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Stocks: DraftKings, Shake Shack, Deere turn lower after reporting earnings

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Yahoo Finance Live's Julie Hyman and Brian Sozzi discuss how the market is responding to earnings reports from DraftKings, Shake Shack, and Deere.

Video Transcript

JULIE HYMAN: This is Yahoo Finance Live. We are watching futures kind of bounce around here. NASDAQ futures still in the green just a bit. S&P and Dow futures indicating slightly lower open here, as we see traders continue to react to various headlines coming out of Russia and Ukraine and the European and US interaction with that situation.

But we also have to keep an eye on some individual movers that we've been talking a lot about. DraftKings is one of those movers, and it's another mover to the downside sharply, off by 14%. Earnings per share coming in below what analysts had been anticipating, even as revenue did beat estimates.

So let's talk about the other numbers here that we're watching as well-- 2 million monthly unique paying customers for DraftKings. 2.1 million was the estimate, so a little bit light of estimates there. But it seems like the big disappointment, the biggest disappointment, has to do with the 2022 adjusted EBITDA forecast, which is not actually an EBITDA forecast, it's an "OBITDA" forecast, I guess. It's for a forecast of a loss--

BRIAN SOZZI: Of course it is.

JULIE HYMAN: --of $825 million to $925 billion. That is much, much wider than the loss than analysts were expecting. And it's much wider even than the biggest loss, the highest estimate for a loss, that was coming from the Street. And it seems as, though, again, here, it is partially a spending story. We've been talking about all these spending stories. DraftKings is spending to get customers. The question is, how much is it spending, and is the Street deeming it worth it?

BRIAN SOZZI: Well, Julie, you say "OBITDA," I say EBITDA. I guess you could say you could say either way, everybody comes up with their own metrics with these publicly traded companies. Oh, look, no, you're exactly on. Another company, richly valued tech company, which I think DraftKings is, in fact, a tech company, investing more than the market thought, and the shares are being absolutely punished for it. Also, too, another company that is not making money.

[BELL]

JULIE HYMAN: Well, hopefully, somebody is making money because there's a lot of cheering going on here this morning as we get underway on this Friday morning. It's been another wild week, right? We had the Dow drop yesterday the most in a single session that it has all year, and in fact, going back to November 26, on all of this trepidation over the Ukraine-Russia situation, the knock-on effect on commodities and beyond. And then, of course, mix in some of these earnings reports that we've been getting, and you definitely get a not so great picture.

Stocks right now, not much change, right? We're seeing a little bit of a mixed picture this morning. But just to put a pin in it when it comes to DraftKings, to your point about the company not being profitable, this goes back kind of to what Liz Ann was saying. And it is-- she's right. It is a shift that has been ongoing, right, over the past six months, even longer, that there has been less tolerance for that sort of thing, right? You had in the beginning of 2021 just money, thirsty cash I was calling it, pouring into speculative names. And clearly, that era is done.

BRIAN SOZZI: No, and you were-- I think a lot of these tech companies, Julie, were able to get away with quarterly misses like this and disappointing outlooks because rates were low. That's how the market took these things. Even if a tech company missed, it was OK, because the stock would likely bounce back because of all the liquidity sloshing in the system. Well, guess what? That dynamic is now starting to change, and it could be changing in a big way starting in March, when the Fed has their meeting and decides whatever they're going to decide with rates. It's just a different market environment. I think Liz Ann was spot on.

JULIE HYMAN: So let's move to another company that's getting punished this morning. This one is not a tech company. It's a fast food company, talking about Shake Shack here. Shake Shack this morning is another one that is being punished in the wake of its numbers. Here, though, if you look at the quarter that just passed, the numbers weren't bad, right? It's more the forecast that seems to be responsible here for the downdraft.

So comp sales last quarter up 20.8%-- that's a little better than estimated. That overall revenue of $203.3 million a little bit better than estimated as well. Even restaurant level operating margins, 16.4%, was better than the 15.9% that was estimated. But if you look at the forecast for revenue for the first quarter, the company says, at most, it's going to see $201.4 million in sales. The estimate was for $211 million. So just, again, no patience with that kind of thing in this market.

BRIAN SOZZI: No, no patience for that, Julie, but also Shake Shack not providing any full year guidance, which was interesting. Of course, they're pointing to continued volatility in their sales. But something really that caught my eye is just another restaurant company warning about inflation. I have the story right now on the Yahoo Finance home page. Looking at where Shake Shack is raising prices, they are raising delivery prices for their food 10% to 15% because of higher levels of inflation. That is a big increase.

Now they're not pushing through those types of increases if you go into the restaurant and order. This is just for delivery. Now, overall, they have raised-- they have been-- they took a menu price increase of about 3 and 1/2% in October. They also said on the call there will be another menu increase because of inflation coming very shortly. So prices are going up at Shake Shack. Prices are going up McDonald's. They're going up at Burger King. They're definitely going up over at Chipotle. So it's a very interesting time in the restaurant industry.

JULIE HYMAN: It really is. And let's talk about the ingredients that go into the stuff that you eat in the restaurants. I'm trying for a segue here. I'm talking about Deere.

BRIAN SOZZI: Wow, so good. You're such a pro!

JULIE HYMAN: The equipment that's used to harvest the stuff that goes into the-- yeah, OK, you get the idea. All right, here we have first quarter earnings per share coming in at $0.92. That's better than estimated. Revenue also coming in ahead of estimates. The stock, though, trading off here about 1.7%.

And this even after the company also raised its 2022 net income forecast to $6.7 billion to $7.1 billion. But here, obviously, this is not as much a punishment as what we're seeing from the other companies. But the stock was trading higher initially after the report and now has turned lower.

BRIAN SOZZI: Yeah, I'm not feeling very emotional about this quarter from John Deere, Julie. I think this is a company that remains on the cutting edge of farm technology. I do like what they're doing there. Probably take a couple of quarters for them to overcome that lows-- the lasting effects of that labor strike they had to deal with a couple of months ago. But by and large, what John Deere does from a technical standpoint is incredibly useful. And they're helping to power the future of the ag industry.

JULIE HYMAN: They are. I mean, the question here is also with pricing, like it is with everything else right now. Because yes, farmers are able to sell their crops for more right now, right? But the question is, how much-- what's the replacement cycle look like for their equipment? How much are they willing to pay for that equipment? So all of that important questions, as well as Deere makes construction equipment, too. So that's also a part of the calculus here. So all of this something to keep an eye on for this important bellwether, right, when it comes to the economy.