Brian Sozzi, Julie Hyman, and Myles Udland break down earnings which include: Amazon missing revenue estimates, Pinterest shares falling after reporting a significant decline in monthly users in Q2, and Procter & Gamble announcing a new CEO.
JULIE HYMAN: And then finally, yes, Amazon. That company coming out with its numbers. The shares are trading lower by 7% in premarket trading. This is the first time that Amazon has missed quarterly sales estimates since 2018. At the same time the company's missing sales estimates, it's also talking about higher expenses, which as we know, has been a running theme that we've been talking about from different companies.
Running, expenses going higher here for labor as well as for other items, adding capacity, et cetera. Let's talk more about this. Of course, I've got Myles Udland and Brian Sozzi here with me at the desk. So guys, as you look at Amazon, I think it's still fair to say it's an unstoppable juggernaut. But maybe not as Teflon as people thought.
MYLES UDLAND: Well, I think a top line miss is certainly always jarring of sorts. I mean, because what is Amazon if not just a secular grower in all environments? And I think it was very interesting on the earnings call, the CFO talking about, we've not done a great job of nailing the impact of COVID. And I think, Sozzi, that cuts both ways. Over the last several quarters we have seen Amazon blow away expectations, and here we see a miss relative to those expectations.
They talked a bit about where you opening trends, talked a bit about preferences changing. We can get into some of the hiring stuff as well. But I think overall, just a jarring number for the market, given that we've joked, every company is beating top and bottom, no reason even look at it. For Amazon to miss the top line and then guide light is pretty shocking.
BRIAN SOZZI: First revenue miss for Amazon in three years. And I'm reading the story I wrote, it's on the top of the Yahoo Finance page right now, if you want to follow along.
JULIE HYMAN: Reading your own story?
BRIAN SOZZI: I'm going to read it right now, I'm going to read to all our viewers globally here. A couple of reasons why the stock is getting hit here in the premarket. Again, revenue miss versus expectations. You don't normally see that from Amazon. The market definitely doesn't like it. Amazon calling out on its earnings call last night a slowdown in Prime member spending because as people have gotten more mobile, they're just not home as much spending as much on their Prime accounts.
Also too, third quarter guidance, operating profits pegged at $2.5 billion to $6 billion, street was looking for $8.1 billion. The street's read there is that this slowdown, although they didn't say this specifically on the call last night, that is extended into the current quarter. And a couple odds and ends here that I mentioned. Andy Jassy not on the earnings call. Clearly he might be taking--
MYLES UDLAND: That's interesting.
BRIAN SOZZI: He might be taking a page, or he looks to be taking a page out of Jeff Bezos' playbook here. And then also, they did not commit to a second Prime Day. And analysts pushed them on this question. They did not break that news. They didn't feel like they needed it. The market says they did.
JULIE HYMAN: Guys, Amazon has 1.34 million employees. That's up 52% year over year, which, how incredible is that they hired that many people in the last year? And something else the CFO said on the call, I would count on wage pressure for the immediate future. So not only are they seeing the waning sales from people not going, not being at home as much, they are spending more.
BRIAN SOZZI: Well, they're your hotel workers. We've looked at a lot of different fields across the country that are seeing a labor shortage. That form, some of those workers I bet you are former hotel workers. That's why Marriott's CEO can't get the workers he needs right now.
MYLES UDLAND: We're spending a lot of money on signing and incentives, Brian Olsavsky said, and while we have very good staffing levels, it's not without a cost. It's a very competitive labor market out there, and certainly the biggest contributor to inflationary pressures that we're seeing in the business.
So a larger contributor than any shipping costs, larger contributor, now granted, they're selling most of our stuff on third party, so they're not going to see input costs quite as much as their partners might for making gizmos and gadgets and whatnot. But more than any of the other things we've discussed, they see labor, which 1.3 million, that's a lot of people.
JULIE HYMAN: That's a lot of people.
MYLES UDLAND: Last I checked.
BRIAN SOZZI: And despite all this--
MYLES UDLAND: More than many states.
BRIAN SOZZI: More than many states. The weak guidance, the stock down here, five sell side shops this morning all reiterate their buy rating. Slight tweaks to their price targets, but again, the street is back out here defending Amazon. I didn't see any downgrades.
MYLES UDLAND: And can I just say one thing before, it's a very small item within the release, before we go on Amazon. Our friend, Jeff Mackey, pointing this out. The physical stores, I mean, what's going on here? Physical store sales up 10%, fine.
Coming off four straight quarters of a decline in year over year, physical stores, basically Whole Foods and some of the Amazon Go shops. And OK, fine, it's a pandemic, I get that. Second quarter, 21 physical store sales $4.2 billion. First quarter 2020, 4.6 billion. So we're still $400 million below pre pandemic level with the footprint. What is that business going to do?
JULIE HYMAN: Well, here's the question though. How do they account for in store sales that are from people online? In other words, if I order groceries from Whole Foods.
MYLES UDLAND: Got it right here.
JULIE HYMAN: And you know, you go into Whole Foods and half the people who are in there in the suburbs are Amazon employees or contractors shopping, does that count as store sales?
MYLES UDLAND: It does not. Includes product sales, where our customers are physically select items in the store. Sales to customers who BOPUS are in--
BRIAN SOZZI: BOPUS.
MYLES UDLAND: --In online stores. They don't say BOPUS.
JULIE HYMAN: What is BOPUS?
BRIAN SOZZI: Buy Online, Pick Up In Store. Come on, come to me on that, I got you, I got you.
JULIE HYMAN: BOPUS.
MYLES UDLAND: Welcome to the retail.
JULIE HYMAN: Magnum BOPUS.
MYLES UDLAND: Retail buzzwords.
BRIAN SOZZI: Can they just call it [INAUDIBLE]? Can they just break out that line, [INAUDIBLE].
MYLES UDLAND: Well, they have--
BRIAN SOZZI: It's physical stores.
MYLES UDLAND: --A couple Amazon Go stores.
BRIAN SOZZI: Nobody goes there.
JULIE HYMAN: It would be nice if they broke those up. One more quick thing, AWS! Remember that? Revenue there up 37%. $14.8 billion for that business. And the quote unquote other revenue category, which is mostly ad sales, up 87%! And those numbers were ahead of estimates, but the juggernaut is not operational.
BRIAN SOZZI: Slowdown in year over year revenue growth at AWS in addition to retail.
MYLES UDLAND: Yeah, I think Colin Sebastian was the analyst who asked about that, where he said the faster growing areas were better than expected. How do I think about that? And they're like, we agree.
BRIAN SOZZI: Next question.
MYLES UDLAND: I get it. You're a $2 trillion company, how much defending do you need to do? OK, stock's down 7% today, and as you've noted, Sozzi, every analyst is out defending it today.
JULIE HYMAN: All right, let's talk Pinterest. I don't know if anybody's--
MYLES UDLAND: Not good.
JULIE HYMAN: --Defending that here today. Not so many people. So that company coming out with monthly active users up 9%. 454 million monthly active users. 487 million was the estimate. And the company actually beat on the bottom line, but it didn't matter, because that monthly active user number was much worse than estimated. At least eight downgrades for this stock. Not too many people defending it following this earnings number.
BRIAN SOZZI: Well, they loved it yesterday. I guess they don't like it now that it's 20% cheaper. But you have to give a little bit of a hat tip to CEO and founder, Ben Silverman, because he explained in great detail on the earnings call what they're seeing in the business. Less engagement as people go out. You have less pinners sitting in their homes wrapped in a snuggy and pinning things on the screen. One key stat that is absolutely worrying.
MYLES UDLAND: [INAUDIBLE] model of a pinner.
BRIAN SOZZI: Right? Seriously. One warning sign here. They're noting that as of July 27, monthly active users in the US down 7% year over year. Global only up 5%. That global number is a slowdown compared to what they saw in the second quarter. So it could be an ugly third quarter for Pinterest too.
MYLES UDLAND: What stands out to me, Sozzi, is the second half of that paragraph from the guidance section of the letter where they note the slowdown in July, and then they add, we're not providing guidance quote, "given our lack of visibility into certain key drivers of engagement." So I mean, plenty of people don't want to give guidance because the uncertainty, and granted, they do cite uncertainty related to the pandemic.
But saying, Julie, that you can't see the key drivers of engagement within the business at the present moment is kind of saying, we're flying blind here, which is something a lot of management teams said in the second quarter of 2020. But I think in July of 2021, it is shocking as we can see, the stock price.
JULIE HYMAN: Yes, UPS said that too, that they didn't have very much visibility, and it's like [INAUDIBLE]
MYLES UDLAND: How'd that stock do after its earnings? Like, I don't think investors liked that too much.
JULIE HYMAN: So it's also instructive, OK, let's take a step back. We've got Pinterest, we've got Amazon, we've got Facebook, we've got Snap, and it's been interesting the differing fortunes for these companies. To me, the difference for something like a Snap, and the reason perhaps it did better, Snap is a much more mobile tech company than; I don't think people are walking around glued to their phones pinning--
BRIAN SOZZI: I think our producer is.
JULIE HYMAN: --While they're out in the world. Not while they're out in the world. People do Snap though when they're out in the world. It's more of a mobile, because it's more of a communication tool with each other than a Pinterest.
BRIAN SOZZI: Even still, Snap did note they did see a slowdown in people posting stories. I think that nugget got overlooked on the earnings call. But again, it's unclear if that magnifies itself in the current quarter.
JULIE HYMAN: Let's talk about something else that maybe people are not buying as much, and that's other stuff. Cleaning products, maybe.
MYLES UDLAND: Stuff in general.
JULIE HYMAN: Stuff in general. Procter & Gamble out with its numbers as well. And this company saw an increase, of course, sales up 7.1%, but it's still seeing a slower pace. Again, seeing some expenses. And it's going to have a new CEO too, Brian.
BRIAN SOZZI: Yes. I suspect I will still be talking about this on Monday. There's a lot to, as they would say, unpack here. A couple things. First off, P&G calling out a $1.9 billion hit for its next or its current fiscal year, so 12 months forward. $1.9 trillion hit because of increased inflation. I was on a media call with the new CFO and now outgoing CEO David Taylor this morning. They're calling out really high levels inflation in resins and other commodities. So that is a big hit for them.
Also too, within their guidance this year, organic sales are only supposed to be up 3% to 6%. Last fiscal year that was up 6%. So they're seeing a slowdown in sales growth while they're seeing almost a $2 billion hit because of inflation. That is not good. I'm actually surprised to see the stock up to the extent it is.
Now, on the CEO change, we've talked to John Moeller. I have talked to him for a good number of years. He has always done earnings day interviews. He's not doing them today for obvious reasons. But this is an executive that has worked tirelessly. He's very much obsessed with P&G and getting the job done. So this decision makes sense.
But you look at P&G, the stock under CEO David Taylor has underperformed the Dow Jones Industrial average. Shares since he got announced as CEO, ironically July 28, 2015, P&G shares only up 82%. The Dow was up 98%. That comes despite P&G selling its beauty products business a couple years ago for $12.5 billion, cutting billions of expenses, and putting Nelson Peltz on the board following a very big proxy campaign in 2017. So David Taylor, he did a good job, but clearly it would be time for change. Maybe Moeller can get the stock working in the right direction.
JULIE HYMAN: It's what? November 1 is the--
BRIAN SOZZI: November 1.
JULIE HYMAN: --Effective date of that executive change. But it's interesting, the parallels between Amazon. Selling stuff at a slower pace and it's costing the company more.
BRIAN SOZZI: Yeah, also, yeah, good point. And I did ask Taylor and the CFO on the media call this morning, are they seeing a resistance to higher prices? He tells me no. Again, I didn't expect him to tell yes, but they're not, they're at least saying this morning that despite the price increases they have taken, consumers are not trading down.
JULIE HYMAN: Interesting.