Apple Faces An Antitrust Lawsuit… And Crude’s Next Move 3/21/24

0:01Live from the Nasdaq markets and on a day where major markets all set another set of records. This is Fast Money. Here's what's on tap tonight. Bruised Apple shares of the tech giant dropping more than 4%, cutting$115 billion from its market cap just today. The company, the latest target in the DOJ's antitrust crackdown. Could the government suit mean the end of tech dominance in the market? We'll debate that. Plus, Calhoun questions Boeing's board of directors planning a listening tour with major clients in the wake of several recent plane malfunctions. But CEO Dave Calhoun isn't on the guest list.

0:33what it says about his future with the company, and a big night of earnings that could offer some insight into the state of the consumer, trade, and the economy. From FedEx to Lulu, we are digging into the reports to bring you all the trades. I'm Melissa Lee coming to you live from Studio B at the NASDAQ on the desk tonight. Tim Seymour, Guy Adami, Mike Coe, and Julie Beal. Let's start off with that record day on Wall Street. The Dow S &P 500 and NASDAQ all closing at fresh all-time highs. For the second day in a row, the Dow getting just 111 points away from crossing 40 ,000. But one longtime tech bellwether, noticeably not coming along for the ride, shares of Apple dropping more than 4 % after the Department of Justice announced a new antitrust lawsuit against the tech titan, saying that the iPhone maker has a monopoly over the phone market and that it harms consumers, developers, and rival companies.

1:20Let's get straight to Eamon Javers, who's got the details. Eamon. Hey there, Melissa. The Justice Department, along with 16 state and district attorneys general, sued Apple this morning for monopolization or attempted monopolization of smartphone markets. Now, this is a civil antitrust lawsuit filed in the United States District Court for the District of New Jersey, and it alleges that Apple illegally maintains a monopoly over smartphones by selectively imposing contractual restrictions on and withholding critical access points from developers. Here's Attorney General Merrick Garland earlier today.

1:53Apple has maintained monopoly power in the smartphone market, not simply by staying ahead of the competition on the merits, but by violating federal antitrust law. Consumers should not have to pay higher prices because companies break the law. Now, the Department of Justice alleges Apple has broken the law, specifically Section 2 of the Sherman Antitrust Act in five specific ways. First is blocking innovative super apps. DOJ says that's because Apple fears they could grow big enough to threaten Apple itself. Second is suppressing mobile cloud streaming services. DOJ says that's because Apple doesn't want people to get access to high quality apps without having to pay for expensive smartphones.

2:38Three, excluding cross-platform messaging apps. Garland said Apple degraded messaging with Android devices so that Apple users would think Android phones are just worse. Four, diminishing functionality of non-Apple smartwatches. DOJ says users who purchase the Apple Watch face substantial out-of-pocket costs if they don't keep buying iPhones. And five, limiting third-party digital wallets. Apple has prevented third-party apps from offering tap-to-pay functionality, says DOJ. Now, Apple responding to these charges today, saying this lawsuit is wrong on the facts and the law, and we will vigorously defend against it.

3:16The process in the courts expected to take months, if not years. And I asked a DOJ official today about the sell-off that we saw in Apple shares after this announcement earlier today and what the department's message is to shareholders who saw so much value destroyed today. The official said, we are a law enforcement agency and that's how we have to make these decisions. And he also said, we're not out to get anyone. We don't have an ax to grind. And, Melissa, I should say that I'm going to be speaking to Jonathan Cantor tomorrow on Squawk Box in the 8 a.m. hour. He is the head of the antitrust division at the Department of Justice.

3:49This will be his first interview since the Department of Justice dropped this suit. So if you have any questions for him, let me know. I will let you know for sure. Amen, I'm curious. You know, Merrick Garland quoted Apple executives in some of these arguments that he's making, particularly super apps. And I'm wondering, were these were these executives, were they emails? Were they interviews? Yeah, this investigation has been going on a long time and it looks like the department has obtained a lot of evidence here, including emails. They cite emails, including on page one of this complaint today, an email from Steve Jobs himself back in 2010, talking about how they have to restrict the ecosystem around Apple.

4:30So the Department of Justice making the case here that it's got evidence from inside Apple that's going to show that Apple broke the law. Apple, of course, saying, you know, that's nonsense. All right. Eamon, thank you. Eamon Javers in Washington for us. Was a sell off in Apple today? Was it because of this antitrust lawsuit or was it just an excuse to sell for a host of other reasons? I think the latter. And I didn't go to law school, but I think there's a difference between dominance. You didn't? No, I didn't. Did you think I did? I know you probably just you expound so much. I appreciate that.

5:04So you one would have thought. Thank you. Thank you. Thank you, Melissa. I didn't think you did. And we won't sort of well. We won't adjudicate that here tonight. But what we will is talk about Apple. And again, dominance, monopoly. There is a difference. And again, monopoly to me means something entirely different than having 60 percent share of the U.S. smartphone market. Samsung, I think, is close to 24 percent. I mean, that's dominant. It's not a monopoly, in my opinion. I know there are other issues as well. But to answer your question specifically, look, that was clearly the reason it went lower today.

5:33However, you know, Apple's been trading lower for quite some time and had that bounce off the October lows. We thought that would happen. But there are clearly other things here. So as we said last night, there are reasons to be bearish of Apple. Personally, I don't think this is one of them. I think the legal definitions of, first of all, what a market is, what market we're talking about. Are we talking about the iOS market? Are we talking about the smartphone market? There's a lot of views out there that not only will this be a long process because it's a long process and it's been a long process.

6:02This is a highly telegraphed lawsuit. Nobody woke up today and said, oh, what a surprise, leaving aside the other 16 AGs at states and what's going on in the European Digital Markets Act. But the reality is that the iOS operating system is something that there's a lot of arguments and there's probably some legitimacy to arguments that it is very restrictive. and it's certainly they are the ones that control the shots. But when you think about the smartphone market, it's arguably one of the most competitive markets in the world in Apple. While they are a dominant player, they are not dominating the entire market.

6:37Apple has underperformed the S &P by 23 % since December 11th. And the next question that you're probably going to ask, or we ask this all the time, which is that can markets go higher in this environment? And boy, they sure have. Again, more records today. So Apple's underperformance to me, guys, right. The headlines today don't help Apple. Apple was weakened going into this. I think 4 % down is a lot to do with these headlines. The real dynamic is just two days ago, Apple issued their own little kind of white paper on what they're doing in AI with their multimodal technology, what they're doing with large language models.

7:14No one seems to care. And that's kind of interesting because I think ultimately Apple is in a place with their installed base to have a major, major place here between the context of pictures and text and whatnot. So I just think Apple has been struggling. I think we've seen a change in leadership. Today's market was all about the existing leadership coming back to life. And that was the semiconductor space. Interesting that Micron was part of that. But so is the Fed yesterday. And semis were back on their front foot, outperforming the market by 2 percent. Yeah. Mike, though, you know, in terms of the Apple case specifically, some might say, you know, Microsoft, you know, there was a huge antitrust case against Microsoft way back when.

7:51And nothing actually happened. The company didn't break apart. But the stock did go down significantly, almost by half in the span of a couple of years after that suit was initially unveiled in I think it was 99 or 98. Yeah. I mean, this really goes to the point that Guy was just making, which is about dominance versus monopoly here. I mean, obviously, all of us probably sitting on the desk when we log in in the morning, chances are we're operating on a Microsoft operating system. And, you know, maybe at home you've got an Apple iOS device. But, you know, when it comes to our PCs, a lot of the applications that we use just happen to work a whole lot better on Microsoft's system.

8:30Now, it's interesting because it occurs to me that part of that has to do with the fact that Apple likes to have everything within their own ecosystem. And there's a lot of reasons that they can actually defend this. And that is that oftentimes when you have third-party applications operating in your environment, it creates havoc, and they really want it to be very simple. That said, many of us feel very locked into our Apple devices. I have to say the thing that interests me most when I was looking at Apple today on the options side was the fact that options premiums are still actually below average.

9:01You look back two years, three years, options premiums are actually below the average. About 24 % implied volatility going out three months. Six-month options on Apple right now are about 20 % cheaper than they were a year ago. And the stock has kind of round-tripped in that time. So I think for those people who are in the stock and are wondering what they can do right now, one of the things you could do is potentially hedge, replace your stock with options, because they just aren't that costly. But let's go down the path, Julie. What if this case in some way is successful, you know, and it doesn't have to be fully successful, but maybe parts of it, maybe there is less friction to switch from the iPhone.

9:39I mean, the whole value of Apple, particularly when it comes to the notion that service is going to be the driver of growth, is this ecosystem. And what if that ecosystem is attacked in some way or doesn't exist to the extent that it does today? Yeah, I think that becomes a problem for Apple and their ability to maintain the dominance that they've had. But the thing is, I really struggle with this concept of the ecosystem is a bad thing, right? If you think about a university, for example, that's an ecosystem, right? They're trying to deliver a specific experience. No one is going to UCLA and demanding that XYZ teacher be able to teach, right?

10:14Which is a little bit this super app situation of saying, I want an entree into your ecosystem and what you're trying to develop here. So I just don't think there's a lot of standing for the DOJ here. What I do know is that this is gonna be a headache for them and you probably see revenue from the app store, which is where I think the DOJ has the strongest case, revenue from there start to gradually decline or get softer in terms of the rates that they can charge. All right. For more on the impact of the DOJ suit against Apple, we are joined by Satori Fund founder and portfolio manager Dan Niles.

10:44Dan, great to see you. First of all, do you have a position in Apple right now? Yeah, it'll be confusing to your viewers, but we're actually long Apple, but we're short a bunch of their suppliers because we think that Apple's got fundamental issues going forward and we'd rather attack it through their suppliers right now. We're looking hopefully for a bounce in Apple tomorrow just because I'm sure everybody who's loved this will come out and defend it and hopefully we get a bounce so we can sell it and short it again. So that's kind of how we're thinking about it from a bigger picture standpoint in terms of our position.

11:17I mean, you don't think that this suit is in any way something to factor in when it comes to your long position in Apple. There are a a whole host of other reasons why Apple may have its own issues right now. Yeah, I mean, so let me be clear about it. We dislike this stock fundamentally. We dislike it over the next year, et cetera. You asked me if I had a position in it. It's complicated, but yeah, we bought it towards the end of the day today. But I think if you sold this because of the DOJ, that makes little sense to me because we've known this was coming for a while. They've already lost the lawsuit against Epic in Europe.

11:52The app store rates have already come down. If you are selling it because it's a bad chart, totally understand. If you're selling it because the fundamentals have been poor for a year now, and it's catching up with the stock, and estimates have been coming down for a year now, totally get that. But if you're selling it off this DOJ thing, which is going to take years to sort out, that makes no sense. And with the two standard deviation move lower, we're like, we'll buy it for a trade and rent it. And hopefully, if it goes up tomorrow, we'll sell it and short it again. Strategically, you've been trading from the short side well, by the way.

12:23As Tim said, it's underperformed for quite some time. So understanding you're going to look for entry levels and exit levels, what's your ultimate price target on the downside where if it got there, you're like, OK, this is an entry point for now being on the long side and trading around a long position? So here's the way I think about it. From a long-term perspective, this stock should have a below market multiple. The revenues have not, if you look at what they guided to for the March quarter, they're almost the exact same number as three years ago. They have competition issues with Huawei coming back.

12:58They don't need US chips to make smartphones anymore. And so I look at it trading at a 25 PE versus the S &P at a 22 PE with hardware companies in the PC ecosystem, for example, trading in the low double digits. And so I look at this and I say it should deserve less than a market multiple, given especially that their high margin revenue stream in services is under attack as well. So from the short side, from a long term view and a fundamental view, it's nowhere near where I would think this is a fundamental long. Hey, Dan, Tim, thanks for joining us. In terms of the market's not a zero sum game, but we often talk about Apple as being such a critical stock for the market.

13:42Do you think Apple's weakness actually could be positive for the market? I know this sounds obtuse, but to the extent that we're seeing broader allocation, Apple certainly derives a lot of passive flows, but it also certainly has folks that will be allocating this money to other places that they can find. Again, what is Apple for people? Yeah, it's a market proxy. It's a market way, but it's maybe consumer staples. Maybe it's consumer discretionary. Just thoughts on the bigger picture of Apple's role in the market. I think you're 100 percent right, Tim. I mean, markets are never good when they go straight down based on the Fed and they go straight up based on the Fed.

14:17You can look at the last two years. That's the situation, right? Magnificent seven down 46 percent in 2022. Then they're up 111 percent in 2023. Why? The Fed had the fastest rate hikes in history in 22. two. They stopped in 23. And people were at one point looking for seven rate cuts. Right now, the market's actually really healthy because Tesla stock's down 30%. Estimates were coming down for a year. Apple estimates have been coming down for a year. But the stock was up 48 % last year. This year, however, you've got Apple down 10%. You've got Tesla down 30. And which stocks are performing the best?

14:55Well, the ones that took up numbers the most. NVIDIA up 80%. Meta up another 40%, and then you've got Microsoft and Google and the others kind of in the middle. So the market is reacting to fundamentals the way it should versus some pipe dream about augmented reality is going to be great a decade from now or something like that. This is actually a healthy market. And to your point, the money is finding its ways into other areas. We own several industrial stocks that we like. We own some financials that we like. We own some biotech. And you're seeing the market broadening. And I think that's super healthy, whether you're talking about it coming out of Apple or Tesla or you pick your favorite name.

15:35Dan, great to see you. Thanks for your take. Always appreciate it. Dan Niles of the Satori Fund. So what do you make of this? It's interesting because the markets are trading on hope for artificial intelligence years out. And yet for this lawsuit, if you take a look at the price action, this really means that the market does not believe that this lawsuit will be successful. Because if you think about if it is successful, it becomes basically just a hardware company. And its multiples got to get crushed in that sort of scenario. I don't know, Mike, what's your take? Well, I mean, it's not just the multiple that's going to get crushed, right?

16:07Because if it's successful, then theoretically, they are deriving, you know, these fatter service margins in particular, and that is going to be the part that's going to be under attack. So it's going to be a lower multiple on a much lower number, which I think is where Dan is coming from. But one of the things is, as you pointed out earlier, Microsoft was facing kind of similar types of pressures not that long ago. It seems to be in the rearview mirror now, and that could easily be the case here. So I think, from my perspective, I was just looking at Apple. I would probably only be using options at 24 vol.

16:42Those things are cheap. The stock isn't particularly cheap, even that of the big declines we've seen. So that's just the only way I would be interested in playing it in either direction at this point. Now let's get to an earnings alert on Nike. Shares are on the move in the after-hour session. The conference call just kicking off at the top of the hour. Our own Sarah Eisen has been listening in. Hey, Sarah. Hi, Melissa. So Nike CEO John Donahoe just wrapped up his opening remarks on the conference call, and he struck a different tone than we've heard from him in the past few quarters. They're fighting back and clearly aware of some of the growth challenges that they're having.

17:14He says Nike's not performing at our full potential, but we do see green shoots, for instance, on innovation, which is one of the areas they're investing in. He's put in place all sorts of new leadership to try to turn things around. He said we're acting with urgency when it comes to things like innovation and the pipeline. So let's talk about the numbers that were just reported. They were slightly better than expected after, remember, Nike lowered expectations last quarter, and they showed improvements in some key parts of the business. Certainly on the profit side, margins growing, profitability beating thanks to lower freight costs, for one, cost savings from the restructuring plan that they've been doing as well.

17:53On the sales side, too, revenues did come in slightly better than expected and showed growth, even if just barely. North America was a bright spot and returned to growth after a number of quarters of negative growth. wholesale business, which is what Nike does when it sells to Dick's and Foot Locker and department stores, also growing 3%. So that was a nice surprise for the bulls. The sluggish growth overall, though, in the company has driven the stock underperformance this year and particularly since last quarter. In the statement, in the release, John Donahoe says there's progress. We are encouraged by the progress we've been seeing as we build a multi-year cycle of new innovation, sharpen our brand storytelling and work with our wholesale partners to elevate and grow the marketplace.

18:37Nike has been, as I mentioned, announcing this restructuring. They announced layoffs that they've been going through, 2 % of the overall workforce. It's made a lot of executive changes in the last months, including a new head of design. So investors are keen to hear about these innovation updates, as a number of firms lately have questioned the lull that we have seen in growth and in the product cycle. Melissa. Sarah, thank you. Always good to see Sarah Eisen on Nike. And that has been the knock. I mean, take a look at the share losses to a Hoka and on. I mean, do you have Hoka's on tonight? You know, you make fun of me.

19:13I have Hoka's. I actually have two pair of Hoka's, wise guy. And I happen to like them. Sounds like Hoka's to me. We've seen the top deckers on Hoka. Julie Beal, what's your take on Nike? Yeah, I mean, I think that the innovation is pretty critical. It's nice that they're getting freight benefits, but the long-term outlook, particularly with young people, is really lacking. and they have ceded so much space with their wholesalers to these other upstart brands. They're really in a situation where they have to innovate. They have to spend the money there. They can't just kind of cut cost to their ability to find growth.

19:44And, you know, I think they have the potential to do so, but it kind of remains to be seen. So I think it's a show me story from here. Yeah. Wedbush has said that the long term they are optimistic, but short term a frustrating lack of innovation from Nike, Tim. Well, then you can add it to all the other short terms for the last two years. I mean, this stock has really done nothing. As someone that loves the company and has traded it from the long side and the short side in the last two years, I don't feel the need really to do either. I understand best of breed. I understand the innovation. Also, there's a lot of more innovative brands.

20:15Whether you think Hocus Pocus is one as well, I don't know. But the pros here are clearly margins are better. Comps get easier. There is that story. Also, the health just kind of care, fitness dynamic. It's not health care. The health wellness world that they are in the middle of that. That trend is still going and it's going strong and it's going strong in terms of what people are wearing. Torbett chart real quick. Look at the double bottoms. We have actually talked about this October of 2022 and September of 23. Eighty eight bucks held, bounced, still in a downtrend from basically the spring of 23.

20:48You get a close above one oh six ish. That downtrend has been broken. Maybe have some room to the upside. Coming up, the big night of earnings continues with FedEx delivering on its latest quarter. We'll bring you the very latest next. Plus, we'll check in on the chip rip. Broadcom shares surging more than 5 % today on a big upgrade from TD Cowan. Why investors are fired up about that call right after this.

21:14Welcome back. FedEx stock is surging after the company reported a big beat on earnings. While revenue did come in below expectations, delivery company also announced a$5 billion share buyback program. Frank Holland joins us now with more on the results. Hey, Frank. Hey, Melissa. You know, one metric, it doesn't make a whole report, but with winter weather and softer demand for e-commerce, seeing express revenue in line with a very huge margin beat is clearly giving investors confidence in FedEx's$4 billion cost-cutting plan, the business consolidation plan, and honestly, CEO Raj Shubhamanian himself.

21:47Keep it in mind, though, expectations, they were pretty low. Evercore ISI analyst John Chappell, one of many on our air thinking it was actually possible for express margins, where the company gets half of revenue to come in negative. Bank of America's Ken Huckster said if express margin came in at or below the estimate of 1.1%, that would actually be the lowest since Bank of America began covering the stock. Instead, we saw incremental growth in revenue per package or shipment across the board. It's important to note though, Freight, while it saw a 2.6 % increase in revenue per shipment, it did miss revenue expectations.

22:22There was also a new$5 million share buyback, lower than expected CapEx spending, and a narrowing of the full year guidance where the midpoint is above estimates, all giving investors a lot of confidence and rival UPS getting a boost as well. Their investor day is next week. We'll have to wait and hear what CEO Carol Tomei says about demand and its cost-cutting plan that includes the layoff of about 12 ,000 workers. But of course, before that, we get the FedEx call coming up in a few minutes. All right, keep us posted. Frank, thanks. Frank Holland. Tim, are you in this right now? I'm not in it.

22:52I wish I was in it. And, you know, whether you're a Dow theorist who at least is subscribed to the theory that the market is led by surpassing a previous high, either in the transports or the industrials, I mean, that's what we've had. And industrials have been pulling maybe transports higher. I think there are operational challenges for products on the negative side. I think that Frank talked about some of the margin unexpressed, the yield, the mix. The positive is that this thing's at 12 times. And at 12 times, it is very cheap. It's very cheap to itself, especially if the mid-cycle somewhere on this one is closer to 14 or 15.