Estimize's Leigh Drogen on Amazon and Apple earnings

Leigh Drogen, Estimize CEO, joined Yahoo Finance to break down Amazon and Apple earnings which both reported after the bell and discusses what's next for both of the tech giants.

Video Transcript

SEANA SMITH: We've seen pretty strong reports overall-- Twitter being the exception here so far this afternoon. But which report is impressing you the most or standing out to you most?

LEIGH DROGEN: I'm really looking at Amazon here. And I think if we back up a step, I think it's very obvious. If you went back to March or April and said, we're going to have a pandemic, everybody's basically going to have to adopt, you know, e-commerce, who is going to benefit?

Obviously, you know, you would say Amazon was going to go from, you know, 20% year-over-year growth rates to something higher than that. But we're looking at 36%, 39% year-over-year revenue growth rates. I mean, this is pretty amazing execution by Bezos's team.

And the other really important thing here with that report is last quarter, there was wide discrepancy in expectations regarding how much of the additional revenue would hit the bottom line and how much they would have to spend to service all of the additional revenue, and they blew it out of the water. We had just as wide a dispersion and a distribution of estimates on Estimize for EPS here this quarter, as we did last quarter. The market still didn't know if he was able to come up with that number two quarters in a row or whether he would have to add a ton more cost. And you saw-- and this is what I love the most about Bezos is the first line in the earnings announcement, he's basically goading his competitors into trying to compete with him on a cost basis just after he absolutely crushed the quarter on that vector. And I think that's just an amazing thing to watch the execution from his team.

ANDY SERWER: Hey, Leigh, I mean, that's-- that sort of leads into my question, which speaks a little bit to hubris and scale. And I mean, I think, from an investor's standpoint, you have to ask this question. It's been asked a million times. I'm going to ask you again. Is the only thing that could stop this company and the others in this set as well the government? And, you know, to what degree are they-- keep getting closer and closer to that flame by actually executing so well?

LEIGH DROGEN: Here's my personal view on the monopolistic aspect of Amazon, and there's definitely some, you know, personal, political views in here. Monopolies are good for consumers until they tip over a certain level, and Amazon crushes the cost of goods and services for the average consumer. On the basis of them being a monopoly associated with that business, I don't think anybody's ever going to touch them. The government's not going to touch them, and there's not going to be a competitive advantage from some other business that touches them.

The other way to look at it, where they are definitely at fault and something needs to be done and I think something will eventually be done, from a regulatory perspective, is when they place their own internal products ahead of the marketplace that they've built, that is a violation of what we've handed them, which is a monopoly in return for lower cost of goods and services. And that's not good.

And I think, eventually, Jeff will see that and/or be forced to take that away. But in return, what he kind of gets here is he is building a massive advertising platform within that company. And he may just end up being able to, in transit, swap the two as we go, and nobody will really know the difference.

SEANA SMITH: Leigh, we're getting Amazon-- or Apple numbers here crossing the wires right now. As we wait for those results, when you take a look at these tech companies-- Amazon up just around 70% ahead of these results that we got this afternoon, Apple up just around 50%, Facebook up 35%. They've really led the market higher over the last couple of months. Are you still seeing reason to buy these names, or is there still a lot to like, when it comes to these tech giants?

LEIGH DROGEN: Yeah, so here's what investors really have to be looking at right now is the out-quarter change in the estimates-- so looking out two, three, four quarters. And the question is, have we pulled forward consumer adoption, especially for the e-commerce space? And all the advertising, the social media companies are a direct result of that pull forward in all the adoption. We're at about 20% of retail sales are now e-commerce. Have we pulled forward that adoption to the point where there will then, in the future, be kind of a trough where we catch up to whatever that trend line was going to be, or have we pulled forward all this adoption, and we're just going to keep on going?

And when I look at the data, what I-- you know, what I want to see to believe that it's the latter not the former is that we're getting continued upward revisions, especially on the revenue side and those higher growth rates, even as we go around the turn now, three or four quarters from now, where the comps are against the higher numbers--

SEANA SMITH: Yeah.

LEIGH DROGEN: And we are seeing that. We're seeing those numbers climb. And so I don't want to get off of this train yet because I don't think there's any reason associated with what the data is saying.

SEANA SMITH: All right, Leigh, I want you to stay with us. We're getting Apple's numbers right now. Myles has those details for us. Myles?

JEN ROGERS: Yeah, Seana, interesting quarter here for Apple-- the stock looks like it's down a couple of percentage points in the initial after-hours trading session. Let's get to the numbers here from Apple-- again, beating on the bottom line, $0.73 per share. That's better than the $0.70 that was expected by the Street. Total revenues, $64.7 billion, better than the $63.5 that the Street was looking for.

But the miss here is on iPhone revenues-- $26.44 billion in iPhone revenue during the company's fiscal fourth quarter. The Street was looking for right around $27.1 billion. Now, it's not surprising that they missed. We have a new iPhone coming out and some comments from Tim Cook in the release, saying that they've seen a tremendous response to the new device, which, of course, they announced earlier this month. But that seems to be weighing on the stock here.

Just going through a couple other segments of Apple's business-- iPad revenues, $6.8 billion, better than the $6.1 the Street was looking for. Mac revenues, beating by $1 billion-- $9 billion in the company's most recent quarter. And the wearables, etc line-- that includes Watch, the AirPods, all that stuff-- $7.8 billion in the most recent quarter. $7.35 was what the Street was looking for. So overall, services revenue beating expectations by about $700 million-- $14.55 billion in the company's most recent quarter. But again, that Apple revenue number just slightly lagging estimates and does look like that is dragging down the stock here, off about 5% in the after hours.

DAN ROBERTS: And guys, so interesting, as Myles highlighted the iPhone numbers there, because for how long have we talked about anticipating the 5G iPhone, which now is at long last coming and it's right around the corner, and the bulls on Apple moving their narrative to services. Don't worry about the iPhone sales. How about services?

So sure enough, the earnings note here leads with records for Mac and for services. And by the way, speaking of services, I'm going to be very interested to hear that Apple One bundle that's being introduced is doing, what the company thinks about that. Because as I've talked about on this show, I just don't think that's very appealing. If you already subscribe to, say, Spotify, you know, you're not going to cancel Spotify to do Apple Music to buy into the Apple bundle. But let's hear about that-- services being the new thing.

And then interesting to note that Tim Cook calls it the most prolific product introduction period we've ever had. Of course, the new product introduction about to see, that 5G iPhone. But I can just already hear the raging Apple bulls that we often have on our programming saying, don't worry about the iPhone numbers. That was because the upgrade cycle had slowed.

Now that we're going to get the 5G iPhone, all of those people will finally upgrade. It's all OK, and look at the services. So you know, if you're an Apple bull, you can kind of pick which thing you want to cherry-pick and say is good news. Records for services, records for Mac-- it's interesting.

JEN ROGERS: I knew something was up, that they missed somewhere with the lead, when you go with services and Mac revenue. Like, when is the last time we talked about the Mac? Like, a desktop? So it just shows you, obviously, that there's something in here. It's not a huge miss on iPhone, but this is the iPhone company.

I think we needed to get more details on what's going on with the bundle, as you said, Dan, and also this new fitness initiative. We've seen a lot of delays for the watch and excitement over that. We've seen what's been happening with Peloton. So those are some areas that you're going to want to see. But I cannot believe I'm talking about the Mac.

SEANA SMITH: I know, and I think to that point, though, when we talk about just the importance of Apple's products, as much as we talk about it being a services company, moving away from their reliance on the iPhone, Leigh, I'd love to get your thoughts on this just because when we take a look at these numbers, it seems like-- well, it seems like there's two areas of weakness, actually. One, the iPhone miss, obviously a headwind here for Apple, but also some of the weakness that they're seeing over in China, when we take a look at the fact that revenue there falling 29%. I think there's some question just as to how quickly the, I guess, response will return here in China, not only in its fiscal first quarter, but also looking ahead to next year.

LEIGH DROGEN: Yeah, I think it's important to keep perspective on the fact that the services business flows from the hardware business. If tomorrow there was a better piece of hardware and 500 million people bought something else, the services business would collapse. So at the end of the day, the market will price this stock based on the retention of customers continuing to buy their hardware over and over again.

And I want to point out one other bullish piece that kind of got glossed over a little bit, which is these things-- the AirPods. I really have the feeling that this is going to be a massive platform in the future. In having conversations with certain friends, either in tech or in DC, there is some real bullishness in companies being built and services being built around this as a platform, just as the Watch is becoming a platform as well. Now, Apple seems to want to own some of the software and services around the Watch. But I think there is going to be a really massive business in the AirPods, and I don't think that that's quite priced in here yet to how people are thinking about go forward.

In terms of the numbers that just got reported for iPhone and Mac and iPad, some of that is definitely, as the iPad for sure is, pandemic related, people sitting at home. Other stuff is definitely just the upgrade cycle. But I don't think there's anything in the report here to really, you know, look sideways at and say there's a hardware, you know, problem.

DAN ROBERTS: Leigh, Dan Roberts here. So we've just gotten in the last half hour Google and now Apple. If we zoom out a little bit and merge those, we did talk a little bit with you about the Google antitrust lawsuit. But of course, Apple has been pulled into this story because of the way that Google search results work.

And now the latest today I'm seeing is various outlets predicting Apple could go ahead and just create its own search engine, which I think would be very notable. Is that something you're watching, thinking could happen? Give us a little bit about, you know, how concerned Apple's shareholders should be about the Google lawsuit.

LEIGH DROGEN: Yeah, the estimates are that that payment is about 10% of EPS, so it is definitely significant. The question is, will the market treat it as kind of a cash equivalent, in a sense, or, you know, a big, strategic piece of the business? When I look at Apple building a search engine, I think it's important to go back and look at the history of Apple building software outside of the core iOS and kind of ask, how many pieces of really important software out there that everybody uses has Apple actually created in, like, the last five, seven years? And it's really hard to come up with anything that's, like, super significant.

They've failed miserably at Maps. It's tough, and I wouldn't put my money on Apple being able to build that business. So I don't think investors are going to be betting on that one way or the other. My bet would be that they would treat it kind of as a cash equivalent and say, Apple's got a ton of cash and whatever.

SEANA SMITH: Leigh, when we look ahead to this earnings call that we're going to get, when we hear from the CEO Tim Cook, what's the number one thing that you would have to ask him, just in terms of, I guess, what would we be expecting in the holiday quarter-- we know that that is so important here for Apple-- then also just looking ahead, just in terms of future growth opportunities for the company?

LEIGH DROGEN: So the short-term things, for sure. Look, all companies have basically pulled guidance here, and that's one reason why you're seeing big moves in either direction after reports because there's a wide-- historically wide dispersion of estimates all around. So it will be interesting to see, you know, what Tim says about the future.

Long term, the thing that I'd really love to hear from him, because I think it is strategically and the thing that Apple's future is baked on, and that is, what does he see as the next hardware platform? You know, Oculus is kind of getting going here a little bit. It's got a little bit of momentum. I think Facebook has kind of fumbled around with it a while. And certainly, VR, maybe the hardware isn't quite there yet. And AR, it's kind of common, but it's been a while.

I really want to hear from Tim if he's got, you know, some insight into how close are we to a new paradigm in a hardware platform actually disrupting what we've got right now, which is Apple's bread and butter. Because long term, if you're a long-term holder of Apple, I think that is the variable that you really need to figure out.

SEANA SMITH: Once again, Apple shares under pressure here, off just around 4%, and the earnings call will get underway in just about 20 minutes from now. Leigh Drogen, CEO of Estimize, thanks so much for sticking around. Great to talk to you.

LEIGH DROGEN: Thanks for having me.