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tv   Squawk Alley  CNBC  March 15, 2019 11:00am-12:00pm EDT

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good morning, it is 8:00 a.m. at tesla headquarters in palo alto, 11:00 a.m. on wall street, "squawk alley" is live ♪ ♪ good friday morning. welcome to "squawk alley." i am carl quintanilla with jon fortt, contessa brewer is with us for the hour. morgan has the morning off
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dow trying to wrestle on a friday, boeing with a drag facebook shares down over 2%, crossing below the 200 day moving average two top executives leave the social network, following mark zuckerberg's plans to transform the company into a privacy focused platform apple, releasing its own on privacy. take a look. ♪ >> let me see that ♪
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>> stocks going in opposite directions, facebook and apple for more, let's bring in tim lesco who owns shares of both companies. good morning to you. >> thanks for having me. >> we know that apple tried to use the issue of privacy as a kujol for awhile do you believe facebook is responding with the pit to privacy, is chris cox's departure, does that suggest it is for real? >> oh, i think it is for real. we're all looking down the barrel at similar regulations you have in europe and all want to be first to implement those changes before congress acts through all of these discussions, that's really what we need in the u.s apple already lives under those guidelines, i think facebook is
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on its heels, trying to get there. probably the two best positioned to benefit should we move to those regulations. >> tim, what do you think apple is trying to do with this ad i mean, it is funny, it is fun, it is showing people closing curtains, locking doors, having secret conversations, and then at the end that if privacy matters to you, use the iphone but facebook apps on the iphone, so many of the companies that apple is pointing at saying we wouldn't behave like them, they're reaching customers through the iphone what are we supposed to take from the fact apple is putting this message out there >> i think it is very clear apple needs to let people know that their eco sphere is safe and they don't share your data if they want to catch up in the home with home kit in relation to the lead that ring has and internet and things in the home, they need to highlight that fact and failed to do so so far
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i think this is a catchup mechanism to maybe put out there one of the best sales points >> let's bring in former facebook privacy adviser, how much work does facebook have to do if they want to compete with apple and its stand on privacy at this point? >> oh, it has a lot of work ahead of it. i think apple has had a tremendous track record in privacy in trying to protect the consumer's information from outside invaders >> well, is the will there do you think mark zuckerberg has the guts, the intestinal fortitude to pursue privacy like this >> it's going to be very difficult. i think the short answer at least right now is no. privacy is directly in contradiction to the company's entire business model which is to really understand the consumer's behavior, using their personal information, and lease
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that out to third parties like advertisers so that they can target those individuals with contact. privacy breaks that business model down so i think for the time being, the types of things that we're seeing from mark zuckerberg and sheryl sandberg and other facebook executives are not exactly the way things are going to work out. when mark zuckerberg says i'm shifting the company toward a privacy preserving approach, i think there's more there than meets the eye. if you think about it, facebook is going to continue to exist the way it exists. instagram will exist the way it exists i think all he is suggesting is that some text messaging applications within facebook are going to move to encryption. that's all >> you think it is more incremental change than
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wholesale strategic shift? >> i think so. in terms of the facebook that we will see say six months or a year from now, i think it will be similar to what we have now and the reason for that is because these companies, facebook, google, and amazon increasingly have moved to where the profit margin is highest which is targeted advertising. in a space where there's no regulation, u.s. regulation saying these companies cannot do this kind of thing, that is to say collect information and lease it out and enable targeted advertising against it, we're going to see that business model continue nothing is going to change >> facebook's engagement numbers would back that up although these companies are so large, hard to move the needle i wonder, this is off topic, snapchat doubled this year do you think that has something
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to do with consumers' appetite for privacy or facebook's appetite for what snapchat has built? >> i absolutely think you're spot on in that analysis these companies are competing to an extent and i think when facebook looks down at snapchat, snapchat is smaller in terms of revenue, it sees a potential threat snapchat digital advertising revenue i think almost doubled in the past year amazon's has just about doubled as well. facebook and google occupy around 60% of the market and amazon and snapchat together about 8% of the market, but that's growing and facebook and google's share is decreasing. that said, the market itself is still growing dramatically and facebook's revenues are still growing dramatically around 30% a year i think these companies play on a two-sided markets. on one side, companies like
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facebook, amazon, google have a monopoly, intense social media and e-commerce they take rents on one side of the market and translate that into pure dollars on the advertising side of the market it is that advertising side where increasingly companies are seeing more competition. >> tim, chris cox, chris daniels, the first facebook executive departures that raised an eyebrow for me. people come and go at lots of companies but these are two key people at a time of transition when you normally wouldn't want to see those types of people go. what's the range of reactions that investors should think about here some people i am sure will shrug it off could this be bad? >> what could only be described as epically disappointing week for facebook from a pr standpoint, this is probably the biggest news
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i agree with you, jon. investigations into facebook, the government is going after yesterday's problems, not tomorrow's problems, so i think these two executives leaving are something to pay attention to. however, as the other guest mentioned, advertising growth is so rapid that it will be awhile before that has really any effect on the growth trajectory of advertising dollars on social media, and also the government is slow to try to legislate data privacy regulations, so there's probably some runway left for all companies to grow until anything fundamentally changes. >> interesting developments in the social media and tech for sure thanks, guys see you soon amazon is facing a key test this weekend involving the biggest remaining part of the h q2 project the board in virginia votes tomorrow whether to let amazon go ahead with the new headquarters in crystal city neighborhood or give the company the long island city treatment
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scott cohn is covering the twists and turns and is back in crystal city this morning. scott? >> reporter: hi, contessa. remember, the plan originally was that amazon would split h q2 between long island city queens and crystal city, virginia but activists in new york had different ideas, concerned about fair housing and things like that amazon pulled out and that has given activists in virginia ideas of their own >> we need more time to have this conversation and frankly that there are raising concerns about who amazon is as a corporation and how they will impact our community >> reporter: so protesters plan to show up tomorrow at the board meeting as they did at a community meeting in arlington last month they want the board to delay or reject a 23 million county
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incentive package, but the chairman of the county board who is a staunch backer says the county's integrity is at stake. >> all the issues have been considered and will be discussed on saturday. there is no purpose to the delay. when you have no purpose to something, doing it to me is a breach of public trust >> reporter: now, those county incentives are on top of $750 million in state incentives. those are already approved and just like the state incentive package which requires amazon to meet targets as far as jobs go, county incentives require the company to meet targets to reduce the glut of office space in crystal city the big question is how will amazon react if the company is rejected in the bid for incentives $23 million is about an hour's worth of profits for amazon. the company didn't respond to
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questions ahead of tomorrow's meeting. >> there's no chance of this delaying amazon going to virginia, right? it is not as if there's some board member that seems to be against it that could block their way, this is different from the situation in new york >> reporter: it's different, it's a little more of a fringe as far as the activists go what they're saying is that they're going to make a big splash tomorrow for sure and even if it passes, that incentive package, they'll be here every step of the way remember, every step of this project requires things like construction permits and zoning approvals and things like that, they want to be here every step of the way the question is how much stomach does amazon have for that. >> indeed. it all seemed so simple when it was just a beauty contest. thanks still to come on "squawk alley," elon musk taking to the stage to roll out tesla's model y last night we'll tell you why the stock is falling this morning next. later, our exclusive shoe
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elon musk unveiling tesla's new is addition to the line, model y last night a crossover suv with a starting price of $39,000 production, however, won't begin until late next year
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but musk has high hopes. >> the value of manufacturing is underappreciated it is like relatively easy to make a prototype, extremely difficult to mass manufacture a vehicle reliably and at scale. >> echos of production hell. tesla shares falling just over 90 minutes into the trading day. joining us, research analyst and managing director jeff osborne second lowest price target on the street for tesla looks like you basically expect shares to fall more than 25% from here. jeff, good morning you seem to say that tesla didn't do anything to address this issue of demand slow down, they should have updated the models s and x what do you think last night was really about and why the stock is responding this way >> the event was pitched as a
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model y reveal i think people were disappointed in the model 3 design. it looks like a jacked up model three. very cramped space wasn't really any indication where the vehicle will be made, any sense of cash needs to ramp up a manufacturing facility for it the other key point is that the deposit of $2500, past vehicles was a thousand that begs the question of a cash crunch on the company. the vehicle in general was underwell amming >> tesla doesn't have a brand rival in electric vehicles if you think of high quality, high visibility electric vehicles, it is tesla. how much of this $200 price target on the stock assumes that that's still the case in two
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years or that it is not the case, that they will have a brand rival. >> we valued off 2020 earnings power, lower demand in the first two months of the year begs the question what the sustainable rate of demand for tesla is going forward, now that the deposit basis depleted, that's the million dollar question. what's the natural run rate of demand globally. certainly things decelerated dramatically in the u.s., but you have europe and china ramping up as relates to the competitive environment, you have the europeans accelerating introductions, jaguar came out, porsche coming out later this year, audi has vehicles and volkswagon and mercedes. by 2020, the competitive dynamics will be dramatically different. in 2021, europeans have strict emissions rules to meet that were tight end we may relax cafe standards in
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the u.s., things are getting worse in europe. >> here's my question. the ceo elon musk says this will outsell them combined. is this another example of him talking big game or did you see evidence of this the demand for suvs is high. do you think anything between what he is predicting and the lackluster reception the model got? >> certainly you're right the suvs here and china are growing, europe to a lesser extent where the luxury market tends to do better in terms of you be takup take, e y looks like the hree, do you see cannibalizization. jon mentioned at the top we were disappointed there wasn't a refresh there. i think you needed to see that the 3 being cannibalizized by the y, and conceivably could the
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y outsell all three, but the other three are shrinking is the problem. >> your point on competition is well taken we keep hearing from others that argue look, volkswagon can come out too, and gm and mercedes, and tesla market share may shrink but it feeds the space and category, and that's not a net negative >> no, definitely the category is growing i think we just were past 2% global share in many markets for evs, and tesla has shined a light on the sector, carl, that people have an affinity to this type of vehicle and adoption across multiple price points can be had i think the question is can the company actually make money selling 35, $40,000 car versus what went through was an 85 to $100,000 car they haven't shown that in a market without subsidies or
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regulatory credits which is a concern. >> seems like when it is never as cheap as announced. thank you, jeff osborne. a quick market flash on boeing dom chu is back at headquarters with more. >> contessa, what we have are boeing shares up by one half of 1%, after being down about 2% in five minutes or ten minutes ago. you can see by the chart the reason it happened is because of a head line crossing out of french news agency afp which cites a source saying boeing will roll out a software upgrade for the 737 max jet models within -- it mentions ten days that's the reason the shares have moved to the up side. again, one source report from afp. worth noting the stock move was major on that headline
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we'll monitor and bring more details. also, we reached out to boeing to confirm it. we'll get back with more
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