Transcripts For CNBC Squawk On The Street 20240714

Have him go through the numbers. Good morning, welcome to squawk on the street. Im david faber, jim cramer is here live from the New York Stock Exchange Carl Quintanilla has the morning off. Look at futures, final trading day of the week as you see, what a week it has been when you talk about the markets, you see we are looking for a lower open, not dramatically lower, but lower. Ten year note yield, talk about a ride, lets look at the ten year note yield. I actually want to see where we are. Were below 17 again. Lets start with a stock want to do that or talk markets. I want to i want to talk about stocks you do . You chastised me for hyperbole. But the millennials think that uber is the most important stock of the market. Huge amount of work just on that. There it is theyll pay up for uber. Shares are down in the premarket, jim this after reporting what is the largest ever loss, the number 5. 2 billion slowest ever Revenue Growth as well, ride hailing company, incurring responses related to its ipo earlier this year really not even that long ago. As we said, Dara Khosrowshahi, the companys ceo, going to join us momentarily were not used to a quarter as difficult as this hard one, right first of all, 3. 9 billion compensation expense related to the ipo, thats not going to recur. Right. So that takes the headline has that wrong written by machines, we have to stop with the machines humans sometimes can be better what is more important is the driver appreciation reward, you back that out, that was also related to the ipo, then you get an adjusted and everything here is adjusted. Thats why the analysts like it. 3. 2 billion versus what was 2. 9 billion when you add in that negative revenue from the driver appreciation reward. It is so shocking to have revenue take back. So used to earnings. As opposed to youre up 26 year over year. Thats the true number. Thats the true number the market, interesting to see how investors and what mr. Khosrowshahi has to say, well talk to him about a wide variety of things, certainly when it comes to the basics of the quarter itself, which, by the way, still lost 656 million in terms of an ebitda loss. Thats where you need to focus. To me, we knew they would lose a lot of money. We didnt realize and they were great confusion about the one time nature of the losses i think that the interview is either going to move the stock up two or three bucks or stays the same and the interview is really important. I say that because the analysts were so granular that it was difficult to understand why the stock was down when you talked about what they did and i think the stock being down this much is incorrect the market is wrong. Who is operating better at this point a quarter from lyft that was well responded to by the market. Uber shares were up yesterday, riding on the back of what was better than expected numbers from lyft. Is lyft the better run company yes because they are operating in markets that are much easier but they dont have the lofty and grand ambitions. I like ambition. And dara is an ambitious man and i think what were going to hear is this a guy who thinks that the u. S. Is a good market but he wants to dominate london. Paris. Cities that right now he can own. He is a first mover, i think he has no problem look what he used to do. Hes so used to being international. Lyft is a good go midwestic compan Domestic Company i want it to build a moat, not unlike amazon. Tough to do you have to spend an enormous amount of many oney to do it. They got to meet dd head on in a number of the markets. Latin america not doing as well. Latin america is bad, big loss latin america has been challenging for everybody. Thats why i say take out the b in brick because everything you do in latin america is a loss. Gm, ford, and it just doesnt work i wish they werent in latin america. I got to ask them what theyre doing there. Do you really have to lose money everywhere cant you lose money in certain again, i dont mr. Khosrowshahi will join us. He did say on the Conference Call there are tradeoffs to be made in life i think somewhat deep. And i think we can make the tradeoffs where we can scale expenses or get far more efficient in our marketing and incentive spend while improving the bottom line and went on to say, were confident this company at maturity can be cash flow positive. Thats reassuring. The big issue is did he do is he underpromising and can he overdeliver or is it impossible to deliver i dont know i have my thinking it is upod. This is an interview that we better find out. Dont be mistaken thats not him walking to our set right now. Hes in san francisco. Thats on ipo day. A picture of him. Do we have picture of me running up to him and putting my microphone in his face like i used to when i was a sportswriter. Youre going to be a sports guy again. I love sports. Lets move on to the broader market, futures pointing to a lower open on wall street. It has been a mild week for stocks on monday, the s p 500 dropped 3 it is the first drop of that size this year, but well see what we have in store. In 2018, the s p fell by 3 on thats 2018 on five separate occasions, 2015, it fell by at least that much three times in the span of two weeks is more volatility in the forecast as we move through august and into the fall yeah, because there is too many variables chinese currency we can trade on, we have tweets we can trade on, we have huawei, which is the center of so much of tech, also, david, lets be fair, there is this is being run by Peter Navarro, trade which means what . It means that it is existential. Not trying to get more money not about soybeans, about hegemony i understand this is the time to take i believe it is time to take on the chinese if we want to but they did huawei. I would have taken them on with more tariffs huawei is at the crux and i think huawei is a company that we see some companies doing business with, scott, but i dont want to take that down ous we have the best semiconductors in the world explain to me what you mean the emiconductor companies, the companies that do the most of our cohorts, you look at the whole panoply, more than industrial, our Semiconductor Companies have the most percentage of their sales in china, okay. And what happens is they could be shut down as it is they could be prevented from selling a huawei certainly. But even more than that, youre saying the chinese the chinese wont do that. They need those components. Well, they have known david, as you often say, they play the long game, and maybe theyre even willing to cut off their nose to spite their face sky Works Solution is the most recent one they took a bill hit for rg hiti these are major companies. And some of them are going to be punished punished. Lets get back to our big stock story of the morning, of course uber shares, under pressure, thus far, the company did miss estimates on the top and bottom line, but there is an awful lot going on here under the surface that could at least make it a bit of a confusing quarter for many investors joining us now, exclusively from san francisco, to help explain it all and answer our questions is the companys Ceo Dara Khosrowshahi good to see you. Thank you for being with us. Good to be here, thank you. You know, as i said, i mean, jim and i were talking, the 3. 9 billion in term of compensation expense related to the ipo, the driver appreciation reward, a different of moving parts here, adjustments people have it see through. Let me just ask you, if you cut through all that, what really is the Revenue Growth rate for this company and the take rate that were looking at right now and that you expect in terms of the guidance for the future . Yeah, listen, i think the ipo for us is a once in a lifetime moment and it was a really important moment for the company and some of what we did, like the driver appreciation reward, 300 million that we put in the hands of over a million drivers globally were really important for us to do it created a messy pnl from an accounting standpoint that i think is hiding underlying trends that are actually very, very healthy for the company you look at the trends of the company, this will matter longterm, you got gross bookings over 16 billion growing 37 on a year on year basis. You got trip volume and trips are units growing 35 year on year you got audience, monthly active platform customers, now over 100 million growing 30 . And the actual Revenue Growth and you do have to back out the driver appreciation reward because that was one time, it was important, we wanted to do it, but it was one time, the Revenue Growth excluding the driver appreciation award with us 26 , and what i did tell our investors is expect that to accelerate into the back half of the year the back half of the year, youre going to see if trends stay the same, Revenue Growth in excess of 30 . And when you look at profitability, we beat our own internal targets, street targets as well, we came in at a loss of 656 million still a big loss but the losses are improving, the take rates are improving. Right you went on in the call to say at maturity, of course, you can be cash flow positive. I made light of not light of, i discussed briefly your comment, some other comments, i would love to get more from you on them, which is if you do your jobs right, and you say there are always tradeoffs to be made, you can make the tradeoffs where you scale expenses and get more efficient in marketing and incentive spend and improve the bottom line. What examples can you give to me now of where youre doing that or where you would expect to do that in coming quarters in terms of increasing the possibility of profitability and the overall contribution margin. You see this quarter, again, if you back out some of those one time expenses, we went from a loss of over 800 million to a loss of 656 million, we got much more efficient on the marketing front, and actually took marketing as a percentage of revenue down, while we were still growing the top line over 30 as well. So we are in a situation as far as the Network Effects of this company. This is much more than just the ride share company, it is a transportation company, where we dont need to continue to increase the marketing and incentives, we can go in with loyalty plans, both for riders and drivers that are going to add to leverage in the company and ultimately improve the profitability of company and, listen, this is a Marketplace Company that has over 20 revenue margins and revenue margins are increasing year on year so not only do we expect to hit kind of cash flow break even, but we expect business to be very profitable at maturity. And this is the big spend year, spending from here starts to decline is that true i think that our spending declines as a percentage of revenue. So when youre growing trips 35 year onyour spending is going to increase. We get leverage on the marketing line and we get fixed cost lefr leverage Going Forward this market proved this this quarter proved that out. We have to keep hitting our marks in the next couple of quarters, it is a super competitive marketplace, but were confident and we like what we saw operationally in this quarter. Dara, good to see you i have a question. I know youre involved with history. You know history most, probably better than most ceos. Latin america, uber eats, against a door dash competitor that plays with why are you in these markets when you know, you know you have to defend everything and it is going to cost a fortune listen, latin america is one of the best markets we have in the ride share business. It is a huge market. The gdp there is increasing. Look at argentina, buenos aires now is the fifth largest city for us globally in terms of trips for rides business so we know how to operate in latin america. The uber name is beloved in latin america. And we think that the platform, the power of the platform is that we can take one service and then add on other services into the fold as well so just like uber eats has become a part of everyday lexicon to americans, we think the same can be true in latin america. Is it going to take investment, yes. Is it going to take execution, yes. We have an enormous advantage in the uber plan and platform and there is no reason we can be just as successful in latin america as we are in the u. S. You let me spend some time with oran, who i think is a genius the analysts seem to be lets say lukewarm about uber freight. Youre spending a lot of money and happens to be a long time. Can you give us more granularity. It was not available in the Conference Call. Yeah, i think uber freights growth if you look on year on year basis, the top line is growing over 150 . If you look at customer cohorts, our customers love us, our signing of new customers, and the use of the customer is year on year, continues to increase at a very significant pace the freight industry hit a soft pocket in the First Quarter and Second Quarter of the year we went in and adjusted to that soft pocket to sell much more aggressively into accounts and if you look at the grassroots uber freight now, the rates are exciting and we remain bullish it is going to take a couple of years, but this is a multibillion dollar industry and we think we have got kind of the best solution with the best tech and a great brand and we think we can succeed there very much so competition, of course, is one of the key concerns of investors here, whether it is lyft here in the domestically or dd in some other markets around the world. And what they believe will be a constant pressure on pricing is it starting to alleviate at all, the possibility, for example, of dd in london, is that going to be at another battle you have to fight so we have competitors in every Single Market, right if youre going after a 10 trillion plus marketplace, youre not going to have just one compete, youll have multiple competitors coming in we happen to be the biggest in the sector, so when competitors come in, they want to take us on when you look in the ride share space, the competitive environment is stable to Getting Better you saw ride share take rates quarter on quarter increase by over a hundred basis points. So while it is competitive and we expect to be competitive, we have competed against competers in paris and london and every single city that we operate in, we have multiple competitors and usually we have 60, 70, 80 shares we compete, but we win the eats market continues to be very competitive so while rides, i say the competitive environment is stable to Getting Better, we were going to see a lot of with eats, a lot of capital coming to the category because it is growing. You mentioned capital coming in it does make me think about one of your largest investors. Massasan at softbank theyre raising vision fund too, dara conceivably some of that money will go to the very companies you are just talking about, that youll compete with, that will have unlimited war chests to cut pricing in, for example, the eats market. How do you view that do you go to masa and safe y gie me a break here . I think a lot of people in life would want masa to give them a break but masa is going to keep going. Masa is a businessman. He didnt throw good money after bad. When he puts in money into companies,s it because s iit ie believes in them we are the single largest investment in a global basis our interest and masas interests are very much alined they know everybody. They understand the markets and im very, very happy to have them as an investor and i consider softbank a very good actor in this marketplace. Theyre going to put money against the markets, but that will expand the markets and were going to be we have been one of the cheap beneficiaries of that. Speaking of some of the investors, the lockup is fast approaching or i should say it will expire. Are you expecting a lot of potential sellers to hit the market when they can in terms of insiders and the like who are locked up from selling after the ipo . I like to focus on the things i can control. My honest answer is we dont know there are going to be some investors who deliver, longterm investors like softbank. And then there are going to be some investors who made a ton of money and deserve to liquidate some of the shares you know if we focus on building the business and we focus on continuing to grow at 30 plus percent rates, increase margins, the rest will take care of itself im looking forward to getting the lockup behind us i think that people talk about it too much and really what were trying to build is a business that lasts, a business that can attract the best talents in the world thats what im spending my time on dara, back over this premoney issue and uber eats. The door dash, im familiar with door dash. Deal with them personally because i own a restaurant but it is curious to me, door dash has 360,000, they say you guys are up there. They play with free money. They bid and got caviar which is the square delivery. They paid 400 million did you try to get caviar and did you think they overpaid for caviar because theyre not public you can expect us to look at every single deal out there in the marketplace where uber, everybody wants to talk to us. We looked at caviar. It is a great brand. It wasnt the right deal for us. I cant speak to door dash and whether they overpaid or underpaid. We just think that the best growth vector for us with eats especially in the u. S. Is organic. We are now increasingly with uber wide Loyalty Program getting users into uber rides and then uber eats and moving the users back and forth between the two. We think it creates a Customer Acquisition cost advantage over the other players. We think it creates a lifetime value advantage over the other players and what were confident of is our eats business is much more efficient from a marketing standpoint than any of our u. S. Competitors. Thats the power of the platform thats where were focused that is a very good point i cant underestimate the lifetime value of a customer there is an existential moment where you talk about rougher report areas, inner city, they cannot afford the consumers cant afford the increases in price. What are you going to do about that do you think it should be twotiered do you think it is fair that people that arent wealthy cant afford you and why shouldnt they get a break why shouldnt people be treated equally . I think it is a tragedy i think when you put into law laws that are not market driven, you wind up helping special interests and hurt other people. And the fact is in new york city, because of the new tlc rules we had to restrict a number of drivers that come into the marketplace, we had to increase prices and there are many, many new yorkers who can afford it on our business in new york is doing just fine. But our business in the neighborhoods that need transportation the most, often mass transit, doesnt go into the neighborhoods. The business is suffering there. Thats just not fair really what is happening in new york is there is a secondary medallion system being created with this limit on the number of drivers on the number of cars. We know the first medallion system ended in tears and now were doing it again and we think it is a tragedy were doing everything that we can to get our message out in new york city and eventually we think that good logic will win right now were in a tough spot. We will do our best to get out there and make sure that our services are available to every single consumer, anyw way we ca. Speaking of that and other services, why are you promoting to a certain extent certain metropolitan areas the use of mass transit what is the what is the overall benefit to your user from providing that information . Our mission is igniting, setting the world in motion. We want to move people and we want to be that service where if youre going from point a to b in a city, you wake up you come to us, and we started with cars. But what were trying to do is get you to where youre going and we think that mass transit is an incredibly important part of that equation it is good for business. The more people come to uber to check uber, to come for information every day, the more of an opportunity we have to offer our services for them. At the same time, it is great for transit as well. I think you have seen that transit ridership has been flat in many cities and we think that if you bring the uber service, the delight of a customer experience, the ease of use, all the way from information to booking, we think we can become a really important demand generator for mass transit. It is good for the environment, good for the city. It is good for the consumer. And we think it is Good Business as well. Right as you said, your main competitor is car ownership, not necessarily any of the other aforementioned competers in the marketplace. Dara, we covered a lot of ground here in the last 10, 15 minutes in terms of your view of the future but do you feel like you have a lot of visibility into your business at this point that you can be confident in in of the predictions youre making in terms of what you see in various markets and what it costs you to continue to compete . I think we have got very good visibility on our own business as far as the Business Model and how we can tweak and how we can drive more efficiency out of marketing spend, out of incentive spend, out of overhead, et cetera. The team is very much alined and executing on that. I do think the competitive environment can change quickly and last year we had the competitive environment become much worse, frankly, and this year the competitive environment is improving pretty consistently and that is something that to some extent is out of our hands, but i think it is something we can control, by being an incredibly strong competitor, by pushing back where we need to, and then bring in profits where we can, we think that we cannot only survive, but we can really thrive in this business. Again, you look at the top line growing 37 at these kinds of scales, 16 billion plus in bookings, these are big businesses and i think that were going to be the winner. All right, so dara, can you talk about i know you care about impact per share youve been conscious of this. Can you talk about empowerment for a second we offer read that the drivers are exploited. I think you provide an empowerment, people would never have a job, uber freights, hispanics, sikhs, usually discriminated against. What are you doing for equality . I think as far as our driver partners go, one of the really important parts of where were taking our relationship with the driver partners, the number one reason why they love to use our platform to earn is they can use our platform, anyway, anytime they want, they are their own bosses, they do exactly what they want. With society now, there is an expectation of a safety net, healthcare, minimum earnings, et cetera and we are actively now engaging on that front with regulators. We want to be part of the solution where part time work is not something that you look down on, you can have your freedom and safety net at the same time and we absolutely think that uber can be a leader there thats something i take very personally and if thats something that we cant that we havent accomplished as a team over the next couple of years, ill consider that a failure. We have to have dialogue it has got to get past the emotion, get past the politics, and it has to serve our driver partners and thats what were trying to do. Last time we saw you in person was during the initial Public Offering on the floor of the nyse any regrets in terms of that day, the stock continues to trade five bucks below the ipo price. It was a great day as far as bringing in getting the company public, getting us funded to that path to profitability as well. I think we have to do a better job in terms of telling our story to the markets i think that the company is executing very, very well. Somehow it is not getting through the noise. And i think that at some point you just put your head down and you execute and the market shortterm while you cant control the shortterm, longterm the market will take care of itself and think thats what were focused on right now. You got to get people to believe in that ultimate goal that you can be of cash flow machine at maturity, and for now, even though ebitda loss is 656 million, i would think thats an uphill bat until some way battle in some ways, do you agree . I think when you have those kinds of losses, we take those losses seriously but you got to look at the fundamentals of the business this say 20 revenue margin business at 50, 60 plus percent scale every single year we add 15 billion of gross bookings at 20 margin revenue margin. So thats essentially 3 billion of revenue that were bringing in house, and you put that, you know, against a 656 million quarterly loss and you see that with a couple of years of 3 billion plus revenue coming in, youre going to be able to cover those kinds of losses. I am very, very confident of this the last business i ran was running at 11 , 12 revenue margins. We were able to get to 20 ebitda margin, 20 revenue margin here, not only do we have to get to cash flow break even, but were going to get to significant profits here longterm. It is going to take work were very clear eyed about that were very confident we can get there. And finally, dara, the last time we saw you, mr. Cal nick was here, far away from us, the former ceo prior to you, the founder. People say, listen, you have been an excellent job to a certain extent addressing some of the cultural issues that were present at the company when you took over. But they do wonder whether uber has lost that sort of founder driven urgency that some of these companies have when the founder continues. How do you address those who say or wonder whether you still have that fire . I think we absolutely have that fire inside of the company. We just two days ago we had a day where we sit down and go through all of everything were doing technically, meetings start at 8 30, it didnt end until 9 00, after 9 00 p. M. At night we got in that room and we resolved every single situation. So, listen, the founder mentality, that edge, the fire, is absolutely something that we want to keep going at the company. It was a big part of what made the Company Successful and i absolutely believe it will be a big part of what will make uber successful Going Forward. Dara, we appreciate you taking the time with us this morning, helping us go through a complicated quarter and look forward to seeing you in the future Dara Khosrowshahi, ceo of uber joining us from san francisco. Thank you. Thank you for having me there it is opening bell for this friday. An interesting week. We look at our real Time Exchange back at hq, should be more red on that board at least, judging from where the futures, we heard the big board, pro Provident Bank celebrating its anniversary. And silver spike i said, gee, should they be public they have such losses, wouldnt you like to buy them when they have lower losses. But the fact is that hes saying, listen, you can be basically in on the ground floor, better than a lot of these pe investors one day if that inflexion comes you got to be there. But the question is when. And your point is an important one, the questions your asking, theyre competing in so many markets. Always somewhere they have to spend more or fight harder it is a multifront war, i guess. Versus lyft right, a pure story domestic, do what we do. What you need is a duopoly where people can raise price youre not going to ask dara, when are you going to raise price . Thats price fix i would point out, you go into the markets like latin america and youre willing to lose to win, ultimately, the patience of the investor is being tried here i think the stock is down because people dont have that patience even though i thought that dara he was at expedia, why aim fond of dara, is it because of his story no he took a company that was vast and not doing well and turned it into the powerhouse that really owns that market so hes uniquely got the right skills, but, david, you know, every Single Market is challenged paris challenged, latin america challenged, new york, the government is basically trying to outlaw. New york is typical of what goes on here in new york city. Just, yeah running for president maybe. Great all right, lets get back to the broader market, jim, and other news we have been following this week stepping back, we were having a brief conversation at the outset prior to getting to dara about where we stand at the end of what has been a tumultuous week, you might not know it from where we end up the week well see where we end today on the s p. What do you take away from it and what should investors be thinking about it as we enter the doldrums of the summer right to me, were in a phase of the trade talks, which are gripping people, whether it be the selling of the yuan overnight, what the president is thinking of doing and i think that hes got everybody off balance, including the stock investors. You need to watch a company like broadc broadcom. Broadcom. Thats the most executed market. Tell me, why. Broadcom decided, we are going to pivot and stop doing deals that we think the chinese can challenge. We think we can buy the semantic cybersecurity business and we can get way with it, but we cant mess around with china. We cant get the growth. Thats why they did ca so i think it is important to did not require chinese im sure hawk tan sent you the bulletin saying, listen, i cant deal with the craziness. You mentioned chinese approval, that goes into mergers and acquisitions i said this a number of times but it remains the case, well see how volume is and how active companies are, but when it comes to putting before a board of directors a deal which would require antitrust approval from the chinese authorities, the board is going to probably say, i know they have been, i heard of this already from a number of bankers and lawyers who advise, no thank you were not going it even if were going to have to sit here for how long, why would we do it so you can put aside potentially some of the larger Technology Related deals that might need that approval. In this case, in broadcom they dont. They of course will tell you nobody knows how to integrate better i use that billion dollar i said yesterday, were going to save billion dollar run rate energies, they did theyre confident they can get even more. Stocks will be up 15 i think why it is not there is some people who said this suspends the buyback another reason why i wanted to focus on this shot this china versus not, is that you have a lot of companies right now who numbers are just too high because of what the president said last night, cutting off huawei the numbers are too high one thing so difficult, you have to adjust. Lets give the class e example i talked about no cutoff to spite their face. Yes. Do you know jensen huang told me they favor nvidia buying mellanox but they havent approved it. Do you know how long that has been sitting great for china. Really unbelievable for nvidia, shareholders thats an example of, wow, i dont know watch marvel rick hill, interim ceo of semantic. Semantic. Did this great deal this deal was great. Hes a chairman of marvel. Hes positioned marvel as being a number one 5g company. Pure 5g. And 5g is the battleground here. Thats what everyone should understand huawei is not about just another Chinese Company it is about the dominance of 5g and against them you got ericsson, second rate, nokia, third rate, they want cisco to challenge. They want cisco is not set up to challenge huawei. No. And it can get complicated for people we talk about 5g, we have only just begun to talk about it. It is not really here in terms of actually people use the 5g phone and get the incredible speeds that are going to occur and then were still years away from the internet of things which probably on the factory floor, for example, will have huge implications and then we talk about u. S. Versus china, two separate universes being created. The chinese are ahead of us, by the way, in terms of 5g. Doesnt that worry you as an american i dont know if it worries me from their perspective, first of all, the Surveillance Society they have is going to be enhanced so greatly as a result of everybody having a 5g phone in their hands what theyre going to be able to do, i mean, you know, not to mention they all sit around doing mobile gaming all day in china, it is perfect good way to make sure there is no social unrest. Very 1984 over there. Peace is war people should go back over that book, ill tell you the surveillance, it is people forget, it is dictatorship this is what navarro tells the president , okay. I know. It is not good for the world to have two separate better to have some sort of integration. Than to have the blue team and the red team. Right fred smith, foremost republican gop economist from fedex says the same thing do you think we can ignore the greatest market . We cant we may hate them but we have to have business with them. There has to be some commerce. Does Peter Navarro think there cant be commerce because theyll never be fair . I dont know there say lot less growth and more prone to recession and a more difficult road to lifting people up. They talk about recession david, our Biggest Issue in this country is enough people we shut down immigration do we have enough people to be able to make things in this great country . David kelly yesterday joined us from jpmorgan, hes done work on this, and the lack of Legal Immigration is a potential huge problem in terms of the labor force. And growth and or promoting growth. We dont have enough immigrants. How about the fact there is a bidding war for people incarcerated who are out, who are in for nonviolent. A bidding war. Those people go for minimum wage this is an amazing time. We have whole states that have less than 1 the Biggest Issue to me is if were really going to recession, how come it is the jobs are so plentiful and we dont have enough people to fill it because of immigration a high quality problem as far as im concerned. Do you know service, service is down talk about deflation people have to understand, if i were jay powell, thats what im focused on, service, this Service Price was down thats not supposed to happen. Jay ought to be giving speeches now, and this Producer Price index says what, we have got to rethink our strategy on what we own our rates in this country. Meaning what . We got to go lower negative not negative. Shouldnt be the highest. Hasnt worked for the japanese, has it 20 years. What is the average age of the work horse it is a clioed k eclosed country no immigrants thats why thats why theyre sell more Adult Diapers than baby diapers. We need immigration in this country. It is verboten to talk about it. Why why do we need it this is how the country was built. You agree with me right, we need growth. Look at the companies, Silicon Valley that are founded by first and second generation. Lets move on to a couple of stocks before we get to pisani kraft heinz down in addition to yesterday. Did you read the Conference Call i didnt. Ill give you the subtext. We talked about it yesterday. Well, yeah, 40 days, make it a little town meetings, cream cheese had a good month. I got to tell you, heinz is 70 share. Heinz and philadelphia cream cheese, that was the that was in you got to cut the dividend, no, were committed to the dividend were committed to the dividend. What do you do right before you cut a dividend say youre committed to it. Thank you very much. Every single time you do that and then you cut it a week later. Benefits to having done this forever is having see the movies before look, hes the new ceo, lets give him a break. I gave him a break. I said that. Hes probably very nice. Im sure hes lovely. Nice things. Lovely gentleman. And they go with this idea, our brands are number one or two. They dont understand. The categories are shrinking you can be number one in the shrinking category, i would rather be number four in a growing category. Yes, avoid shrinkage. Yes yes. Vandelay industries. Ge is also down again it is not a great week for the stock. It retreated from the 10 level that it inhabited for a period of time here the tusa, the jpmorgan line that 2020 may be tough as well that gives you it is a race to between dara and ge when theyre really i shouldnt do that larry culp is doing a great job. Right ge ge cant get a break in some ways. My point is that it is another problem theyre dealing with and it is not of their own making whatsoever. I thought that they used the baker used the ge company. I thought it was pretty good breaking up in a couple of pieces there wont be antitrust and i think thats going to be gone a year from now wont be any and thats positive. Hes got cash coming in. We got crude oil up 3. 5 . Lets get to pisani, get more on whats moving this morning. You know what is remarkable crude oil is up 3 and Energy Stocks cannot rally at all theyre essentially flat it has been a terrible week for energy still down 1 . So lets look here semis, some of the china related names, micron, qualcomm, amd on the weak side, banks, yields down, banks a little bit here is flat energy essentially. Were up 3 with crude today as david mentioned here utilities on the flat side, thats a winner we have been talking about, defensive names doing better what is going down in europe, most of europe is down 1 , 2 . Italy notably weak here. Thats the italian market. Looks like the Italian Government may be on the verge of collapse, Northern League threatening to pull out of the coalition there. These are the italian banks we often put up and you can see theyre down 5, 6, 7 . Overall, i guess the question is what is moving the markets now and other than trying to get the dollar weaker potentially and get the fed to move here, what is going to happen with the tariffs on september 1st a lot of chatter, people on either side of this, i think the question is how likely is it were going to have the tariffs. I think the chances are pretty good they may not happen i think the bar is fairly low. If you think about it. It is not a big hurdle to just declare a second truce and keep things going in negotiations and is there a big constituency for more tariffs i dont think so other than mr. Navarro and possibly the president himself who is obviously the person who matters here so im a little more bullish on the potential that might be some push out for the tariffs on september 1st. Elsewhere, a lot of comments about how bearish everybody is, about the sentiment being awful and it is true if you look at consumer sentiment, investor sentiment, aaii, weekly pull, thats the highest since december thats a pretty big number here. Historically thats about 30 , somewhere around there, bullishness is down to 21 historically thats much, much higher this spread here is abnormally wide in the topsyturvy world of sentiment, it is really bad, thats bullish for the market. These are contrarian indicators. Maybe good reason for people to be a little bit bearish in the shortterm one of the things that everybody is talking about and now the question is whether sentiment is washed out sufficiently, a lot of outflows from mutual funds and etfs people are saying investors are pulling out money like crazy calm down. Thats not whats going on it is true, big pullouts here, equity funds, etfs and mutual funds. Thats the largest amount of outflows since december. It is still only 0. 3 of the assets, still thats a notable number here. Money market funds have seen inflows. Might say, oh, okay, investors were freaked out, this is the last five trading days and pulling money out. Most of the declines here are in the area of etfs and these are dealers. So bear in mind, it is not really individual investors that are pulling money out. You want to talk about stuff at new high, stock exchanges. Cme, intercontinental and cboe at new highs, benefitting from market turmoil back to you. Thank you, bob. Bob pisani on the floor. To the bond pits now, check in on all things fixed income with Rick Santelli. Rick good morning, david even though the ppi was a little light, on the year over year numbers, and on the core, what we do see is it didnt move the markets in an upward yielding direction or downward. Basically unchanged from prenumber levels but what a day and what a week look at a two day of 10s, down one today, down 14 on the week two years are down one on the day, down 10 on the week pretty much have double digit drop in yields across the curve. We know the vix for equities, cboe has a ten year vix as well. It is an elevated levels that we havent seen since february of 2018 even though it has come off a bit, especially come off some of its intraday levels from earlier in the week. But unlike stocks, you get a vix ty vix move option vol in treasuries, normally for downside in price, upside in yields thats where you used to get horsepower not anymore. It is in both directions and with all the buying driving rates down, being a nervous feedback loop, it is especially exaggerated the vix on this one. If we look at the yield curve, it had major flattening. Some of it came in big bursts. Were at the flattest on a closing basis since 2007, 12 years. Italy, bob mentioned it ten year, popping the upside quickly, dollar index for the week, steady eddie after it gave up ground earlier in the week. Jim and david, back to you. Rick, thank you Rick Santelli there. I keep thinking about the uber. Funny you keep thinking about it i wanted to reference it as well well play a minute of it. Just selling the commodity, you get a discount it is labor intensive. Starbucks sells a xcommodity. Dont they sell a discount. It goes a lot of it goes back to pricing. It was a difficult quarter for investors to potentially digest give n the compensation here is what Dara Khosrowshahi had to say about the uber quarter. The back half of the year, youre going to see if trends stay the same Revenue Growth in excess of 30 . And when you look at profitability, we beat our own internal targets, beat street targets, we came in at a loss of 656 million it is still a big loss but the losses are improving, the take rates are improving that goes back to your point, though, jim, which is youre fighting a lot of different markets, fighting a lot of different competitors, i thought it was interesting when i asked him about softbank, but it is a real question in that you have the vision fund two out there giving a great deal of capital to potential competitors for uber on the eats front they already helped fund dd at softbank as well and so pricing can continue to be lower than what it should be as you point out in a market that is rational. Right, dominos, he was talking about door dash is able to play with free money. You cant compete with door dash i think that i do like uber eats, thats going to be a loss for a very long time because door dash is very powerful amazon was funding all those losses for a while funding the they didnt have any competitors. Netflix, same thing. It took everybody years to wake up to netflix i would give it away. I would say, prime members, you can apply for free coming up, shares of dropbox, theyre getting hurt this morning. Can see that down over 12 after reporting results. The ceo will be a guest on squawk alley later squawk on the street is right back after this. You should be mad they gave this guy a promotion. You should be mad at forced camaraderie. And you should be mad at tech that makes things worse. But youre not mad, because you have e trade, whos tech makes life easier by automatically adding technical patterns on charts and helping you understand what they mean. Dont get mad. Get e trades simplified technical analysis. A look at mattel they pulled a bond offering last night after receiving an anonymous whistleblower letter thats all we know that is having an impact on the stock price as you can see we are back right after this Johnson Johnson is a baby company. But were also a cancer fighting, hiv controlling, joint replacing, and depression relieving company. From the day youre born we never stop taking care of you. A little time left for stop trading. A to triple b, what is that occidental debt. 13 billion david, thats a huge, huge s p downgrade. What do you make of it well, not so much no, i mean its priced in im saying that david but they have a lot of debt they are paying 8 to Warren Buffett on ten bill, right anadarko. If that deal happened today, judging where apache is, david, that may have been a 40 and anadarko got a great price. They should be thankful that vicki was there. What to you got on mad tonight . We are doing a primmer. Okay. I got to tell you, i love this show and i am still thinking that dara may have a real problem, which is that the labor problems, discount i dont know david, i left that interview thinking, i dont know. Uhoh, thats a problem you got the weekend to think about it. I will, believe me. All right how are the tomatoes good ripe. We have squawk on the street coming right back after this quick break good morning happy friday welcome back to squawk on the street. Im sara eisen here with Mike Santelli and david faber live from post 9 at the New York Stock Exchange Carl Quintanilla has the morning off. Taking a look at the market, half an hour into trading, we pulled back after going positive for the week on the s p, the dow and the nasdaq after the best day for stocks yesterday in two months down half a percent. Dows down 102 weaker sentiment coming from overseas we will get to it in a moment. Our roadmap starts with uber Ceo Dara Khosrowshahi joining us last hour. What he said about the companys quarter next. Plus, wall streets wild week stocks under pressure this morning as investors look for more clues amidst the volatility. Another 2019 ipo is taking a hit. The coceos of evolrevolve willi us. We begin with a much larger ipo not long ago uber shares under pressure after reporting its largest loss ever, 5. 2 billion, and slower than ever Revenue Growth. Those numbers really do need to be adjusted. One, for compensation expense related to the ipo the other for this driver appreciation award, which actually had the effect of depressing the Revenue Growth rate it would have been 26 year over year i spoke with the Ceo Dara Khosrowshahi on the last hour of squawk on the street. Heres what he had to say about the companys vigorous spending. I think that our spending declines as a percentage of revenue, so when you are growing trips 35 year on year, your spending is going to increase we will get leverage on the marketing line and fixed cost legitima leverage Going Forward i think this quarter proved that out. I think we have to keep hitting our marks the next couple of quarters its a super competitive marketplace. We liked what we saw operationally in this quarter. 666 million was the ebitda loss, which was better than analysts anticipated when you adjust, mike, for so many Different Things thisquarter that occurred that most likely will not recur of course, the main being from the ipo. Without a doubt although, i mean, the stock softened up further during the interview. I wonder if it was because investors were reacting to his specifying spending will decrease as a percentage of revenue, perhaps not just an absolute terms, dollar terms over future years. I dont think thats a big surprise necessarily that they are going to keep investing heavily across the different businesses he also really was emphasizing the crossselling and the way that down the road its all supposed to work obviously, we have to just see how quickly that can come into focus. Right will they be successful in scaling their expenses and getting more efficient in their marketing and their incentive spending is a key. He says you can look at this quarter and see we are goidoingt thats the key to reducing spending overall as a percent of revenues. Is the concern the path to profitability becomes cloudier as they continue to spend and have price wars between uber and lyft and uber and international else internationally, or is the growth rate slowing, or both the growth rate didnt, again with the driver appreciation award, does have to be taken out. When you look at it, the contribution, margin, one money million active customers, a number of metrics were quite positive i think when you we spent 20 some odd minutes talking to darrah this morning. You realize they have global ambitions. They come pete in many markets with new competitors with boat loads of money from the likes of their own biggest investor, softbank, always a possibility are they always going to be fighting a battle on a front that will depress their ability to actually generate a real margin Big Questions we will have a whole panel to talk about what to do with the stock. Down 7. 7 . Back to the market wildly volatile week on wall street driven by fears of the state of the Global Economy. Join us jpmorgan chair of Global Research joyce change and Fidelity Investments manager joyce, did the outlook for the Global Economy change as of this week trump is really playing with fire here with the tariffs, the export restrictions, and the currency manipulation designation. So everybody is looking at the Growth Outlook we took 0. 3 off of our china forecast for the next year and we have seen about 10 billion of out flows last week from emerging markets assets. Changes to the Exchange Rate forecast and changes to the growth forecast. Its this kind of uncertainty that will also prevent investment flows from coming in, investments in capex as well. So President Trump is speaking right now we are getting some headlines coming from, i guess outside the white house. He is saying going very well with china but not ready to make a deal he says he has no choice but to do what he has been doing on china. He is still talking to china and still says that we will meet in september. And then talks a little bit about monetary manipulation. Joyce, where is the market in terms of expectations for a trade deal i think a comprehensive trade deal is not going to happen. From the chinese perspective, once they saw after mexico signed an agreement, that trump threatened the tariffs, they basically said what is the point of 150page agreement if it can be invalidated like this i think it is nmore transactionl and it will focus on what will happen specifically with huawei, and then the september 1st deadline rather thinking you can get a comprehensive deal. Are you surprised to see such a rebound in the stock market this year . There is a tremendous amount of policy support from Central Banks all around the world so we have 19 Central Banks in total in our count who are easing right now, and we expect china to do two more triple r cuts itself. So its that kind of liquidity that is supporting the market right now, but you are going to see the volatility persist. Are you with us yes, im here yeah. Your take on the price action given the higher escalation risks around trade this week clearly, volatility has returned and its always a twoway street the market was down 7 at the lows earlier this week from the recent highs obviously, we have had a bounce. And my guess is that that kind of price discovery will continue last year the s p was regenerating earnings of 22 growth against Profit Margins of 20 . This year we are at 3 growth for the year and 19 percent margins, but still a 17 valuation. I think one of the key things that brought buyers back this week was that the market was cheaper than it appears. The equity risk premium actually was at 4. 5 a few days ago, which is are where where it was december when the s p was down 20 . The reason its high now is bond yields have crashed to 1. 6 earlier in the he can week the valuation for the stock market looks better than just by looking at the pe. I think thats what brought some buyers back in. That implies a cushion for stocks if the crash in bond yields as you describe it is not foretelling something much worse. In other words, if recession risks have ramped higher, its hard to know if that equity risk premium represents an opportunity i guess at this stage . At this point, now that the fed has pivoted towards easing, maybe not as much as the market would like, it really does become a recession call, right if this is a recessionless fed easing moment and you and i have talked about this in the past, 95, 98, clearly the market is a buy. But if this is the beginning of a recession, then its not because then you are going to see an earnings contraction. But what it does show, this juxtaposition of bond yields and the stock market, is that some sort of 60 40 balance portfolio has really served investors well not only in the last couple of weeks, but really the last couple of years. I think as long as investors are exposed to both asset classes, one kind of makes up for the other. President trump continuing to talk about how its the feds fault, they should be lowering interesting rates to weaken the dollar he is calling for a full percentage point decrease in terms of Interest Rates from the fed. Whats the likelihood of that, joyce . I dont think thats likely at all if you take a look at negative yielding debt in the world, we are up to 13 trillion right now. So there isnt that much more ammunition that you can really use at this stage. You know, i mean look, the u. S. Economy is in a relatively reasonable place i dont think that cuts of that nature are in order at this stage in the game or that likely. It sounds like you still like the market despite all of this because of this wave of easing this wave of easing, i think the relative valuations given where bond yields are at and the investor position not as problematic as it had been last fall i think you stay in this range i think its hard to break out of this range until you see more clarity on some of the trade issues, the issues that are related to the specific deadlines that investors are looking at they are focused on the september 1st deadline right now, and what announcements will come out of huawei specifically on allowing some of those sales to go forward and whether that then will mean you could see more progress at the next meeting they have in september. Joyce and urian, thank you very much. We didnt talk about u. K. Growth contracting for the First Time Since 2012 italian bonds are caught up in another political crisis on that huawei point, the white house is suspending yes. Absolutely. Well, meanwhile, as President Trump continues to make comments he tweeted yesterday that he is not in favor of a strong dollar as currencyremains in focus during this volatile week. Steve liesman for more on how the u. S. Could weaken the dollar if it chose. The markets are gaming whether and how the United States government could take formal action to weaken the dollar the first, the president is engaging in openmouth operations the fed can do this or the president or thetreasury secretary can do this. Lower relative Interest Rates could come by the central bank or lower relative growth rates could also lower your Interest Rates. And of course you could intervene in Foreign Exchange markets. The president broke with tradition and talked about fed Interest Rates and weakening the dollar there has been little to no affect on the dollar so far. It might be stronger without the president s call for a weaker green back the dollar strengthened against the euro and the ecb stated the dollar weakened ahead of the fed easing shifting. Interest rates differences are an uncertain tool, can go either way. Mark chandler tells me it matters where each country is in the growth cycle a big problem with rates, if a move is uncoordinated one central bank therks just lower rates to offset the change by the fed. That leaves actual intervention where the u. S. Sells dollars and buys, for example, yuan or euro. Thats worked as part of a coordinated effort with other countries, rarely been tried solo currency intervention, a tricky game not a game you should play at home maybe not even if you work at the white house. Sara. Sounds like they dont have that many options and they have to rely on the fed. Thats a big one. As you know, sara, the Exchange Stabilization fund, depends how you count it, 22 billion in ach, imf sdrs the fed often matches that amount is it enough against a 5 trillion currency market . Probably not. Not unilaterally. Not unilaterally. What history has showed us before steve, thank you much you may remember we asked larry kudlow, the chief Economic Advisor to the president , about the president s stance wanting a weaker dollar two weeks ago, less than that take a listen to what he said. Well, i dont agree with your assertion that the president wants a weak dollar. I dont agree with that at all you know, he tweeted last week that the dollar is the dominant currency in the world and he wants it to stay that way. I play that for two reasons one, he was wrong. My assertion was right the president is making it clear in tweets yesterday and now comments this morning that he does want a weaker dollar. The bigger question, i think, for investors, who do youlis on to in the white house . Kudlow said we ruled out currency intervention. We had a meeting about it. We are not going to do it. If President Trump is coming out and directly contradicting his Economic Advisors on these issues, its still a possibility in this market we have seen this time and time again. There is optimism around a trade truce and, bam, we get an announcement of tariffs on twitter. Clearly the president is calling the shots. Until President Trump says i have ruled out currency intervention and i want a strong dollar, its hard to take the advisors word about it if you are putting money on the table. No doubt it mixed messages we continually get. You have to try to ascertain whose advice the president is taking at any given moment. It filters these formal charges. So every Investment Firm feels the need to actually weigh from on, well, this is how it might happen we are doing pieces of how and the currency, you know, three months ago 50 chance that the tariffs september 1st go through where are they getting these percentages . Nobody knows anything. Baseline probability. Nobody knows anything, just like William Goldman said. Welcome to 2019 when we come back, more on ubers rough ride continuing its move lower, down 10 on reou fointing results. Mo sndrom the Ceo Dara Khosrowshahi speaking to squawk on the street earlier this morning on squawk on the street we spoke with ubers Ceo Dara Khosrowshahi heres what he had to say about the quarter the Company Reported yesterday. The back half of the year, you are going to see if trends stay the same Revenue Growth in excess of 30 . And while you look at profitability, we beat our own internal stargs, street targets as well. We came in at a loss of 656 million. Its a big loss but the losses are improving, the take rates are improving. Joining us for some i guess we are going to talk about that a little bit. Core momentum is, i think, when he kept coming back to nothing much has changed in the trajectory no. It was a noisy quarter, to say the least. It was about his beliefs of this quarter and what you can apply to the future. A lot of wall street analysts seemed relatively positive for the quarter when you cut through a number of these onetime items, mike. Yeah, he also wants to get beyond the ipo lockup i can understand its an overhang. Paralyzes people to some extent because you are afraid of supply hitting in october. Whether its going to happen or not joining us now, Brad Erickson and our own deidre bosa. Brad, your reaction to the quarter and to daras comments what does it tell but the underlying momentum of the core business why is the stock down so much . I think the stock is down in light of just kind of being in line generally from a topline perspective. The results were a little bit noisy. Like you said, as you move some of the onetime stuff, you know, it was in line at these valuations, which isnt rich, i think the next the kneeyerk reaction is to sell. So the stock being down a little bit this morning, white not what we had hoped for, i think the better profitability, the improving Unit Economics point to what dara is talking about in the second half that really carries some acceleration and a nice narrative the back half of the year what exactly would you need to see over the next quarter or two to show you that things are getting in the right direction here obviously, this is a very longterm proposition to invest in uber in the first place its a very bigpicture story on a threemonth increment, whats going to get better . Three main things really. One is clearly the direction of the top line, both on the bookings and revenue front because of some of the take rate mechanics going on in the model, the Revenue Growth is going to be significantly accelerating ahead of bookings growth in the second half. If bookings upsides, the stock will be a home run second, we look for the Unit Economics, right its things like how much they are having to incent drivers to be on the network, to be a part of the platform. That keeps coming down, which is part of whats helping take rate and drive the revenue acceleration third, of course, is the expense controls he mentioned that ebitda came in, losses came in significantly less than what we were anticipating i think that bodes well for the future as these guys look to manage the business diligently relative to those lossmaking expectations. And deidre, i mean, dara clearly was saying that the company is going to continue kind of fighting along all these different fronts with th various businesses, hoping down the road that there is a lot of synergy in that. Obviously, that seems to be a consistent message since the ipo . Right i think that the message is consistent, and i hear what dara is saying, but i think there was a stark contrast between what lyfts team said and what ubers team said last night lyft didnt just tell us they showed us they revised their guidance to show us that they are reaching they are going to reach profitability. They have that path. What we heard from Dara Khosrowshahi was a lot of talk yesterday he said that he thinks that 2019 is going to be a peak year of investment when faber asked him and followed up on that, he said, spending will decline as a percentage of revenue. That to me feels very vague and it feels very different than what we heard from the lyft team when we talk about stripping out those onetime expenses, sure, it looks a little better, but when you dig deeper and you look at the fact that ridesharing revenue only increased 2 and they are hurting in latin america, i dont think it looks so great yeah, i wonder, brad, when an investor is faced with the choice, why not go with lyft it seems to be a purer story, easier story to understand, domestic, and to deidres point, they seem to be a lot more confident. Yeah. And for the record, i dont cover lyft, so i cant have a qualified opinion on that. But, yes i hear you with uber you are getting a massively more geographically diverse narrative and story. They are in several other businesses like freight and food delivery that may be why lyft is trading at a premium to uber this morning. One thing i would note relative to the growth, just to put it in perspective, because i think there is a fairly good gap between the growth of lyft and uber, uber is going to gross bookings for the rides business this year by a function of 1. 4 x of what lyft will. So there is still praent of growth coming from uber as well. I was reviewing the Conference Call, disappear deid. Mark mahoney got into the issue of regulation in new york and california what do you think about what dara said about those two issues how big of a deal is it for their model and for their business sara, im glad you wrougbrou this up because i think that it flew under the radar last night. It has been flying under the radar for a while now. That is the question of their drivers. Are they going to be freelance contractors forever, or is it possible that they could become employees . So the bill that he referenced in california, ab5, could have huge ramifications it could make it difficult for uber and lyft to classify their drivers as freelancers on the call dara says he believes this could be a winwin situation, that he wants to keep them as contractors, but they might be willing to give a little bit in terms of perhaps minimum wage or other benefits, and that, sara, would represent an enormous cost to the company that i am not sure is baked in right now. Brad, we need to run, but how big of an overhang is this issue for the company . So we dont view it as that big of an issue. Clearly, its very important for the future of the economy, and we think they have the team in place, particularly their chief legal officer, who is terrific at dealing with these organizations and municipalities its something they will have to work out over time, absolutely over time, i think given the flexibility that uber offers its employees, its a completely different situation than what a w2 employee would typically find at a job in terms of flexibility and the ability to be terminated. That is something that is a clear difference that will remain. Got you brad, thank you. And deidre, talk to you soon thank you. Thanks. When we come back, another 2019 ipo under pressure today. Revolve group down 15 the obviously retailer reporting their First Quarterly results. Coceos with us exclusively next now for our etf spotlight. A look at the big banks, the kbe, the s p banks index, down a full 1 now, on pace for the fourth negative week in the last five it is up double digits in 2019, up about 12 , but still badly underperforming the market jpmorgan, goldman sachs, bank of america under pressure today as the dive in rates goes lower treasury rates lower than yesterday. Shares of online retailer revolve plunging this morning after reporting a loss despite beating revenue expectations its the companys first report since going public in june one of those super hot ipos. Joining us exclusively, the cofounder and coceos of revolve Mike Karanikolas and michael mente. Thank you for joining us michael, what are you hearing from your investors . The analysts actually seemed pleased with the user growth and especially the Revenue Growth. Whats the concern yeah, we havent heard direct from our investors yet it was record setting reason, record setting profits Beat Estimates we smashed net income estimates. We are not sure what the concern is there might be confusion over the eps and funky accounting mechanics related to the ipo we feel great. It was a tremendous quarter. Michael, maybe some wondering where the higher Revenue Growth, which was a standout 23 , came on the back of lower spend per user in other words, you are targeting lower priced items is that actually happening if so, whats the plan there thats not happening. The core business remains incredible up 27 , which was in line with our historical averages and longterm targets. There is always shifts in price, especially since we manage multiple segments. The shift in price was based on the strength of the revolve business growing overall, the business is very healthy and there is no trade down with our business. Mike, i was trying to explain to my colleagues mike and david what the edge is with revolve over other online retailers. I said you pick brands that i dont know that have cool and trendy styles, that appeal specifically to young people you could probably explain it a lot better than i can. So how do you do that when you pitch to investors 100 . I think the key to our success is our ability to connect with the next generation. One very, very key that they love is especially merging designers. No longer the mass brands, the mass retailers for many years we have been providing this to our Customer Base and they know and trust revolve to have the latest and greates greatest designers the aspirational kind of celebrity rule wears we are able to bring this to the globe. The move to private brands continue to drive gross margin, mike yeah, we expect to see continued growth there its a huge longterm opportunity for us the key to the brands they are real brands in the eyes of coop sumers they have huge social media followings, three million collectively between them. Mike, i guess the question is, i wonder about these brands. Dont they want to have a direct connection with their customer over time would they graduate away from utilizing revolve . Yeah, i mean, really revolve is the best place for these brands to be we have the connection with the next generation consumer we are the platform for them to promote their brand on we find over time its getting easier for us to acquire brands, to negotiate terms, and its really just a longterm strength that keeps building. Mike, we started off asking about the decline in the stock price, which you moved quickly through. Can you give me a sense as to what investors are misinterpreting perhaps . A 15 decline. You have had great performance since the ipo. Nonetheless, its not a good day. We feel great about things. We are one of the best performing ipos of the year. I think there is some confusing noise on the eps calculation where i saw the headlines as you did, that we had our first loss ever and i think reality, you know, from an operating standpoint, thats not true. We had our highest net income quarter ever you know, hopefully once that confusion works out we will see a little bit of a rebound there. Michael, there is some concern percolating about tariffs and what the next round would mean for apparel and shoes sold in this country how exposed to are you to made in china what happens if that 10 goes through as the president indicated will happen by september 1st . We went through the tariff situation very, very closely we have a number of ways to mitigate that. A lot of these are in action already and some are ready to be enacted if shings shithings shit its really incorporated in our fullyear forecast so we feel great about where we are. Its already factored in . It doesnt hurt your margins further . Not to our forecast, yes. This is all baked in you guys are both wearing ties i thought ties are done. We dont get the luxury to be on tv with you guys all the time. Take your cues. They have some very trendy clothes. Thats my point. Thank you both very much. Thank you. I am wear a tie because jim was here if i wasnt wear a tie with jim, he would never let me live it down when he is here, i have to wear a tie on fridays maybe i can take it off now. Over to sue herera for a cnbc news update at this hour. You look very dapper indeed, david. Thank you. Heres whats happening at this hour defense secretary mark esper meeting with south korean president moon in seoul. That country seeks u. S. Help in ending its dispute with japan. Tokyo recently done graded tokyos trade status and in response seoul has threatened to end an agreement on sharing military intelligence that House Speaker nancy pelosi is in guatemala with a congressional delegation they seek to explore the causes of immigration amid a crisis of migrants on the southern border. And we could Work Together to have guatemala be a place where people want to stay rather than trying to suffer the hardship of coming into america if they are not able to get status. Police in springfield, missouri, arresting a man who showed up at a Walmart Store carrying a rifle and wearing body armor as terrified shoppers fled from the store. An offduty firefighter had held the suspect identified through jail records as 20yearold dimitri shengo until police arrived. That is the news update this hour, guys back downtown to you. Thank you very much. As we go to break, a check on the markets actually a actually trading down near lows. The dow down 224 right now the s p off almost a full 1 the nasdaq down 1. 2 thats pretty much majority of yesterdays gains at least at this hour backing often. More squawk on the street, we will be on top of that when we return President Trump stopping to talk to reporters on his way out of town at white house lawn. Lets listen we are doing very well with china. Were talking to china were not ready to make a deal, but well see what happens we have been hurt by china for 25, 30 years nobodys done anything about it. We have no choice but to do away were doing. Its working out very well, as you know we called them on manipulation and they brought their numbers back and they brought them back rapidly and they were able to do that because they manipulate but thats called monetary manipulation not good but what happened and whats happening with china now, we have an open dialogue. We will see whether or not we keep our meeting in september. If we do, thats fine. If we dont, thats fine but its time that somebody does away were doing and i said the american taxpayer is not paying for it we had a big day in the stock market yesterday but the american taxpayer is not paying for it. China is doing by depressing their currency and pouring tremendous amounts of money into their system, they are paying for it the prices have not gone up. So, in fact, in some cases they have gone down because the devaluation plus the money supply, the amount of money that they pour in, which is a form of manipulation, has more than compensated for an increase in price. So as i said, and everybody questioned it, in the case of china, the tariffs have been amazing. Were taking in billions and billions of dollars. Now, chinas had their worst year in 35 years now it was 26 years. Now its in 35 years i want them to do well, but as of this moment they are having the worst year that they have had in many, many years, in decades, and really we are just bringing the system back into order. We have all the cards. We are doing well. Our country is doing fantastically well if you look at europe, they have got problems biggest problem we have is the fact that a lot of other continents, frankly, but a lot of other countries are not doing well but were doing great and we continue to do great our companies are poised they have a lot of cash. Our system is beautiful. President trump speaking to reporters before he heads off to the weekend. This is when he goes to the hamptons for that fundraiser with stephen ross. Pretty controversial leading to some boycotts of rosss companies, including equinox and soulcycle. Billionaire real estate founder hosting this luncheon for trump. Its be has been a longtime supporter then golf the rest of the weekend. Kayla joins us from the iowa state fair the president says we have all the cards with china after this week, is that true . Reporter and he also says tariffs are amazing, sara. I can tell you many of the fair goers here who are farmers caught in the crosshairs of the trade war dont necessarily agree those tariffs are amazing. Normally candidates come to the iowa state fair to reach that retail voter at the ground level, to refined their stump speech in a swing state and serve up pork on a stick and have all those photo ops yesterday we had Vice President joe biden and Steve Bullock warning of farm bankruptcies as china shuts them out of their market matt paul has met with all of the candidates and he said because of that dynamic, the independent farm vote here in iowa that went for President Trump in 2016 may now be up for grabs. You are beginning to see some of that, some of that support for the president begin to slide and democrats have an opportunity, if they can go in and make their case that they can relate, understand, and will do something to stand up for the american farmer, they have got an opportunity but they have to make their case reporter iowa senator Chuck Grassley tells cnbc that his constituents still support the president on trade but i asked him whether that would be the case come february when the iowa state caucus happens, if there is still no trade deal with china. Nothing different than if there is an agreement. The democrats are trying to find the most leftwing socialist to run against this president because they want to change americas economy and have more government interference than the free marketplace so they dont care whether we have an agreement with china or not. Reporter now, despite that view, grassleys family farm has applied for and received part of the farm aid package that the administration has rolled out. He declined to say how much money his family received from that even so, he and many farmers here say that money just helps them break even, not even close to making a profit guys. Kayla, thank you. Really interesting reporting there from iowa. Lets get more on actually the president s tariff strategy and what its going to mean. We are joined at post 9 by pulitzer prizewinning columnist jim stewart. Back from a visit to the heartland . Yes, i was in west Central America illinois for my High School Reunion dont ask me which one i got an earful. This is hardcore agricultural belt in illinois, because of chicago, is a blue state i think the farmers there reflect many of the views elsewhere. Anecdotally, they told me before they were willing to go along with the tariffs to see how it worked out that their patience is running out now. The point they made to me, they dont want a government handout. They are taking it because they need it, but they dont want it. They would rather grow their crops and sell them in global markets. Now, grassley is right they are not going to vote for a leftwing socialist against trump, but they are getting increasingly fed up with the tariff strategy. You heard the president just now on the lawn discussing the idea that chinas currency decline will mitigate the impact of any tariff increase for u. S. Consumers. Do you buy that . Well, no, i dont the whole idea that china is paying for all of this, i think its grossly oversimplified and just is not correct. I mean, tariff wars hurt both sides. There is nothing good for china in it. There is nothing good for us either American Consumers are paying a large part of this when you increase the cost structure, prices adjust there are some highly competitive markets where the supply and demand sets it in and its going to squeeze the Profit Margins, but they may already be small. But there are many others that are not perfectly competitive and American Consumers will pay that i can give you an example. I am doing a renovation. I had to buy a steel beam. I dont want to tell you how much that went up. Many thousands of dollars. Many of the ceos when they come on in terms of how they are dealing with the price increases said were passing it along. They already did. It gets paid by american importers. There is no question about that. I want to point out whats happening with the market here we have taken a turn lower session lows down 228. We have seen new lows for the session on treasury yields, lowest since wednesday. When the president did not say specifically we are meeting in september, but he said whether or not we keep september that was different than some of the headlines initially. There was a rum their the september meeting might be off, so the stock futures told soldier off and they came back. I think its walking back which entind to meet in september. We may meet with them. We may not we are happy with the way things are going. Thats causing a little bit of loss in confidence a trade by tweet and headline. It has you know, there is a cadre of investors who buy and sell on the tariff news. I dont think the average investor should be doing that. I think what we saw this week with the currency thing, the announcement of not buying agricultural products, china can retaliate. Its been about what can the u. S. Do to china. The flip side, what can china do to the u. S. . China has been restrained in matching some of the things we have done but in the ratcheting it up. This week people realized, wait a minute, there are a lot of arrows in chinas quiver as well china is not a democracy they can aporfford to put their population through more pain without fear of being thrown out in the next election than we can. They take a very longterm view. I think we have only gotten a hint of this week of what they could do if they really want to make it basically for the u. S. We hear that both sides are in a position where its a little bit hard to envision what creates the opportunity to back away, right . Right. I mean, the huawei salvo today. In response to them cutting off farm purchases and things like that again i said, and i think this is common knowledge, in any negotiation the most successful are the ones where both sides come away saying they have accomplished something and ratcheting up like this is making it harder and harder for someone to say we both god a go good deal out of this. Successful negotiations do not produce someone who has been bludgeoned and say we are a loser. China especially has, given their history, is very sensitive to not look like they are being bullied by western power. Finally, you used to write an investment column, didnt you . Yes, i did. What do you think of the u. S. Stock market right now, jim . Look, i would not be trading day to day on tariff news. I do think, you know, we are nearing the end of a very, very long running bull market and a very long running economic expansion, and its just prudent to maybe, you know, rebalance little bit and maybe take down a little bit of the exposure to stocks. Jim, thanks. Sure. Jim stewart as we go to break, take a look at shares of dropbox, under pressure despite an earning more squawk on the street when we ce ckomba d dows down 206 off session lows. Free access to every platform. Yeah, that too. I dont want any trade minimums. Yeah, i totally agree, they dont have any of those. I want to know what im paying upfront. Yes, absolutely. Do you just say yes to everything . Hm. Well i say no to kale. Mm. Yeah, they say if you blanch it its better, but that seems like a lot of work. No hidden fees. No platform fees. No trade minimums. And yes, its all at one low price. Td ameritrade. Kraft heinz getting canned this year and one trerarad wns not to catch the falling knife see more on tradingnation. Cnbc. Com more squawk on the street is coming up. President trump just speaking to reporters on the white house lawn, talking a lot about the trade relationship with china and what may or may not be next, moving the market lets go to ylan mui in d. C. For a recap. Thats right, sarah, he talked about the impact of the strong dollar and what that is meaning for manufacturers. Once again, talking about the Federal Reserve and the need to lower Interest Rates he also talked about the possibility of beijing officials coming to washington for another round of trade talks in september. We heard him earlier throw cold water on that idea and once again, he said, thats in question. A bit more than that. If they would stop quantitative tightening, we have a rocket ship and money is pouring in, because we have the safest currency in the world. We have the standard of the world. But because its so strong, its gotten so strong, because other countries have problems, it makes it harder for our manufacturers. So if we lowered the Interest Rate by the Federal Reserve, that would automatically bring down the dollar a little bit and it would make it easier for caterpillar and these companies. But we have the greatest currency in the world. No, i wouldnt do that are you thinking of canceling the trade talks next month with china . So china wants to settle this deal theyve had the worst year that theyve had in many, many decades. And its getting only worse. Thousands of companies are leaving china. They would like to make a deal im knot ready to make a deal. Are you ready to cancel the talks next month maybe, well see what happens. Right now, the talks are scheduled in september whether or not were talking about china, whether or not theyre canceled, well see. Look, as i said, our people are not paying for these billions and billions of dollars that came in. 16 billion of which i gave to the farmers, because they were targeted by china. And thats just a small fraction of what we think it is so, they are not, because what china has been doing is theyre a currency manipulator theyve manipulated the value of their currency and thats where the money comes. And also, theyve put tremendous money into the system. So if you look, prices have not risen. Our people have not paid so all of these guys that say, oh, trump, trump, trump, they dont know what theyre talking about. Now, china is unique that doesnt mean it happens with other countries it probably doesnt. But the prices have not gone up. In fact, we have virtually no inflation in our country if the Federal Reserve would bring down Interest Rates over a period of time, i would love to see a point or even a little bit more than that if they would stop quantitative tightening, we have a rocket ship i mean, were doing well without it, but were being handcuffed by the Federal Reserve if they would stop that, it would be incredible. So then you hear once again the president taking on the Federal Reserve and claiming once more that american taxpayers are not paying for these tariffs. Guys, he is right that inflation has remained muted, but we see from customs duties, those are up 24 billion in the first few months of this fiscal year compared to last year. Thats a 74 increase. So, it is true that American Companies are paying for these tariffs, guys. Thats a point that weve been hammering home here on cnbc for quite a while. Ylan, thank you with that, lets get to the cme group in chicago Rick Santelli with the Santelli Exchange good morning, rick good morning, and thank you i would like to welcome my guest. We all know jeb hensarling, former chairman of the House Financial Services committee congressman, and of course, currently vice chairman of ubs jeb, lets get right into it i want to talk about negative rates, but i also want to speak to some of the issues the president has been bringing up in these press conferences with regard to, lets lower rates and lets weaken the dollar, all of those roads do lead to negative rates what are your thoughts well, number one is, its an open question, whether or not legally the fed could even do that i dont believe in the haefrear that i had when i was chairman of the House Financial Services committee they even have that power. Certainly, it hasnt done much for the european economy, where we have seen negative real Interest Rates by the ecb. So, i dont think it is a wise decision i dont think this fed would take that particular route you know, jeb, the way i look at it, if we lived in a different time, in the 80s, in the 90s, when our economy was well above everybody elses, Interest Rates around the world were all positive, i could see him wanting lower rates and maybe not such a strong dollar to try to be more competitive. I get it but i think of the world we live in, doesnt the central bank have to take context into consideration . Because i agree with you, whether they can do it or not, they probably would if it gets close, and i dont know whos going to stop them, certainly not the congress that we have now, but its the people, its the citizens how do you think the country would react to negative rates here in america . Well, i dont believe well. I do believe that also, we have put too much emphasis on what Monetary Policy can do i mean, theres just so much Monetary Policy can do to move this economy at the end of the day, they dont create wealth, they create the money supply and so it is fiscal policy that really dominates and thats why up until recently, youve seen a really Strong Economy through the tax relief, through the regulatory relief, but clearly, Business Confidence is down, Capital Expenditures are down, because theyre concerned about a Global Economic slowdown and theyre concerned about whats going to happen on the trade war. Lets face it, the president is engaged in a highrisk, highreward strategy and nobody ultimately snows how its going to be resolved. You know, i couldnt agree with you more. This is something that should be fiscally dealt with. We heard this from previous fed chairs under the last president. This president s tried to create some fiscal horsepower some dont like some of his agenda with regard to taxes, but i guess my question is this. Youve watched the democratic debates, okay. Does that sound like a group of people that are apt to do a better job on fiscal policy to help the economy than the easy fix that the fed is doing . To me, thats a tough choice im being totally serious. Well, again, i think what counts are the policies of a broadbased wait, wait, wait, wait lets stick with this, though. If we give people incomes and health care, its all noble. But is that going to help an economy that the president says at 2. 5 needs lower this and lower that, what would that do to the economy,sir well, since the dawn of the republic, capitalism and freedom is what has driven a very Strong Economy, in my personal opinion, thats what will continue to this ill let the democrats sort out their own primary. This isnt being political, though this isnt being political, though as an investor, if youre an investor watching this, we can argue about how many steel beams jim stewart needs to buy a year because thats inflationary, but what i would be worried about is the new leadership of the country, take the politics out, certainly doesnt seem to be in a mindset to grow the economy in the traditional sense would you agree with that . Well, agree, again, that a number of the policies i have heard espoused and my personal opinion are not going to grow the economy. And so the president has got off to a good start. I mean, clearly, 3 gdp, we had not seen in years up until this last quarter we have seen it. And again, we dont know how this trade war is going to play out. Ultimately, the world will benefit from global trade. And so jeb, were out of time. Were going to have to end it there. And i apologize. Well have you back. Thank you, jeb hensarling. Now well go to morgan Rick Santelli, thank you good friday morning. It is 8 00 a. M. At uber headquarters in san francisco. It is 11 00 a. M. Here on wall street squawk alley is live