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First Move with Julia Chatterley

China's Tech Giant Baidu Reports Its First Loss In 15 Years; Amazon Takes On Uber In The Food Delivery Market; China's Answer To Starbucks Makes Its Debut Today. Aired: 9-10a ET

Aired May 17, 2019 - 09:00   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

JULIA CHATTERLEY, CNN INTERNATIONAL ANCHOR, FIRST MOVE: Live from the New York Stock Exchange, I'm Julia Chatterley. This is FIRST MOVE, and he is

you need to know.

Searching for profits. China's tech giant Baidu reports its first loss in 15 years. Crunching the competition. Amazon takes on Uber in the food

delivery market. And waking up and smelling the coffee. China's answer to Starbucks makes its debut today. It's Friday. Let's make a move.

Welcome to FIRST MOVE. Thank goodness it's Friday, TGIF. I tell you what, once again, trade first and foremost, and the news isn't good. U.S.

futures are lower.

Let me give you a look of what we're seeing perhaps no surprise, given the handover that they got from the Chinese session as well. Chinese stocks

ending the week with a sharp selloff falling some two and a half percent. The Shanghai Composite finishing down 2 percent on the week. Why?

Well, let me tell you. We have the equivalent of a Trump style tweet storm from China overnight. The state media lashing out to the United States

following that executive order isolating tech giant, Huawei from U.S. suppliers, and my big question is, will the U.S. really cripple one of

China's largest tech firms here?

Does anyone remember ZTE and what happened there? Well, I can tell you the one positive that I see is that it remains words rather than actions, but

they are having consequences.

Beijing said it would be meaningless for Treasury Secretary Mnuchin to come to Beijing for more talks, just two days after Mnuchin hinted that he would

be heading there.

You know, we may be entering spring right now. But the chilly winds are blowing. U.S. stocks rose almost 1 percent. So, again, context always

everything.

Since Monday, the Dow and the S&P and the NASDAQ only down fractionally at this stage. But I just wonder how we can start this session on virtual

breakeven over the week when the two sides seem so far apart.

It's pretty incredible, I think, maybe it's just posturing and that will be the argument that gets made here on both sides at this point.

But the positions here remain fundamentally misaligned as far as I'm concerned. Since Trump's trade tweets on May 5th, U.S. stocks are down

more than 3 percent, but you know, I would say we've gotten away pretty lightly here.

Are investors just still deeply complacent about some kind of trade deal happening here? I'll keep asking the question. For now though, let's get

to the drivers.

Chinese search engine, Baidu, down more than 11 percent premarket. It reported its first quarterly loss, as I mentioned, since its IPO 15 years

ago. Clare Sebastian joins me now.

The question for me, Clare -- and great to have you with us is, if this slow down as a result of economic weakening and advertisers deciding to

spend less, or is this something more fundamental in the business here for Baidu and increasing competition?

CLARE SEBASTIAN, CNN BUSINESS CORRESPONDENT: Julia, in a word, its both. Certainly management would have you believe that it's the macro

environment. They were talking about this a lot on the call and you know, this is -- there is some weight behind that.

Baidu is the biggest search engine in China. It is 70 percent of the market, so it can be seen as something of a proxy for the health of the

digital economy, how much other businesses are prepared to spend on advertising; that is the bulk of Baidu's revenue, but make no mistake, the

slowdown in the Chinese economy, the trade war -- all of that comes at an already very difficult time for Baidu.

There's a lot of skepticism out there among analysts and shareholders that they staying relevant in this digital age. They've already lagged behind

rivals like Alibaba and Tencent when it comes to capturing the mobile market.

They have started to invest heavily in things like AI and Cloud computing and streaming and things like that to diversify their business.

But I think if you look at the year chart, which I think we just pulled up, they are down about 45 percent year-to-date, I think a lot of people are

questioning whether that's simply too late with some of these initiatives.

CHATTERLEY: I couldn't agree more, because I think that's what's going on right now. I think they missed the digitization way. They were brilliant

on PC, they gained a great deal of market share, but with the shift that we saw from the likes of Alibaba and Tencent, I think they missed the boat.

The question is, they are now prolific spenders, as you said, autonomous vehicles, Cloud technology. Can they make any of this work?

SEBASTIAN: Yes, that was what really struck me in this earnings release today. Some of these numbers are staggering when it comes to cost.

Content cost is up 47 percent, traffic acquisition up 41 percent.

[09:05:09] SEBASTIAN: That is traffic acquisition revenue, actually declined. R&D up 26 percent. These are huge numbers, even as they report

their first loss, and they cut guidance.

So this may not be their last loss of the year so far. And you know, also some of these moonshots, things like autonomous driving. They are testing

a robo taxi suite in a Chinese province. These have yet to even come to market yet to deliver shareholder value.

But you know, looking at this in the positive note, Cloud is a growing area, streaming is a growing area, maybe they are in the right place. The

question, of course, as we've already said, is are they in it at the right time?

CHATTERLEY: Yes, and can they get the technology right? We keep calling them the Google of China. I'm not sure whether they end up being the Yahoo

of China. Harsh, but fair. Clare Sebastian, thank you so much for that.

All right, I'm going to move on to the second driver. Amazon taking a stake in the food delivery startup at Deliveroo. Deliveroo raising more

than $500 million from Amazon and other investors here. Samuel Burke joins me now. Wow. Uber has had a top ride since its IPO and now, you've got a

real challenge in here to Uber Eats, fine, they are way bigger, but how much of a challenge could this represent?

SAMUEL BURKE, CNN BUSINESS TECHNOLOGY CORRESPONDENT: Yes, theoretically, this should be a Deliveroo-Amazon story. But with my three takeaways, the

number one huge takeaway is that this is a big loss for Uber.

It's Uber Eats versus Deliveroo, and don't forget that Uber was trying to buy Deliveroo. It looked like it was going to happen at one point, and not

only did they not make that happen; now, Amazon has gone in and made this alliance.

Number two, this is a very savvy move for Amazon because not only does it theoretically block Uber, it also means that Amazon has a partner, maybe

even a future acquisition in the relationship that they're building to expand their delivery chain. Remember that they're moving all guns blazing

forward on that one.

And number three, what a great vote of confidence for Deliveroo. This is one of the few U.K. unicorns and I would argue one of the few European tech

consumer companies that has actually been able to expand outside of the U.K., outside of Europe. I see them every time I go to the Middle East.

So this is really a shining star for the European tech scene.

CHATTERLEY: Yes, go the Brits and go the Europeans here. And of course, they can use the money to ramp up and I can't help myself.

BURKE: Oh, yes.

CHATTERLEY: But I want to get back to what you were saying about Amazon and the opportunity perhaps here as well. For now, it's just a little

investment. They can see how it goes, perhaps, it could result in a much bigger -- a purchase here and get it cheap, of course, given the Sterling

weakness and the pressure that we've seen there as a result of the Brexit shenanigans. This looks really nice to me.

BURKE: When those Brexiteers were pushing for Brexit, I don't think that they were pushing for U.K. tech companies to be bought up by the Americans

and the Chinese.

There was a big valuation debate between Uber and Deliveroo. Deliveroo thought they were worth closer to $4 billion. Uber thought they were worth

closer to two. At the end of the day, it doesn't matter, Amazon has gone in and made this investment.

And look when it comes to that delivery chain, even if they're just getting data from this relationship with Deliveroo, that gives them a huge edge.

Amazon tried this on their own in the U.K., they actually had a delivery service and they folded.

So clearly, Deliveroo is doing something that the others are not, that not even Amazon can do. And I believe that's their dark kitchen. They really

started this trend of making it so that if you can't afford your own restaurant, Deliveroo opens up a kind of warehouse space where lots of

restaurants can go or you can open a satellite, a version of your restaurant and then only Deliveroo sends those orders out, and I think it's

really all about those dark kitchens. You know, Travis Kalanick is going after them as well.

CHATTERLEY: Samuel, you always make me smarter. That's fantastic. And also the valuation point that you made in the discrepancy there is a reason

to get bought and not to go public. Really interesting. Samuel Burke, thank you for that. No doubt we'll talk about this again.

All right, speaking of IPOs, Luckin Coffee, hoping to luck out today. China's Starbucks rival is going public over at the NASDAQ while they grind

the beans, Paul La Monica is crunching the numbers.

Wow, it really is Friday here. Now, if you don't live in China, you're probably saying, "Luckin who?" Who is this company? Paul took us through

it. And then we can talk about valuations and what happens today.

PAUL LA MONICA, CNN BUSINESS REPORTER: Yes, Luckin is a coffee company in China that is growing extremely rapidly. They are adding, you know,

thousands of stores expected this year, more than 2,000. And it's a company that has done extremely well from a revenue perspective because

they're offering deep discounts which undercut the more pricey offerings that you would get from Starbucks.

So of course, the revenue looks great, but profits, not so much because Luckin is losing money. That said, they price that the high end of the

range and there has been a pretty good appetite for Chinese IPOs and Chinese stocks.

[09:10:08] LA MONICA: I mean, Baidu notwithstanding that you just spoke about with Clare earlier, Alibaba's results were pretty solid, Tencent had

decent earnings as well.

So I think that this should be another test to see whether or not U.S. investors think the Chinese consumer is in healthy shape.

CHATTERLEY: You know, the mainland Chinese drink on average three cups of coffee a year. So the growth opportunity here is vast, but the question

is, can you translate that and can two massive companies like Starbucks that's opening a new store there every 15 hours, compete with the likes of

Luckin?

I mean, I spoke to the CFO earlier and we talked this through, but for me, they're also ramping up and spending profusely in order to do that. Are we

more sensitive in light of what we've seen about a path to profitability you think here for these guys or given they are so young, do we accept that

they are just going to spend right now to expand? What do you think, Paul?

LA MONICA: Yes, I think that clearly investors have to recognize that Luckin is not going to be profitable probably anytime soon because they are

spending so aggressively, not just new stores, but on, you know, keeping prices low so that they can gain market share from Starbucks.

What's really interesting, though, is that I don't get Wall Street's appetite for IPOs right now because while at the same time, they've shunned

Uber and Lyft, because hey, they're losing lots of money, and that's not cool. These unicorns are overvalued.

Look at Beyond Meat, that company is losing money as well, but people have for some reason latched on to this consumer trend story, millennials want

plant-based food so Beyond Meat is going to the moon.

I'm not so sure Luckin is going to have the same path, but I do feel that in some respects, investors are going to tolerate some of the losses for

this company because they do recognize that it's a rapidly growing phenomenon in China that could eat into some Starbucks market share.

CHATTERLEY: Yes, perfect, perfect response. And I think the other thing here as well is a Chinese company trying to expand aggressively in China is

far easier than a U.S. company right now, given the broader tensions. Paul La Monica, thank you so much for that.

Now coming up, we actually hear from Luckin's CFO. I've been chatting to him. The big question I pressed him on is given that they're barely two

years old, why go public now?

(BEGIN VIDEO CLIP)

REINOUT SCHAKEL, CEO, LUCKIN: I think we have a very simple business model and people can understand sort of the unit economics quite clearly. I

think, secondly, for us, it's also we are a consumer facing business. Being a public company and particularly in the U.S. will give us a lot of

additional branding in China.

And lastly, for us, it's important to be a public company because we have deep access to capital and not just equity financing, but also debt

financing. And I think if you look at sort of the response that we got from investors across sort of all the pockets, sovereign wealth funds, long

only and hedge funds, I think we had a very, very strong reception.

So I think we were in a good place today.

CHATTERLEY: It's the best kind of marketing out there.

SCHAKEL: True.

(END VIDEO CLIP)

CHATTERLEY: Interesting. That full interview coming up in 15 minutes, quite fascinating. And like what Paul was saying there about a path to

profitability, he had some interesting comments that might surprise you, so 15 minutes' time, we will bring you that interview.

For now, let me bring you up to speed with some of the other stories that we're following around the world. The British Pound under pressure this

session after Britain's cross party Brexit talks collapsed without agreement.

Opposition Leader, Jeremy Corbyn says the negotiations to get a Brexit deal that could when Parliament's approval have gone as far as they can. Phil

Black joins us now from London.

Phil, I'm not sure any of us who sat in the U.K., watched these negotiations, watched the past several months where you have that much hope

that something could come from these talks. But where does that leave us now? Does it come back to Parliament again, trying to come up with options

that are viable here because we've kind of been there, done that and failed, too?

PHIL BLACK, CNN INTERNATIONAL CORRESPONDENT: Yes, indeed it seems so, Julia. You're right. Absolutely no surprise. This was the Prime Minister

Theresa May's very late, very desperate attempt to find a cross party compromise long after it became blindingly obvious she couldn't rely upon

support within her own Conservative Party for a deal.

From the outset, there was great opposition to these talks taking place in both parties. There was little to no optimism that they would succeed and

so now, they have failed. Labour says it's because the government is increasingly weak and unstable. The government says it is because the

Labour Party hasn't really decided if it wants to deliver Brexit or hold a second referendum to stop Brexit altogether.

What happens now? Well, we know the Prime Minister has set another deadline, probably her last. Her last because she acknowledged yesterday

that she is set to confirm her timetable for leaving office, for quitting as Prime Minister, essentially, but she says she doesn't want to do that

until Parliament has another go at her withdrawal agreement.

Now, her withdrawal agreement hasn't changed. So it's almost certainly not going to be voted on although it's not going to win a majority.

[09:15:10] BLACK: This time, what we expect is that the government is going to try and hold another series of what they call indicative votes.

That is, Parliament will be asked to give its opinion on a range of options, models, approaches for delivering Brexit, or otherwise.

We've seen these before, and they haven't really been conclusive. But for the Prime Minister, she has to do something and she really is running out

of options. She is running out of road. And as I say, now that she has essentially confirmed that early next month, she's going to set a date for

leaving office. She is very much running out of time as well -- Julia.

CHATTERLEY: Yes, I felt like my favorite phrase when I was in the U.K. was, "And now what? And then what? Now what?" And I'm kind of asking the

same question again. Phil Black, thank you so much for that. What a challenge.

All right, let's move on. Crowds in Taiwan is celebrating after lawmakers approved a bill legalizing same sex marriage, making it the first place in

Asia to pass gay marriage legislation.

This comes almost two years after judges ruled the existing law saying marriage was between a man and a woman as unconstitutional. The law goes

into effect next Friday.

A new report says the recent escalation between Iran and the United States may be the result of a misunderstanding. "The Wall Street Journal" reports

that U.S. Intelligence shows that Iranian leaders believed the U.S. was planning to attack them, prompting Tehran to prepare to strike back.

U.S. officials then responded deploying additional military assets to the region. More context on this story coming right up.

But for now, we're going to take a quick break here on FIRST MOVE. Ahead, pinning its hopes on a better next quarter. Pinterest shares have fallen

after their first earnings report disappoints; and bring up success. China's answer to Starbucks, Luckin Coffee going public today as we've

already told you. More from the CFO coming right up. Stay with us. You're watching CNN.

(COMMERCIAL BREAK)

[09:20:10] CHATTERLEY: Welcome back to FIRST MOVE with a look at the markets right now. Premarket still on track for a lower open. The NASDAQ

as you can see, the biggest loser down some 1 percent. We'll see how it opens up.

Overnight Chinese state media said it might be meaningless for Treasury Secretary Mnuchin to go back to China for more trade negotiations. The

next opportunity therefore may have to be next month's G-20 Summit, where President Trump says he will meet with President Xi.

U.S. tech companies that supply Huawei with components have been some of the biggest losers this week. The likes of Qualcomm, Micron, Skyworks as

you can see, and other firms falling sharply in Thursday's session. Those firms also not the only casualties of the ongoing trade tension.

Shares of farm equipment maker, Deere, tumbling in premarket as you can see after reporting weak earnings, lowering their 2019 forecast as U.S. farm

exports fall, very much front and center, of course in the trade talks.

And one other note, in the past hour, the U.S. has formally announced that it is delaying its decision on raising auto tariffs by some six months.

Well, in the price, of course, in light of our earlier discussions this week.

Now China, not the only U.S. foreign policy challenge at the moment. There's also the escalating tension between the United States and Iran. A

new "Wall Street Journal" report maybe shedding light on exactly what may have brought the U.S. and Iran to the brink.

The report cites U.S. intelligence showing Tehran believed the U.S. was going to attack and so took action to prepare for a possible counter

strike. That in turn prompted the U.S. military buildup in the Persian Gulf.

Let's talk this through with former U.S. Ambassador to Bahrain, Adam Ereli. He joins us live from Washington. Ambassador, fantastic to have you with

us. What do you make of this apparent misunderstanding between the two sides that led to the latest escalation?

ADAM ERELI, FORMER U.S. AMBASSADOR TO BAHRAIN: Well, I think it's futile navel-gazing to tell you the truth. Let's be clear, Iran has a long and

bloody history of terror attacks against the United States. They bombed our Marine barracks in Lebanon and our embassies in 1983 and 1986. They

bombed the Hobart towers in Saudi Arabia in '96. They were responsible for the deaths of hundreds of American servicemen in Iraq in the 2000s.

So look, I don't think there's any mystery here. Iran has proxies throughout the Middle East that have a history of attacking the United

States and here's the problem, Trump now faces his red line moment.

He criticized Obama for not going after Syria after he drew a red line on the use of chemical weapons. The Trump administration has drawn a red line

on Iran's use of force against the United States and its interests. Iran crossed that red line twice in the last two weeks when they sabotaged

shipping in the Persian Gulf and they attacked the Saudi oil pipeline deep within Saudi territory with significant damage.

And what are we doing? We're not responding with force as the President promised. We're looking -- he is looking for a way out. My concern is

Iran has tested us, and Trump is failing.

CHATTERLEY: So what is the appropriate response here? Because as you point out, if Iran is testing the President here, he has got two choices.

He either act or he doesn't choose to act and acting here could take many different forms. What's the best option here?

ELERI: Right, right. I think we should take a page, frankly, from President Clinton's playbook. When Milosevic was threatening and killing

Kosovos and Bosnians, we used strategic strikes to pressure Milosevic to come to the table. He would have never come to the table, he would have never negotiate in good faith without that pressure.

We can use strikes against Iran and against Iranian targets and Iranian proxies to send a very clear message. You either listen to us, do what we

say, don't attack us or our interests or you will pay a price.

Right now, Iran is not paying any price other than economic and that's insufficient, because they still harbor aggressive and hostile intent

towards the United States and our allies with serious consequences for international instability in oil market.

CHATTERLEY: You know, the challenge here, I think in providing a solid or consistent message here is there appears to be mixed messages within the

White House itself whether you're looking at National Security adviser, John Bolton, Mike Pompeo, of course, Secretary of State and the President

here himself.

You have to understand that, I think, or at least imagine what the outcome that they want to achieve is. Are we pushing for a regime change here or

is it just about bringing Iran back to the table for more negotiations and actually seeing them following through. What do we think the White House

wants here?

[09:25:08] ELERI: Well, I don't see that much confusion other than in the last couple of days. I mean, look, if you go back to July 2018, Trump was

very clear. And he tweeted it in all caps, that if Iran doesn't -- if Iran threatens us or if Iran uses force against us, we will respond massively,

and he said that.

His press secretary said that the President means what he says. Then you had Bolton and Pompeo who have both used very forceful language in the last

couple of weeks.

The policy to me was clear. Pompeo laid it out in a speech to the Heritage Foundation, the United States is happy to have a comprehensive agreement

with Iran over -- on all the issues that concern us. But in order to have that negotiation, Iran has to meet 12 conditions, and he laid out what

those conditions were.

Now the fact of the matter is, there's no way Iran could meet those conditions. So, you know, the United States, I think, has said we're going

to exert maximum pressure on Iran, prevent the government from getting revenues to sponsor terrorism until its behavior changes.

What does Iran do? They double down. In the midst of the harshest sanctions we've seen ever, they bomb Saudi pipelines and international

shipping. And what do we do? We back down. That's not acceptable. It's bad for our allies. It's bad for the international community and it's bad

for the United States' reputation as a superpower whose work can be counted on.

CHATTERLEY: Well said, sir, we have to wait and see what the response will be, but a response as you point out required. Adam Ereli, former U.S.

Ambassador to Bahrain.

ELERI: Thank you.

CHATTERLEY: Thank you so much for joining us on the show today. All right, we're counting down now to the market open here on the FIRST MOVE.

Plenty more to come on the show. The market open, next. Stay with us.

(COMMERCIAL BREAK)

[09:30:01] CHATTERLEY: Welcome back to FIRST MOVE live from the New York Stock Exchange and two opening bells being run this morning on Wall Street.

We're showing you the NASDAQ where a Chinese Coffee company, Luckin goes public today.

Luckin challenging the dominance of Starbucks over in China. As we mentioned earlier on the show, I talked to the company's CFO just a short

time ago and I'll bring you that interview for now, but let me just give you a sense of what we're seeing here in the final session of the week.

U.S. stocks as we anticipated lower across the board after a three-day win streak, of course, tough talk from China on trade, hurting sentiment and of

course, that profit warning from U.S. exporter, Deere, not helping sentiment here either.

The farm equipment giant blaming the U.S.-China trade war for its weak results. So more spillover effects of the ongoing tensions and no end in

sight it seems.

All right, we have been teasing it throughout the show. Now, let's talk coffee and China's answer to Starbucks. Luckin and making its debut on the

NASDAQ today.

A big worry, of course, for any business in their position is that risk of short-term volatility, particularly given the performance of some of the

IPOs that we've seen recently, whether it's Uber, or whether it's Lyft, of course, too.

Luckin's CFO though said, he is pretty confident in focusing more on the longer term than the short term. Listen to what he had to say earlier.

(BEGIN VIDEO CLIP)

SCHAKEL: I think we are in a very good position today. I think we've had very strong sort of demand from the investor community, which is always

very encouraging. I think where we are today is in a very good place and I guess what we're trying to do here is obviously try and build a model that

can sort of help people save money by having a much lower cost structure. I think that's kind of taking off very well in China.

CHATTERLEY: I'll come back to you on that point in just a moment, but what we have seen from recent IPOs, whether it's Uber, whether it's Lyft, is

that they've gone to market and then we've seen their share price plunge. Are you nervous about the short-term volatility that we could see in the

share price or are you confident that you've priced this right?

SCHAKEL: No, I think the way we look at this, we are obviously very confident about our model and we're very focused on sort of the long term.

For us, this is just the beginning of a long journey.

I guess volatility and market volatility will be always something that is going to be an external factor. But we're very confident about sort of the

long term path of our business and we're not sort of measuring this success by short-term volatility.

(END VIDEO CLIP)

CHATTERLEY: So confidence is one thing, but competing with a giant like Starbucks, even in China is an entirely different thing. I asked him what

makes the brand really stand out, particularly in the current climate.

(BEGIN VIDEO CLIP)

SCHAKEL: Effectively, we've sort of developed a new retail model that's kind of changed the transaction structure in China's retail market.

And I think if you look at what we're doing, one obviously is we use our app to kind of connect with customers, we use a very differentiated

approach on locations and we save money by using technology.

So if you think about sort of our per cup cost today, that is very, very low. So we are changing the cost structure. If you think about sort of

what we want to try and do is really be able to provide a high quality coffee for a much more affordable price and still become profitable.

And I think what we've done in the past year, we've made very, very good progress on our unit economics. I think our unit economics are very clear.

And I think the way sort of this will continue to go going forward is we'll sort of get to that breakeven point, hopefully, relatively quickly. And I

think we're very confident about sort of the strength of our model.

CHATTERLEY: You said the magic word there, "profitability." What time horizon are we talking about when you're saying relatively quickly here?

SCHAKEL: Look, we won't be able to comment on any sort of timelines. If you look at sort of the progress we've made, particularly on sort of

bringing down the per cup cost and you're going to see this in our prospectus as well. We've made tremendous progress in bringing down the

per cup cost. That is something we're very focused on and we will continue to do.

And I think in terms of profitability, that's not something that I'll be able to comment on, on this day.

CHATTERLEY: But you're working on it.

SCHAKEL: Absolutely.

CHATTERLEY: I mean, I want to get back to the comparison with Starbucks because I believe just over 90 percent of your stores, there's no real

seating capacity. As you said, you're using technology. It's a very different experience. Do you think the two brands, Luckin and Starbucks

can coexist? And that you can continue to have the same kind of expansion? You at those lower price point and Starbucks perhaps at a more premium

price point?

SCHAKEL: Yes. Look, I think when we look at the market, I think if you look at sort of the under penetration of coffee, you're talking about six

cups per capita, which is compared to the U.S. or even surrounding Asian countries is very, very low.

So we are very focused on sort of driving that sort of mass market consumption, driving that consumption to get it closer to sort of what you

see in surrounding Asian countries.

And also, I guess what we're focused on is, as you said, really focused on pickup points, convenience and we're driving a different type of

consumption. We're more focused on the functional consumption. And if you look at the market in China today, about 70 percent is actually takeaway

and only 30 percent is actually in-store consumption.

[09:35:10] SCHAKEL: We're very focused on that 70 percent of the market, and that's also where we want to drive really that consumption going

forward. So I think the market is in its infancy, I think there's a huge opportunity. And I'm sure there's more than enough room for just one of

us.

(END VIDEO CLIP)

CHATTERLEY: It's interesting, isn't it? I use that statistic earlier, the average Chinese mainland individual drinks just three cups of coffee every

year. But the opportunity to see more of that is vast. I asked the CFO how Luckin capitalizes on that as far as the business model is concerned.

Listen in.

(BEGIN VIDEO CLIP)

SCHAKEL: If you look at the under penetration of coffee, we don't think it's because people don't like drinking coffee. It's really, if you look

at what's an offer today, we think it's high price. It's inconvenient, and it's inconsistent quality.

I think what we're trying to do is really bring down that price point by using technology and a differentiated approach to bring down that cost so

we can actually give a high quality product at a very convenient location because we like to be very, very close to our target market.

And also, again, that sort of high quality and affordability is very important to us. And I think what we're trying to do is really convert

people to drink a higher frequency of coffee, convert them from instant coffee to freshly brewed coffee, and really drive this sort of consumption

trend going forward.

And obviously, you know, given the growth of our business, we see encouraging signs that we are quite successful in doing that today.

CHATTERLEY: You know, it is interesting, the analysts that I've reviewed that are looking at your company, the key question they come back to is can

you generate sales in the absence of the discounts? Is your message back to them, then that look, these discounts are here to stay and that's simply

the business model right now and we can make it work.

SCHAKEL: Yes, I guess it depends on how you look at discounts. The way we look at it, we set our average price at maybe around for the 24 Renminbi,

but that's not the price we necessarily want to sell our product at.

I think the right price for our product is probably going to be at around sort of 16 to 17 Renminbi over time. And again, if you go and think about

sort of our per cup cost which is going to be much lower than that. We can of course be very profitable at those levels.

But again, for us, it's very important to find the right price point to be able to drive mass market consumption.

Today, coffee is a luxury product in China, and we think it should be part of daily life and that's part of what our model tries to bring.

CHATTERLEY: You just mentioned it's a luxury product and I agree with you. What are the risks at this moment of economic slowdown in China? The risks

of the trade war impact.

SCHAKEL: Yes, I think I think the trade war impact is going to be pretty limited for us in terms of from a cost perspective. And I guess, of

course, there's going to be the overall macroeconomic environment in China.

I guess, what we're trying to do is really try and help our customers save money by bringing daily necessities to them. And it's not just coffee,

right? We sell coffee, but we also have other daily necessities, including food and beverage and drinks.

And what we're trying to do with our model is really bring down the cost per item to be able to give those cost savings to our consumers and really

help them save money.

So I think, if anything, I think we're going to be even better positioned if that trade war continues and people become more sensitive around what

they can spend.

(END VIDEO CLIP)

CHATTERLEY: The CFO of Luckin there. It's going to be fascinating to watch. The CEO of Starbuck says this is not a sustainable business model.

Watch this space. These guys get set to 3trade later on today.

All right, let me bring you up to speed with the global movers now. Uber in focus as we talked about earlier. Amazon investing in Uber's arch

rival, the U.K. food delivery service. Deliveroo, leading a $575 million funding round. It comes of course, just a week after Uber went public and the stock fell some 8 percent on the first trading day.

However, the rideshare app has recovered somewhat slowly creeping back to its $45.00 IPO price, but it is down as you can see in the session today.

NVIDIA also in focus. The chip makers shares have scaled back after jumping briefly on better than expected earnings. The revenue beat

estimates but it did fall some 31 percent year-on-year. It has now fallen for two consecutive quarters.

They lowered their sales outlook in January due to the Chinese slowdown, causing weak demand for things like video games. The decline in this

quarter is that apparently due to dropping graphics processing units.

Pinterest shares falling some 15 percent after hours after its first earnings report. They reported a $41 million quarterly loss and 21 percent

improvement though year-on-year, but steeper than investors had expected.

Despite the jitters, we should point out that Pinterest stock is still some 30 percent higher than its opening price. Samuel Burke joins us once

again. Samuel, we're keeping you busy. What do we think on this one?

BURKE: This is really an indictment of the first quarter and unlike typical IPOs, it's not those one-time cost that you have associated with

the IPO because the quarter actually finished before the IPO. And this is really all about the expense of adding more employees.

But the fundamentals actually look quite strong in spite of the fact that stop being down more than 13 percent right there.

Let me just put up on the screen my three big takeaways from what we know now about Pinterest because overall it's looking strong. Number one solid

user grow, 291 million monthly active users.

[09:40:09] BURKE: Number two, unlocked value. They focused on the U.K., Canada and the U.S. Now, they can unlock the international markets they

haven't focused on.

And number three, analysts are bullish. I saw notes that said improved in advertising products and a path to profitability -- profitability is the

word that I'm looking for.

So at the end of the day, yes, it's going to be a tough day. But long term, the fundamentals look strong.

CHATTERLEY: Can they compete though for advertising, with the Giants here like the Googles, like the Facebooks because that's ultimately where

profitability is going to come from surely.

BURKE: And I'll just add Amazon to that list because it is looking at more and more like the triopoly.

CHATTERLEY: Yes, do that.

BURKE: If they keep their rates up high, then other people can come in, like Pinterest, and they do have a unique space in the market going after

home goods for instance. So I really think that there's great chance for them -- and if I can just break the rules of television, I want to add one

more thing since you were talking about Uber, we're still talking about Pinterest right there. You see the share price. It's not looking too bad

above the IPO price.

But if I can just go back to Uber's since you were showing the stock down there about 3 percent, Julia, the whole sell of Uber was all about, we're

going to be the Amazon of technology. If they're going to be the Amazon of technology or rather of transport platforms, how can it be that Amazon is

beating them at their own game then?

CHATTERLEY: A great points and Samuel Burke, where you are concerned, rules are meant to be broken. We like that at FIRST MOVE.

BURKE: Thanks, Julia.

CHATTERLEY: Thank you. All right, still to come from the football field to the field of technology, how one man inspired athletes and entrepreneurs

alike and helped make Silicon Valley what it is today. That's coming up.

(COMMERCIAL BREAK)

CHATTERLEY: Bringing out the best in the vest, you've certainly heard of former Google CEO and former chairman of Alphabet, Eric Schmidt, but you

probably haven't heard of the man who helped him on his journey to the top, legendary football turned life coach, Bill Campbell mentored some of the

biggest names in Silicon Valley helping to create more than a trillion dollars in market value.

[09:45:13] CHATTERLEY: Eric Schmidt has co-authored a book about him and I asked Eric for the secret of Campbell's success.

(BEGIN VIDEOTAPE)

ERIC SCHMIDT, FORMER CEO OF GOOGLE: We call the book, "A Trillion Dollar Coach," because he coached Steve Jobs and myself and the companies that

were ultimately created were worth more than a trillion dollars. He is the most successful coach in world history, I think.

And somehow he was very empathetic, and somehow he built trust across everyone, and somehow he managed to keep the teams together during

extraordinarily stressful different and difficult times.

CHATTERLEY: How? Because you have just listed a whole host of what seems to be impossible things for one man to achieve with people who are very

smart, have their own views and basically go their own way? How did he manage to do that?

SCHMIDT: First place, he developed trust and he was a very high integrity guy and if he had criticism, he would give it in private and otherwise he

would clap in public. He would work with everybody. He sort of listened to what the goals were, he was a master at getting people who were off the

reservation back on to the reservation.

You know, somebody would be upset about compensation or they didn't have enough power or so forth and he would convince them to rejoin the focus of

the team. He had a lot of interesting techniques, one of which was that he would give problems to two people rather than one so that that way, they

would be forced to work together.

Another is that in the staff meetings, he would insist that everyone speak and be heard, even the people who don't normally speak, to seek the best

decision, not the consensus decision. So all of these techniques caused the team to work together.

CHATTERLEY: It's interesting in the book, you draw out the difference between mentoring and coaching, a completely different concept, but you

could miss the subtleties here, if you don't really understand what Bill provided versus perhaps what you think you need out of a mentor. Just

define the difference, because I do think this is critical to how he operated and how he interacted with you all.

SCHMIDT: Look, everybody wants a mentor, somebody to talk to, somebody for advice, somebody feel good about yourself. That's not what a coach is

about. A coach is leading the team, right, to achieve whatever your objective is. And the coach sits there and will give you a very strong

feedback if you made a mistake, sits there and watches carefully and says you can do better.

He would often praise someone, right, in my case, he'd say, "You're the best ever at something." And then a week later, I would inevitably screw

up and he'd say, "You could have done that better." Notice the technique.

He had told me I was great, which of course I really wasn't and then when I inevitably wasn't as good, he would make me feel badly that I had not done

as well as he thought I should.

The motivation came from within me, not because he was managing me, but because he was coaching me.

(END VIDEOTAPE)

CHATTERLEY: Bill Campbell is certainly no longer with us. But I did ask Eric Schmidt if someone else is fulfilling this role in Silicon Valley

today.

(BEGIN VIDEO CLIP)

SCHMIDT: I'd say most of the companies that I know of, and certainly the ones in the tech industry would all benefit from coaches. Every company I

can think of is going through difficult transitions. These are highly competitive industries. They will -- imagine the pressure on these

management teams as they go through this.

And remember also with the integration with the Board, Bill also worked with our Board and what he would do is call the Board ahead of time to tell

him what was going on and he would pass back their concerns.

You never want to walk into a Board meeting and surprise your Board. You need to know what they care about and they need to know about what's going

on inside the company.

Eventually what we agreed is that Bill would attend my staff meetings so he could observe everything and because of that, he had an enormous

understanding of where the strengths and weaknesses were at any point in the business.

I would argue that the book is really about a new Silicon Valley innovation, which is executive coaching. Think about it. Think about an

American sport, right? So football, basketball, whatever -- have there ever been any teams that have succeeded without a coach? Of course not.

Right?

Imagine a self-assembled -- all the players get together, they figure it out. You need coaches. Why don't you also need coaches for business? Of

course you do.

CHATTERLEY: You know, it's interesting, if I look at what's going on right now that the challenges that Facebook is facing, Tesla and the eyes that

are permanently on the role of the CEO, but the business itself.

Uber obviously just IPO'ing -- two years ago and the challenges they faced -- is there somebody performing this role in Silicon Valley right now? And

are those that have perhaps the greatest experience, yourself included. Is there a requirement perhaps to provide this wisdom to the younger

generation who have built these monster businesses, but are perhaps facing pretty huge challenges today?

[09:50:06] SCHMIDT: Well, Bill felt that people who are now my age, I met him when he was roughly my age now

The younger generation who built these monster businesses, but perhaps facing pretty huge challenges today?

Well, Bill felt that people who are now my age, I met him when he was roughly my age now had a responsibility to give back -- to give back in

whatever way they can for all of the success that got us to the point where we are now, and I agree with that.

And I completely agree that the companies you name would benefit from coaching. Think of how difficult it is, with their Boards and the

complexity of their businesses and all the public pressure, all the government pressure, they would all benefit.

There's no obvious successor to Bill. We need to create a whole bunch of them.

(END VIDEO CLIP)

CHATTERLEY: Eric also passionate about new technologies, including things like the development of artificial intelligence, but also how best we

handle it. The ethics, of course, one of the key issues around it. Listen in to what he had to say.

(BEGIN VIDEO CLIP)

SCHMIDT: The good news is there's enormous investment in AI all around the world, especially in the West. And one of the great questions about AI,

how to make AI operate ethically and ethically is the kind of ethics that you and I talk about. What is appropriate? What is not?

Google has announced an AI Ethics Policy, which I support, and interestingly, the Department of Defense is also working on its own AI

Ethics Policy, as many other companies are. So people are talking about this.

The other issue in AI is the fact that it's trained from existing data and that can lead to biases and those biases are terrible in their nature,

think of that as bad sampling bias, underrepresented groups, too many men, not enough women, that kind of problem can lead to biases that are really

quite pernicious.

There's a great deal of research on how to manage that. But at the moment, it's important that the training data not have biases.

On the question of jobs, I'm actually pretty convinced that we're going to have too many job openings and not enough people to fill them. And of

course, there'll be lots of job dislocation.

But look at it today, we are at the lowest unemployment we've been in 50 years after many decades of a technological revolution. And one of the

greatest shortages of people is truck drivers.

So it looks to me, at least the American system, and in some other countries, the American system is growing with efficiency to really expand

the pie enough to create the jobs, we need to help people be able to get to them.

(END VIDEO CLIP)

CHATTERLEY: Eric Schmidt speaking there. All right, we're going to take a break, but still to come. Nothing cryptic about the fall we're seeing

crypto coins right now. Find out why, next.

(COMMERCIAL BREAK)

CHATTERLEY: Welcome back to FIRST MOVE. And let me show you the moves that we're seeing in Bitcoin right now. It was all looking so good above

$8,000.00 and we're back down about $7, 000.00. Matt Egan joins us now. Matt, what's going on?

MATT EGAN, CNN BUSINESS LEAD WRITER: So Julia, if you don't like roller coasters, you are not going to like the insane price swings that we're

seeing in Bitcoin.

You know, in just 24 hours, we saw Bitcoin go from sitting pretty at over $8,000.00 to now, it's just struggling to hold on to $7,000.00. So what

happened?

[09:55:08] EGAN: You know, late last night, there was a flash crash in Bitcoin. It went from around $7,700.00 to below $7,000.00 in the span of

22 minutes. It lost 10 percent of its value in less than a half hour.

And you know, Bitcoin watchers are struggling to explain exactly what happened and that's the thing about Bitcoin, you know, there's no earnings

report or economic report or even presidential tweet that we can use to sort of explain these moves.

Often, it's just momentum, but looking at the chart, we can say that Bitcoin probably got a little bit overextended. It's made this remarkable

recovery since late last year. And so we'll have to wait and see whether or not this volatility will continue -- Julia.

CHATTERLEY: Yes, I have to say I saw Ethereum and XRP as well, some of the other Bitcoins also getting whacked, so it's tough to put it down to one

trade, volatility and day -- yes, a wild ride, I think, we just have to put it down to that. Matt Egan, thank you so much for that.

EGAN: Thanks, Julia.

CHATTERLEY: All right, that's it for the show. I'm Julia Chatterley, you've been watching FIRST MOVE, time to go make yours. See you in a

couple of hours.

(COMMERCIAL BREAK)

[10:00:00]

END