Investors wonder if jpmorgan or softbank will rescue the company. 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. Growth contributed to a positive report despite u. S. Subscribers falling short. Revenue climbed 31 to 5. 2 billion. I dug into the details with bloombergs lucas shaw. I think this story is that investors were clearly worried 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 they have been telling people for years their future is. Its a sign of where netflix is going. While they will have one of their worst years in the u. S. This year, they will have one of their best internationally. Thats because they have shows resonating in europe, latin america, and asia. And again, in a sign of confidence, netflix is going to start breaking out its subscribers by region, which suggests they now feel confident enough in the numbers 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. That is what Ceo Reed Hastings had set. 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, but will 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. They 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, so 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. And thats a good number provided they are growing overseas. And they are generating more money from each of these customers. 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 netflix denies the naysayers. And one analyst joined me with his analysis after the report. The biggest take away is that subscriber growth is slowing in the u. S. They missed slightly on previous guidance and this is after 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, partially because half of all households 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. They were partners in a lot of ways. Now they are turning to competitors. 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 plus, disney, how strong is that competition . 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 they have to be more careful on price moving forward. When, for example, apple is giving out the apple tv plus 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 . Well, they raise prices to ultimately improve profitability as well as their cash flow. Again, subscriber is the base of their business. When they want to come wind we Start Talking about profitability, cash flow, it all starts at that subscriber. If they start losing subscribers in the largest market, the u. S. , that is going to be difficult for them moving forward. I dont think they will lose but its going to be difficult for them to grow. Taylor ibm also reported earnings wednesday. The Company Reported revenue that missed the lowest analyst estimates. Total revenue was 18 billion. In july, ibm completed the purchase of the open Source Company red hat for 34 billion. Analysts had look for signs of 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, we spoke with an analyst 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 you are far along the scurve. 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 over thought or overestimated how much Pricing Power they had. It would take a couple of quarters to work through that. I think they are still deep along the scurve and 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 . Possibly. I dont think they are going to do it, having asked them that question about a dozen times over the last few years. 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 quantity and quality of content they have is enough to justify the 7. 99. I think it is. It is one dollar more than the base price for 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 not in a blockbuster movie theater. They have said would they just buy a studio and be able to get distribution that way . Possibly. I dont thing 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 enough to justify the price points they offer . Taylor you have brought up all of the competitors. Yes. Taylor of those competitors, who is best positioned to take on a company like netflix . 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 cant just throw money at this and assume you get it right. Netflix has been doing this long time. Netflix has five times as many subscribers as anyone else. It does give them a scale advantage. I want to make 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. Im talking the philippines, turkey, nigeria 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 advantage longterm. Taylor you also cover roku. Yes. Taylor is International Growth key to their expansion . There are two things that are key to roku. One is that is a great play in the streaming wars. They are going to have to advertise 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. 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. 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 should they stick to the core business . I dont know. You are asking a good question. Libra, look, they have these wonderful assets. One is Facebook Messenger and the other is whatsapp. These are the two most popular messaging applications in the world, and right now they generate about zero in revenue for the company. 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. If 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 picks this season . 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. 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 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 to 18 months, i think there is a material, rerating in the stock. Taylor that was rbcs mark mahaney. Coming up, Mark Zuckerberg defends free speech on the internet in Georgetown University on thursday. We have more on his appearance plus reaction. And if you like bloomberg news, check us out on the radio, on the bloomberg app, and in the 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 facebooks position on the matter. We dont do this to help politicians, but because 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 otherwise conflicts 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 spoke to kurt wagner. You have a ceo currently dealing 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 kinda brought up this threat of china, which is something he has done before, and 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 you made about facebook not wanting to be in the Fact Checking business. What is their defense for not wanting to do that . Kurt so you kind of heard him talk about it there. He said 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 it, and this has been the debate around facebook for a long time, what is the companys role in dictating what exists online . Part of his argument 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 will 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 on the scenes. 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. Someone who has been following free speech on the internet is a new york staff writer. He is the author of the book called antisocial online extremists, technoutopias, and the hijacking of the american conversation. I got his reaction to zuckerbergs georgetown appearance thursday. 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. 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 feet and what you dont, so its 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 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 build 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. 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 start a big party, you hope everyone 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 way of policing things or controlling things when things get out of control. You cant just hope and pray that progress keep going and there will be some arc of history that will deliver us to a better result. Facebook has been used to spark genocide in various countries. It has been used to spread autocracy throughout the world. So its nice to rest on the abstractions of free speech, but abstractions are not going to get us far. Its too late for that. Taylor we heard from marc benioff as well this week making calls for facebook to be broken up, but does that actually solve the problem . No, it does not solve the problem. I think the problem is deeper than that. The reason i wrote a book called antisocial is not just because it is antisocial media, it is that there is this feeling all of the internet would be prosocial and bring us together. That was the first 10 years. It was all about what would be prosocial. There was always an antisocial side. There were always people inciting violence. There was always harassment. There was always bigotry. We just did not want to think about that. We do not want to look at it. We wanted to think about the arab spring and democracy and all the fun stuff about the internet, but if we dont look at the harm that can be caused, we are just kidding ourselves. We are just leaving out half the story. Taylor so you brought up the book. You were on the road conducting dozens of interviews. What was the biggest thing you lear