Transcript: Thursday, February 20, 2014

NBR ThumANNOUNCER: This is NIGHTLY BUSINESS REPORT with Tyler Mathisen and

Susie Gharib, brought to you in part by —

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TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: What`s wrong with
Wal-Mart (NYSE:WMT)? The world`s largest retailer says it won`t earn as
much money this year as many analysts had hoped. What the new CEO needs to
do to regain momentum in sales and the stock.

Doozy of a deal. Investors are still talking about the whopping price
Facebook (NASDAQ:FB) will pay for a company that doesn`t run ads and
charges customers just a dollar a year.

What the heck is WhatsApp? How will it make money? And who are the
overnight billionaires behind it?

Hewlett-Packard (NYSE:HPQ) beats. But questions remain, is the
personal computer-maker`s turn around still clicking? What you need to
know tonight about HP`s earnings report.

All that and more on NIGHTLY BUSINESS REPORT for Thursday, February
20th.

Good evening, everyone, and welcome. Susie Gharib has the night off.

A big bounce back in the markets today with the major averages gaining
back nearly all of Wednesday`s losses. Stocks got a big lift from some
encouraging economic data. A private reading on U.S. manufacturing in
January showed factory activity expanded at the fastest pace in nearly four
years despite the weather. Also helping, a dip in first-time jobless
claims last week, a sign that layoffs are low and inflation is in check
with consumer prices rising just .10 percent in January.

The Dow gained 92 points, the NASDAQ was up 29, the S&P 500, it added
11.

But a lot of the buzz on Wall Street today was about two big companies
that millions of Americans patronize every day, Wal-Mart (NYSE:WMT) and
Facebook (NASDAQ:FB). Shares of the retail giant fell nearly 2 percent
today, the biggest decliner in the Dow following a disappointing earnings
report that showed profit down 21 percent last quarter from a year ago.
The outlook for 2014 was tepid, too.

Courtney Reagan now with a look behind Wal-Mart`s earnings and how the
company plans to attract more customers and more revenue.

(BEGIN VIDEOTAPE)

COURTNEY REAGAN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over):
Well, the six-week holiday selling period did generate positive sales at
U.S. Wal-Mart (NYSE:WMT) stores open at least a year, the beginning of 2014
has proven to be troublesome for the world`s largest retailer, and it may
not be temporary pain.

A reduction in the food stamp program, higher taxes and tighter credit
are crimping Wal-Mart`s core consumer, because those issues aren`t going
away anytime soon, the discount retailer forecasts lower full-year profits
than what analysts expect.

U.S. CEO Bill Simon says comp sales are negative for the first two
weeks of February due to the severe weather, saying at one point 200 stores
were closed. Simon also said tax refund activity is slightly lagging last
year.

BUDD BUGATCH, RAYMOND JAMES ANALYST: I think we`ve seen the weather
issue has been an issue that quite frankly is very difficult to figure out
for investors as to what it means. There`s about a $330 million headwind
that they`re facing, I think, from increased health care costs. There are
headwinds all over the economy that are going to be very hard to figure
out.

REAGAN (on camera): The traditional Wal-Mart (NYSE:WMT) for mat may
be struggling, so the company is betting on the small format, neighborhood
market stores in 2014 for growth to capture consumers fill in trips. Wal-
Mart (NYSE:WMT) is announcing it will nearly double the expansion of those
new stores to 270 from the previously announced 150.

(voice-over): A Credit Suisse reports suggested Wal-Mart (NYSE:WMT)
buy Family Dollar to accelerate its small store format expansion plans.
Though Simon told reporters a Wal-Mart (NYSE:WMT) neighborhood market does
four times the sales of a dollar store.

While analysts didn`t think Wal-Mart`s new CEO Doug McMillan would say
anything dramatic on the pre-corded earnings call, at some point he will
need to do something bold if U.S. store sales remain sluggish.

But because of external economic precious, investors appear to be
giving the retailer a pass, for now.

For NIGHTLY BUSINESS REPORT, I`m Courtney Reagan.

(END VIDEOTAPE)

MATHISEN: And onto Facebook (NASDAQ:FB) now, a follow up to that
breaking story we brought you last night, Facebook`s biggest acquisition
ever. The social networking giant will pay $16 billion for the mobile
messaging app WhatsApp, sending Facebook (NASDAQ:FB) shares to an all-time
high today, up more than 2 percent.

Julia Boorstin now on what exactly WhatsApp does, who`s behind it, and
why Facebook (NASDAQ:FB) has hit the “like” button.

(BEGIN VIDEOTAPE)

JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over):
With WhatsApp, Facebook (NASDAQ:FB) will become the biggest mobile
messaging company in the world. WhatsApp handles nearly as many text
messages as the telecom industry`s entire $100 billion text messaging
business. The app sends text messages, photos and video to anyone else
with the app, without carrier fees.

It`s free for the first year, then charges 99 cents annually. No word
on how many users pay, and it does not include ads.

CEO Mark Zuckerberg stressed the importance of WhatsApp`s scale, with
450 million monthly active users and unusually high engagement. Seventy
percent use the service every day.

And its growth rate is breaking records, doubling its users in the
past year.

MARK ZUCKERBERG, FACEBOOK CEO: Services in the world that have 1
billion people using them are all incredibly valuable. And from that
perspective, we just think that the growth rate they have today and the
monetization model that`s early but promising and in place that they have,
we see a pretty clear trajectory ahead and we were just very excited to
work together on this.

BOORSTIN (on camera): The big question is whether Facebook
(NASDAQ:FB) make enough money from WhatsApp to justify its jaw-dropping
price tag. But to put that price tag in context, Twitter has about half
the monthly active users as WhatsApp but its market cap is about twice
WhatsApp`s valuation.

ARVIND BAHTIA, STERN AGEE ANALYST: The strategic rationale for this
acquisition is actually quite sound. This is ultimately about grabbing
more mind share on mobile and grabbing more real estate on mobile, very
limited real estate I might add also in many ways a defensive move because
there is speculation that Goggle at one point had wanted to buy WhatsApp
for about $10 billion.

BOORSTIN: One thing is for sure, WhatsApp sale is creating some
billionaires.

Founder Yan Kum, a Ukrainian immigrant who created the service to
communicate for free with friends back home is worth an estimated $6.8
billion. Quite the rags to riches story, he signed the paper work selling
company against the front door of the welfare office where his family used
to collect food stamps.

He`s not the only one. Cofounder Brian Acton is worth about $3
billion. And WhatsApp`s only venture investor Sequoia Capital stands to
make about $3.5 million.

For NIGHTLY BUSINESS REPORT, I`m Julia Boorstin in Los Angeles.

(END VIDEOTAPE)

MATHISEN: What a story.

But how lucrative will this deal be for Facebook (NASDAQ:FB)? Will it
ever generate enough money to justify the price that Facebook (NASDAQ:FB)
paid for it? That`s what Julia asked.

Let`s get some answers now from Scott Kessler. He`s the Internet
equity analyst at S&P Capital IQ.

Would you bet against Facebook (NASDAQ:FB), Scott? Would you bet
against Zuckerberg on this?

SCOTT KESSLER, S&P CAPITAL IQ INTERNET EQUITY ANALYST: Well, Tyler,
it`s hard really to question Facebook (NASDAQ:FB) and Mark Zuckerberg at
this point. They`ve both been so successful over the last year or two.
The stock is up almost 150 percent just over the last year.

However — and I say however — it does seem like even though a lot of
people are rationalizing the merit of this transaction, indicating that
mobile is very important to Facebook (NASDAQ:FB) and WhatsApp is a leader
in mobile messaging, the reality is two-fold, we think. Number one, we
wonder how sustainable WhatsApp`s growth and leadership in mobile messaging
is going to be. And then secondly, $19 billion, we had to go back a long
ways to see an Internet deal that was valued at that level.

MATHISEN: What is their revenue stream here? They give away their
service for the first year for nothing, and then they charge 99 cents a
year. So, unless, they`ve got something else up their sleeve or intend to
raise prices, doesn`t that put a cap on the amount of money they can
generate?

KESSLER: Well, Tyler, the way that we think about this is on one
hand, it`s pretty obvious. The revenue base at this point is probably de
minimis. It`s a premium model. People sign up for free and then pay over
time.

But it`s only a dollar a year. So, even if every registered user were
paying a dollar a year right now, that`s obviously only $450 million in
revenue when you`re talking about a $19 billion company.

(CROSSTALK)

MATHISEN: So where is the rabbit in the hat, Scott?

KESSLER: I`m sorry. What was that?

MATHISEN: Where`s the rabbit in the hat?

KESSLER: I think the rabbit in the hat is something that Julia
alluded to that Mark Zuckerberg kind of referenced almost as an aside,
which is if you look at WhatsApp and you look at the global network for
SMS, for text messaging, they essentially carry the same volume of messages
at this point.

If you look at the SMS opportunity from a revenue perspective,
telecommunications companies around the world are generating $100 billion a
year from those services. And so, over time, we think it makes sense for
WhatsApp and Facebook (NASDAQ:FB) to look at that opportunity as well.

But what`s interesting is, it doesn`t seem like either company is
particularly interested in monetization right now. It`s all about the land
grab to, as Mark Zuckerberg indicated, a billion users around the world.

MATHISEN: We`ll figure out how to make money on it later, I guess, is
the message there.

Would you buy Facebook (NASDAQ:FB) at its current price?

KESSLER: So, Tyler, we have a hold recommendation on Facebook
(NASDAQ:FB) shares. Our 12-month target price is $72. Basically, we think
Facebook (NASDAQ:FB) has done a tremendous job of executing over the past
year, particularly with respect to the mobile opportunity.

But we think a lot of the good news is priced into their stock at this
point.

MATHISEN: All right, Scott, thank you very much. We appreciate you
being with us tonight.

Scott Kessler is the Internet equity analyst at S&P Capital IQ.

Well, you might not guess it, but a company lots of investors have
loved to hate recently actually gained on that big Facebook (NASDAQ:FB)
acquisition, BlackBerry. Shares shot up nearly 4 percent today on investor
hopes that the $16 billion buy raises the value of BlackBerry messenger
service or BBM. That`s the smartphone maker`s mobile messaging operation
which has about 80 million users.

Earnings after the bell from another titan of tech, Hewlett-Packard
(NYSE:HPQ), where CEO Meg Whitman`s turnaround plans appear to be right in
line the nation`s largest computer manufacturer earned 90 cents a share.
That`s 6 cents better than Wall Street`s consensus. Revenues also beat the
forecast, and the company even raised the low end of its full-year
guidance. Shares were higher during the regular trading day, rising 2.5
percent but little changed initially in late trading.

Josh Lipton joins us now from Silicon Valley with more on Hewlett-
Packard`s first quarter results.

What did you see in those numbers, Josh?

JOSH LIPTON, NIGHTLY BUSINESS REPORT CORRESPONDENT: Yes, Tyler, HP
estimates as you mentioned, the number a lot of investors will concentrate
on is the results in its personal systems business, or its PC business.
And there, revenue was up about 4 percent year of year.

Now, the consumer side of that business, Tyler, that was down. No
surprise there. We all know the consumers moving to a world where they`re
switching from PCs to mobile devices, smartphones, tablets. But the
commercial side of that business did see an increase. So, maybe the PC
isn`t dead just yet. That would be of course good news for HP.

The personal systems segment does still account for about 30 percent
of the company`s total revenue, Tyler.

MATHISEN: You know, Josh, as so much of computing moves to the tablet
format, HP had a failing tablet which they had to fold up some years ago.
Do you think they regret doing that now?

LIPTON: Well, I think, listen, if you are a believer in HP —
remember, Tyler, the move that stock has had has been just dramatic. It is
up about 8 percent this year, it`s up about 80 percent in the past 12
months. I think that investors believe in Meg`s turn around — Meg
Whitman`s turnaround game plan, her focus on shoring up the balance sheet,
cutting costs, returning cash to shareholders, and to your point, focusing
on new products.

I was on the conference call. She focused a lot on that, whether it`s
private Cloud or also mobile devices, the new fablets they`re selling in
India, Tyler.

MATHISEN: Interesting. Josh Lipton, thanks very much.

Still ahead, will the White House budget due out early next month be
less about austerity and more about more spending? We have an early look
into the administration`s fiscal plan.

(MUSIC)

MATHISEN: An update on the deteriorating situation in Ukraine after a
new round of deadly violence shattered a short-lived truce in the capital
city of Kiev overnight. The European Union has called for tough economic
sanctions against the government, including a freeze on assets, a ban on
visas and restrictions on the export of anti-riot gear.

Back here at home, the latest on the nation`s biggest municipal
bankruptcy ever, Detroit`s state-appointed emergency manager is expected to
file an adjusted rundown of how the city will treat the $18 billion of debt
an its other outstanding obligations as it attempts to exit bankruptcy
protection.

Well, Janet Yellen is expected to be back on Capitol Hill next week,
testifying before the Senate Banking Committee on the state of the economy.
The new chair of the Federal Reserve was on the House side last week but
had to postpone her Senate date until next Thursday after a snowstorm
paralyzed Washington, D.C., even shutting down federal government offices.

Meanwhile, on Capitol Hill, Republican lawmakers reacted negatively to
a White House budget memo outlining what will be in the president`s
spending plan when he submits it early next month. One big change from
last year, the president won`t propose altering the way Social Security
cost of living adjustments are calculated. That controversial change would
have slowed the growth of benefits, reducing the federal debt.

John Harwood joins us now from Washington with more on the sudden
change from President Obama.

John, tell us more about this latest proposal and why pick this
particular battle?

JOHN HARWOOD, NIGHTLY BUSINESS REPORT CORRESPONDENT: Well,
Republicans were not surprised by this, Tyler. And the reason the
president made this choice in his budget is that they basically abandoned –
– both parties have — the prospect of a grand bargain.

And when the president last year in his budget put out there the idea
of limiting these cost of living adjustments to Social Security, that was
partly to lure Republicans into talks on a bigger deal that would include
some tax increases. Republicans said no to the tax increases, now
Democrats are saying some of the spending cuts that you wanted, we`re not
going to do, either.

Now, the White House is saying that this is still on the table if
Republicans want to resume those negotiations, but nobody expects it
because of the deal that Paul Ryan and Patty Murray struck. We`re in calm
waters now on the budget. Everybody`s gearing up to campaign.

MATHISEN: And the spending plan presumably is going to queue on the
administration`s part more closely to traditional Democratic values, right?

HARWOOD: Absolutely. And both parties have agreed spending will be a
little bit higher than was called for before under the terms of the
sequester cuts. They`ve relieved it for defense and for nondefense to be
offset by some longer-term cuts.

But yes, we are out of the phase in which both parties are
concentrating so heavily on austerity. This is why Republicans didn`t in
the end put up much of a fight on raising the debt ceiling last year.

MATHISEN: And is there going to be some additional spending? If so,
where and where does the money come from?

HARWOOD: Well, the administration is going to propose spending on
things like manufacturing centers, which the president`s only been able to
fund so far with existing moneys in his approved budget. Hasn`t gotten
Republicans to go along.

But he`s going to propose some revenue increases, things that would
tighten up, for example, the ways in which international corporations shift
profits around to limit their U.S. taxes. They tighten up on that, raise
some revenue, use those to Democratic priorities.

But, of course, this budget is going to be about posturing and laying
out priorities, not actually passing it, because that step would require
the Republicans and Democrats to agree on a tax reform plan. That is very,
very unlikely to happen.

MATHISEN: John Harwood, thanks very much.

John reporting from the Capitol tonight.

Well, we begin tonight`s “Market Focus” with a round up of today`s
after-hours earnings. Priceline, the online travel agency, posted a better
than expected results as it booked more hotel stays, airline tickets and
car rental reservations. But its profit and revenue outlook for the
current quarter lagged estimates. Still, shares were up initially after
hours. The stock ended the regular section a fraction higher at $1,283.

Nordstrom`s earnings topped estimates but sales during the holiday
quarter came in light, sandbagged by higher markdowns. The luxury
retailer`s guidance missed expectations as the company said its planned
entry into Canada will continue to weigh to profit. The stock did fall
after-hours. Shares ended the regular session, however, up a fraction at
$59.44.

Groupon`s revenue jumped 20 percent on strong demand for discounts,
but the daily deals Web site forecast little profit growth in 2014 because
of increased investments. That disappointed investors and sent shares
lower after the results. The stock ended the regular session up 2.5
percent, however, at $10.28.

Marriott`s fourth quarter profit plunged 17 percent on lower revenue,
in part because the quarter was shorter than it was last year. The hotel
operator was one of the few consumer-oriented companies that didn`t blame
its decline on the bad weather. Earnings came in higher than estimates and
the CEO was pleased with the quarter despite the decline.

(BEGIN VIDEO CLIP)

ARNE SORENSON, MARRIOTT INTERNATIONAL CEO: What we saw in the fourth
quarter was about 5 percent same store rev par growth, which is quite
healthy sign that the economic recovery is continuing primarily in the
United States but also actually better performance in some important
markets around the world.

(END VIDEO CLIP)

MATHISEN: Shares rose slightly today to $51.79.

Shares of Conn, the electronics and home appliances retailer, got
slammed in today`s session. The chain cut its profit forecast for this
year and 2015, citing weaker sales growth and higher bad debts. The CEO
said cold weather and higher energy costs seem to be affecting some
customers` ability to pay off their debts. The stock fell today nearly 43
percent to $31.89.

Apple (NASDAQ:AAPL) is the new Microsoft (NASDAQ:MSFT), at least
that`s what one Barclays analyst says. The firm slashed its rating on
Apple (NASDAQ:AAPL) stock to equal weight from overweight, saying it
expects shares won`t move much over the next year or so.

(BEGIN VIDEO CLIP)

BEN REITZES, BARCLAYS ANALYST: What we see is a trading range where
Apple (NASDAQ:AAPL) is going to be buying back stock in the $500 range
really hard. But the next big thing might not be enough to break apple out
of the high $500.

So, that`s where we`re coming from. We`ve done an analogy versus
Microsoft (NASDAQ:MSFT). And I think it`s OK to say a trading range stock.

(END VIDEO CLIP)

MATHISEN: The analyst also said as an investor, Apple`s future
products don`t really excite him. Shares were off 1 percent today to
$531.15.

Well, after laying low for a few months, activist investor Nelson
Peltz has renewed his crusade to split up PepsiCo. In a 37-page memo to
the Pepsi`s board, the head of Trian Fund Management, which owns more than
$1 billion of PepsiCo, outlined a plan for the soda giant to spin off its
slow growth beverage unit from its fast growing snack division, which
includes brands like Cheetos, Doritos, and Lays potato chips. Shares of
Pepsi ended 1 percent higher today.

Meantime, investors are bubbly over rival Coca-Cola (NYSE:KO).
Despite a weak earnings report earlier this week — and that`s saying and
putting it mildly — Coke is raising its quarterly shareholder dividend by
about 9 percent to more than 30 cents a share. Separately, the company`s
chief financial officer, Gary Fayard, says he`ll retire in May after being
at coke for more than 20 years. Shares closed up about a half a percent
today.

And coming up, why Wall Street is suddenly falling in love with the
Wild West. That story, next.

(MUSIC)

MATHISEN: A man, a plan, a canal. Panama. It was back to work today
on a multibillion dollar project to make the 50-mile-long Panama Canal
wider to fit bigger ships. That follows a two-week work stoppage on the
century-old waterway after a financing dispute between the Panamanian
government on a consortium of European construction companies. The project
is expected to be finished next year.

Well, a possible setback for another huge construction project. A
Nebraska court voided Governor Dave Heineman`s decision to allow the long-
delayed Keystone XL pipeline to pass right through the Cornhusker State.
Instead, the court sided with landowners who said allowing the pipeline
which would bring crude from the oil sands of Canada, eventually all the
way to refineries in Texas. They said it violates their property rights.

While keystone`s outlook is uncertain, the forecast for American farms
is looking a little dimmer. The USDA said plantings of major crops like
wheat, corn, soy beans and rice will decline a bit this year, despite
expectations that total acreage would rise.

While farmers prepare for the spring planting season, investors are
finding value in a different type of land, ranch land.

Morgan Brennan takes a look at how some private equity funds are
putting big money in ranch land, far from the canyons of Wall Street.

(BEGIN VIDEOTAPE)

MORGAN BRENNAN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over):
Who says investing just has to be about stocks and bond? For one private
equity fund, the real returns lie in something much more majestic, the
great outdoors.

Sporting Ranch Capital is a private equity fund that restores rundown
ranches and then sells them for a profit. The premise is simple. Buy a
property in need of TLC at a desirable location, rehab the rivers into
trout fisheries and resell as a trophy retreat.

JAY ELLIS, SPORTING RANCH CAPITAL FOUNDER: The more water the
property has the more valuable it becomes. We can almost double the value
of a property by creating an A-plus trophy fishery.

BRENNAN: It`s gotten the attention of big name investors like energy
maven T. Boone Pickens. And it`s already raised $50 million for its second
fund.

And returns could be big — the low to mid-teens after management
takes its cut. Those numbers plus freedom from equity market turbulence is
why Wall Street is getting increasingly creative with its alternative
investments.

ELLIS: These are tangible, finite assets and diminishing supply. I
mean, God does not make this anymore. If you eliminate a 20 percent down
quarter, you basically — again, we are in hard assets.

BRENNAN: New private equity funds have been launched for everything
from farmland in the Midwest, to high-end resort housing in the South. And
when it comes to ranch land, SRCM isn`t even alone. Beartooth Capital is
restoring land in this niche market.

While these funds are still mostly backed by deep-pocketed investors,
they`re also a preview of the next big wave of alternative investments,
much like the explosion of single-family rentals on Wall Street.

(on camera): It`s pretty easy to see the appeal. Investors get to
own something tangible that`s in short supply. And with so many people
still reeling from Wall Street`s last meltdown, that`s an opportunity many
can`t pass up.

For NIGHTLY BUSINESS REPORT, I`m Morgan Brennan near Park City, Utah.

(END VIDEOTAPE)

MATHISEN: Well, it`s the biggest gift ever to Harvard University.
Billionaire Kenneth Griffin, the founder of the Chicago-based hedge fund
Citadel, is donating $150 million to his alma mater, mainly to fund its
financial aid program, benefiting as many as 800 deserving undergrads a
year.

Griffin graduated from Harvard 25 years ago, where he started that
hedge fund in his dorm room.

And, finally tonight, there is one lucky person out there who`s about
to make lot of new friends. There was just one winner in last night`s
Powerball drawing which ballooned to a jackpot of $425 million. That`s the
sixth biggest on record.

The winning ticket was sold at a Chevron (NYSE:CVX) station and
convenience store in Milpitas in northern California. The store owner
received a jackpot of his own, $1 million for selling the ticket. The
lottery winner takes the lump sum. That lucky man or woman will take home
$242 million. And for California residents, there are no state taxes on
lottery prizes.

That`s NIGHTLY BUSINESS REPORT for tonight. I`m Tyler Mathisen.
Thanks so much for watching. Have a great evening, everybody. We`ll hope
to see you right back here tomorrow night.

END

Nightly Business Report transcripts and video are available on-line post
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on Nightly Business Report is not and should not be considered as
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