Transcripts For BLOOMBERG Bloomberg Technology 20170727

Unprecedented details of her president ial campaign. Global news, 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. Im Alisa Parenti. This is bloomberg. Bloomberg technology is next. Emily im emily chang. This is Bloomberg Technology. Amazon beats on revenues, but a big miss on earnings is dragging the stock down after hours. What the Second Quarter scorecard means for the bottom line and founder jeff bezos. Plus, twitters flatline. It beats on revenues and earnings in the Second Quarter, but did not move the needle on user growth. We will discuss its prospects for a turnaround. And samsung unscathed despite the crises within over the first half of the year. Business is booming for the korean conglomerate. How it is within striking distance of apples top spot as the worlds most Profitable Company. Dipping inon afterhours trading due to disappointment with its financial guidance, especially its projection of a financial loss in the coming quarter. The earningspershare missed lowest analyst estimates. Results showing amazon is prepping to step up competition with rival walmart and Cloud Computing challengers microsoft and alphabet. Investors continue to have faith in Ceo Jeff Bezos to keep the Company Growing by entering new categories like groceries and appliances, along with expanding abroad. Joining us now to break it all down, our guest host for the hour, bob odonnell. Also with us, our bloomberg tech Senior Executive editor, brad stone, who wrote the book on amazon. The numbers are telling a bigger story here. What is that story . Bob its an old story. Topline growth, which is great. Its this consists in see of over 20 overall growth is this consistency of over 20 overall growth. Investors are worried about profits. This is a company that is investing. All that free to video that amazon is lavishing on its prime members. Emily where are these expenses . Is video and fulfillment. They are building for thuman centers closer to cities building Fulfillment Centers closer to cities. It costs money. Every so often, investors get jittery. But the stock is down 2 . This is on an unflappable Shareholder Base this is an unflappable Shareholder Base. Emily shares right now down more than 3 . Bob, whats your take . Bob whats amazing about what amazon does from a longterm perspective, and this is why bezos is number one or maybe now he isnt they are ableis, to take investments, longterm investments in infrastructure and turn them into products. Example. He first as they build up these warehouses, as they build out technologies for storage without people in them, they are going to be able to license these things and turn them into products, and that is a very smart, shrewd, longterm perspective, and i think thats what people are buying into. Emily what about whole foods . Are we getting any more clarity into how this will play out, how it will impact the bottom line, how this company will be integrated into the amazon empire . Brad the answer is no. The deal has not closed yet. They were asked about it on the media call. The ceo declined to comment on it. It has not even past antitrust, regulatory review. We are not even sure if there will be regulatory scrutiny at any advanced level. Theyre not talking about that, groceries ise that a major avenue of expansion for amazon, not just the whole foods purchase, but prime now, they just entered into singapore with prime now, amazon fresh. They are expanding. Hopefully in the coming weeks and months, we will learn more. Emily im also interested in how the dynamics between brands at amazon are changing with nike and sears now selling directly to amazon. Bob what youre seeing is them building up the infrastructure capability to deliver goods in another way. Another thing i didnt mention is they are becoming a Logistics Company as well. They are building the logistics they need to do groceries, which nobody has really solved yet. Bezos loves solving problems. They are building infrastructure. They will take that ability and those skills, license them, and figure out ways to make money not only for themselves, but for other people potentially as well. Emily we will see how investors responded to this tomorrow. Is the confidence in bezos deserved . Brad you look at the 20year history as a public company. Just for consistency, he kind of call the shots early on about how he was going to run the company on crete free cash flow, investing for the longterm. They periodically signal they are entering into investment cycles where they will spend more money in things like investment like Fulfillment Centers. They give you those broad estimates, but they always hit those broad estimates. You do that enough times and investors begin to trust you. I think he has earned a level of trust at this point. Emily do you think that this will accrue any antitrust scrutiny . Bob thats a fair question. All theseild out infrastructure capabilities, they start to have a larger influence even on what they are selling themselves. Of course, in the current environment and with his ownership of the washington uses and the way trump that whole thing, you have to imagine there is some incentive to say, maybe we should look that direction. Emily despite the fact that they stood next to each other at that meeting at the white house, they are not the best of friends. Brad no. Look at the president s tweet. By any rational measure, it should pass and trust scrutiny past antitrust scrutiny, but we are in a topsyturvy political environment and this could get scrutiny just because jeff bezos right now is not the most popular guy in washington. Emily and there is this frenzy of speculation about what will be amazons next big bet. Any ideas . Bob lets not forget what they are doing with alexa and voicebased computing, small for now, but a very interesting play. They were never able to do anything from an operating system perspective. They really wanted to compete against microsoft and Google Alphabet and apple. Now, all of a sudden, they are coming in from the side with this voicebased computing thing and opening up lots of different avenues. By the way, the beauty of it is, across all of those platforms. Thats want to watch. Emily we have to talk about the cloud, where they are the leader. Yet we saw progress on this front at google and microsoft. Getting bigger, but does amazon have to worry about the competitive threat . When theyhallenge is, enter into these periodic price wars and it depresses the profitability of the cloud segment, that goes on and off. I dont think we are seeing it right now. The business looks very healthy. Theyre hiring a lot of people, theyve talked about on the call. This is a hotly contested space. Emily amazon shares, good for your portfolio . Brad in the long run, i think so. Emily bob odonnell, sticking with me throughout the show. Brad stone, you are staying here as well. Coming up, another company out with its earnings. Intel giving an upbeat forecast for thirdquarter revenue, sending shares up in extended trading. Intels Data Center Group which sells server chips posted sales of 4 billion in the Second Quarter, a gain of 9 . Revenue in the pc Processor Division rose 12 , even as the overall market shrank. Friday, we will speak with intels cfo. Catch that interview live at 3 30 p. M. In new york. Coming up, samsung is closing in on apples spot as the most profitable business in the world, despite the turmoil at the company. We will dive into what is boosting its ascent. And Bloomberg Technology is Live Streaming on twitter. Check us out at 5 00 p. M. This is bloomberg. Earningsw to another mover. Verizon stock had its best day since 2008. The company reporting that it added 614 thousand wireless customers in the Second Quarter, more than 10 times what analysts had projected. In the context of its competitors in the battle over the data plans, verizon outpaced at t. Both carriers trailed tmobiles jump for the Second Quarter. Meantime, samsung has had it tough of late, from its exploding smartphones to its heir apparent on trial for corruption, but the company has been making positive strides, announcing booming sales in its most recent earnings report, up 20 from the previous year, and increasing operating profit by 73 . This, mostly fueled by the memory Chip Division and the new galaxy s8. That growth now has the Company Closing in on apples spot as the most profitable business in the world. Joining us now for a look inside the company, back with us, brad stone. You went to seoul. You saw the situation on the ground. Lets first underscore how big these numbers are. Brad first of all, samsung was great. They collaborated on the story. They brought us in. We were probably talked to six we probably talked to six or seven Senior Executives. We got a look at their new chip facility, which i would love to tell you about. It right now is poised to be the most Profitable Company in the world, overtaking apple. We will see when apple reports. The Largest Semiconductor in the world, overtaking intel. Its from our couple. With all this sort of crisis around the company it is remarkable. With all this sort of crisis around the company, its nominal chairman on trial for corruption, the note 7 debacle last year, it is a company that is executing well. Emily we had a question whether the brand would be able to recover. Today, talk to us about the trial of jay lee, how that is impacting the company. Brad you have to understand the samsung group. Its a coalition, a consortium of 60 some private and public companies. They are the founding family that kind of hover above it all. There is the coordinating group, which has now been disbanded. The leaders have been kind of charismatic figureheads, dipping into make major decisions, acquisitions, major investments. But in south korea, this is a political situation. To turn the tide of Public Opinion against these Big Companies like samsung. Emily which are the south korean conglomerates. Whats the likelihood that he is going to emerge from this unscathed . Brad you know, its possible. They havent produced a smoking gun. The allegation is that they persuaded the government to put pressure on the shareholder group, the pension fund, to approve a samsung merger to shore up the family control of the conglomerate. If there was a quid pro quo, it was probably an unspoken one. They have not reduced a smoking gun, so i think produced a smoking gun, so i think he probably gets out of this ordeal. Headsis precedent for the of these companies to go and spend some time in prison. South korea has a very conflicted relationship between the government, the people, and these Large Companies that have fueled its economy. Emily there is still this big thing they have not tackled, which is software, which may be the primary reason that people dont buy samsung phones or choose apple. Brad lets do contrast. In two years, they have spawned a Massive Semiconductor facility. Intel has been working on the chip fab in arizona for fiveplus years. Trump is trying to put pressure on it to complete it. Samsung deploys militaries of construction workers and automation to get these things up and running. Thats why they are so powerful. Its a difference of militaristic skills and discipline that you need. They are releasing this bixby personal assistant around the world right now, kind of their siri, and there has been some criticism, how they presented it, gendered manner in how it answers queries. This is something that samsung has always had to master. There is some traction around the world, but lots of failures. Their operating system never caught on. Emily what was your impression from within the company, speaking to six or so executives, as you say . Brad that they have remarkably recovered from the note 7 debacle. It was a hard year for them last year. They have just released the note 7 in south korea. Who would do that . The note 8 is coming out soon. The galaxy s8 is out and it has gotten good reviews. My impression is of a sort of relentlessness. They deploy so many resources. They are so disciplined and efficient that they are kind of tough to beat. And, like, particularly on the manufacturing side. If the area of strength that an apple or a google cant really ofnter its an area strength that an apple or a google cant really counter. Emily what is expected with the apple release of the new iphone . Brad samsung memory chips are in apple products. Apple has a reliance on samsung, even at the high end of this market. They compete. Emily they are trying to change that by designing their own chip. Brad right. But they dont make them. Samsung makes the chips. Its a tremendously difficult competitor to unseat. The problem is that apple cant get out of its reliance on samsung, because samsung has went and tortured all of the competition, so its very hard for apple to wean itself off of samsung. As a result, samsung can rely on apple and its business to basically subsidize its smartphone business that competes with it. Emily check it out. On stands now, brad stone, our global tech editor, bloomberg businessweek, thanks for stopping by. Coming up, twitter continues to struggle. Monthly active users and ad revenue falling in the Second Quarter. We will discuss what it means for the brand. A reminder of our new interactive tv function. Find it at tv on the bloomberg. Watch us live. Send out producers a message. Play along with the charts we bring you on air. For bloomberg subscribers only. This is bloomberg. Emily another stock we are watching, expedia shares rising in afterhours trading after reporting revenue that beat analyst estimates in the Second Quarter. Expedia said its gross bookings include Home Rental Service bookings, including Home Rental Service homeaway, be at analyst estimates. Twitter shares tumbled the most in nine months or they after a disappointing earnings report. The social network in nine reported ar they disappointing reported disappointing earnings. They are focusing on a longterm turnaround. A lot of that depends on expanding its audience. Here with us to break it down, cory johnson and our guest host, bob odonnell. Cory, i will start with you. Interesting that twitter says they have no idea why this happened. Theres speculation about political fatigue. Whats your happen . Your take . Cory the user Growth Numbers are important. There was an argument that you dont want to have 300 million tv channels, you just want to have the good stuff. Maybe enough good people are on twitter, people like you, and maybe some other people arent so good, like me, but its enough for twitter to work. What we saw in this quarter that was disconcerting, user loss in the u. S. Thats a big worry. Not least of which because those are the users who pay the most in terms of advertising dollars or garner the most in terms of advertising dollars. The real worry was that advertising revenue in the u. S. Fell a lot, even though the user number fell a little, and thats a great concern. Advertisers are paying less to reach the most mature twitter audience out there. Thats a longterm problem for this business. Emily whats the most perplexing about this, to me, is that twitter could not be more in the center of the cultural zeitgeist than it is right now. This is where President Trump every single day is making explosive statements, breaking news, and yet twitter is not growing or benefiting from that. Bob but the recognition of what twitter is has certainly grown. Emily but does it matter . Bob it doesnt matter it does matter for twitter. You can take the tweets of donald trump and other people and put them into other forms of media and the message still gets delivered. It doesnt have to be about twitter being mass media. The thing we need to think about is, maybe this notion that twitter was ever going to appeal to enormous mass audience has been flawed from the start. What if instead we just say, you know what, its a small, focused media opportunity, and it has an attractive audience that we are going to sell to . Maybe thats all its ever going to be. That changes the nature of how you think about it, how you price it, Everything Else cory but whats happening is i thought that was going to be true. I strongly believe that if you find the right demographic, if you know the audience you are reaching, twitter should have all the data, advertisers will pay more for that. We see it on facebook, but we dont see it on twitter. Emily how much do they know about their users and what they want . Thats important for ad revenue and how they personalize the service. This is original content to the core, and nobody is watching. Bob a number of people are. Emily a few influencers have. Bob but its a smaller group. It raises that fundamental question of, is this a kind of service that is ever going to get mass appeal . I still think thats a question mark. Emily by the way, our show is Live Streaming on twitter right now. Bloomberg has a partnership with twitter. They are making a Huge Investment in video. How optimistic are you about that . Cory we dont know in twitter where ad sales are falling. We know within the quarter in 489tising they had million in revenue in this quarter. It was down from 535 million. Where did that 46 million go . Was it pure straight tweets that are letters and words . Was it tweets with gifts gifs on it . Was it video . Twitter obviously thinks that, with whatever data they have, the kind of partnerships with video they are emphasizing are going to work for them, are going to bring them more ad revenue. Maybe thats a clue to us that the future of twitter will be in more richly embedded tweets and that the drawnout trump the Donald Trump Style tweets, while they are getting attention emily talking about Machine Learning on the call. What do you see as the path for longterm growth . Bob you mentioned this at the beginning. The political burnout, as it were. People are getting a little tired of some of the very nasty discussion. Emily i know i am. And i love twitter. Bob imagine all the people who dont necessarily love twitter as much who go, you know what, i had enough of this. The net was zero, but my guess is they lost a bunch and added some as well, leading to a net of zero. Fundamentally, how can they maintain the people that they do have and not lose more people . I have to imagine thats really the problem, that they are continuing to lose people, because they are not finding value in it. I do think mediabased services are good. For the record, i catch up on the show by watching it on twitter. Thats how i often see this program. Cory have you heard it called the trump 10 . People are so sick of hearing from the white house that they are going to their refrigerator and eating and gaining 10 pounds. Emily weve got to leave it there. We have some breaking news out of washington. The u. S. House of representatives passing the 788 billion spending bill that complies with President Trumps demands to boost the military, reduce the clean energy programs, and start funding for a wall across the border. Alisa im Alisa Parenti in washington, and you are watching Bloomberg Technology. Lets start with the check of your first word first word news. President trump has presented the medal of valor to five police officers. Congressman steve scalise, wounded in the attack, was just discharged from the hospital yesterday. Telling the ap he shares a harmony of values and believes with the president , attorney general Jeff Sessions says he will stay on the job as long as trump wants him. That is as some senators rallied around him. South carolinas Lindsey Graham says there will be holy hell to pay if trump fires sessions. Nu. K. Police say there are reasonable grounds to suspect local authorities of corporate manslaughter in the Grenfell Tower fire. At least 80 people died in that highrise fire last month. It informed the boroughs that they are under suspicion. The corruption crisis in world soccer has claimed another fifa official. The Senior Vice President , under investigation for corruption, resigned today. European soccers governing body also confirmed that he had left its executive committee after 25 years. Clashes erupted today at a shrine in jerusalem, at the center of prolonged violence. Skirmishes broke out after a rush to pray at the mosque, which reopened after an 11day muslim boycott over Israeli Security measures. Global news, 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. Im Alisa Parenti. This is bloomberg. It is just after 5 30 p. M. Thursday here in washington. Its already 7 30 friday morning in sydney. We are joined by bloombergs paul allen with a look at the markets. Good morning. Paul good morning. Its a big day for data out of japan today. First off, jobless figures for the month of june. Thats expected to show an improvement to 3 . Cpi is expected to hold steady at 0. 4 . Retail sales also expected to recover in japan in june, up 0. 4 , reducing losses from the previous month. On the markets, the nikkei futures looking mixed. Nikkei nissan is one to watch today. Operating profits fell. It was a miss. Nissan reaffirmed its forecast for the rest of the financial year. Also out of japan, earnings from nomura, hitachi. Keep an eye on the aussie dollar. Im paul allen in sydney. More Bloomberg Technology next. Emily im emily chang. This is Bloomberg Technology. The u. S. House just passed a 788 billion spending bill that includes a plan to start funding a wall on the u. S. Mexico border. This comes on the same day that by smart act was introduced congressman will heard. Thatlls for a smart wall aims to use technology to secure the border. Joining us, the representative himself. Thank you so much for joining us. What does the spending bill passing mean for the wall and your plan for a smart wall . This spending bill to the lot of other things than just fund the wall, but the wall money was in it. This is the first step in the appropriations process. Its unlikely it will survive in the senate, and so the fight goes on. What it does in my bill we are going to continue to push talking about having a smart wall. People are frustrated because it is 2017 and we have not secured the border. We should not be looking to a fourth century solution to a 21stcentury problem. The smart act, which talks about a smart wall, uses hightechnology sensors, radar, drones, in order to secure our border once and for all. Emily talk about the savings of that kind of technology versus the proposed technology. Representative hurd based on this administrations budget, it is 24. 5 million per mile. If you use this technology, drones, you can do this for under 500,000 per mile. Thats a 24 million difference, and its more effective. Its 2017 we can deploy sensors that determine whether its a bunny rabbit or a person coming across the border. We can deploy a drone to have that track that threat until we can do ploy our most important resource, our human capital, we can deploy our most important resource, our human capital. Most of that can be done with Artificial Intelligence and Machine Learning, and its a fraction of the costs when it cost when it comes to the wall. We should be efficient, effective, and we should make sure the men and women putting themselves in harms way have all the data they need in order to do their jobs. Emily the bill draws on some insights from the founder of oculus. Talk to us about their contribution. Representative hurd there are a number of folks that have great experience when it comes to Consumer Products and augmented reality and the understanding of the different kinds of technology thats available. Being able to have that kind of experience giving guidance is great. I hope that a number of people actually ultimately try to compete for this type of opportunity, to making sure we are getting the right technology in peoples hands. Its crazy that many of these men and women in the border patrol, when they are patrolling the border i have 820 miles of the border in my district. Sometimes their cell phones dont even work or their handheld radios dont even work, so these folks are blind. In 2017, we should be able to correct this problem. This is what we are looking to do with this smart wall and in our smart act. Lets change the strategy. Having a onesizefitsall solution to Border Security is the wrong way. Thats how we have been doing it. We have to change the strategy. Emily congressman hurd, how will the house handle the obamacare bill . Representative hurd very good question. We will see what the senate is able to actually do. They are still doing votes today and likely tomorrow. Situation, and we will see what ultimately comes back to the house from the senate, and thats how we will decide whether to proceed and whether there are votes to pass what the senate sends back. Emily what do you think comes next in terms of whether congress will avoid a Government Shutdown in the fall . Representative hurd nobody is interested in a Government Shutdown. We havent had one in a while. A lot of times, its only folks in the press that ask those questions. The fact that we are trying to get this appropriations process moving before september is important. We still have a lot more of the government to fund, and we are going to be having those conversations when we get back in september. The senate has to start their new their conversations around appropriations as well. Nobody wants to see a Government Shutdown. Ultimately, how the government gets funded is likely to get decided close to the end of september. So, this is something that we need to do. This is our job to get done, and nobody on either side of the aisle wants to see a shutdown. Emily all right. Congressman will hurd. Asnks so much for joining us the u. S. House passes a 788 billion spending bill, including funding for a border wall. Coming up, we will bring you the ceo of a french speaker startup with a list backers. We will dig into the companys unconventional choice for its first external partnership. This is bloomberg. Emily now to a stock we are watching. Apple shares soaring in late u. S. Trading. Revenue topped estimates for the quarter. Revenue reaching 3. 5 billion. Another stock that is moving, apple, falling nearly 2 during thursday trading, the biggest eventuallyjune 12, closing at 160 per share. The Company Announced it will discontinue two of the cheapest ipod models, the nano and the shuffle. The two products have been removed from the Apple Online Store and will vanish from retail locations. Joining us now to discuss, alex webb, who covers all things apple for us. Alex they werent selling very many of them. The cheapest models probably dont add a lot of revenue to their top line. The disadvantage of these models is, unlike almost every other apple product, they cant push any Services Revenue through them. The traditional, old business of selling songs through itunes is kind of dissipating gradually over the years. Thats because of apple music, which people pay 10 per month for. Thats a Subscription Service which drives recurring revenue and is therefore very attractive. Emily we are getting new details about this foxconn manufacturing facility that President Trump announced yesterday in wisconsin. What do we know . Alex we know for certain it is a 3 billion incentive package, clearly a big more than 30 about 30 of the total costs of the site. One of the other interesting stories that broke today was sticks finally said they are probably not going to see a change to border taxes this year. It was quite interesting. On wednesday, there was a huge factory announced in paul ryans home district. The next day, paul ryan himself says we are probably not going to be pursuing imposing taxes on imports from places like china. I dont want to imply too much cause and effect, but its an interesting correlation. Emily we will be watching how it continues to unfold, including the potential for future facilities across the u. S. Moving on to tesla, we are getting closer to the model 3 unveil. Alex at this time tomorrow tomorrow evening, i will be in fremont myself with some of our colleagues, and we will be seeing elon and over the first models to customers. A lot of those customers will be employees. We will have the final confirmation of what exactly this car looks like and what it has. Maybe some slight changes to the aerodynamics. Some software improvements. Perhaps some autopilot. There will be a lot of tesla fan boys watching that with great interest. Emily we will be looking forward to your reporting on that, alex webb, who covers apple and sometimes tesla for us. Thanks so much for stopping by. Reporting rising profits in the fourth quarter, despite increased costs and rising competition. The ceo said the business has not been distracted by a takeover bid from Rupert Murdochs 21st century fox. The u. K. Government is yet to rubberstamp the 15. 4 billion deal. At the same time, sky announced a new piece of hardware, a sound system working with the french startup, which counts rapper jayz among its shareholders. Out to Caroline Hyde in london for more. Caroline the french sound company is devialet. It is backed by investors including music mogul jayz, not to mention trumps current favorite foxconn. In an exclusive interview, the ceo of devialet explained the partnership with sky, whats unique about the new sky sound box they are developing, and where next with the new technology. We have developed new technology in sound. Consider that we have to the displays are beautiful. The sound is ugly when you are watching tv. We have to provide to the people a new device that is able to feed that program and to deliver real emotion to the people. Caroline a new device that is going to be affordable . Some of the production you have made so far, the phantom, the speakers are incredibly high while highquality and relatively high price point, too. Yes. Our strategy is to be able to develop devialet products, to develop our stores, and to put in the market very sophisticated products with devialet design and, at the same time, we want to put our technology in any device that is able to provide sound. Our goal is not only to produce a car, tv, laptop, or smartphone, but to put our technology in these devices. What we are doing with sky is to deliver something that is able to feed the program with the tv and to deliver great sound in the tv. So, its a soundbox. Technology,l of the able to provide a real immersive sound with your tv. Caroline how . What sort of technology are you using that is different from everyone elses . The sound technology we have its a chain between the application, transducer, speaker, and signal processing. We have more than 100 patents in these domains. Once we are designing what we are designing for sky is a new kind of product that is has embedded this technology, but to make it affordable for the people. The goal is to be able to go in median homes with this product, so the kind of architecture we have, the way we are using this technology is not exactly what we are doing in the devialet product. We are assuming the technology to make it more affordable, but, at the same time, to deliver a really breakthrough, stunning experience. Caroline do you know what sort of price the sky soundbox will be . The price for the sky subscribers will be 249 pounds. And if you are not a sky consumer, you will pay 799 pounds. Caroline and then, tell us about the next step. You have gone into surroundsound or the home first for the home first, but then youre talking about automobiles, mobile phones. What other partnerships will we see . What geographies will you look at . So, this is the first step with sky in the u. K. And in ireland. The goal is to go everywhere in the world, so we have already contracts in europe and in asia, and we are going to develop also our technology in the u. S. The goal before the end of the year is to unveil several contracts around the world with content and Service Providers embedding our technology. The second step is to do the e step in automat automotive domain, and be able to announce the first contract by the end of the year with a carmaker. Caroline you are a company that was one of the biggest fundraising rounds in europe last year, 100 Million Euros that you raised. What are you looking to do with this particular funding . Is it also about building your own brand, or is it helping foster the new partnership . Both. In fact, our technology we are developing our technology and we need firms to invest more and more in our technology to make it more affordable. Its what we are doing with sky, for example. In another way, we are going to open new stores as we are doing in, for example, new york city. We are opening we are going to open stores in the u. S. In San Francisco in the coming weeks or in asia, as we did last week with two new stores in singapore. So, at the same time, it is an investment for the brand and an investment for the technology. Caroline global ambitions therefrom the devialet ceo. Emily Caroline Hyde for us in london. Thanks so much. Amazon shares are falling in late u. S. Trading and its Earnings Call is underway right now. We will bring you the very latest. This is bloomberg. Emily a developing story we are following. Dropbox is said to be likely to hire Goldman Sachs for a possible ipo. The Cloud Storage company has been in the ipo pipeline now. It seems as if they are getting closer. Goldman sachs likely to be hired by dropbox to lead its ipo. Now back to amazon. We have been listening into the Earnings Call, happening at this very moment. Shares under pressure on concerns about profitability. The company also forecasting a possible loss in the quarter and the rate of margin growth is down slightly from last quarter. Back with us to discuss, cory johnson and our guest host for the hour bob odonnell. What are the interesting highlights that you have seen so far . Cory a lot of the same stuff from amazons call. Customer focus, cutting costs on amazon web services, delivering to our customer. Ive decided im kind of a skeptic. Ive decided it is easier to just believe everything that they say. If you start to do that, the financials for this Company Start to make sense. They cut costs so consistently that, every chance they have to make a profit, they pretty much run away from it. They want to garner cash. They are going to try to get every sale they can, cut costs in every way they can. Even in amazon web stores, you saw the biggest gross margin costs cut cost cut youve ever had before. They are cutting costs left and right. Emily getting some interesting detail from the cfo about the vision for groceries. They got a question from analyst about whether they want people to go to stores instead of home delivery. The cfo said they dont believe there is any one solution. They are experimenting with all models. They will see how customers respond. Bob obviously, thats the right way to go with groceries, because no one has figured out a single solution. Emily and whether there will be a single solution. Bob exactly. For 20 years, people have been groceries figure out 20 online. The point being, they are going to try they sings. What amazon is doing try these things. What amazon is doing, they are building infrastructure. If they do get whole foods, they are adding a whole bunch of retail storefronts through which they can also deliver amazon right . You have to think on the longterm this is the way they have run this company for a very long time. This is the way they continue to see the world. They want to continue to invest. Now, also rumors of health care. That there was a startup trying to do health care stuff. They clearly seem willing to tackle a lot of big issues. Emily the cfo also talking about the primary areas of investment, of course cloud infrastructure, Fulfillment Centers, alexa, video, india, and prime. Cory i thought the big takeaway was what i expected, that they have profits in amazon web services, less than they had in terms of percentage of revenues, but they have losses in selling stuff. Of the 34 billion of stuff that they have sold, the stuff, probably waiting on your front doorstep as its waiting on mine they lost nearly 300 million, but with 4 billion in revenue, they made nearly 1 billion in profit. Profit in services is a much smaller business. The cash flow from both grows it all. Emily so many of these new services are to drive prime membership, to get people in the amazon ecosystem. We have this estimate, 80 some million prime subscribers. Can that number significantly grow . Bob i think it can, especially as they start to talk about internationally. Even within the u. S. Emily if you think about households. Bob thats true. But they are doing international expansion. The other thing to think about is their ability to offer different tiers of prime at some point in the future. Can add of prime different capabilities. For years, we have been talking about everything is going to be a service, transportation, this, that, but that model breaks down when you think i have to have 50 different companies. But if one of them has all of them and amazon is that one, thats the opportunity. Emily bob odonnell, cory johnson. Amazon shares still a little bit under pressure, down 2 after hours. That does it for this edition of Bloomberg Technology. Tomorrow we will speak with intels cfo. This is bloomberg. From our studios in new york city, this is charlie rose. Begin this evening with north korea, american intelligence agencies estimate that north korea will able to launch reliable missile that could reach the United States within one year. It had previously been thought that john yang was a roughly four years from developing longrange missiles. However, in a test earlier this month, north korea demonstrated capabilities of striking alaska. It forces officials