Novo Nordisk Tanks 30%, P&G Takes a Tariff Hit & SoFi’s Monster Second Quarter

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This month on Explain It to Me, we're talking about all things wellness.

We spend nearly $2 trillion on things that are supposed to make us well: collagen smoothies and cold plunges, Pilates classes, and fitness trackers.

But what does it actually mean to be well?

Why do we want that so badly?

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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 will explain why no one wants to invest in France.

Welcome to Property Markets.

I'm Er 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 tenure 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 Novonordisk, 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 Novonordisk.

And the question is, what?

What is driving this slowdown?

What is driving these guidance cuts?

What is the problem for this iconic GLP-1 company at a time when GLP-1s 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 GLP-1s known as compound GLP-1s.

HIMS, for example, is a name we've discussed a lot.

Last year, they started offering compound GLP-1s, and the reason they were able to do that, despite not having FDA approval, is because there was a GLP-1 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 HIMS got into GLP-1s, so did many other companies.

And understandably, that started to eat into market share.

So that's what Novonordis said was the problem, which seems reasonable until you remember two key details that seem probably more important.

The first is that this GLP-1 supply shortage is now over, which means HIMS and HIMS equivalents can't make GLP-1s anymore.

So that's not really a problem anymore.

And the second is a way bigger deal, and that is that Eli Lilly, Novonordis' biggest competitor, just overtook them in the United States.

Eli Lilly's product, Zetbound, is now more popular than Wagovi, 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.

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?

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 talked to doctors all the time.

And the vast majority prefer Lily'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 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 losing share to Lily.

Even we talked to a doctor here in the UK just a couple of weeks ago.

He's completely stopped using Wagovi and gives all of his patients.

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 your like, to answer your question, like, is the market telling that they're focused on the wrong thing?

I think that could be a fair statement, because I think that,

you know, 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 the lily drug.

How do they fix that?

How do they address that?

Have they put forward any plan for that?

Yeah, I mean, and that's kind of been a frustration.

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 Lily because they have to follow suit.

We generally do not see price wars in pharma.

And, you know, I can't really think of an example where we've seen that on the 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.

So the takeaway is pretty clear here.

Eli Lilly is crushing it.

Zetbound 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.

HIMS 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 Novonautis 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 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.

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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 ⁇ Gamble, possibly the most consumer-facing company in America, they own all of your classic household names, Gillette, Pampers, Tide for Breeze, Pepto-Abismal, 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 U.S.

company thus far.

Meanwhile, And more importantly, they also added that they are not just going to eat the tariffs, as was at one 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 five-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 four or five or 6% price hike on everyday items like laundry detergent and toothpaste.

And by the way, those increases are expected to hit 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.

It was a tough quarter, but expectations had come down as the quarter progressed.

So the bottom line is, you know, it's 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 the worst case scenario with China with the total 145%.

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.

This is one of the first instances we've seen of a company really explicitly saying we are going to raise prices to handle 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 ⁇ Gamble and other consumer companies?

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, 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.

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 percent 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 PNG 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 has 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.

Yeah, look, this was an inflation 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, you know, this is all idiosyncratic, right?

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.

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?

100%.

So let me just give you an example.

So, you know, they compete in the U.S.

with QIIME, but if you think about like them versus QIIME, QIIME 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, SoFi has just so much more variety, right?

All these products.

Now they're getting into crypto.

They're getting into stable coins.

So there's going to be a lot.

It's the divert, 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 a namesake.

And this is what makes them sort of the most prominent digital bank in the U.S.

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 stock was at like, you know, $7

and everyone was telling me that I'm crazy for having such a, you know, big bullish view of sofi, people

were highlighting the fact that they can only grow so the lending product 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 CT1 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 virtue cycle, which is unrelated and uncorrelated to any banking ratio.

So they're kind of freed up from this banking ratio.

They're kind of a marketplace for loans right now.

Now, usually after a huge pop like we've seen yesterday, we

at least at Profit 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 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.

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