SAC Capital Indicted: Street Smart (07/25)

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July 25 (Bloomberg) -- On today's "Street Smart," Trish Regan and Adam Johnson find your last trade of today and first trade for tomorrow. (Source: Bloomberg)

Are going to be done well and we believe will continue to do well.

At a very high level, in a low interest environment, financials in general will outperform.

Always outperform.

We have about 15 sexton's -- seconds.

Why is sector investment important.

Would you invest in sectors instead of individual stocks, you get most of the alpha.

Thank you so much for that.

Keep it right here.

"street smart" starts right now.

Sec vs sac.

Steve cohen's hedge fund indicted by a grand jury.

Our love it tells us he has enough evidence to convict them himself.

-- art levitt tells us he has enough evidence to convict him himself.

Plus, amazon spending spree.

It takes a lot of cash to be king of the internet.

Numbers and earning action does moment the way.

From bloomberg world headquarters in new york, this is "street smart" with patricia again and adam johnson.

-- trish regan.

60 minutes left until the closing bell.

We're starting every market before your last trade of the day and first grade up tomorrow.

Julie hyman joining us now.

Great to have you in the chair.

We have a lot to talk about.

What stands out in earnings today?

10% reporting.

Not really any big, macro themes.

There are some economic reports, but when you have a big earnings they like this, people do not know where to look.

That is why you get fluctuations in the market like we have been having today.

The picture is mixed.

It is mixed.

That brings us to the earnings charge.

We will start with the dow jones industrial average is down 27 points.

At one point concerned about weak earnings reports have stocks down 80 points.

We are down 27. we have been flat over the past hour and a half.

Let me show you what is happening in the home building sector.

Pulte homes the earning child -- a poster child for what not to say in an earnings report.

A couple of the other home builders down.

D.r. horton having the same problem.

One area of strength today is the euro.

That is because we have better data out of europe and germany in the uk.

More on that later.

Up about 1/3 of a percent.

Looking forward to that information later on now to the big three's stocks to watch into the close.

Now to dominic chu.

How was up 3 massive movers to the upside?

-- how about three massive movers to the upside?

Talking about three stocks knocking it out of the ballpark.

Facebook.

It has come out and really wowed investors to the tune of a stock up 28%. but near session highs for facebook.

That is one to watch.

Another one to watch is the huge natural gas pipeline company.

The shares are up 22-23% on the day.

We will finish off under o armour based in maryland.

This got him out in this company came out and beat profit and boosted sales and boosted the full-year forecast for operating sales -- or operating income and sales.

Shares up 11.5% so far today.

That certainly makes up for pulte homes.

Sac vs sec.

The hedge fund firm was indicted on four counts of wire frau investment fraud and one case of wire fraud.

This went back as far as 1999. cohen himself was not charged.

A company reaps what is those.

As alleged, sac seated itself with corrupt traders power to engage in a criminal act by a culture that look the other way, despite red flags all around.

Sac deliberately encouraged the no-holds barred pursuit of an edge that literally has carried it over the edge into corporate criminality.

Again bharara pointing to a culture that "looks the other way." sac saying they can pull that broke the law did not reflect the company employees.

The question, did he know and look the other way?

Frankly, there are a lot of questions, like can the sec even prove it?

We're joined by former sec chairman, arthur levitt.

Thank you for being with us.

We appreciate you joining us today.

Clearly, this is a very artful way the justice department and sec has decided to put sac out of business.

They're going after him by using an administrative court that the sec has the power to convene on the assumption that i fhef he is kicked out of the business, the business guys.

They're going after the business by having the justice department, which has standard of liability that enable them to go after a business, and that is a very rare case.

That is a two-pronged effort to put this business down.

The justice department is convinced that his firm engaged in illegal activities.

He is so well-lawyer ed they believe they cannot go direct -- go against him directly.

The justice department does believe there has been so much insider trading that they went to a grand jury and ask for an indictment.

That is not a conviction, that it's an indictment.

There are two courts that will decide on the future of sac.

However, this pressure, of this publicity, extensive exposure, everything they do, will have a life of its own and people will withdraw funds, as they have the the past, to the point where the only money in sac will be sac's own money, and that, too, will be at jeopardy after this case is worn down.

I am curious, this is something people have been talking about a lot with this indictment coming down, you mentioned he is too well-lawye yered, is that the only reason or is that the matter of the strength of its own merit?

I think it is part of both.

The justice department nor the sec want to lose this spirited the sec has lost too many cases recently.

A case like this is a really high-profile case.

Cohan and sex c have been front and center in terms of buying expensive homes and artwork.

They are really sticking it to the regulators and say and we are above it all come and they are calling for retribution.

It does not seem fair, but that is the way regulators look at things.

The higher profile come at the mall -- the more powerful the subject, the more anxious they are to get convictions.

Understood.

Very key to the point you just made, it does not look good when you spend $65 million on a painting the same week you also settle a previous fine.

Arthur levitt, former chairman of the sec.

Thank you for joining us today.

I want to bring in our panel of experts.

Doug burns, and as assistant u.s. attorney in the criminal division -- s erved as assistant u.s. attorney in the criminal division.

Why is it they are going after the firm when they think they have a good case and not going after the man?

The be a lawyer and give you both sides.

On one hand the government views this as a pervasive culture of corruption and insider-trading that has to be shut down.

On the other hand a bunch of people that could not make a case against the target that wanted to, steve cohen, and they are in a very cynical way shutting down his business.

You hear echoes and refrains of that coming from the debate and analysis.

The point is they were not able to make the case.

I do not agree with chairman levitt seeing because his lawyers are so good.

Raj rajaratnam had the top lawyer.

That is not really it.

They could not make the case.

Take of seth burns, your case.

The sec case reflect the new documents the government sought by way of e-mails and text.

This is certainly a landmark moment for the justice department.

A very unusual case to have this culture of instilling this kind of bad behavior as alleged in the indictment.

The other thing i find interesting is i think the government had a very smart strategy.

Very recently the sec action going after stephen cohen, and he would presumably be greatly encouraged, if not strongly brought in to defend the company and reputation a legacy.

However, days later you have this indictment.

Now you have the fed surrounding the sec.

On the one hand, if he says something here, then it will have great weight in the context of the criminal proceeding.

Interesting timing and strategy on the table.

With your long history having seen cases similar to this, even if the justice department does not prevail, those the firm come out of this?

Do not forget, an action against the corporation is somewhat unusual.

You cannot yet agree to put a corporation in prison.

That is the reality.

And then compliance.

You must perched in certain compliance and methodologies.

The reality is i do not think the company will survive it and think the company will prevail.

Maybe in exchange for mr.

Cohen not having to do that.

A mysterious question.

What would happen to all the profits that investors have effectively been paid out over the past several years.

Would those be called back?

They are risk.

Europe and outside investors that will run for the hills.

The wording of the capital, and then at the end of the day the indictment with the civil forfeiture, you have the threat of pulling back their profits to the tombs of several hundreds of millions of dollars.

The capital as at risk, the company is at risk.

I also still thinks even stephen cohen is at risk, so if matthew martoma flips, at issue is not closed for him.

I agree it is not likely he will be indicted, but there could be developed on that between now in the middle of august.

Leaving the door open.

Thank you.

Coming up, of great wall of sofas.

The ceo of each and allen says -- shows how his company is taking a seat in asian market.

An exclusive interview with bill today and ivana -- dolce and gaba bana.

The new housing boom.

Americans are buying new homes as the fastest pace in five years.

The signs of the housing recovery seems to be strengthening.

It also means people need to buy sofas adnnd tables.

That should be good news for ethan allen.

The ceo joins us here.

You came in with earnings slightly better than estimates.

Earnings up 26% but sales are flat.

Why the difference?

We just ended this year where earnings were up 39%. sales were flat and we explained this morning that some of the reasons were the timing.

The timing of the various events, and if we take into the events, sales were up 2-3%. still other not -- not a level we would like them to be.

The good news is we have made tremendous amount of progress.

We of a 39% increase in earnings.

We had a strong balance sheet.

We've paid a strong dividend.

We brought back bonds from debt.

We are now focusing on increasing the top line.

With the positioning we have done, i think we are ready to do that.

How exactly is that positioning -- does that positioning work?

You design your furniture, make most of your furniture, and a lot of it here in the west -- u.s.. how does that put you in a good place?

We have about 2000 interior designers, 1500 in north america.

What we have been known for for 80 years has been at manufacturer, retailer of good, great quality furniture.

Now we are expanding to become a total home furnishings with a lot of accessories.

I want to pick up on that.

Stylish is the word you mentioned.

If i am not incorrect, you are trying to update your image?

The new eclecticism only at ethan allen is the branding.

We will start marketing that this fall.

To do that, we have to do a lot of work in developing products.

That is what we have been doing the past year.

We launched it in our headquarters in the flagship design center in june.

Now in the next two months our objective is to update 200 of our design centers in north america.

100 outside the united states, many of them updated with the new a eclectic look.

Which is great color.

People today are becoming more eclectic.

It is no longer boring earth turns.

Maybe the economy is feeling better and people want to redecorate with bright colors.

Absolutely.

Throughout history people decorate themselves first.

A great yellow color.

Asking that is a complement.

Then they go and decorate their home.

-- i think that is a complement.

They are getting tired of the boring color.

We're giving them a great color.

That is where our 1500's designers in north america come in.

You are leading this company in the future.

You are serving on president obama's council for immigration trying to figure out how to get it right.

In the last 30 seconds, how do we get it right?

I am serving on the asian and pacific islanders immigration board.

I had a chance to see president obama a couple weeks back.

It is a broken system.

Immigrant entrepreneurs by nature.

The great thing is we have to solve this legal issue.

America has been built by immigrants.

Declining birth rates.

Less young people.

Immigration gives us the chance to bring in fresh blood, vitality.

That is how america was built, and i think immigration is important.

Farooq, ceo of ethan allen.

Thank you for being here.

Dolce and gabbana topics possibly -- talk exclusively about tax evasion charges.

Exclusive interview.

Plus, will heavy spending hit amazon profit?

3 take some is on the internet giant right after the closing bell.

Time for today's global outlook.

Francine lacqua sits down with a rare interview with the italian paned luxury fashion house.

They were found guilty of tax evasion in june.

They are appealing that charge.

Listen to what they said.

No, no, no.

We want to be free.

It is very expensive, but freedom is the best.

Are you ever concerned about being taken over?

We talk about the italian company is not being italian anymore.

Is it something because you are an italian you are ever worried about?

Everything is possible.

Every day it changes.

There is an italian company in dyson.

The revolution.

One comment on the tax that i could use.

What is the situation at the moment?

Are you angry?

Angry, no.

Everybody knows we are here, we are innocent.

Tomorrow is another day.

Do ever consider leaving italy?

No, no.

We believe in italy.

Those two gentlemen were find over $450 million.

Sentenced to 20 million in jail.

They have closed stores in the lawn.

A protest closing.

-- in milan.

At least they have the fancy chairs that look good.

Bloomberg on the markets.

Up about 30%. almost back to the ipo price.

Amazon is on a spending spree.

They have built 89 distribution centers with three more on the way.

And they keep expanding their retreat service, amazonfresh.

Take a lot of cash to the internet king.

-- takes a lot of cash to be the internet king.

Is the growth worth the cost?

Let's ask our panel of experts.

Jon erlichman with this story, build maloney with the trade.

What stands out to you in this story?

-- cillbill maloney.

The amazon model, with us, and we will keep spending.

The real goal is to put retailers out of business, a lot of retailers out of business by being the place where you buy all of your stuff and then some.

In the beginning it was all about the physical goods come in there pretty good about getting it to you quickly, but also about the digital content from the movies and tv shows.

We have talked a lot about netflix recently and all that money to build the business around the world and stay ahead of the competition.

Amazon has a similar strategy, but obviously it comes at a cost on profitability.

Margins are razor thin.

That is something we're watching today.

The margins are like 0.7%. it seems like the more they sell, the less they make per unit.

What is your take?

I certainly think they are in an investment base right now.

You have to believe over the long-term margins can increase in order to own the stock.

It is a company that continually gets in businesses that have a much bigger margin profile.

Things like advertising, other software and services that can have a much more meaningful margin than the business today.

Earnings growing somewhere around 350%. is that sustainable?

Think about this over a five- 10-year period.

We think a few years they could make over $10 per share.

It is not an outrageously valued stock.

The opportunity continues to be massive beyond the physical that most people think of when they think about amazon.

Into digital media, advertising.

We think a lot more will come on the harbor front as well, including the possibility of an amazon phone.

That would be interesting.

The stock chart is near an all- time high.

When you look at this, how does it strike you?

The short-term charts are little cautious, but long-term very positive for amazon.

Going back to january 2012, the stock has been an uptrend.

It has clearly defined support and resistance levels through that period.

Recently pulled back at the short-term resistance level and feeding below the 10-day moving average.

A little cautious in here.

The charts are very positive for the stock.

Chart is very positive.

Talk about very positive, so, too, is the p/e ratio.

You are paying a lot of money, something like 250 times earnings for the year.

Do you hold your breath and by this because the growth is so strong?

I think you hold your breath and buy it because you believe in the discount cash flow model being fairly valued.

The issue with amazon has always been about valuation.

People could have said this was a rich the best value stop when it was trading at $20. anyone who did not buy it because of the thought at the time it was too richly valued missed out on a tremendous upside.

Any stories?

They just keep turning out the mayor calls.

Any thoughts?

Well, the ceo is really fascinating guy.

The most important numbers to watch are the sales numbers.

It already told us they could generate 16 billion for the quarter.

The estimate for the third quarter at the high end are around 17 billion.

They clear those numbers come and i think people stay happy about amazon growth story.

If they miss on those numbers, you were worried about growth and the fact that those profit margins are razor-thin.

We will be talking to you on the earnings as soon as the cross right after the bell.

Then chapter come think you for your perspective.

Bill malone, on theey on the charts.

Ebay earnings in just under an hour.

Starbucks has a new group.

That is next on "street smart." -- new brew.

? first, bloomberg.

Starbucks is becoming as well known for grocery stores as it is for cafe -- coffee and the cafe.

But starbucks yogurt?

That is curious.

They signed a deal with a yogurt giant dimnom.

They have been offering different kinds of products.

You can buy starbucks ice cream in addition to copy.

You can buy tea.

They have been building up the portfolio brandt's to some extent.

And this is an expansion of that brand.

It will be called evolution fresh.

Clearly it is both, evolutionary and presumably fresh.

I suppose we could say appropriate.

You might wonder why yogurt?

You do not necessarily think coffee as an extension of yogurt.

Howard schultz has been trying to focus on getting more healthier offerings in some of the stores.

Expanding more into the grocery stores.

Less than 4% now to 29 percent.

Stratospheric growth.

If you look at the unit growth from 274 million units of 16 ounce yogurts to 869 million this year.

Huge growth we have seen within the yogurt.

Then you have to figure out why greets yogurt, weicker to stores?

If you look at the businesses, still up small portion of the business.

It is the fastest-growing some of the food service business growing at a 20% rate over the past three years.

The rest of the business growing at a 9% rate.

This is where the growth presumably will come from going forward.

Very much.

Earnings come out after the bell.

What are we looking for?

53 cents.

24% increase.

A 13% increase in revenue.

We will also focus on same-store sales, just like you would for any retailer or restaurant change.

That is still the biggest portion of the business.

You want to look at comparable sales.

I will bring you the numbers after the close.

We may have to send people out to try that.

Do you know what they call greek yogurt in greece?

Add yogurt.

-- yogurt.

What do they call chinese food in china?

Food.

A little insight.

Ebay has evolved from the online auction house you remember in the 1990's. finding a new way to meet the demand in the crowded e commerce marketplace.

They launched the newest venture earlier this week.

They now promises which it promised to deliver purchases in just under an hour.

We tracked two different packages to find out how they actually do it.

Check it out.

Need something and need it now?

If you live in the bay area or the big apple, james or medan could be waiting to answer your call.

I just got an order for apple table.

They are shopping ballets for ebay now, the newest addition to the online marketplace.

In the experiment in instant delivery.

Customers in san francisco, san jose come in new york purchase select products from nearby retailers.

They now deliver the goods in under an hour.

Today business is predominately fixed-priced inventory.

Think about ebay local, certainly that takes the connection a buyer and seller to the next lesson -- next level.

Take a they are expanding from mobile to the desktop.

Window working professionals -- we know working professionals really like this service.

We have made it retailers even more prominent.

As ebay involves the experience, the company hopes to expand its shopping base.

I think the dream is to be a competitor to amazon.

It is really focused on solving human problems in the need for convenience and immediate see.

Barnes and noble and amazon offer next-day delivery.

The delivery now will cost is $5. still unclear whether it will be profitable.

The bureaucratic challenges are immense.

Margins are very small.

This is a really hard business to be in.

My guess is they view this as a way to be innovative, a way to bring in new customers.

A new way to affect the bottom line.

John ehrlichman, loss angeles.

It is the culture, we want everything right now and quickly.

It will not extend to all of the products, because if you are buying from individual, so it is unique.

The margins on that $5. the logistics.

You pick up the wrong thing.

Fascinating concept.

Coming up, talking about a comeback kid in today's inside and action.

We will tell you who it is coming next.

We will be right back.

? more evident europe is back.

Time for a little insight and action.

Here is the data we got today.

In the u.k. gdp rising for the second time in a row.

All sectors in the u.k. economy expanding.

That is a big deal.

Meantime come in germany, business and much higher for the fourth time in a row.

Data coming in better.

Fortunately for us, the team as citigroup adds up this.

The data comes in better, it adds to the index.

If it is worse, is the tracks.

Look what has been happening so far this year.

Very clear you can see what has been happening.

-80. a lot more negative surprises in april and may.

You can see what has been happening recently, to the point that we are now up 40.5. here is the big surprise of all, europe, 40.5. look at the u.s., surprise, - 4.7. for all the talk, hand-wringing and worrying about europe and the commentary about how much better we're doing in the u.s., you look at the data in getting many more upside surprises in europe than we are getting here.

Maybe that is because we take of the expectations for europe down so much.

It is not touching foreign- exchange traders by surprise.

Look at what has happened over the past four trading sessions.

You can see some of the other highs so far over the past six months.

This suggests, perhaps, if you listen to the strategists think you could certainly see more upside in the euro.

The data is getting better.

Makes sense the euro would outperform the dollar.

I think we should stick with this and talk more about what the european growth could mean for the markets.

Our next guest says the european growth could equal multinational stocks success.

One of wall street's most powerful women, the head of global research at bank of america merrill lynch.

Her team was ranked top global research team last week.

Welcome, candace browning.

Thank you for coming in.

You are looking at global growth, companies and the west that are exposed globally, which is a little bit against the conventional wisdom when people have been focusing domestically, the cleanest dirty shirt.

Talk to us about this piece is.

Take of the thesis is if you look at multinational stocks and the price to sales ratio, it is at a 13-year low.

Those companies that export in the s&p 500 versus those that are purely domestic players, a 13-year low.

Very cheap here yet to come . these are really good companies.

Nike, coca-cola, exxon, colgate.

House told american names that sell their products abroad and being penalized.

Exactly.

We also think in this kind of environment where we are so sensitive to policy changes, doesn't it make sense to buy high-quality companies with a lot of geographical diversity?

You get global growth.

At the same time i am curious about asia.

Yes, europe is improving, but we have had a lot of companies talking about weakness in asia.

I would say in general we think there is a break up.

If you look at it, we're very concerned about places like china and brazil where you will see lower growth did you have over the past decade.

There are a lot of countries growing very rapidly.

Peru, indonesia.

You go to nigeria, a very exciting growth.

Frontier selling at less than 10 times earnings.

Where -- what is the their growth rate -- a fair growth rate for frontier?

13%. 13% growth and paying 10 times.

We're glad you are here.

Candace browning ground all of research for bank of america merrill lynch globally.

She is with us today.

From crocs plunge to facebook search.

The top 10 stocks the need to know.

The close coming up on "street smart." ? we're are about to get you caught up.

Here's the top 10. amazon is up ahead of second- quarter earnings.

They are out right after the bell.

Investors focusing on revenue growth and the ongoing hefty spending weighing on profit margins.

Those are after the bell.

Number nine is credit suisse.

They cannot guarantee resulting in dispute with the u.s. justice department this year.

They are one of at least 12 swiss banks being investigated for allegedly helping american clients dodge taxes.

Number eight is hershey.

Reporting second-quarter net income increasing 18% as they sold more candy and cost per ingredient striping.

Zynga finally looking up jumping 8% as they get ready to release second-quarter results right after the bell.

This will signal just how much the newly arrived the ceo has to reform as he changes course the struggling online game maker.

Number six is crocs.

Plunging 20% after the maker of colorful plastic shoes reported second-quarter results falling way short.

They have been trying to expand below its signature clogs.

Those match my dress.

That does not seem to be working.

Maybe i should get a pair.

Google is down about 1.5% as they take on apple tv.

The owner of the most popular search engine introducing a device sending you two been that the fix -- sending youtube and netflix videos through your tv.

How about that?

Everyone has become a broadcaster, dom.

It's amazing you can take the blurred lines between old world media and numeral technology.

They are all the same.

The question is will it work?

Apple tv, google tv, intel tv.

You have to think that not all of them will make it.

Let's talk about pultegroup falling 10% today posting a 14% drop in second-quarter profits and a slide in new form orders.

Reports are still concerns that rising interest rates could hold back the pace of the housing recovery.

Three is starbucks, up more than 2% and the report is due just moments from now.

American comparable sales may be on customer loyalty, new beverages, and food.

Those results are coming up.

Two is general motors.

Demand for pickups in the u.s. as well as cadillacs and buicks in china helping boost revenue by nearly 4% during that.

Got a love that.

Number one, facebook.

Surging 31% today beating $34 per share, the highest price they have seen since the day it went public more than one year ago.

Mark zuckerberg's big bet on mobile software paying off.

The surge we are seeing as a result is facebook's biggest intraday jump is a public company.

Incredible to see the stock coming all the way back.

[closing bell]/ the dow jones finishing up about nine points.

Not a huge day.

We're close to the all-time highs.

Coming up, the latest breaking earnings data.

Jon erlichman, jewels, and dom chu on zynga.

First, let's talk about the market today.

Let's talk about what's happening here.

On the surface, it's a very uneventful.

The dow jones is up 12 or 13 and the s&p up four.

That's pretty decent.

The nasdaq however is the big story up 0.7% and you have to thank facebook for that and elsewhere in technology.

Sector-wise, it was different.

You look at cyclicals and defenses, the stocks that are not as exposed.

The second best performer, utilities.

Traditionally one of the most defense of.

The third one is energy and the fourth is healthcare.

Back-and-forth, cyclical, defensive but not too many huge degree right now.

It's all earnings driven.

What's the take on merrill lynch on whether you want to be cyclical or defensive?

We want to be a little bit more pro-cyclical, but what's really going on in a market like this is you start to see the great rotation happen.

Money is coming out of bonds and going into equities and that they are putting it in defenses, and cyclical.

You are seeing an asset reallocation happen out of fixed income and into equity.

But not necessarily toward cyclical in general.

Really, they are balancing as the whole s&p 500 does.

At the broad movement from fixed income into equities.

If you look at it and annualized the fund flows, so far there had been $280 billion going in.

That is a huge, huge rotation.

Talking about huge, news on amazon.

It doesn't look good.

Jon erlichman, tell us the details.

The story with amazon for the longest time is a company that spends big to get huge sales but at the expense of profitability and the story continues to be playing out with these results.

The initial reaction is not favorable because the earnings per share is not what wall street was looking for and analysts were expecting about six cents per share and there was obsolete -- and there was actually a loss of two sense.

They are reporting what wall street expected to see you, looking ahead to the guidance, the idea if you can give blowout guidance on your topline that it will keep everyone excited.

They are talking about a range that's pretty big , $15.4 billion to $17.2 billion and wall street was looking for somewhere around $17 billion.

They are expecting an operating loss which could be as big as 440 million dollars.

That goes back to the fact that this company is very comfortable spending money on distribution centers and media content to build a moat around its business.

Razor thin margins are the case with this company and it looks like the operating margin of a whopping half a percent down and 1.9% in the third quarter.

It's not uncommon for them to have a negative operating margin , but slimmer than what we have seen in the last few quarters.

That's absolutely unbelievable.

The more they sell, the less they make per-unit and yet the analyst community absolutely love this company.

33 guys,, 12 holes, two cells.

And we are paying 250 times earnings -- 33 buys, 12 holds, 2 sells.

This is a great way for them to continue the business humming, but right there you can see "mad men" and all of the content you can acquire that has much better margins.

The idea is let's spend on the kindle devices that people will be consumed with amazon and buying through us.

They will buy their e-books, their music, their movies through us which have better margins.

But continue to build a business to build that moat.

You really have these differing businesses from google, amazon, apple, but they all have the same idea.

They want to have all these different ecosystems.

Turn erlichman from los angeles, thank you.

-- jon.

Jules?

Expedia taking a big hit after hours.

Earnings per share came in at $.64 where as analysts were looking for $.81. they knew that there were headwinds going in and they talk about gross bookings increasing.

Hotel room nights increasing and at the same time, they talk about average daily room rates and average airfares being essentially flat year-over-year so that could potentially landed the shortfall that expedia saw during the quarter.

Again, a big shortfall in terms of earnings per share spurs is what analysts had been anticipating.

I want to point out we just got starbucks numbers as well and it is coming in two pennies above.

50 five cents per share and 53 was the average analyst estimate.

Take a look at the global top herbal sales.

8% and analysts were only looking at a gain of 5.8%. -- take a look at the global comparable sales.

Starbucks is offering various new product and they are getting our people into their stores.

Also, i see here an increase in the fourth quarter earnings per share forecast.

A lot of numbers coming out.

Starbucks is one of these we can put in the plus column.

How about online game makers bingo -- zynga?

This has been a real downward type move.

Earnings per share is actually a loss but better than expected.

It was just a one penny loss per share he and analysts on average were looking for a loss of four cents per share.

We will call it a loss.

Second quarter total revenues 230 $1 million and the ever just omit was for $219 million -- $231 million.

Second-quarter gross bookings were down 38%. monthly unique users is down and monthly active users down 39%. there is a recurring theme here overall with regards to overall results.

This is a stock that is well, well off its highs compared to its ipo.

Newly minted ceo don naturally -- don matrick is now the man in charge and he is a formidable path ahead of him.

For right now, zynga is working off a pretty little basis but it has a long way to go before i can even get back to its pre-ipo or post-ipo levels were.

What's fascinating is that it's an even split down the board.

Amazon and expedia mess on the bottom and the top line.

Starbucks and zynga the -- beat.

We saw a gain of 6% so they were anticipating that move.

They were up right as the numbers came out.

All of the unique users all down.

In this environment where it is a mixed bag, one is better, the next is worse, what does it mean for the consensus?

They will just churn back and forth exactly like you said.

It's time to be a stock picker.

We need people like you, candace browning.

That's your close but we are the first trade or tomorrow.

Here's what's coming up on "street smart." is it safe to go public again?

Now that facebook is firing on all cylinders, which.com -- which .com stocks will rush?

Lulu lemon stretches the marketing strategy.

Why the marketing push begins right here on wall street.

Money and getting rid of jail instead of out of it.

That's all part of today's "weird wall street." that's coming up when "street smart" continues.

? this is "street smart" on bloomberg television, streaming on your ipad, and on bloomberg.com i'm julie hyman in for trish regan.

Shares of a spec are soaring 27% thanks to a stellar earnings report and it looks like zuckerberg and the gang may have finally put to rest debate about whether the site should have but on public in the first place.

-- should have gone public.

Rumor has it that gilt, etsy, and fab.com are on the way for an ipo.

Twitter is still private but there is the possibility of taking 140 characters or less to the public sphere.

Joining us now is the content expert from nashville and a soon your and and and a analyst.

-- expert from mashabale and an m&a analyst.

Is the empire met now better is for some of the media started to come to the market?

It's impressive what facebook has done.

In the matter of a year how much they were able to increase the mobile advertising revenue and that was one of the biggest concerns with the ipo.

Are there other companies doing as much?

Certainly not in the advertising side.

With some of the car misplays we are seeing at places like fab.com, gilt, etsy , they are reporting very strong mobile numbers and as we are seeing a mobile shift, there's a lot of essential for those companies and there will be more interest.

Jason, you have your ear to the ground for private equity and people who invest in these companies.

How do they feel about the opportunity now to get a return on their investment?

It's a very different feel from one year ago.

They were worried about whether or not the market has a mac the -- has an appetite for these type of ipos and the caution is really about proving the story, making sure that these companies are profitable and really on a growth trajectory.

As lauren said, some of the names we are talking about to have the characteristics.

Whether or not they can sustain them is another trait.

Click sadness no more.

Mobile is now about 41% of total revenues.

That's a big deal.

It's a huge deal.

The mobile advertising numbers are so sophisticated, so well targeted.

I have spoken to a lot of marketers in fashion and that is where all of the money is going right now.

One of the more innovative products they have right now are the mobile ads to install instead of banner ads.

You do not see that kind of thing from yahoo.

It's ripe for e-commerce.

Collett a stigma or a debacle around facebook.

Is it unique to facebook?

These are ad supported social networking companies.

I think the story, to me, is more around the e-commerce and enterprise software systems like tableau.

They are up 90% from ipo, up 33% from ipo.

There is stable revenues where the monetization dynamics are a lot clearer than this while gyrations in ad spending.

That is where people are going to be very open and where you will see ipos performing very well.

If you look at the pipeline, we have quite a few of them coming up.

And if you look at retail me not who when profit -- went public last week and it is tied to the consumer, a broad range of retailers that they are pushing people towards a very stable story that people can really get behind and understand.

That's exactly right.

What are you looking for from an investment perspective, candace?

So we just rose our price target on facebook.

It is now $40 per share.

Looking at it broadly, the test is always mobile.

Do they have a good mobile strategy?

I think one of the interesting things there we were talking about before is growth outside the united states.

Lots of people outside the united states first access the internet through mobile.

This is huge growth.

They can afford a phone and probably not a computer.

And then you get this broad new world.

That is one thing we are focusing on.

Do they have a good mobile strategy?

Are any of these globally exposed?

Thinking about gilt or etsy, do they have the international exposure?

Gilt ships worldwide.

I do not know if they are in any markets.

Those are new revenue streams, new opportunities.

Back to your point, facebook isn't making nearly as much money off of users in asia and other emerging markets than they are in the u.s. and canada and it's clear that's where they will get the bulk of the mobile advertising revenue.

I'm curious what you think about that and whether it will evolve.

It is a multi-year-over-year growth trajectory.

Paul kedrosky made the point that the key to facebook is converting like to want to need.

Is that part of the thesis?

I think that can happen.

I heard you nodding.

Jump in.

You are right.

Like to want to need to getting paid.

When we can value your revenue string and there is something valuable there, how you get a community and translate the community of 100 million users into revenue and there is a clear stream, a clear pattern of conversion, that is what investors learn for.

-- look for.

They seem to gravitate companies that have a more tangible business model.

It is something you really cannot overstate.

There is no clear pattern of customer conversion.

It's going to be problematic of people who try to follow through with the ipo pipeline.

I cannot wait to have you back on when we get some of these companies public.

Laurent, jason, iyan.

Coming up, the perfume trade.

Find out why the company behind beyonce's fragrance line is best in class, your next big trade.

Lulu lemon new marketing push.

I'm not making this up.

They want me to buy yoga pants.

Can they court the wall street jocks or bloomberg guys?

We will get into it coming up next on "street smart here co.

-- "street smart." ? time for the next big trade.

Lady gaga, david beckham, they all have fragrances made by one company, coty.

The stock is down this year and here to explain why you should die now, nearly from piper jaffray.

I appreciate you joining the sale -- the show today.

Why do you like this story now?

It a strong, solid company focused on innovation.

They do have fragrances but it's not just fragrances.

They have skincare, nails, all things beauty.

We are very encouraged by the prospect.

How are they improving their profile?

They will be very focused on the power brands.

These are household fashion names like calvin klein, sally hansen, opi.

They will stay in those areas while also innovating along the way.

Emerging markets are absolutely an area of focus.

How much of the story is a show me story?

Proved to me, neely, the growth is there and you can grow the business.

That is when we can see the multiple move higher.

Neely from piper jaffray, buy coty and buy it now.

Zynga is a big deal.

Look at it now down 14%. it will no longer pursue gaming in the united states.

That was supposed to be the real -- i should say, real money gaming in the u.s. that was the online gambling reason that was going to bring this company back end is not working, jules.

Lulu lemon is trying out a new strategy for a fantastic marketing push.

? . 's yoga wear maker -- is trying to stretch its image at gilmore two men.

-- to men.

Lulu shares are down this session.

Bloomberg contributor -- they are here to discuss.

The problems are broader.

Such as broader -- quality control.

As someone who watches retail, can we make that turn?

Can they make that expansion to the world category?

Any word, no.

They are going to try.

We will see what kind of growth they get.

There is nike and under armour.

Do you really care when it is 30% more expensive?

Is going going to be a tough sell.

I am worried about lulu for other reasons.

At the mall, you see everyone selling yoga wear.

Macy's has it, american eagle has it.

Gap body.

You name it.

They are trying to sell yoga wear.

They are the most copy brands out there.

They have been selling men's clothing since 1998. most people do not know that.

It is percent of their total market.

They have been out there selling it.

The difficulty is not whether -- i asked guys.

They said, it is not so much the fact that it is a woman's brain, but the fact that it cost so much.

Or then it is a luxury brand.

They can get the shorts for $24 at nike.

That was the big thing for them.

A lot of guys like the steak they have.

-- they are not a sport ran pretty are a luxury brand.

If you look at their square footage, they have been the third best producers.

The only others are tiffany and apple.

Getting back to what they were saying, it is going to be tough to make the transition in a crowded field.

I own son.

I like the stuff.

It is too expensive for the market.

I do not think most guys my stinking.

As not a selling feature.

They are going to have a hard time getting attention to drive it in its separate store.

They been selling stuff for men forever.

It hasn't done that well for them.

[laughter] getting me into the position is the problem.

I want to ask you guys, at the same time we have been trying to market to men, we have under armour trying to get into the women's business.

Lulu cannot crossover one way.

It is much easier for them to do that.

You cannot look at brand after brand.

There is been more of a man's brand over time that has gone over to female.

It is much difficult to get men to switch to women's brands.

Sexism is alive and well.

It is always been that way.

It is always going to be that way.

You are a marketing do we pray they have been trying to sell close to men.

-- close to thes to men.

Where they went to realize it is not worth it?

It is still a good growth market.

They can make a go, that is still a lot of money.

The margins are ready good on this project.

It is very good for them.

It is all upset.

They have had this controversy about the see-through pants, which should have been a no- brainer.

You should have caught this in your production.

You should've caught this.

Someone should have known.

Inspected by inspector 16. do they have the same kinds of processes in place when it comes to picking new products?

As a marketer, i would do studies and test the market.

I would go to different stores and see that is going going to work first.

I do not know with the choices they are making, really stupid stuff that should be very simple.

There been management changes.

Who do you want to see in charge of lulu lemon?

What direction should the company be going?

This company needs to grow.

Any step quality control work it is growing faster.

Probably too fast to sustain that.

They need a real good person in the control site.

Cap have good -- they have to have good marketing.

They need to replace people with strong operational and marketing.

That is hard right now.

Is there someone out there?

There is always someone out there.

There is always great talent.

They can find them.

It is a good brand.

Talk to people in canada, where they are from, they love this brand.

Everyone that goes and buys this product loves the product.

A wife -- my wife loves this product.

They have stickiness without question.

They neither mojo back.

-- they need their mojo back.

Given the multiples they carried great if the growth slows down, it has got to come from someplace.

They are going to need to find a good retail operator.

That is what they need here.

Even with the controversy, she is cashing out $25 million in her pocket.

They have got to find somebody who can get into this a day-to- day.

They're going to have to look at changing their culture.

They speak in a different language.

If you're going to market to men, they have short language that is not appeal to men.

You're a macho guy.

I do not know.

Maybe they should hire me -- you.

I am ready.

We are having a little yoga class after the show.

I'm going to send my staff people.

Thank you for coming in.

Lovely discussion of lululemon.

A battle of the patents.

Someone is way in the league.

We will tell you who it is.

A girl has to make a living, we will tell you the mixup that involves a stripper, the police, and $1 million wrapped in hair bands.

It is all true.

Time for chart attack.

Hr will make you smarter and make you money.

We are talking about the global innovation war, and who is winning it.

Candace browning , there is a lot of people to manage, who was winning?

The united states is winning.

Clearly.

The chart shows you that.

If you look at the number of patents, china surpassed the united states in 2010. people got nervous about that.

In reality, the united states actually gets many more patent approvals than china.

Quite -- let show what candace is talking about.

The patents granted worldwide, china has been moving up.

Wow.

Look at it versus the u.s.. that is where the real innovation is.

That is your point.

That is exactly the point.

There are so many other ways to make it.

The united states spends more money on research and development than asia and europe combined.

That is a huge statistic if you think about it.

In addition, the united states companies are three times less likely to cut back on r&d. they will cut back advertising.

They do not cut back on r&d. they cut back on advertising 75% of all of the venture takes place here in united states.

This in -- this is innovation nation.

We do not give us -- ourselves enough credit for this.

Innovation nation.

You are right.

This is where it is.

Think about it.

Big data.

Cloud computing.

Eating -- even things like nike.

This is where the innovation takes place.

In our private client network, we manage two trillion dollars.

This is one of the things we are focusing on.

Finding those companies where there is innovation.

Booth on the ground analyst?

You have hundreds around the world.

They are knocking on doors and saying, what you're doing?

It is boots on the ground analyst.

That is why we have analysts globally.

We have gone back and down the back testing pre-we have found that those companies that actually have a line of r&d in their financials, the disclose what that spending is, those companies outperform companies that do not report that.

With focus on r&d, you are likely to outperform.

Nike is the perfect example.

There is lots of other examples of that.

In fact, and technology, that is where you see the largest outperformance.

You see it in almost every single sector.

Take us inside merrill lynch.

As you try to prioritize stocks, an analyst says here's my report.

Other boxes that have to be checked?

Innovation?

Is that part of the thinking?

We do have an enormous quality control mechanism throughout the firm.

An ovation is one the things we are looking for.

We are looking for it in terms of earning share growth.

What we really look forward we're trying to figure out what to cover is investor interest.

The overall quality of companies.

Likes and i know you are talking with investors.

What are the things they are telling you?

Investors jump from one theme to another.

What have you done for me lately?

Exactly.

We're seeing a lot of investors talking and thinking that this whole great rotation out of fixed income in equity is gathering a lot of steam.

Another thing we talk about earlier on the show, europe coming back.

We see that as well.

It is curious, you realize that is why immigration has finally percolate.

While we educate so many people in this company.

So many innovation -- so much innovation we is the result of immigrants.

If you think of the people we bring it tonight states to get phd's, that is where the innovation is coming from.

40% of the companies in the s&p 500 were either started by immigrants or relevance -- relatives of an immigrant.

The sons and daughters.

Incredible.

We should feel proud of this.

We are a innovation nation.

We do not look for it enough and investment.

We need to have you back.

A pleasure to have you here.

We've come see us again?

Absolutely.

Thank you, adam.

One of the highest-ranking woman on wall street, running research at bank of america.

Up next, kids are too busy to go to jail.

Hasbro has the answer to keep their attention.

That is part of "weird wall street." ? it is time for "weird wall street". i am so excited to tell you the story.

She works hard for the money.

And exotic dancer in nebraska had cops confiscate $1 million of her cash.

She had them in plastic bags in the trunk.

She planned to use the money to invest in a club.

Hobbes suspected the money was drug money.

After no connection was found, a judge was -- a judge had the money return.

Better than a mattress pretty trunk of your car.

There is a zero interest rate environment.

I admire the judge.

She is riding a wrong.

She worked hard for her money.

If we all save as much money as she did, maybe would -- we would not have that a housing crisis.

Remember this?

It is coming to life.

Sort of.

And a center billionaire was given the green light to build the largest park of giant robotic dinosaurs.

It is very own jurassic park.

It is kind of weird.

It is getting what hundred 60 creatures.

Five team x robots.

-- t-rex robots.

There are hundreds of objections i local residents.

Shocking.

Can you imagine hearing that?

It is for his personal use.

How real is it going to look?

May be a filter.

-- field trip.

Kids these days are too busy, so busy that hasbro is finding a new way to keep their attention, making a new version of monopoly without a jail.

They have removed the face to speed up the pace of play.

The new version is going to be completed as half an hour.

You can still play board games?

We are kids at heart.

It is not right.

You should go to jail.

You have to get rid of the out of jail free cards.

What happened to them?

Imagine if no one understood what that means.

That is the loss of americana.

We are glad you have been with this.

-- with us.

We will be back with the box office battle between a snail, the wolverine and the ghost.

We are coming up at 56 minutes past the our breed we're on the markets.

Here is how we finished the day on wall street.

You can take a look at the next picture.

Marginal gains and losses across the board.

Take a look at these indices.

Some of the names are reporting after the closing bell, expedia down the most in the market.

The company reported shares of 64 since they share.

Coming after the bell, amazon reporting operating losses of two cents per share.

Starbucks reporting earnings that topped estimates.

The company boosted fourth- quarter estimates.

Finally, it is all fun and games , except for zynga.

They made a two cent per share loss on the company revenue of $200 million.

One name that people are buzzing about today is facebook.

They saw close to 30% at one point.

Here is olivia sterns.

Facebook, i was pretty blown away by what an upside stock reaction was.

And what a payday it was for mark zuckerberg.

Three point $8 billion -- $3.8 billion.

That is according to the billionaire index.

We can't let that on a daily base.

They're hitting about $34. they are close to the ipo price.

On the back of these results, 10 analysts have come out and raise their price targets on the stocks.

Goldman sachs raised their target to $46. we saw more than four times the usual buying.

It is amazing.

This is the fundamental story of facebook.

What you're seeing is a screenshot of what it looks like online.

It is not about the personal computer experience.

It is about mobile, tablet, smartphones.

That is where the skeptics were.

Could they monetize on a mobile space?

They promised to make facebook a mobile company.

Analysts say these results prove he has been able to do that.

They've a couple of new ideas in the pipeline.

They are letting marketers show their ads on their feet.

The air is ready on apps.

-- they are concentrating on apps.

One analyst put it that there is demand for marketers to spend money on facebook.

Introduce the right set of products to facilitate it.

I do not use facebook that much.

I just don't have as much time as some of the younger folks out there.

The experience on mobile has been much more, in terms of the way i use it, then a traditional pc.

This text has been automatically generated. It may not be 100% accurate.

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