Apple Needs a Plan of Action. What It Can Learn from Amazon.

The e-commerce and cloud computing giant has been through the pain of slowing growth and mass job cuts but looks to be coming out the other side. Amazon has cut a whopping 27,000 jobs since November.

In contrast Apple CEO Tim Cook has previously said mass layoffs would be a “last resort.” It’s worth noting that Apple didn’t embark on the same pandemic-era hiring spree that has led many of its Big Tech peers to cut jobs so severely this year.

But still, job cuts don’t seem to be part of Apple’s playbook. The $3 trillion company wants to do things differently, but it needs some inspiration in these challenging times.

Another area, in which the two tech giants differ, is artificial intelligence. Amazon rarely misses an opportunity to extol the benefits of generative AI on its cloud business, while Apple barely mentions it at all. Maybe Cook has something up his sleeve.

There were some bright spots for Apple; its services business hit a record 1 billion paid subscribers. It’s an impressive number but for future growth, it needs consumers to buy iPhones, iPads and other devices.

Apple also doesn’t have a market-leading cloud computing business, another big difference between the two.

While it can’t conjure one of those up to ease investors’ nerves, it does need to do something proactive to preserve its $3 trillion market value.

—Callum Keown

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Apple Reports Lower iPhone, iPad Sales, But Services Beat

Apple
’s

shares dipped after the tech giant posted a 1% decline in sales from a year ago, its third straight quarter of weakening sales. Strong performance from its services segment and in Greater China were offset by disappointing iPhone and iPad sales.

• For the quarter ended in July, Apple’s revenue of $81.8 billion was about in line with Wall Street’s consensus. Profit of $1.26 a share beat the $1.19 expected. CEO Tim Cook noted the “uneven macroeconomic environment.”
• iPhone sales dropped 2.4% to $39.7 billion, a little shy of the Wall Street consensus forecast of $40.3 billion. Mac sales were above estimates, but 7.3% lower than last year. iPad sales were well below consensus, and down 19.8% from a year earlier.
• Services was the standout segment, generating $21.2 billion in sales, beating consensus and up 8.2% from last year. “Solid Apple results with the all important services beat front and center,” Wedbush analyst Dan Ives said. Apple said it now has more than one billion paid subscriptions across its services offerings.
• Greater China sales, including the mainland, Taiwan, Hong Kong, and Macau, jumped 6.7% to $15.8 billion, well above the $13.6 billion expected, accounting for nearly a fifth of all sales in the quarter. The Americas, meanwhile, declined 5.5% to $35.4 billion.

What’s Next: CFO Luca Maestri said current quarter revenue trends could be comparable with the July quarter’s 1% decline. He expects iPhone and Services revenue to accelerate, but said Mac and iPad sales would likely be down double digits from the year-ago quarter. The iPhone 15 is expected next month.

—Eric J. Savitz and Janet H. Cho

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Amazon Delivers Better Than Forecast Earnings, Guidance

Amazon

beat expectations for second-quarter sales and profit, and its third-quarter guidance topped Wall Street estimates. Cost cutting is paying off, and online retail sales are rising. Amazon Web Services posted stronger-than-expected $22.1 billion in sales, but the pace of growth slowed.

• Revenue rose 11% to $134.4 billion, above Amazon’s own guidance range. Profit reversed a loss last year. Within the cloud business revenue gains of 12.2% was the slowest pace since Amazon started reporting it separately in 2015.
• AWS growth stabilized as customers shifted from “cost optimization to new workload deployment,” CEO Andy Jassy said, noting its slew of generative AI releases make it easier and cheaper for companies to train and run models, customize Large Language Models to build generative AI applications and agents, and write code more efficiently.
• Amazon cut 27,000 corporate jobs and had 1.46 million workers as of the end of June, down 4% from a year earlier. Operating expenses rose 7.5% in the quarter, and sales and marketing costs rose 6.5%. CFO Brian Olsavsky said they see more opportunities for cost efficiencies.
• Online store sales increased 4%, but fell short of the 6.5% expected. Third-party services jumped 18%, above the 13% forecast. Amazon’s Prime Day sale in July will be reflected in third-quarter results.

What’s Next: Amazon projects third-quarter sales of $138 billion to $143 billion, up between 9% and 13% from a year ago, and several billion dollars above the consensus. The company sees operating income of between $5.5 billion and $8.5 billion.

—Eric J. Savitz and Janet H. Cho

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Coinbase

Earnings Beat but Muted Reaction Marks Crypto Woes

Coinbase Global handily beat Wall Street’s estimates for earnings and revenue in the second quarter, a win for the largest listed cryptocurrency business. But fundamentals in crypto trading, the core of the broker’s business, remain weak—and the battle that matters most to its investors will take place in a courthouse.

• Coinbase late Thursday disclosed a second-quarter loss of 42 cents a share, less than the 76-cent loss expected by analysts, with revenue of nearly $708 million compared to estimates of $628 million. The stock was higher in Friday premarket trading, but also slipped into the red at points after the release.
• The problem is that while Bitcoin prices have rebounded this year, and Coinbase shares have rocketed 168%, that hasn’t been enough to excite retail traders. Revenue from retail transactions—the heart of the business—exceeded analysts’ expectations but was still the second-lowest level ever reported by Coinbase since it became a public company in 2021.
• The elephant in the room is a critical legal battle between the company and regulators. The Securities and Exchange Commission sued Coinbase in June, alleging that it is operating as an unregistered securities exchange, which Coinbase denies. If a court eventually rules against the broker, it could restrict products Coinbase is able to offer. The case could weigh on the stock for years.

What’s Next: The muted reaction to a big earnings beat for a stock that has ripped higher in 2023 mirrors the current state of crypto. Bitcoin, like shares in Coinbase, has rallied since the start of the year in the face of fundamental and existential pressures, but investors have recently struggled to get more excited about crypto.

—Joe Light and Jack Denton

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Airbnb Posts Best Second Quarter Profit Ever on International Travel

Airbnb

lodging and experiences site notched its most profitable second quarter ever in a sign that high prices for travel are persisting. It boosted its outlook for third quarter revenue despite fears of a post-summer slowdown in travel demand.

• Second quarter revenue rose 18% to $2.5 billion, and gross bookings rose 13% to $19.1 billion. Travelers booked 115.1 million nights, up 11%, as international travel continued to show strong momentum.
• Cross border bookings rose 16%, and the company said it sees people returning to cities lately. Urban nights booked rose 13% from the same time last year. Airbnb has a strong presence in urban areas.
• Airbnb expects a modest increase in nights and experiences booked in the third quarter compared with the second quarter’s growth. It also sees revenue growth outpacing the growth of nights and experiences bookings in the third quarter because of sticky pricing.
• Travel planning site

  Booking Holdings

  said it’s been a record summer travel season as international room nights are now fully recovered to 2019 levels. Gross travel bookings rose 15% in the second quarter, and they see strong travel trends extending into the third quarter.

What’s Next: Airbnb expects third quarter revenue to be a range of $3.3 billion to $3.4 billion, beating Wall Street forecasts. On a conference call, executives said they were confident second-half earnings before interest, taxes, depreciation and amortization margins could exceed last year’s.

—Liz Moyer

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Billionaires Weigh in on Short- Versus Long-Dated Treasuries

Billionaires are weighing in on the bond market, where yields have risen sharply.

Tesla
’s

Elon Musk, for instance, called short-term Treasuries a “no-brainer,” and of course

Berkshire Hathaway
’s

Warren Buffett said Fitch’s downgrade of U.S. debt wasn’t going to keep him out of that market, either.

• Berkshire bought $10 billion of U.S. Treasuries on Monday as it does every week, Buffett told CNBC. Berkshire buys Treasury bills at the weekly government auctions of 3-month and 6-month bills. About $104 billion of Berkshire’s cash was so invested as of March.
• But Buffett isn’t a fan of longer-dated paper. Berkshire’s equity portfolio totals about $375 billion, while it held just $23 billion of bonds as of March. Long-dated Treasuries are on pace for their worst week of the year, with the 30-year yield near November 2022 highs, and 10-years yielding 4.13%.
• Hedge-fund manager Bill Ackman tweeted on Wednesday that he was betting on 30-year yields to continue rising, possibly to 5.5% from 4.3% now. On Thursday, he said his firm Pershing Square invests cash in short-term Treasuries.
• Ackman noted in his annual letter to shareholders earlier this year that Pershing Square had made about $5 billion from rate bets since 2020, including one initiated in 2020 that profited from the sharp rise in rates the Fed has rolled out since early 2022.

What’s Next: The short-dated Treasuries everyone is talking about are seeing strong demand because Federal Reserve interest rate increases are pushing yields to their highest levels in more than a decade.

—Liz Moyer and Andrew Bary

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Do you remember this week’s news? Take our quiz below to test your knowledge. Tell us how you did in an email to thebarronsdaily@barrons.com.

1. Fitch Ratings downgraded the U.S. credit rating this week, citing which of the following reasons?

a. Debt ceiling standoffs and last minute resolutions by lawmakers.

b. The combined effects of rising federal debt, tax cuts, and new federal spending.

c. It expects a mild recession later this year.

d. All of the above

2.

Advanced Micro Devices

added some predictions about the future of artificial intelligence when it reported earnings this week. It said the market for AI accelerators in data centers could grow to how much by 2027:

a. $125 billion

b. $150 billion

c. $175 billion

d. $200 billion

3. The Bank of England, matching recent moves by the Federal Reserve and European Central Bank, raised interest rates to 5.25%, making them the highest in the U.K. since when?

a. February 2002

b. February 2005

c. February 2008

d. February 2011

4. Phoenix finally broke a record-setting streak of consecutive days during which it had marked a high daytime temperature of 110 or more. How long was this streak?

a. 31 days

b. 25 days

c. 18 days

d. 11 days

5. A first-generation iPod was recently sold on the Rally collectibles platform in its original packaging from the factory. The $399 iPod from 2001 fetched how much?

a. $290

b. $2,900

c. $29,000

d. $290,000

Answers: 1(d); 2(b); 3(c); 4(a); 5(c)

—Barron’s Staff

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—Newsletter edited by Liz Moyer, Callum Keown, Rupert Steiner