Company. We will have the latest. And cryptocurrency crusader. Facebooks david marcus sits down with us to talk about the embattled libra Digital Currency project as well as regulatory hurdles. Tech earnings started in earnest this week with netflix being one of the most highly anticipated. The streaming giant impressed wall street amidst stiffer competition. International growth contributed to a positive report despite new u. S. Subscribers falling short of estimate. Revenue climbed 31 to 5. 2 billion. I dug into the details with bloombergs lucas shaw. Lucas i think the story is that investors were clearly worried that netflix would have another bad quarter. They disappointed in the second. They added a few million customers fewer than expected, and investors expected another bad one. One i spoke to said that sentiment was awful. Yet they come in right around expectations. They missed in the u. S. , but they were above internationally, and that is where netflix has been telling people for years where future is. Its a sign of where netflix is going. That while they will have one of their worst years in the u. S. This year, they will have one of their best years internationally. Thats because they have shows that are clearly resonating in europe, latin america, and asia. And again, in a sign of confidence, netflix, in the upcoming quarter, is going to start breaking out its subscribers by region, which suggests they now feel confident enough in the numbers and some of those areas to talk about it, which they have not previously. Taylor lucas, talk to me about the domestic number. They are reversing a decline. Is it enough . Lucas you know, i dont know. I dont know how concerned people are. Netflix has cleared the 60 Million Subscriber threshold. Which is what Ceo Reed Hastings headset as the bottom. He projected 60 million or 90 million in the u. S. , this was a while, but they keep using it. They are going to clear 60 million but will only add about 2. 7 million this year. They have historically been adding about 5 million per year. They say its because of a price hike and maybe next year they are up to 3 million or 4 million. But they also will be facing a lot more competition from disney, apple, at t, and comcast. I think we are setting into something of a new reality for netflix in the u. S. Where, after years of growing at 5 million a year, maybe it adds three or 4 million per year. If they can keep that going, it will be ok, because they will get to 70 million or 80 million in the u. S. , which is a pretty good number provided they are growing overseas. And the thing to keep in mind is that they are now generating more money from each of these customers. The revenue per customer is up. And the margin on those customers is up because the price increases have worked without costing them too much. Taylor that was bloombergs lucas shaw. Analysts had no shortage of reactions to netflix. Macquarrie said, in some ways, netflix denies the naysayers. An emarketer analyst joined me with his analysis after the report. The biggest take away is that ultimately subscriber growth is slowing in the u. S. They missed very slightly on their previous guidance. And this is after a negative q2. What this means going into q4 as well as 2020 is that they are not growing as much as they had in the past that is partially householdsf of all in the u. S. Subscribe to netflix at the moment. And this is really concerning moving into the new reality of competition with disney, at t, apple. Previously, Companies Like disney and at t provided a lot of content for netflix. And they were partners in a lot of ways. Now, they are turning to competitors. And this is becoming very difficult this is a difficult problem for netflix to solve, moving forward. Taylor ok, so you bring up the competition. Lets go there. All we heard from the company is that next quarter will bring some modest headwinds to the company, given the competition. How much can they withstand . The fact, in the fourth quarter, you are getting Companies Like apple tv , you name it, disney coming, how strong is that competition . Eric there is a lot of excitement, around disney in particular. But the thing to realize as well is that a lot of these other services, disney, apple, as well as old competitors like amazon that are still very, very strong, they dont necessarily have to turn a profit on streaming video on itself. Apple is really using their service to sell more iphones. Amazon is using the service to sell more of everything. And disney is using their service to draw people into their entertainment ecosystem. What this means for netflix is that they have to be more careful on price moving forward. When, for example, apple is giving out their Apple Tv Service for free with a new device purchase, what this means is that netflix is going to have to be more careful moving forward raising prices, especially if they want to keep their current subscribers. Taylor although the price hikes are trying to offset the negative Free Cash Flow, this is the story we know about the company. If you come take a look at a chart im showing you my terminal, it is the classic negative Free Cash Flow that we see from the company. That Current Quarter has yet to be pulled into that. But again, it is a negative number. Thats pretty much all we need to know. What are you hearing from the company about potentially flatlining to eventually a positive Free Cash Flow scenario . Eric well, they raise prices to ultimately improve their profitability as well as their cash flow. But again, subscriber is the base of their business. When they want to when we Start Talking about profitability, cash flow, it all starts at that subscriber. And if they start losing subscribers in the largest market, the u. S. , that is going to be very difficult for them, moving forward. I dont think that they will lose, but its going to be difficult for them to grow. Taylor that was Eric Haggstrom of emarketer. Ibm also reported earnings wednesday. The Company Reported revenue that missed the lowest analyst estimates. It was a fifth period of decline. Total revenue was 18 billion. In july, ibm completed the purchase of the open Source Software company red hat for 34 billion. Analysts had looked for signs that the megadeal would drive growth. As for what next week holds, we will get results from big tech Companies Like amazon and twitter. For more on what to expect, i spoke with mark mahaney of ibc on thursday. They are going to add 2. 5 Million Subscribers this year, just in the u. S. Netflix has added about 5 million subs a year. So when the growth slows down, it tells you that you are far along the scurve, in terms of penetration. Now you have to caveat that with one thing, netflix did not post a price increase, and it is the biggest they have ever implement. Because it took their low price from 7. 99 to 8. 99. I think that is the issue for netflix. I think they overstated or overthought or overestimated how much Pricing Power they had. It will take them a couple of quarters to work through that. I think they are still deep along the scurve in the u. S. , but plenty of Growth Opportunities overseas. Taylor they did talk about how some of that price increase was pressuring them a little bit in terms of new subscribers. Does it make sense for them to adopt a lowprice adsupported model, for example . Mark possibly. One, i dont think they are going to do it, having asked them that question about a dozen times over the last few years. I do not think they are interested in it. Maybe they will change their mind in the future. Possibly, they could introduce a lower price subscription plan, but i dont think they will do that. They have a lot of confidence, and maybe it is arrogance, that the content, the quality and the amount the quantity and quality of content they have is enough to justify the 7. 99. Frankly, i think it probably is. It is a dollar more their base price is one dollar more than disney, but you get a lot more content been disney. I think it is actually justified. Would it help them to go to a lower price point . Probably, but i dont think they will do it. Taylor would it make sense to buy a Hollywood Studio . They are one of the few competitors that are not in a blockbuster movie theater. The said their content would not be out there. With a be able to just buy a Hollywood Studio and be able to get distribution that way . Mark possibly. I dont think so. I thought you were going to go the other way and talk about if they would get more into the production side rather than the distribution side. I could see them vertically integrating into production, not so much into distribution. I think they are pretty happy with home distribution. Yeah, i think that is kind of where the growth is. Look, this revolution we are living in is not going to be televised. Its going to be streamed. Everybody is going to streaming. Disney, apple, time warner, comcast. I think netflix is in the right business. The question is do they keep executing well and develop good enough content to justify the price points they offer . Taylor you have brought up all of the competitors. Mark yes. Taylor of those competitors, who is best positioned to take on a company like netflix . Mark only disney. I dont think apple is, really, unless they want to put a lot of money into content, which i dont know that they do. And they also have to come up with a more compelling service. You cannot just throw money against this problem and assume you get it right. Netflix has been doing this long time. Netflix has five times as many subscribers as anybody else. It does give them a scale advantage. And i want to get one thing really clear. The battle here is in International Markets. Next year, netflix is going to roll out 130 new local language series in International Markets. I am talking about the philippines, turkey, nigeria i mean everywhere around the world. Thats where the sub growth is. And i think netflix is way ahead of the curve on this. Thats their big advantage right now. A lot of problems nearterm, but that is their big advantage longterm. Taylor you also cover roku. Mark yes. Taylor is International Growth key to rokus expansion . Mark there are two things that are key to roku. One is that it is a great play in the streaming wars. All of these new streaming services, in order to get subs, they are going to have to advertise somewhere. They are going to have to advertise on roku because roku already has 30 million streaming subscriptions. Secondly, if you start your subscription on roku, you will have to share some of that with roku Going Forwards. And third, anything that leads to the diversification of content is beneficial for a kind of fitterling, which roku is. International is part of the growth strategy, but they have barely scratched it, so, yes, if they knock the cover off the ball in International Markets as theyve done in the u. S. , the stock could triple from here. Taylor i want to switch gears a little bit and talk about facebook. Mark ok. Taylor theres been a lot of rumors this week and talks about libra, if the cryptocurrency works, if it doesnt. Is facebook doing the right strategy by going out on these new ventures, or do you think they should just stick to their core business . Mark i dont know. You are asking a good question. Libra look, they have these wonderful assets. One is Facebook Messenger and is whatsapp. One these are the two most popular messaging applications in the world, and right now, they generate about zero in revenue for the company. So could they monetize it through advertising . They are pretty good at doing that, so they should probably try that first. Could they create a wallet around it . Yes. Does it have to be a cryptofinanced wallet . I dont know. That was always the question in my mind. Why do we have to go libra . But i think its too early to call whether that was the right move or not. That they think about monetizing it through a wallet, i think it is a very good idea. Taylor as you assess the earnings landscape, what is your top pick this season . Mark what i think right now it is facebook, only on the earnings. And facebook is the most interesting because i know we just discussed about the libra issue. The rest of the business i think is humming. This company is going to do north of 30 Revenue Growth this year. I know theres a lot of overhangs on it. But this stock trades at a i know you are going to ask about regulation. But this stock trades at a discount to its growth rate. You rarely see companies sustainably trade at a discount to growth rate. There are 18 times cap earnings for a 27 earnings. There will be an arbitrage there, and the multiples are likely to go up. When it does, its hard to know. Sometime in the next 12 months to 18 months, i think there is a material, rerating in the stock. Taylor that was rbcs mark mahaney. Coming up, Facebook Ceo Mark Zuckerberg defends free speech on the internet in Georgetown University on thursday. We will have more on his appearance, plus reaction. And if you like bloomberg news, check us out on the radio. You can listen on the bloomberg , and in therg. Com , u. S. , on sirius xm. This is bloomberg. Taylor Facebook Ceo Mark Zuckerberg made an appearance at Georgetown University thursday. There, he defended free speech on the internet and staked out the social Networks Position on the matter. Mark we dont do this to help politicians but because we think people should be able to see for themselves what politicians are saying. For the same reason, if content is newsworthy, we wont take it down, even if it would otherwise conflict with some of our standards. Now, i know many people disagree with us. But, in general, i dont think it is right for a private company to censor politicians or the news in a democracy. Taylor for more on the appearance and message, i talked kurtoomberg technologys wagner. Kurt you have a ceo currently talking with four antitrust organizations talking about decentralized power and how his platform is actually good for people. He talked about the power of being able to reach the masses, kind of this power of scale as being the fifth estate, actually, is what he was talking about today. And so, you know, overall, there were a lot of talking points from facebook that we had heard before, but i think some of the keys were, we are actually doing a good thing by giving people a voice. We are supporting politicians by not pulling down their ads and being worried about the accuracy of political ads. And then he also kind of brought up this threat of china, which is something he has done before, and really just said if we dont do this, china might come in and take over, and they dont have the same beliefs we do, and that is a real threat. Taylor before we get to china, i want to hit on the first point that you made about sort of facebook not wanting to be in the Fact Checking business. What is their defense for not wanting to do that . Kurt yeah, so you kind of heard him talk about it there. He said that no one really wants to have a tech company be deciding what should be true and what should be false and what should be allowed on the internet and what should not. And this has been the debate around facebook for a long time what is the companys role in dictating what exists online . And so part of his argument there was that if we are the ones who are Fact Checking political ads or if we get rid of political ads altogether, which is actually something i wrote about this week i think facebook should consider doing, he says that that is actually going to benefit the incumbents, because suddenly, the people who already have a platform, who already have attention from the media, those are the only people who are going to get talked about, not the people who are willing to pay to kind of make their way onto the scenes. So those are a couple of his arguments for why he thinks not only political ads should stay on facebook but why he thinks they should not be meddling with them. Taylor that was bloomberg technologys kurt wagner. Now someone who has been following free speech on the internet is a new yorker staff writer. He is the author of the book called antisocial online extremists, technoutopians, and the hijacking of the american conversation. I got reaction to zuckerbergs georgetown appearance thursday. Andrew i think this is a perfect encapsulation of how misleading a lot of these talking points are when it comes from the people who build these systems. Because, you know, he wants to make it seem like this is just a neutral Public Square and that he is just someone who wants to let freedom of expression reign and not be a gatekeeper. Thats fine, but he is a gatekeeper. Facebook makes decisions about how their algorithms work every day. They make decisions about what you see in your feed and what you dont. So its just disingenuous to suggest that this thing he built is not already putting a finger on the scale. You know, it reminds me of someone who built a big highway system and then says, well, we like freedom of enterprise, we like cars, we dont want to deal with the fact that pollution is killing our environment. Well, sorry, you built the system. It is having consequences. You have to clean it up. Taylor if that is the case, why there is an increasing calls for facebook to be treated like a publisher or even a utility company, with more regulation. Andrew yes. Something has to be done. It remind me of starting a warehouse party. This is an example i use in the book, an analogy. You know, you start a big party, you hope everybody will have fun and just get along, but if you dont build in a Sprinkler System and people start setting things on fire, you do not have any w