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First Move with Julia Chatterley
Huawei Unveils Its Android Alternative Operating System; Chipmaker Broadcom Buying Symantec's Enterprise Software Business For Over $10 Billion; Uber Disappointing. Aired 9-10a ET
Aired August 09, 2019 - 09:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
[09:00:00]
JULIA CHATTERLEY, CNN INTERNATIONAL ANCHOR, FIRST MOVE: Live from the New York Stock Exchange. I'm Julia Chatterley. This is FIRST MOVE, and here's
your need to know. Hoping for harmony: Huawei unveils its Android alternative operating system. Broadening out: Chipmaker Broadcom buying
Symantec's enterprise software business for over $10 billion. And Uber disappointing. The ride hailing app posting an XL loss. It's fortunately
Friday. Let's make a move.
Welcome once again to FIRST MOVE, almost forgot it was Friday. I'm not quite sure how, but they say though fortune favors the brave, and I can
tell you bravery has been needed with the market volatility this week.
Right now, what we're looking at for Wall Street majors here. The stocks down premarket once again following what was in fact the best day for
stocks in two months on Thursday. Volatility is the name of the game.
I think we chalked that up to firmer us bond yields over the past couple of days. The Dow and the S&P gaining one and a half percent yesterday. The
NASDAQ rising more than two percent were actually positive.
As we stand right now for the week following, of course, Monday's three percent tumble on China devaluation fears. That feels like weeks ago right
now. But we did see China's Central Bank guiding yuan lower for the seventh straight session. Key: The pace of the decline here is slow and
steady. But I think the direction is pretty clear and that is weaker.
What about what we're seeing over in Europe right now? Well, I can tell you it is weakness there, too. Italian stocks down over two percent. Bond
yields have jumped amid strong signals from the coalition government there, but we could be about to see a collapse. Over in the U.K., too, the
economy contracting in the second quarter. More details on that coming up very shortly.
Now, from a negative surprise on that to a positive one, Japanese growth data coming in better than expected for the second quarter that then
triggered a pop higher in the Japanese yen and as a result, fueling more speculation that the Bank of Japan might intervene to try and weaken the
currency.
Well, I can tell you, too, two can play at that game. President Trump, of course, tweeting yesterday that he liked to see a weaker U.S. dollar at
this moment. His trade seem to be having more impact on weakening everyone else's currencies.
Speaking of trade wars. Let's get to the drivers. Huawei launching its new operating system called Harmony OS. This comes just as the White House
says it's going to crack down on government contracts of Huawei and some of the others.
Matt Rivers joins me on this. Aptly named, Matt, if only they were hard money, quite frankly, but Huawei saying, "Look, we've got an alternative if
we lose access to Google's Android here."
MATT RIVERS, CNN INTERNATIONAL CORRESPONDENT: Yes, and you know this is according to the Consumer Business CEO, Richard Yu you who made this
presentation earlier today, you know, this operating system has been in development for the last two years, Julia, but it's really become a lot
more important recently because of this trade war -- I'll get into that in a second. But just to talk about the operating system for a second here.
It's not going to show up on Huawei smartphones right away. They say they're going to do that over the next three to five years. Really, you're
going to start seeing it more on what they're calling their smart screens, which will debut later this year. You might see it on smart watches that
Huawei makes and even in in-vehicle systems.
So this operating system is going to be rolled out slowly over time it looks like, but this all comes back to this trade war because remember, it
was back in May that the Trump administration placed Huawei on an entity list which basically forbade U.S. companies from selling their technology
to Huawei. Huawei needs key U.S. technology to operate, including Google's Android operating system, which is what Huawei's smartphones run on
basically.
Now, Huawei can only use the open source or the public version of Android and can't use the Google apps like Google Mail, like Google Maps, and so
that was a big deal for Huawei. So, this operating system is basically a hedge, Julia against, you know, Huawei needing U.S. products in order to
make its own products competitive.
CHATTERLEY: And there's so much or so little clarity around what the relationship is going to be going forward, particularly with companies that
supply Huawei. But what we heard yesterday from the White House was, as far as Federal contracts are concerned, they're going to tighten the grip
here.
RIVERS: Yes, and not only that, but Bloomberg has been reporting this week that the White House was considering at one point which we had no public
knowledge that they were going to loosen some of those restrictions on private U.S. companies like Google providing technology to Huawei.
[09:05:10] RIVERS: Well, Bloomberg is reporting that the White House is going to delay restarting some of those relationships. And so Huawei is --
you know, this puts a big question mark over Huawei's future, and I think this just goes to show you that there's no short term deal in place for
Huawei, no immediate relief as this trade war drags on with no end in sight, Julia.
You know, companies that are caught in the middle, not only Huawei, but you know, companies like Apple or Intel, you know, these are all examples of
private companies that are going to continue to get hurt from this trade war.
CHATTERLEY: Absolutely. And an operating system takes time, it takes years to develop. So I'm a hedge, but what kind of quality? Matt Rivers,
great to have you with us and on a Friday night, too. We are very appreciative.
RIVERS: Happy to be here.
CHATTERLEY: Let's talk about Broadcom now, because Broadcom is looking to buy Symantec's Enterprise Security unit for $10.7 billion in cash. Paul La
Monica joins us now. A bit of a head scratcher for me this one, Paul, but talk us through the details. And then we'll work out whether this is a
good idea or not. Very different from their core business, of course, which is chip maker -- chip making.
PAUL LA MONICA, CNN BUSINESS REPORTER: Yes, exactly. Julia, I think it's a bit of a head scratcher because as you point out, Broadcom is mainly
known for being a chip company, but it has been making efforts to diversify and try and find higher margin businesses like software.
So by buying the Symantec corporate cybersecurity business, the hope is that this can be a deal that will give them a new revenue stream and, you
know, possibly some more profits as well at a time where, you know, there are concerns about what's going on in the chip market, particularly because
of U.S.-China trade tension.
CHATTERLEY: Yes, it is quite fascinating. To your point, if you can't see growth organically, then you can buy in, except the revenues of this
company, I was just flicking through some of the numbers earlier and they're actually shrinking. So, it's how much can you strip out of this
business in terms of costs, perhaps to generate more growth here, which for me is an interesting one.
The challenge, of course, for Broadcom was that they couldn't buy the whole thing. They tried to buy Qualcomm and they were refused access. Is this
going to get through the regulators? Or do they not have any problems since they shifted their HQ to California?
LA MONICA: Yes, I think the move to San Jose obviously helps on that front. There shouldn't be any major issues with this deal from the
standpoint of President Trump in a CFIUS review. But it's still possible from an antitrust standpoint that there will be some scrutiny of the deal
in the U.S. and Europe. It probably is going to go through though. And you're right, though, Julia. Obviously, this is still not exactly a high
growth business, even though the margins are higher for Broadcom.
So I think that the company is going to try and cut costs, but you can cut costs too aggressively, you know, a different business, obviously, but
Kraft Heinz is a perfect example of what happens when you just slash expenses, but don't actually invest in growth.
CHATTERLEY: Couldn't agree more. Paul La Monica, thank you so much for that. All right, on to our next driver now and Uber shares going into
reverse premarket. The company reporting a record $5.2 billion loss late Thursday. The stock down some eight percent premarket.
Clare Sebastian joins me now. Clare, these results to me felt like a car exhaust with a hole in it. They were simply really noisy. Talk us through
the details here, because a lot of the losses here tie back to the IPO and expenses related to that.
CLARE SEBASTIAN, CNN BUSINESS CORRESPONDENT: Yes, Julia, absolutely. $3.9 billion of the loss. It was more than $5 billion in three months. That
was mostly due to cost related to the IPO, that's true, but there's no hiding behind that. Because even if you strip that out, they look $1.3
billion in the last quarter, that's more than 50 percent increase on the same period last year.
And you know, I think Wall Street might be more willing to overlook that if we were seeing the kind of growth rates when it comes to revenue that we've
become used to seeing, but revenue was only up 14 percent and compare that to Uber's biggest competitor in the U.S., Lyft that reported yesterday 72
percent increase in revenue.
So this is a pretty, you know, kind of ugly report on the surface. But some perspective here. If you look at gross bookings, they were up 31
percent. That says that there's still demand for this. Uber Eats was up 72 percent in terms of revenue. That's starting to contribute a little
more to the top line revenue growth.
In terms of Uber and in terms of what analysts are saying this morning, Julia, it's not a complete disaster. We can show you some of the price
targets today. Most of them either unchanged or even slightly raised. People are starting to look at the sense that the competition with it in
terms of price wars with Lyft is easing in the U.S.
And then Goldman Sachs said that it was interesting. They said today, "We continue to believe the risk reward in owning the leader in this space is
favorable despite the regulatory concerns, despite the competition." This is still the biggest player out there and they are very diverse business
today, Julia.
[09:10:06] SEBASTIAN: So, I think that's why we see some kind of long term positivity despite this disappointing number today.
CHATTERLEY: Yes, you make a great point as well. And we talked about this yesterday, even if the price competition and the price wars with Lyft
easing, Uber has got far greater businesses around the world, not just the United States. So other things to tackle there perhaps.
What about a path to profitability here? Because even Dara Khosrowshahi talked about this in a meme that's going around saying, "Are they ever
going to be profitable here?"
SEBASTIAN: Yes, he got a meme on the call for that. That was really interesting. And there was another interesting comment from him, Julia.
He said, "The balance between the top and bottom line is more of an art rather than a science." He was a little less definitive when it comes to
when they expect to break even or when they expect to be profitable compared to the Lyft, which said, "Look, we think 2018 was our peak loss
year." They are now probably at least a year ahead of Uber in that regard.
Dara Khosrowshahi, he said he expects 2019 to be the peak loss year, but he was, as I say, less definitive. And I think, you know, comparing it with
Lyft, it isn't always useful, because as we've said, Uber is a much more diverse business.
They are in everything -- from Eats, which is incredibly fast growing, incredibly competitive to everything from new mobility to freight to even
flying taxis. So they are definitely -- they made this very clear on the call -- still in an investment mode. And I think they are hoping that Wall
Street stays with them through this.
CHATTERLEY: Yes, this is a transportation app. It's not a ride hailing app. Clare Sebastian, thank you so much for that.
All right to the U.K. now where the U.K. economy contracted in the second quarter for the worst quarterly performance I believe since 2012. Isa
Soares joins us now on this story.
Isa, it feels like some of the stockpiling that we saw in the first quarter leaking away and some real uncertainty here yet again over Brexit risks.
Talk us through the details here. What did we see?
ISA SOARES, CNN INTERNATIONAL CORRESPONDENT: Very much in fact, Julia, one economist telling CNN this will be a rude awakening for Boris Johnson and
most likely leave Boris Johnson and his government really your knife edge when we're talking about the third quarter because what we saw, you are
seeing there on your screen, the U.K. economy contracting 0.2 percent in the second quarter, the biggest in seven years in terms of contraction.
Now, economists as well as the Bank of England, Julia, are expecting it to flatline, so this is quite a surprise here, but we're talking about U.K.
production shrinking by 1.4 percent, manufacturing -- get this -- down by 2.3 percent. This is down to a couple of things.
One, as you say, a lot of stockpiling that we saw in the first quarter. That's beginning to unwind. This is the stockpiling preparation for
Brexit, this do or die Brexit the government was saying, but also factory shutdowns. They've been moved earlier in April rather the end of summer.
But the reality is, Clare, it doesn't matter whichever you read these numbers, Julia. This is uncertainty, the lack of clarity, the nervousness
within the market of a no deal Brexit; that is starting to bite and starting to be felt.
You are seeing there the pound; actually, Sterling fell to a two-year low against the dollar. It actually went down to $1.21. Yet Boris Johnson,
Julia is continuing to push through his do or die pledge. And in fact, we heard today from Savid Javid, the U.K. Chancellor who said, "Look, we're
not expecting recession," and painting rather a really good and positive picture when it comes to the U.K. economy. But what these numbers show, it
is pretty dire, says the CBI -- Julia.
CHATTERLEY: Yes, just because you're not expecting it doesn't mean you don't get it. Talk to me about the video that Boris Johnson popped on
social media because I retweeted this this morning. He was talking about game, he was talking about relaxing some of the immigration laws to
encourage scientists to come in and help develop drugs and innovation in the U.K. It sound like a brilliant idea.
Do we have any detail on exactly how and when they are going to do this?
SOARES: No, very little on detail as it's been something we've seen from this administration. But I can say, Boris Johnson as you can see there,
"Tonight, I announced live on Facebook we're changing immigration rules to make it easy for scientists to live and work in the U.K."
Now he took -- he did a Facebook Live which we haven't seen him do and he wants to point space, fast track immigration route to try and attract what
he says the very best minds from around the world specifically when it comes to science, engineering as well as technology.
No word as of when that will start, when will it take place, what will shift in terms of numbers? But he -- they want to abolish the 2,000 a year
cap on the number one -- on the tier one exceptional visa talents. And that, I have to say has been very well received by many people here and say
this is a great idea. We need to build on the science, on the engineering and really boost the economy with this talent. So very well received.
The tactic though coming to Facebook or doing a Facebook Live is something that we haven't seen before from Boris Johnson, but it's something that has
been very well received here -- Julia.
[09:15:08] CHATTERLEY: Yes, welcome to the 21st Century. Isa Soares, thank you so much for that. All right, let me bring you up to speed now
with some of the other stories that we're following around the world.
Hong Kong protesters have begun what's intended to be a three-day occupation of the city's busiest airport. Part of a series of rallies to
mark the 10th straight week of demonstrations since the protests began. We're going to be live in Hong Kong later in the program to bring you all
the details.
At least government is teetering after the far right coalition partner, the League filed a motion of no confidence in the Prime Minister. Its leader,
Matteo Salvini is pushing the snap elections, which he hopes will put him in the top post. Parliament has been recalled from summer recess and a
date for the no confidence vote will be set on Monday.
All right, so we're going to take a quick break here, but coming up, what does your purchase history say about you? Cardlytics cashing in on your
spending habits, and it is paying off for investors.
Plus, it's the pot tech startup that gets high on data. Not weed, we find out how Akerna is tracking cannabis from seed to sale. All of that coming
up, stay with FIRST MOVE.
(COMMERCIAL BREAK)
CHATTERLEY: Welcome back to FIRST MOVE from the floor of the New York Stock Exchange. We're counting down to a market open that is expected to
be weaker. For all the volatility though, I should point out the S&P 500 only down some three percent from record highs. We've got the 10-year
yield softening a little bit, 1.7 percent after the 10 produced price numbers this morning.
Call rates falling for the first time since 2015. That gives the Federal Reserve more space. Remember, 10-year yield beginning Monday's session at
1.77 percent. So again, only a bit of easing over the week despite all the volatility.
[09:20:04] CHATTERLEY: I'll tell you something that has moved though, gold. The best week in more than three years as that safe haven is coming
into play, of course, in the midst of the broader uncertainties, a little bit softer today, but we're still trading around that $1,500.00 an ounce.
Let's talk through these markets. Liz Young joins us now, Director of Market Strategy at BNY Mellon, great to have you with us.
LIZ YOUNG, DIRECTOR OF MARKET STRATEGY AT BNY MELLON: Great to be back.
CHATTERLEY: What do we think here?
YOUNG: We think right now, if you're looking at yields and dividend yields, if you look at the yield on the 10-year, still below the dividend
yield on the S&P, and if we don't think that there's a recession coming, which we don't, it still makes more sense to buy equities. You're going to
buy equities, you still have more upside opportunity in a stock from prices. And you've got that dividend yield that's giving you more income
than you're getting on a Treasury bond.
CHATTERLEY: Interesting. I mentioned this point earlier on this week, that actually 80 percent now of the Dow stocks, or at least one point
earlier this week, had a better dividend yield, a better return here than what's offered to you right now by buying the safest asset arguably which
is bonds.
To your point, is the bond market then too bearish? It's too worried right now about what's going on. Because --
YOUNG: You know, I don't even know that it's necessarily that the bond market is worried. I think the bond market is trying to price and what's
going to happen with rates and the bond market is following what's happened with rates around the globe.
So when we have dovish Central Banks around the globe, there's the expectation that the Fed is going to have to narrow that gap, and maybe
that's true to some degree.
But at some point, the Fed is going to have to take the market on here and say, we're not going to cut all the way down to zero. We're not going to
get in line with some of these other Central Banks, because our economy is not in an emergency situation like some others.
CHATTERLEY: And that is exactly where we're always going. So at some point, Jay Powell, the Federal Reserve is going to have to say, "Guys, you
want more stimulus. You want me to cut rates, but we're simply not seeing the justification for that right now.
YOUNG: Right.
CHATTERLEY: In the data -- look what happened in December when Jay Powell kind of tried to tell the market that it wasn't seeing something or it was
seeing something that they were -- he is risking more than what we see.
YOUNG: Right, well, and he's trying to walk this tightrope, right? He is a little bit scarred by what happened in December, and some of his
commentary that sent the market really, really --
CHATTERLEY: Significantly lower.
YOUNG: Right. But I don't think he is altogether comfortable with how many cuts the market is pricing in here. Because to your point earlier,
there's not really data to support that. If the data materializes, or let's say the trade war really escalates and we start to see the making of
kind of a trade induced global slowdown, then then there might be data to support some more cuts. But that's cutting into a downturn in trying to
support an economy that's actually turning down.
At this point, we can't really make that case, there's not a fundamental downturn in the U.S. and there's not a recession here. So, he can't cut
unless bad data starts coming through in a real way.
CHATTERLEY: How much focus are you placing on what -- through the markets for a loop on Monday, which was the weakening of the Chinese yuan here
because, I feel like we've spent months and months and months talking about weakening Chinese data.
YOUNG: Right.
CHATTERLEY: And actually not seeing the follow through in the currency. Yet, it is acceptable to see weakening currencies in other countries around
the world when their economies are weakening.
YOUNG: Sure. So China's currency you have to remember is really the bellwether for most of EM, especially Asia.
CHATTERLEY: Right.
YOUNG: So that currency is the most important one. And the fact that they let it weaken, I don't think it should have really been a surprise. We
were actually expecting them to let it get above seven -- that exchange rate -- that mental threshold of seven, we were expecting that earlier in
the year.
So now it finally happened. Again, it was a mental threshold. It doesn't necessarily mean anything from a numerical perspective.
CHATTERLEY: I mean, it means something to the White House. It was the fear factor.
YOUNG: It means something. Exactly.
CHATTERLEY: It was.
YOUNG: It means something from a sentiment perspective, and obviously to the administration. I think China will continue to incrementally let
currency devalue, but they're going to try to control that fall, because they don't have the tools to prop it up if it really goes to a precipitous
drop off.
CHATTERLEY: Okay, so don't be oversensitive. Expect a gradual decline.
YOUNG: Expect a continued gradual decline.
CHATTERLEY: What should investors be doing at this moment? Because I've seen you use the term this is an investable market, you can take risk in
this market.
YOUNG: Right.
CHATTERLEY: What should we be looking at? And what do we need to focus on here?
YOUNG: Yes, and I want to be careful and be clear that this isn't me saying that I'm overly bullish, right. And we need to make sure that
there's a balance in everybody's portfolio of the things that would do well, the defenses that rally on those days when we're down or even
intraday, when we're down. But making sure that you still have money in the market.
This isn't something where you take everything off the table. Even if we get some of those classic indicators like an inversion at the twos tens.
That doesn't mean you pull everything out of the market, because even if that does predict a recession, which it doesn't all the time, but even if
it does, you still see a nice return for usually the next eight to 12 months, maybe even eight to 18 months.
CHATTERLEY: So, this is fascinating, just to get to your point there. The inversion we're talking about is 10-year bond yields in the United States
falling below what we see the yield gap for the two-year point.
To your point as well, not only that, but there's still time to make money. It's happened particularly with stocks rising here. But also, if you see a
Central Bank like the Federal Reserve making insurance rate cuts, that also tends to mean that stocks can rise. It's supported for equity investors.
[09:25:21] YOUNG: And in the past, when they've done things that are slightly similar to this, you do see continued bull run in stock. So over
the short to medium term, you can expect that there's some support to stock prices.
Now, what we've seen though, in the last call it seven or eight trading days is that it's very easy to derail that bull ram with just a little bit
of a macro headline or a little bit of a threat from an escalated trade war or a currency war or anything that would kind of come along and knock us
off track.
CHATTERLEY: We've talked a lot about macro, what about micro? What were your key takeaways from earnings season here in the United States and just
to justify the fact that for all the noise and all the volatility and all the trade concerns, like I made the point, we are still three percent off
record highs.
YOUNG: Right. Well, what's interesting actually is if you look at the market compared to a year ago, we really haven't gone very far, it's only
about two and a half percent up.
So it feels like this has been really violent, and it felt earlier in the year like we had a really strong year coming in, we were up 20 percent. I
remember we were down almost 20 percent in the fourth quarter.
CHATTERLEY: We were only taking back -- yes. So, we are taking there.
YOUNG: So we're sort of just got back to where we were. Now, if you look at it on a limited basis and say, "Oh, we're up 20 percent." Earnings
didn't really support an up to 20 percent move because we had kind of a flat first quarter, a flat-ish second quarter. We're expecting the full
year to be about 2.6 percent growth in earnings. Average earnings growth is about six percent. So we're below average.
What the market needs though and the comps from last year are really tough. But what the market needs is some fundamental reason to keep going up. So
we need earnings guidance, just continue to stay positive. We need those beasts to come through.
CHATTERLEY: I have to wrap you there because we've got the market open next.
YOUNG: Okay.
CHATTERLEY: We'll come back to this conversation. The market open it next. We'll continue talking anyway, even if you don't.
(COMMERCIAL BREAK)
[09:30:00] CHATTERLEY: Welcome back to FIRST MOVE and the final opening bell of the session here in Wall Street. As expected, a lower open for
stocks this morning.
Tech stocks in fact leading the declines. Its trade concerns, once again back in focus. A report saying the White House will delay its decision on
whether or not to let U.S. firms do business in Huawei. That obviously having an impact on the suppliers and those that do business with Huawei
over in the Asia session, too, in addition to an expected crackdown on Federal government contracts here in the United States as well for Huawei,
but also ZTE.
Let me give you a look at what we saw in the Asia session as well. Well, Japan's Nikkei bucking the trend, rising after that stronger than expected
growth report for the second quarter. Chinese stocks falling though. The Producer Price numbers, they are falling for the first time in three years.
That opens the door clearly for more easing.
But we also saw stocks falling in Hong Kong, too. Hong Kong Chief Executive, Carrie Lam, saying weeks of protests have hurt the economy more
than SARS and the 2008 financial crisis, too.
All right. Let's get the latest on that because pro-democracy protesters have begun what they're calling a three day occupation of Hong Kong's
International Airport, one of the busiest airports in fact, in the world.
It's one of a number of protests that are planned by those protesters gearing up for 10th straight weekend of demonstrations. For more, we're
joined by Ben Wedeman, who is there.
Ben, great to have you with us. Can you give us a sense of numbers right now of protesters that are there and expected to stay over the weekend, but
also police and authorities? What presence on their part too?
BEN WEDEMAN, CNN SENIOR INTERNATIONAL CORRESPONDENT: Well, at this point, we're here at the arrival hall of the airport and there are thousands of
people here. However, it should be pointed out that they're not interfering with the operations of the airport. Some flights are delayed,
some of them canceled apparently, as a result of a typhoon that's headed to Shanghai.
We just heard, however that the Chinese Civil Aviation Authority is very unhappy that some of the crew members of Cathay Pacific, which is the
carrier based out of Hong Kong, have, in fact, taken part in some of these pro -democracy protests, and therefore China is saying that those crew
members they believe were involved in the protest will not be allowed to work on flights to Mainland China.
Back to this protest. What we've seen is thousands of people mostly young, in the arrival hall. They're not bothering anybody and police are keeping
a very low profile as far as the situation. They're not trying to stop anybody from doing this. Although, to get to the check-in desks, you have
to show that you're actually traveling, so they're being stopped from entering the departure area.
Now one thing they are providing, though, to people who come -- visitors arriving is this fake ticket, which says HK 809 from Hong Kong to Freedom
and in Chinese, it says on the bottom, that the gates of freedom will be closed unless you work to open them.
So they're using all sorts of other things. Here's a pamphlet they're handing out to arriving travelers saying, "Dear traveler, welcome to Hong
Kong. We regret the inconvenience." But then the pamphlet goes on to explain why they are holding these protests. What their demands are.
But as you can see, it's a very noisy protest. It seems to be this is the major protest in Hong Kong this evening. The city itself, the territory is
otherwise quiet. So it appears that many people have come here, and it's worth noting that not just young people, students, also old people, some
people earlier today I saw even brought their children here.
So yes, it is exactly two months today that the protest began on the 9th of June. This is the 10th consecutive weekend. And these protests do not
appear to be losing steam -- Julia.
CHATTERLEY: Yes, interesting. Ben, great to have you with us and that ticket to freedom. Poignant. All right. Let me bring you up to speed now
with some of our global movers, some of the companies that we are watching in this session. Broadcom and Symantec, of course. Broadcom, also and
Symantec actually higher. I'm just looking at the numbers here. Broadcom buying Symantec's Enterprise Security unit for some $10.7 billion as we
discussed earlier on in the show.
[09:35:10] CHATTERLEY: Uber, also under pressure here. They reported a record $5.2 billion loss for the second quarter and a $3.2 billion revenue
number that coming slightly below expectations. The ride hailing or transportation app says most of its losses are down to stock based
compensation. So there was a lot of noise in this report. You have to strip back the details here.
What about Beyond Meat, also watching this stock today. Reports are it shelved the plans to enter the Japanese market and plans to focus more on
the U.S. market. Recently, bolstered at funding to fight some rivals like Impossible, of course, too. So shelving plans to enter Japan at least for
now, it seems.
All right, another stock we're watching, Goldman Sachs. Malaysia has charged 17 current and former Goldman Sachs employees in its investigation
into the 1MDB scandal. Goldman's top international banker is among those on the list. Matt Egan joins me now. Matt, complex story there. Talk us
through the details. What have we learned today?
MATT EGAN, CNN BUSINESS LEAD WRITER: Julia, the 1MDB scandal continues to be a major black guy for Goldman Sachs. Today, the Malaysian Attorney
General announced charges against 17 current and former Goldman Sachs employees including the CEO of Goldman Sachs International, Richard Gnodde.
Now these individuals were all Directors at three Goldman Sachs subsidiaries during the time that the investment bank arranged three large
bond offerings for Malaysia's sovereign wealth fund, which is known as 1MDB.
Now, the U.S. Justice Department has alleged debt $4.5 billion was stolen from 1MDB by Malaysian officials, and then funneled into New York condos
and hotels, and even used to help finance the film "The Wolf of Wall Street," and Malaysia has accused Goldman Sachs of -- and some of its
bankers of misleading investors about the bond sales and fraudulently diverting $2.7 billion of the proceeds.
Now, today, the Attorney General in Malaysia is saying that these individuals who were charged, these 17, they were either -- they either
exercised or ought to have exercised decision making authority at these Goldman Sachs divisions.
Now the charges carry up to 10 years in prison, in addition to fines. Now, for its part, Goldman Sachs has said that they think that these charges are
misdirected, and they will be vigorously defended.
I think Julia, you know, beyond the obvious legal implications, there are obviously, you know, reputational concerns here because if you're Goldman
Sachs, you have to worry that these charges, and this overall scandal will, you know, make wealthy individuals and potential other sovereign wealth
funds think twice before they hire Goldman Sachs.
CHATTERLEY: Yes, it's a tough one, isn't it? But to reiterate your point, Goldman Sachs at this moment, saying that they will defend themselves
vigorously against all charges. Matt Egan, thank you so much for that.
All right, so we're going to take a quick break here again, but coming up on the First Move, the FinTech company, monetizing your purchase history.
The CEO of Cardlytics joining us next. Stay with FIRST MOVE.
(COMMERCIAL BREAK)
[09:41:33] CHATTERLEY: Welcome to FIRST MOVE and a move into the FinTech space now and the look at the firm, Cardlytics. It's a company that
harnesses what's called purchase intelligence, working with big banks to collect data from card and bill payments. It's the kind of info
advertisers and banks crave, helping them target customers with things like deals and promotions, and that strategy is paying off for early investors.
The stock has surged almost 90 percent in the last three months alone. Joining us in the "Chatt Room," Scott Grimes is the CEO and Cofounder of
Cardlytics. Great to have you with us.
SCOTT GRIMES, CEO AND COFOUNDER OF CARDLYTICS: Good morning, Julia.
CHATTERLEY: Okay, that was my words, in your words, what is Cardlytics? Tell me how it works.
GRIMES: So we're a digital marketing platform, just like a lot of the other ones out there. We have some really unique capabilities. So let me
tell you how we built it.
CHATTERLEY: Yes.
GRIMES: Unlike other digital marketing platforms, which kind of signed up a customer at a time to create a business. We partner with lots of banks
to build a single sort of marketing network for advertisers. And there are two things we get from our bank partnerships.
First of all, we're able to bring marketing to all of their customers through the bank's digital touch points -- mobile banking and online
banking.
CHATTERLEY: Yes.
GRIMES: And we bring it to customers in the form of cashback offers. So while people haven't heard of Cardlytics, they've heard of --
BankAmeriDeals through Bank of America.
CHATTERLEY: I've definitely heard that.
GRIMES: Chase offers through Chase. PNC Payback through PNC. We work with lots of banks. Second, we use insights from the bank's purchase data
to both make sure we're bringing customers offers that are relevant to them, which also means advertisers are reaching customers that are likely
to be valuable customers. And then we're also using that purchase data to measure the effect of the advertising.
So closing the loop in the advertising so we can measure the return to the penny.
CHATTERLEY: So this is really important for me. I mean, there's many things in there. One, you understand exactly what we're all buying, how do
we target a person knowing exactly what they buy, and perhaps assuming that they will want to buy the same thing.
But also with all advertising, you're never quite sure whether it's tackling the consumer appropriately where they are actually, they're acting
on it. But what you're saying is, this is a great way of understanding how that advertising is impacting a customer, and if they're acting on it.
GRIMES: Exactly. And what we find is that the way you've purchased in the past is incredibly predictive and insightful in what you're interested in
buying in the future.
So that past purchase behavior, the objective is really find the people who are going to be most interested in the marketing that we're bringing to
them. And because we're then measuring the impact of the marketing, did it actually work? Did it change consumer behavior? Our models are constantly
getting better and better at bringing the right message to the right consumer.
CHATTERLEY: So, the first thing I thought when I was looking at what your company did was go, am I comfortable with the bank selling my data?
GRIMES: Yes, yes.
CHATTERLEY: Tell me what exact data they give you? And do you see my name? Is there any way for an individual to be identified and kind of a
consumer or someone that works with a bank or banks with a bank go, you know what? I don't want my data handed over. I don't want it to be
targeted.
GRIMES: Yes. So a couple things. First of all, banks aren't selling the data. Instead, what they're doing is letting us analyze the data.
CHATTERLEY: Right.
GRIMES: To go and understand what offers to bring to their customers. But importantly, we never use any personally identifiable information. And the
data never leaves us or the bank, so it never goes outside the network.
CHATTERLEY: Right.
GRIMES: Second, we actually -- there's two numbers I look at. We make it very easy for customers to opt out. If they don't like the service, it's
fine. System-wide opt out rate is less than a quarter percent. But the other metric we look at is, how do people engage with the offers? On
average, we see about an eight percent click rate, which is an order of magnitude higher than you see in other digital channels.
So I look at two things, people aren't opting out, but they are aggressively engaging with the channel that we believe the reason for that
is because we're bringing great value.
[09:45:14] CHATTERLEY: Amazon Prime Day -- or two days -- what did you see there? What are your big takeaways? Because that does interest me in terms
of just spending habits and what we see, and actually outside of Amazon, what happens to people's spending?
GRIMES: Yes, you know, we're pretty geeky. So we're always analyzing how people are changing their spending.
CHATTERLEY: Geeking out with you.
GRIMES: And we've watched Amazon Prime pretty carefully over the past few years. What we saw this year is that Amazon Prime customers spend about 25
percent more than they did last year. So, it's really growing. It also is pulling that back to school spending forward.
But the other thing that's really cool is for those same Amazon Prime customers that have spent more, they also spent 20 percent more online at
all the other retailers. So, it's a kind of a rising tide benefits all.
CHATTERLEY: Does it steal from bricks and mortar, though, because that's the thing, do we think this ship time on online purchases and actually to
the cost of the high streets?
GRIMES: So yes, online is definitely growing. But it was more of pulling the back to school spending forward versus stealing from the high streets -
- using your term -- you know, the one thing that we are seeing that is super, we do a lot of work with advertisers on growing their omni channel
strategy.
A lot of people talk about that, but we can really do it because we can see the brick and mortar customers who also have a propensity to spend online
and other places. The reason it's so important is when a retailer gets someone to spend both in the brick and mortar, and online, it doubles the
total amount of sales they get from that customer versus a customer he spends in only one channel.
CHATTERLEY: You know, it's interesting, you work with a number of the big banks. You mentioned, Chase, JPMorgan Chase, Bank of America, I know is a
big one. I was just trying to think given that you IPO'd, you went public a year and a half ago, who would actually like to buy you? Perhaps the
banks would have a real battle, actually, because no one actually wants the other person to own you.
I think a big tech giant would actually love to have the ability to strategically target and to go to advertisers and go, "Guys, look at this
technology. You know, let's pinpoint exactly who wants to buy what, when and how." Any interest for big tech companies to buy you?
GRIMES: You know, I spent all my time running the business, trying to make it more and more valuable. One of the things that we are incredibly in
tune to is, we work with some really sensitive assets with our bank partners, but also for our advertising partners.
And we always make sure that we're that really sort of good and fair partner that sits in between the two.
CHATTERLEY: Are you profitable?
GRIMES: We're getting there.
CHATTERLEY: So, not yet.
GRIMES: Not yet. We lost about $600,000.00 of adjusted EBITDA last quarter. But we are just now starting to see the fixed cost effects of our
business that we're starting to really show leverage. And that was driven by -- we made some very large investments to scale up for Chase. Wells
Fargo is launching in Q4. Those investments are made and now we're starting to see the operating leverage as we grow in towards scale.
CHATTERLEY: Feasible in 2019? 2020?
GRIMES: We have publicly stated that in 2020, we will be adjusted EBITDA profitable.
CHATTERLEY: Fantastic. Come back and talk to us again. Fascinating company.
GRIMES: We'd love to.
CHATTERLEY: Scott Grimes, CEO and Cofounder of Cardlytics. All right, we're going to take a quick break now, but up next, redefining high tech.
The NASDAQ's newest pop stock finds a fresh way to cash in on the cannabis market. Akerna CEO tells us how. Stay with us. That's coming up.
(COMMERCIAL BREAK)
[09:50:29] CHATTERLEY: Welcome back to FIRST MOVE. Meet Akerna, the newest cannabis stock to hit the market. But unlike most pot stocks, this
company pushes software, not soft drugs. This is how CEO Jessica Billingsley described what Akerna does.
(BEGIN VIDEO CLIP)
JESSICA BILLINGSLEY, CEO, AKERNA: The way an investor, any investor should think about us is as a software as a service.
CHATTERLEY: Right.
BILLINGSLEY: That happens to be serving what is arguably one of the fastest growing industries in the.
CHATTERLEY: Yes. But you're collecting data basically. This is the key.
BILLINGSLEY: Absolutely.
(END VIDEO CLIP)
CHATTERLEY: Legal cannabis retailers use a kind of software to enter product data at all points in the supply chain from planting the original
seeds to customer sales. It's not an exceptional business model, but it focuses on an exceptionally high growth and lucrative market. I asked the
CEO to give me a sense of the cannabis industry's growth potential.
(BEGIN VIDEO CLIP)
BILLINGSLEY: July 4th is the third busiest holiday of the year for cannabis sales. And this year, cannabis in the July 4th week did 80
percent more than in a normal week in terms of sales.
CHATTERLEY: Wow.
BILLINGSLEY: And in fact, at the current rate of consumer growth, which is about 12 percent a month. So if you think about that, the consumer growth
rate of cannabis 12 percent a month, we predict that by 2020, people will buy more cannabis for the July week than wine.
CHATTERLEY: Really?
BILLINGSLEY: Just next year.
CHATTERLEY: Just based on the growth that you're seeing right now. And he said you're tracking in other countries, too. Is the United States far
more prevalent in terms of the growth rate and the amount that's being bought than any other nation right now?
BILLINGSLEY: The United States still leads, but it is hampered by the Federal-state conflict, which is still existing, and it's a question of
when, not if. It's going to end, and in the meantime, we're working with many countries that are legalizing on a Federal level and enabling
compliance for them providing the backbone and regulation as really a global marketplace is emerging.
CHATTERLEY: I mean, I've read that you sold $400 million worth of sales in that July 4th weekend. I mean, as you said, that's the third largest
holiday, so we can't take that in isolation.
But what kind of size market are we talking about by 2020, if you're talking about a 12 percent growth rate on a on a monthly basis?
BILLINGSLEY: So we're projecting around $30 billion.
(END VIDEO CLIP)
CHATTERLEY: A $30 billion market. As Jessica outlined there, the lack of clarity on regulation is tough on a business, it's also tough on the
consumer, and you've heard this on FIRST MOVE before, as Akerna's CEO points out, no regulation means no clear standards on the product and that
she says is a key concern.
(BEGIN VIDEO CLIP)
BILLINGSLEY: We talk about the three P's, which are public safety. So knowing where the product is going, making sure there's no diversion, it's
not making it into the hands of minors. Product safety, which is this concept of a supply chain tracking and being able at any time to enable a
recall or to know where your product is along the life cycle.
CHATTERLEY: Yes.
BILLINGSLEY: And then finally, that really important piece for any patient or consumer, so patient safety, what's in my product? What am I getting?
How can I know that when I buy this, it's going to have this effect, and it's not going to be double or less that I really could have good
confidence in what I'm receiving?
CHATTERLEY: Are you talking to regulators? Are you even having that conversation at this stage where they say to you, "Look, can we use your
data? Can we have a conversation with you about what you're seeing?
BILLINGSLEY: Absolutely, we often have a seat at the table with regulators and really educate them on how you can regulate, how you can tax and how
you can have good confidence in tracking this product and having good confidence that what you're doing for your constituents is going to be
appropriate.
CHATTERLEY: I mean, the majority of Americans now want to see legalization at the Federal level. What's your sense? How long do you think it takes?
Particularly when we've got the majority of Republicans, I believe actually now are saying that perhaps this is something that we should be looking at
whether it's recreational or medicinal purposes, how long do you think it takes before we see at the Federal level a relaxation of these rules?
BILLINGSLEY: I've been doing this for about a decade.
CHATTERLEY: Yes.
BILLINGSLEY: And I haven't said this in all the years leading up. We're now in a near term period of time.
CHATTERLEY: Really?
[09:55:00] BILLINGSLEY: It's within a couple years. And part of that if you look back at our previous conversation there around what's happening
globally. There are other countries, they are moving forward with really strong, really stable regulation and tracking and proving that this works
and creating this global marketplace and the U.S. is not going to want to be left out of that for very long.
(END VIDEO CLIP)
CHATTERLEY: The business could not only work for cannabis, of course, they can track any kind of product and she said that, but right now, they're
just focusing on the cannabis industry itself.
All right, let me give you a look at what we're seeing for U.S. majors at this moment. We are softer. The tech stocks remain the underperformers,
plenty of broader trade concerns right now, and I think that's going to continue to play into the session.
I'll be back in a couple of hours' time on "The Express." But for now, that's it for the show. I'm Julia Chatterley. You can also listen to our
podcast cnn.com/podcast if you want to rehear the show's action, but for now, you've been watching FIRST MOVE. Time to go make yours. Have a
wonderful Friday.
(COMMERCIAL BREAK)
[10:00:00]
END
