What Happened In The Stock Market This Week?
This was a busy week in the stock market as tech giants Apple Inc. ($AAPL) and Amazon ($AMZN), both released earnings and beat expectations. Fed Chair, Jerome Powell, spoke at the conclusion the latest FOMC (Federal Open Market Committee) meeting and announced that the Federal Reserve would be holding rates steady for now, but would begin to slow the speed of its balance sheet drawdown. Other large companies released earnings this week as well including Coca-Cola ($KO), Advanced Micro Devices Inc. ($AMD), Zillow ($Z), McDonald's ($MCD), and Starbucks ($SBUX). The standout of the week, however, was used car retailer, Carvana ($CVNA), who surged more than 30% after reporting profitability for the first quarter ever in its history.
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SPDR S&P 500 ETF Trust ($SPY) (FOMC):
In larger, macro-economic news that happened this week, Fed Chair, Jerome Powell, spoke at the conclusion of the latest Federal Open Market Committee meeting, at which the Federal Reserve decided to leave rates unchanged. The Federal Reserve did however, announce plans to slow the speed of its balance sheet drawdown to ensure this process does not create undue stress in financial markets. The Fed said that starting June 1st of this year, it will begin to reduce the cap on Treasury securities it allows to mature and not be replaced to $25B from its current cap of up to $60B per month. The Fed also left the cap on how many mortgage-backed securities it will allow to roll off its books at $35B per month, and it will reinvest an excess MBS principal payments into Treasuries. Jerome Powell said that the new caps would likely result in around $40B per month in total balance sheet runoff. Powell went on to state, "...the decision to slow the pace of runoff does not mean that our balance sheet will ultimately shrink by less than it would otherwise, but rather allows us to approach its ultimate level more gradually", which should reduce the risk of market tumult. The Fed also noted that inflation has not cooled at the pace they expected and noted that the current inflation environment is sticker than hoped, and reiterated their goal of using the tools at hand to guide inflation down sustainably to 2%.
Apple Inc. ($AAPL):
Shares of Apple surged more than 6% Friday morning after the release of the tech giants latest earnings report during the post-market session from the previous day. Apple not only beat earnings expectations, but also announced a $110B stock buyback program. The company reported EPS (earnings per share of $1.53 vs. analyst expectations of $1.50. They also reported revenue of $90.75B vs. expectations of $90.01B. However, not all was good for the tech company, as they reported iPhone revenue at $45.96B, falling short of expectations of $46B. The company said that iPhone sales fell nearly 10%, suggesting weak demand for their smartphone sector. An area of concern for investors of Apple has been their performance in China. However, iPhone sales grew in China during the most recent quarter. CEO, Tim Cook, said, "I feel good about China. I think more about long-term than to the next week or so.". Apple also increased their dividend from $0.24 per share to $0.25 per share. In a letter to shareholder, CEO, Tim Cook, said, "Today Apple is reporting revenue of $90.8B for the March quarter, including an all-time revenue record in Services...During the quarter, we were thrilled to launch Apple Vision Pro and to show the world the potential that spatial computing unlocks. We're also looking forward to an exciting product announcement next week and an incredible Worldwide Developers Conference next month. As always, we are focused on providing the very best products and services for our customers, and doing so while living up to the core values that drive us."
Amazon Inc. ($AMZN):
Shares of Amazon closed roughly 2% higher on Wednesday after the release of the company's latest earnings report during the post-market session on Tuesday. The tech-giant released better-than-expected earnings and revenue for Q1, which they attributed to growth in advertising and cloud computing. Amazon reported EPS (earnings per share) of $0.98 vs. analyst expectations of $0.83. They also posted Q1 revenue of $143.3B vs. analyst expectations of $142.5B. Operating income for the company also rose more than 200% during the most recent period, hitting a whopping total of $15.3B. Amazon's AWS service accounted for 62% of total operating profit. Net income tripled to $10.4B, up from $3.17B just one year ago. Sales increased 13% from the same period during the previous year. Amazon expects operating income for Q2 will be between $10B and $14B, both figures up from $7.7B from the same period during the previous year. Revenue growth for the current quarter is expected to fall short of analyst expectations. Amazon is projecting revenue for Q2 to fall between $144B and $149B, which would signal growth of 7%-11%. Analysts had this figure pegged at 12% or $150.1B. Amazon's ad business grew faster than retail or cloud computing during Q1, and has become a growing profit-driver for the company. Amazon is one of the few remaining mega-cap, tech companies that has yet to announce a dividend even as their cash and equivalents has risen to $73.9B. Amazon President & CEO, Andy Jassy said, in a letter to shareholders, "It was a good start to the year across the business, and you can see that in both our customer experience improvements and financial results...It's very early days in all of our businesses and we remain excited by how much more we can make customers' lives better and easier moving forward."
Carvana Co. ($CVNA):
On Thursday, shares of Carvana opened more than 30% up from the previous close on Wednesday, after the release of the company's latest earnings report during the post-market session from the previous day. The company topped revenue expectations and posted an increase of 17% year-over-year. They also posted their first ever quarterly profit of $49M, far exceeding the expected loss of $132.52M. They posted EPS (earnings per share) of $0.24, far exceeding expectations of -$0.74. The company also reached an adjusted EBITDA margin of 7.7% or $235 million, indicating robust profitability and operational efficiency. Carvana also achieved the highest adjusted EBITDA margin among U.S. public automotive retailers, signaling industry-leading profitability. Carvana's strategic acquisitions and investments in technology have played a pivotal role in its success. The company's strong performance is attributed to its significant gains in gross profit per unit, which stood at $6,432, up from $2,129 from the previous year. Company Founder & CEO, Ernie Garcia, said in a letter to shareholders, "In the first quarter, we delivered our best results in company history, validating our long-held belief that Carvana's online retail model can drive industry-leading profitability while delivering industry-leading customer experiences...With these strong results, significant fundamental margin opportunities ahead, and a nationwide infrastructure than can support multiples of our current sale, we have never been more confident in our opportunity to become the largest and most profitable automotive retailer and to buy and sell millions of cars."
Starbucks Corp. ($SBUX):
Shares of Starbuck's closed lower than 15% on Wednesday after the release of the company's most recent earnings report during the post-market session from the previous day. The company missed expectations on revenue, earnings, same-store sales growth, and 90-day loyalty users. All this as customers pull back on the frequency of their visits and the size of their orders. Company CEO, Laxman Narasimhan called this time a "highly challenging environment". He added that macro-economic challenges, "particularly around the pressures that consumers face, particularly with the occasional customer,...that's where the challenge is." This is Starbuck's first quarterly sales decline since 2020, when COVID shutdowns were happening across the industry. Global same-store sales declined 4% from a year ago as transactions dropped 6%. The company is looking to innovate its menu to draw in more customers and visits, however, as of right now, menu innovations haven't done much for the company. China was actually the largest drop for the company with same-store sales down 11%, foot traffic down 8%, and average ticket size down 4%. Narasimhan said "Performance was impacted by a decline in occasional customers, changing holiday patterns, a high promotional environment, and a normalization of customer behaviors following last year's market reopening." This environment doesn't bode well for the company with 61% of its storefronts in China and the United States. In a letter to shareholders, Narasimhan said, "In a highly challenged environment, this quarter's results do not reflect the power of our brand, our capabilities or the opportunities ahead...It did not meet our expectations, but we understand the specific challenges and opportunities immediately in front of us. We have a clear plan to execute and the entire organization is mobilized around it. We are very confident in our long-term and know that our Triple Shot Reinvention with Two Pumps strategy will deliver on the limitless potential of this brand."
Advanced Micro Devices Inc. ($AMD):
Shares of Advanced Micro Devices closed nearly 9% lower on Wednesday after the release of the company's latest earnings report during the post-market session from the previous day. The company didn't necessarily post bad earnings results, but did fall short of the hype surrounding chip-making and artificial intelligence based companies. The chipmaker posted quarterly revenue between $5.4B and $6B, in line with analyst expectations of $5.7B. Bank of America actually dropped their price target for the company from $195 to $185. BOA research analyst, Vivek Arya noted that AMD bulls might've been disappointed in the company's forecast for MI300 chips in 2024, which came in at $4B. While this was an increase from the prior guide of $3B, Arya noted that it fell short of more bullish outlooks of a $5B or $6B range. Some analysts are claiming a drop in investor enthusiasm surrounding chip-makers and AI companies that have surged over the past year. Citi strategist, Drew Pewttit told Yahoo Finance "You don't just need a beat on earnings and revenue estimates and affirmations on guidance, you need a beat and raise and confidence in the very long-term trajectory of these companies." Company Chair & CEO, Dr. Lisa Su said in a letter to shareholders, "We delivered strong Q1 results with our data center and clients segments each growing more than 80% year-over-year driven by the ramp of MI300 AI accelerator shipments and the adoption of our Ryzen and EPYC processors...This is an incredibly exciting time for the industry as widespread deployment of AI is driving demand for significantly more compute across a broad range of markets. We are executing very well as we ramp our data center business and enable AI capabilities across our product portfolio."
McDonald's Corporation ($MCD):
Shares of McDonalds' fell more than 3% during the morning session on Tuesday, but rallied to close down only 0.19% after the release of the company's latest earnings report. McDonald's missed quarterly profit estimates for the first time in two years as budget-conscious consumers looked past its offers and the Middle East conflict continues to weigh on the burger chain's international sales. Global comparable sales growth slid for the fourth straight quarter to 1.9%, with the company saying consumers turned "more discriminating with every dollar they spend". Company CEO, Chris Kempczinski said on a post-earnings call, "The consumer is certainly being very discriminating in how they spend their dollar...I think it's important to recognize that all income cohorts are seeking value.". It is worth noting that McDonald's results were in contrast to those from other fast food chains that have historically leaned on value menu items to lure picky customers. Burger-King beat expectations for quarterly results, as well as Domino's Pizza. The company's Q1 same-store sales growth grew only 2.5% in the U.S., sharply lower than 12.6% during the same period last year. Western brands like McDonald's and Starbucks have faced protests and boycott campaigns against them over their stance on the Middle East conflict. Company CEO, Chris Kempczinski, said in a letter to shareholders, "As consumers are more discriminating with every dollar they spend, we will continue to earn their visits by delivering leading, reliable, everyday value and outstanding execution in our restaurants. As we look to the rest of 2024 and beyond, we remain focused on leveraging the competitive advantages within our Accelerating the Arches program and growing QSR market share to drive long-term growth."
Zillow Group, Inc. ($Z):
Shares of Zillow slid more than 5% during the morning session on Thursday after the release of the company's latest earnings report during the post-market session from the previous day. The drop in share price came after the real-estate technology company published Q2 outlook that called for lower revenue in its core business and predicted stalling growth in the broader U.S. housing market. Zillow is attributing this outlook to lack of first-time homebuying activity and rise in mortgage rates. Zillow continues to attract app users even as home sales and available listing remain near historic lows. About 217 million unique users visited the company's websites and apps in the most recent quarter. The company, who's main business revolved around connecting prospective homebuyers with real estate agents, reported $125 million in adjusted earnings before interest, taxes, depreciation and amortization, beating the analyst estimates of $104 million. In March, the National Association for Realtors agreed to a settlement that would change the way agents are paid, potentially slashing commission income for the agents who remain Zillow's core customers. In a letter to shareholders, company leadership stated that they believe Zillow will thrive for three reasons, even as the industry evolves. Zillow has the most and highest-intent customers in residential real estate, Zillow works with the most productive agents in residential real estate, and Zillow provides exceptional technology to make agents more efficient and help them do more transactions.
Coca-Cola Company ($KO):
Shares of Coca-Cola closed roughly 0.5% lower on Tuesday after the release of the company's latest earnings report. Coca-Cola posted better-than-expected EPS (earnings per share) and revenue figures. The company attributed this to more consumer drinking its Fanta and Fairlife beverages. The company posted an EPS figure of $0.72 vs. analyst expectations of $0.70. They also posted solid revenue figures for Q1 of $11.30B vs. expectations of $11.01B. One major cost for the beverage provider in Q1 was a $760 million non-cash impairment charge for Bodyarmor, a sports drink. The company fully acquired the Bodyarmor brand in 2021 for $5.6B. CFO, John Murphy, said the charge reflects revised projections and a higher discount rate since the acquisition, as the sports beverage sector has grown increasingly competitive. The company said they they saw demand for bottled water, sports drinks, and coffee weaken in the most recent quarter. Company leadership said it anticipates price hikes in certain markets experiencing "intense inflation". Company Chairman and CEO, James Quincey said in a letter to shareholders, "We're encouraged by our start to 2024, delivering another quarter of volume, topline and earnings growth amidst a dynamic backdrop...We believe our global system is primed for sustained success, thanks to the right strategies, clear alignment, a powerful portfolio and strong execution."
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Resources:
$SPY (FOMC):
https://www.reuters.com/markets/us/fed-announces-reduction-balance-sheet-runoff-pace-2024-05-01/
$AAPL:
https://www.cnbc.com/2024/05/02/apple-aapl-earnings-report-q2-2024.html
https://www.apple.com/newsroom/2024/05/apple-reports-second-quarter-results/
$AMZN:
https://www.cnbc.com/2024/04/30/amazon-amzn-q1-earnings-report-2024.html
$CVNA:
https://finance.yahoo.com/news/carvana-co-surpasses-analyst-revenue-213517091.html
https://investors.carvana.com/news-releases/2024/05-01-2024
$SBUX:
$AMD:
$MCD:
https://corporate.mcdonalds.com/corpmcd/investors.html
$Z:
https://finance.yahoo.com/news/zillow-stock-slumps-first-time-205634408.html
https://investors.zillowgroup.com/investors/overview/default.aspx
$KO:
https://www.cnbc.com/2024/04/30/coca-cola-ko-q1-2024-earnings.html
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