What Jeff Bezos said about great quarters 🗓
Also, a look at last week and next week
Earnings season is wrapping up with 89% of S&P 500 companies having reported quarterly results. According to FactSet, 81% of those companies reported earnings that were better than what was expected by analysts.
When a company reports better-than-expected quarterly results during earnings season, analysts and investors will often congratulate execs by telling them, “Great quarter, guys!”
Amazon founder Jeff Bezos shared his thoughts about these exchanges during a fireside chat in 20171:
When somebody… congratulates Amazon on a good quarter… I say thank you. But what I’m thinking to myself is… those quarterly results were actually pretty much fully baked about three years ago… Today, I’m working on a quarter that is going to happen in 2020, not next quarter. Next quarter, for all practical purposes, is done already and it has probably been done for a couple of years.
And so if you start to think that way, it changes how you spend your time, how you plan, where you put your energy. And your ability to look around corners gets better. So, many things improve if you can take a long term. By the way, it's not natural for humans. It's a discipline that you have to build.
Quarterly reporting can incentivize short-termism. I wrote about this on Monday. The key takeaway is that when short-termism reigns, a company’s leadership is prone to make poor decisions in their efforts to meet short-term expectations — sometimes at the cost of executing longer term goals.
Earlier in that 2017 chat, Bezos talked about how Amazon’s guiding principle was “customer-obsession.” Focus on the customer, offer a great customer experience, and the customer will do right by you by patronizing your business.
Prioritizing the customer is very different from prioritizing three-month targets.2
To be clear, I think it can be very productive to set milestones when working to achieve some long-term goal. Also, quarterly reporting can offer useful transparency for investors.
However, I wonder how many companies with great ideas failed because their leadership couldn’t commit to seeing past the next three months.
In case you missed it, here’s what I wrote last week:
Phrases like “better-than-expected” and “beats expectations” get thrown around a lot during earnings season. But what does it really mean? (Link)
Corporate America has proven over and over again that it can maintain or even grow profits even under incredibly challenging circumstances. (Link)
Despite labor shortages and supply chain issues, the U.S. services sector has become white hot as the rate of COVID infection has fallen. (Link)
The percentage of folks working from home due to the coronavirus continues to shrink. (Link)
📈 Stocks set new record highs! The S&P 500 gained 2.0% last week to close at an all-time high of 4,697 on Friday. 👀 Here’s an interesting stat from Truist Advisory Services’ Keith Lerner: “In the eight periods since 1950 where stocks were up more than 20% through October, as they are this year, the S&P 500 tacked on additional gains by year end 100% of the time with an average gain of 6.2%.“
🏛 Fed dials back support: On Wednesday, the Federal Reserve announced it would begin tapering QE. Specifically, the central bank reducing its monthly purchases of Treasuries by $10 billion a month and mortgage-backed securities by $5 billion a month. Sound a bit wonky? For more on what that means, read this.
💼 Jobs boom: U.S. employers added 531,000 jobs in October, and the unemployment rate fell to 4.6% from 4.8% in September. All this confirms that demand continues to be strong in this economy. In fact, there continue to be many jobs to be had: According to S&P Dow Jones Indices and LinkUp, the number of jobs listed by S&P 500 companies have jumped by 52% in 2021…
… ⚠️ but: As we celebrate progress in the labor market, we can’t forget the many folks who could be working but aren’t. These include millions who are sitting on the sidelines due to concerns over the spread of COVID-19, the inability to find affordable childcare, and so on. This is captured in the labor participation rate (LFPR), which currently sits at 61.6%. This is down from 63.3% in February 2020 as there are 3 million fewer people characterized as either working or actively looking for work.
👍 Unemployment lines are getting shorter: The number of American workers filing initial claims for unemployment benefits fell to 269,000 during the week ending October 30, 2021, the lowest reading since before the pandemic. More evidence of an improving labor market.
📉 Robo-home-flipper flops: Zillow announced it was pulling the plug on its massive home flipping business. “We've determined the unpredictability in forecasting home prices far exceeds what we anticipated,” Zillow Group CEO Rich Barton said. The company said it took a $304 million write-down on its home inventory in Q3, it could see another $265 million in related losses in Q4, and it would lay off about 25% of the Zillow workforce.
This follows Bloomberg’s report that the company was looking to unload 7,000 homes for about $2.8 billion as it attempts to limit losses.
🚳 Exercise moves from the home to the gym: There was a time when you couldn’t get your hands on one of Peloton’s stationary bikes. Now, the company can’t get enough people to buy. “The overall consumer environment has been very challenging
to predict coming out of COVID,“ management said as it cut its own forecasts for sales. Indeed, while many companies are complaining of shortages as demand booms, Peloton said it has “the benefit of adequate inventories.“ That’s not what you wanna say during boom times. This is why Peloton stock crashed on Friday.
🚚 UPS > FedEx: The two package delivery services have had very different experiences of late. Bloomberg reports: “The massive labor shortage that’s rocked the U.S. since the pandemic and disrupted long-established employment relationships hasn’t had much impact on UPS, which pays its unionized drivers the highest wages in the industry. That’s helped it maintain a stable workforce and rising profits throughout the current disruptions. Meanwhile, lower-paying, non-unionized FedEx racked up $450 million in extra costs because of labor shortages.”
✈️ Customers will pay up to travel: Some of you have noticed vacation travel has been getting pricey. This is happening because companies are dealing with things like high energy prices and labor shortages — and consumers are willing to pay for it. Here’s Booking CEO Glenn Fogel to CNBC: "People's ability to travel has been so repressed by this pandemic, so I don't think we're in an area where high rates... are stopping people from traveling." This is confirmed by Bank of America credit and debit card data.
Broadly speaking, the U.S. services sector has been booming as people are itching to go out and do stuff. This, even as prices rise. Read more here.
🏠 Thinking of becoming an Airbnb host?: Here’s some interesting stats from Airbnb CFO Dave Stephenson (via Quartr): “The actual success rate of new hosts is increasing, like 50% of new listings receiving a booking in three days, and 75% of new listings are receiving a booking within 8 days. So they’re actually more successful, more quickly.“
👩❤️👨 Mingling in the metaverse: Here’s Match.com’s vision of how singles might find each other in the virtual world: “The experience includes a live virtual world, Single Town, in which singles, represented by their avatars, can move around, and engage with others by audio in various virtual locations. Users can express mutual interest in each other in this virtual world, enabling them to connect privately. This experience is still in its early stages but it could become a standalone app and could also inspire an enhanced experience to discover and meet people that we leverage across our portfolio.“
Up the road
Wednesday comes with an update on the state of inflation with the October Consumer Price Index report. Friday comes with the latest Job Openings & Labor Turnover Survey (JOLTS), which means we’ll get an update on the state of quits in America.
Also, there are still quite a few companies announcing quarterly results.
Bezos gave the talk at the Internet Association's 2017 Annual Charity Gala. You can watch the video here.