ANNOUNCER: This is NIGHTLY BUSINESS REPORT with Bill Griffeth and Sue Herera.
SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Alphabet soup. Google`s parent beats earnings estimates but sales come in lighter than analysts expected and shares initially sink.
BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR: Tough questions. Boeing (NYSE:BA) CEO faces shareholders and answered questions, trying to regain the trust that that has been shaking in some following a pair of deadly crashes.
HERERA: And knockoff nightmare. How one “Shark Tank” entrepreneur, American dream, turned into a bad dream after her product got copycatted in China.
All that and more tonight on NIGHTLY BUSINESS REPORT for this Monday, April 29th.
GRIFFETH: And we do bid you a good evening, everybody. Welcome.
The S&P 500 hit yet another all time high today and we will have more on that in a moment. But first we are heading into the busiest week of this earnings season. And after the bell tonight, we got results from one of the biggest companies of all, Google (NASDAQ:GOOG) parent Alphabet. The company after hitting a 52 week high initially took a hit tonight after its quarterly report showed revenue missed expectations.
Here are the numbers. Alphabet earned $11.90, more than a dollar better than expectations. But here was the problem, revenue was more than $36 billion for the quarter. That was just about $1 billion below estimates. And with that, the shares initially sold off after hours tonight.
Josh Lipton digs a little deeper for us.
JOSH LIPTON, NIGHTLY BUSINESS REPORT CORRESPONDENT: Twenty-five-point-seven billion dollars, that was one big number in Alphabet`s report. It refers to Google`s property revenue. It was up 17 percent.
But Aaron Kessler of Raymond James noticed that did miss what the street wanted to see in the quarter, and he says that explains some of the disappointment here, because as Tesla reminds us, that segment does reflect core search and YouTube ad revenue growth as the highest margin part of their business. Still, Kessler remains an alphabet bull for now because he says of strong growth given the company`s size and opportunities in areas like cloud computing and self driving cars.
For NIGHTLY BUSINESS REPORT, I`m Josh Lipton, San Francisco.
HERERA: Let`s turn now to Brent Thill for more on Alphabet`s mixed results and what it might mean for the stock going forward. He is a senior technology analyst over at Jeffries.
Brent, nice to have you here. Welcome.
BRENT THILL, JEFFERIES SENIOR TECHNOLOGY ANALYST: Thanks for having me.
HERERA: So, revenue was amiss. As a matter of fact, it was the slowest rise in three years. But you have rated in the past a stock a buy. After this report, do you still feel that way?
THILL: We do. It`s one quarter. I think what was difficult this quarter was both EMEA in Europe, Middle East, and Africa, and the U.S. came in below. Asia did fine.
You saw growth rates in those two regions growing over 20 percent in the past. They dipped into the mid to high teens. And that was a bigger deceleration than we all thought.
Google (NASDAQ:GOOG) is the only company in tech that doesn`t really provide a lot of guidance, so these are numbers that we all set as the analyst community, we don`t get a lot of color. Part of this is we`re effectively as analysts trying to put the best foot forward in terms of our estimates, but we don`t have any color from the company. So, I think that`s also a by-product of Google (NASDAQ:GOOG) not giving great color. And they`ve always had that policy of not giving a lot of color going forward.
GRIFFETH: But you had to admit that was quite a decline in growth rates for ad sales, for — in the YouTube division especially. Ruth Porat, the CFO, specifically cited YouTube`s problems there. You had Amazon (NASDAQ:AMZN) eating into some of this advertising growth online.
So is this an anomaly for one quarter or is something else going on here?
THILL: Well, it`s one quarter but we`ll say it`s an anomaly. We think there`s definitely a general term. You`ve seen good Facebook (NASDAQ:FB) numbers. You saw great Amazon (NASDAQ:AMZN) numbers. You`ve seen the rest of tech did very well.
So, what I would say is that if there`s one take away, Google`s been the worst of all the companies we cover. Everyone else has been phenomenal in terms of the numbers and you look at the overall economy, it`s exceptional right now. So, you look at, you know, low unemployment, the consumer demand. Prices are going up across multiple sectors that we cover.
So the back drop is very healthy. So, yes, I would say that there are a couple product changes they made. Perhaps there were some sales execution issues in Q1. But, you know, again, it`s hard to take one quarter and call it a trend. Google`s trend line has been pretty good with the numbers.
Again, so we would highlight that Google (NASDAQ:GOOG) still remains in a pretty goods position and trades at a relatively low valuation relative to its peer group.
HERERA: Very quickly, the European regulatory issues that they`ve faced, how do you anticipate that going forward?
THILL: We don`t think it`s a huge issue because everyone is underneath the same microscope. Facebook (NASDAQ:FB), Amazon (NASDAQ:AMZN). You look at the rest of the Internet industry. So, we don`t think that was the issue. We think the broader issue was more to Google (NASDAQ:GOOG) and not related to any regulatory overhang.
HERERA: OK. Brent, thanks so much. Appreciate it.
THILL: Thank you.
HERERA: Brent Hill with Jefferies.
GRIFFETH: And as we mentioned earlier, the S&P hit an all-time high today. The stocks inched ever hire, but they were kept in check as investors awaited the slew of big names scheduled to report this week, as well as some key economic reports. As for today, the Dow rose just 11 points. Nasdaq climbed by 15 and the S&P added 3.
Dom Chu takes a look at the big week ahead for Wall Street.
DOMINIC CHU, NIGHTLY BUSINESS REPORT CORRESPONDENT: Stocks are hovering around all time highs as the busiest week of earning season kicks off and with just one more trading day left in April, all three major averages are on pace to close out their four straight months of gains. Trade talks, earnings and the economy will all be key to watch. Treasury Secretary Steven Mnuchin flies to Beijing to resume talks with Chinese officials as U.S./China trade negotiations enters the final laps.
Then the earnings parade rolls on. Roughly 150 S&P 500 companies report, including tech giants Apple (NASDAQ:AAPL) and Google (NASDAQ:GOOG) parent company Alphabet, health care companies like Merck (NYSE:MRK) and Pfizer (NYSE:PFE), and consumer names like McDonald`s, General Motors (NYSE:GM) and Yum Brands (NYSE:YUM), which owns KFC, Taco Bell and Pizza Hut.
Right at the halfway point of earnings season and so far if all else goes as planned are down slightly while revenues are up 5 percent, earnings beats are better than expected. About double what the normal historical long term average is. There`s also no shortage of economic data on deck this week, including home sales figures, consumer confidence, manufacturing reports and the April jobs numbers.
No doubt the Federal Reserve will be keeping a close eye on all of this as they reconvene for their second interest rate policy meeting of the year tomorrow. Right now, the markets aren`t expecting any rate hikes at all for the rest of the year.
For NIGHTLY BUSINESS REPORT, I`m Dominic Chu at the New York Stock Exchange.
HERERA: And as Dom mentioned, one of the big earnings reports will be tomorrow from Dow component McDonald`s (NYSE:MCD).
And as Kate Rogers (NYSE:ROG) tells us, the focus will, of course, be on earnings but particularly here in the U.S.
KATE ROGERS, NIGHTLY BUSINESS REPORT CORRESPONDENT: The fast food giant has been leaning heavily into technology as part of the strategy called the Velocity Growth Plan which includes digital and delivery as well as its experience of the future, modernizing and updating its restaurants with kiosks and even table services on location.
Analysts are eager to hear if the updates are paying off in the face of fierce competition, as players try to outdo one another in both value and menu innovation and strategy.
RJ HOTTOVY, MORNINGSTAR SENIOR RESTAURANT ANALYST: It`s still a competitive market. It`s still a lot of discounting. And companies have a lot of initiatives in place. And, really, that`s the take away for me, how effective the strategies, the delivery, digital ordering, kiosk, how effective have those things been.
ROGERS: McDonald`s (NYSE:MCD) also made two other tech investments last month, the first in dynamic yield which is the largest acquisition in two decades. It will help to customize the drive through experience and the second, in Plexure, which powers the McDonald`s app in 48 companies outside of the U.S. The street is keen to hear how these investments will be put to work.
HOTTOVY: Once McDonald`s (NYSE:MCD) blueprints are put together, what kind of technology and what kind of expectations can we expect from the initiatives.
ROGERS: Finally, any changes in the menu will be in focus. The company recently announced it`s trimming its menu and doing away with its signature crafted burgers to focus instead on its quarter pounder line.
For NIGHTLY BUSINESS REPORT, I`m Kate Rogers (NYSE:ROG).
GRIFFETH: Now to Boeing (NYSE:BA). The company held its annual shareholders meeting in Chicago today where it told investors and reporters that it is working hard to regain the public`s trust.
Ylan Mui has details for us.
YLAN MUI, NIGHTLY BUSINESS REPORT CORRESPONDENT: Boeing (NYSE:BA) CEO Dennis Muilenburg delivered a mea culpa today for the hundreds of lives lost in Boeing (NYSE:BA) planes in the Ethiopian Air and Lion Air crashes.
DENNIS MUILENBURG, BOEING CHAIRMAN & CEO: I can tell you both of these accidents weigh heavily on us as a company. I`ve had a privilege for working for the Boeing (NYSE:BA) company f for 34 years and we know that lives depend on what we do.
MUI: He said his company owns this mistake and it`s making steady progress to getting the planes back in the air.
But Boeing (NYSE:BA) didn`t provide any updates on when that might happen. Southwest and American Airlines are expecting the planes to be back in service by the end of August. Some analysts say that`s too optimistic.
JAMIE BAKER, J.P. MORGAN AIRLINE ANALYST: We look at the month of September as the earliest possible practical date for return to service, and there are a lot of unknowns there.
MUI: One unknown, how much training pilots will need of the new plane`s updated safety systems. Some pilots are reportedly requesting mandatory simulator training. Boeing (NYSE:BA) says it believes that should be optional, but the required training being done online instead. The company must also submit a fix to federal regulators for the faulty MCAS system that was a common link in the two crashes. It`s talking to airlines about the possibility of revenue lost because of the grounding.
MUILENBURG: We`re going to be working very closely with our airline customers and with the FAA and with regulatory authorities around the world as we finish up the certification process on the software update and have safe re-entry into service. We`re going to be diligently doing that airplane by airplane with our customers. I think getting that up and flying is obviously a key step in rebuilding confidence.
MUI: Meanwhile, Boeing (NYSE:BA) is facing a new lawsuit from the families of victims of the crashes, alleging negligence, failure to warn and civil conspiracy.
PAUL NJOROGE, 737 MAX VICTIM`S HUSBAND: Those six minutes will forever be embedded in my mind. I was not there to help them. I couldn`t save them. It was up to Boeing (NYSE:BA) and the others in charge to save them.
MUI: Boeing (NYSE:BA) pledged today that when the 737 MAX does return, it will be one of the safest planes to fly.
For NIGHTLY BUSINESS REPORT, I`m Ylan Mui in Chicago.
HERERA: Coming up, Marriott and Airbnb looks ready to go to the mattresses as each infringes on the other`s turf. What it all means when we come back.
GRIFFETH: Back on Friday, we told you about Amazon (NASDAQ:AMZN) touting one day shipping for all of its prime members, and now, Walmart may have just upped the ante. And retailers are taking note.
Courtney Reagan takes a look.
COURTNEY REAGAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Two days after Amazon (NASDAQ:AMZN) announced it`s working towards offering prime members one shipping, Walmart delivers a response in tweet form. Quote: One day free shipping without a membership fee, now that would be ground breaking. Stay tuned.
Walmart taking a jab at Amazon`s $119 annual fee for prime shipping, but not offering any further details. Though on its February earnings call, Walmart CEO Doug McMillon did say, quote: There`s an opportunity to be more aggressive given the total balance of the business we would be thinking about that.
The delivery war is ramping up between the two retailers but some question if it`s a battle worth fighting.
JAN KNIFFEN, J. ROGERS KNIFFEN: Walmart has to do this if Amazon (NASDAQ:AMZN) does. They can`t give Amazon (NASDAQ:AMZN) market share just because their delivery is not as fast. But can anyone keep up and pay the price it takes to be able to do it? It`s really hard to imagine other people can.
REAGAN: Not all retail experts agree market share will be one because of one day shipping instead of two-day. And the cost of that gamble is significant. Some say going from one day to two-day doesn`t make a difference in consumer buying behavior, but same-day shipping could.
Amazon (NASDAQ:AMZN) will spend $800 million in current quarter in its quest to get one-day shipping for prime members. Analysts estimate the cost will get higher in the third and fourth quarter.
Cowen and Company estimates prime membership has stagnated for several quarters. The online behemoth may be looking for ways to add value to retain and attract members in the U.S. With still little detail, analysts can`t reasonable estimate what Walmart may have to spend to cut its two-day shipping time in half. And while the retailer doesn`t disclose the shipping costs, it has said the losses from the digital business will be higher this year than last.
A key question is, how and if Walmart`s 4,500 U.S. stores will play a role in making one-day shipping a reality? If the cost equation makes sense, the store locations could make speed easier. With 90 percent of the U.S. population within 10 miles of a Walmart store. While Target (NYSE:TGT) has stayed relatively quiet since Amazon`s announcement, it, too, could be closer to one-day shipping. With its 35,000 item of restocking program already doing next day shipping out of stores in 60 metro areas for $2.99, and its Shipt program offering same day delivery for $99 annual fee.
One thing analysts agree on, the ultimate winner of the war will be the consumer.
For NIGHTLY BUSINESS REPORT, I`m Courtney Reagan.
HERERA: Burger King`s impossible whopper isn`t enough to help its parent`s earnings. And that`s where we begin tonight`s “Market Focus”.
The fast food chain said a test of a plant-based burger went well and hopes to sell it nationwide by the end of the year, but the parent company Restaurant Brands had weaker than expected earnings as sales from its Tim Horton chain fell. Today, the stock was down nearly 1.5 percent to $65.50.
Spotify posted better than expected results with revenue rising 33 percent. The company hit a milestone with 100 million subscribers paying for its premium service. But monthly active users dropped. Shares were down a fraction to $148.14.
Costco (NASDAQ:COST) hiked its dividend by 14 percent. Costco (NASDAQ:COST) also plans a share buy back of up to $4 billion. Today shares were up a fraction to $244.28.
GRIFFETH: Amazon (NASDAQ:AMZN) is starting to post new job openings and lease new office space at its HQ2 in Virginia. The world`s largest online retailers says it`s on track to create 400 jobs at their campus with plans to start in June. That is several months ahead of the initial planned October launch. And today, the stock was down a fraction to $1,938.43.
Sprint and T-Mobile announced today that they are pushing back their merger deadline at the end of July. Both companies had hoped to complete the $26 billion deal, but neither the FCC nor the Justice Department has approved it yet. In fact, the head of Justice`s antitrust division told CNBC today that he hasn`t made up his mind yet about whether or not to okay that deal. Now at close of trade, Sprint was unchanged, while T-Mobile as up nearly 1 percent.
And then after the bell tonight, Yum China posted better than expected same-store sales. The fast food restaurant company beat Wall Street`s revenue estimates, helped by KFC whose sales were up 5 percent. The stock was volatile in initial afterhours trading tonight.
HERERA: Call it a case of role reversal. Marriott and Airbnb venturing into the specialty of the other.
Deirdre Bosa explains.
DEIRDRE BOSA, NIGHTLY BUSINESS REPORT CORRESPONDENT: Home sharing startup Airbnb is opening hotels and the world`s largest hotel chain, Marriott, is renting homes. Each giants in their own industries. Airbnb and Marriott are making major moves onto each other territories. Airbnb is collaborating with major New York developer, RXR Realty, to create hotel suites in iconic Rockefeller Plaza. It comes just a few weeks after it closed its acquisition of hotel booking site Hotel Tonight.
Meanwhile, Marriott is reportedly getting ready to take on the U.S. home sharing market, using its European pilot market program as a blueprint. Airbnb CEO and cofounder Brian Chesky says Marriott`s move is validation of his business.
BRIAN CHESKY, AIRBNB CEO & CO-FOUNDER: To tell me the largest hospitality company in the world is looking into this space I think is a huge testament to what we`ve done, to the market we`re in. We`ve had half a billion guest arrivals. So, I think it is more a validation than anything.
The convergence between the two comes as Airbnb is expected to pursue an initial public offering next year. Airbnb wants to diversify its offerings for higher ended business travelers while Marriott may be getting into the home sharing business before an IPO helps Airbnb strengthen its position.
But it`s a major reversal for both companies. Marriott`s CEO Arne Sorenson criticized Airbnb for flouting regulations and a year ago called home- sharing a fundamentally illegal business. It will now have to navigate those regulations as it moves into the space. Airbnb has said that its community based culture is a major driver of its success, but as its rapid expansion around the world has come under fire for clogging cities and contributing to rising home prices. As it moves into hotels, it will be further challenged to keep its brand identity.
For NIGHTLY BUSINESS REPORT, I`m Deirdre Bosa.
GRIFFETH: By the way, news of this potential role reversal between Marriott and Airbnb had little impact on hotels stocks today. Shares of Marriott, Hilton, Hyatt, they were all down a fraction.
But how could things play out as hotel giants like Marriott move into the home rental market and Airbnb take on the hotel chains?
This is Dara Kerr. She covers the on-demand economy for CNET joining us tonight.
Dara, thanks for joining us.
DARA KERR, CNET SENIOR REPORTER: Hey, thanks for having me.
GRIFFETH: I understand Airbnb`s strategy. I mean you can only grow the peer-to-peer business so much. You got to broaden the platform beyond that. But what`s in this for Marriott? Why are they doing this?
KERR: Yes, for Marriott, it seems like they are trying to make sure Airbnb; as Airbnb leaks into its business, it`s trying to make sure that they can also move into Airbnb`s style of business. You know, Airbnb is that is the huge behemoth in this arena with more than six million rentals so it says around the world, and Marriott is it`s a lot smaller.
HERERA: How successful therefore do you think Marriott will be? They do have a membership and loyalty program which is — which is quite large. Will that help them compete against Airbnb?
KERR: That definitely could be helpful. You know, their loyalty program and the people who use them definitely try and go to pick Marriott hotels on when they go on vacation. They like the concierge service, the gyms and that kind of stuff.
And we don`t know a lot about Marriott`s plan, but we do know that it`s trying to do this kind of morphing between a home rental along with those services that hotels offer.
GRIFFETH: You think other hotel chains will follow Marriott suit and what does that do to Airbnb? They`ve already faced many headwinds in the past, lot of regulations by localities, trying to cap their growth rate as well. What happens if you get more and more hotel chains getting into this business?
KERR: Yes. Well, I think Airbnb still has its core service where you know you can get a cabin in the redwoods or you know a castle on an island, and I think it will tend to go more in that direction with these more luxurious kind of rentals. I don`t know how much longer we`re going to see these rooms and, you know, a co-op with a bunch of people. But yes.
HERERA: What about the consumer? It sounds like this is going to be a win for the consumer. Is that the way you read it?
KERR: Yes, I definitely see this as a win. You know, it`s less of a monopoly. There`s more options for consumers. You know, those people who want the hotel kind of the what they get what they are — they — they`re getting what they know, you know?
KERR: And they can still go to Airbnb and get those cabins and castles.
GRIFFETH: Cabin in the woods sounds pretty good right now.
HERERA: It does, yes.
GRIFFETH: Dara Kerr with CNET, thanks for joining us tonight.
KERR: Thank you.
HERERA: Up next, a warning for entrepreneurs on how your great idea can be knocked off. One environmentally-friendly straw is now fighting impostors.
GRIFFETH: It started out as the proverbial American dream, FinalStraw, which makes an environmentally-friendly straw raised nearly two million dollars in crowdfunding and it was even on “Shark Tank”. But the dream turned into a nightmare unfolding across the globe in China.
Andrea Day has our story.
UNIDENTIFIED FEMALE: This is FinalStraw, the world`s first collapsible, reusable, totally badass straw.
ANDREA DAY, NIGHTLY BUSINESS REPORT CORRESPONDENT: A totally badass idea – – a straw designed to save the planet and set to make millions.
Emma Cohen and co-founder Miles Pepper even pitched the idea on “Shark Tank”.
EMMA COHEN, FINALSTRAW CEO & CO-FOUNDER: Not in my wildest dreams could I have ever thought that we would have done anything like that.
DAY: While attorneys work to secure patents and trademarks for the invention the team launched their idea on crowdfunding site Kickstarter.
COHEN: We were just hoping and praying to solve enough straws that we wouldn`t have to make them ourselves.
DAY: But the little straw went viral.
COHEN: Within 48 hours of launching the Kkickstarter, we raised over $200,000.
DAY: And it didn`t take long before backers shelled out nearly $2 million in funding. But as the cash rolled in, backers weren`t the only ones taking notice.
UNIDENTIFIED FEMALE: And just, uh-oh, where`d it go?
DAY: It went here to factories in China who were ready to rip off her big idea.
COHEN: It took us about nine months to create the tooling get the product ready to manufacture. They were able to do it in a matter of weeks.
DAY: She had no clue anything was brewing overseas until she spotted fakes for sale online at major retail sites and phony websites that even ripped off images of her dog Burrita.
COHEN: These straws sold like crazy. All the time, we get return requests to our customer service for fake products and people think that they bought it on our website.
On this site Alibaba, we found plenty of listings for what looked like final straw knockoffs. This factory`s saying ready to ship to the United States for just dollars a straw and the description looks familiar, totally badass.
UNIDENTIFIED FEMALE: Totally badass straw.
COHEN: We reached out to a woman listed as a contact for the factory but she declined to speak with us. We sent a team from CNBC`s Beijing bureau to Shenzhen, China, it`s just outside of Hong Kong and where other companies are listed on Alibaba.
The team discovered at least one was not at the address shown online.
We tracked down a manager for another business advertising this straw online. He agreed to talk only by phone.
He admits the idea for the straw that`s being made at his factory came from a crowdfunding site online.
Bruce Chen (ph) is a product designer in China and says even his own work has been ripped off by local factories.
BRUCE CHEN: Without the Chinese patent, you probably would be copycatted.
DAY: We went to Kickstarter`s headquarters in Brooklyn to see what advice they give new creators.
CLARISSA REDWINE, KICKSTARTER SENIOR DESIGN & TECH OUTREACH LEADER: It depends on the product, but if you`re coming to Kickstarter to raise funding, you probably want to have all of your protection in place before you launch. That is very important. You know, once you launch, your product is out there in the world.
DAY: We scheduled an interview with Alibaba, but the Chinese e-commerce site cancelled just hours before and sent us a statement saying in part: Protecting the IP of rights holders around the world is critical to our business. We remove any IP infringing listings, period. Rights holders can enforce their IP rights outside China, U.S. patent rights on our cross- border platforms.
After we contacted the online retailer Alibaba began helping FinalStraw, including removing fake listings.
COHEN: I know that this has taken millions of dollars from our bottom line.
DAY: For NIGHTLY BUSINESS REPORT, I`m Andrea Day.
GRIFFETH: And tomorrow, Andrea looks at the role social media plays in these knockoffs.
HERERA: And finally tonight, what a debut. We told you last week that Disney`s “Avengers: Endgame” could break box office records. Well, the haul was even better than expected. The movie brought in more than $350 million domestically this weekend, a record, and nearly $1.25 billion worldwide, also a record. “Endgame” was also responsible for 90 percent of the movie tickets sold in the U.S.
And speaking of records, shares of Disney (NYSE:DIS) hit an all-time high today,
GRIFFETH: And before we go, a final look at the day on Wall Street. One record, the S&P; hit one the Dow was up 11 points, Nasdaq up 15, the S&P added three points, as we get ready for a lot more earnings.
HERERA: Absolutely. It`s great to be back together again.
GRIFFETH: God to have you.
HERERA: That`s it for us tonight. I`m Sue Herera. Thanks for joining us.
GRIFFETH: I’m Bill Griffeth. See you tomorrow.
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