want to be because it hasn't come to the software layer yet. It will. And so that's kind of the big question is, when does this actually have a bigger impact on revenue?

11:47Brent, it's Karen. Thanks for being on today. How do you think about valuing AWS aside from the rest of the business? What are the right metrics? What are the right multiples? So we do. Amazon's valued by us by some of the parts. We break all the businesses apart and apply different multiples. Retail business trades at a lower multiple. AWS trades at a higher multiple. Well, AWS today, in our view, it's about 50 % of the market cap of the company. It's the most important business. If you spawn off AWS into its own side business, you effectively, again, at$100 billion run rate, investors in software are paying anywhere between – I name it 7-Eleven, my favorite convenience store – anywhere between 7 and 11 times forward revenue.

12:34And you could argue, again, maybe it's a little lower, maybe it's higher. We can now look at margins. I mean, the margin was one of the highest margins we've seen at AWS at 38 % for the quarter. So I think you can look at it from an EBITDA basis. You can look at it on a multiple revenue. As I said, 7-11 is kind of the range. And again, you can start to really look and understand why this business is so important to their overall market cap if it was a standalone business. Again, we put a premium on the business because they are the number one vendor. They are the furthest ahead in revenue. If you combine Microsoft and Google together, they still don't even equal Amazon's revenue.

13:16So, again, big premium in our playbook. Again, some of the parts. All right, Brent, thanks so much for joining us. Appreciate your take on earnings. Brent Thill of Jeffries. Conference call is just about 14 minutes away. We've got the stock up by about 3 % right now. Let's get to another earnings alert now on Starbucks. Coffee chain reporting a miss on the top and the bottom line. The stock touching levels not seen since July of 2022. Let's get to Steve Kovac with all the details. Steve. Hey, Melissa. Yeah, shares are down about 10 percent on this. And Starbucks missed those expectations on the top and bottom lines following weak demand in the United States and China.

13:52Overall, same store sales were down 4 percent year on year with a 6 percent drop in transactions, though the company says average ticket price is up 2 percent. For the U.S. specifically, same-store sales were down 3 percent with a 7 percent decline in transactions, but it's even worse over in China with same-store sales down 11 percent. Now, no guidance here in the release. That's going to come on the conference call, which kicked off at the top of this hour. Mel, we see shares down 9.8 percent. All right, Steve. Thank you, Steve Kovac. Wow, that's quite a slide in the after hours. I will go to you, Tim, who you've been lamenting for some time about the price, and apparently a lot of others are with you.

14:28And the price of the stock and the company is also coming to a place where it's going to start to get interesting. You know, we can talk about the charts in a second. It's a case where I do think there's a competitive landscape. There's a consumer that ultimately is trading down. And even that$4 luxury that was a Starbucks cup of coffee that people were willing to spend for, I just think that there's a place where you're seeing them run out of gas. They were raising prices for three years. They have higher costs across their business, certainly in terms of labor and wage and some of the dynamics even on some of the cost input.

15:01So I think you're going to own this company cheaper. I think you're going to own it lower. I still think it's world class. China's an issue. It's not growing where it was. They're not getting the growth. The fact that you saw that kind of a contraction in U.S. same-store sales is almost shocking. And, again, we haven't seen this in three years for Starbucks. So you're going to get this company lower. I'm looking to get it lower, and I'll wait. The CEO is saying it's a highly challenged environment. Inflation remains high. Consumers are still getting used to higher prices. So even now, they're still getting used to those higher price points.

15:32But some of the Chipotle also Chipotle also higher. But but doesn't seem to affect their business the same way. I'm sort of I know it's not the biggest part of the business, but this China miss is so big. I mean, I think the analysts, the high and the low was up to down five. This came in down 11. What's happening there? And what is the read through to other things? I don't know. But this is definitely a three day rule kind of thing. If you have any hope or any thought of, oh, OK, I'm waiting to buy it now. I mean, maybe longer. But you're not going to miss it. You're not going to miss it in six days.

16:06Yes, yes, yes. So there's nothing here that's going to change quickly. I mean, right. I don't know what they'll say in the call, but the analysts will not be happy with this. So we're going to see that downgrade. I mean, there's only so much you can do at this point when it comes to higher costs, higher costs of doing business. They can try and be more efficient, et cetera. But there's only so much. They're still going to have that. So Tim started off saying you have wage, you have unionized workforce that they're battling. Wages are going to be an important topic per hour workers. You could make the case that this stock is in a downward trend for over a year now with some blips here and there.

16:39But you don't really find any any real support. And it's just a dagger of support meeting. There's no base of it. It's just a low until you get to low 70s. So you have a little bit more support there, but I think it's a wait and see, and there's a lot of headwinds so that you can take your time and wait. What is the read-through of the consumer? I mean, Karen brings up a good point in terms of Chipotle versus Starbucks. Is it that, you know, you can either buy a latte or you're halfway to a dinner with Chipotle? I mean, I would do that calculus, right? I would rather buy dinner. There are many with a liquid diet.

17:09Again, I think you've gotten to a place where that's right. I mean, a coffee and a donut's not supposed to cost$10. bucks, and yet it does. And this is a story where I just think the competitive landscape in the coffee shop world, because the margins are so good, have gotten very, very intense. But international growth has been a big part of this story and the slowdown. And they're citing this. They're talking about headwinds. They're talking about the Middle East. They're talking about different parts, not just of China, but other parts of Asia. So you're going to buy this company cheaper. Meantime, a pair of semi-stocks both lower after the results.

17:40The conference calls for AMD and Supermicro both underway. Christina Parts-Nebulis is on the phone. That's very confusing here. Two calls at once. She joins us with the latest. Christina. I was. I do have my headphones and I'm listening. And the call is underway for AMD. The major focus is on their AI chip, the MI300 series. And AMD is right now saying it's the fastest product to break$1 billion in cumulative sales. Again, this is on the call. Previously, the company estimated that there would be about$3.5 billion in 2024 revenues. Well, right now, the CEO leases Sue bumping that number to$4 billion, which I have to say was largely expected by the street.

18:16But nonetheless, that was the number that a lot of people were looking for, possibly adding to maybe some of the reversal in the stock. What really drove the quarter was not only the new chip and server sales, but also an improvement in their client business, which encompasses PC sales. That was up 80 percent year over year. Management saying, much like Intel, that the second half of this year will be stronger, driven by that PC refresh cycle. and possibly the AIPC, but I'm a little skeptical because we haven't seen that gain traction just yet. Expectations, though, were high for this one, as well as super micro earnings.

18:48So I'm going to pivot right now because the stock's down about 7%. This is an AI, darling. The stock's been run up for quite a while. It's a server assembler. It beat on earnings, but revenue fell short of expectations. There's stiff competition coming from HPE as well as Dell. The strong Q4 and full-year revenue guidance that they provided, they increased it, was still not enough to impress investors, and that's why shares are down 7 % and after ours. But big picture, still up, what, 700 % in the last 12 months. We've got to zoom out. There you go. 656. It's 57. So it was off a little bit. Yeah.

19:20Down seven's nothing. Christina, thanks. Christina, parts neveless. Steve? Yeah, that's exactly where I would have went. It's up over 700 % on a year basis. And when you look at this group, this is, you heard Brent say it, right? This is the most attractive, sexiest spot in that universe of coverage. But what's funny to me is AMD is the second fiddle to NVIDIA. NVIDIA was down today as well as AMD, but NVIDIA after hours is down less than AMD is after hours. So I think people are still playing this as NVIDIA has 80, 85 % of the market share. It's theirs to lose. Everyone else is a distant second.

19:56Coming up, more after hours action shares of Pinterest surging after earnings. We'll dig into that seemingly picture perfect report next. Investors loving on Lilly. Shares are soaring after earnings as the drug makers' weight loss drugs continue to drive results. How they are packing on the pounds, where it counts. That's next. Plus, what's next for the Fed? The central bank may not make any moves tomorrow, but our next guest says they should start cutting rates soon. Just how many cuts he is predicting this year, and what happens if we don't get them all that when Fast Money returns? Stay tuned.

20:30This is Fast Money with Melissa Lee right here on CNBC.

20:42Welcome back to Fast Money, an earnings alert on Pinterest. Shares soaring after a beat on the top and the bottom lines. Julia Borson just spoke with the CEO. Julia, what's the latest? Well, Pinterest shares are now up about 18 percent after beating across the board, including adding 13 million more monthly active users than anticipated, now topping half a billion monthly active users. CEO Bill Reddy's focus on making Pinterest shoppable is paying off. It's engaging users and advertisers. Reddy telling me that AI has been a huge tailwind for improving ad results and content recommendations. He also talked about the company's investment in new generative AI ad creation capabilities, as well as tools to optimize and measure ad campaigns.

21:21When I asked Reddy if Pinterest is benefiting from the broader digital ad comeback that has bolstered some of its rivals, he said that the macro ad environment is more constructive now. And then in response to a question about the impact of uncertainty around TikTok, Reddy said that Pinterest is thriving when it comes to Gen Z. It's its fastest growing and now largest demographic, saying that Gen Z appreciates Pinterest as an oasis away from what he called toxicity elsewhere on social media. Melissa? All right, Julia. Thank you. Julie Borson. That does sound rather pleasant. An oasis from the toxicity.

21:58You're looking at this quarter. Yeah. I mean, there was a lot to like here. Just that revenue beat was huge. That's great. Monthly active users was up. ARPU in the U.S., which is their most profitable, you know, which is Tim's favorite. Average revenue per user. Sorry. That's really impressive. I mean, they had some growth overseas. Those are much less valuable customers. But this was really an impressive beat. I had looked. I thought maybe there was more short interest. There's not. This is not. And there shouldn't be. This was really impressive. The valuation is hardly demanding 518 million MAUs and growing 23 percent on that base.

22:38So impressive. Very impressive. It's been forgotten about stock. And that's when you look for two things. You look for short interest and you look for interest just around the marketplace. And obviously, when you see a price action like this, the market forgot about this is the stock. Karen and I were talking pre-show. They have an agreement with Google where Google is sending them ads on their platform. That's probably helping as well drive traffic, drive revenues. So let's see where the stock settles in because a move like this, I don't want to be a buyer or a seller of it. All right. Meantime, Eli Lilly topping the tape, soaring nearly 6 % on earnings beat and fill your guidance.