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First Move with Julia Chatterley
Skepticism Mounts As China Adjusts The Way It Quantifies Coronavirus; Strong Earnings At Alibaba, The Coronavirus Concerns Remain; The U.K. Chancellor Quits In A Cabinet Reshuffle. Aired 9-10a ET
Aired February 13, 2020 - 09:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
[09:00:32]
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.
Counting cases. Skepticism mounts as China adjusts the way it quantifies coronavirus.
Baba-bing. Strong earnings at Alibaba, the coronavirus concerns remain.
And Sajid's swansong. The U.K. Chancellor quits in a Cabinet reshuffle. It's Thursday, let's make a move.
Welcome once again to our FIRST MOVErs from around the world. Great to have you with us. I have to say I'm just looking at the tone right now and Dow
30K is going to have to wait a little while longer.
Take a look at what we're seeing right now. We are easing back premarket here in the United States, a cautious tone more broadly across global
markets.
We are going to fall, I think, from record highs when we open up. Consolidation after recent gains or fresh nervousness about the coronavirus
outbreak? Probably a bit of both here.
We're seeing losses in the European session to that despite strong earnings or at least solid earnings from Barclays, Nestle and Credit Suisse, some
adjustments there in terms of management as well, and Asia closing the broadly lower as well.
China stock falling in fact, for the first time in more than a week. Chinese auto sales numbers, not helping sentiment either. Sales plunging
some 18 percent last month, though, admittedly, the trend has been down for a long while.
Electric vehicle sales falling more than 50 percent. A worrying development of course for one stock in particular, Tesla, which just began delivering
its first China made Model 3s.
Context of course, if I bring it back to the United States is required for all the worries, we've hit several milestones this year.
The NASDAQ has made 13 new record highs. The S&P, 11 and the Dow seven fresh record highs. Now the skeptics among you will be saying all it takes
is a teeny weeny rise in order to keep doing that. But I do think the psychology here is important.
The Dow beginning today's session, as I've hinted at just one and a half percent away from that 30,000 milestone. All of this, despite investors not
knowing the ultimate impact of the coronavirus on public health, on corporate operations, of course, and on economic growth.
Coronavirus and the outbreak remains our top driver today.
China's Hubei Province, the epicenter of the coronavirus outbreak now reporting a sharp increase in the number of deaths and cases. Authorities
say more than 240 people died in the past 24 hours, and there were nearly 15,000 new infections. Part of the reason for that, officials changed the
criteria for recognizing new cases.
In the meantime, China's President Xi Jinping has appointed one of his key allies to run the Hubei Province, the outbreak posing a major challenge to
Beijing's insistence on controlling the flow of information as complaints about the government's response multiply on social media.
David Culver is in line tracking all of these details. David, let's talk about the numbers here and how those things are recorded.
My understanding is we're talking about including those with a clinical diagnosis rather than a test positive for coronavirus, and clearly that
matters.
DAVID CULVER, CNN CORRESPONDENT: It does, Julia, and it's worth looking at this reclassification and this political change up, if you will, the
cleaning house at the local level that you mentioned. And you can't see them as mutually exclusive. I think they go together. And you've got to
look at them in such a way.
But as far as this reclassification is concerned, essentially, what they're saying is that the new number of those reported cases will include those
folks who have been confirmed by taking tests and those tests being positive, as well as those who have exhibited the symptoms, they've shown
them, they've been clinically diagnosed, even if they haven't been tested, they'll then be part of that group.
That explains this huge jump a number that we're seeing, and it's also in many ways to be quite fair, a response to a lot of our reporting that we
have shown folks who have simply said, we don't have access to some of the testing. It's either been delayed or it's just been out of our hands to
even get there to the hospital to get it done.
So in part, this is answering some of the criticism and concern that the government had faced for several weeks.
[09:05:10]
CULVER: Or it's just been out of our hands to even get there to the hospital to get it done. So in part, this is answering some of the
criticism and concern that the government had faced for several weeks now. And they're responding that by saying, okay, now we will consider those.
But then on the political side of things, you also have to look at where this all started. And again, it's at the local level, that early criticism
was coming out against the city of Wuhan, against Hubei Province.
And that criticism seemed to come to the point where people were losing their jobs. And we know that's continued, even today with the two most
senior party officials in Hubei Province as well as in the City of Wuhan, now out of a job.
Their replacements, Julia are protegees of President Xi Jinping, and of course, now, all of this is reflecting on the central government, and the
central government in of itself is in charge of all of this. They've taken control of the containment effort, which at times, it's been seen as
extreme.
Folks have even criticized it, but then at the same time, it's received some praise. The WHO thinks that can be effective, and even one of the
leading epidemiologists who spoke out early on and really was known for his assessment of the SARS epidemic in 2003 said, he believes that while the
local government dropped the ball initially, and they should be held responsible, that this containment effort into its extremes as well could
be quite effective -- Julia.
CHATTERLEY: Yes, it's tough, isn't it? It's a balancing -- a delicate balancing act here between managing the message, not spreading fear, the
broader quarantine efforts as you've been describing now for many weeks -- difficult, difficult balance to find.
David Culver, great to have you with us. Thank you for that.
All right, let's move on. Alibaba reporting a strong fourth quarter set of numbers boosted, of course by Singles Day, but there's a whole host of
factors here, but where our attention clearly focuses and in that earnings call as well was the comment on coronavirus.
The CEO warning it presents near-term challenges. Clare Sebastian is on this story. Clare, we can talk about the numbers, but let's talk about
coronavirus because this has been seen and this stock does react to the sort of bellwether of the Chinese consumer here.
The CEO called it a black swan event for the global economy. What did he say specifically about what they're seeing here?
CLARE SEBASTIAN, CNN BUSINESS CORRESPONDENT: Yes, Julia. They are seeing something that could be potentially negative for this quarter.
The CFO says that they do expect growth rates in terms of revenue to come down in the quarter. Perhaps, she said significantly, they just don't know
yet. We're still only halfway through the quarter.
They said based on the numbers they're seeing for the first couple of weeks of February, they expect potentially negative revenue growth in some of
their businesses, core commerce and local services, things like that, and that will affect revenue growth overall, despite the fact that we see from
this company that they are really on fire.
The last quarter revenue growth was almost 40 percent earnings growth, almost 50 percent. They saw a record Singles Day. They have 824 million,
Julia, mobile active users on a monthly basis.
Just to put that in context, we have to talk about this with Alibaba. That is two and a half times the size of the entire U.S. population, just to
give you a sense of the scale of this company, so they are firing all cylinders.
They have other areas like Cloud, revenue there was up 62 percent, but that doesn't mean they're not vulnerable to this virus.
They say they're continuing to see disruption. It's not about demand. Demand for e-commerce services, for example has been going up. It's about
being able to meet that demand with supply.
They're seeing, you know, capacity issues as workers struggle to get back after the Lunar New Year holiday, and they say they're not immune to that,
but they are trying to help their merchants and their customers in various ways.
CHATTERLEY: Just give me that statistic again.
SEBASTIAN: Eight hundred twenty four billion mobile active users on a monthly basis on their China core commerce retail platform, Julia. That is
the app, two and a half times the U.S. population.
CHATTERLEY: It's a giant, but you also raise a really important point and I think when we're talking about the potential impact on coronavirus on the
business, we have to discuss this, Cloud, gaming.
There are other aspects of this business and I think we tend to think about an e-commerce marketplace, but they have other sides of the business that
arguably, perhaps could benefit if people are at home, spending more time at home away from the workplace, even if we see an impact to other parts of
the business, critical to define exactly what this company is and the diversification it presents, too.
SEBASTIAN: Right. Cloud, entertainment, international, they have as well. They are sort of doing an Amazon. They are diversifying into all kinds of
different -- into all kinds of different revenues as e-commerce becomes more widely adopted.
But there was another point to this, Julia, that Daniel Zhang, the CEO made very clearly several times on the call is that he sees that while this
outbreak is going to be a short term impact on the Chinese economy, he thinks there might be a longer term impact and that will be that people
will get more and more used to living in a more digital way, to ordering groceries to their homes, to ordering food, to working from home, perhaps.
He thinks Alibaba could be a beneficiary of that. He says they saw the same thing during SARS, and they are starting to see this again during this
outbreak as well.
Alibaba, he says, sees opportunity in this adversity.
[09:10:05]
CHATTERLEY: Yes, interesting, isn't it? Whether it's a short term blip or a longer term play to your point, even as we see the broader shift in e-
commerce and the rise of e-commerce. Clare Sebastian, thank you so much for that.
Now, as you were hearing there, someone there, the CEO of Alibaba, calling it a black swan event for the global economy.
We're guessing the oil markets aren't. They're reacting. The coronavirus outbreak is crippling oil demand hereto. The IAEA forecasting the first
quarterly drop in oil demand in over a decade.
John Defterios is on this story. This of course, in part due to the widespread shutdown of activities in China as we were just describing
there, John. Talk us through the numbers here because they're pretty big.
JOHN DEFTERIOS, CNN BUSINESS EMERGING MARKETS EDITOR: Yes, this is a case where China is leading the charge and this is a week where the third time
is not a charm for the oil producers, that's for sure.
We had started with OPEC, then it was the IEA in the United States, now is the IAEA all pointing to lower demand in the first quarter, and more
alarming, I think, throughout all of 2020.
The drop of the first quarter, you noted is the lowest since 2011 at 435,000 barrels on the drop, but they're suggesting, the IEA that the drop
for the year on a daily basis would be 365,000 barrels. What does it mean, Julia?
You and I have talked about daily demand in the last few years, 1.2 million barrels a day, 1.3 million barrels a day, 1.5. They are suggesting this
will be around 825,000 barrels a day.
It is atrocious and that's the slowest annual pace of growth on demand since 2011 as well. So this could knock off global growth in China if it
carries into the second quarter by a half a percentage point, and we're seeing the case, Julia, where major players in oil and gas say Qatar with
LNG are trying to redirect the shipments. Well, where are you going to redirect it if there's not a lot of demand?
And again, we're talking about floating storage. So this is going to be a challenge, and we often talk about the stock market being a lead indicator.
If you go back to 2008, 2009, and 2010, it is the oil market that often serves as a lead indicator and it goes really quickly when the force is
against them.
CHATTERLEY: And the real challenge here is predicting how long this outbreak lasts and the impact it has, particularly, if you're OPEC or your
OPEC Plus, do you react to cut supplies here and try and shore up the market, or do you wait and see how this plays out?
Do you think this changes anything because the market was rallying -- the energy market was rallying this week on hopes that I would do something?
JD, what do you think here? What's your sense?
DEFTERIOS: Well, you saw the prices pop up here. We came off that bottom, Julia, when we saw WTI go below $50.00 a barrel. Earlier in the week, we
had a decent rally, but I would say that just above $51.00 a barrel and just about $54.00 to $55.00 for North Sea Brent is not pretty solid at all.
We have to take our viewers back to early January and the tensions of Iran, we've lost $15.00 a barrel.
So this may be a case where you have 22 members of the OPEC Plus talk about it enough where Russia comes around. They still have not changed the date
on the March 5 and 6 extraordinary meeting. The target is to get at least 600,000 barrels a day off the market.
We hear rumblings from individual Russian companies saying maybe we should go along with this to stabilize the market. But we don't have a decision
coming from the Kremlin just yet or from the Minister of Energy to proceed and say let's move up that meeting as well to send a signal to the market.
Not yet -- Julia.
CHATTERLEY: Not yet. John, great to get your perspective. John Defterios there.
All right, let me bring you up to speed now, with some of the other stories making headlines around the world.
Sudan has agreed to pay $30 million to the families of the 17 sailors killed when terrorists attacked the USS Cole in 2000 -- in the year 2000.
A U.S. Court later concluded that Sudan provided aid to al Qaeda, which led the bombing of the warship.
The Sudanese government continues to deny it was involved, but says it wants to normalize relations with the United States.
The U.K. Chancellor, Savid Javid has resigned following a cabinet reshuffle by Prime Minister Boris Johnson. Sajid Javid's departure is the most high
profile change to the government. He will be replaced by Rishi Sunak.
Phil Black is in London following the story. I have to say, Phil, my initial response was, who? But tell us what happened here, if you know what
we know on this and this certain replacement has got pretty strong city links. Talk us through the details.
PHIL BLACK, CNN INTERNATIONAL CORRESPONDENT: Yes, so Julia, this was supposed to be a low key boring ministerial reshuffle and then suddenly, it
wasn't. Sajid Javid was supposed to be safe. It turns out, he wasn't.
He met with the Prime Minister as all of the reshuffling meetings were taking place. He was expected to emerge with a smile on his face. But
instead, at the end of that extended meeting, he resigned and the reason which has been widely reported in the British media is that he was made an
offer he simply just couldn't accept.
[09:15:02]
BLACK: He was told that he could stay on as Chancellor, but there was a really big condition attached to that, and that is that he was told that he
would have to fire all of his special advisers, his entire office and accept a restructured office that would see advisers working between both
the Chancellor's Office and the Prime Minister's Office as well.
It is being interpreted essentially as a power grab by 10 Downing Street, the Prime Minister's Office to have a much greater say in the Chancellor's
Office and the running of the Treasury, a real reduction in what has historically been a fairly autonomous role. That is the Chancellor of the
Exchequer, essentially the number two job in British Government historically.
So he had to go. It was a humiliation too far for him and then very soon after, the government announced his successor, Rishi Sunak, the man who was
Sajid Javid's Deputy, really. He already had a job in Treasury.
He has been seen for some time now as a rising star in the Conservative Party, someone who is very close to Boris Johnson and who has taken a very
big step up in his career.
The timing all really matters because the Chancellor was due to give his first Brexit -- post Brexit budget, I should say, in just four weeks' time.
That's now going to happen. Rishi Sunak will now deliver that.
But because of the restructuring that it appears he has signed on to within the Chancellor's Office, it means that 10 Downing Street, the Prime
Minister's Office is going to have a much bigger say in the contents and the final draft of that budget speech -- Julia.
CHATTERLEY: Yes, power is not something this Prime Minister lacks. Phil Black, thank you so much for that. And actually, I'm just looking at the
U.K. assets.
The FTSE underperforming. The currency a bit nervous as a result of this move.
All right, we're going to take a quick break here on FIRST MOVE, but still to come, Wall Street buying into Shopify. Shares of the e-commerce are
soaring on an earnings surprise. We're going to get the scoop.
And the company that says it's never too early to teach a child to spend responsibly. Greenlight tells me why it wants to put debit card in the
hands of children.
Stay with us. We're back after this.
(COMMERCIAL BREAK)
[09:20:17]
CHATTERLEY: Welcome back to FIRST MOVE. We're looking at like a lower open here for U.S. markets. Take a look at what we're seeing where the major
averages are sets to fall from record levels hit in the session yesterday, though we have bounced a little bit in terms of these futures from session
lows.
A technical change in how cases of the coronavirus are reported in China has injected a degree of fresh uncertainty here. What about in the bond
markets? Ten-year yields which have been strengthening over the past two sessions are lower today at around 1.61 percent.
The dollar also a little softer after recently hitting four-month highs. Also fresh inflation numbers from the U.S. Consumer prices rising are
weaker than expected, 0.1 percent in January compared to the month before, but rising some two and a half percent year-over-year. The biggest rise in
more than a year.
Let's get some context on what's going on here. Darius Dale, Managing Director at Hedgeye Risk Management joins us now.
DARIUS DALE, MANAGING DIRECTOR, HEDGEYE RISK MANAGEMENT: Good morning.
CHATTERLEY: Fantastic to have you with us.
DALE: Good to see you.
CHATTERLEY: Talk to me about what we should be watching as far as coronavirus, Chinese data is concerned because there are some upcoming data
points that could be quite critical.
DALE: Yes, absolutely. So on the 21st, you're going to get the February market manufacturing PMI for the U.S., and then on the 28th, you're going
to get the first official data, the PMI data out of China. That's going to be the first clean read we're going to see as it relates to the impact of
the coronavirus.
CHATTERLEY: What impact is it having? Because I keep mentioning that stocks in the United States are making fresh record highs, but then we've
just been talking about the oil markets predicting a significantly lower demand for growth.
So the signals across assets here are pretty confusing for anyone.
DALE: Well, it's not necessarily confusing if you think about it from the perspective of the narrowness of leadership in the U.S. market. That's
something that always happens late cycle, so the Russell peak back in August of '18, the S&P 500 on an equal weighted basis peak back in mid-
January.
So you're seeing a narrowing of performance leadership, and that's very consistent with what we are in the business cycle because you also see a
narrowing of corporate profitability as well.
CHATTERLEY: So don't look at the headline number, what you're saying is actually that the market is being led higher by increasingly fewer strong
stocks.
DALE: Get used to it. That's going to be the case until we get to a recession. This economy, particularly in the U.S. economy, remains very
late cycle from a labor market perspective, from a corporate profitability perspective.
So we're continuing this steady march towards recession, and as we continue on that path, it's likely that you're going to continue to see that
narrowing increase.
CHATTERLEY: Do you invest in those stocks and in those sectors that are creating that leadership position? Because the end between now and the end
of the cycle, tough to predict.
DALE: Actually, it's not. I mean, we have a ton of historical data, right? We understand -- you know, we don't want to be frequentists about it and
say, okay, we're going to blindly look at past cycles to break this cycle.
But from a Bayesian perspective, we can monitor things like the deterioration in the employment market, the duration in corporate
profitability, the deterioration in confidence, the narrowing of leadership.
And right now, we're just not close to the end of the cycle period yet. We're still late cycle and that means all these things are going to
continue to happen as it relates to deterioration. But we're just not there yet.
CHATTERLEY: What about the signal that we got in the bond market as well, because we're now what? Six to nine months on from a period where we got an
inversion in the yield curve.
Stick with me, i.e. frontend, shorter term interest rates above the longer term interest rates. Are we able at this stage to say that was a false
signal because it sometimes precludes a recession, or it doesn't always?
DALE: No, we're not quite there in terms of being able to determine if that's a false signal, because we still remain light cycle one.
But two, the steepening we've seen from that inversion hasn't been a bull steepening. Typically, you see a bull steepening where the short end is
actually just collapsing, and the little curve steepens. What we saw really since -- and certainly since the beginning of this year, is more of the
long end just coming down and the shorter end remaining anchored.
Which means, the Fed has to cut interest rates further. There's -- it's very likely that by April, because they've telegraphed that by April,
they're going to start to think about pulling back on not QE and their "repo market fix." Well, that could be at the same time where we're
getting, you know, month three of coronavirus data out of U.S. and Japan in New York.
CHATTERLEY: Right.
DALE: We can also have you know, quote-unquote everybody's favorite "anti- market candidate," Bernie Sanders descending to whatever his peak it will be, you know, so the Fed pulling back, Bernie, all the stuff could coalesce
into a cue as it relates to the coronavirus and back as well.
CHATTERLEY: It would be a perfect storm.
DALE: Perfect Storm.
CHATTERLEY: Can stocks weather that if the Federal Reserve is cutting and if the Federal Reserve doesn't cut?
DALE: Yes, I don't think you need to sort of make the call that stocks can weather that. It's very unlikely that if we go into quad four, we call it
quad four where growth and inflation are both decelerating in the U.S. economy and the European economy, and the Chinese economy that stocks
"weather" that.
The question is, on the other side of that, what are you looking to buy as we continue down this late cycle progression process? And there's a lot of
stuff to be done there.
CHATTERLEY: What do you buy?
DALE: There's a lot -- duration risk, obviously so the Fed is going to continue to cut interest rates. So I mean, just think about the last month
of returns, right?
You know, we made the call that inflation is likely to peak in January and adjust it today or just accelerate to a new cycle high, which we think will
be the cycle high print. Duration risk is obviously continuing to outperform.
So we see treasury bonds up four percent month over month, utilities, REITs up six to seven percent. Software, which everyone is considering, you know,
sort of low beta defensive duration risk up five percent and this is compared to S&P, that's up two and a half.
[09:25:11]
CHATTERLEY: You said something and it was on social media, too, the Softbank conversation I was having with Sherrise Pham yesterday and you
said Softbank is being smart here.
DALE: They are being very smart.
CHATTERLEY: Why?
DALE: I mean, if you go back to the previous credit crisis, there were some firms that actually realized what was going to happen as it relates to
the inability of investors to get their money out from some of these more illiquid instruments.
Softbank is taking its march with respect to Uber and WeWork and I'd imagine, you know, the powers that be there are likely to do that for some
other investment as well, because they realize that when it's time to get out, there won't be any illiquidity.
CHATTERLEY: It's interesting because we often have this conversation on this show about whether in the private market, i.e. before a company goes
public, the valuations there, the money sloshing around has just got too high and the valuations have got too high.
DALE: Yes. Totally.
[09:25:55]
CHATTERLEY: So what you're saying here is it makes sense to go, hey, we're just going to be a little bit more cautious here on how we're valuing our
assets.
DALE: Well, just think about this, right? So we're in that part of the business cycle, where you see that narrowing of corporate profitability,
where all the earnings growth continues to get increasingly crowded to the S&P 500 or even 100, where corporate profits are just the broadest measure
of corporate profitability in the U.S. You know continues to flatline or even decline heading into a recession.
So all these companies, these unicorns that have not made a dime yet in the business cycle will not make a dime.
So people are going to start to sound the alarm in a lot of these crappy companies.
CHATTERLEY: It's so great to chat with you and I always have 50 more questions to ask you, but we'll get you back.
DALE: Yes, absolutely. Thank you.
CHATTERLEY: Darius, fantastic to have you with us. Darius Dale there, the key is being strategic, I think. Managing Director at Hedgeye Risk
Management. You heard it here.
Countdown to the market open continues. Stay with us. You're with FIRST MOVE.
(COMMERCIAL BREAK)
[09:30:00]
CHATTERLEY: Welcome back to FIRST MOVE, live from the New York Stock Exchange. You are looking at the opening bell and plenty of smiling faces
this morning, but we all lower early on in the session, a continuation of the weakness we've seen in Europe and of course, in Asia.
All the major averages pulling back here from the fresh record highs that hit in yesterday's session. The Dow actually the best gainer in the
previous session rising almost one percent coming within one and a half percent of that 30,000 milestone. Coronavirus fears once again though in
the spotlight.
Let's take a look at some of the movers here. Ralph Lauren is the latest U.S. firm to warn in fact that the illness will impact results. It says the
2020 sales could take a $70 million hit.
All right, the FIRST MOVEr here is Barclays as you were seeing there, down by over two percent in London trading. The bank says British regulators are
investigating its CEO over its relationship with Jeffrey Epstein, the U.S. financier and convicted sex offender who was found dead in his jail cell
last year.
Barclays also reporting full year results that came in above analyst expectations. What about Tesla? Under a bit of pressure here. Elon Musk and
company announcing the plans to sell another $2 billion worth of common stock, down some four percent in the session early on.
Alibaba trading lower, too, after its Q3 results. The Chinese e-commerce giant posting better than unexpected profits and revenues, but perhaps
investors are a touch worried here as well about the impact of the coronavirus outbreak, down some 1.8 percent.
Shopify higher in early trading after rising to record levels in the previous session. The Canadian tech firm reporting better than expected Q4
results and raising its full year guidance.
Shopify develops e-commerce platforms for companies selling online. It's also branching out into robotics and other services for online merchants.
Harley Finkelstein is Chief Operating Officer of Shopify and joins us now. Great to have you with us.
HARLEY FINKELSTEIN, CHIEF OPERATING OFFICER, SHOPIFY: Great to be here. Thank you for having me.
CHATTERLEY: Congratulations. Exciting times and strong results.
FINKELSTEIN: Very exciting times. It was a great year. We did about $61 billion of GMV across the platform. That's up but 49 percent from previous
year, revenue was over 1.5 billion that was up 47 percent from the previous year.
And we have more than a million stores now on our platform, which is really exciting for us.
CHATTERLEY: Just to be clear, GMV, gross merchandise volumes.
FINKELSTEIN: Gross merchandise volume.
CHATTERLEY: That's the sheer --
FINKELSTEIN: That's the amount of products sold on Shopify.
CHATTERLEY: Exactly.
FINKELSTEIN: And actually, that makes us the second in aggregate, that would mean our merchants are the second largest online retailer in America
after Amazon.
CHATTERLEY: So this is quite fun, actually, that you mentioned that because often you're compared and they're like, well, you're competing with
Amazon, you're a marketplace.
My comparison if I want to make one and you can correct me if you prefer is, it's more of an Alibaba in that sense than an Amazon.
FINKELSTEIN: We're not a marketplace. In fact, we don't compete with Amazon, our one million merchants do and what we're seeing is that
consumers are deciding to vote with their wallets and buy direct from those brands.
So you look at AllBirds or Bombas, or Tommy John or Peloton, these are all companies, Brooklinen, TOMS Shoes -- these are all stores that are built on
Shopify that are selling direct to the consumer.
And in aggregate, they're doing incredibly well and I think consumers like direct to consumer.
CHATTERLEY: But you help them with everything? The marketing here, setting it up, warehousing, checking what stock -- you're providing a pretty full
service here for an entrepreneur or a business that wants to sell online.
FINKELSTESIN: If you were to ask me what Shopify really is today, we're the world's first retail operating system, so we help people build online
store, or you can sell in a physical location.
We help you with cap, we've done about $800 million of cash advances to our merchants. We help you with payments.
And more recently, with fulfillment, we've announced the Shopify fulfillment network where we're going to allow any small business to
leverage our economies of scale and ship within two days to their customers.
CHATTERLEY: So explain how much that costs. If I was an entrepreneur, I wanted to come to your platform and to sell online is there a monthly fee
that I pay just at the get go?
FINKELSTEIN: Yes, that's the best part of our business model. Shopify starts at $29.00 a month.
CHATTERLEY: Right.
FINKELSTEIN: That's all it is. And as you grow and become a Shopify Plus merchant, so I mentioned KitchenAid is now with us and some of these big
brands, Cirque du Soleil as well, which I mentioned on the call, they pay us 25 basis points of their GMV.
So it's really easy to get started --
CHATTERLEY: Fourteen percent?
FINKELSTEIN: Well, well, 16, and that's okay, but the ones that do eventually, we will share in the upside, as they become successful, we
become even more successful.
CHATTERLEY: So what -- break it down for me in terms of your revenues then, what proportion is that subscription base and therefore entirely
steady versus other revenue generated through the merchants and beyond?
FINKELSTEIN: So there's two revenue models or there's two buckets. There's the subscription solutions, which is $29.00 a month or the $2,000.00 if
you're on Shopify Plus.
CHATTERLEY: Yes.
FINKELSTEIN: Then there's the merchant solutions and that includes things like payments, and shipping labels and capital.
And actually, that is going really well, especially in Q4, we saw that amazing holiday season. When our merchants do well, we do really well.
And so in Q4, you saw really amazing growth in merchant solutions and it's about half -- it's a bit split now.
CHATTERLEY: Oh, is it? It's half and half. And where do you see that ratio going?
FINKELSTEIN: I actually like the fact that we actually have both of those because it means when you're just getting started, it's very inexpensive to
get started. We get to $29.00, but as you grow, we get to share in the upside, but it doesn't feel like a tax, it feels like we're sharing their
success. And that's an amazing part of our business model.
[09:35:12]
CHATTERLEY: Okay, talk to me about investment, because you're also investing in things like robotics and the background infrastructure as
well, which I also think is very important.
FINKELSTEIN: So we've been thinking a lot about fulfillment over the last 12 months or so, and one thing that is in particular is important to
understand is that there's a lot of optimizations and automation that can happen inside fulfillment centers.
But most of them are fairly old, traditional fulfillment centers, and so what we thought about doing is, what if we found a company to partner with
or potentially to acquire, who can take technology and put it into fulfillment warehouses and make it better, optimize it properly.
And there was a great company called 6 River Systems. These are some of the folks that built Kiva, they got acquired by Amazon.
Now, Amazon took them off the market for everybody else other than themselves. Well, some of the folks from Kiva left to start 6 River
Systems, and they built this amazing -- it's sort of like human GPS, so that every warehouse that puts -- these robots are called Chucks into the
warehouse -- and they become much more optimized.
And now we're going to combine that with the Shopify fulfillment network and give it to small businesses so they can satisfy the consumer needs, and
the same way that the biggest retailers in the world do.
CHATTERLEY: Do you think Amazon sees you as a threat?
FINKELSTEIN: I'm not sure. I don't spend too much time thinking about Amazon. Although, I can tell you that more and more, I do see our merchants
deciding they don't want to sell in a marketplace. They want to sell direct.
And so that would make --
CHATTERLEY: This is the key.
FINKELSTEIN: You saw it with AllBirds, you're seeing it more and more, and Shopify is at the center of that entrepreneur direct to consumer movement.
CHATTERLEY: What's the biggest challenge going to be in your mind?
FINKELSTEIN: Developers. We have got to hire a lot more developers. We are about 5,000 strong right now. Headquarter is in Canada, I believe 17
locations. But we're looking for really great developers.
It seems to be impossible for most people to hire developers. It's difficult.
CHATTERLEY: Fighting over them.
FINKELSTEIN: It's difficult for us, which is better than impossible. But that probably will be our biggest challenge.
But we think we have got a great culture, a great company. And we're really happy with how things are going right now.
CHATTERLEY: And what about geography? What about expanding beyond?
FINKELSTEIN: Great question. Historically, we focus on the English speaking world.
CHATTERLEY: Yes.
FINKELSTEIN: But what you saw on the earnings yesterday was that, now 29 percent of our merchants are outside those English speaking world.
CHATTERLEY: Oh, that's interesting.
FINKELSTEIN: We grew from 24 percent last year to 29 percent this past quarter. And so, international is going to be a big part of 2020 for us.
And we think our product is the best in the world if you want to sell anything anywhere.
CHATTERLEY: Even better than Alibaba?
FINKELSTEIN: We think so.
CHATTERLEY: Do you?
FINKELSTEIN: Do you?
CHATTERLEY: You think about looking at China?
FINKELSTEIN: Well, China is a place where we're always keeping our eye on. We do have merchants in China right now. But right now, we're focused on
other countries.
CHATTERLEY: Okay. Harley, fantastic to have you on.
FINKELSTEIN: Thank you.
CHATTERLEY: Can't wait to continue the conversation and you're profitable, by the way as well, which is another factor. How important is that at this
stage?
FINKELSTEIN: Actually, our core businesses are profitable on an adjusted basis. What we're doing for 2020, it's very much an investment year.
We actually want to reinvest in things like SFN, or Fulfillment Network Plus POS international, and so 2020 will obviously be an investment year
for us.
CHATTERLEY: Yes. Nice to have the money to spend and invest. Harley, fantastic to have you with us.
FINKELSTEIN: Thank you.
CHATTERLEY: Harley Finkelstein there, the Chief Operating Officer at Shopify.
All right, let's move on because Nestle, another company today reporting earnings, 2019 net income jumping some 24 percent from the 2018, boosted in
part by the skin health business.
I actually spoke to the chairman of Nestle in Davos just to talk to them about their focus on sustainability and on climate change, and I want you
to listen in to the conversation. It's an interesting one.
(BEGIN VIDEOTAPE)
PAUL BULCKE, CHAIRMAN, NESTLE: We have been embracing this Creating Shared Value concept in 50 years and more.
CHATTERLEY: Shareholders though.
BULCKE: Creating -- the shareholders, they are a part of this. We are a long term thinking company. We are known for that.
We have been explicitly -- we have been reporting on many of these topics. If you set up a factory, think about the factory in Punjab in India, a milk
factory, we need fresh milk, quality milk. Well, we work with the farmers, so that -- and that they have more milk, better quality.
We give microcredits for cooling stations so that the milk stays on the quality, they get a better price. This is win-win. That is creating shared
value and it serves our purpose.
It serves also the purpose over time of the shareholder. I don't see any conflict here.
CHATTERLEY: Talk to me about Nestle in 2020. What's the outlook?
BULCKE: We are always an optimist. I never had a year that starts in saying that's going to be an easy one. So that should be what be the fear
here, too.
But anyhow, I think what we have is a -- I think, we have a very compelling strong strategy that is steady in time and that is linked with our agenda,
nutrition and health.
We have our portfolio management because you have to gear your portfolio permanently towards the expectations and there are scientists coming in and
we are accelerating our, I would say from R&D to market, actually we have also an R&D accelerator now and yesterday, I presented together with the
authorities and the Polytechnic School of Lausanne this Food and Nutrition Valley, Swiss New Food and Nutrition Valley where, why we have these multi
disciplines there in place.
We want to join in and make a Food and Nutrition Valley where we're going to have an acceleration of innovation on food and nutrition.
CHATTERLEY: Silicon Valley, but for food and nutrition.
BULCKE: That's exactly what --
CHATTERLEY: Right.
BULCKE: What it is going to be.
CHATTERLEY: Fantastic. May I just say, you have a great hat.
[09:40:08]
BULCKE: For the cold, but also to hide something. You see.
CHATTERLEY: There's nothing to hide.
BULCKE: Thank you very much.
CHATTERLEY: Sir, thank you.
BULCKE: It's been a pleasure.
CHATTERLEY: Likewise.
(END VIDEOTAPE)
CHATTERLEY: All right, after the break, teaching kids about managing money, never an easy task, but one company wants them to get real world
practice. This is where plastic and parenting go hand in hand.
Stay with us. We're back in two.
(COMMERCIAL BREAK)
CHATTERLEY: Welcome back to the show. Getting kids to master a MasterCard is the big idea behind Greenlight. It's a company teaching money management
skills from a very early age.
This startup allows parents to give children a debit card to teach them about saving and about spending.
For a subscription of $5.00 a month, parents can sets up a spending account with parental controls, a saving account where parents can set the interest
rate, a giving account for charity and eventually, they are looking to do an investment account, too. And there's no minimum age.
The founder of Greenlight, Tim Sheehan explains.
(BEGIN VIDEOTAPE)
TIM SHEEHAN, FOUNDER, GREENLIGHT: The parent has their bank account that kind of sits behind it and they get to decide, you know, how much money
does the kids get -- do the kids get? And then the money actually sits in a -- on a prepaid card, but there's a bank underneath that.
CHATTERLEY: It's like a wallet.
SHEEHAN: Yes, it is. And -- but it's FDIC insured, so the money is safe. And of course, the parent can move it, you know, around among the kids or
back to the parent wallet, whatever they choose to do.
CHATTERLEY: So Chime, Monzo. I'm just trying to think here of examples of actually, what your closest competitor then would be in this regard to some
degree.
SHEEHAN: Yes, yes. I mean, I think you're right. The neo banks, you know are actually -- they're actually starting to more and more look at this
opportunity, I've noticed.
CHATTERLEY: Absolutely.
SHEEHAN: But that's probably right. I think that -- we're not interested in kind of offering yet a banking solution for parents, but really focused
on the kids.
And so we're not wanting the parents to have to switch their bank account or any of that kind of thing. The parent can bank with whoever they like,
and whoever they want to use. And we'll just, you know, really, it's simple. You download the Greenlight app and you sign up in two minutes. And
we'll send you cards for your kids and you'll use the app to kind of control things.
CHATTERLEY: So the financial literacy of the spenders of the future. That's your focus and remains so.
SHEEHAN: Yes, yes. I think if we can get -- as you said, if we can get kids to learn to spend wisely, to learn the importance of saving because
unexpected things happen in life like the car needs to be repaired and that wasn't in your monthly budget.
If you can learn how to invest, because that's how you build wealth over the long term.
CHATTERLEY: Retain it.
SHEEHAN: Because of the investing, because saving, you know, it's hard to build true wealth that way, but investing, you can build true wealth.
And then, also understand the importance of credit. You and I were talking about that, and how, you know, having excellent credit can save you several
thousand dollars on a mortgage or a car loan.
(END VIDEOTAPE)
CHATTERLEY: Tim also told me the advantages of saving in the real world here are key. He argues it's more practical than reading a bunch of school
textbooks on personal finance and I agree. Take a listen.
(BEGIN VIDEO CLIP)
SHEEHAN: Let the kids learn while doing as opposed to, you know, here's a whole bunch of content to read or watch, you know and kind of passively
absorb it.
CHATTERLEY: It's practical.
SHEEHAN: It's practical. It's built into their lives.
CHATTERLEY: I remember being very young and being very excited to be given money to go and spend. So the idea that you can be a grown up with a card.
SHEEHAN: That's right. It's a big deal.
CHATTERLEY: It's very appealing. Yes, it's appealing to.
SHEEHAN: Yes, well, it's really neat, I say that because a lot of parents will send us a video in of their kids receiving the card with their name on
it. And they just go nuts.
And I mean, I get chills like talking about it, because it's beautiful. It's really neat to see. And then you hear the wonderful stories where
like, you know, parents will write in and tell us about the kids making a tradeoff decision and deciding not to go ahead and just buy the thing right
in front of them, but to save their money, because they want to get this better thing later.
I love hearing all of those stories.
CHATTERLEY: You told us that the average -- you've got an average of the interest rate that parents are paying on this, which I love.
But what about percentage that they actually donate to charity or they decide to save themselves? Are we developing a generation through this app
of savers, perhaps in large comparison to what we're seeing today?
SHEEHAN: That's a good point. I'm hopeful that we're having a real impact on them learning to save.
So we just -- the Greenlight kids have saved now over 20 million, and the other thing is, is that they're starting to really, you know, create
savings goals and it's really -- it's cute -- like some -- you know, the really young kids have like a puppy and you know, things like that they're
saving for.
And then you know, the older kids, a car, college, things like that.
(END VIDEO CLIP)
CHATTERLEY: Identifying the savers and the spending of the future, too. Greenlight investors include Wells Fargo and JPMorgan. I asked him whether
it makes sense perhaps for them to snap Greenlight up.
(BEGIN VIDEO CLIP)
SHEEHAN: They technically could do it. It's really about focus, I think, and Greenlight is all about just trying to help parents raise financially
smart kids. That's all we think about. That's all we're working on.
Whereas, you know, the large banks have many different priorities, many different things they're doing.
And I think that they see this as important. And so I think they've kind of looked at it and you know, wanted to invest in it and want it to succeed,
but they have, you know, many priorities they're looking at.
CHATTERLEY: Are you open to being bought by one of these banks?
SHEEHAN: I think, you know, in my experience, the best thing to do is like, just keep building your business. Build it up. Make it, you know,
larger and larger. Entertain anything that comes along, you know --
CHATTERLEY: You're open to the conversation. I think that's where you're going here and I'll cut you short there because I can see it.
SHEEHAN: Yes.
CHATTERLEY: Your shortest sentence. Are you profitable?
SHEEHAN: We, right now are focused -- we could be -- but we are focused on growth, and so we are -- we're trying to reach those 50 million U.S.
households that have a child living at home.
(END VIDEO CLIP)
[09:50:01]
CHATTERLEY: Interesting conversation and a fun startup. All right, coming up on FIRST MOVE. Disneyland may promise to make your dreams come true, but
a ticket to ride doesn't come so cheaply. We will have all the details after this.
(COMMERCIAL BREAK)
CHATTERLEY: Welcome back to FIRST MOVE.
Later this year, Dubai will be hosting the Expo 2020 and Extravaganza attracting exhibitors and visitors from over 190 countries. John Defterios
is back and has been exploring.
(BEGIN VIDEOTAPE)
DEFTERIOS (voice over): It's been touted as the world's greatest show and just south of Dubai, construction for the event is well underway.
The Dubai Expo site is the size of more than 600 football pitches. It said to be the largest event ever held in the Arab world.
Over six months starting from October, 192 countries will showcase culture and innovation. It is promising to display incredible architecture, cutting
edge infrastructure and never seen before technology.
With 25 million business expected, it's pegged to bring a major boost to the economy.
According to an independent report from global consultancy firm, Ernst & Young, between 2013 and 2031, it will lift the country's economy by more
than $33 billion, support the creation of over 900,000 jobs.
And during the event, it will contribute one and a half percent to the annual GDP of the United Arab Emirates.
(BEGIN VIDEO CLIP)
MAHA AL GARGAWI, VICE PRESIDENT, EXPO 202 DUBAI: Different sectors have believed or estimated to benefits from this economic boost, namely the
retail industry, the F&B, the aviation, construction --
(END VIDEO CLIP)
DEFTERIOS (voice over): And it's the hotel and hospitality sectors that are some of the top industries to benefit most.
New hotels are coming on stream with 160,000 rooms to be ready in time for Expo 2020 and a luxury hospitality group, with 11 hotels across Dubai,
including the famous Burj Al Arab says it's ready.
(BEGIN VIDEO CLIP)
ALEXANDER LEE, CHIEF COMMERCIAL OFFICER, JUMEIRAH GROUP: Actually, we're getting ready for Expo 2020 and we know that the Burj Al Arab will be one
of the most iconic businesses hotels within the marketplace.
We've introduced a whole team of talented new chefs, many of them with Michelin star backgrounds so that we know we can wow all of our visitors.
In addition, we've enhanced the number of our properties with complete renovation.
(END VIDEO CLIP)
DEFTERIOS (voice over): By hosting this global event, the UAE hopes it will leave a lasting economic legacy and raise Dubai's international
profile as a leading tourist destination.
JOHN Defterios, CNN, Dubai.
(END VIDEOTAPE)
CHATTERLEY: Wow. All right, let me bring you up to speed with today's Boardroom Brief.
Nissan's profits continue their downward spiral. The Japanese car marker is saying operating profit fell to $495 million for the three months ending
December. That's a whopping 83 percent drop from the prior year and it's bracing for more pain, as the coronavirus hits the auto industry, too.
[09:55:08]
CHATTERLEY: Amazon founder, Jeff Bezos flashing out buying a Beverly Hills mansion from media mogul, David Geffen for a record $165 million.
The world's richest man snapping up property right now, "The Wall Street Journal" reporting Bezos spent around $18 million on three New York
apartments earlier this year. That's a rounding error on a rounding error on the rounding error now.
Now, we end our roller coaster of our Boardroom Brief in Disneyland, but hold on to your wallets. You could now pay more than $200.00 for a one-day
ticket to Disneyland and the Disneyland California Adventure Park.
Disney says the new prices are designed to spread attendance throughout the year. Ouchies.
All right, before you go, a quick look at the markets and what we are now, some 30 minutes into trading. We lost a bit of ground. They were off the
lows of the earlier session, some three tenths of a percent lower.
You've been watching FIRST MOVE. Time to go make yours.
(COMMERCIAL BREAK)
[10:00:00]
END
