good morning it is 8:00 a.m. at apple headquarters in cupertino, 11:00 a.m. on wall street and "squawk alley" is live ♪ ♪ ♪ >> good wednesday morning. welcome to "squawk alley."

i'm carl with morgan brennan at the new york stock exchange, jon fortt live at microsoft headquarters in redmond, washington, where he will talk to microsoft's head of cloud first up shares of apple moving higher the company is out with better than expected results for the recent quarter the 100 billion buyback boosting the dividend to 73 cents iphone sales up, short of expectations, not as much as some had feared and the company's cash shrinking for the first time in a while to $267 billion from $285 billion a quarter earlierp larger than the likes of chevron, boeing and home depot joined by stern school of business professor scott calloway and larry hip, managing director what is the most important thing to you, the migration to a services economy, the cash hoard, the return of capital to shareholders >> well, the cash hoard is going down because of the return

they announced another $100 million. they're trying to get rid of the cash and keep the shareholders satisfied. they're moving smartly to expanding the base to the install base every service of theirs is going up i think we can expect them to go and invest into content and be a player in hollywood to complete with the netflix of the world. so there's plenty of opportunities for them. >> scott, the discussions we've had this morning center on margin structure within services which we know a lot less about than we do in the hardware business we will get educated over the next year. >> what apple has pulled off is nothing short of remarkable. apple has the operating markets of an her mess or a ferrari. imagine a company that had the production volumes of toyota with the operating margins of a ferrari and a company this quarter announced more profits, doubled the profits that amazon

has done in its entire history as a publicly traded firm. this is an incredible brand, it's a luxury brand that pulled the ultimate gangster move that created more shareholder value than any other business move and that was the crazy, irrational decision to reallocate money in yap advertising and open stores. has created the strongest brand in the world to sell for $1100 something that costs $280 to put together strength across the board. it's great to have a adult management overseeing the strongest brand in history. >> i want to play devil's advocate because we're shifting to a services story with apple and the fact that they are now sort of demanding higher prices for their phones, but the actual number of iphone shipped was still short of expectations and that still is the majority of their revenue. should investors be worried about that >> well, first of all, we don't know what's in the pipeline. i would assume they have a solid product pipeline to come and

maybe some surprises hopefully i think we're getting to a saturation point the luxury hishgs-end phone market is only so big. they got big in india, big to some degree in china, southeast asia, but there's only a certain number of people who can afford a thousand dollars to buy a phone. i think that they -- that the service component of it which is really kind of under represented really for apple, look, for instance, at the speaker market, right. that speaker market has been taken over by amazon with echo they have a huge potential here. so there's plenty of growth to come >> guys -- >> i think, jon. >> we have to set the record straight here on the apple quarter and the iphone x the analysts, many of them, were just dead wrong on this. the iphone x was the best selling iphone and iphone units did grow just a little bit, but they did grow revenue was up i believe 14% so every time these supply chain

prognosticators come out thinking they know something connecting a couple data points to what's going to happen in the quarter, please, be skeptical. this is a complicated supply chain. it's a product unlike any you've seen at the price point it is, the amount of volume that it does, the complexity of the supply chain you can't figure out exactly what the product is going to do based on what a few component suppliers say are happening over a couple weeks >> no argument here, i assume. something we've learned to live with the leaks and speculation on where we are in the cycle ahead of the quarter we've learned to adapt i think and take everything with a grain of salt. >> look, jon's right smartphone shipments down 2% year on year and in the face of that they figured out a way to raise prices and increase their sales. this is the most profitable disruptive item in the history of business. it's probably ceding ground to alexa, but in the meantime -- or echo it's great to have the most

profitable product in history and as eric said, i like what you said instead of expanding and exploiting their user base, getting the services strength across places, i wasn't expecting it i thought the apple watch jumped the shark and it's looking pretty strong. the pod had a strong quarter while the products aren't what we come to expect in that they weren't revolutionary, they are ever lution nary and diversifying modestly away from the iphone but it's hard to find any fault here this is just such an incredibly well run company with unbelievable assets. >> where are the land mines if we're in a world where you have to sort of visualize them against other media companies, instead of android, right? i mean, the game is different, or will be different. >> the service business for sure. >> i think on the hardware side there's no competition at that high end of the marketplace. but on the service side, they have plenty of competition and challenges itunes needs to be revamped and have a much more original

content, needs to be much more of a netflix like -- >> because of a spotify threat or something else? >> spotify, netflix, hulu. >> amazon. >> everyone is jumping into that fray i think that in the cloud, they have their own challenges. so kind of across the board they're not necessarily number one in the service markets >> i got one more question, specifically on the capital return plan that was outlined yesterday. hundred billion dollar buyback, the biggest ever for a u.s. company. they also raised the dividend 16%. do you think this is sort of the best use of all of that cash >> yeah. i'm in the marketing department. i would talk about that, but they seem to have done a good job and play the street really well you're looking at a company when you think about what apple has been able to do, there's no getting around it. it's extraordinary never had a cash generating machine like this. the only threat to your question, the biggest threat to

apple is the biggest threat to all of big tech and the biggest threat to every name on this board right now, one word, amazon where they bump up, 70% share. alexa is kicking the butt of siri in plain view of everyone bump up against apple and media, number one during prime time viewing hours to number three. the biggest threat to apple is the biggest threat to all of business right now, and it's the seattle firm. >> like a gladdater. >> coming at you. >> who gets to a trillion first. >> i've been predicting it's going to be amazon only thing that stands in the way of a trillion dollars and amazon is regulation and they're not going to regulate the guy who throws at the first pitch at the washington nationals season which will be jeffrey bezos when they announce d.c. as the next headquarters >> shares did hit a all-time low, eps loss in line, sales, daus, the guide, weaker than expected off the session lows

the app's redesign and the shares down 20% this year. it was evercorp in their downgrade said internet companies that show a re-acceleration don't usually underperform the very next quarter. but that's what snap did. >> snap is the story because they have another potential. they still have a lot of monthly active users like closer to 100 million or something like that it's kind of a company that's lost its way started out to be a very unique as you remember, this time related photos that would disappear after a while but today it's a sprawling social network somewhat differentiated from everybody else and difficult to use the redesign did not simplify the use of the app, made it more difficult and there was a visceral reaction on the part of some of their core users they can still fix it, but they have a short period of time. >> fix it how? >> they need to figure out -- go

back to the basics, what's the core usage, double, triple down, innovate they stopped innovating and allowed instagram and others to steal their best ideas they haven't come up with anything new it's time for them to regroup. >> are we going to sta rts to see more calls for investors for potential change in leadership here here's the quote that jumped out. when we build products we're not just thinking what our community is going to like to use right away but how our products will help us accomplish our mission is there a mission if you don't have user engagement and a community engaged. >> calls are barking at the moon because it's a two person shareholder company. a 27-year-old overseeing a company more vast than the western united states and worth more than viacom and "the new york times." we needed a third player, hoping snap would be the facebook of video. it ends up that the facebook of video is facebook. snap is a great company, great

product and the walking dead it will be a acquired within the next 18 months for a fraction or shadow of its currentprice right now. if you had the four biggest banks in financial services all squaring their sites on the fifth biggest bank committed to putting it out of business the fifth bank would be in trouble and that's what we have with snap all owned by one company facebook, wake up every morning with directions from their general mark zuckerberg to put number five out of business. within 48 hours of any innovation on snap, it's adopted into facebook. facebook might as well call the next version of instagram snap this is the problem with the duopoly. they put companies out of business. >> doesn't explain how snap got to this point so far, right. it wasn't an accident. >> fantastic company they should go on to do great things this is the problem with a duopoly. i think facebook can literally -- 80% of time on this thing is in app. four of the top five are one company in a concerted attack at number five. snap should have a great future.

it won't because it's suffering at the hands of a duopoly. >> look, i do think that younger people are not enamored with facebook you can see that people are not really using it -- >> the core app. >> the core app. instagram a little more. there is definitely some wide space here that could be occupied by a younger, attractive, app that should be snap so they've got a lot of work to do they need to get on with it. >> good stuff today, guys. i love you two together. eric and scott, thank you. >> thank you. >> back to jon who is at microsoft headquarters in redmond for a look at what's coming up later this hour. jon? >> carl, you know about houston and mission control. well this is a little bit like that for the cloud like you said i am at microsoft headquarters, building 42, this is the azure cloud collaboration center i can't show you what's on the monitors on this wall or this wall because it's got some sensitive data on it but here you can see a map that's got

data center regions all across the world where microsoft's azure cloud is in operation. this is a space that microsoft uses to figure out what's going right, what's going wrong and any security threats, performance issues, anything that customers are mentioning that is a little bit of a problem and they're able to correlate between issues with say storage and compute if there's an issue with one area is there also an issue with another, they're able to use artificial intelligence to over time predict what might go wrong in the future and keep the system running more fluidly than it could have in the past. i will sit down with jason zander, the evp cloud to talk about why they need something like this, the growth potential in the cloud which we just saw in microsoft's most recently reported quarter, and what's next that is coming up in just a few minutes. >> such a huge story and so good to have you there.

jon fort in redmond today. >> we are awaiting the president and his swearing in of the secretary of state mike pompeo we'll take you live when that happens. facebook betting on dating, playing cupid a good move? we'll talk about that when "squawk alley" comes back. dow gaining a bit here, down 25. your company is constantly evolving. and the decisions you make have far reaching implications. the right relationship with a corporate bank who understands your industry and your world can help you make well informed choices and stay ahead of opportunities. pnc brings you the resources of one of the nation's largest banks, and a local approach with a focus on customized insights. so you and your company are ready for today.

dow managing to gain strength as we get closer to the european close which had a pretty good session as they come

back to work despite some of the disappointing pmis down. >> we lost a little bit of steam out of the whole growth momentum story. i guess the market kind of got there, you know, bond yields have stopped going up so it's not necessarily brand new information. it's just odd the way the u.s. market has kind of settled into this zone, pretty comfortably for better or worse it seems like and i keep watching the volatility index down around 15, you think you have all these cliffhanger deadlines and things throughout and it's not really having much of an effect yesterday you had that comeback right back into that range we've been in for a while now. >> we've got the fed and release of that at 2:00 p.m. >> we had that release and know it's coming. it's going to help a little bit. >> we take you to the state department the president and the swearing in of new secretary of state mike pompeo.

>> i must say that's more spirit than i've heard from the state department in a long time, many years. we can say many years, maybe many decades it's going to be a fantastic start, a fantastic day, and that spirit will only be magnitude, only with this man right here. now that for a fact. -- now that for a fact thank you for being here it's great to be here with you the extraordinary men and women of the state department. we are profoundly grateful for everything you do for our country. and unfortunately be doing things that you couldn't even know about right now they're not a glimmer in youreye we have a couple going right now, mike, that a lot of people don't know about that are very, very encouraging i also want to thank vice president pence and many members of my cabinet for joining us this morning

we're here to celebrate the swearing in of america's new secretary of state, mike pompeo. [ applause ] >> this day is a testament to your exceptional skill, mike, a skill and service that's been honed over a lifetime, no matter where you went we're joined by mike's wife susan and his son nick and i want to thank you both for sharing this wonderful moment with us all. thank you very much. thank you. [ applause ] mike is a true american patriot. he's devoted many years of his life defending america beginning when he entered west point and as you all heard, he entered at 18 and he ended up graduating first in his class

you know i heard that rumor a long time ago. i thought it with you a rumor. i don't know and i've heard it so many times, i've also heard i was first in my class at the wharton school of finance and sometimes when you hear it you don't say anything and you let it go, but i heard it with him. being first in your class at west point, i know, that's a big deal is that true yeah i asked, i started bringing it up brought it up about four weeks ago right, david, and after that, everybody brings it up i don't have to say it anymore he was actually first in his class at west point. and soon he was deployed to germany where he served a cavalry officer prior to the fall of the berlin wall, after leaving active duty service, mike graduated from harvard law school with high honors, great student. mike was elected to congress in 2010 by the people of the fourth district of a great state,

kansas right. it is. and the house he distinguished himself as a member of the intelligence committee for the last 15 months, mike served as our nation and served our nation as the director of the central intelligence agency where i can tell you they have such respect for him it's unbelievable. they may be the only people that are not very happy right now but they will be happy they'll be happy with our gina who is here today. and his exceptional leadership of the cia earned the admiration of his colleagues and the cabinet, the congress, the intelligence community as well as our foreign allies. and partners mike has earned my deepest admiration and respect and trust and you will see why over the coming years, probably the coming months. i have absolute confidence he will do an incredible job as the

nation's 70th secretary of state. as mike travels the world, he will carry out the greatest mission and highest duty of the state department to represent the interests of the american people this mission includes overseeing more than 13,000 foreign service officers who act as our representatives to the world, 12,000 consular officers and administrator of just an incredible immigration system, a system that we're going to be changing and fixing and making better, a system that's under siege right now, but a system that will, in fact, hopefully be the talk of the world by the time we finish we have 3,500 security personnel and thousands more diplomats, embassy staff, civil servants, and administrative personnel all of whom collectively play a

vital role in advancing the safety, liberty, prosperity and all good things of the united states very important people, great people as president eisenhower said in 1953, make no mistake, the reason we have representatives around the world is to protect american interests for nearly 230 years, the men and women of the united states state department have skillfully and proudly answered this call and now at this moment in time, i can think of no better person to lead these dedicated public servants than our new secretary of state, mike pompeo. secretary pompeo, congratulations again, i have no doubt that you will make america proud as our nation's chief diplomat you're an exceptional guy, a great friend, and somebody that

truly loves our country. we are really, really proud of you. i speak on behalf of everybody in this room and also on behalf of your family thank you very much, mike, and congratulations. [ applause >> and now i would like to ask vice president pence to administer the oath of office. thank you.

>> raise your right hand and repeat after me. i michael pompeo do solemnly swear. >> i michael pompeo do solemnly swear. >> that i will support and defend the constitution of the united states. >> that i will support and defend the constitution of the united states. >> against all enemies foreign and domestic. >> against all enemies foreign and domestic. >> that i will bear true faith and allegiance to the same. >> that i will bear true faith and allegiance to the same. >> that i take this obligation freely. >> that i take this obligation freely. >> without any mental reservation. >> without any mental res ser sfligs or purpose of evasion. >> or purpose of evasion. >> and that i will well and faithfully discharge the duties. >> that i will well and faithfully discharge the duties. >> of the office upon which i'm about to enter. >> so help me god. >> so help me god. >> congratulations [ applause ]

>> your new secretary of state mike pompeo sworn in by vice president pence, former cia director, former congressman from kansas, capital in the army, law degree from harvard, and as the president said, a first in his class at west point. am aeamon javers, a career so far, challenges coming up, been to bruise sells to talk about nato and met with kim to talk about north korea. >> he wants the state department to get its swagger back. you heard the president said that at the round of the applause at the beginning of the event i haven't heard such spirit at the state department in years maybe decades the president was unhappy with the state department under the leadership of rex tillerson. this is a leader in mike pompeo that the president is much more

personally closed to and feels he has the ability to be on the same page with the former cia director at this ceremonial swearing in the president hinting a little bit at some of the secret diplomacy that's under way saying that state department employees in the room will be working on things that they don't even know they're going to be working on, indicating there might be some behind-the-scenes diplomacy happening right now. what is he talking about, unclear, but we do know that the iran nuclear deal deadline is may 12th the president of the united states will make a decision whether or not to pull the united states out of that deal and also the negotiations that you just mentioned, with kim jong-un of north korea, and what happens with their nuclear program in that country. so a lot going on. a very dramatic moment for a new secretary of state to be stepping in to office, carl. >> eamon, any sense as to whether or not he will operate with more or less autonomy than tillerson did and also, how state's relationship with the national security council may improve or not

>> one of the things we know john bolton the national security adviser, was on a visit with the delegation that traveled to state, the new national security adviser there in the room for this, so i think you can safely say that pompeo will have an ability that rex tillerson didn't when he's talking to foreign heads of state people will know mike pompeo is speaking on behalf of the president of the united states. for whatever reason rex tillerson just wasn't able to get there with donald trump. not able to convince world leaders he was negotiating on behalf of the president of the united states. so that is a huge advantage that pompeo will have we'll see how it all plays out these relationships can be delicate and there are just huge stakes here about the north korea and iran >> huge stakes is right, eamon thank you for bringing us that eamon javers in d.c. markets are about to close in the uk and continental europe. stocks on the rise after the labor day holiday. exporters getting a lift with the euro near four-month lows as

pmi slipped in april, gdp growth slowed in the first quarter. apple's quarterly results giving a boost to the european suppliers, though. denmark's nova nor dismoving higher the maker posting a quarterly profit beat and raising guidance, expressing optimism about it news diabetes drugs the shares up 4% right now, carl. >> when we come back, how apple's cash pile began larger than the combined market caps of twitter, snap, netflix, cbs and tesla. a lot more on their blowout quarter after the break with the dow down 38. alerts -- wouldn't you like one from the market when it might be time to buy or sell? with fidelity's real-time analytics, you'll get clear, actionable alerts about potential investment opportunities in real time. fidelity. open an account today.

hello, everyone. i'm sue herera your cnbc news update at this hour the world health organization says air pollution kills 7 million people each year almost all of them in poor countries in asia and africa about a quarter of those deaths from heart disease, stroke and lung cancer can be attributed to air pollution. >> every year 7 million deaths caused by our pollution means as

well nine, every ten personses around the world are breathing air that is not respecting the recommended guidelines for air quality. >> a report by the think tank sipri shows russian military spending fell by a fifth last year, the country's first decline in nearly 20 years and with tighter purse strings likely to affect moscow's military activity ahead. the faa announcing an expanded order to inspect fan blades in the engines of boeing 737 passenger jets they are requiring the playeds on some of those engines to be inspected before they hit the 20,000 flight mark after that, it will require inspections of those blades every 3,000 flights. you are up to date that was the southwest airlines that had that tragic incident the other -- last week or so that's the news update morgan, i'm going to send it back downtown to you >> sue, thank you for bringing us that. sue herera back at hq.

>> let's get out to steve liesman in washington for more on what to expect this afternoon when we get that fed decision. steve, what are you looking for? >> morgan, the fed is meeting with the backdrop of a strong jobs report this morning and for the first time in more than a year its hit its inflation target of more than 2% and what does that mean for the policy outlook. the pce price index, barely topped 2% in march after spending most of the past year declining, so now the fed has hit the inflation target and below the estimate of the long run sustainable rate of unemployment, hit both goals over at bnp the problem is it's become difficult with inflation at or above target to justify why policy should be accommodative. the limit of the economy on inflation. supporting that idea is another strong jobs report that's just a good number on friday from the government and an unemployment rate that will sink into the 3s from the current 4.1%.

strong construction and manufacturing jobs this morning and the bls estimate of 195 for friday some sympathy on the committee for letting inflation run a bit hot because the fed missed its target for so long but unclear how new fed chairman jerome powell if he embraces that idea. the market does not seem to as it bids up a chance of a fourth rate hike this year. take a look at these percentages. probability of a june hike 93, september 68% and december now, almost at the high of the contract at 39%. goldman sachs in a report thinks the fed could go further this cycle than originally forecast seeing upside to its prediction if the fed will stop hiking at 3.25 to 3.50%. >> steve, thank you, steve liesman in d.c back to apple earnings the headline the company's announcement of that additional $100 billion in stock buybacks after the earnings report for more on the quarter let's check in with josh lipton who spoke

with tim cook last flight. your reflections on what we know so far >> couple things, you know, carl so heading into that interview with tim cook yesterday, jim cramer was also a part of that, i knew that, obviously, we wanted to get right into iphone x demand trends, you know, and i knew i was going to ask cook really the last time we had spoken after q1 he had said the iphone x was his top seller and i wanted to dive right into whether that held true and given all the research that i read, carl, i really was actually not sure what he would say and i was also a little surprised when he said it remained his top seller. obviously heading into that print the stock was down 10% in part because there was just a lot of negativity about the iphone x a lot of investors have been trying to look for clues about that x demand by trying to read the tea leaves of suppliers from

taiwan semi and ams, you know, but cook has always said that, you know, listen, his supply chain, carl, is so big and so complex you're always in his opinion going to have kind of a tough time extrapolating trends from a handful of data points. that surprised me when we kicked off the interview with that data point. >> you speak to tim cook when we get earnings seems like upbeat comments from him yesterday. how would you compare that commentary and his tone around it versus what you've heard from him in previous quarters >> i would say tim cook is always positive and always upbeat we have -- we've been speaking with each other for many quarters now and sometimes when we speak the stock isn't moving in the direction that bulls would like, but he is always positive and upbeat and certainly i think he felt like he had some really strong data points to share yesterday. you know, the march quarter was basically in line, but it's

really that june guide which is sending the stock higher today i had talked to some analysts who thought because of what they had been hearing from the supply chain there was risk not just to the march quarter but the june guide. real downside risk in their opinion. i think cook wanted to talk about that obviously he wanted to touch a lot about a couple other surprises that greater trying of revenue up 21% he mentioned that wasn't just iphone, it was services, it was wearables, mac gaining share, a number of different levers he said he was pulling there. obviously another highlight, in fact when morgan stanley called he high highlighted in the print cook wanted to talk about services up 31% to a better than expected $9.2 billion, guys. >> josh, thank you josh lipton in san francisco coming up, netflix co-founder and movie pass ceo mitch lowe is here with us on set. but first, jon, tell us what's coming up after the break. >> well, azure for microsoft was

up 89% last quarter and this is the cloud collaboration center for azure. this is where it all comes together i'm going to be sitting down with edp jason zander to talk about what's next. whoooo.

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plus the call you have to see on tesla as that company gets set to report after the bell and what kevin o'leary is buying when mr. wonderful joins us live as well. all at noon, carl, top of the hour that means we're less than 20 minutes away >> all right scott, we'll see you then. in the meantime back to jon fortt giving us the first look ever at microsoft's azure cloud collaboration center with the company's head of cloud. jon? >> thanks. yes, i am here with jason zander, evp cloud, i want to dive right in. quite a facility you've got here thanks for having me i think it's been five years since you moved over, five plus, to the azure team. now you've got parts of windows, core development under you as well give people a sense of how that combination of azure and core windows is going to allow microsoft to move more quickly in key strategic areas >> first of all, thank you for being here we're really excited about the facility and being able to show

it off the benefit of bringing windows over, we have some of the best systems engineering talents around the world working on windows. bringing them in with the azure team allows us to concentrate from silicon to where the users experience our products. more integrated and focused than ever before. on our pivot around intelligent cloud and edge. >> talk to me about security this map up here, things would be lighting up if things were going wrong. i take it recently microsoft announced azure's sphere, an idea you will have chip designs able to call back to the cloud and get better intelligence, how to fight off attacks to what degree is your team working on that for maybe a long period of time and how much more hardware design and chip work do you anticipate doing in building out the cloud? >> azure's sphere is a really cool example, actually it borrows some of the silicon technology we built originally in xbox to secure hardware and

then connectivity back to the cloud. we've had xbox live and connectivity there it leverages those two things together and as you mentioned as we get more to this intelligent edge, more devices spread out, we need to make sure they're up to date and secure and that's one example of how we can do that. >> are you going to be doing a lot more hardware and chip development? we tend to think of microsoft traditionally as being a software player, but with azure, you're doing more infrastructure, more chips too >> no, that's absolutely correct. we've contributed designs for the data center, into the open compute product. we design our silicon that goes into the data centers and things like the hollow lens, hpu, azure sphere and we have quite a bit of silicon design. integration between the hardware and software in the whole vertical stack that's what makes it powerful. >> talk to us about what your going to be able to do differently in a space like

this i think november is when you're first moving in. i was getting a bit of a tour and overview about how artificial intelligence is going to allow you to better predict what happens next when something goes wrong or there's a performance issue, maybe with compute, how that's going to affect storage and allow it to fix that before it becomes a bigger problem what have you seen so far and the potential of this kind of space to help microsoft? >> yeah. this space is awesome. 8,000 square feet. we call it the collaboration center it's about bringing our engineers together to handle problems let me give you a concrete example. last fall there was typhoon season in the asia-pacific region because of the storm there was damage to cables we lost five cables just in the course of one week now we had plenty of extra capacity our customers never noticed that we were able to use the center here to be able to track the storm, figure out what was going and bring up some additional capacity as well and so it's really great just to be able to bring people together very quickly, move through it and solve problems. >> there are a lot of different

data center regions and data centers on the board that protectionist political environment we're seeing spring up around the world is that requiring you to need to build more of those because more countries want to have them local? >> we've got 50 regions around the world, just a massive footprint as you mentioned, on six continents, but when you look at it, data sovereignty is one of the interests that we have and so we have our european data centers we're in china, australia, again, 50 regions around the world we also invested in hybrid which means we can do things like azure stack. if you wanted to run a private cloud in the basement of your parliament you could do that as well >> i guess unfortunately save a lot on cooling in that antarctica center. >> yes. >> thanks so much. back to you. >> when we come back a cnbc exclusive, netflix co-founder and movie pass ceo mitch lowe will join us at post nine after the break. dow is down 94

welcome back to "squawk alley. movie pass the unlimited subscription service announcing the return of its unlimited plan the service has been hotly debated in the film industry with critics arguing it's a business model unsustainable joining us is mitch lowe who is a co-founder of netflix. mitch, thanks for joining us here at post nine. >> thank you, morgan. >> so i'll tell you i have a member of my household who

became a movie pass subscribers, loves it goesh to the movies fou or five times a month, at $10 a month, for an average ticket, how is it sustainble >> you a ticket across the country is between $9 and $10. so the more people we get outside of new york, outside of l.a., to offset that price eventually gets our price down the other thing is after a while, you watch fewer and fewer movies you still double what you used to do before but we're trying to energize the occasional moviegoer, the people who only went four or five times a year and get them to go ten. >> right now, the name of the game is scale. how quickly are you growing? >> yeah, you know, over the next four months, there's so many great movies coming out. jurassic world and mission impossible, so we expect the same kind of growth we had over the holidays, where we grew a

million subscribers in a six-week period. we expect that same momentum to grow over the next four months >> we were talking about demographics during the break. i would imagine it skews young, and does it skew urban or rural? i could see how both could happen >> today, it's a lot is urban because we haven't advertised so most of the people who heard about it, 38% have heard about it from another friend so therefore, we have kind of grown in those big metropolitan areas. but it is expanding. we're now very big in omaha and detroit and iowa and places like that >> and as some of the movie theater chains like amc in recent weeks and recent months have come out and said no way, they're not going to partner with you they're very critical of this business are you starting to see, as you get more subscribers, a shift in terms of some of these companies looking to potentially revenue share. >> yeah, i think so. we were at cinema con last week in las vegas, and i talked to

theater owners who own over 7,000 screens. and every single one but one of them was send me a contract. and so, you know, you just have to stand in front of a theater box office and see how many people are holding a moviepass card so i think over time, you know, amc and regal and cinemark will see that we can be a great partner, because we're reenergizing the people who, you know, especially young people, who are saying i'll just wait for netflix. now they're saying, you know, i have nothing to lose i'll try it out at the theater >> would you expect this to weigh on netflix's streaming time >> you know, real competition is sleep, so we're not sleep. >> he's not kidding when he says that >> i know. i think what we're doing is we're making the whole ecosystem healthier. if you see the movie on the big screen, that supports the independent filmmaker and then

they'll see it downstream on a streaming service like netflix >> i think it's funny, in retail, e-commerce wants to do brick and mortar, brick and mortar wants to do e-commerce. now you have netflix interested in theatrical distribution and exhibitors who are jealous of streaming. everybody wants a piece of what they don't have. >> i think we're in a trend of experiences. and experience of watching a film on your iphone is a lot less than going to the theater and hearing 50 people around you laughing and so i think both will succeed, but you know, i think right now, we're at kind of the end of the cocooning period. >> before we let you know, i would imagine you're looking to raise more money what is the path towards profitability? >> our investors are really supportive we actually over the last week, we have initiated tactics within our system that have reduced consumption by about 30% and that allows us to continue

to grow, make the service available for millions of more subscribers. >> mitch lowe, ceo of moviepass, thank you for joining us here at post 9 with that, more "squawk alley" coming up afr e eatethbrk. and g.

hi, rick >> hi, carl. thank you. you know, this morning, i have mark olson on, and one of the topics of discussion that i actually received a lot of interesting positive feedback on was the notion of stimulus in the form of the tax reform at the end of 2017 and how, of course, it may affect debt it will affect debt. just to the degree it has become the antagonist is the issue at hand let's think about something we can all relate to. whether you're a college student applying for credit and you get the deluge of credit cards that seems to come at the beginning or if you go back before the crisis, there was lots of teaser rates out there, not only for credit cards but for mortgages interest only mortgages. in other words, a masking, if you will, of how much liability you have in servicing debt versus just cash flow issues

if you amount a large amount of debt on a zero credit card on a teaser rate, it's hardly felt, but then when that window closes and your rate starts to go up, 10, 12, 14, 18%, all of a sudden, you're in a new world. to some extent, i think the federal reserve has that issue maybe call it ill timing when it comes to investing, there's nothing more important than timing. if you had unlimited resources, you could hold lots of losing trades long enough to make them less losing, but it's a horrible trading strategy and it plays havoc with fed policy. consider, there was a time when ben bernanke and janet yellen were begging for fiscal stimulus what they ended up with was the recovery and investment act of 2009, where we created a boatload of debt and got little back for it. the fed at the time keeping the rate at zero was masking the notion of how much debt we were accumulating you fast forward now, the fed was late to the normalization game and stimulus comes late because

of this president putting it forth. what we have is bad timing because the notion of stimulus in the form of tax reform being the culprit to debt, maybe you could say it was a straw that broke the camel's back for sure, and i know i as a debt hawk was certainly not enamored with $1.3 trillion spending, but in the end, it needs to be put in perspective. i think that jay powell, as much as he wants to normalize, needs to understand the dynamic and tread softly back to you. >> we're going to find a lot more in a few hours, rick, and we'll rely on you for that rick santelli in chicago >> meanwhile, dow hanging on to pretty moderate range today. down about 73 points apple has held its gains though. up about 4%. and then tonight, another chalk full of earnings spotify, square, kraft heinz, and fitbit

>> a big afternoon for insurers. when you're talking about data, which we have been on the show for weeks now, the insurers are the other big boys in terms of collection all reporting after the bell >> watch all that, and we'll see what the fed says around 2:00 eastern time let's get over to scott wapner and the half >> welcome to "the halftime report." i'm scott wapner on talk trade, the apple aftermath, following the better than expected earnings report, is the stock primed for another takeoff. with us, jim, steve, pete, and with us from los angeles is kevin o'leary, the chairman of o-shares etfs and a cnbc contributor. let's begin with apple and what some are calling a better than feared report. the company also announcing a $100 billion share buyback ceo tim cook also telling cnbc services would be a $48 billion business by 2020 pete, i go to you first. you ha b