Apple Reports Results… And Novo Nordisk’s Obesity Drug Price Cut 5/2/24

0:02Live from the Nasdaq market side in the heart of New York City's Times Square. This is Fast Deer, an entire Boeing. The after hours action of the conference call straight ahead. Plus, the Peloton plunge shares the connected fitness company hitting new record lows after announcing layoffs and a CEO departure. Can the company pedal its way out of the hole? We take a deep dive into the future of this one time pandemic, darling. And later, weighty issues. Sales of Novo Nordisk would go be more than doubled in the latest quarter. But the possibility of increased competition putting pressure on the stock today.

0:47Can the company tipped the scales in its favor. We'll go inside the numbers. I'm Melissa Lee. Come to you live from Studio B at the NASDAQ on the desk tonight. Courtney Garcia, Karen Feinerman, Dan Nathan, and Guy Adami. And we start off with that historic buyback announcement from Apple, $110 billion eclipsing the previous record also set by Apple just in September of$83 billion. That news outweighing a 10 % drop in iPhone sales as shares are soaring about 7%, adding nearly$200 billion to the company's market cap. The conference call just kicking off at the top of the hour. Steve Kovacs got all the details.

1:19Hey, Steve. Hey, Melissa. Yeah, so like you said, top and bottom line beats for Apple. And let me just go over some of these other numbers here that are really driving the stock up higher. We got that dividend increase up to 25 cents a share now. And like we've been talking about, the biggest buyback ever in corporate history, $110 billion. And then some more numbers here by the segments. We got iPhone revenues that were slightly missed expectations,$45.96 billion. By the way, that's down about 10%. Services, though, that's the bright spot in this report here. That was a slight beat,$23.9 billion.

1:54That's up nearly 14%. I talked to Tim Cook about that one. He told me that's driven by App Store and other services and also an increase in subscriptions that they have. As for greater China, that is down 8%. That is an improvement quarter over quarter. It was down 13 % in the December quarter. And then guidance. So breaking with tradition a little bit here, when I talked to Tim Cook, he gave a little bit of color about what the guidance is going to look like ahead of the call. He says to expect June quarter revenue growth in the single-digit percentage points, low single-digit percentage points.

2:29That's also setting the stock a bit higher here, too. Some other things I caught up with Tim Cook about on China. He just came back from a trip there a few weeks ago, talked about what he saw. Here's what he said. Quote, I feel great that in an extraordinarily competitive environment that we grew iPhone sales in mainland China last quarter, that may come as a surprise to some people. And so I feel good about China. I think more about long term than I do the next week or so. I also asked Tim Cook about artificial intelligence. Of course, there's this perception here that they're behind in AI. We don't really have the good narrative about where they fit into the whole picture.

3:04Here's what he told me about AI, specifically about what they're doing on the hardware side to enable AI services. Quote, we've been shipping a neural engine since 2020. And so we've been working on AI from a silicon point of view for years before that to be able to ship it in 20. And so I think we have a huge opportunity here. And as people start using AI more, there's a big opportunity. Expecting to hear more details about artificial intelligence, of course, next month at their developers conference. Now I'll send it back over to you. All right, Steve, thanks. Steve Kovach, it seems like a lot of the worst case scenario for Apple has been dispelled.

3:40What did you make of this guidance, though? Yeah, I mean, the guidance is not as bad as feared. I think that's really important. I think the commentary that he just gave around AI, I think we would all agree that there is a tremendous opportunity in the future, you know, because they don't have anything going on right now. So when he says they've been shipping a neural network, 99 percent of the people in the Apple ecosystem have no idea what it means and how that affects them. So I think on the fundamental basis, it wasn't bad as feared. China wasn't as bad as feared. If this stock is up 7 % because of a$110 billion buyback, that probably doesn't make a whole heck of a lot of sense.

4:12Karen and I were just talking about it. Over the last three fiscal years, on a quarterly basis, they've been averaging$20 billion in share repurchases, right? And so they've been retiring these shares. So when he gives the guidance that is expected to be low single digits EPS growth, when you think about how many shares they have been retiring, you know, they've been managing this earnings growth. There is no organic earnings growth, in my opinion, right now. So they better get the AI story going. They better get higher margins from these services, because if those AI devices, if they do come this fall, if they're not driving a big upgrade cycle, then it's going to be a big problem for them.

4:47Are you saying that the math works out so that if they did not do this buyback, there would be no growth? Well, look at how they've been accelerating their buybacks over the last few fiscal years. They have been. There's been low single-digit earnings growth. So I don't know the math right here. We could back into it. I'm sure an analyst has it. Well,$100 million on$2.67 trillion, it's a little more right now, is less than 4 % repurchase of their entire float. So it's hard for that. I mean, maybe if you just do straight up, then OK, then you have that level of improvement. Although, if you're trading above, I don't know where the multiple is going to be when this settles out tonight, but buybacks used to be very accretive.

5:25Right. They're no longer accretive because you can earn five percent on your, you know, on your cash. So that's a 20 multiple versus you're paying something in the much higher than that multiple. So it's not accretive. But it is, of course, it is a big player in the market out there looking to buy 100 billion dollars worth of stock. But as you said, they're kind of going at that pace anyway. Right. Or close. Well, really poorly. They've been buying that. Yeah. Stock has massively underperformed the Nasdaq. So investors have made the decision that that cash that they have, it's sitting on the balance sheet, is probably better off earning the 5 % than going back and buying their stock that's underperforming the broad market.

6:00I missed you. I missed everybody here. It's so good to see you, Guy. You almost didn't make it. Nobody cares. That's not true. Well, I mean, metaphorically speaking, no, but in terms of getting here on time. Yeah. Okay. Anyhow, services as a percentage of revenue, very good. Like, that's really encouraging. That's why they probably deserve the premium valuation. I think that's a good thing. Margins, OK, pretty good as well. But this now, I think revenue year over year was down 4 percent. This is the fifth out of sixth quarter. You have negative year over year, negative revenue growth. I mean, that's not particularly good.

6:33So you can't do the counterfactual. I get it. But if they just report this quarter and make no mention of one hundred and ten billion dollars, where's the stock trading? I think that is an interesting. You can't do it. I get it. But this was a OK quarter. I mean, it wasn't anything great. Better than feared, though. Better than feared, but still not fantastic. Yes, better than feared. Absolutely right. Yeah, that's the exact word that I was going to say. It's just better than feared. And I don't know if that's great. When you have five of six quarters where we're now down, you are facing competition from China.

7:02I think we're going to have to see some sort of innovation with their product. So we do have that conference. It's coming up in June. They just announced a special event next week. I'm not actually sure what that's about. Yeah. Okay. New iPads. Who cares? Yeah. I think the bigger story is, yeah, what's going to happen with AI? Do they have any sort of story there? But they're really going to need something here because iPhone is more than half of their sales. And if you're not seeing people upgrading or they're not feeling like they need that to the extent they have in the past, I mean, I just I don't think that's going to do it for them.

7:28They just can't have continuing quarter over quarter declining revenues. Other than this, I think there's appeasing investors at this point with the buyback. At 185, do you want to own Apple into that WWC event where they theoretically will announce some giant AI developments, Guy? Yeah, well, I would have said no yesterday, so that would have been wrong. I mean, I thought this stock was headed down to the low 160s, and here we are today. So I guess I have to be consistent and say no, because, again, if you dig through the numbers, it's fine again. But it didn't get itself any cheaper. You can do Karen, Courtney, Dan can do the math on the back of the buyback and figure it out.

8:05But the reality of the situation is, I mean, they've been meandering along on the earnings front for the last couple of years, quite frankly. Well, I wonder, it sort of matters, how does it trade going into that, right? So we could see them sort of people get really excited. Maybe Alphabet trades up, too, if they think there's some big partnership there. And then they really got a wow, which has been difficult to do. I mean, Microsoft did it a year and a half ago or longer, I guess. Yeah, I don't know. I wouldn't be a buyer right here. I think the announcement smacks of a little fear that they have now a month to sign some big licensing deal, even with OpenAI or Gemini or something like that.

8:45And so I also see a headline right here, and Steve Kovac mentioned it, but Apple CEO says making significant investments in generative AI. Think about this. We were talking about that June quarter last year. They didn't say generative AI once, and we were counting all the times that almost every mega cap tech company was mentioning it on their conference call. They went out of their way to do it. Now they're going out of their way to actually talk about the investments. Think about one theme that has been persistent throughout this earnings period. When expenses have been higher than investors have liked, they've sold the stock hard.

9:15So to me, I just think that that's what the buyback is there to kind of balance out a little bit what might be a spending spree on some sorts of, you know, generative AI. Things that, again, very different. A lot of these companies spent a lot of time and energy building these large language models, right? These guys are going to license it, which is not bad. That's kind of what Microsoft has done, too. But if it's going to be on device, we keep hearing that. Is it going to be on device by the time iPhone 16 comes out? I would be really surprised if it is. So you might have another year of kind of lackluster iPhone sales if they're just iterative.

9:47All right. For more on Apple's results, let's bring in Fast Money friend Gene Munster of Deepwater Asset Management. Gene, your take on the quarter so far? Quarter was a relief. Surprised to hear Tim. I was thrilled to hear Tim give the guidance to Steve. That was rare. But the guidance for June, the revenue guidance was also relief, essentially in line with the street up one and a half percent is probably where it's going to fall out so that that stuck out to me and I think the the near term I put that by the through the end of the year we have a business that was down five percent in the March quarter it's going to be up a couple percent in June about four percent in September and six percent in December and so you compare that to the last eight quarters where Apple's business has been down negative 0.3 percent And so you see this kind of return to growth.

10:37It is comping off an easier iPhone cycle. So that was my biggest takeaway. And Dan pointed out something that is at the back of my mind and top of my mind going into this call. They did say, Dan mentioned that correctly, as Tim Cook mentioned something in his prepared remarks so far on the call, that they're going to be making significant investments. And significant investments, we saw what happened to Meta with that. In my view, more spending on AI infrastructure is a positive, but that is what I'm eagerly waiting for on the call is to hear how that spend is happening. So those have been a couple things that I've pointed out.

11:14One more, Melissa, when we're trying to guess what they're doing in AI, what that's going to be about, Tim mentioned in the prepared comments that privacy is going to be one of their kind of foundation pieces. And that's important because it's a sign that they probably want to pursue a plan in this agent-based or agentic AI, personalized AI. This is you prompt it, and it goes out and does a series of tasks for you based on a single prompt. Pretty exciting stuff. We may or may not see that in June, but I think that that's kind of their long-term vision related to AI. Let's say we don't see it in June, but we get a teaser in June for it, Gene.

11:53Will we see it in the next iPhone, next generation of iPhones so that it will be a catalyst for sales? Or as Dan had mentioned, will we see a whole cycle skipped in terms of, you know, massive uptake of the new iPhone? And we'll have to wait. Investors would have to wait for another year or so. Well, Apple is fully on board with the opportunity around AI. I mean, it is a remarkable change in Tim Cook's prepared remarks related to it. And I think that that speaks to how they're going to want to talk about their products. And I suspect this fall, it may not be called iPhone AI, but it's going to be iPhone 16 AI.

12:32And I think that they're going to make hay when they can and kind of play into this. It's not just hype. There's a ton of substance around it. And I expect that these AI tools, the initial ones, are going to be something simple like use your phone and ask Siri to book you an Uber to the airport, something like that. but I think that they will probably perform better on next-gen phones. And this is a really exciting time in technology, and I think that that will be a boost to this next cycle. So I think that they're going to be playing it up as they should. Let's assume that that is in the next generation.

13:08Where does Apple trade from here, Gene? And do you think that that 7 % of the after hours, is most of that excitement around the buyback? I think the buyback's part of it, maybe a percent or two. I think the piece that surprised me most is that they essentially maintain their revenue guidance. Again, we'll hear the earnings in a minute, but that really surprised me. I was ready. I was expecting this was going to be flat. Some investors were saying it was going to be down a few percent in June. I think that was a big part of the kind of this move higher. They'll reiterate that in Luca's commentary.

13:40So I think that was probably the biggest piece. There is the case that as you're worried about, as I'm worried about what they're going to be spending and CapEx, the fact that they bumped up their dividend is a sign, I think Dan was commenting about this, is a sign that they probably feel great about their profitability too. So big picture is Apple's franchise, their business is intact. It hasn't grown for two years, but I think it's positioned to start to slowly accelerate and should have a nice benefit in 25 and beyond as they build these AI tools that they'll charge for. Hey, Gene, if I think about this over the last few months or so, and obviously for Microsoft, It's much more than that.

14:18But, you know, these three companies, Microsoft, Alphabet, and obviously Meta, have benefited from, you know, something cloud-based generative AI, right? And so when you think of the hyperscalers, what's going on with GCP and Azure and AWS, obviously that's been a big boon for them. When I think about the generative AI story on device for Apple, I don't have the same through lines as how it benefits them. Because you just used an example, hey, Siri, book me an Uber to the airport. Well, we all have 10 years of PTSD using Siri. This is going to take a while. You know what I'm saying? For an Apple.

14:53And so I just don't think there's anything that they can come out between now and September when they have that iPhone event that's going to cause a big upgrade cycle. I think one piece they can do, an easy piece they can do, is talk about silicon and play up that opportunity about how it just is going to run some of these models better. That's going to be some benefit to, I think, telling the iPhone story. But I think this other layer to it, the more important layer around applications, they're going to have to create products that are so compelling that makes people want to buy the hardware.

15:25They will, I think, be successful at doing that because of what they're doing around privacy and separately. So I think that's something else that could do it and agree with you on how the world and myself feels about Siri. It's a pretty low bar and people love Apple products and I think they'll be willing to try it. If Siri actually did something for you, I think that would be a moment where you'd probably we give it a big hug hug your phone it's been so bad over the last seven years so big picture is I think they can sell both hardware and then again down the road this agent-based personalized AI I think that they can actually charge just like GPT does they have a free version they have paid versions Apple's gonna do the same thing so it's not the same as a cloud business agree with you but it's big yeah services revenue could be big Gene thank you Gene Munzer we'll check in with you a little bit later on for details from the call.

16:12Are we going to look back at this moment and think that was the day when Apple became the stealth AI play, the one that had not yet benefited from AI pixie dust? And now is the time. What do you say, Courtney? I mean, it's possible. I think that that has to be the next catalyst for them. I do think it's smart that they haven't been just throwing it out there just to ride the wave of it. So hopefully when they say something, they're actually going to mean it as opposed to just throwing it in every rather word on their earnings, as a lot of companies have been doing. But I don't think we can hold our breath until they actually announce something, you know?

16:44I would say Google hasn't had the pixie dust valuation, despite having the goods. So I don't know. I mean, this is a different valuation than Google, I think. I'd rather have Alphabet. All right. Coming up, it's not just Apple reporting results, Coinbase, Block, DraftKings, and more, all on the move. We'll bring you the earnings action on all these names ahead, plus shedding pounds in prices. Noonordis making changes to its blockbuster obesity drug as competition heats up. The cost crash diet that could help them set themselves apart. The details when Fast Money returns.

17:24Welcome back to Fast Money. Earnings alert on Amgen. Shares surging after reporting a top and a bottom line beat in Q1. The company said on the conference call that it plans to discontinue development of its experimental weight loss pill, but plans to advance its injectable obesity treatment to a phase three trial. Meantime, Novo Nordisk falling 4 % in the regular session despite beating profit estimates for the latest quarter. Revenue for its weight loss drug, Wigovi, did come in light, but the company still raised full year guidance for both sales and operating profit and soaring demand for GLP-1s.

17:54Our next guest thinks positioning rather than fundamentals has been driving price action in the group this earnings season. But is Amgen bucking the trend based on this obesity drug euphoria? Does it warrant it? Jared Holes is healthcare sector strategist at Mizuho. He joins us here on set. Jared, great to have you with us. Thank you. In terms of this injectable drug, do we know anything about the safety profile and the efficacy of this drug as compared to Novo and Lilly's drug? We really don't know that much about it. They haven't disclosed a ton of data on it. I think what we're getting this afternoon is being perceived as very positive, that they've seen the interim results, whatever the company has seen, they believe is positive.

18:33It warrants moving into phase three at some point, but we still need the phase two results. I think those are coming out by year end. So really, there's lack of disclosure here. The specifics are not clear, but whatever they see internally, they must like a lot. We talked about this before when we heard about them, I think, but when it was entering phase two, that the bar would really have to be high since they're reliable, similar drugs on the market in terms of efficacy would have to be super high or the cost would have to be much lower, I would think. It's still an injectable, so there's still that barrier.

19:07What do you think it needs to achieve in order for it to be really viable? Well, so I agree with all that. I think it's got to be pretty close to Novo and Lilly. The bar is very high for efficacy. We don't really know what dose they're bringing forward here. Is it the high dose? Is it the low dose? If it's the low dose, where they're seeing some safety issues with the high dose, if it's the high dose, what type of efficacy versus the others. But they're clearly what they're saying tonight is differentiation. What that means, very tough to tell. That could mean that they think it's safer. They could mean that the differentiation on the fact of being less frequent of an injection, they're going for a quarterly instead of a weekly.

19:44So they think they can really get this way less frequent. Time will tell, you know, what happens here. Company has about 23, I'm not going to say major drugs, but significant drugs in terms of revenue. Right. This story comes out. They've always traded at a trough valuation. It's probably still trading at 15 times. But was news like this set them up not to get an Eli Lilly valuation, but to take them from a 15 multiple, you know, maybe to the mid 20s, which would suggest the stock is ridiculously cheap here. Great question. I think mid 20s seems super high. Lilly and Novo really didn't get those multiples until they had proved to everybody that the drug was safe and effective and that they can make it.

20:25So a lot of things had to happen right, and they did for those two. I don't think it'll get to the mid-20s. Could it creep up into the high teens just based on the hype and the euphoria going into the full phase two later this year as people kind of take a bet on it? Because it will be transformational if it is great and very competitive. They said tonight that they're working on manufacturing already and all these things are trying to get sorted out. So maybe there is more upside here. I've been kind of net neutral, not net neutral, but But the stock price, you know, when we were on the last time and I came on talking about, you know, this stock relative to Novo and Lilly didn't like as much.

21:03It's basically right back to where it was. So there could be upside if this phase two is really great. So walk us through the timeline to get from here to actually being a competitor to Lilly and Novo. Yeah, my sense on timing is if a phase three begins sometime next year, so a year from now, you know, maybe this is a drug that's on the market end of 2026 into 27. So they're still very far away, right? And with every passing day, you've got Wegovi and you've got ZepBound crushing it. I mean, the Wegovi number is a little bit light. Again, expectations got ahead of themselves, I think. And you still have these supply challenges at Novo, but very hard.

21:44Let's talk about those expectations. I'm a bit of a Novo guy over here, okay? And so I look at 2024 for Novo. I see 24 % earnings in sales growth expected. Slight de-sell next year, trading about 37 times this year, 30 times next. You just talked about they didn't get those sort of premium multiples until they were proven. Now we're seeing a slight de-sell. I know they guided up for the year. If the whole story in this space, and there was a great documentary I saw a couple months ago on Sam's Seeing. Big shot. Big shot. Yeah. Competition's coming. You come on our show every week. We talk about it at some point.

22:17Is there going to be a lot of pressure on Novo and Lilly if just one or two of these gets approved anytime soon? I think when we look at the entire space, Novo and Lilly are dominating because they were already great existing players in diabetes. This obesity market is very tangential. It's very simple for them to kind of pivot a very similar patient population to obesity. Companies like Amgen really don't have any presence at all in diabetes. I think it's just more difficult for them to kind of say, OK, we're now going to be a preeminent player here. Could they take 5%, 10 % market share over time or can the totality of competitors take 10 % of the market?

22:55Sure. But I feel like the dollars that Lilly and Novo have accumulated over time, how much they can spend and invest in the space is going to make it super tough. So the data really has to be excellent, I think. I mean, the other sort of competitive force in terms of Amgen's drug is that Novo and Lilly have other trials going on for other versions of their drugs, semaglutide and trisepatide. I mean, for Novo, they've got the oral readout for phase three in the second half of 24. So if you get an oral pill, why do you need another injectable on the market? I mean. Agree. You may not. And so I think when Amgen looks at their pipeline, they're trying to kind of, you know, maneuver their version of the drug around the existing products.

23:37And if it can be less frequent and there's a patient population that doesn't love injecting themselves every week, maybe there's a place for it. But the results have to be good. Yeah. Jared, great to see you. Thank you. Thank you. Jared Hulse. Michael Jordan of the space. No, I'm telling you. Yes. Right or wrong? Sure. And he was right about Amgen. Because the last time it was on, I think that was a$318 stock. It traded down to$280. It's right back where it was. So he's been spot on in the entire space. I'll say this real quick. Personally, I think Amgen at 15 times is too cheap. I've thought that for a while.