good morning. 8:00 a.m. at instagram headquarters in california, 11:00 a.m. here on wall street. and "squawk alley" is live. welcome to "squawk alley" for a wednesday morning.

john steinberg and jon fortt. let's start with the markets this morning. the dow is down about 115 points. close to lows. energy and financials once again taking their toll. bob pisani on the floor. >> if it wasn't for chevron and exxon we'd be down about 80 points. they are about one-third of the decline. and there is your weakness. the spider, this is the biggest etf out there. everybody play this in and out. volume is not particularly unusual. so what we're seeing is lack of buyer enthusiasm. but remember you can go broke on low volume. what is significant on volume is high yield etfs.

these have had among the highest volumes of the year. that is a new 52 week low for the gyg. the other one, we've told you many times about 16% the composition are shale place. and that is a major reason we're seeing weakness. new lows all over the place. commodities are also -- other commodity names are also among new lows. we all know how terrible a year it's been for some of these names. particularly iron ore like vale have not done well. costco keeps firing on all cylinders. fee income up 6%.

earnings were decent. comparable sales up 7% overall. the loyalty of these customers really make a difference. that is new high for costco. here is the biggest problem i got with costco. it's very expensive. 27 times forward earnings. carl, a lot of these consumer names are getting very, very pricey. >> thanks bob. let's get news from instagram this morning. julia boorstin joins us with the latest and exclusive interview with kevin systrom. >> instagram announcing a major milestone, topped 300 million a month active user. 100 million since this past march. and now more than twitter. instagram telling us he's now making it easier for people to discover con ten. and focused on the ad business. >> there is to much data out there that sits on instagram.

70% of our users are outside the united states and 100 million people were added in the last nine months. if you think of that scale of business you realize there are photos from er where in the world. if you are interested in really eclectic topics there are accounts so we need to be able to connect you with the content that mart matters most to you. >> twitter has over $160 million in revenue. how long will it take for you to get to that scale in terms of the revenue. and how big is the potential market. >> we're not competing against tech companies for ad dollars. we're competing against print and tv. selling brand advertising that shifts perceptions. chobani dade wonderful ad campaign to shift. and had a lift on shifting that

through a brand advertisement on instagram. that is the type of thing you typically see in a magazine or on tv. if you look at the marketings, they are very very large. and think they that is what we're going. >> coming up i'll have more from think exclusive interview. and the billions of dollars he left on the table by selling to facebook when he did. >> thank you julia. a little reaction leer from john and jon. you believe him that you don't feel he's complete competing with other platforms like his own. >> the biggers aspiration is television and print. facebook has ban consistent on that as well attempt bigger pie is not just enough. but -- and it going to just a handful of large properties. between the 600 million on

whatsapp, the billion some odd on facebook and now the instagram. take. >> this is a chart that i made. let's see if you can get it. a little hard but it is starting to show up. that is instagram's growth rate from the numbers they have released. you will notice that line is not flattening out. the last number on there is the 300 million. they are not so much competing with twitter because there is this secular shift happening into the digital media. and there aren't a lot of services aside from faceback and whoots app that have the scale instagram does. this is a lot of potential here. i think google might need to be concerned when you think about what instagram could do with video down the line. >> for twitter just devastating. 284 million users, adding just single digit millions every quarter. it is not enough. this will go down in history as an acquisition like youtube.

a very smart one. i think a great acquisition all around proven out. >> six months as a time frame. facebook up 17% plus. s&p up 4%. twitter lately has not been able toic break back above 40. and some concerns john is highlighting are making their way into the investment community. >> facebook has had a very good growth team for quite a while now. they have got this down to a science, how to encourage things to grow. it's been part of zuckerberg's pitch. come with me. we'll grow together. twitter needs that. that is part of the reason why systrom can say we're not competing with twitter because look how we're growing. they are not. we're not concerned with them. >> is it devastating? is that the word you used. >> i think it is. 100 million users over nine

months and twitter is not going anything close to that. . i thought investors with your over the fact that twitter wasn't having the user growth. so if they are still focused on the euros number. you don't have a rocket ship type story like you have with instagram. do you agree? >> i do. can you imagine what twitter would be doing stockwise if their growth numbers look liked that? >> and then the whatsapp number is the next one to drop, which i think is going to be great. i don't think we've gotten a whatsapp user number in some time. if they added hundreds of millions there on top of the -- >> any tactical ideas twitter can use the catch you haup? >> it's normals and techies. and normals are regular human

beings that love to try every new product. instagram has achieved that. twitter is not a product for normals still. >> next up. l.a. and san francisco have filed a lawsuit against uber over unlawful business practices. alleging the company misleads over safety and overcharges them. both companies reached a sett settlement with lyft. it's now front page news on the "new york times." >> it is. but this is why they need to raise all that money. we sort of knew this was going to happen. they lost a bit of the moral high ground. where hey everybody loves us. they need this money to fight the legal battles to compensate drivers if they end up losing some time here in the markets where they might be shut down. but i think uber still hazard a technology advantage.

the service is stale great service. >> technology that advanced john? people say the barriers to entry are lower than you think. >> i think the technology is that good. and they get more data to get smarter as they get larger. and effectively that is what uber is doing with traffic patterns. the other point is i think we really need to differentiate between regulatory legal risk which is right now the taxis and incumbents coming up ridiculous lawsuits to protect themselves and real safety stuff and complying with regulations to protect the safety of the individuals. the first category is good. if people are suing you because you are not creating safety and regulation, that is a problem. >> why is lyft, apparently with this good guy halo relative to uber? >> maybe it is a strategic thing. it is kind of fun using tactics

and strategy talking about uber given how they have been talked about in terms of their attitude and that. if lyft is willing to make changes in compliance with existing regulations where uber is more willing to fight. uber has a deeper war chest to try to craft regulations to its liking. i think right now they have to do calibration and figure how much do we want to push in certain jurisdictions and how much do we want to compromise. >> one of the exciting things about them was they were getting sued by all meez municipalities. it meant it was so threatening. they were muttaling the safety lawsuits with one of the lawsuits that was a tax lawsuit saying uber wasn't licensed to properly process credit cards. that is the stuff you want to see. that shows you're kicking dirt and pushing hard. >> not that you are harming consumers in some way. when we come, systrom talking competition at twitter. how he feels at potentially

leaving billion on the table by selling to facebook so early. plus over the summer, ibm and apple announced a huge deal. and today ibm rolling out the first of those apps. and taylor swit swift is not on spotify but still other services like arteo. daughter: do you and mom still have money with that broker? dad: yeah, 20 something years now. thinking about what you want to do with your money? daughter: looking at options. what do you guys pay in fees? dad: i don't know exactly. daughter: if you're not happy do they have to pay you back? dad: it doesn't really work that way. daughter: you sure? vo: are you asking enough questions about the way your wealth is managed? wealth management at charles schwab.

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this is all about unlocking mobility in the enterprise and value that hasn't been there to date. >> i think we fit together like a puzzle. so this is profound. it is landmark. it is historic. we've come from 30 years ago being competitors to today being incredibly complimentary. >> of course that is apple's ceo tim cook along with ibm chairman and ceo sitting down with our own josh lipton back in july when the companies announced their partnership to develop a new class of made for business apps on ios. today that is coming to fruition. joining us is ibm global

services senior vice president. thanks feedback being with us. you have these apps the apps are supposed to link into the cloudy offering and boost the services business. i think it is flat in the last quarter. how long is it realistically going take to start expanding margins and showing up in ibm's business. >> we sbrn entered into this partnership and we are fulfilling that today. and today we released ten of these made for business solutions, or apps, across six industries and we couldn't be more delighted by the speed with which our teams have come together and the collaboration way in which they are working. the way in which you should think ab these apps is that these are really broadly going to change work flow for business

professionals who serve customers. what that is going to mean really is two complementary skills came into the creation of these apps. our industry knowledge, knowledge of work flow, security, enterprise security, internship software together with apple's ability or the great consumer centric design and the gold standard of both and the fact they appeared after a couple month asks we're already working with a multiple clients say we're we're expecting the impact to be strong. >> how does this flow through to the results? does this increase the stickiness of your services? does it expand margins which seek to be the implication on the last earnings call that people get more connected to the cloud and that will expand margins. >> the way in which the apps work is really around we are taking work flow, complex work flow, complex nej and experience that exists in organizations and knitting it with backing systems and serving it up to the

employee in the moment to make better for consumers. an example for example on an airline. every day 340 flights are canceled. and in the air the flight attendant can rebook them in the moment and give them a new connection. >> i miss my connection, i rebook while still flying. >> tons of labor saved. another example is home appliances or cable. only 40% of these are resolved on the callout. the app we developed takes parts optimization, optimizes routes on the gps. first time problem solving by face time and takes the level of knowledge from the average person which is six months of training and 40,000 dollars to

the excellent level of training. so that really -- that simple sounding app has got beautiful work flow but masks integration and security. >> is the pricing comparable to a consumer app? do they go to itunes and buy it for 99 cents. >> they buy these really working with ibm and supported by apple. and they are not plug in because they literally need to integrate the backup system. >> the back end integration. i read this and it sounds great. and i operate a business, and any time we do this to integrate with the back end is always a nightmare. for each airline, for each retailer the s cost. >> much faster than in the past because we built apis which

connect to the typical legacy systems and we've done that in working with many of the foundation client who is signed up to work with us. so the point is the speed and ease will be much better. and our idea here really that is coming into to fruition is that this will all be much simpler for enterprises and users. >> and is it a sass? do you bundle subscription? is it subscription as opposed to up front integration cost? >> either way. >> looks like a potential sort of apple store for the enterprise where you guys get the benefit. >> we are both very excited about this and the potential for our clients and for both is enormous. >> thanks. bridgette thanks for joining us. up next. how far in advance should you book your flight for the best price? new numbers from expedia answer that question once and for all. plus after holding out on ads for years, instagram finally

changed its tune this year. kevin systrom tells us why later on this hour. how can power consumption in china, impact wool exports from new zealand, textile production in spain, and the use of medical technology in the u.s.? at t. rowe price, we understand the connections of a complex, global economy. it's just one reason over 70% of our mutual funds beat their 10-year lipper average. t. rowe price. invest with confidence. request a prospectus or summary prospectus with investment information, risks, fees and expenses to read and consider carefully before investing.

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hi is a little more challenge for the airlines to fill those seats. >> using big data. they also think l 2015 is going to be better pricewise. because if you bundle the hotels with the flight. >> there is a the black art of room rates. speaking ining travel -- actua breaking news here. >> we have a breaking statement from the defense attorney for michael steinberg, a sec employee, still currently employed who was convicted of insider trading along the same lines kwhoz whose conviction of turned by an appeals panel of

junction. the second circuit's decision clearly means that michael steinberg is innocent of any crime and his conviction will be vacated as well. sends a loud and clear mental that the government will be rebuked when it tries to turn innocent conduct into a crime as it did in the case of mr. steinberg. steinberg while not technically one of the appellates is thought to be someone who will be a free man as a result of the today's decision and what it means for the case law. dave beganic, a former sec trader who founded level global along with ouchbt today's aappellants whose likely to be a free man. -- who lost their jobs and reputations because the fbi improperly raided our form in

this now discredited phishing x expediti expedition. very tough language. and you can see why. because these defense attorney's clients and in case david gannick the former trader have been through quite a lot as this case has unfolded in recent years. >> let's bring in simon hobbs as we count you down to the close and the u.k. and across continental europe. >> the german bund has hit a fresh record low today. 0.6711%. partly because there is still this talk that european qe. the ecb's chief economist was hinting that at in washington and the slovakian member of the council suggesting that the overwhelming majority of the council is in favor of qe.

and also the situation in greece is aiding that issue. and you could also argue that this threat of qe is limiting the fallout from greece. however having said that you have the yields of spain and italy and portugal rising slightly. the bigger deal in greece itself is the prime minister today nominated a former commissioner to be the new president. immediately the other five opposition parties say we don't accept because they want early elections. the question is whether by december 29th he could win over 25 of those deputies to get that president elected. if he doesn't there is a snap election. this is the judgment from citi today. they believe early parliamentary elections are likely. recent polling suggests that syriza is the hard left.

so would win without a majority in parliament. so wouldn't have a majority to force greece outs of the euro. and this is the most interesting a analysis. suggesting that prime minister samaras was caught between a rock and a hard place. he's forcing a showdown with greece's creditors, specifically the euro group leaders knowing full well the stakes are high on both sides. that is the extension. when you get to the beginning of next year they will all be sitting around a table. the burning question, if you do get syriza on the panel is she up to deal this as. >> whose instagram's biggest compensation? when we come back.

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welcome back. it's been almost three months sijs alibaba went public here with the biggest ipo ever.

yesterday on closing bell dallas mavericks owner and shark investor mark cuban said the company shouldn't have been allowed to list in the u.s. >> should the sec have turned alibaba away. >> yes. >> they should have? alibaba should not have been allowed to list in the u.s. >> no. at least the chinese operation. this is my opinion. but if you are hosted and based in a communication country where the only rule of law is what the communist party says it is, how can you enforce any type of law at all? >> really interesting, given that. remember a few years ago remember people were saying the ipos aren't going to be here. they are going to go elsewhere eff. what do you think of what cuban is trying to argue here? >> i don't know why you would want to deny u.s. investors the upside and the ability to have that exposure. the risks were pretty well

disclosed. everybody understood they weren't technically buying stock. and cuban under the process. >> hong kong wasn't the right environment for them they figured because they didn't get the flexibility they wanted but interesting how the narrative changes about where companies will have the best time going public. well, you know, maybe the u.s. >> even this exchange we're at right now is international. and these are all becoming effectively world exchanges. so the question of where somebody lists and and that do depository shares you might as well make it as liquid as possible. certainly institutional investors would have found ways into it and retail investors would not have been allowed. >> starting to get some color on this call that is going on with this ceo of mcdonald's don thompson and their u.s. president mike andres. which began about 11:00 a.m.

eastern. so far the head lines are interesting. the company saying they are going to study the ingredients and cooking techniques to improve food. interesting a new menu with fewer items. getting more involved in local communities. cutting the number of extra value meals from 16 to 11. some of the comments ring like this. the pace of change that's happened outside of mcdonald's has exceeded had pace of change internally. and basically an admission of sorts that the dollar menu hurts quality perception. stock hasn't done a whole lot but it does echo some of the actions they think they have to take in light of weak comp sales. >> some of the pushback is interesting. they are showing how chicken nuggets are really made, no beaks, like that in them. i think you are going to see a further push for organic chickens or maybe free range.

>> you have the nestle executive. and he says water is going to be a bigger business than all other beverages. the move has been staggering. >> the problem for a company of mcdonald's size is sourcing. easy if you are chipotle and you have less restaurants. >> i'm going to weigh in. we like to keep things real. when mark cuban was on and that topic was being discussed a lot of traders on the floor had a reason they found it so fascinating. when times are good, trading chinese companies and the route now provides like alibaba, sure american investors should get a crack. but when things go bad where does the money come from in are

there bailouts. we all know the central banker's bank. the bank of international standards, bis. and of course we're all aware whether covered bonds or asset backed securities. maybe on the way to corporate and sovereign securities that the ecb is trying to push rates low and transmit more liquidity into the system. the real transmission when it comes to what europe is doing, really our hft organizations, algorithmic trading organizations. hedge ji, hedge fund, prop desks that are the transmissions to liquidity. why? when you look at yields and what's happening to bonds and asset backed securities it is them getting in front of the actual implementation or being so large as the implementation occurs they are transmitting the signal the money and the ultimate drop in rates to these markets. they are the transmission lines but just like mark cuban's story, there is a downside to

this. especially when the normal transmission line should be the free markets. consider that in today's financial times. fest ft time there is a story. riskier subordinated so called mezzanine portions of asset backed securities and he's referencing ecw in this are subject to considerable uncertainty due to a cliff effect where only a small error magnifies risks substantially. where have we heard this before? this is like subprime. the reason i bring it up, not that i'm saying it is impending doom. but in the end this manipulation by central banks afford a much higher degree of risk. so exactly what happens when it all goes bad? maybe mark cuban is right. these are the issues to talk about now before it happens. >> taylor swift ditched spot fie

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bubba watch. a big warning on from a well known investor on whether the valley is out of whack. and the street's top airline analyst on the high flying sector. is there still room to soar? coming up. >> we'll be watching. why did instagram finally decide to cash in? our julia boorstin asked kevin systrom in an cnbc exclusive. >> after holding off for years, instagram's kevin systrom is finally ramping up photo and video ads. wouldn't revul numbers just yet but says the business is off to a huge start. this as he and his work to lure advertising dollars from traditional media to the app. >> the good part is that mads p avenue looks at instagram as an opportunity to learn about a new format. and we use it as an opportunity to solve a business need. one of o our values internally is always solve problems.

it is not now have just build something and hope it works. you have to talk to customers. so we sit with advertisers and listen to the types of problems they are having online and digital advertising and make sure to solve their problems. so what we've heard is they want to shift perceptions. what we've heard is they want high quality and access to different demographics. those types of things drive business decisions and how we form advertising going forward. that is how the conversation is formed. >> what is your biggest opportunity outside of advertising? >> there are hundreds of millions using the service every month now but it hard for people to find each other. so if i can find the brands and public figures i'm interested in. if i'm interested in electronic music i should be able to find the djs but should be able to find the brands i want. but it's actually quite

difficult right now. so we're trying to make the connections. >> and what would be there? like promoted profiles like in twitter. >> it's less a business model and more a product feature. i believe a good portion of what we need to focus on in the next year is monetization. >> would you do a commerce feature? >> there is possibility that we could do something just outside of advertising and we've considered it over time. one of the earliest requested features was premium filters where a brand could response aerofilter. it is just not in you are a wheel house. it doesn't feel instagrammy in the way the high quality ads do. when you open vogue magazine and see beautiful advertising and content, that is the type of feeling we want to evoke. so we've stayed away up until now but i won't count it out. >> can you give us a sense of who your competition is there? do you see snap chat as main competition? one of the revelations we've had about competition is just like when you think about advertising and how we're not competing

against other tech companies and we're competinging incumbents l print and tv. any service that takes you way way from instagram is obviously a competitor. so we think in the facebook family of apps, whether that is instagram, facebook or whatsapp we think about time spent. and anything that can compete for that. so in many ways, every other tech company is a competitor but we really focus on ourselves because in many ways we're our own biggest competitor. >> you now have more user than twitter. >> twitter's market cap is something like 23 billion dollars right now. how many billions of dollars did you leave on the table. >> personally? >> by selling to facebook. >> oh i see. i don't like to think about that. because entrepreneurs like to worry about impact in the world. entrepreneurs don't necessarily

worry about billions of dollars. and twitter has a more mature business. we have a lot to prove before, you know, we are worth many billions of the dollars. >> what are the advantages and disadvantages of being owned by facebook. >> you have to understand one of the reasons why we're having this conversation today is because we're at facebook. i think it's kind of hard to ask the question what would the world be like without facebook. who i believe we are where we are because of all the technologies that we've employed because we're at facebook. so i'm very thankful to be there and i think a lot of our team is as well. >> you can find more of my interview plus a eight things you didn't know about him on cnbc.com. >> your thoughts regarding the sale to facebook? >> well look, he did walk away with a billion dollars. they had a very, very small team when he sold. i'm sure he's looking at the valuations now and thinking wow

i wonder what would have happened. but i think he's right that part of their growth has really been bolstersed with that infrastructure behind him. to say entrepreneurs don't care about the billions they make, i don't know if that's quite accurate. >> i agree with that. he may have left some money on the table but didn't leave it all. fab facebook has been a driver. he's talk about search and talking about pinterest. finding different things. and time spent. the google report that some 50% of anline display as are not even viewed. >> also about if facebook family. like a bell biv devike a bellev. >> and they are not going to monetize whatsapp with

advertising but good signals. >> great stuff from kevin systrom. quick market look on oil. extending losses now down over 5%. look at west texas. really only 62 cents from that five handle we've been watching. coincidentally for dow, now now 159 points. a streaming war with a company that's managed to keep taylor swift on the service. once there was a girl who always mixed and matched. even in her laundry room. with downy unstopables for long-lasting scent. and infusions for softness. she created her own mix, match, magic. downy, wash in the wow.

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>> what where does this go in 2015? i hear increasing concerns about the business model in the music business behind streaming businesses. if you are like retailers how do you end up making money and adding value down the line? because having a bunch of users but not making money isn't going to be great in the long-term. >> great question. we are really a combination of a pandora style internet radio and supportive model and a subscription service. best of both worlds. those are two ways of essentially giving music to people and making money. on the app suppoad supported it

simple we have charge more we have a different approach to ad sales as well. we work with cumulus in this country. they do our ad sales and 1400 people who sale ad sales all day. we have we think a much more scaleable model in that sense. on the subscription side it is a retail model. and, you know, there is a lot of profitable retailers. you neepd to understand how to manage costs and think like a retailer, not a classic tech company. so i worked at amazon before this and i understand the economics. and so we're very focused on building a big listener base and then figuring how that makes money. >> how much does distribution play into this? when you look at net frictiflix relationship with the cable

providers. >> it's a great question. a -- distribution in this case is a combination of nrkt netwod the devices and we're focused on both. as you mentioned we announce tad partnership with row cue. there is an audio punt on the roku remote which is jub starting to ship now. and the first music service really to do that. and devices are critical. that is where you listen. writ's on your phone or television for most people t home theater is the best stereo they have in their house. home audio, cars. we're integrated in every tesla outside the united states. integrated in the devices the free and the paid. and the networks, it depends on the country. different countries have different models. we're in 60 countries and 30 million songs. each country is a little different. unlike the netflix model in this

business there have been a lot of bundles. netflix is really just starting to explore that. >> in five years where is the value? >> if you look at other media business t television business, the free to air ad supported business from a revenue point of view is larger than the pay tv business. the music radio t broadcast radio is larger than the paid radio business. i don't think there is any reason this will be different. we think it's why having both models making seasons. >> if radio were invented today people would say no buffering. how great that. >> what? it just works? okay. >> you look at the amazons, and youtubes and netflix of the world. who has the most power? whose the best gate keeper and why did you use roku? because they are easier to deal with an amazon or because you like hardware more than the gate

keepers. >> we would choose all of the above. we would expect to be on every device. first music service launched by chrome cast. so i wouldn't really pick those. the biggest difference is in the download business apple and google don't let anyone else download on their platforms. in this business they do. so they don't have the same distribution block they did in the other business. you have to compete on experience. look at iradio. came out, great service but didn't take over the world. so you have to win on a day to day service of executing for listening. >> thank you so much. markets dow losses 19 right now. we'll keep an eye on this. a little off the session lows. more about oil's decline today. breathtaking. in a moment.

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military families are uniquely thankful for many things, the legacy of usaa auto insurance could be one of them. if you're a current or former military member or their family, get an auto insurance quote and see why 92% of our members plan to stay for life. oil continues to surprise on the downside. saudi oil minister was speaking in peru.

his quote according to bloomburg, "why should i cut production?" . >> thanks guys. >> john thank you for joining us today. let's get to scott wapner who will take over the half. ♪ our game plan looks like this. overvalued. one big time investor sounds off on the big time valuations of some very well known companies. is it a warning sign for the rally at large? highest fliers? the top airline analyst on the street is here with us