📦 Amazon's Earning Chaos

Amazon reported earnings, and investors didn’t know what to do… May 1, 2024 | Peel #670 Silver Banana goes to... [CapLinked. ]( In this issue of the Peel: - 💼 Yall are getting paid too much… employment costs are up. - 💊 The world’s biggest drug dealer saw its earnings jump 67%. - 📦 Amazon reported earnings, and investors didn’t know what to do… Market Snapshot 📸 = Banana Bits 🍌 - Oh yeah, we almost forgot, there’s a [Fed Meeting today](). Spoiler Alert—rates are staying high - Firing all those people worked out in [cutting costs at Amazon]( - Weed is expected to get bumped down from [Schedule I to Schedule III](=)soon, ditching cocaine and heroin to hang out with ketamine and steroids - Implied odds of a recession hang [near record lows]() as consumer confidence [slips below a threshold level]() Get with the program and try Caplinked. Change is a good thing! Are you still trying to close deals with the same VDR software the partners used when boy bands topped the charts and Y2K was a genuine concern? It's time to let go of that prehistoric tech! Upgrade to our state-of-the-art data room — faster, sleeker, and infinitely easier to use than the digital dinosaur you’re currently stuck with. Today’s markets move at lightning speed. Don't get left in the dial-up dust; embrace the future with technology that actually belongs in this century. And really, if your VDR is as old as MySpace, it's not retro cool — it’s just ancient. [Time to upgrade,]() unless you're still hoping for a Friendster comeback! Macro Monkey Says 🐒 Under-Lying Inflation Two of my best friends growing up, Drake & Josh, really made me laugh one day with the line, “I ain’t callin’ you a truther!” He wasn’t calling him for dinner either. And, while we’re not here to call Fed Chair Jerome Powell and the rest of the FOMC liars, we definitely aren’t calling them truthers either. The Fed’s dovish pivot at the end of 2023 triggered a “Santa Claus rally” in stock prices that we rode all the way through St. Paddy’s Day. But it turns out that pivot may have been about as real as Santa Claus himself. What Happened? The Fed is taking a line from Juice WRLD, saying on Tuesday that they too Hate Bein’ Sober and have decided to stay higher for longer. [Source]() A big reason for that is the chart here. Yesterday, the BLS published data on the Employment Cost Index here in the U.S. In yesterday’s Peel, we talked the four horseman of goods inflation, but today, we’re focused on the actually important part—services inflation. For most service businesses, their primary cost is wages, salaries, and whatever else we muppets manage to scrounge away from our employers. As we can see above, 2024 has brought about an unwelcome uptick in Employment Costs. We can see the latest in that flattening of the red line (private employer employment costs) and the spike in the blue line (government employment costs). Not sure what the hell these government employees are doing all day, but they’re getting paid a lot for it. Unless, that’s just an adjustment to reflect Congressional insider trading… Anyway, as a reminder, the uptick in the dark blue line seen in 2024 has been the driving factor of the weak start to the week—and if continued, a weak start to the new month. In total, employment costs were 1.2% higher in Q1. In the fourth quarter of last year, employment costs increased 0.9%. Both came in higher than expected, but the scary part is that employment costs—the most underlying factor of inflation—are rising. Compared to Q1 of 2023, the ECI has gained 4.2% in aggregate, higher than we’d like but (thankfully) lower than the 4.8% at that time. Meanwhile, state and local government employment costs increased to 4.8%, which is right in line with Q1’23. Here, the good news is also the bad news, as wages were the primary driver of Q1’s rise, gaining 4.4%, while benefits increased just 3.7%. The Takeaway? [Source]() JPow and the FOMC gang pay more attention to the ECI than most of you did to your final exams. Given the importance of the ECI in service costs, and the fact that the U.S. is a service based economy, this is as “underlying” as it gets. And we can see that the smart money has been catching on for a while. Yields sold off on the December dovish pivot but have since regained territory by calling cap on the “lower for sooner” narrative we all bought into for about 5 seconds. Now, yields are headed higher, and with the 2-year holding strong above 5%, it’s clear that bond markets aren’t pricing in any of that dovishness now. What's Ripe 🤩 Oatly (OTLY) 📈15.0% - Liberal milk sales weren’t exactly popping off in the first quarter, growing only 2% for the year, but that didn’t stop liberal milk investors from pouring in. - Oatly has been playing a game of chicken with bankruptcy, getting the much-needed relief from this fate. Improving gross margins from 17% to 27% will do that. - But this thing still smells as bad as the animals they’re trying to protect. Guiding for 5-10% sales growth in 2024 isn’t too hype, but it was enough for this firm. Eli Lilly (LLY) 📈6.0% - The world’s biggest drug dealer reported Q1 earnings yesterday, much to the content of its gang members, I mean shareholders. - Eli Lilly reported that surges in sales of the obesity drug Zepbound carried the firm to success despite weakness from diabetes drugs Mounjaro and Trulicity. - All in all, the world’s largest healthcare* company earned $2.24bn, a 67% jump and beating the $2.1bn expected, while sales of $8.77bn crushed estimates too. What's Rotten 🤮 GE Healthcare (GEHC) 📉14.3% - I’ll tell you one thing General Electric definitely doesn’t miss—caring for their customers’ health. If that wasn’t obvious already, it sure is now. - Formerly part of the great American conglomerate, GEHC, was off to a pathetic start as its own company, missing on both sales and EPS. - The firm reported earnings of $0.90/sh on $4.6bn in sales vs the $0.91/sh on $4.8bn expected… and that’s on an adjusted (a.k.a. bullsh*t) EPS. Molson Coors (TAP) 📉9.9% - Fun is finally making a return in America, and we can tell because this healthcare/entertainment/alcoholic beverage company was crushing in Q1. - Despite strong volume, shares sank as sales guidance for Q2 came in much quieter than expected, potentially due to Bud Light being so damn BACK. - Still, both sales and EPS beat estimates for Q1. But early April is when alcohol companies get their annual vibe check, and well, the vibes are off as of now. Thought Banana 🤔 Earnings Spotlight: Amazon.com It was always the smart kids in school who got bullied. And while I was bullying them (or at least trying to), it always seemed like being smart was the way to go. The same is true in the stock market. But, instead of the smart kids, it’s the rising stocks. I don’t know if you guys are market historians or anything, but this Amazon.com stock has done pretty well for itself. And following yesterday’s earnings report, investors didn’t know if that performance would continue. You’d think a more than tripling in profits would guarantee that, but it’s tough to make Mr. Market happy. The Numbers The world’s 6th most valuable company face choppy waters in the after hours market as investors couldn’t decide if beating estimate is a good thing or not. Shares tanked into the report’s release, then spiked in the immediate aftermath, and ultimately settled up just 1.23% from Tuesday’s close and down 2.1% from Monday’s. Let’s get into why. Earnings of $0.98/sh beat expectations by 18%, while sales of $143.3bn narrowly outpaced the $142.5bn estimate. Solid start. In total, sales increased 13% compared to Q1 of last year. Perhaps the most surprising thing, however, was that this sale growth was not driven by AWS or even retail… Amazon’s advertising service saw revenues boom 24% compared to last year, largely thanks to the addition of ads in Prime Video. Meanwhile, Amazon’s darling of a cloud computing business unit grew just 17%, which is still very solid, but slightly underwhelming given the high-20% growth seen in the cloud units for Microsoft and Alphabet. = The real show stopper was the explosion in operating income Amazon was able to realize on this, growing over 200% to $15.3bn. That’s great, but as we can see, that’s more of a commentary on weakness in Q1’23 than strength in Q1’24. Then came the bad news. And as usual, this news wasn’t “bad”—as it’s never really “good” or “bad” in the market’s mind—but sales guidance for Q2 was worse than expected. Amazon expects just 7-11% growth in Q2, while markets were looking for 12% growth. Lastly, investors may have been crying over the fact that Big Daddy Bezos & Co. has yet to declare a dividend. Microsoft and Apple have been paying one since your parents learned what a computer was, and now Meta and Alphabet pay one too. Not Amazon. But, when you’re raking in 200% operating growth to over $15.3bn, there are just two things to say: - Can’t really be mad… and - They gotta start paying one soon, right? As a side note, we asked our wise, cool, and hot apes in our [Discord](channel what their expectations were for the market’s response to Amazon’s numbers. 65% of voters said shares would be “Higher,” and 35% said shares would be “Lower”... And we did actually have “Flat” as an option, but as the mathematicians out there will notice, nobody voted for this one at all. Make sure to hop in so that you can be the next wise, cool, and hot ape to prove everyone else wrong! [Join here](). 💭 The Big Question 💭: Is Amazon’s marketing business the new growth engine? How do Amazon’s AI capabilities stack up to those of its competitors? Why haven’t you joined the Discord channel yet? Banana Brain Teaser 💡 Previous 🗓 In a certain fraction, the denominator is 16 greater than the numerator. If the fraction is equivalent to 80 percent, what is the denominator of the fraction? Answer: 80 Today 🕐 Greg assembles units of a certain product at a factory. Each day he is paid $2.00 per unit for the first 40 units that he assembles and $2.5 for each additional unit that he assembles that day. If Greg assembled at least 30 units on each of the two days and was paid a total of $180.00 for assembling units on the two days, what is the greatest possible number of units that he could have assembled on one of the two days? Send your guesses to vyomesh@wallstreetoasis.com Wise Investor Says 🤓 “I knew that if I failed I wouldn’t regret that, but I knew the one thing I might regret is not trying.” — Jeff Bezos How Would You Rate Today's Peel? 😁[All the bananas](=) 😐[Meh](=) 😩[Rotten AF](=) Happy Investing, David, Vyom, Jasper & Patrick [ADVERTISE]( // [WSO ALPHA](=) // [ACADEMY]() // [COURSES]() // [LEGAL]( [Unsubscribe]( IB Oasis Corp. (aka "Wall Street Oasis") 20705 Saint Charles St Saratoga, California 95070 United States (617) 337-3353