tv Squawk Alley CNBC March 18, 2016 11:00am-12:01pm EDT
happy friday to you. a couple of days now from apple's big event. the company is expected to launch a new smaller iphone and ipad. john forte is going to be there. many of apple's top engineers may quit rather than help the fbi if it wins the case against apple. if you're looking for them to stick around and help write this code, they said good luck with that. is that true? >> yeah. oh yeah. i don't think they'll do it. this isn't north korea. they don't have to build things that they don't want to build so these people have lots of job offers elsewhere and i think probably apple backs them in this. if they don want to build it, they won't build it. even actually they'll get someone to build it. and maybe some of them agree with the government and will do it. but i think you're not going to make them do it.
>> the problem is these are the people that build the operating southern land and if they quit who is going to build ios 10 or io s11? it's a bit of an operating challenge at the same time. what this does push is push the govern. at least in a tactical way, a strategic way to say are you going to ask for the source code? because if you ask for the source code, that to me is going nuclear on silicon valley. >> and it's coupled with the engineers that don't agree with it aren't going to build it. you can't be forced to make software that you don't believe
in. it will be an interesting face-off. >> when we think about the interview with time magazine and whatever the law is he did say that whatever release for future software we have to go up in a security sense. they have to heighten the security. what will we see on monday from a security perspective. >> they have a lot of press there. >> i don't think they'll announce something big to slap it in the face, the government even more security now with even 10% more or whatever but i can't imagine he won't address the issue from the stage given that he has a worldwide audience there. he has been very outspoken. he's not someone that goes out a lot. he's been on the cover of time and nbc and all over the place and giving clear and strong quotes about this issue. so i expect him to address it there. i would be surprised if he didn't. >> the date to watch is a summer day, wwdc. that's the worldwide developer
conference. we see the new version of ios there. if you're going to build in new security features and talk about your rational behind that, that's the stage on which to do it. if you're going to build in new capabilities for developers to even build more security into their apps that's a place to do . so i expect this issue to really come to a head in the summer. >> his language has been unmistakable. calling it a crock and everything else he said, kara, was this times piece today feel to you like it was apple-fed? is this their way of going around? >> no, they're not going around. i think they have been active. they have been actively talking about this. he has been everywhere. he's not backing down on this and it's probably inspiring some of his engineers and things like that. >> all right. well, obviously he has learned a lot more on monday. hopefully at least from a product standpoint.
and it's him jogging. people started arguing about the air pollution in china. his ability to access facebook despite the crack down. tasting in pictures of forest gump with him. what do you make of this kara? is it much to do about nothing? he's not shy agoway from that idea. anything he does is going to attract attention. i was just in beijing and the pollution is very serious and he may have been a little bit tone deaf in this issue. plus he was running through an area with all sorts of political considerations. so i mean anything he does is going to attract attention and maybe he shouldn't be -- he looks like he is cooperating with the government. i think that was most of the criticism about that. i doubt that's what he men at
all. >> you say this is tone deaf but wouldn't it be more tone deaf to be running with a face mask or making a grimace in an otherwise inappropriate setting or should he have just not have posted it at all? >> probably the last one. if he did witt the face mask he would have angered the government. it looks like he's saying there's no air pollution and i have never seen anything like it there and the government is failing on every measure to control this very serious problem there and so it looks like he is sort of accepting it i guess. i don't know, everything in china matters. every photo does. >> and my first reaction was exactly that, oh my gosh. he's jogging. you can see the smog in the background. he is smiling.
and they posted it from the u.s.; he's jogging in china and it's being posted on book despite the fact that it's not supposed to be easy to post on book from china. it's in a way subversive without having subversive. it's being more open than you're supposed to be when you're jogging through china. there's a couple of ways to look at this. >> i guess. i guess. >> probably the sentiment that he shouldn't have posted it. it's quite difficult to get anything posted. it's a little progovernment. there's a sense that like happily jogging through when it's so full of pollution and political issues and he's mark zuckerberg. sometimes mark done think he's as famous as he s. but he's
pretty famous. especially in china and everywhere across the globe. >> always eye opening to post something and seconds later just watch it disappear prof your eyes on your phone. finally, kara, jack dorsey talking about the 10 year anniversary and the biggest change in twitter over the past decade. >> just how people use the service. it is the easiest way to see what's happening in the world right now live. a lot of people use it to see what's breaking and what's new in the world. >> it comes a day after he talks to kelly evans in san francisco about twitter and square. kara, how might twitter benefit from doing more broader media? >> that's not a bad idea to get out there and do those things. they have bigger issues than that. you have been hearing the private equity rumors.
stock continues to be weak. advertisers are trying to figure it out. he should go out and try to put out twitter anywhere he can and the "today" show is a consumer focused broader audience and there's nothing wrong with that, to do that. it's a good idea. >> he was asked very clearly cara if he would be on the "today" show for twitter's 15th birthday talking about the company and he said we'll be here on the 20th birthday. it's 30th birthday. it's a fundamental service. but the question is whether other services are becoming more fundamental to us as users. what do you think? >> i'm not sure what else he is going to say. no, no, i'll be sold by then. sure, today show people. no, i think you're right. snapchat, for example, i continue to be amazed by the features they keep adding there and how innovative that service
is. and there's all kinds of different ways to communicate. it's a very niche product for a lot of people. can they grow it? can they get it out? can they get advertisers? it's a great delivery vehicle for news but it's not the only one and i don't think they can base a business on that. even though it's a great utility. i love it. i love to use it. >> you do. your million followers like hearing from you. finally, cara, we talked to you all through the first quarter and in through february when valuations took a hit we asked you the temperature out in the valley at the time. your answer was something like eight lous some players to play in the sand box where they were excluded because of valuation before. what do we make now that the indices are back above the break even mark for the year? >> there's still a very big worry about valuations. everybody is sort of quitely -- i've been having a lot of lunching with private he equity
people and there is still making cuts in cost. there's been a lot of lay offs. i still think there's nervousness. this election has thrown everybody into a wait and see period. you know, that's not to say there's not some incredibly valuable companies. i just think people are still wary. it's not the way it had been. >> that's an important insight to get. great weekend. thanks again. >> meanwhile, we looking at a triple digit rally for the dow up 117 points this morning. dow solidly positive for 2016. the s&p back in positive territory. the banks are the best sector today despite still being negative on the year. the nasdaq is down 4.5% for the year but it's also positive
today. shares of tiffany in the green after earnings in revenue beatestments. the retailer saying it expects earnings growth to resume in the second half of the year. it's not expected to post a profit but they expect the tide to turn perhaps after mother's day. >> when we come back this morning, shares of adobe not waiting until mother's day to see a record high. nice gain. ceo is going to join us in a cnbc exclusive. in about 20 minutes we'll get a lot more information. we'll get you the latest on that and then google putting boston dynamics, the company famous for the crazy robot videos up for sale. why and who might be interested? in a moment. ♪ there's a lot of places you never want to see "$7.95." [ beep ] but you'll be glad to see it here. fidelity -- where smarter investors will always be.
he is the ceo of adobe and joins us exclusively from san jose. always great to have you. happy friday. congratulations on the quarter. >> thanks for having me. always a pleasure to be on your show. >> i want to dive right in to the guidance because that was one of the positives certainly from the call. you raised the digital media
revenue target from 3.875 billion to $4 billion. at the beginning of the year everybody was cautious based on a number of mixed signals in the market. what exactly gave you and your team that confidence to raise that arr target? is it the -- what you have seen so far in the quarter? is it just some overall trend either domestically or internationally? >> big picture we anticipated how technology would be used to reimagine the entire creative process. whether you're editing videos or creating mobile applications or trying to personalize websites it's clear that creative cloud is now the one stop shop from everything for inspiration all the way out to monetization. we're seeing more and more adoption not just by existing customers migrating and also we con to attract new customers. 30% of the folks who are on
creative cloud are doing business with adobe for the first time and as we always stated international markets were behind and now we're catching up with international expansion also taking stocks. we feel good. we're continuing to innovate and as long as i think we continue to focus on the customer it feels like it is the right product for them. >> at the same time you're moving from talking more about subscriber growth just those raw numbers of people and waited toward giving people more services and things to buy and revenue advantages and percentage growth on subscribers? >> we're focused on both.
we stated that we think that tens of millions of new customers who we can attract but as we diversify what he we have they're who we try to target and they're subscribing to the entire creative cloud but as we have new offerings such as the education offering that we introduced where we want entire k through 12 institutions to standardize on the creative cloud, for the creative cloud photography program which is attracting millions of new customers, the annualized me trick is better for people to understand the true health of the business an a mobile only offering is something that we're considering to attract new customers and it encompasses all of the differ financial me trix when we talk about enterprise adoption which continues to grow. that's also reflected in arr. so as you know we have been talking about for a few quarters
how arr is the better health of the business and we want investors to focus on that. >> we're in this era of treatmenting and scripted content and mushrooming of content on digital. i'm wondering how much of that is feeding the cloud. what customers are coming to you that weren't around 5 or 10 years ago. >> video is a big growth opportunity. you're right. when you think about how the next generation of consumers are consuming video. whether it's ncaa march madness or what's happening with sun dance or what's happening with the olympics. it's clear that people are consuming all of that video on mobile devices an so movies are done digitally. when people want to share a creation they're using it to do that. it's been a huge area of growth and we continue to think that with primetime which is our
product there, that will continue to drive further adoption. the truth is that most consumers right now want to consume the video at the right time whenever they want and so technology enables them to do that. >> we heard you talking about mobile as a gateway to a i.d. and people transitioning into a higher value adobe services. is that at least in the near term and medium term the extent of mobile modernization? the onramp and expansion of value for people already subscribed to want to do a little work on mobile? or is there more to come? >> well, mobile is a tail wind from two very differ perspectives. you're right on the creative side as we introduced new mobile applications as well as light
room mobile we find that people are first experiencing the joys of how to create things by downloading our creative mobile applications and then find that as they juan to extend that creativity the desktop applications are best of breed and we had something like 20 million new i.d.s created by people first interacting with us on mobile. that's certainly one tail wind. the other tail wind for us on mobile is as you know, with the digital marketing business as people are completely transitioning their business to be a digital first experience for their customers mobile is where people are interacting whether it's for commerce or financial der viss or interacting with government and what we said in the portel is that 49% of the transactions that we're seeing that we're delivering through our digital marketing products are now also happening on mobile. so mobile is driving more consumption of content and that's playing into our digital media and digital marketing
trends. >> now, quickly, i have to ask you while we got you, do you feel like you're swimming upstream here? are you doing well despite the global macro environment or have people at the start of this year been a little bit too negative on the overall growth prospects for tech and software in 2016? >> i think john, for us, what we have done really well as a company is we have anticipated how technology can both enable us to reimagine a business that was very successful for us which was the digital media business but i think more important create a brand new category which is digital marketing and when you talk about what's happening with digital disruption, i think irrespective of what's happening on the macroeconomic situation, every company whether it's government institution, educational institution, financial services has to reimagine their entire customer journey and it's a digital first journey and i think the fact that they're all
investing in that technology and we're the leader i think is providing momentum in our business. >> you threaded the needle there on the shots. thank you for joining us. ceo of adobe with the stock up 5.5% near all time highs, kayla. >> all right. up next, videos like these from boston dynamics have been a huge hit on the internet. we have shown them. we watched them. we laughed we cried and now google is putting the robot maker up for sale. we'll tell you why and who might be interested in just a moment.
owen! hey kevin. hey, fancy seeing you here. uh, i live right over there actually. you've been to my place. no, i wasn't...oh look, you dropped something. it's your resume with a 20 dollar bill taped to it. that's weird. you want to work for ge too. hahaha, what? well we're always looking for developers who are up for big world changing challenges like making planes, trains and hospitals run better. why don't you check your new watch and tell me what time i should be there. oh, i don't hire people. i'm a developer. i'm gonna need monday off. again, not my call.
dynamics include amazon and a research division of toyota. google acquired the company in 2013 for an undisclosed price and john lest we think that all of these moon shots that google is investing in are not working toward a commercially viable product maybe that's what they're trying to say. >> it's a bit of a head scratching. since when is being able to produce a commercially viable product. i wonder if this is ruth at work, this financial discipline of the new cfo coming in and say as good this a moon shot or a low earth satellite. how much would we really get out of this in several years even if it were to be successful? >> that's not what it is. like bargaining on that front, right? it's supposed to be aspiratio l aspirational. you would think. >> either these videos freaked them out, right? the more they thought about them -- >> freaks me out a little bit. >> maybe they thought suppose
this isn't as big a deal as we thought it might be. >> they din figure out a way to plug it into other businesses or something you're saying really. >> but amazon can. >> because it is so jarring to see this technology happening so fast, in who's arms and hands do you want to see it? >> amazon figured out how to put the robots to work actually moving product around in a way. are they making money for amazon or saving money for amazon? they're providing value. maybe google hasn't taught these robots to fix a server yet. and that's the problem. >> yet. >> all right up next, any moment now a judge is going to hold a hearing to decide if the public will get a lot more information in the lawsuit against sumner red stone. we have the latest next on squawk alley. trader group, they work all the time.
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will that send thousands of migrants back to turkey. the announcement follows two days of talks between 28 heads of state. the agreement is expected to be officially signed off on today. neuroscientists at mit say alzheimer's patients may be able to recover lost memories. tests on mice modified with the disease once again showed fear of being shot when researchers shined specialized light on certain brain cells meaning they the memory of that. the pope is coming to instagram. the vatican announcing he will join the photo sharing app under the name francis. he already has a twitter account and that is the cnbc news update at this hour. back downtown to squawk alley. >> a hearing on the lawsuit against sumner red stone just getting underway in los angeles. julia has more. >> that's right. right now los angeles superior court judge is starting a
hearing on whether or not to unseal key documents in the lawsuit filed by his exgirlfriend. now the motion was filed by variety asking that doctors reports and activity logs be open to public view. now if the judge does decide to unseal the documents we're unclear when exactly they would be made available to the public but they would be very closely scrutinized. i'll be back with all the headlines as soon as we have some news. back to you. >> thanks. we'll get back to you as soon as the story develops. we're continuing to watch viacom and media stocks. they have been flat this morning but the sector is seeing gains of 4%. joining us on the phone, tony wible. tony, when you think about where viacom specifically, there are about 3 dozen potentially
interested parties. we have a lead independent director this week. are things at least moving at that company? >> i think when you look at the company it's mostly a tv driven business. it doesn't generate a lot. there's a lot of big franchise films and it has to go up against the likes of star wars without many franchises of their own. the good news is their alternative add revenue and that's improving. it's an environment where people are paying too much for their cable bill. >> just keeping on that quickly, they do have zoolaner and whiskey tango fox trot this quarter. the news of the sale lifted the stock. how much do you think they'll get for it? what type of buyer do you think
would emerge? >> really on the record as saying we think the chinese have the greatest interest in some of the u.s. assets as a way of trying to become a stronger super power in the way of exporting media with this intent of gaining some soft power but i think they need to get some of that capital in the door because they have a credit rating and they have slowed down their buy back and getting cash in the door would be an important way to getting back buying stock and the multiple that trades well above the group average going in the right trex. >> we heard a lot of ceos acknowledge that cord cutting is real an they're exploring ways to deliver their products over the top. i'm thinking of comments from bob iger but you say it will plateau, why? >> so i think the idea is that the more diverse your homes are, the harder it is to ultimately cut the cord. the economy is a scale of a traditional bundle start to kick
in. it's the single occupant homes at risk. however not all of the programs are available. we did a comprehensive note and think there's about 15% of pretax exposure to the big 6 media companies out there. the good news is is if you look at the multiple compression since august, about early august, a lot of that seems to have already been discounted in at this point. >> so the bears would say they have been discountied for good reason because of this secular winds that these companies are facing. why do you say they're oversold? >> because i think when you talk about cutting the cord we have to think about the opportunity to recapture that money in alternative ways. the idea of getting your cable through your sony playstation or in the future through an amazon, that actually doesn't necessarily represent the loss of revenue so when you think about time warner, about 80% of their revenue is in there but
when you also think about time warner they have hbo now and in every one of the 12 scenarios we have run they will make more money off of hbo now that they will lose in the cord cutters so not everybody is going to come out a winner. disney with a new offering they will eventually have maybe as soon as 2019. time warner with hbo now and cbs with cbs all access, they may be the stand out winners. >> they're trying to figure out what will be the viable product going forward but before we let you go we're awaiting this red stone ruling. is there an outcome that you think would be the most material for viacom. >> it's largely a distraction honestly at this point. for viacom really serious head winds tied to cord cutting and tied to ratings pressure and trying to pivot the company and sumner's issue is porn but it does appear that the board has been aligned with the current ceo and sumner's parties are
>> biotech continues to sink. is it all about politics or something else. plus andrew wellington makes only a small number of trades each year and has a new pick for the portfolio and apple shares up ahead of the big event on monday. is it really back? we try to answer that question. we'll see you in about 15 or so. >> sounds good. see you then. >> as questions about private market he evaluation can continue. an are being offered at a -- employees and early investors in private companies to new investors that want to get in. but they require a company sign off and buzz feed says drop box is expected to approve it. but shares are being priced at $12.60 a piece.
that's compared to $19.10 back in january of 2014. dropbox's valuation still stands at $10 billion but john we're again asking the question of these companies waiting so long to go public. they have moi yemployees compen in stock and they're cropping up to be matching investors in these private company shares. the reason why you often see a discount in these shares, sources tell me that a lot of companies have actually allowed their employees to sell stocks through equities and the reason why there's a discount is because you don't get any financial disclosure which is is a big risk for people trying to buy these. >> it is. have to tell you, look at box which is often brought up as a competitor. publicly traded is about $1.5 billion right now. and it was around twice that. and if you're paying north of $5
billion. given box's drive in the enterprise it's ahead of drop box in that front. >> building in margin. it's about to go profitable. we don't know that about drop box. >> i actually asked about their ipo last year and he said look we juan box to do well because we want the industry to do well. we juan investors to view the industry favorably and there are trials but it's a company that we should watch because a lot of investors that think i want to get in the private market are doing so because employees are making a profit. early investors that bought it at close to zero are making a profit so buyer be ware if you're looking at something like that. >> the story is bigger than drop box despite that reported drop in valuation there, should investors be wary of the cloud overall or is the sector right for continued growth.
joining us is paul holland. their current portfolio includes several cloud infrastructure companies including some you see here. cloud on and mobile iron among them. paul given what we have seen this week, strong earnings, strong revenue growth from adobe that was early in the cloud game on the software as a service side. some pretty encouraging notes out of oracle as well. it seems like not only on the earlier side but also some of the more mature cloud players actually doing okay. was the pessimism earlier in the year overdone? >> i think the pessimism was overdone as it relates to a number of things that were happening in the public markets. what you're all wrestling with is a little different. a number of private companies got out ahead of themselves. we have a significant bubble going here in the private market valuations so i think you're going to see some adjustments around it and the public market
has taken care of that for them. but the concept of what's going on behind the cloud is so large. it's a once a generation see changes that happens in it and so that's why you're seeing to mix some metaphors you're seeing a rising tide lift all boats there. an oracle which is a lagered to the cloud is catching up and getting some benefit from that. adobe is a large company ahead of the game. >> how is that going to shake out? we've seen players like cisco and emc buy a number of infrastructure components to build out their data center in the previous generation of data senor. now do you expect to see google and amazon and book that's not offering cloud services to others but needs to build it's
own massive infrastructure. do you expoeect those to be buyg these plays any time soon? >> that's a perfect question. let me give you an example that's very current. 3.5 years ago we funded a company called clucker. and very much an infrastructure company to very sharp guys that left vmware to go start this company. they put this company together. 3.5 years ago we funded the company with about a million dollars. the company sold two weeks ago for about $260 million. so that's an example of what's happening, kind of under the covers. not in the headlines, the drop boxes and boxes of the world but down at the infrastructure level. that's where a lot of activity is happening and we'll refocus a lot of our everies. clicker being one terrific example. >> it's been almost five years since he wrote that piece software is eating the world and he's looking back at it today.
instead of constantly seeking their valuations let's see how the new generation of companies are doing what they do but how often do we need to have gut check likes the one this year? >> this is just capitalism and it's a very healthy recycling of things when things get out ahead of themselves from a pricing perspective. they need to be corrected in the market. my friend wrote the piece but if you look at what's happening there, we're still in the early days of what's going on. i had this conversation with you guys before about software security and apple and things like that. all the money in the world is moving through software now so all the security in the world has to be focused around software. it's similar now with the cloud infrastructure so clicker is an example and another company we're working with. very early stage is called zero stack so what's happening at the large company level is that people are spending a lot of money on people an consultants and things like that to get them moved over to the cloud. at the small and medium size company letter they can't afford to do that.
zero stack is like a cloud infrastructure and i think that we'll see more and more companies like zero stack and clicker and some others i can mention if we have time that are in this next generation of infrastructure companies. >> we do have time but just not today. that's a really great overview and an area that we perhaps don't look at enough under the covers, the infrastructure layer of the cloud. thanks as always. >> thank you. >> up next, a number of gaming headlines this week. a lot of focus on virtual reality and we'll talk to the ceo of a developer up next on the frontiers for gaming.
>> the global game maker behind contest of champions is doubling down on its big partnerships with it's start as a game developer for facebook. >> where would you put yourself in that long narrative and what sort of role will vr play? >> the mobile gaming industry is now a $29 billion market worldwide. we're talking about a marketplace that did not exist six years ago.
so that's been a very exciting trend and we have seen big changes in that marketplace. even in the last couple of years. the biggest one is that we're starting to see the top games in the world on mobile do over a billion and a half dollars a year in terms of revenue. we're talking about games that are are bigger than the biggest theatrical releases that most people know. the audience is more sophisticated. people started playing casual games on their mobile devices and now they're starting to play games that are a little bit more in depth and required more commitment to play these games and they played for years and years. we're starting to see it grow. we're starting to see franchises start to really matter and it's a big marketplace.
so it just looked like their marketing costs might be lower because they din have to team one big brands but now this is all about, again, teaming one big brands, more in depth games that are more expensive to build. is this just an expansion of the gaming world that we knew already happening on mobile now? or is there something different about it? >> there's a key difference. they're games that people play every single day. it's not like going to christmas and not like christmas and go by walmart and buy a game for $60 and play it for a few times. we're talk about games people are engaging with every single day and month for a long time. that's one of the biggest changes. so it's more like the television industry in terms of what's happening there but audiences are incredibly engaged and today to be successful you have to
break through the noise. you have to create a cultural event where people understand and get excited about the games you're creating and big brands are one of if ways that you can do that and we're certainly a leader in that category. >> kevin, how easy is it to make that cultural event a global one because it was an investment from alibaba that made you a unicorn. i'm wondering how you see your company and the gaming industry making itself relationship van on a global scale. >> this is one of the most exciting things that's happening. everywhere you see smartphones and tablets being sold gaming is the largest revenue driver in terms of software sales. gaming makes up 80% of all mobile software sales today and it's continuing to grow so as you see countries like china and india and brazil and russia come online these are markets that have never been pc gaming markets but people in these markets are experiencing games for the first time and they're willing to spend, you know, quite a bit of their money in
terms of games. >> thanks for joining us. we'll see you next time. when we come back, something different about march madness this year and what that tells us about the media business, after a break. [alarm beeps] ♪ ♪ the intelligent, all-new audi a4 is here. ♪ ♪ ain't got time to make no apologies...♪ i have an orc-o-gram we for an "owen."e.
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the ncaa tournament has a new wrinkle this year. the final four will air on tbc rather than cbs. eric is back with more on what this means. >> that's right, carl. it reflects the continued growth of the turner and cbs partnership sharing multiple channels and every screaming screen available but it's a big change from the past. >> they can only watch one game at a time. it's been the best thing that ever happened to chej basketball. >> i remember a few years ago when it was announced it didn't seem to make a lot of sense. >> now that turner and cbs have seen success in this partnership it could become the new normal
of competitors teaming up together. >> it wouldn't surprise me if certain partnerships developed in the future involving a cable company and a network down the road. i could see that happening again. >> but there's still a thing called television at an easy time to collect. >> >> revenues and ratings are up for the deal. though anything is possible in the next decade.
apple is positive for the year. have a good weekend. let's get to headquaters and the half. >> welcome to the halftime report. our top trade this hour, the dumpster fire that is bio tech and why that sector continues to burn even. and josh brown and john in a week that's seen both the dow and the s&p surge into positive territory for the year. bio tech remains under water and still sinking but at what point are these stocks a buy? that debate begins now. can you buy these right now? what's going on here. the s&p is