FedEx (FDX) shares fell by 11% after cutting its full-year revenue forecast and reporting a profit miss for the second quarter. FedEx attributes the decline to customers shifting to cheaper services.
Meanwhile, Alphabet (GOOGL, GOOG) shares are trending after The Information reports that Google is going to restructure its ad sales unit amid a shift to AI and automation.
Paramount (PARA) was upgraded to "Equal Weight" by Wells Fargo, which cited M&A prospects in 2024.
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Video Transcript
DIANE KING HALL: All right. We want to get to some trending tickers. Shares of FedEx losing major ground today, is sinking more than 11% after cutting its full year revenue forecast. The company also reporting a profit miss for its second quarter. Its-- look, this is the second quarter in a row Josh where it's lowered its sales outlook. We talked about that earlier. It blamed customers moving to cheaper services on its call. Its projection is a low single-digit decline in revenue for the fiscal year. It had previously forecast-- put out a forecast of flat sales.
Stifel put out a note on it saying it wasn't the quarter it wanted to see. Many analysts I'm sure are saying that. And you can see that in terms of the investor reaction, certainly not the quarter any investor wanted to see. They talked about the capital intensive part of the business that it encountered and just historic levels of margin compression.
But Stifel actually said they think-- they don't think it's unreasonable to-- or they think it's unreasonable to expect a perfectly linear path in terms of its own trajectory. So we'll see how it plays out tomorrow in kind of a follow to its earnings, because as we know, you know, we saw the knee-jerk reaction after the bell yesterday, the continued downdraft today.
JOSH LIPTON: Yeah. I mean, the stock is getting hit hard today. We should still note. I mean, it's been a tremendous run for the stock. Even now, it's still up about 40% this year. And the story there all this year, Diane, was really execution, efficiency, cost-cutting. A lot of focus in this earnings print on FedEx Express, the company's express air business in there. You did see sales drop about 5.6%. You saw operating margins, 1.3% versus 3.1% a year ago.
And FedEx, you saw really kind of trying to stay confident they were talking about how margins had expressed will return, though some analysts don't seem as confident. I saw analyst Raymond James quoted as saying that they're concerned that turning the express segment may be structurally impaired in their opinion. So again, though, let's see how it flushes out.
DIANE KING HALL: Indeed. All right.
JOSH LIPTON: Moving on, here's another big mover. Shares of Alphabet trading slightly higher today, up about 1.6%. That's after reports that the tech giant is preparing for an AI-centered advertising shakeup. So this one is on a headline. It's coming to us from the information, which basically reports that Google is planning restructure part of its ad sales unit. And what it sounds like is they're going to be relying more on AI-generated ads, Diane, that can be sold to customers largely automated, generate a ton of money and at fatter margins than if ad-related sales being conducted overseen by people.
DIANE KING HALL: Yeah. And it's no surprise to see, obviously, Alphabet, Google doubling down on AI, machine learning, large language models. We know that that is more than the flavor of the month, it's the new frontier. So it looks like it's reportedly to increase the ad purchasing and kind of taking down some of the costs that come with human labor.
Now, to be fair, they haven't announced any kind of layoffs. So it is unclear yet what that would mean in terms of their labor, in terms of their workforce.
JOSH LIPTON: Yeah. I mean, if you look ahead, we've had analysts on show saying you look ahead, and if you're an ad-supported business, you have the election next year, you've got the Olympics next year, I mean, that sounds broadly supportive for global ad sales. And maybe that's what investors are kind of sniffing out. Stocks up about 60% this year.
DIANE KING HALL: Yeah. Good-- strong buying there. We want to take a look at shares of Paramount. Now they have been kind of choppy trading but reversing some earlier gains after the stock was upgraded to equal weight from underweight at Wells Fargo. Analysts noting M&A prospects in 2024. They say they believe it's going to be a value unlocking strategy. Their new price target for Wells Fargo is 18 bucks a share.
From Paramount, they don't think it's direct-to-consumer pivot will be successful. But what keeps them from being more negative, they said, is just they just think that, look, the environment is ripe for deals and consolidation within the media landscape. They pointed to some previous deals and just deal activity being a theme in the landscape, in the media landscape when you think about, say, Warner Brothers Discovery and Comcast, what happens with that, and just the media industry just facing change in general.
So it is interesting to see that the stock price has been kind of choppy today. It's been flip-flopping.
JOSH LIPTON: Yeah. I mean, and Bloomberg, by the way, reporting that Paramount Global is in talks to sell BET to a management-led investor group. Price of around $2 billion is being discussed. And I think that kind of perfectly dovetails with this note from the team at Wells Fargo. They upgrade to equal weight. And that build up on the stock, I mean, they're at a hold, price targets 18.
But this is what they're talking about, right? What they're responding to are these press reports that Skydance Media and Redbird, Capital exploring offer for parent company, National Amusements. And that's what Wells Fargo, that's the basis of the upgrade. They think, yes, and AI might like to sell a controlling stake to a content operator. Maybe new year, you get more headlines on this story.
