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QUEST MEANS BUSINESS
Facebook Earnings; How Facebook Makes Money; Twitter IPO; No Change, No Taper; Dow Down; Foreign Exchange Fixing Investigation; Batista Loses Billions; Ashton Kutcher's New Role; Lenovo's New Tablet
Aired October 30, 2013 - 17:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
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RICHARD QUEST, HOST: Well, what a day! The closing bell on Wall Street, when we had the focus on Facebook, the Fed, and the future of QE when the bell rang on Wednesday, October the 30th.
A firm thumbs-up for Facebook. Investors say they like the latest earnings released in the last hour.
A case of steady as she goes. The Fed holds the line on stimulus.
And from billionaire to bankrupt, the tale from Brazil of one of the country's richest men who saw his oil empire crumble.
A busy hour together. I'm Richard Quest, and I mean business.
Good evening. There are companies on Wall Street, and then there is Facebook, which is probably more looked at and watched than just about anyone else at the moment. Tonight, we've learned Facebook is more profitable than ever before. In the last hour, the social network company released results for the third quarter. Come and join me over the super screen and you'll see.
That's the core fact you need to remember: Facebook beats expectations. And for a company people were laughing at three months ago, things are looking pretty good. I've got my handwritten notes here.
Let's start with revenue. Revenue was at $2 billion, it was up 60 percent from the previous quarter last year. Ad revenue was at $1.8 billion, an extraordinary performance, up 66 percent. And mobile ads, they account for half of the revenue.
Put it all together, Q3, $621 million. But look at the share price, and this is what's been most remarkable for the share price. The CEO, Mark Zuckerberg, says that Facebook is ready for the next phase.
The shares are up 9 percent after-hours trading, and let's -- this is the low point. That's the IPO. That is the low point, the all-time low back in September of last year when, of course, the share prices just around about $15, $16, $17 and change.
And then, as it carries on, it picks up steam, and there's clearly a momentum, but nothing -- nothing -- compared to the sort of 9 to 10 percent rise that we have seen. The IPO price was $38. It is now considerably above that. It's exceeded the IPO price, which was from -- in July.
Samuel Burke joins me now from CNN in London to talk about this. Samuel, I have the numbers here, but the focus of Facebook has been, remains, and will be the company's ability to raise money through advertising. And if these numbers are right, it's been very impressive.
SAMUEL BURKE, CNN BUSINESS CORRESPONDENT: Well, Richard, I think any user of Facebook could have told you this might happen because everywhere you go on Facebook, no matter what page, you see advertisements left, right, and center, even if you go on the QUEST MEANS BUSINESS Facebook page, immediately you see these ads here, and it makes up 80 percent of Facebook's revenue.
But more than just seeing them on the webpage, Facebook has really excelled when you see them on mobile. Why is mobile important, Richard? Location, location, location. It doesn't just tell somebody --
QUEST: OK, but --
BURKE: -- where the --
QUEST: Right. I'm just trying to catch up to you. Why is an advert on a mobile, even with location, location, location, why does it matter and why is there a difference between an advert delivered on one device versus online?
BURKE: Well, when you're online, when you're on the webpage, if you're at a computer, it may know that you live in New York, for example. But when you're with your mobile, it will tell them exactly where you are.
Are you ten feet away from a restaurant that wants to advertise that piece of pizza to you, Richard? And then that ad pops up right in your mobile application. Richard, 870 million users of Facebook's 1.2 billion users are using mobile. We are a mobile society --
BURKE: -- and some websites you're starting to see, Richard, like Facebook probably soon, have more mobile users than they do users on computers.
QUEST: And the fact that mobile average daily use, monthly use, was up 50 percent, people had said that Facebook, that the strategy on mobile was lacking. As you read these numbers, Samuel, and you look at the their revenue stream, what do you make of it?
BURKE: Well, I think it was -- they went for the longterm and were very smart about it. When the IPO really flopped, a lot of people said it was because they had weak mobile strategy. So what did they do? They went in and they acquired companies like Instagram, which has an excellent mobile app, and they use the smarts from those people to create a better- looking app, Richard.
Another thing they have going for them is how they use friends in their ads. So, let's say you're on your mobile phone and you're using Facebook, Richard. You don't just see an advertisement. You also see an enhanced advertisement with your friends.
It tells you, do you like this product? Samuel likes this product. Richard likes those products. So, it's enhanced advertising. It's not just an ad, it's also with your friends.
QUEST: Finally, that's the advertising revenue. But can a company -- well, I suppose many companies have survived on ad revs alone, but longterm, what about -- I mean, I looked at these numbers. The non-ad revenue, $200 million, it's less than 10 percent of revenues.
BURKE: Well, the analysts I spoke to today said that they like the 20 percent of other revenue, the way Facebook has diversified those other revenue streams. For example, Richard, if somebody wants to send you a message but they're not friends with you, they can't just send you a message.
They actually have to go in, find you, and then pay you about $1 or 67 pence here in the UK, to send Richard Quest a message. So, it's a smaller part of their revenue stream, but they have that type of revenue coming in, they have games, and they also have a virtual shop. So, it's those other small revenue sources that might get them through the days when advertising goes up and down, Richard.
QUEST: Samuel Burke in London pulling apart the Facebook page.
The New York Stock Exchange, staying with tech stocks, says that when it comes to Twitter's IPO, it's learned a lesson or two from Facebook's rocky start. Alison Kosik spoke to the executive vice president of the exchange, Scott Cutler, and asked him how the big board plans to handle Twitter differently to stop problems the sort of which were suffered by Facebook.
SCOTT CUTLER, EXECUTIVE VICE PRESIDENT AND HEAD OF GLOBAL LISTINGS, NEW YORK STOCK EXCHANGE: What we're really focused on -- and this is really our competitive advantage -- is really providing transparency around the IPO process. We're very much focused on having an IPO that proceeds smoothly so that investors around the world can see actually what's happening around the IPO to avoid confusion.
We're very much focused on making sure that we're building and establishing confidence in the process, which is the hallmark of having a physical floor and people here.
ALISON KOSIK, CNN BUSINESS CORRESPONDENT: But the volume, the volume of trades that are expected to come in because this is one of the most- anticipated IPOs, how do you know what to expect? Because that's kind of what caught the NASDAQ off guard --
KOSIK: -- with Facebook.
CUTLER: We did some testing over the weekend to make sure that we had replicated the highest order flow that we could expect for a transaction. In terms of the overall transaction size, it's not the largest of IPOs, but we do expect a high retail order participation in the deal.
And I think what we really try to do is make sure the systems are ready for the type of volume that we expect and that the floor is ready to handle the process.
QUEST: That's the Twitter IPO still to come. It's believed to have been early November.
Now, turning to our other major story tonight, no change and no taper. The US Federal Reserve has offered few clues on when policymakers expect to scale back the bond-buying, money-printing stimulus.
The committee voted 9 to 1, Esther George being the usual standout, to continue buying $85 billion worth of mortgage-backed securities and US government bonds each month. Esther George believes that this is storing up problems for the future.
In the statement, the Fed describes the economy as "expanding at a moderate pace" -- "moderate pace" being the key words. And at a stab at Washington, they are quite blunt about it. It says, "Fiscal policy is restraining economic growth."
And when you read those lines about fiscal policy restraining economic growth, it's put just as a bald statement. Just nothing else. So, we put the Fed's statement into a Wordle to see which words appear most frequently, and here it is.
No, obviously, "Committee" takes pride of place at the center, because it's always "The Committee believed this, the Committee believed that." Other words like "economic," "inflation," "policy," "markets," and "labor" are also useful, particularly "labor," because they keep talking about the labor conditions, the labor market, and it gives you an idea of the sort of things.
Interestingly, you don't see "price" much in there in terms of "price stability." You don't see "inflation" in there. Because of that, what you see are these words that show -- except maybe one "inflation" over on the right.
With no news conference, no updated forecast, it was all down to the Fed statement. So, what changed and what stayed the same? What changed: in September, the Fed said -- let's look at what the Fed said. "The housing sector has been strengthening."
This month, the Fed said, "The recovery in the housing sector slowed somewhat in recent months." That's crucial. Housing has been a driver and a growth engine of the US economic recovery.
What stayed the same: in September, the committee said they decided to "await more evidence for a sustained adjustment of pace of purchases." And of course, now, this time again, in October, they're going to "await more evidence." The same line appears word-for-word in the two sentences.
Diane Swonk is the chief economist at Mesirow Financial. She joined me earlier in the week. Well -- you got it spot on --
QUEST: -- both in the decision and the sort of direction. How would you gauge this result, today's meeting? Was it a bit of a damp script?
DIANE WONK, CHIEF ECONOMIST, MESIROW FINANCIAL: I think it's a very cautious Fed. Right now, they don't want to make any news. Janet Yellin is going through a lot of interviews on the Hill. There's talk about delaying her confirmation, all that kind of stuff.
And I think the bottom line is this is steady as she goes, we're going to continue to provide support for the economy, a bit of a safety net for financial markets, but right now, they don't want to rock any boats.
QUEST: I was really taken by that one sentence in the statement: "Fiscal policy is a drag on growth." I mean, there was a full stop before it, there was a full stop after it, there was no explanation. It was right in your face.
SWONK: It was, and it was more -- a shorter sentence. The few things you could see, this slowing housing market, as you accurately pointed out, was very different from last time and a bit of a downgrade of what is happening in the US economy, but on the other side of it, that just sort of "fiscal drag," period, this is it.
And it was all-encompassing because last time they sort of talked about fiscal drag in general. We'd had tax hikes earlier in the year, we'd had sequestration. But this is fiscal drag, period. And I think the point of it is, hey, the reason you put us on the sidelines is you had a government shutdown here. It's the elephant in the room.
QUEST: So, looking forward. Earlier this week, you said, I think, basically, the middle of next year before you're looking for tapering, or at least into next year. Correct me if I'm remembering incorrectly. Nothing in this statement changes that view.
SWONK: No, and I don't think we're going to see a big change in December, either, because we've still got another deadline of what could be government gridlock looming in both January and early February.
So it really puts the Fed in a very difficult position of -- I don't think they're comfortable with the size of their balance sheet, I don't think that they like the percentage of what they're buying of new issues out there, because mortgage originations have actually fallen.
So, they are the single player on the margin in both the treasury bond and in the mortgage origination market. Now, they don't like being the only player in the room, but they are, and they're going to be there until at least March. I think it's going to be very difficult for them to get out of this situation.
It may change the pace at which they eventually start tapering, instead of gradually, more aggressively. But it's hard to tell at this stage of the game, given that the economy is so weak.
QUEST: Final question, Diane, and I often think about this when -- if you take -- if you bear in mind, on wider issue, the Fed prints the money. The Fed uses the money it's printing to buy the treasury bonds and other bonds to put in the store, which is bailing out the government, which is money which the Fed printed in the first place. Why does it make a difference how it swells its balance sheet?
SWONK: Well, it's an interesting point, and there's a lot of debate about that, and the Fed has finally decided that it actually does make a difference. And many within the Fed -- this was controversial early in the year -- what they now have decided is there is a purpose for buying mortgage-backed securities.
Because the difference between the rate on the ten-year treasury bond and mortgage-backed securities was widening and that they, providing more support for the mortgage-backed market, and continuing to buy in that market, which still doesn't have private ones, that hopefully would lower mortgage rates more and bring people back into the market.
QUEST: We'll talk more about it. Interesting times. Many thanks, indeed. Diane Swonk joining me from Chicago.
Stocks fell after the Fed announcement. The Dow was down 61 points, just four-tenths of one percent. Why? Who knows? They didn't rise. Bearing in mind, the Fed held tapering off. It's all after a day of record highs, so today's may be a response. It's just a case of people deciding tapering may be sooner rather than later and also taking a breather.
Up next, market regulators get tough. Barclay's the latest bank to be investigated over the possible rigging of currency markets.
QUEST: Barclay's is the latest bank to come under scrutiny by regulators investigating the possible manipulation of foreign exchange and currency markets. Barclay's says it is cooperating with the revue.
Deutsche Bank, UBS, as we told you yesterday, are also assisting. These banks are amongst the biggest players in the $5.3 trillion foreign exchange market. It's all part of a wider crackdown into misconduct in the financial industry.
Nina Dos Santos spoke to the chairman of Barclay's earlier this week about this need to rebuild trust in banks and asked him about the Fed's commitment to its bond-buying program and why trillions are having to be pumped into the economy, and it hasn't done the job yet.
DAVID WALKER, CHAIRMAN, BARCLAY'S BANK: I don't think it's the case that that's damaged banks. Or more importantly, that it has not helped society. I have no doubt at all that economic activity is at a higher level in the places where there has been significant quantitative easing than it would have been without that easing.
The problem -- I think that's pretty unanswerable. The problem is that this is a short-term palliative measure, and in a society the danger, particularly in the developed world, where this quantitative easing has been so significant, like in the UK, the United States, and continental Europe.
The danger is this quantitative easing eases problems that are really rather fundamental and secular, like structural issues, like the structure of the labor market, lack of competitiveness and all that. And there's a danger that central banks are becoming the instrument of an easy policy, which obscures the need to take hard decisions.
So, I think quantitative easing has played a really important part in a critically difficult, feeble environment in the developed world, but it can't go on forever without obscuring these fundamental issues that have to be addressed.
Those are not problems for banks, they're problems for governments, for structural change in the whole of society.
NINA DOS SANTOS, CNN INTERNATIONAL CORRESPONDENT: How can banks try and rebuild their image with the kind of guidelines that you're putting forward? Is it a question of them needing more supervision or just outright more regulation?
WALKER: Well, I think there's a case for regulation as a necessary ingredient. You have to have regulation. "Thou shalt, thou shalt not." And you can tick boxes and say, this bank has those things in place, a good process, whatever.
I have to say, those hard things, black and white rules -- black letter of regulation, is actually easy because you can say yes, a bank's got it or no a bank doesn't have it and needs to get it.
What is hard is the qualitative stuff, and that's what supervision relates to. It's how people behave. Are they open? Are they conducting themselves in the boardroom or in the executive committee of the bank in an effective way?
Is there, for example, a domineering chief executive or ineffective chairman who allows things to get through or pushes things through without effective challenge? And it's -- banks play so large a part, particularly the large banks, so large a part in our society.
The British -- the major British banks have balance sheets which are 600 percent of UK GDP. So it's really important that the supervisors are effective in judging outcomes.
DOS SANTOS: Parts of your endeavors with the Walker Report here in the UK, the G30 report, is also trying to rebuild trust in the banking system. Do you acknowledge that it's been severely damaged? And what kind of effort will it take to get people back on banks' side?
WALKER: Well, if the question is, has it been severely damaged? Absolutely, and I understand that. The -- if the question is how long will it take to repair that? A long time. Society will be unforgiving for a long time that so much damage has been done to economic wealth, to employment, to well-being in all our societies, in the emerging world as well as the developed world.
So, rebuilding that, not all of this is the responsibility of bankers. Many others have responsibility. But building those relationships of trust will take a long time.
However, those of us in the middle of all this are identifying a set of issues that need to be addressed where we can start today to make better progress. I think we're on a path which is kind of evolutionary. How can we, so to speak, step on the gas?
QUEST: That's David Walker, chairman of Barclay's, talking to Nina Dos Santos and some very frank and honest views.
It's all over for OGX. It was the company that was controlled by Eike Batista, once Brazil's richest person. Well, OGX is gone, filed for bankruptcy. It's Latin America's largest-ever corporate failure. Shasta Darlington's with us from Sao Paulo. What happened?
SHASTA DARLINGTON, CNN INTERNATIONAL CORRESPONDENT: Well, you know, it was a sort of a quick unraveling that we saw with Eike Batista and all of his companies. This is a man who is really built more on promise than on substance, and we've seen over the last 18 months, he's lost something like $30 billion.
So, this was just the latest misadventure, if you will. And it started when they -- when people started noticing that there wasn't as much oil in the wells as they had initially predicted. Nobody else wanted to invest more money in this company to see if the other wells would have oil. So, he couldn't reach an agreement with his creditors on about $5 billion in debt, and this is where we've come.
What comes next? Well, he'll -- obviously, if the court accepts this, he'll have a 60-day period to try and come up with a restructuring plan, then the creditors will have to either accept or reject it. But we're never going to see Eike Batista back on the pedestal that we once saw him on, Richard.
QUEST: No, but he won't be a pauper, either. There will always be a few dollars in the kitty. What will they make of it in Brazil, from richest person to bankrupt? Will -- will there be an element of schadenfreude, the so-called Australian tall poppy syndrome?
DARLINGTON: Brazilians are snickering at this, even though he's done a lot for Rio de Janeiro. He's actually invested a lot in, for example, boosting their image ahead of the Olympics. Brazilians do find this sort of ironic that this man who had promised so much and the fact -- in the end, couldn't deliver.
He's also been a bit unpopular lately because his sons have gotten in a bit of trouble. In fact, one of the newspapers had a headline today, his company may be filing for bankruptcy, but his son reportedly just spent $7,000 on a bar tab. So like you said, he's no pauper, and I think Brazilians are enjoying his downfall maybe a little too much, Richard.
QUEST: Shasta Darlington in Sao Paulo for us this evening. Shasta, we thank you.
Now, the actor Ashton Kutcher could have a hand in creating the next tablet from the low -- la no -- I'll try that again -- Lenovo. That's Ashton Kutcher. That's the tablet. And we'll talk to the company about why they wanted Kutcher as their new face.
QUEST: There may be a lot of tablets out there, and I'm not talking about the sort you take, rather the sort you use electronically. There is only one backed by Ashton Kutcher. The star of "That 70s Show" and "Dude, Where's My Car?" has a new role, very different. This time it's at Lenovo, and they're describing him as a product engineer.
Whether or not he's qualified for that job, I'm not qualified to say. He did play Steve Jobs once in a movie. Well, I spoke to David Roman, the chief marketing officer at Lenovo, and I asked him what makes their new Yoga tablet, as it's called, different? After all, there are plenty of tablets out there.
DAVID ROMAN, CHIEF MARKETING OFFICER, LENOVO: We actually did a lot of work. We've been working on tablets for a long time. And as we were looking at some real consumer usage of the tablet, we looked at a number of the things that we felt could be done better.
And one of them was actually how you hold the tablet. And the fact that they've become so thin means that when you hold it with one hand, it can actually be very, very difficult over time.
The second is, people sort of tend to use the tablet in different ways. Sometimes you want to watch videos, sometimes you're doing video conferencing. You're doing different things, and sometimes you want to stand it up. And you also have to type on it.
So, we came up with the notion of a different shape, literally a different form factor, that would allow us to hold it in a much more natural way so it fits your hand. It will allow us to stand it up on its stand and to stand in a tilt mode so that you can type on it.
And one of the benefits of doing it this way is that we've got this sort of relatively large cylinder so we could put much, much bigger batteries in the tablet, still keeping it a very low weight, which means we can get up to 18 hours of battery life.
So, we think those are pretty significant changes. It just makes the tablet more usable, it makes it much more friendly for users --
ROMAN: -- so we think that's the difference.
QUEST: The decision to invite Ashton Kutcher to become an advisor in these matters, he's extremely good on the screen and exceptionally popular in media. But what does he give you besides a name and a hot property?
ROMAN: I know that sounds terribly trite, but we really were looking for a partnership with Ashton and Lenovo. He -- first of all, he is an amazing technologist. And I think many people know him, of course, for his acting and his great presence on screen.
He originally studied engineering, he's very involved in technology, he has a fairly significant venture investment firm, he invests in new companies. He really is a technologist at heart. He loves doing things.
QUEST: It's a risky strategy, isn't it? Getting celebs onboard is a bit like playing with fire.
ROMAN: I think our experience of Ashton so far has been that he is fantastic. He really is the real deal. He's a -- he obviously has a tremendous presence, he really does have a lot of technology insight. But he really is focused on getting things done. He likes to do things. He's a -- we think of ourselves as a company for those who do. Ashton really is a doer.
QUEST: When we come back, investigator says they have video evidence of torture in a South African prison. The company which was running the prison at the time says no inmates were mistreated. Our report next.
QUEST: Hello, I'm Richard Quest, there's more "Quest Means Business" in a moment. This is CNN, and on this network, the news always comes first.
The director of the U.S. National Security Agency is rejecting allegations contained in a new "Washington Post" report. It says his agency broke into the communications links that connect Yahoo and Google data centers around the world. The General Keith Alexander says the article in his words "factually incorrect," noting that it would be illegal for the NSA to break into such servers.
U.S. President says he's not happy about the problems that have hit the Obamacare web site. Barack Obama says he takes full responsibility for making sure the government's health insurance site gets fixed as soon as possible. Three journalists who used to work for the "News of the World" tabloid have pleaded guilty to phone hacking. They were part of a group which went on trial this week. It includes the paper's former editors, Rebekah Brooks and Andy Coulson, who both denied all the charges.
Chinese authorities are now calling a fiery car crash in Tiananmen Square on Monday a terrorist attack. They've arrested five people in (Xinjiang) Province where the (Rega) minority group is based. Two tourists were killed in that crash along with three people in the vehicle.
And in the last hour or so, Facebook has reported a 60 percent increase in its third-quarter revenues to more than $2 billion. Profit doubled and the social network gained many more active users. Shares are currently up about 10 percent after hours.
Video footage has emerged showing alleged torture at a South African prison. The videos were recorded in May when the facility was being run by the British security company G4S. The South African government has since taken over the prison as it investigates the claims. Now, I must warn you, some of what you're about the see and hear in this report you may well find disturbing. Our CNN international correspondent Arwa Damon has this report.
ARWA DAMON, SENIOR INTERNATIONAL CORRESPONDENT: Video of an inmate being treated for his wounds after a prison fight. But it's the audio, inadvertently caught in the background that has human rights investigators alarmed. They say that is the dry clicking of electric shocks being administered.
RUTH HOPKINS, WITS JUSTICE PROJECT: (Inaudible) screaming now. That person is really in pain.
DAMON: Just one of the videos leaked to Ruth Hopkins, a human rights investigator with the Wits University Justice Project who started her investigation after receiving dozens of letters detailing prisoner abuse. Allegations of electric shocks, anal probes and worse.
HOPKINS: And then later in the investigation I found out that the prison was also forcibly injecting these inmates with antipsychotic medication according to the accounts of the inmates.
DAMON: She says the videos were shot earlier this year inside the Mangaung Maximum Security Prison, home to South Africa's most violent offenders. At the time, the prison was operated by the British private security giant G4S.
In a statement to CNN, a G4S spokesperson said, "We do not use any form of torture or shock treatment," adding that G4S staff at Mangaung Correctional Services do not administer medication nor do they have access to it. The spokesperson also said that they do take these allegations very seriously and they would be launching their own investigation into the matter.
But in another video leaked to Hopkins, G4S employees hold down a struggling inmate and he is given an injection. Hopkins says according to a health care worker, he was given an antipsychotic drug despite no record of psychosis.
HOPKINS: But as you can see, these are all G4S employees, you can even see the logo.
DAMON: But the videos were shot by G4S employees themselves. According to its government contract, the G4S emergency security team is obligated to document its actions, mandated to only use force under strict guidelines. G4S says it cannot verify any of the videos and the company continues to deny all allegations of inmate mistreatment.
With contracts across the globe, including with U.S. Customs, Baghdad International Airport Security, Wimbledon and many other red carpet events, this is not the first time it's come under scrutiny. G4S landed the lucrative London Olympics contracts to provide security staff but failed, forcing the British government to call in additional troops to secure the games. Earlier this month, complaining of being ill-equipped and understaffed, its employees in Mangaung Prison went out on strike. G4S fired hundreds of them. What followed was even more violence in the notorious prison. G4S says it was working to fix the problem, but the South African government responded by firing G4S saying, "The contractor has lost control over the facility."
But according to documents obtained by Ruth Hopkins, the problems at the prison were not new. As far back as 2010, a classified correctional services memo says, "The state is being milked for work not done." They, G4S, used the cheapest methods. The memo described the use of electric shocks as routine. Three years later, the government forced to take the prison back.
HOPKINS: You cannot outsource constitutional obligations.
DAMON: And an international security firm again finds itself under intense scrutiny, and this time denying it is responsible for torture.
QUEST: Arwa Damon reporting there. Now in just a moment, the man who helped build his family root beer stand into one of the world's biggest hotel companies. It's lessons on leadership from Bill Marriott.
QUEST: From our "Business Traveller" update today, we have some results from one of the world's largest hotel groups -- Marriott -- which has just in the last few moments reported profits up 12 percent on net income of $160 million. Revenue per room, so-called RevPAR is up 5.5 percent, and what it tells is that they're earning more money because more of the hotels and more of their rooms are full. Well, I had the chance recently to sit down with Bill Marriott. We discussed his theories and principles of leadership. Over the past 60 years, Bill Marriott has helped turn Marriott Hotels from a family root beer stand into a global hotel chain. The 81-year-old executive chairman had a lot to say about staying competitive in evolving industries. So, how much does he value intuition when making business decisions?
BILL MARRIOTT, EXECUTIVE CHAIRMAN, MARRIOTT INTERNATIONAL: I've been in the business now for about 58 years and I've had some experience in it and understand a little bit about it. And I think the intuitive feel is a buildup of the experiences you've had through the years and also the opportunity to listen to your customers, listen to your associates, the people you work with, employees on the front line, find out what the customers want and do the best you can to fulfill their needs.
QUEST: That's very much the thrust of your book, isn't it, "Without Reservations," which in many ways is a DIY manual for business? And besides, if you like the obvious of treat others as you would wish to be treated, what do you think is the essential element of success in business?
MARRIOTT: Well, I think the essential element of success is to continue to innovate, to look for better ways to do things, to realize that success is never final. If you think you're doing well, watch out because your competitors are coming after you, and they're doing well also, so I think it's very important for you to be innovative, creative and to keep moving the business ahead as best you can. And you get the input from your customers.
QUEST: Yes, but that's easy to say, difficult to do and I question, and there's evidence in all different areas, Mr. Marriott, how do you prevent complacency from taking hold?
MARRIOTT: Why, I think you continue to challenge your people in every way. I think you say here's what the competitors are doing, they're beating us in this area, we can do better in this area, here's what our customers are telling us, we've got to do better here. I think you have to imbue your people with a competitive spirit and let them know that we really are competitive and we want to be competitive and we want to be the best in all of our brands. We have 18 brands now, so I think it's very important for us to stay ahead of the game as best we can.
QUEST: Eighteen brands -- good grief. What on earth do you need 18 brands for, and I question, don't you end up cannibalizing your own brands?
MARRIOTT: Well, the reason we have so many brands is because there's so many different reasons for people to travel. They're either going on leisure, they want a luxury brand, they're traveling with their kids to Florida maybe from Washington -- they'll stay at a Fairfield Inn which is a less expensive brand. So it depends on the trip purpose, the destination, the reason for why they're going and we have a brand for every segment and we want people to pick up the phone and say "Hey, I'm calling Marriott, I want to go to XYZ city, and I know there's a hotel there. Might -- it's where I want to be at the price I want to pay."
QUEST: Is there a moment when you felt yourself really challenged and you've had to draw on everything to know what the next right thing to do was?
MARRIOTT: Well, we had a very major crisis financially back in 1990 when the -- really the financial markets tanked and the hotel business went way down and we had a lot of hotels that we'd built on our balance sheet that we were selling through the years to investors all over the world. And all of a sudden, all the money dried up and we had more debt than we could afford, and we were very close to getting in serious difficulties. But our people rallied, we cut our expenses, we had to lay off a lot of people but we ended up 1990/91 with more profits than we did in '88 and '89. So our people really rallied around and we were able to lead them through this difficult time.
QUEST: And as the chief exec, as the top man, what did you learn from that?
MARRIOTT: I learned that no tree goes to the sky. You'd better be careful about what you -- how much debt you've got, and you need to continue to listen to your customers and work with your associates to try and make sure your company's positioned for whatever happens in the future. So, today we have less debt than we've ever had in terms of our balance sheet, we're ready to move ahead. If a crisis hits, we can scale back and we're still in good shape.
QUEST: Sage words of advice from Bill Marriott who has seen it all. The weather forecast now. Jenny Harrison is at the World Weather Center this evening. Good evening.
JENNY HARRISON, WEATHER ANCHOR FOR CNN INTERNATIONAL: Good evening to you, Richard. I'm going to start with a look at weather conditions across in Europe. Now, it is not a bad weather picture. It happens to be fair with quite a bit of cloud around, but most of it is sort of high level cloud, not causing many problems. A bit of a disturbance sitting in across sea central and western med, it's going to sit there for the next couple of days, and yes, also surprised me with more clouds streaming in across the northwest. But temperatures are certainly on the lower side now across central air except for this cool air you can see -- 7 Celsius in Paris right now. It is 8 in Madrid, but very mild in London at 14 Celsius. But (inaudible) there because of the showers, the rain that is coming in with that next one quite heavy across northern region it is as well. But, that is the pattern over the next few days. The jet stream's still very active across the north, there's the high pressure. There's that little area of low pressure across the southwest.
And more of that moisture coming in as we go through the ends of the week. But for the most part, it really is a fairly good, quiet picture, so I have of course it's Wednesday find you some nice weather. It is getting a little bit more tricky, it has to be said because of course for the most part temperatures are cooling off. But look at this -- Faro in Portugal on the coast, so if you still fancy a bit of sun between your toes, well I think I've found just the place for you. Yes, it's not hot, but I can tell you as well either Friday, Saturday or Sunday, some nice sunshine, so 21 Celsius on each day. That of course is 70 degrees Fahrenheit, and not too bad in the overnight hours as well.
But here's a very interesting location for you. How do fancy Valencia in Spain?
HARRISON: Because you've got both here, you see, Richard. You've got the beautiful city, you've got the sand and the beach as well, and look at these temperatures. I know you're surprised by this. Twenty-seven on Saturday and on Sunday 26 Celsius, mild in the overnight hours. Third largest Spain of course in city, you know this. And guess what actually originated from Valencia in Spain? Apparently that lovely dish -- I call it 'pie ella'. Robert, our director here that talks to me every day before I talk to you, he calls it paella because he comes from some of that (happy) talk. So that's what he calls it. So you could head to Valencia in Spain. So very nice weather conditions there.
QUEST: I have been. I have been to Valencia. And you can see the (inaudible) architecture and of course you can always then get the very fast train up to Madrid.
HARRISON: Well, there you go, see (inaudible) know about it.
HARRISON: And worked hard to find some nice sunny spots, but there's a couple of them, because look at this picture -- it's a very unsettled picture towards the end of the week.
QUEST: That challenge is going to get harder as we get, as we get -
HARRISON: You know me, I like a good challenge. I like a challenge, so, yes. There we have it. And then temperatures are you know fairly mixed over the next few days. I've got a picture of a winery in China here, Richard. There's a story behind that. I'll tell you about that end of the day, shall I, because I think you've just about run out of time.
QUEST: Well, yes (inaudible) hoping to have a quick tiffle no doubt. A small sherry, light port. Many thanks.
HARRISON: I'd really like a sherry.
QUEST: Many thanks, Jenny Harrison in the World Weather Center. Infosys agrees to pay a record fine to U.S. authorities. The Indian firm settles a visa case -- that's the immigration visa, not Visa credit card -- by the Department of Justice. We will take you through that case. I'll be back.
QUEST: Infosys says it will pay a $34 million fine to settle a case with the American authorities over alleged immigration visa violations. U.S. Department of Justice says it's the largest payment every levied in an immigration case. Now, the government accused the Indian IT firm of committing visa fraud and abusing the immigration process. Infosys strongly denies those allegations. The complaint revolves around two different types of visas, the B-1 and the H-1B visa. Now, you may be well familiar with them. The B-1s are temporary, they allow a holder to participate in business activities in the U.S. In other words, coming in on a temporary visa, but not to do any work. Authorities alleged Infosys knowingly and unlawfully employed staff on the B-1s when they should have gone to the more proper H-1B visas. Now the H1B allows employee foreign workers in specialty occupations. Infosys said the settlement focused on errors in paperwork over a few years ago, the company denies all the claims, calling them untrue and unproven. Jim Alexander, an immigration law specialist joins me now from Washington. I mean, we don't want to get too detailed on the whole Infosys case, but it does raise the problem of the H-1B, the limited number of visas and the measures companies have to take to get employees in.
JIM ALEXANDER, IMMIGRATION LAW SPECIALIST: You're exactly right, Richard, we only have 65,000 new H-1B visas a year, and for this fiscal year, the cap was reached during the first week of filing. More than 100,000 petitions were filed for 65,000 H-1B visas.
QUEST: So just explain to me, if halfway through the year, you want to employee somebody and the quota's already gone at the beginning of the year, are you just out of luck until next year? Or is there something else you can do?
ALEXANDER: Well, you might have other options if the individual already is employed in H-1B status, you might be able to port their H-1B status to your company. Or if you're looking at someone outside of the U.S., you might be able to sponsor them on an L-1 visa if they worked for a company for you -- for one of your related companies for at least one year during the past three years.
QUEST: Right. But essentially, once the H-1Bs are used up, that's it.
ALEXANDER: It becomes much more difficult for companies -
ALEXANDER: -- to be able to bring people in.
QUEST: And the reason why the government -- U.S. government -- wouldn't just say, 'Well, let's have some more H-1Bs, we obviously need them. I know people like Zuckerberg in Silicon Valley, Bill Gates and others have all said that the U.S. needs more H-1B visas for highly- qualified staff. Is that right?
ALEXANDER: Well, yes, I agree. And I think actually the administration agrees with that position. I think there are people in Congress perhaps that don't agree. But I think that actually the American people, if they actually knew what the employers had to go through to hire an H-1B worker, and the costs associated with it, and if they realized that it actually costs more to employee a foreign national in H-1B status than an American worker, they'd realize that the H-1B visa is not that controversial. These people create jobs for the U.S. workers.
QUEST: So, why do you think -- why has it -- I mean, why has it become such a controversial issue? Because the people who are coming on H- 1Bs are not crossing borders illegally, they are not overstaying visas, they may try to go to permanent residency and other things, but it's a world away from the massive immigration issues that people are talking about.
ALEXANDER: You're absolutely right. I think that there is some concern about abuse. But our experience is that most companies want to comply. My partner and I (John Haiser), we just spent three weeks traveling around Europe meeting with our clients and key business partners to talk about compliance issues. And companies are very concerned about making sure that they maintain their excellent reputation. They don't want to have problems at the consulates, so that their employees can come in and start working in the U.S. So I think that there's some misinformation. I think there's been some abuse in the system.
ALEXANDER: Those people who abuse the system, they need to be punished. But for the most part, most employers are in compliance.
QUEST: Sir, thank you very much indeed for joining us. We'll talk more about it. I appreciate -
ALEXANDER: My pleasure.
QUEST: -- your joining us tonight on "Quest Means Business." Something you may have thought about as you're watching us around the world -- the H-1B, the various visas, just the whole system of getting into or out of the United States. @ richard quest, there's a variety of issues. The Facebook results that came out today. Has Facebook turned the corner? You've then got the H-1B issues that we've talked about. Lots there for us to digest between us once the program is over. I'll have the "Profitable Moment" for you immediately after the break.
QUEST: Tonight's "Profitable Moment." There was no question about it. A strong element of (inaudible) after Facebook had its IPO and then the stock promptly tanked to a low of $17 from an IPO price of more than $38. Everybody said Facebook had met its moment, and that it was clearly all over bar the shouting. Well, in the last couple of hours we have had results from Facebook which clearly show a very different picture. The big weakness in the social media's company's plan was that of mobile -- what they were going to do to get people from computers to mobile. Well, the numbers we've just seen put mobile up more than 60 percent. Advertising revenues simulating very strongly up over previous quarters. Now, of course it's by no means a slam dunk and Facebook has a long way to go, particularly with Twitter about to launch on the Stock Exchange. But anybody who put the Menlo Park company out for the count, is now ruing the day.
Many of us are just wondering why we didn't buy the stock when it was down at $17. Poof. And that's "Quest Means Business" for tonight. I'm Richard Quest in New York. Whatever you're up to in the hours ahead, hope it's profitable. I'll see you tomorrow.