SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Big Blue bruised. Netflix (NASDAQ:NFLX) retreats. As old tech and new tech issue earnings report cards for investors.
TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Talks collapse. No oil deal in Doha, but crude prices didn’t crumble as much as expected, and there’s a surprising reason why.
HERERA: Fighting Zika. The drugmakers developing vaccines to help combat the newest public health concerns. The first of a three-part series tonight on NIGHTLY BUSINESS REPORT for Monday, April 18th.
MATHISEN: Good evening, everyone, and welcome.
The Dow tops 18,000 for the first time since July.
But we begin tonight with a look at old tech and new tech in today’s economy. IBM and Netflix (NASDAQ:NFLX), both reported earnings today after the bell and the two companies have one thing in common — investors are disappointed.
First, Netflix (NASDAQ:NFLX), shares falling and falling hard initially in after-hours trading. The video streaming service says it won’t add as many subscribers this quarter as expected. The reason, price increases. And on the other hand, the numbers for the most recent quarter weren’t bad.
Not bad at all. In fact, the company earned 6 cents a share, doubling expectations of 3 cents a share.
Revenue a little shy of estimates but up 24 percent from the prior year. It was, however, the subscriber forecast that got shareholders’ attention and pressured the stock, as you see there.
Julia Boorstin has more now on Netflix’s results.
JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT: The key factor driving Netflix (NASDAQ:NFLX) lower in after-hours trading, its second quarter projection, which fell far short of expectations. The company says it expects to add just 2.5 million new subscribers in the quarter, compared to Wall Street expectations it would add over 4 million streaming subscribers.
With those lower-than-expected subscriber numbers also comes a lower earnings projection for Q2.
So, why the shortfall. Some of those expected subscriber additions may have come early. Netflix (NASDAQ:NFLX) added more subscribers in Q1 than anticipated. And in Q2, Netflix (NASDAQ:NFLX) doesn’t have any new launches in new countries, and those launches drive new subscriber additions.
Back over to you.
HERERA: Thank you, Julia.
And now to Dow component IBM, which recorded its 16th quarterly drop in revenue despite beating expectations. Big Blue was also hurt by muted IT spending amid global economic uncertainty. Here are the numbers. IBM earned $2.35 a share. That’s much better than the $2.09 that was expected. Revenue also topped expectations, coming in at $18.68 billion — a more than 4 percent decline from a year ago.
As for the stock, an initial pop gave way to a drop in after-hours trading. But IBM’s CFO says there’s a lot that’s working.
(BEGIN VIDEO CLIP)
MARTIN SCHROETER, IBM CFO: In the first quarter we had good progress in transforming our business. And you could see that in our data, for instance in growing the strategic imperatives, double digit again. So we see that the investments we’re making are certainly paying off, they’re driving growth.
(END VIDEO CLIP)
HERERA: Josh Lipton has more on IBM’s quarter.
JOSH LIPTON, NIGHTLY BUSINESS REPORT CORRESPONDENT: Four billion dollars, that was one big number in IBM’s report. And that is revenue for IBM’s so-called cognitive solutions segment, refers to IBM’s core software business, excluding software related to integrated cloud platforms and hardware. Revenue there was down about 2 percent. And that is critically since the segment represents about 20 percent of overall revenue.
Now, David Grossman of Stifel Nicolaus, an IBM bull, does point out that adjusted for currency, that segment’s revenues were marginally higher and that, Grossman says, could be a sign that this segment is stabilizing.
Still, for investors, stabilizing does not look good enough for now, especially since that stock surging 30 percent since the market bottom in February.
For NIGHTLY BUSINESS REPORT, I’m Josh Lipton in San Francisco.
MATHISEN: Meantime on Wall Street, the Dow Jones Industrial Average closed above 18,000 for the first time since last summer as we mentioned at the top of the broadcast. Why? Mostly because of a gain in consumer discretionary and health care stocks. Stocks shrugged off the negative news out of the energy sector today. More on that in just a moment.
By the closing bell, the blue chip Dow index gained 106 points to finish at 18,004. NASDAQ rose 21. And the S&P 500 added 13.
As for oil, prices settled lower by more than 1 percent. But they will weigh off the lows of the day.
HERERA: Action in today’s oil market was anything but calm. There was a lot of hope and a lot of disappointment after marathon talks between some of the world’s biggest oil producers ended this weekend without a deal for a freeze on output.
We’ve reported last week that such an agreement would be difficult to achieve, and as Brian Sullivan reports from Doha, it was likely longstanding tensions that got in the way.
BRIAN SULLIVAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Saudi Arabia’s oil minister was all smiles as he entered Sunday’s big meeting in Doha, Qatar. Then the bottom dropped out.
Eleven of 13 OPEC members, along with Russia and other major oil-producing nations, gathered here in this small country along the Persian Gulf to try and agree on a deal that would limit their total oil output with an eye towards stabilizing prices. But as the meeting dragged on with no deal, an environment one participant told us was, quote, “very tense,” hopes faded. And after about 12 hours of negotiation, the Qatari oil minister came out to tell the horde of reporters that no deal was struck.
MOHAMMED BIN SALEH AL-SADA, QATAR ENERGY & INDUSTRY MINISTER: The meeting concluded that we all need time for further consultation and from now until June meeting in OPEC.
SULLIVAN: It appears that, ultimately, longstanding tensions between Saudi Arabia and Iran may have scuttled any chance for that deal. Iran chose not to attend the summit, hinting that they viewed it as unfair other OPEC members are trying to limit their own output at high levels while essentially forcing Iran to cap production well below what that nation is capable of producing.
Despite Iran’s absence, those in Doha were still optimistic a deal could be struck. However, Nigeria’s oil minister told us Iran’s absence was a key reason any deal failed.
EMMANUEL IBE KACHIKWU, NIGERIAN OIL MINISTER: There were some members of OPEC who felt in the absence of Iran, unless Iran could obligate to go with the general pack, then it wasn’t going to be effective. So, we just — we went back and forth, trying to work alignment. But it was clear that unless you had everybody in the ballpark, it doesn’t matter what we agree.
SULLIVAN: Kachikwu added that there is no other special meeting planned between now and the next official OPEC meeting on June 2nd in Austria, which all leaves Saudi Arabia, Iran, and the other major oil-producing nations of the world free to pump out as much oil as they can, leaving the globe still oversupplied and oil prices vulnerable.
For NIGHTLY BUSINESS REPORT, I’m Brian Sullivan in Doha, Qatar.
MATHISEN: The failure of producers to agree on a plan to curb global supply was partly offset at least for today by a strike in Kuwait by oil workers there. The nation’s output was cut in half today, helping support oil prices.
Hadley Gamble in Kuwait has more on the worker demand.
HADLEY GAMBLE, NIGHTLY BUSINESS REPORT CORRESPONDENT: A second day of strikes by oil and gas workers in Kuwait served to offset much of the price depression following failed talks between OPEC and non-OPEC producers over the weekend in Doha. But that bounce in prices could be short-lived. Kuwaiti production was slashed by 60 percent on Sunday as thousands of unionized workers refused to come into work.
But Kuwaiti officials now say they plan to return production to normal levels in the coming days in spite of the strike. Members of Kuwait’s 13,000-strong oil and gas union are protesting cuts to wages and benefits as the oil-producing sovereign looks to tighten its budget. While many expat workers remain on the job, the Kuwaiti government is taking a hard line with the strikers, threatening to bring in more workers from abroad to fill in the gaps, as well as take legal action.
An official statement released earlier today even charged union members with threatening national security. But even if the protests are short-lived, it’s clear the country’s main source of income was easily put at risk and that can’t be anything other than a cautionary tale for other gulf oil producers like Saudi Arabia, the UAE, as well as Bahrain.
For NBR in Kuwait, I’m Hadley Gamble.
HERERA: Saudi Arabia is the world’s largest exporter of crude and its relationship with the U.S. has always been complicated. Now, it may be more so. Saudi Arabia is threatening to sell hundreds of billions of dollars in American assets if Congress passes a bill that would allow victims of terror attacks in the U.S. to sue foreign governments if found responsible.
At issue here are documents about the 9/11 attacks which are still sealed and which many believe could implicate the Saudis.
David Malpass, president of his own economic research firm, Encima Global, joins us now.
Good to see you as always, David. Welcome.
DAVID MALPASS, ENCIMA GLOBAL PRESIDENT: Hi, Sue.
HERERA: Let’s start, first of all, with the economic implications. Saudi Arabia’s threatening to sell off an enormous trove of U.S. securities, among other assets. What would be the implications if they started to do that unwinding process?
MALPASS: I think it would be negative. I know people are saying, oh, well, it just would be money moving around. But it’s unusual given the size of the Saudi assets. They hold a lot of U.S. treasuries.
It’s been characterized as blackmail or a threat. But really what I think they’re saying is that if these issues are settled in U.S. courts and that opens us up to litigation, we’ll have to move our assets away.
MATHISEN: They would be worried, I assume, of a court — about a court order that would freeze their holdings of U.S. treasury securities. So, they’re basically saying, if they — if Congress passes this the law that would potentially allow them to be sued in U.S. courts about 9/11 responsibility, they want to sell now and ask questions later, right?
MALPASS: Hi, Tyler.
Yes, I think that doesn’t mean they sell instantly but they have to follow the court proceedings or legislation and if there start being court proceedings they don’t want to be exposed to that. We’ve seen how far-reaching the U.S. court mandates can be and that’s I think what they’re worried about.
But at the heart of this issue is the foreign policy with Saudi Arabia. I think that’s very important. And this is taking it in another negative direction.
HERERA: So, what needs to be done at this point, David? First of all, do you think it will come to a court order? Do you think it will go that far or not?
MALPASS: Well, we don’t know if the legislation will pass and we don’t know then if a court would take this up. So, those are imponderables. What we know, I gather, is there are 28 pages of documents that the government hasn’t released.
So the key variable in all of this is how does the administration handle it? Will they get in front of it and try to make clear what their position is and what they want to do about the problem? You know, there’s a core problem at the heart of this which is the concern that many have that Saudis — some in Saudi Arabia have been funding radical Islam. And the administration really hasn’t had a policy on that.
So, it’s I think high time for them to develop a policy and then include this 28 pages in that policy.
HERERA: All right, David. We’ll leave it there, thank you very much. David Malpass with Encima Global.
MATHISEN: And still ahead, Amazon (NASDAQ:AMZN) has been in the payments game for nearly a decade without much success. It has a plan to change all that.
HERERA: The Supreme Court rejected a challenge to Google’s digital library of millions of books. Authors had complained that the project makes it difficult for them to market their work and that it amounted to copyright infringement on a mass scale. An appeals court decision stands that the project was fair use of the authors’ work.
MATHISEN: The Supreme Court is also hearing arguments on the White House’s plan to defer deportation of more than 4 million illegal immigrants. The business community is watching this case closely and as Hampton Pearson reports, the court is divided.
HAMPTON PEARSON, NIGHTLY BUSINESS REPORT CORRESPONDENT: At the Supreme Court today, hundreds of mostly pro-immigration demonstrators gathered outside while a divided Supreme Court heard a challenge to President Obama’s immigration program that would authorize work permits for about 5 million undocumented immigrants, as well as temporary protection from deportation. Texas is leading a challenge by 26 states and the House of Representatives to a decision by the Department of Homeland Security to put those programs in place.
The states say it’s a power grab by the federal government.
SCOTT KELLER, TEXAS SOLICITOR GENERAL: This case has always been about the separation of powers. And what DAPA does is it transforms unlawful conduct into lawful conduct. I think if the executive, the president, has the power to do that, I think that should trouble every American.
PEARSON: The court is divided. Conservative Justice Anthony Kennedy said for the administration to take action ahead of Congress is just upside down. Among the liberal justices, Ruth Bader Ginsburg noted the government doesn’t have the resources to deport an estimated 11 million people living in the country illegally, so the government must set priorities.
SEN. BOB MENENDEZ (D), NEW JERSEY: Congress has been silent on this issue and we can’t have a floodgate of suits by states across the country at the end of the day simply because there is a cost.
PEARSON: After 90 minutes of oral arguments and based on questions from Chief Justice John Roberts, it appears the door might be slightly open for a win for the Obama administration if there are changes in the current program.
For NIGHTLY BUSINESS REPORT, I’m Hampton Pearson at the Supreme Court.
HERERA: Morgan Stanley’s quarterly profit gets cut in half. That’s where we begin tonight’s “Market Focus.”
The firm saw trading revenue fall across multiple divisions as market volatility hit the company’s bottom line. Late last year, Morgan announced a series of layoffs in its debt trading unit as part of a larger cost-cutting initiative. Shares of the bank down fractionally to $25.73.
Sales at toy giant Hasbro (NYSE:HAS) rose 16 percent last quarter and the company largely has Disney (NYSE:DIS) to thank. The company cited strong sales of “Star Wars” products as well as its “Frozen” and Disney (NYSE:DIS) princess line which helped lift sales more than 40 percent in the company’s segment aimed at girls. Shares of Hasbro (NYSE:HAS) up more than 5 percent to $87.18.
Today is the deadline for potential suitors of Yahoo (NASDAQ:YHOO)! to submit their bids for its core business. But “The Wall Street Journal” reporting Verizon (NYSE:VZ) leading the pack. Yahoo (NASDAQ:YHOO) had extended its original deadline by a week so firms could get their proposals together. And now, many appeared to have dropped out. Shares of companies up fractionally for the day, with Verizon (NYSE:VZ) ending the day at $51.73, and Yahoo (NASDAQ:YHOO) at $36.52.
MATHISEN: The beverage and snack giant PepsiCo reporting mixed results as the company missed revenue expectations but did deliver on profit. The company cited strong sales in the United States which helped to offset some weakness abroad. Shares of PepsiCo down fractionally to $103.72.
Shares of Energy Transfer Equity (NYSE:ETE) soaring after the law firm handling its $14 billion proposed acquisition of rival Williams said it might not be able to produce a required tax document as part of the takeover proceedings, potentially snagging the deal. Energy Transfer Equity (NYSE:ETE) shares ending the day up more than 10 percent to $9.85. While investors were not so kind to Williams company, that stock ended down nearly 5 percent, at $16.68.
The bio tech firm, Illumina (NASDAQ:ILMN) gave a preview of its earnings today, with the company saying it expects to fall short of analyst expectations. In the release, the CEO cited slowing sales of T-sequencing products, as well as slowed growth in Europe. Shares of the company ended the day in the green at $178.13, but initially fell more than 15 percent in after-hours trading.
HERERA: Manhattan district attorney, Cy Vance, had harsh words for Apple (NASDAQ:AAPL) and other tech companies when it comes to encryption. At a rally, Vance calling it an issue of victims’ rights and pressed Congress to pass legislation requiring tech companies give law enforcement access to information on encrypted phones.
(BEGIN VIDEO CLIP)
CYRUS VANCE, JR., N.Y. COUNTY DISTRICT ATTORNEY: Apple (NASDAQ:AAPL) has told us it has moved to this device default encryption to protect its customers. What I want to ask is for Apple (NASDAQ:AAPL) to be as interested in protecting its customers who are the victims of crime, many of whom are represented by the groups here today. Who at Apple (NASDAQ:AAPL) is going to speak for them? Who at Google (NASDAQ:GOOG) is going to speak for them?
(END VIDEO CLIP)
HERERA: Vance says his office currently has 230 locked phones involved in cases.
MATHISEN: There’s PayPal, there’s Square, and there’s Apple (NASDAQ:AAPL) Pay, Visa (NYSE:V), MasterCard (NYSE:MA), Google (NASDAQ:GOOG) Wallet. But did you know Amazon (NASDAQ:AMZN) is also a player in the fast-growing mobile payments industry? It’s not a big one though, but it wants to be.
And Kayla Tausche tells us how it plans to grow in this highly competitive space.
KAYLA TAUSCHE, NIGHTLY BUSINESS REPORT CORRESPONDENT: Amazon’s conquered retail reading video content and shipping logistics, and now, the everything store is setting its sights on payments, unveiling a new strategy to strike partnerships that make Amazon (NASDAQ:AMZN) the cashier for other retailers’ websites. The first deal is an unlikely match for the site that gets you diapers in an hour. High fashion hub Moda Operandi where customers spent thousands in one sitting let customers create profiles that sync with their Amazon (NASDAQ:AMZN) account.
Amazon (NASDAQ:AMZN) gets the standard 2.9 percent transaction fee but payments chief Patrick Gauthier expect the fashion startup to find it invaluable.
PATRICK GAUTHIER, AMAZON PAYMENTS VP: For Moda, it’s the opportunity to tap into new customers, and not in single percentage but significantly lifting their business.
TAUSCHE: Amazon’s own retail prowess has made it a payment player by default. Last year, it processed an estimated $225 billion in transactions. Infrastructure it figures it can put to use.
GIL LURIA, WEDBUSH SECURITIES: It’s a very similar concept to what they’re doing with the Cloud. They realize they have all these data centers with all this capacity that they could sell to other businesses. They’re trying to do the same thing with payment.
TAUSCHE: Doing so required going up against PayPal, Visa (NYSE:V), and other incumbents who don’t have some of the same issues with retailers that Amazon (NASDAQ:AMZN) does.
LURIA: Every retailer or practically every retailer now sees Amazon (NASDAQ:AMZN) as a competitor. And so, opening up to Amazon (NASDAQ:AMZN) and using their payment system to a retailer is like opening a kimono and saying, hey, look at what I’m selling, when I’m selling, who I’m selling to.
TAUSCHE: Gauthier acknowledges that fact and that it’s shaped the strategy somewhat.
GAUTHIER: For the very larger merchants, they may see the rivalry with Amazon (NASDAQ:AMZN), and that’s fine. I’m focusing our energy on merchants who want to create great customer experiences. And with those, just like with Moda, we have phenomenal opportunities.
TAUSCHE: Less than 8 percent of Amazon’s 304 million customers have used its own payments platform and Gauthier wants to change that. But while not everything Amazon (NASDAQ:AMZN) touches turns to gold, groceries, phones, the company’s not losing sight of your wallet.
For NIGHTLY BUSINESS REPORT, I’m Kayla Tausche in New York.
HERERA: Coming up, the fight against Zika. Tonight, the first in a three-part series examines vaccines in development and the drugmakers behind them.
MATHISEN: Here’s what to watch tomorrow. A handful of Dow components report including Goldman Sachs (NYSE:GS), Johnson & Johnson (NYSE:JNJ), UnitedHealthcare, and Intel (NASDAQ:INTC). Housing starts, building permits, too, both indications of future building activity, they are due out. And a house committee will hold a hearing on encryption and the debate over privacy versus national security.
That’s what to watch Tuesday.
HERERA: Theranos CEO Elizabeth Holmes says she’s devastated that she didn’t catch and fix the issues surrounding her lab earlier. In an interview with Maria Shriver on NBC’s “Today” show, her first since regulators proposed banning her startup from the blood testing for at least two years, she says she holds herself responsible.
(BEGIN VIDEO CLIP)
ELIZABETH HOLMES, THERANOS FOUNDER AND CEO: I’m the founder and CEO of this company. Anything that happens in this company is my responsibility, at the end of the day. We stopped testing and have taken the approach of saying, let’s rebuild this entire laboratory from scratch, so that we can ensure it never happens again.
(END VIDEO CLIP)
HERERA: The regulator’s move comes after the company failed to fix a problem at a California lab. That’s according to a letter from the Centers for Medicaid and Medicare Services obtained by “The Wall Street Journal.” Holmes founded Theranos in 2003 to make blood tests more convenient, comfortable, and less expensive. Theranos is valued at $9 billion.
MATHISEN: The outgoing CEO of Valeant Pharmaceuticals was deposed today by a Senate committee. Michael Pearson arrived on Capitol Hill to be questioned in advance of his scheduled testimony at an April 27th hearing. The hearing is the panel’s third focused on price spikes in decades-old prescription drugs.
HERERA: The Zika virus is now spreading in more than 40 countries. And it’s connected to alarming neurological effects, most notably in unborn babies. As the warmer months approach in the U.S., how is the pharmaceutical industry pitching in in the fight against Zika?
Meg Tirrell in the first of a three-part series takes a look at vaccines.
MEG TIRRELL, NIGHTLY BUSINESS REPORT CORRESPONDENT: Dr. Gary Nabel has a lot of experience when it comes to vaccine development.
DR. GARY NABEL, SANOFI CHIEF SCIENTIFIC OFFICER: From my past experience in vaccines, what I learned was that you really need to be way ahead of the curve.
TIRRELL: Nabel was chief scientific officer of French pharmaceutical giant Sanofi. He spent more than a decade leading the National Institutes of Health Vaccine Research Center.
NABEL: What causes you to kind of pull the trigger and really launch a vaccine program is when you see that there are serious public health effects.
TIRRELL: The Zika virus qualifies. It’s spreading actively via mosquitoes through Central and South America, as well as the Caribbean. And the threat it poses to pregnant women and unborn babies has health authorities on the hunt for a vaccine.
DR. ANTHONY FAUCI, NIAID DIRECTOR: We have about five or six candidates lined up to go into vaccine development.
TIRRELL: Sanofi is among drugmakers working on the problem and it may have a leg up. The company has a vaccine for the dengue virus already on the market. That’s in the same class of viruses as Zika.
NABEL: We realized very quickly that it would — we could take advantage of our existing technology and our existing knowledge, we could essentially do a similar type of thing.
TIRRELL: But even accelerated timelines mean years in vaccine development. Dr. Anthony Fauci, director of the National Institute of Allergy and Infectious Diseases, says the most advanced Zika vaccine candidate is likely to enter human testing this year.
FAUCI: We’re making it up to go into a human phase one trial, which is a very early trial, to determine safety and whether it induces a good response. We’ll likely do that starting sometime in the fourth quarter of 2016, probably by the end of September. That will take a few months into 2017 to see if it’s safe and that it induces the kind of response we want and whether or not we can go to the next stage of testing. All of that is already in progress.
TIRRELL: A key question for the pharmaceutical industry is economics. Sanofi’s Dr. Nabel says in some cases, certain vaccines don’t get developed because of market failure. Companies developing vaccines for Zika and Ebola, for example, don’t expect major profits. Though they and other experts say our system needs to change to become more proactive in anticipating emerging public health threats and creating incentives for earlier vaccine development.
For NIGHTLY BUSINESS REPORT, I’m Meg Tirrell.
HERERA: And tomorrow, Meg will look at the potential drugs for Zika in development at the world’s biggest technology company Gilead.
MATHISEN: And before we go, let’s take another look at the rally on Wall Street this day. The Dow gained 106 points, catapulting it back above 18,000 at the chose for the first time since July. NASDAQ rose 21. The S&P 500 added 13.
As for oil, prices settled lower by more than 1 percent off the lows of the day. An oil worker strike in Kuwait offset the lack of a production deal in Doha.
HERERA: It so is nice to have you back.
MATHISEN: Nice to be back. Thank you.
HERERA: You were very much missed.
MATHISEN: Thank you very much.
HERERA: All right. That does it for NIGHTLY BUSINESS REPORT, I’m Sue Herera. Thanks for joining us.
MATHISEN: I’m Tyler Mathisen. Have a great evening, everybody. And we’ll see you here tomorrow.