Squawk Pod: Disney CFO Hugh Johnston & what’s next for Gaza - 02/05/25 | Audio Only

Please, hi, I'm CNBC producer Katie Kramer. Today on Squawk Pod, the world's richest man remaking Washington and America, piece by piece. Elon Musk, special governmental employee. We'll hear from the New York Times' Teddy Schleifer. Is this an example of what's going to happen at HHS or the Pentagon or whatnot? Kind of those big ticket items to the federal government where Musk sends in a few 25-year-olds to kind of wreak havoc? Disney's play in the content wars: must-watch entertainment, but higher prices for the subscribers who remain. The company's Chief Financial Officer Hugh Johnston joins us right now. I think we've got pricing that's going to be in place probably for the next 12 months. I expect this is a product that will continue to increase in price gradually over the course of a number of years. Plus the rest of today's news that got us squawking. The market: trade war, no trade war, round trip, almost landed in the same place we closed last week. Never mind China investigating Apple, Robinhood yanking Super Bowl betting, and can the U.S. own the Gaza Strip? Obviously, this is a hotly contested piece of land, basically forever. President Trump's shocking suggestion about the war-torn region. It's the 51st state of Canada, it's Greenland, it's Panama, it's now Gaza. It's Wednesday, February 5th, 2025. Squawk Pod begins right now.

Good morning, everybody, and welcome to Squawk Box right here on CNBC. We are live from the NASDAQ MarketSite in Times Square. I'm Becky Quick, along with Mike Santoli and Robert Frank. Joe and Andrew are off today.

Gentlemen, welcome. Good to be here. Good to be here. Looking good in the suits across the board here. All three major averages saw their first positive session in the last three. We'll continue to watch, see what's happening with some of these things, but obviously some of the pressures that we've seen with these technology shares overnight adding pressure, especially to the NASDAQ. Alphabet for sure, AMD as well. And so, yeah, a little bit of a setback. You know, we actually did a round trip week to date. Monday trade concerns, S&P down three-quarters of a percent. Yesterday up three-quarters of a percent. Almost landed in the same place we closed last week, but it's been this kind of low conviction, apprehensive range that we've been in, waiting for the next headline with an undercurrent of decent earnings facing high expectations.

Volatility hasn't been too strong. 17, I think, was where the VIX was yesterday, and if you think about it, imposing China tariffs of 10% on its own, if that had just happened in isolation without all the other stuff, you wonder whether the market would be sort of consistent with it. But to think that the market is holding in there with the 10% tariffs on now, it's better than people expected, and so maybe there's a bit of a relief rally. I think there's also the expectation when you saw Canada and Mexico, those tariffs go away before they even started, I think there's the expectation that there will be conversations with President Xi and maybe things will amp down, not amp up. But we'll see. We'll see.

Today it doesn't seem like it. And also just hats off to Squawk Box on Monday. Kevin Hassett, you and I had the same reaction to his interview. When I saw that interview, and hopefully when traders saw that interview, and they did, I just thought, wow, this may not happen. If I were able to trade stocks that morning after hearing that Kevin Hassett interview, I would have bought, because it was clear to him that those two phone calls were coming up later that day and he was already saying, well, there's already been progress. He's given the politicians in Canada and Mexico an enormous amount of leverage, because the people of Canada, they don't want to have a drug war that they lose, and the people of Mexico don't either. And now because President Trump has raised the level and made it clear that this is the number one policy issue for the United States this weekend, then all people in Canada and Mexico will support actions by those politicians to get ahead of the curve on the drug war. And so I think he's doing the politicians a favor.

That was a very different message from what we've been hearing over the weekend from President Trump and others. It was a different conversation than I expected to be having with him that morning. Kevin obviously is an economics adviser, and you would expect that he would have been talking the economics tariffs, and that was not what he wanted to talk about.

Yeah, I mean, we've talked about this, but the administration needed the emergency powers and they had to say there was an emergency about fentanyl to actually do anything. And also Kevin didn't have to—well, you kind of do if the lawyers are like, hey, this is what it's about. But I also think that yes, it's relief that it's not about just pure aggression, let's get the maximum tariffs out there for sure and let them stick. But you're preserving the leverage. It's always 30 days forward, it's always there, and so I don't think that that's necessarily an overwhelming negative. It's not the big swing for the market, but if you're an investor and a trader, you can never be comfortable that it's been set aside.

I guess the question is, absent the trade issues right now, what would the market be doing based on earnings and based on yields right now?

It's a good question. I mean, I have a feeling it might be a little bit freer to move, and I think earnings expectations are high enough though that I still think you'd see all this back and forth chop.

You mentioned the volatility index at 17. That's low-ish. It's all this movement under the surface that's kind of canceling itself out, and at the index level, you know, the S&P 500 closed the day after the election 5,929. It's been at the high, up 3% from there, at the low, down 3% from there, and we're kind of right in that zone again. So we're basically where we were right after the—it's a dog on a leash. It's a lot of movement, but it's not getting anywhere.

Shares of Apple are sliding this morning after that Bloomberg report that showed Chinese regulators are considering whether to open a formal probe into its App Store fees and policies. The report said China's market regulator is considering an investigation into Apple's cut of up to 30% for in-app spending as well as blocking third-party payment systems and other app stores. Apple and China's Commerce Ministry were not immediately available for comment when they were contacted by CNBC overnight. But guys, this is really interesting. Not that this whole investigation of the App Store is new—we've seen that from regulators around the globe. The timing is very unique, and it's also a way for China to do this without affecting the many, many Chinese jobs that rely on Apple manufacturing.

Well, that's the delicate balance, right? I mean, they haven't gone hard against Apple in the past given the number of jobs there, and I think this is just sort of a shot across the bow. Any company—you're going to come after us with tariffs, we've got a lot of corporations, your corporations, that make a lot of money somehow from whether it's the Chinese consumer or manufacturing here, and we have a lot of leverage. And China is not in a mood to just rush to a point of putting some concessions on paper and saying let's make this go away, the 10% tariff. So it's a little bit different negotiation than it was with both Canada and Mexico.

Yeah, ladies and gentlemen, the President of the United States and the Prime Minister of the State of Israel. That's a lot of press. Congratulations, you bring them out, you really bring them out. Meanwhile, President Trump proposing a new Middle East peace plan involving taking long-term control of Gaza and rebuilding it to the Riviera of the Middle East. Eamon Javers joins us now with more. Eamon?

Yeah, good morning, Robert. President Trump made a surprising suggestion last night during a press conference with Israeli Prime Minister Benjamin Netanyahu. The United States, he said, should take over the war-torn Gaza Strip, where Israel has engaged in a bloody war with Hamas for more than a year, and redevelop it into something like a seaside resort. Here's what he said: the U.S. will take over the Gaza Strip, and we will do a job with it too. We'll own it and be responsible for dismantling all of the dangerous unexploded bombs and other weapons on the site, level the site and get rid of the destroyed buildings, level it out, create an economic development that will supply unlimited numbers of jobs and housing for the people of the area. Now, Trump said he sees the area as the Riviera of the Middle East and that developing it would create thousands of jobs. He also said American troops could be involved to control the area if necessary. Standing beside Trump, Netanyahu confirmed that Israel and the U.S. are in talks about the idea and said, I think it's something that could change history. The Gaza Strip includes 25 miles of Mediterranean coastline and a territory that is one of the most densely populated in the world, home to an estimated 2 million Palestinians. Trump's proposal seemed a sharp departure from his tone on the campaign trail, which was sharply critical of U.S. military and diplomatic involvement in the Middle East. But members of the Trump family, guys, they've eyed the real estate potential of the area before. Trump's son-in-law Jared Kushner said last year that Gaza's waterfront property could be very valuable. And we got a reaction from Hamas leaders overnight as well, guys, saying that Trump's comments represent confusion about Palestine, and they say that this is simply not something that's going to work. Back over to you.

Yeah, Eamon, what would legally—I mean, how would this work? Was there a discussion—I know the details were scarce here—but of buying it, of just taking it over? I mean, what would be the mechanism through which the U.S. gains control, or was there any discussion of that?

I mean, there's no underlying detail here, Robert. This is the president throwing out an idea. I mean, you could see from just the clip that we just played, he was reading these comments off of a prepared script that he had in front of him, so clearly there's some thinking that's gone into this, that this wasn't just totally off the cuff. But we didn't get any background details from the White House in terms of exactly how this would work. What the president said is the U.S. would simply take over Gaza, presumably because the Israeli military has cleared out resistance and bombed out enormous amounts of territory there. The question is, you know, who would legally run that, would that be sanctioned by the U.N., and then what would Hamas say about that? Obviously, this is a hotly contested piece of land, has been for basically forever. The amount of resistance that we would get there would be epic. The reaction on Capitol Hill overnight, people were sort of aghast over this, looking at it and saying, how would this even work? This seems like a non-starter. But the president is a real estate developer, and he sees things in those terms.

Yeah, it's the 51st state of Canada, it's Greenland, it's Panama, it's now Gaza. He likes land. He likes buying and owning more land.

Yeah, it's interesting though. I mean, this is an isolationist president, right, who ran on the idea of getting out of the Middle East, not getting the U.S. involved in forever wars, and then here he's floating the idea of American troops in Gaza, which is one of the biggest flashpoints on planet Earth. And you can imagine, if Baghdad was difficult, Gaza would be X percentage more difficult than that in terms of a military campaign. It's at odds with sort of his whole approach on the campaign trail as well.

Yeah, and it's at odds with, you would think, even the conversations he has had with Saudi Arabia. MBS has been a close ally in the past of the Trump administration. Just a little strange to think of, and I've been trying to round and round, figure out what they could possibly mean by this. In your most generous assessment of it, you could try and think of a Marshall Plan, but this is not that, because he has said he would remove the Palestinians and actually potentially send U.S. troops in. So it's very different from that perspective. Obviously there's something that needs to be done in Gaza post the Israeli invasion and the damage that's been done there, but this is very different from the Marshall Plan after World War II.

Yeah, I mean, the immediate criticism you heard overnight last night was that this is ethnic cleansing, right? I mean, talking about removing the entire population of Palestinians and replacing them basically with tourists at a Mediterranean resort. That's not a great look. The president didn't say though that he wanted to remove all the Palestinians in the plan that he kind of teased last night. He said that people, meaning people from everywhere, would live in Gaza once it's been redeveloped, along with Palestinians. But he also seems to envision removal of a large number of Palestinians. Remember, there's 2 million people crammed into a very small area there. He seems to envision removing a large percentage of that population to other Arab countries throughout the region. Those countries have signaled that they don't want to take those populations, so it's not clear where those people would go. Trump simply making the argument that Gaza is bombed out and destroyed and really uninhabitable right now, and the Palestinians, he said, want to go somewhere else.

You know, I think that's going to be a question for the Palestinians, right? I mean, ask them where they want to go and what they want to do. But clearly, if you're going to turn this into a Middle Eastern Riviera, Palestinians might want to own it, right? I mean, what's their equity stake in this new deal?

Yeah, Eamon, so complicated. Not going to be an easy real estate deal, even for Trump. Eamon, thanks so much for the update. We appreciate it.

Robinhood Markets is pulling back on its plan to offer Super Bowl betting contracts. The company said that the Commodity Futures Trading Commission raised concerns that those contracts might be illegal and basically directed them to stop offering them. Robinhood's general counsel said that they believe they were in compliance with all applicable regulations, but they did agree to the CFTC's request. Robinhood had launched the betting options on Monday through a partnership with Kalshi, which is the online prediction market. Kalshi is barred from listing contracts that involve gaming and that are against public interests, but the definition of gaming isn't spelled out in the law. Kalshi does offer one contract on which team will win, but other contracts are for things like which companies will run ads during the big game and what songs will be played at the halftime show. Robinhood said that users who placed bets before it removed the options will have the choice between either closing out those positions or keeping them through resolution of this situation.

Robinhood went on to say that they thought that they had signaled very clearly to the CFTC what was coming. They were surprised by this, and I think it was something like 1% of their clients that this had been rolled out to before it was pulled back. Robinhood has expressed a willingness to explore actual sports betting, which of course is not legal in every state, so you have to keep that in mind.

And look, they're in charge of what they think their brand is, and they think their brand is, whatever our customers want to transact in, we have the face for it. In the meantime, they kind of brag every earnings period of saying, oh, we got dribs and drabs of assets from Fidelity, we're actually going to be a long-term—I'm not sure you can really reconcile those things long-term, because betting is a zero-sum game, investing is a positive-sum game. They were trying to distance themselves from the accusation that they were a gambling site with confetti and all, no, we're now for serious investors. So I think this probably is a positive move that they're moving away from the gambling part of it. Get a work around, we'll see.

Will be next. Coming up, Disney CFO Hugh Johnston says his company has appeal to both the cord cutters and the cable loyalists. In a sense, we've really created a perfect hedge. If consumers want to stay in linear, we're perfectly happy with that. If they want to move over to the streaming side of how they receive their programming, we're happy if they move. The numbers game in the House of Mouse on Squawk Pod, right after this.

This is Squawk Pod. You are watching Squawk Box right here on CNBC. I'm Becky Quick, along with Mike Santoli and Robert Frank. Disney out with its earnings just in the last 10 or 15 minutes. Been taking a look at that, and the stock is indicated higher this morning after the release of those numbers. The entertainment giant reporting better than expected earnings and revenue. Actually, it looks like it's indicated down by about six-tenths of a percent. I've seen it up by as much as 2.5% over the course of the morning. Joining us right now, first on CNBC, is Disney CFO Hugh Johnston. And Hugh, good morning. Always great to see you, but especially on an earnings morning, so thanks for being here today.

Yeah, and I will tell you right now, Disney shares are up by about 1%. They have been bouncing around a bit this morning. For anybody who hasn't seen the numbers yet, they came in at $1.76 a share, that's up from $1.22 a year ago, and compares to $1.45 that the Street was looking for for this most current quarter. Let's start with experiences, Hugh, because there had been some questions about whether the parks were going to feel pressure from either consumer spending or from inflationary costs. You pointed out that experiences, which includes the parks and cruises, did have to deal with some hurricane activity, and that cut into things. But where did things come down just in terms of overall—I think I know you'd been looking for that division to grow by 6% to 8% for operating income for the fiscal year?

I think the other surprise was even though you raised prices for your streaming cost, when it came to Disney Plus, ESPN Plus, Hulu, you didn't see as many consumers drop the service as you had expected internally. What happened there?

Although Hugh, the guidance is for perhaps a downtick in subs for the current quarter because of that increase in expected churn, I gather. And just more broadly on the streaming strategy, do you think that there's kind of the potential for consumer confusion? What's your vision down the road, having the multiple services where some of them are all bundled and yet they also can operate independently? Where's that headed?