← Prof G Markets
Prof G Markets
Novo Nordisk Tanks 30%, P&G Takes a Tariff Hit & SoFi’s Monster Second Quarter
00:27:47
Loading summary
Transcript25 lines
- [00:01]
Travis
Avoiding your unfinished home projects because you're not sure where to start. Thumbtack knows homes so you don't have to don't know the difference between matte paint, finish and satin or what that clunking sound from your dryer is. With Thumbtack, you don't have to be a home pro, you just have to hire one. You can hire top rated pros, see price estimates and read reviews all on the app Download today.
- [00:25]
Lily Rose
Growing your e commerce business comes with plenty of hurdles, but shipping shouldn't be one of them.
- [00:32]
Ed Elson
Here's some good news.
- [00:34]
Lily Rose
Powerful e commerce shipping software called Ship Excel from Pitney Bowes. With Ship Excel, you can generate discounted shipping labels for both online and offline orders. That saves time and money with everything right at your fingertips. Start your free trial of Ship Excel.
- [00:51]
Nick Modi
From Pitney Bowes today.
- [00:55]
Travis
Does it ever feel like you're a marketing professional just speaking into the Boyd? Well, with LinkedIn ads, you can know you're reaching the right decision makers. You can even target buyers by job title, industry, company seniority skills. Wait, did I say job title yet? Get started today and see how you can avoid the void and reach the right buyers with LinkedIn ads. We'll even give you a $100 credit on your next campaign. Get started at LinkedIn.com results terms and conditions apply.
- [01:25]
Ed Elson
Today's number 16. That is the percentage of French people who say they can live without cheese. The other number we could have gone with is 31. That's the percentage of French people who say they can live without a phone. Put another way, cheese is more important to French people than technology. And that would explain why no one wants to invest in France. Money market matter if money is evil, then that building is hell. Welcome to Property Markets. I'm Ed elson. It is July 30th. Let's check in on yesterday's market vitals. The major indices all fell slightly as investors awaited news on trade negotiations with China and digested a big batch of earnings. The yield on 10 year treasuries declined ahead of the Federal Reserve's interest rate decision out. Later today, the dollar reached a one month high against the euro. And finally, Spotify stock had its worst day in two years, falling 11% after its second quarter. Earnings came in below expectations and the streaming platform swung to a loss. Okay, what else is happening? Novo Nordisk shares plunged nearly 30% yesterday after the company slashed its outlook for the second time this year. Full year revenue growth is now expected to be in the range of 8 to 14% that's down significantly from its previous top range target of 21%. Meanwhile, profit growth was also revised to 10 to 16%, and that is down from a top range target of 24%. So, disappointing numbers from Novo Nordisk. And the market is understandably punishing them for it. The stock is now down nearly 40% year to date. Clearly, something is not going right for Novo Nordisk. And the question is what? What is driving this slowdown? What is driving these guidance cuts? What is the problem for this iconic GLP one company at a time when GLP1s should be having their big moment? Well, according to management, the problem is copycats. As we've discussed before, many other healthcare companies have started to make their own makeshift versions of GLP1s, known as compound GLP1s. HIMSS, for example, is a name we've discussed a lot. Last year, they started offering compound GLP1s, and the reason they were able to do that despite not having FDA approval is because there was a GLP1 supply shortage. And the rule in America is if drugs are short on supply, other companies can make compounded versions of them without having to go through the formal FDA approval process. So HIMSS got into GLP1s, so did many other companies, and understandably, that started to eat into market share. So that's what Novo Nordisk said was the problem. Which seems reasonable until you remember two key details that seem probably more important. The first is that this GLP1 supply shortage is now over, which means HIMSS and HIMSS equivalents can't make GLP1s anymore. So that's not really a problem anymore. And the second is a way bigger deal, and that is that Eli Lilly, Novo Nordisk's biggest competitor, just overtook them in in the United States. Eli Lilly's product, Zepbound, is now more popular than WeGovy and it controls 60% of the US market. So it is strange that despite this crucial detail, Novo Nordisk declined to mention their competitor one time on the investor call. Meanwhile, they mentioned compounds a way smaller issue 69 times. So, to better understand what's going on here and how the market reacted, our producer Claire, spoke with Emily Field, head of European Pharmaceuticals Equity Research at Barclays.
- [05:26]
Emily Field
So the company seems very focused on this copycat problem, but they seem much less focused on the fact that their biggest competitor, Eli Lilly, has taken the lead in the weight loss drug prescriptions market. So do you think that part of this massive sell off is potentially the market telling Novo Nordisk they're focused on the wrong Threat?
- [05:51]
Nick Modi
Yeah, I think that, you know, kind of with the benefit of hindsight, when this market was really exploding and throughout the summer of 2023 was when things really started to kick off. We talk to doctors all the time and the vast majority prefer Lilly's drug. You know, putting everything else aside because you lose a little bit more weight. And the feedback is that patients have a better time on the drug. They have less of the gastrointestinal side effects like nausea and whatnot. That's not in the clinical data, but that's what we hear time and time again on the side effects from, from doctors. Right. But, you know, when the market's growing up and to the right, everything's in shortage. You know, it's like nothing. You know, it's kind of just like this is a duopoly and it's going to be the biggest market ever. So, like, who cares? You know, we kind of just were not really paying attention to a lot of the competitive dynamics between the two of them because it felt like it wasn't really relevant. Well, you know, fast forward two years later, the companies have ramped up supply, so supply is not an issue anymore. And yeah, they're, they're losing share to Lilly even. We talked to a doctor here in the UK just a couple of weeks ago. He's completely stopped using Wegovy and gives all of his patients. It's, it's, it's still branded as Manjaro outside the US but he has every single patient for weight loss on the Lilly drug and not the Novo drug. And so, you know, what I was hearing from investors as the call was ongoing this afternoon was just people kind of thinking that Novo, and to answer your question, like, is the market time that they're focused on the wrong thing? I think that that could be a fair statement because I think that the share price reaction today is telling you that they're not taking perhaps drastic enough action to address this volume problem that they have, because, you know, let's say compounding did go away. You know, the doctors who are making the choices for the patients still prefer the Lilly drug. How do they fix that? How do they address that?
- [08:01]
Emily Field
Have they put forward any plan for that?
- [08:04]
Nick Modi
Yeah, I mean, and that's kind of been a frust. That's, you know, I've been covering this company for about five years now, and they tend to be, you know, very, very high level when they talk about their plans. The one thing that Novo can do, which they haven't done and they haven't given any Evidence that they're going to do is start a price war because, you know, if they have the inferior drug, how can they make themselves look better to payers? PVMs, like cutting the price is the one thing that Novo can do. And obviously that would just be bad for Lilly because they have to follow suit. We generally do not see price worse in pharma. And, you know, I can't really think of an example where we've seen that on branded side. It happens in generics, but that's a totally different landscape. So I think that that's what people are really worried about for Lily, that just, you know, that Novo, I guess, will, you know, not play in the sandbox.
- [08:58]
Ed Elson
So the takeaway is pretty clear here. Eli Lilly is crushing it. Zeppbound is on a tear. And instead of acknowledging it and addressing it, Novo Nordisk has decided to kind of pretend it doesn't exist. Or at the very least, they are trying to distract us away from that problem and get us to focus on a company like Hims. But the market's not buying it. HIMSS is a $14 billion company. Eli Lilly is a $750 billion company. This is not the kind of bait that Wall Street's going to fall for. So that's probably why you saw this reaction yesterday. That's why the stock dropped nearly 30%. Not only because guidance was bad, but also because management was just not being that realistic about the problem they're facing, specifically Eli Lilly. So Novo Nordisk continues to get hammered. It's down 60% from a year ago, now trading at below 20 times earnings. That is well below its recent high of 40 and also below its five year average of 33. So perhaps there might be a buying opportunity here. Perhaps this was a little overdone. After all, GLP1s are just getting started. A third of Americans are interested, but only 4% are using so tons of opportunity there. And perhaps they could initiate this price war, as Emily Field suggests. Nevertheless, there is a larger learning here, both for investor relations and probably for life. And that is that you're usually better off acknowledging your problem than pretending it doesn't exist after the break. More tariff impact. Stay with us.
- [10:46]
Travis
In a world where chatbots are becoming part of our daily lives, one man's search for connection leads him somewhere unexpected. Travis never thought he would meet anyone like Lily Rose. She was beautiful, compassionate and computer generated. An AI companion designed to be the woman of his dreams. Before long, he was head over heels in love. But when Lily Rose's behavior takes a disturbing turn. Travis's world turns upside down. And that's just the beginning of his problems. As the lines between human and artificial official connection blur, one question becomes impossible to ignore. What makes a connection real? Follow Flesh and Code on the One Tree app or wherever you get your podcasts. You can binge all episodes early and ad free by joining Wondry. Plus.
- [11:46]
Lily Rose
Let'S be honest, are you happy with your job? Like, really happy? The unfortunate fact is that a huge number of people can't say yes to that. Far too many of us are stuck in a job we've outgrown, or one we never wanted in the first place. But still, we stick it out and we give reasons like what if the next move is even worse? I've already put years into this place, and maybe the most common one. Isn't everyone kind of miserable at work? But there's a difference between reasons for staying and excuses for not leaving. It's time to get unstuck. It's time for Strawberry Me. They match you with a certified career coach who helps you go from where you are to where you actually want to be. Your coach helps you get clear on your goals, create a plan, build your confidence and keeps you accountable along the way. So don't leave your career to chance. Take action and own your future with a professional coach in your corner. Go to Strawberry Me Unstuck to claim a special offer. That's Strawberry me unstuck on WhatsApp.
- [12:59]
Nick Modi
No one can see or hear your personal messages. Whether it's a voice call message or sending a password to WhatsApp, it's all just this. So whether you're sharing the streaming password in the family chat or trading those late night voice messages that could basically become a podcast, your personal messages stay between you, your friends and your family. No one else, not even us. WhatsApp message privately with everyone.
- [13:31]
Ed Elson
We're back with property markets. Procter and Gamble reported earnings yesterday that came in slightly ahead of expectations. Revenue came in at $21 billion, up 2% from last year, not exactly a blowout quarter, and the market reflected that the stock ended the day slightly down, basically flat. However, the real headline came in the company's outlook for 2026, which revealed that the company would incur $1 billion in costs due to tariffs. So more evidence that tariffs are indeed funneling through into earnings. Procter and Gamble, possibly the most consumer facing company in America. They own all of your classic household names Gillette, Pampers, Tide, Febreze, Pepto, Bismol, Old Spice, et cetera. They are about to take a $1 billion hit, which would be one of the largest single tariff impacts we've seen disclosed by a US company thus far. Meanwhile, and more importantly, they also added that they are not just going to eat the tariffs, as was at one point suggested. They said that they are going to pass on the costs to the consumer. That is what we learned in this earnings report. So let's take a look at exactly what was said on the call. According to the CEO, quote tariffs alone are a 5 point headwind to core EPS growth in fiscal 2026. We will look for every opportunity to mitigate these impacts, including sourcing flexibility, productivity improvements and pricing with innovation. Now, what does that actually mean? What does pricing with innovation mean? Well, later on in the call, the CFO got clearer. He said that roughly a quarter of all PNG products are impacted by the tariffs. And he said that we can expect the prices on those items to increase in the, quote, mid single digits. So we're looking at something like a 4 or 5 or 6% price hike on everyday items like laundry detergent and toothpaste. And by the way, those increases are expected to hit sometime next month. So we wanted to get some more detail on these earnings and what they say about the tariff environment. So our producer Claire, spoke with Nick Modi, Managing Director at RBC Capital Markets.
- [15:50]
Dan Dolev
It was a tough quarter, but expectations had come down as the quarter progressed. So the bottom line is, you know, as a function of the macros, we think they're going to be investing quite a bit as we roll forward to kind of regain some momentum in the market as they launch some new products and then tariffs. Look, this is obviously going to be an issue that we're going to all have to watch market wide in the back half of the year because companies have effectively been holding back on taking a price increase to see what the actual tariff strategy is going to be. Are they going to be around? Are they going to be moderate, Are they going to be heavy? Like what we were dealing with with a worst case scenario with China with the total 145%. Um, so the reality is, I think all the companies are waiting to kind of understand and have clarity before taking any price action. Which is why you heard Proctor talk about taking some price in the back half of the year, right, to account for some of those tariffs to offset them.
- [16:48]
Emily Field
This is one of the first instances we've seen of, of a company really explicitly saying we are going to raise prices to handle these, these higher tariff costs. And as you said, they were it seemed like they were maybe pushing it off towards later in the year, but now they're finally coming due and they're saying we will raise prices on the consumer. Do you expect to see more of that from companies like Procter and Gamble and other consumer companies?
- [17:17]
Dan Dolev
I think, like, what Procter explicitly was saying is, listen, you know, we don't know exactly how everything is going to play out, but what we know right now, we're just basically assuming that's going to be the reality, which is, I think, probably the most effective and appropriate way to actually deal with this very uncertain, volatile situation. I do expect other companies to have similar types of reactions. Right. Again, you know, we hear a lot about, oh, you know, look, tariffs are going through and we've not seen any inflation. The reality is a lot of the companies are just waiting to understand exactly what the cost structure is going to look like before they actually figure out what they want to do with their cost structure or pricing. Right. And so that is what I think we all have to kind of anticipate over the next several quarters, is as companies get more clarity, they're going to start responding, and that's where we're going to start seeing some more pricing in the market.
- [18:07]
Ed Elson
Well, I think the lesson here is that this is almost exactly what we all predicted. I mean, if you had to model out what 15 to 20% tariffs would do to the earnings of a consumer staples company, it would basically be this. It would be an increase in costs that is ultimately split kind of evenly between the shareholder and the consumer. The shareholder eats some margin compression and the consumer eats a price hike. Not a gigantic hike. Not so big to the point that you actually can't afford it. That wouldn't make sense. But big enough that your life is noticeably more difficult and less comfortable. And that is exactly what we're seeing here. The shareholders and the consumers are sharing the burden exactly as we all thought they would. And I think that's important to keep in mind because for all of the expert bashing and textbook bashing, for all the people who say you can't trust your professor or you can't trust the experts, it turns out in this case that actually, no, you can. You can read an Econ 101 book, you can see what it says about tariffs and how it affects the economy, and you can estimate with some degree of confidence that things will play out the way the textbook told you. And that's what we're seeing here. This is very simple economics that is now playing out in the Real world, as the PG CEO John Moeller put it, tariffs are, quote, fundamentally inflationary, which is why come next month, diapers and detergent in America will be more expensive. SoFi crushed expectations with its second quarter earnings. It also boosted its guidance on revenue and earnings for the rest of the year. And the company is on track to add at least 3 million new members in 2025, a 30% jump from last year. So just a Monster Quarter for SoFi. Net revenues up 44%, user growth up 34%, fee based revenues up 72%. And the market is going crazy for it. Shares surged as much as 15% yesterday and the stock has more than doubled since April. So you might think that based on the market's reaction, this was a one off. But actually this company's been growing rapidly for some time now. Back in 2020, SoFi had just 1 million members. They now have nearly 12 million. And in that same period, they've gone from this small, non FDIC insured online bank to a company that offers almost everything from credit cards to retirement accounts, options trading, student loans, debt consolidation and so on. In the words of the CEO, SoFi's biggest problem is, quote, deciding what not to do. So to tell us more about this company and what these earnings tell us, Claire spoke with Dan Dolev, a senior fintech analyst at Mizuho Americas.
- [21:11]
Sam
Yeah, look, this was an inflection quarter in our view. And I think what is the most important thing here is the lending platform, right? Like that's kind of the big growth engine and a lot of people didn't appreciate it until now, but now it's sort of coming back. So you know, that lending platform is something to watch out. I think the other thing is the delinquencies that keep coming down. And the biggest surprise of the quarter was the mortgage originations. That was because this is all idiosyncratic. So the market hasn't come back, but sofi is coming back. So it means that if the market, so it's up like 90% year over year. If the market were to come back, it would mean even more growth down the road.
- [22:00]
Emily Field
It seems that SOFI is not only competing with traditional banks, but it's also out competing other digital banks. Would you say that's correct? And if so, why a hundred percent?
- [22:13]
Sam
So let me just give you an example. So you know they compete in the US with Chime, but if you think about like them versus Chime, Chime only caters to like lower people with lower income and their products are more limited. So they have a debit card and it's pretty much kind of, it's pretty much that. But you know, so far has just so much more variety, right? All these products now they're getting into crypto, they're getting into stablecoins. So there's going to be a lot. It's the diverse, you know, diversification of revenue which makes it great. Plus the brand is really strong, right? Not they're the only ones that have like SoFi Stadium, right, football stadium under their name. People know it, it's namesake. And this is what makes them sort of the most prominent digital bank in the US And I think that just that gap is going to continue to bifurcate over time. Just to give you some perspective, back in the day when the stock was at like, you know, $7 and everyone was telling me that, that I'm crazy for having such a big bullish view of SoFi, people were highlighting the fact that they can only grow the lending products so much because at some point they hit sort of the capital ratio maximum, right? So if you're a bank, you can only lend to a certain degree until you hit some sort of a, you know, some CET1 ratio which basically means like you cannot lend more unless you issue more equity. And then they came up with this lending platform which basically allows them to do off balance sheet lending. And this basically widens the TAM to infinity because they can lend as much as they want as long as they keep delinquencies in check. And you're seeing delinquencies are actually kept in check. So this is the biggest growth area and this is going to continue to be the growth area because as they do better, they're getting more committed capital from outside funds that are giving them money to make loans. And you're creating this virtuous cycle which is unrelated and uncorrelated to any banking ratios. So they're kind of freed up from this banking ratio. They're kind of a marketplace for loans right now.
- [24:22]
Ed Elson
Now usually after a huge pop like we've seen yesterday, we at least at Proftree Media have a tendency to be a little bit skeptical. We're usually looking for reasons as to why the market is too excited or too enthusiastic or just carried away. But in the case of sofi, we cannot see much to dislike. And the thesis is quite simple. And that is, when it comes to financial services, there is basically no more obvious and inevitable trend than digital banking. And as of today, SOFI is the leading digital bank. And it is therefore best positioned to ride that wave. And this is mostly a demographic observation. Only 20% of Americans have digital only bank accounts today. But that number's been growing rapidly and it'll only continue to grow. Why? Because of young people. Young people increasingly value the ability to do everything from their phone. And banking is no exception. 96% of Gen Z uses online banking today. You compare that to the boomers where the number is less than 70%. And this is why banks like SoFi offer no in person branches. They recognize that young people don't care about being in person, so why waste the money? Meanwhile, the cost they save on the overhead allows them to invest in other things. Things like, for example, higher interest on savings accounts. In the case of SoFi, it's seven times higher than traditional banks. So this was a big quarter for SoFi. But it's also a good reminder of this digital banking trend. And in our view, if you're betting on financial services, you should be betting on digital. And this is about as, as good, good a place as any to start. That's it for today. Thanks for listening to Profit Markets from the Vox Media podcast network. I'm Ed Elson. I will see you tomorrow.
- [26:30]
Sam
Sam.