tv Squawk Alley CNBC May 23, 2016 11:00am-12:01pm EDT
stocks. for now, little action. we will see what happens as the data comes through later in the week. on that note, let's send it to "squawk alley." >> good morning. it is 9:00 p.m. in new delhi, 11:00 a.m. on wall street. "squawk alley" is live. ' . good monday morning. welcome to "squawk alley." jon fortt, kayla tausche and myself at post nine along with terry kowaja and dan fr oman. good morning. a lot to get to. tim cook continuing his tour around the world. his latest stop is india. over the weekend he met with the prime minister modi discussing everything from manufacturing to
retail in that country and laying out his plans for india's market. also gave this extensive interview to india nd tv where he said he could see lowering prices in that country. >> i recognize that prices are high. what we want to do things that lower that over time to the degree that we can and so we are looking at a number of different things. what we wouldn't do is lower our quality bar. >> of course, one of the bigger stories today might be the projections, reported projections for iphone 7 production as has a lot of the suppliers up today along with apple. >> yes, indeed. barron's did a write-up of it about 70 million phones where some had expected mid 60s production-wise. that maybe goes to show apple's confidence in maybe what it's got in the iphone 7 versus actual demand. what i think is interesting, there's a tension between local
manufacturing and local invention versus american patronage. facebook's mark zuckerberg saying people, have free internet, it's good for you. a lot of people can't afford it, what's the down side. indian regulators saying wait a second, we don't want the strings attached to that. now the local manufacturers are saying apple wants to dump used phones here. that's not good. that will destroy our local markets. don't allow that. tim cook still trying to have his way. >> is it dumping or just a way for apple to get lower prices without having to lower the price of the new iphones that come into that country? >> it's a lot of things. last year apple introduced its iphone upgrade program where you get a new phone. what happens to the old phone? maybe that could be growth in an emerging market or india which is set to be the second biggest mobile market. of course, the new iphones are too expensive to sell there. maybe the used ones are not. tim is a good politician. i think we have seen that this week. >> how would you evaluate his world tour so far?
>> look, he has to pander to these countries. china, india, they represent a massive opportunity for a company that's already topping out in terms of market share in the western nations. there is going to be a lot of focus. as we saw, jon pointed out from facebook, you have to pay particular attention to the marketplaces to placate their particular needs. >> market share is only 2.7%. android powers so many of the cheap handsets that it makes you wonder what apple's goals in india should really be, what the target should be. >> they are showing up late to this party because in part, the middle class is still growing. tim cook will point out there's virtually no lte coverage in terms of fast wireless in india. there's been this local manufacturing base in phones, smartphones, that has built up over this period of time that apple has basically stayed out. for them to want to come in now that the market is growing and in effect, crush the local guys with used phones from you and me
who are kind of passing them on, you can understand how that might not play well with the very same crowd that didn't like free basics. apple is smart with the latest garage band update in china, they have these chinese, native chinese instruments that are part of that. they are writing software to appeal to the local crowd but this is that business case for diversity perspective, where you got to do more than just give an old phone. you got to give the customer something they couldn't get otherwise. >> cook said something interesting. he said not too long ago that he sees india as where china was seven to ten years ago. china is obviously a different market, a lot more interest in luxury there. if you look what they have done for apple, the stakes are very large. they provided two-thirds of the revenue growth last year for apple. could india turn into that huge monster china has become? i don't know. >> we will talk a lot about india, more than we have been in the months to come. the latest twist in the viacom saga, the ceo and a board member
filing suit to block the redstone trust. he had been moved from the trust that eventually will determine the fate of viacom and cbs, all part of the battle over sumner redstone's mental capacity. have you seen a chapter like this? in or out of meadia? >> this is like a classic drama that should be aired and would have huge viewership on cbs. the dichotomy of choice could not be greater. on one hand, you have shari redstone a nice smart forward-thinking executive. on the other hand, you have philippe dumon, he grew up in new york as phil doman so don't be impressed. he befriends the billionaire, sucks millions out of the company. there are two words for this. abject failure. >> if you hold a lot of viacom
and cbs stock and when the headlines are about you leaving the company or being stripped of certain powers, the stock goes up, you are between a rock and a hard place, no? >> what's crazy, this is exactly the opposite sort of distraction that viacom needs if it will fix what's going on. this is a business that is going to be in decline. every business model it has is going out the door as we turn to things like streaming and on demand and that sort of stuff. its brands are completely losing relevance with younger people. mtv and nickelodeon, i don't know, to me it just seems this is the last thing they need right now. >> should we be looking at google, facebook, snapchat eventually, controlled companies that could end up in this position in 50 years? >> imagine us sitting here as robots talking about the zuckerberg estate drama or something like that. >> hopefully not. as an investor you got to wonder. >> tell you what, the interesting thing to me is the checkmate move that sumner
redstone played on dumond. earlier this year he kicks out his girlfriend, takes her off the will and out of the trust. dumond supports him in that effort. she's arguing mental incapacity. two months later he kicks out dumond, neutering his ability to apply the mental incapacity issue. here's a 93-year-old next week who is basically putting -- >> so you think it's a victory for redstone? >> this guy is wily as the day is long. i bet he planned the whole thing. >> you think he's playing chess here? he has all his faculties and is moving the pieces around? >> that's exactly what he's doing. >> all you have to do, look at where they have completely whiffed on digital strategy. their stock is in the tanks. compare that to the wonderful job les moonves is doing at cbs. the track record is pretty
clear. that will play out naturally in the months ahead. >> what signs, if any, are there that this ends soon? that there is a neat bow wrapped around this situation and investors get some answers? >> we will have this drama for quite some time and it will make news for -- >> does it mean the execution that dan refers to gets better regarding the television product? can redstone do that better? >> i think yes, because i think she yurunderstands what some ofe digital opportunities and challenges are and is willing to take them on. sticking your head in the sand is not a viable strategy. >> wow. just to think when the ex-girlfriend was taking him to the beach and sitting him there thinking it was "weekend at bernie's" he was plotting this whole thing? you're right. this drama deserves to be on cbs. >> we will watch that for awhile. good to see you.
thank you for coming in. the markets are -- have been mixed throughout the morning. we are now seeing most in positive territory. we had hawkish fed commentary, dovish commentary out of japan and pmi numbers out of the u.s. and europe that were a touch weaker than expected. the dow is up 26 points, the s&p up a fraction of one point, the nasdaq up 16 points. check out shares of monsanto. german drug maker bayer bidding for the company. $122 a share, all cash deal that would be worth $62 billion. monsanto up 5.25%. and tribune shares dropping after rejecting gannett's offer. you can see tribune down nearly 16%. top tech fund looking for china to boost its portfolio in the second half of the year. brett singerland will join us next. the growing influence of
snapchat. the company has two million daily views more than facebook. bob peck will join us. and the ceo of interactive brokers on the changing landscape of the brokerage industry and impact of financial regulation. a fair price, quality service, and that horrible smells are really good at hiding. oh, boy. there it is. ♪ ohh. ooh. [ gags ] so when you need a house cleaner or an exterminator, we can help you get the job done right, guaranteed. get started today at angie's list, because your home is where our heart is. ♪
tech stocks hit hard at the start of the year and with that volatility our next guest sought a new strategy, increasing positions in higher growth cloud computing chinese internet names and m & a driven semiconductor stocks while de-emphasizing legacy tech. joining us from san francisco, brad slingerland, portfolio manager for the janus global technology fund. there was a big sell-off especially in names like sales force, like workday, that looks like a really good move. you shifted out of old tech but didn't cut apple. why? >> good morning. thanks for having me. yeah, earlier this year in the volatility, we fell back on our fundamental research and modeling to determine that the volatility was really not impacting the long term transition to the cloud which is really a five or ten year decision companies are making.
we are seeing significant budgets move away from legacy i.t. vendors such as oracle, hp, and into the cloud stocks. companies such as workday, service now, net suite, sales force.com. so we made that shift out of legacy and into the cloud stocks. apple was really a separate decision. we are under way apple quite significantly expressing somewhat of a cautious view there. however, it is still a position in the portfolio based on the strength of their installed base that they have on the iphone currently. >> big position. more than 6%, i believe. you did trim facebook. that does not look like a good call right now. you still have nearly i think three times, two and a half times, let's call it, as much alphabet as you do facebook. why is that? why are you so much more bullish it seems on google versus facebook? >> well, we still like both companies and they are still both significant positions. we think google has a lot more
optionality around their core business because of what they are doing with artificial intelligence, machine learning, youtube and the shift to mobile. while we still like facebook, we think their fastest growth days are probably behind them although we still expect them to be a significant grower in the future, just albeit slightly decelerating. also, when we look at the businesses, we think search and youtube and some of the assets that google has are sort of stickier long term user behaviors whereas social networking has been a little more fickle. we see a lot of folks, particularly younger generation moving to snapchat in the u.s. away from facebook and instagram. obviously twitter has seen usage decline or usage slowing down. it's a little harder to have confidence in social networking long term. >> it's hard not to take notice that most of the names that you added to at least on the cloud side are those that focus on the
enterprise service now sales force, work suite, work day. i wonder what smoke signals you are seeing from enterprise that you think that is where these companies are going to be spending their money. >> yeah. great question. i was just meeting with the head of i.t. for a large global bank last week. they currently spend zero of their infrastructure on amazon's web services and they expect to be at 30% by the end of 2018. a significant multi hundred million of dollars shift and we are seeing that across every enterprise. we think this is an inflection point to the shift to the cloud. the legacy i.t vendors have really been sitting on their hands and stockpiling cash, buying back stock, paying dividends, not investing in innovation or r & d, or doing the m & a needed and they are basically whistling past the graveyard while the cloud vendors are going to take all of the i.t. dollars going forward. >> interesting.
bezos made a comment last week where he said the biggest competitor to aws, actually companies who want to create and maintain their own cloud. how does amazon fit in what you just talked about? >> i think they are very well positioned. i don't think it's going to be a monopoly in the cloud. amazon currently by most industry estimates has 85% to 90% market share. we see that network effect they are building, continuing and we think they growing to continue to garner the lion's share of the shift in infrastructure spending. i think we are increasingly seeing companies decline to build their own clouds, decline to go with what's called private cloud and actually embrace the public cloud which is platforms like amazon and in second place would be microsoft's azure pratt fo platform, a tenth of the size. >> where will the margin be in this? you don't think amazon will be a monopoly. clearly microsoft is number two and gunning for increasing cloud share. they have this legacy of office apps and other software that
businesses tend to need. amazon doesn't have that as much. three to five years from now, who is going to be extracting a disproportionate amount of value out of this cloud shift? do you expect it to be amazon from its current leadership position or microsoft from its sort of rear guard but software strength? >> i think we sort of see a barbell where one side of the barbell is the infrastructure where aws dominates and azure is trying to build a business as is google. on the other side of the barbell is the very high value add applications, some of the companies i mentioned like work day. what we see as sort of the carving out of the middle. we think there's enough margin for an amazon like business model and jeff bezos is infamous for saying your margin is my opportunity. we think they can survive and do very well. they are currently reporting a mid 20s operating margin that. could be tougher for microsoft. we think that's one of the
reasons there has been some concern on microsoft recently in terms of margin pressure. but microsoft also has the high value enterprise applications around office and exchange. >> they do. it's going to be a battle royale. good call earlier this year. we will see how it continues to play out, portfolio manager for janus global technology fund. >> thank you. meanwhile, the layoffs continue at ibm and they could reach more than 14,000, according to one analyst. is that cost-cutting now good news for the stock? and the ceo of a company that provides charging stations for electric cars on the reality of that technology becoming mainstream. "squawk alley" will be right back.
losses could reach 14,000. meantime, ibm continues to hire for its cloud services and data analysis businesses. on friday the company said it had 20,000 open positions there and of course they still have more than 350,000 employees overall in an i.t. business that's challenged with often having too many people versus cloud resources. it's a struggle they continue to manage. >> certainly not alone in the struggle, either. the head of the tsa warning of more long lines with memorial day just around the corner. phil lebeau is in chicago with the details. >> i know i will be at the airport this weekend reporting on how the tsa is handling what's expected to be a busy memorial day weekend and really, all summer because we will see record levels. we are going to see long lines. the good news is over the last couple days we have seen shorter tsa lines reported at a number of airports around the country. the tsa is adding staff and overtime ahead of the memorial day weekend and then going into
the summertime. some critics have called for more private contractors to run security operations at different airports. that's going to take some time before that eventually happens, if it does happen at certain airports. the head of the tsa says be patient, they are adding staff. >> it's not just chicago. we are doing this at each of the nation's largest airports and will continue to do so over the course of the summer. the recent reprogramming request has allowed me to push a significant larger staff increases out across the nation as well as to push k-9 teams where we need them. >> what about the people applying for precheck? if you do not have an appointment but just show up at one of the locations and there are about 370 around the country, there was a line last week, people waiting several hours just to apply for tsa precheck. remember, the goal is to get 25 million people into the precheck program. right now they have just 2.7 million. in fact, it's not going to be
until 2019 at the earliest that they hit that target of 25 million people in the precheck program. the frustrations continue. >> although at some busy airports the precheck lines can be longer than the regular security lines. unclear whether it really helps the problem. phil lebeau taking a respite in the studio. see you back at the airport very soon, i'm sure. snapchat reportedly generating ten billion daily video views. how the rise of the messaging app could impact twitter and facebook. bob peck joins us on the other side of this break. my mom loves giving me advice. she even gives me advice...
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i'm sue herera. here's your cnbc news update. baltimore officer edward neiro was found not guilty of assault and other charges in the death of black detainee freddie gray. the judge who heard the case in a bench trial handed down the verdict in baltimore city circuit court. five other officers in that case are scheduled to stand trial. iraq's prime minister telling iraqis the military operation to retake fallujah from isis militants has begun. he was surrounded by top military commanders as he made the address. fallujah is about 40 miles west of baghdad. israeli prime minister benjamin netanyahu welcoming the french prime minister to israel. at a joint news conference, netanyahu repeated his opposition to a french initiative that kuls for an international conference to
revive mideast peace talks. hundreds of justin bieber fans took to the streets of argentina over the weekend to call on the government to let the singer perform in that country. bieber had tweeted that he wouldn't be able to perform due to legal conditions. that's the news update this hour. he's still a popular guy, carl. >> yes, he is. thank you very much, sue herera. got some weak pmis out of the euro zone this morning, weakest in 16 months. simon is here. >> some disappointment came through. this is the composite pmi so it services and manufacturing of 52.9. expectation was it would rise. maybe the underlying strength of the economy is 1.5% growth for the euro zone, not 2. relatively quiet start to the week other than that. it is very much the corporate stories that are dominating. the unicredit, one of the big italian banks, the ceo at a news conference in madrid suggesting there's nothing wrong, no dramatic changes are about to happen despite it being widely
reported that he could be on his way out as the bank looks to become more profitable and potentially raise up to $10 billion in order to strengthen its balance sheet. another move, chrysler, a german magazine reporting that it -- alleging over the weekend that it too may have used illegal software on emissions. they are suggesting there's no problem with emissions, though the stock is down. the biggest faller is bayer as it prices the bid for monsanto at $62 billion in cash. it's a cash offer that they are making here. the analysts are looking at what might have to be sold. will it be the seeds operation, for example, at bayer in order to successfully do a deal with monsanto if of course monsanto agrees, then you are back to square one. today in the uk is one month to go until you get the referendum on whether the uk should leave the european union. boris johnson who you see here leading the out campaign has
rebuffed prediction from the treasury itself in the uk that brexit would kill half a million jobs over two years and basically trigger a year-long recession. that was put out by the finance minister, george osborne with the prime minister standing next to him, david cameron. meantime, boris johnson, former mayor of london, this event persuaded a man with an egg not to throw it at him, saying people are going hungry, save the egg. back to you. >> simon hobbs, thank you. meanwhile, is the stockbrokerage industry on the verge of major consolidation? our next guest says falling revenues, increased regulatory red tape and higher costs will drive a majority, a majority of the existing securities firms to either merge or disappear completely. joining us exclusively, a pioneer of electronic markets, thomas henerfee of interactive brokers group where he is the founder, chairman and ceo. welcome to "squawk alley." >> thank you. >> i want to start with a quote
that you gave to the financial times, saying only one-fifth of brokerages will survive. there will be fewer and bigger firms, trading will be extremely cheap and efficient and there will be more semi-automated trading algorithms. sounds like that sentiment could have been pulled from any time period over the last five to ten years. i'm wondering why you think now is the tipping point for this activity. >> so there are currently about 4,000 registered broker dealers in the united states and regulation and competition will drive this number much lower. of these 4,000 brokers, only about 300 actually clear customer trades and custody positions in securities and commodities and foreign exchange. the rest are so-called mini primes are sometimes referred to
as correspondent brokers. that basically maintains the relationship with the customers, provide research and investment advice and process the clients' trades on the clearing broker's platforms. they do pretty much the same thing that registered investment advisors do, but registered investment advisors come under lighter regulation and as a result, we are seeing more and more introducing brokers becoming registered investment advisors. secondly, the clearing brokers are mostly banks and due to the banking regulations, they now have to abide by certain capital ratios, and to the extent that they have to finance margin
loans or short balances for their customers, that eats into the capital that they would otherwise could use for commercial lending, which is much more lucrative and profitable. so as a result, we are seeing them withdrawing from -- seeing these banks withdrawing. thirdly -- >> i'm sorry, continue. >> yeah. so thirdly, there is intense competition among the clearing brokers on commissions and margin rates and short rebates and the only way to win that competition is to have the best and most efficient technology, and in order to do that, in order to pay for that, a broker has to put a great deal of business through that
technology. by my estimate, a broker has to generate a minimum million dollars of revenues per day in order to pay for this technology, and nowadays, it is extremely difficult for a broker to charge more than $20 for the average trade, because the online brokers charge about half as much and they have to compete and interactive brokers, for example, charge less than $2.50 for the average trade and that includes all fees. so the only way -- >> okay. >> the only way -- no broker in my view can justify maintaining itself as a clearing broker and pay for all the necessary systems if he executes or processes less than 100,000 trades a day. this all points to -- >> it is certainly -- sorry.
>> all this points to a smaller number and larger -- smaller number of brokers who are larger than today. >> by your calculations, some 80% of those brokers will go away. we will see if the election in november has any bearing on these regulations. we always appreciate your time. our thanks to you. some news involving bank of america. an appeals court has reversed a fraud finding versus the bank relating to actions by its countrywide credit union during the financial crisis. it's also negated a more than $1.2 billion penalty. the court found there was insufficient evidence that fraud was committed. the case involves mortgages sold by countrywide to fannie mae and freddie mac. when we come back, this video of a woman trying on a chewbacca mask has more than 135 million views since thursday. the eye-popping numbers and some of the potential dollars behind them in just a minute.
because of a huge natural resource. not the land. the water. or power sources. it's the people. american workers. they build world-class products. and that builds communities. and a better future. for all of us. because making something in america means so much, to so many. weathertech. proudly made in america. kate kelly has the details. >> we know anecdotally that apple shares really fell out of favor with hedge funds during that first quarter. but new data from the research firm puts it in a pretty stark light. the 1,000 or so hedge funds that they monitor sold a collective $8.3 billion worth of apple shares last quarter. amounting to a 27% decline from
the end of last year quarter over quarter, a downdraft for the beaten down tech name which has fallen in the last six months, something we talk about all the time. meanwhile, microsoft which saw 5.4 billion worth of hedge fund sales itself was under pressure, too, losing some 19% of its hedge fund presence quarter over quarter according to this report. hedge fund managers remain sort of mixed on alphabet with class a shares seeing a slight fall and class c shares seeing a slight rise in terms of their dollar holdings and percentage holdings during that same period of time. facebook remained popular. hedge funds added two billion in facebook shares during the first quarter, about a 13% quarter over quarter uptick there. obviously among hedge funds and other investors, facebook remains super popular at the moment. >> given hedge fund performance lately, the crystal ball doesn't seem to have been working perfectly, could investors see this as a buying opportunity? >> yeah, quite possibly. the other thing i always want to
say is that these filings are dated already. even when they come out and it's always a really interesting snapshot in time, even if you are just looking at what hedge funds were doing in january, february, march, because they do influence the market and they do often do interesting research and have some good calls, not always, so we don't know what they have done since march 31st with a couple exceptions. absolutely, the fact that they are underperforming right now, we are seeing outflows from the hedge funds sector let alone from apple, may indicate that they don't have the right course of thinking here and you may want to go the opposite route. >> thank you very much for that good stuff. we mentioned that video over the weekend of a woman laughing hysterically at a chewbacca mask. went viral on facebook. 135 million views. how is facebook live competing with the likes of snapchat, twitter and others? sun trust's bob peck has a new note on exactly that and joins us from 30 rock. good to have you back. once again, facebook live wins.
how important is this? even as a touchstone? >> it's showing you the power of live, showing you the power of video. you can see the rise of usage, of users, and quite honestly engagement which is fantastic to see. snapchat's the one we focused on to point out to investors that its rise could come at the impact of other public companies. >> if this had gone on youtube, would she have made more money, arguably, than she did by putting it on facebook and when does that have to equalize? >> it's a great question. monetization's a big part of this. at our conference two weeks ago we had a bunch of influencers there talking about this. one of the reasons why we see the slowdown of content over to vine, which vine has been impacted by influencers going to other platforms like facebook, like youtube. the monetization can be pretty substantial and in fact, there's even direct monetization that takes place from the advertiser to the talent that those platforms don't get cuts of.
that's what leads to promoting posts. >> i want to take the other side of this one a little bit in that i would argue that chewbacca video does not show the power of live because probably hardly anybody actually watched it live. in terms of the type of video that it is, this is the sort of thing that could have been posted on youtube three or four years ago. my question goes to engagement in the mobile era. what is it that snapchat is doing right with the type of content it's encouraging users to create, the tools it's giving users that maybe some of these other platforms don't get? >> one of the big differences is that it captures the temporal moments which are the casual conversations you have between colleagues and friends all day long. while facebook and instagram are more curated images, it's more original footage getting posted. today on snapchat you have an x-men takeover and all the filters refer back to x-men characters.
they are fun and engaging. you see a lot of original content getting posted. it's definitely a rising platform. >> facebook, twitter, instagram, most of the social that we know are early social, you can record stuff on your phone's camera and upload something that happened awhile back. the difference i see in snapchat is you have to be in the snapchat app. you can't really upload something to your story if you have done it in the past, it is right there and then and it keeps you inside their ecosystem and you have to make a choice whether you are going to be in snapchat or whether you are going to record something and put it up on facebook or twitter. i wonder how you see that choice playing out for the user. >> it's been amazing. what you have seen is the large media companies embracing snapchat and actually creating premium content for them for free. which is quite astounding. you see this great engagement by the users who enjoy this content while actually remaining in snapchat. we have things now such as shopable ads that target and others are rolling out, really
keeping our facets there such as e-commerce. they are brareally building thi e-commerce ecosystem around snapchat itself. >> you mentioned challenges with vine. how does twitter react with vine within the portfolio? >> we have seen growth stagnate here. we think a couple things. one is to get back the influencers and get some of that original content going. we need to provide monetization engines. you are seeing other platforms provide that more readily and more easily. it's all about the content. you can get the influencers posting the content, you will then see the engagement. >> as i recall you are net bullish on twitter, yes? >> yeah, we are. the reason why is that you have seen the valuation taken down to a point where it's about nine times ebidta versus top line growth around 30% or so. that's a good value risk/reward here. we point out that a lot of things they need to do, they need to execute on that, integration with google, with double click, and the rein vig ration of the growth of per i scope and vine. >> you mentioned traditional
media companies providing content for free on these platforms. is it a trap? because you look at youtube, at first there was all this user generated content. now it pretty much just looks like in terms of what's driving the most views, mtv of old, or the cw. it's very professional, very polished. these things start off cute with their little tools and filters, but they end up looking an awful lot like traditional media, don't they? >> they do. actually, when i say they give it to them for free, they obviously get a revenue share in advertising generated across there. they are trying to reach the millenials. about two-thirds or so of the users are the 18 to 34 year olds and with the engagement, they are seeing great rois on these ads. the platform has been pretty productive for them. >> you know, any one of a certain age, not pointing fingers at this table, you go on to snapchat and it's not inherently obvious how it works. do they care about that, or is
the impenetrableness of the platform part of their appeal snmplg. >> funny you say that. two weeks or so they ran their own story which was aimed on mou to use snapchat, aimed at that older demographic, the core they have had, the two-thirds of users being millenials and younger age. they are working towards that. they obviously have larger ambitions. >> when your parents are on snapchat maybe that's the time it's starting to go downhill, no? >> the great part about it is, with snapchat content it's a hybrid of messaging mechanism as well as a platform to post on. you can curate what you are seeing, one to one, one to few, one to all. lot of customization which is really powerful. >> i covered a lot of ground in a short period of time. good to see you. bob peck from sun trust. >> are your painrents on sun trust? >> no. i don't think they know what it is. when will electric cars go mainstream? we ask the ceo of a company building charging stations across the country.
the company's already the market leader in a network that extends over 28,000 charging points. what kind of activity are they seeing on their network and how's the business going to work? pasquale romano is the ceo of charge point and joins us now. good morning. >> good morning. >> so on the question of how much usage you're seeing in your network, i imagine it must be growing gangbusters because electric vehicle sales are growing. i wonder about the business model longer term. gas stations don't make' as much margin off of selling gas as they do the stuff inside the convenience mart a lot of the times. you have got a lot of these charging stations in parking lots where you don't own the stores. how are you making money three to five years from now? >> the interesting thing is we don't own the stations, either. our business model is actually much like air bnb. air bnb is the largest hotel chain in the world and they don't own a hotel.
we are the largest electric vehicle charging network in the world and we don't own a charging stations. much like gas, people that -- businesses that have parking lots that want to put an ev charging as an amenity to their customers and employees, whathave you, turn to us to make that turnkey and then we make all those individual groups of chargers that are owned by those individual businesses look like one network to the driver to make it easy. >> so in effect, you own the user and it's a very attractive user, somebody who is buying a higher end car, the type of person who you would want parking in front of your store. is your goal to just make it easy for those users to be at the places where these charging stations are located? >> yeah. what's interesting about our model is our customer technically is that site owner. so we do everything required to make that site owner have a great charging experience in their parking lot for their
customers and employees. however, we view the driver as important even though the driver doesn't pay us directly because that is the overall underpinning of the entire market so we take care of drivers, we give them mobile applications for free, we actually don't charge the driver anything to be part of charge point, but when you see a price set on a charge point station, that price was set by the station owner. we may collect the money from the driver on behalf of that station owner, but we remit that money on a monthly basis back to the station owner. so the driver is someone we love to death and the site owner's our customer. >> how closely tied are your growth targets to tesla's actual production and when will you know if you have to turn on the gas, so to speak, if they can actually make as many cars as they think? >> well, as you mentioned, we have just raised a pretty substantial round of funding for
the company. we have plenty of dry powder to make sure we are expanding the charging infrastructure to meet the demand. the demand is growing tremendously. it does track cars fairly directly so we understand the metrics pretty well. we have been in this business since the beginning of the industry. in fact, the company's almost ten years old. so we have been around since the beginning. we understand how to predict what the demand is going to be and we think we are set up to be able to meet it. >> we have seen so many people talking about the fact that almost as soon as gas prices fell, you saw an uptick in sales of hummers and trucks and suvs and i'm wondering how much your growth dipped when that happened, and now that gas prices have somewhat stabilized to the upside, whether you think you are sort of in a clear for now? >> so what's interesting about our business is last year, we grew significantly and we
basically saw flat sales of evs, not actually correlated to gas prices that directly, but correlated to some model changeovers in the market and some other dynamics. so with that being said, there isn't enough infrastructure even now to serve the cars that are on the road. as the new cars all start to get traction, we think we are going to be chasing a tremendous growth trajectory. >> so is your biggest competition potentially charging at home? >> that's a great -- well, first of all, we are in that business, too. we have a fantastic home product offering. we have ground-breaking service for apartment and condominium property managers and tenants so we are solidly in that business.
what we are seeing is that because many employers effectively subsidize fuel for their employees, we are seeing a tremendous amount of charging at work and many utilities that have a large percentage of renewables or growing percentage of renewables in their portfolio are actually encouraging electric vehicles to charge during the day when if they are solar-heavy, they can make that power available to the new load. >> that does make a lot of sense, in a sense. a new twist on the gas station. pasquale romano, ceo of charge point, thanks for being with us. don't go away. more "squawk alley" straight ahead. they may want the latest products and services, but they demand the best shopping experiences. they're your customers. and by blending physical with digital,
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week. interesting move by some of these storage names that had been in a sense left for dead for awhile. >> worth pointing out london club up 10.5% today. reports it hired [ inaudible ] to find buyers. without those they don't have a business model. let's get to headquarters. scott wapner and "the half." welcome to "the halftime report." i'm scott wapner. our top trade this hour, the great rate debate as yet another fed head says a june hike is now likely. with us for the hour today, joe terranova, john and pete najarian and michael santolli. let's kick it off with the markets and those comments from san francisco fed president john williams who said today two to three rate hikes are appropriate this year. raises the question of whether a steep summer sell-off will b