Transcripts For BLOOMBERG Bloomberg Technology 20170210

Majority nations. The white house also plans to tone down its tough rhetoric when trump meets the chinese Prime Minister japanese Prime Minister on monday. Shinzo abe wants to restore the alliance harmed by president trumps tough talk. By 2600ews powered journalists and analysts in more than 120 countries, you are watching bloomberg. Asias regional benchmark at the highest level since july of 2015. The hang seng index soared 4. 6 after coming back from lunch break, shanghai up. 5 . This is bloomberg. Caroline im caroline hyde. This is bloomberg technology. Coming up, no trump bump for twitter. Revenue growth stalls, the shares tumble on lackluster results. Plus, the tech earnings parade rolls on with pandora falling short. We will bring you all the latest. And airbnb prepares to splurge. We will break down plans to open a 3 billion warchest in canada in what could be its biggest acquisition ever. First to our lead. Twitter shares tumbled after quarterly revenue and profit outlook missed analysts estimates. Shares closed down 12 thursday. The social network is having trouble luring advertisers and new users to the platform. It added only 2 million monthly active users in its Fourth Quarter. That is just a game of 1. 6 . This deceleration in user growth is causing advertiser sales to sag. Ads represent nearly 90 of twitters revenue. Despite the Media Attention over president trumps tweets, the cfo acknowledged on the investor call that twitters inability to calculate any impact just yet. We cant quantify any impact at this point. We will continue to analyze it as we go through q1. Caroline where does twitter go from here . To break down the numbers, cory johnson. And from new york, james, an analyst. We start with you, james. We saw an increase in daily active users, up 11 . Sales miss, up just 1 . Was there any Silver Lining amid all the clouds . James no, none whatsoever. That is not quite fair. The daily actives are improving, and they are Getting Better engagement from those users on the platform. At the end of the day, i think twitter needs to decide what it what it what it is and what it is not they are trying to do, you know, continue this mau growth story. But it is just not happening. When you are going through all of the biggest world events with donald trump and the Trump Administration utilizing it as their primary communication tool to the world and still not seeing any improvements in the conversion rates, because what we do know, they are getting at least 2 million new visitors coming to their site every single day in some capacity. And they are not able to convert those users, and ultimately, i think the rocky road ahead is about to get even rockier. Caroline cory, dig into some of the issues. You have been doing your own analysis, particularly on the dilution in terms of shares. Cory you mentioned the 0. 6 user growth. Nought point six . Caroline i may britt i am a brit i know that. We know it now. I think what is interesting is in the midst of this inability to grow users, inability to grow revenues. Revenue per user was notably better, but they are giving a lot of Stock Options out. There is a different business from an income viewpoint. The stock compensation for this company is at massive levels, and the result is you have gone from a company that ipoed with 363 million shares and now 714 million shares. It continues to have this massive stock competition, such that if it were not for all the stock compensation, the company would be profitable. There is an accounting argument that this is a noncash expense. They do not actually have to spend to get these options. The result is there are so many shares in the market, and you see the company, the insiders of the Company Becoming enriched where people are selling to the company. The result is it is really flooding the market with shares, even as investors are stuck in the back. Caroline is it something that is making investors bristle . James of course. At the same time youre seeing all of the tech peers moving away from nongap measures to more of a kosher gap reporting basis, which includes the stockbased compensation expense. So, that is something to scrutinize, especially when you consider that 20 of their expenses are essentially, a revenue is in the form of stockbased compensation. So, you know, it is something that does involve more scrutiny. But at the same time i think cory james, let me just back up. It is my take that when a company does an ipo you expect to see a lot of stock comp in the initial income statement, but it should drop off after the ipo because the shares issued but these guys are still issuing shares. James they are issuing shares, and really, nobody is putting their money where their mouth is. You go through the conference call, and there seems to be so much confidence in the metrics they are reporting, and belief that this turnaround in daus is going to drive a much bigger turnaround story for the company. For the company. I do not know where that confidence is coming from. You know what would be good is to put their money where their mouth is and buy back some stock. Jack dorsey says, i believe in it today. I will buy my shares today. We are not seeing that. It is a lot of rhetoric. The results are not matching. And i think they really need to do, look in the mirror, what are we . Who do we want to serve, and how do we do it . Answer the questions. Caroline one way they are trying to is via video. They will have live video from incenta. Can they managed to get that target of profitability this year via the joys of video, or not . James oh. Cory did you just hear that . James im so exhausted from giving the benefit of the doubt to twitter. With video, think about it this way, every incremental dollar of video that you get comes with a higher cost associated with this because you have to acquire content. If they move into more and more premium categories, those costs, the cost structure could change from the one, you know, people believed in at the time of the ipo. And who else is going after video . You have facebook going after video, snapchat going after video, youtube going after video, and twitter with its 290 million users, good luck. Of the 600 hours they had in the third quarter, only 31 million unique viewers watched that content. I mean, come on. Caroline exacerbation coming from james. James im still neutral. Im not throwing in the towel completely. Cory thats because they dont have an exacerbated rating yet. Caroline we are talking about, well, the lack of help donald trump has given twitters earnings. We have got some news on donald trump. The Appeals Court will rule on trumps travel ban today. That was coming across the bloomberg terminal a few minutes ago. We understand the Appeals Court will indeed rule on trumps travel ban today. Now lets dig into a few more tech earnings, specifically yelp and pandora, like twitter, list missing forecast estimates. Lets take a look at yelp, ouch. Down 7 . At one point, down as much as 11 . Lets begin with cory. Yelp here, Fourth Quarter beat in line, but it is the First Quarter that seems to be missing the mark. Cory this tells you more about the analysts than it does the company. I know i say that a lot, but it is really important here. These guys reported a really strong quarter. This is an old business, relatively, in technology terms. Its growing at a 30 top line. It has turned the corner towards gap profitability, actually making money. The bar was low in terms of profitability, but the company had a 2 million profit in the quarter. That is the biggest profit they have ever had. It seems to be pointing towards continued profitability next q. Next quarter might not be what analysts had hoped, but i really see a turnaround in this business where it can still grow its topline massively. The bottom line is suddenly extant, which we will gladly have. I do not see this as such a troubled business. The valuation is in the eye of the beholder. Its a business that really is doing better than it has been. Caroline it is still 16 buys on this. We are going to switch gears and look at pandora, which it, too, seems to be falling because there are worries about the firstquarter forecast. And it has been a tumultuous year in general for pandora. Cory listener hours up 4 for the year, up to 22 billion hours. So, thats a really important thing here. Not just adding users, but getting new users to use the service. They become more and more part of peoples lives and installed on more and more vehicles. Caroline more of an m a target . Cory perhaps. It has been rumored in the past, but has not come to fruition, so i dont know if we will see that. There is another business that is still growing and has been around for quite a while. The real thing you want to see is to see listener hours growing faster than the number of listeners, and youre seeing that with this business still, and that is a good sign for them. Caroline many feeling they can make a quick reorientation of the business. Cory johnson, great analysis throughout all our breaking earnings through the day. Pandora numbers are the latest knock on what has been a tumultuous year for the Worlds Largest online radio service. As it grappled with decline in active listeners and the rise of rival services. We have this recap of the past year at pandora. Reporter in early 2016, pandora was faced with a crisis of confidence among investors. Shares were trading 70 below their 2014 high. In february, thenceo brian mccann laid out the companys longterm vision. He outlined a goal to quadruple sales to more than 4 billion by 2020, but in order to get there, the 50 million profit forecast for 2016 would have to be replaced by a projected 70 million loss. That same month, reports emerged that pandora hired morgan stanley. Then just weeks later, the Company Announced that founder Tim Westergren was returning as ceo, more than a decade after he gave up the role. We asked westergren if the reports of a possible sale bar sale were true. You do not hire a ceo and invest like we are. Reporter but in may, a hedge fund reported a 10 stake in pandora and voiced its you the company should pursue a sale. And despite a consistent message that pandora wanted to remain independent, talk of the sales really heated up in july. Bloomberg broke the news that pandora hired to advise on strategic options. That same month, the Parent Company of sirius xm made an informal offer of 15 a share. Pandora argued its value was closer to 20 a share. We will start balancing a business where we are optimizing not just for advertising, but also for subscriptions, and thats a good 20 year on year. I think the business is in good shape. Reporter by september 2016, pandora unveiled pandora plus. At five dollars a month, it marked a key First Step Towards converting listeners into paying subscribers. Step two would be an Ondemand Service similar to spotify an apple music. That is expected to come early this year. Over the course of 2016, pandora shares swung dramatically on each of these reports, though it ended the year up 6 . Pandora kicked off 2017 with yet another major announcement, a 7 reduction in staff that some analysts will save roughly 40 million in operating costs this year. The question is will investors be satisfied with the Ondemand Service in the works, and will they continue to push pandora to sell in 2017 . Caroline that was kaitlin meehan. Now well continue our coverage of tech earnings on the heels of expedia results. We will speak with the companys cfo on friday at 10 45 a. M. Eastern. Up next, a Virtual Reality pioneer joins us to talk about adoption among the biggest game makers and potential beyond video games. This is bloomberg. Caroline two gaming stocks were watching activision and zynga. Activision posted fourthquarter sales and profit that beat estimates. For online spending for games like world of warcraft. The company also said the next version of call of duty will go back to its roots. Makerile, mobile game zynga posted sales in line with estimates, but its view for the First Quarter fell short. The company says it is renewing its focus on zynga poker and words with friends. Staying in the gaming world, unity makes the primary Software Platform that developers use to create games. The Company Estimates that more than 1 3 of the top 3000 mobile games are made with unity. They made a key hire last fall when they brought in a Virtual Reality pioneer to lead their v. R. And a. R. Strategy. Tony is one of the creators of the coding language to create , and joinsironments us now to talk about the potential of the technology. Wonderful to have you joining us on the show, tony, thank you. Im going to be controversial to start, because just as i was about to sit down for the show, i had a note coming from edison saying the Virtual Reality, virtual standstill. V. R. Seems only to be popular at trade shows, removal of the 200 of the 500 oculus rift demonstration stations is his concern. Is he right . I heard about those removals cap best buy. Not sure it is true. We saw Pretty Healthy sales of very Early Technology toward the end of last year. 5 million gear v. R. s. As well as close to one million playstation v. R. s. And hundreds of thousands of desktop systems which are expensive and little bit new. Im not sure i agree with that assessment. I think we are in a good spot where we see merely adoption, and we are going to see growth in a couple years for sure. Caroline im going to bring you a more optimistic note that came out from ubs that said, by 2020, we could see an eightfold growth in the revenues coming from gaming, from the software when it comes to Virtual Reality. They say 3. 3 billion. What is it that is going to galvanize people to start spending for the more expensive pc lan units . This is a what we do in the gaming world. We navel gaze and try to predict what is going to be big sellers. Im no better at that than anybody else, even though i have been in this realm for a long time, but what i found is i just came from the sundance film festival. They have a program called new frontier which is all about how storytelling is done in new media. For the last few years, it has been virtualreality stories going on at sundance, and me, being somewhat jaded in this world, has seen a lot of the vr. I was blown away by the innovation of taking the new medium forward into a place where stories are being told, where interaction is super compelling, and where you are actually engaged with this content in a way that i could personally imagine people coming back to these experiences and buying those experiences. So, i think we are moving past this phase of experimentation we saw the last few years to really now defining this medium in a way where we are using all the capabilities, and we are not just saying, if youve seen any360 video, slapping a camera on a table in the middle of a conversation, letting people look around and say, gee whiz, we are actually using, making directorial choices and using the technology to explore the medium for intel stories. Unity was used to build a lot of those things. Caroline more than half of all the v. R. And a. R. At the sundance festival was built by unity. Give me the outside of the gaming box. We hear Mark Zuckerberg talking passionately about Virtual Reality, the movement outside into more of the real world, not just gaming. When does that happen . We are seeing that start now, and it has moved beyond gaming. Used in a loteing of different areas, everything from designing and selling cars to education and training to architectural walk throughs. I think on the gaming side, we are even seeing that moving to entertainment like the storytelling we are talking about at sundance. We have already moved beyond gaming and it is a full 3d platform. Tools like unity are being used to develop all these things, not just environments where you go in to kill somebody and try to win. But complete new worlds you can inhabit, or places you can go where you could not otherwise go where you transcend geography. We have already seen v. R. Move beyond gaming. Gaming was a great first initial use case people initial use case. People know how to develop for it. And there is a pentup market for that. We are seeing sales be Pretty Healthy on these game systems and pcbased systems. A good driver of it, but we have already sort of move beyond that in the last year. Caroline we look forward to see how much moves on, and do come back to us when we start to see revenues ramp up. Tony i would love to. Caroline the head of virtual and augmented reality at unity. Coming up, a tesla plant worker is speaking up. Workers may be looking to unionize. All the details next. This is bloomberg. Microsoft is permitted a judge to continue with its lawsuit alleging a violation of free speech rights. The tech giant sued the Government Back in april. The judge, however, rejected microsofts argument that the socalled sneak and peek searches amount to an unlawful search and seizure of property. Now, tesla employees have contacted the United Auto Workers to give assistance on forming a union. Workers at an auto plant in fremont, california made a discussion in a media post writing, i think our Management Team would agree that our plant is not function as good as it could, but till now that they have undervalued listening to employees. Representatives from tesla and United Auto Workers did not immediately respond to requests immediately respond to requests for comment. Immediately respond to requests for comment. Ive spent my life planting a sizesix, nonslip shoe into that door. On this side, i want my customers to relax and enjoy themselves. But these days its phones before forks. They want wifi out here. But behind that door, i need a private connection for my business. Wifi pro from comcast business. Public wifi for your customers. Private wifi for your business. Strong and secure. Good for a door. And a network. Comcast business. Built for security. Built for business. I think we will see them one day be associated with things like concerts and fun dining experiences. They want to have all of that. Caroline give us just one more element of the price point here. What are they spending and how much have they got . They do have quite a bit of money. They have spent very little of the 3. 1 billion they have raised. They have only spent 300 million so far. So they have 3 billion really to spend on acquisitions. Whether they will spend all of it, i doubt it, because they are planning to ipo. And i think they will want to have a lot of cash on the books ahead of that ipo. Caroline keep the the powder dry. Thank you for bringing us that great story. Investors buying into snaps muchanticipated initial Public Offering will not have any say in what the company pays its executives. The company said snap will not be subject to the say on pay provision that doddfrank has. The app was put into place by requiring an advisory vote on paypal. Coming up, Software Company snap is hoping over 11,000 Companies Make sense of machine data. We talked to the ceo about the rapid growth behind machine learning. This is bloomberg. Caroline back on the earnings front, yelp plunging in afterhours following its earnings report. Shares fell as much as 11 . Yelps ceo said the company had an outstanding year, growing local revenue by 39 . Falling on deaf ears. Speaking of yelp, in order for the company to deliver results quickly, it works handinhand with a San Franciscobased company, splunk. It helps 11,000 Companies Make sense of machine data by identifying patterns and problems and providing intelligence for business operations. They are joining us now to discuss the important of machine learning, the ceo of splunk. Set yelp to one side for the time being, but you do work for them. I want to dig into your own revenues at the moment. You have been seeing that revenue potential he might ease off in the Fourth Quarter compared to previous. That is a shift towards cloud computing. That is the trend we are seeing ago . We are in this great space around big data which keeps exploding. One of the attributes of big data is worried you want to be close is you want to be close to where the data is being generated. I do not think we will ever be a full cloud company, but a cloud model defers revenue. Over time, it is a Great Technology and approach for our customers. We will have a blend, were unique and we have a blended model. I think we will always have a blended model based on cloudbased revenue. Caroline you think it eventually will be 85 and cloud 15 . Will we see cloud growing even bigger . I think so, if there is a natural ceiling for cloud, based on where people are running their data, it is really expensive and risky to transport teta bytes of data across the network. If you have a huge Computer Center somewhere, not all of those will go into the public cloud. Putting splunk close to the Computer Center to grab that data locally, we have this Great Technology that lets us do hybrid search. Some of your data could be going into the cloud, some on prim. And then you look at it is one contiguous layer. So you do not have to transport it needlessly but you get the benefits of cloud. Caroline lets talk about how your business is diversifying. Lets use yelp. The stock and trade was helping companies analyze their own data. Look through the vast quantities that they were getting and analyze how they are performing. Now you have other services. Youre offering security and other sorts of products. Where does that go . How important do those products become . So, one of the really cool part about splunk is it is a highly flexible data architecture, which means different people can ask questions of the same data and get totally different answers. It is a really hard thing to do in this datadriven world. How we cloud of insecurity was up in security was people were reading all this great data around i. T. Systems to make sure they stay up. If we asked security questions of that same data, they will give interesting insights from that exact same data set. Like yelp does now, they start bringing Business People that same data. As people are hitting websites and tapping mobile devices and checking it at stores, there is customer information you can gather from that data. We have traversed from the i. T. Group to the Security Group to hundreds of people across yelp as a classic example, using us for much more revenue generation, marketing, customer intimacytype data, which is that movement for us from i. T. To security to iot. Caroline internet of things, really big talking point. I want to ask a little bit about what this means for you and your customers. Are you finding your Customer Base remains relatively the same, or are you managing with these new products to lure in far more new customers, are you Going International . A combination of all. We have got customers in over 100 countries. We have been a download for free and try it for free model, and pay as you see the value. That generates a broad base of customers early. And what were seeing, what we have been seeing for 510 years that you talk about a lot is this Digital Transformation that organizations are going through, means that almost every company, certainly those that are going to grow and stay alive, are going to grow and become software and techbased companies. We started aggressively in the tech sector. Yelp as an example. And financial services, telecommunications, and government those classic originations for tech companies. But we are across every possible industry now, with almost 13,000 customers, and we keep growing. Growing within customers, adding new customers. Both super important to us. Caroline fascinating you mentioned government, financials there. So much lip service paid to Cyber Security and cyber hacks. Are we just pring it more, or actually are there more attacks happening . Do your customers realize it . I think there are more attacks happening, sadly. Rsa next week, a fantastic show. I cannot wait to be there. Chockfull of customer visits and i anticipate they will say the same things ive been hearing on the road the past year. Ransomware is going up. Hackers are Getting Better at figuring out how to get into infrastructure. The crazy practice, you take the infrastructure over at your own Computer System and you have to pay to unlock your own systems. Were seeing a lot more of that and a lot more vulnerabilities. Where splunk comes into play is we help you detect those breaches as quickly as possible. Through that really flexible data layer, so that you can shut them down, see where they started, shut them down, and try and prevent them from coming back in. And i think we are just at the tip of the beginning of a lot more Security Issues in the coming years. Caroline on that happy note, i wish you well when you go to your conference and the rest of the traveling you will be doing. We really appreciate your spending so much time with us in the studio today. This friday on bloomberg television, abby Joseph Curran of Goldman Sachs will join bloomberg surveillance to discuss her market outlook. That conversation begins at 6 00 a. M. New york time. Coming up, softbanks massive 100 billion vision fund could be nearing a close of its first round of investments. We will head to toe go for details, next. Tokyo for details, next. This is bloomberg. Caroline in the latest tech revolving door, zenefits is cutting 45 of its workforce as its new ceo looks to cut costs in the wake of increased regulatory scrutiny and management shakeup. The 430 job cuts are the third round for the Human Resources Software Maker in the past year. Investigations found some employees sold Health Insurance without a license. Softbank is hoping to close its first run of investment in his planned 100 billion Investment Fund by the end of this month, according to people familiar with the matter. The fund will give Masayoshi Son a huge war chest to go hunting for deals. The initial investment includes 45 billion from saudi arabia, 25 billion from softbank and 1 billion from apple, qualcomm and larry ellison. Bloombergs managing editor, Peter Elstrom joins us live from tokyo. Here in San Francisco is tim. And peter, lets go to you first about this fund raise. How much are they going to eventually have clocked up . The full 100 billion . Peter the target is 100 billion. This is the amount that Masayoshi Son announced in february. Now they are moving through that. It looks like they are going to close the first round of fund raising around the end of this month. What sources told us is that the goal was to close it at the end of this month. They should be able to get around 80 billion, maybe more than that. It is going to be on enormous amount of money no matter what happens. And that is going to get Masayoshi Son more capital to go out and hunt for deals. He has been a very acquisitive ceo for a long time. He bought sprint in the united states. He bought arm holdings in the u. K. , and this will give him even more capital to look for deals. Caroline lets focus on that sprint deal, because you have been looking at the numbers since softbank came out with them. It has not been that good of a purchase thus far, and potentially they could bulk it up with another acquisition in the u. S. Tim they just reported 10 straight quarters of net losses. Masa has not been able to turn it around since he bought the company. And that is a drag on the bottom line. Yes, they have got this nice 80 billion fund that will play out, but they really have shortterm problems. A key point is they are number four in the u. S. Market. Sprint is a long way behind the leaders, and they do need to do this deal with tmobile. It got pushed back by regulators. We saw a few months ago Masayoshi Son came to the u. S. And had this golden handshake with donald trump. Made all these pledges about creating jobs here, but really it is about trying to smooth the way for him to do that deal. If he cannot get that deal done, i see no way that sprint is going to be able to turn around. They are number four in the market. It is going to be difficult to be profitable in the long term. Caroline peter, remind us when we saw those golden handshakes that tim was talking about with president donald trump, was president elect at that point. We heard a lot of this money from the fund will be dedicated to the united states, but what deal making could we expect, and who could be filing up the Larry Ellisons and apple and saudi arabia as well . Peter it was interesting. Softbank reported earnings just before we put out this story. So Masayoshi Son did a press conference where he talked about earnings. That was the excuse for getting out in front of the press. Then he began talking about the vision fund and what he hopes to accomplish with it. He certainly is focused on the united states. He talked about a couple of deals they are interested in there. They agreed to put money into a Satellite Company called one web, where they will try to create Internet Connectivity around the world through these ororbiting lowearthorbiting satellites. He also talked about sprint. You suspect that with this vision fund, they are going to be focused a bit on the united states, given that understanding with president trump, but theyll also be looking globally at other opportunities, especially around some of the things he talked about in his press conference were the internet of things, artificial intelligence, the singularity. He used to worry about getting enough cash for a few months and then 10 years, and now he is looking out hundreds of years into the future. He is certainly looking pretty far out. Tim isnt the problem really with the vision fund the fact it will take a long time for that to return any kind of dividends . They talk about the idea of permanent capital. A vision fund by nature is not going to be next year, it is going to be many years before it starts to return dividends. In the meantime, he has a telco business to deal with. What are you hearing about the timeline of when it will start to get some kind of dividends, which is important for the shareholders . They need a return on this. Peter remember, this is a guy who changed his Business Model many times in the past. The day before yesterday in the press conference, he was asked about what kind of business softbank is becoming, because it started out as a Software Seller and moved into telecom and then it moved into Global Telecom in the united states. He is talking about it now as an investment company. This is the company that invested in alibaba and made many times its money, 60 billion. And also, made other successful investments. Caroline it is been great having you both to shoot the breeze when it comes to softbank. We will see when that fund does indeed close. That is it for this edition of bloomberg technology. This is bloomberg. China gets Donald Trumps backing, the u. S. President tells xi jinping he will honor the policy in the first phone call between the tubing leaders. Cometh, a plan to overhaul taxes in weeks, asian stocks rally, u. S. Equities and records. Greece creditors reading a framework for the countrys bailout review. The proposal could come as soon as today