Zuckerberg describes libra as complex and risky. More on his testimony effort of a House Committee wednesday on capitol hill. Plus, tesla reports Third Quarter earnings and shares spiking on a surprise profit. We have the latest. And cloud carries clout. Microsoft First Quarter revenue beats the highest analyst estimates. Demands come in strong but may be waning. We will explore. First, to our top story. Facebook Ceo Mark Zuckerberg fielded questions from the House Financial Services committee on merits of its plan to establish its own digital money called libra. While he struggled to convince them of facebooks plan, he did share one major view with lawmakers. Mark this project is too big for any one company to do on its own, which is why we set up this independent Libra Association with other companies and nonprofits. It is a very complex project. As you say, it is risky. Taylor for more, we head to washington, where our own kurt wagoner was standing by. Whats your first takeaway . Kurt people still do not trust facebook. That was the overarching theme from the questions we heard today. A lot of the feedback from members of congress was basically pointing out things that facebook has done wrong in the past and asking given your track record, why should we trust you with libra, with money, with a new cryptocurrency . At the end, it was representative mchenry after almost six hours of questions and testimony that said im not sure we learned anything new here. It was a little bit of an unfair blanket statement but at the same time, i think despite the fact that we had all this time to hear from Mark Zuckerberg, we did not walk away with a bunch of Big Questions answered. Taylor kurt, when pressed on why we should trust facebook, what was his response . Kurt well, a lot of the response is similar to the clip you just showed, which is the idea that facebook is just one of 21 Different Companies that libraw overseeing the cryptocurrency. Facebook is putting out there that we are not the only people making a decision here. We want to work with regulators and we want you to tell us how this is going to work. It is not going to be only our call. That is obviously a very important element of all of this because for the people who think facebook has too much power or it cannot be trusted, the idea that they are bringing others into the fold or that they are following rules that someone else creates, that will give them a lot more flexibility to get this thing off the ground. Taylor kurt, we heard him also bring in china and saying if we dont do this, china will so we have to do this to get ahead. We have a sound bite from what zuckerberg was saying about china. Take a listen. Mark as soon as we put out this white paper on libra, we saw in china especially they immediately kicked off this Publicprivate Partnership with some their Biggest Companies in order to race to try to build a system like this. Enimbi that they could use as part of their belt and road initiative, their foreign and Economic Policy to grow influence throughout asia and africa and other areas. Taylor kurt, is zuckerberg right in bringing in china here or is he just playing to all of our fears about china taking over . Kurt i think there is probably some validity to this concern. This idea that there are companies and the government in china that really wants to accomplish a similar problem. They have the technical ability probably to do Something Like this. I do think this is a very convenient argument to make especially right now and especially in front of this Congress Given all the issues we are dealing with with china. With the trade war and all that. It seems like now is the time to play up this fear that china is the real threat here. We heard him say this last week. When he gave a speech at georgetown about free expression, he talked about the internet rules and china and it and Tech Companies like facebook dont support free speech, you might look up and see the that is gone from the internet because Chinese Companies are controlling it. He has played on the china fear before. Taylor kurt, we also talked a lot about political ads. Remind us what you heard today from zuckerberg about why he does not want to be the arbiter of news and Fact Checking these political ads from politicians as we head into election season. Kurt he has been pretty consistent over the last week or so about the question that he has been asked many times. Weve heard him answer it time and time again. He says we dont want to be in a world where Tech Companies are responsible for determining with 100 certainty what is true and what is false. He says i dont want to be in that world and you probably as a Facebook User dont want to be in that world either. That obviously creates a lot of other problems but the general perception here is that facebook doesnt want to be taking a side and if it were to go out and say were going to block this ad from President Donald Trump or senator elizabeth warren, does that constitute them picking a side one way or the other . They want to let things slide and they are asking journalists and users to point out what is true and whats not. Taylor thank you for joining. Tesla is also out with thirdquarter earnings. 6. 3 billion dollars in top line revenue. Its the first decline since 2012. The stock is jumping. Tesla is managing down the income statement and posting bottom line earningspershare beat of 186 versus estimates of a loss of . 24. That is an unexpected profit. Eo joining me to discuss is jo securities. A surprise profit . Indeed. You mentioned the bottom line numbers already. The real surprise for us was the companys gross margin, which drove the bottom line numbers. Taylor what is the gross margin . What are we looking for and what do we get . We were forecasting 15. 1 . They came in at 18. 9 . For a company like tesla, that is a big difference and it surprised us. Taylor how surprised are we by the profit in the Third Quarter . We thought maybe it would be elusive for a little bit. Elon musk and the company have been saying that this is the big goal. They have been saying we got the production right now, we are all about getting costs down. Because tesla has been so chaotic over the last 18 months or so, you know, there has been a lot of skepticism but this is a case where they delivered. There is more money coming in than is going out. The cars are selling in greater numbers and when you look at what they have ahead, obviously aree are pitfalls, but they shanghai factory and in shanghai. That will potentially be great for sales. The investor letter they just posted said they are ahead of schedule on the new compact suv model. Taylor we know from a lot of these companies that you cannot cut your way to growth. The problem here is that Topline Revenue growth is falling for the First Time Since 2012. While you are able in one quarter to manage and get a bead on the bottom line, how concerned are you that going back to the top line, you are not seeing growth . I think thats a good question. Buys why we moved from a to a hold on the stock. We are concerned about the demand out there. Anding out the model y ramping in china is important. This company does need to generate growth. Taylor we should note that tesla an afterhours trading, they are poised for the highest since april. Clearly, investors are surprised and happy with the company. As we talk about profitability, walk me through the mix. The mix between the three, which is higher volume but lower xrgin versus the s and the and production of the y. The model s and model x have been the highermargin luxury vehicles. The three is a middle range car, upper massmarket may be. The knock here was the tesla had been doing these contortions to get the price down. Down to get it as low as possible. That was going to cut into sales of the others and destroy margins. What looks like to be happening been sothree sales have good and tesla has been so good at keeping the margins in check and getting their manufacturing process, which was so all over the place for so long, under and it looks like they are making the numbers work. At the end of the day, this is a much cheaper luxury car but it is still a pretty expensive car. You have these addons the tesla that tesla has been effective in selling including semiautonomous addons. Theres a lot of ways for them extra margin on this thing. X, a drop in revenue, does that show you that demand in the u. S. Is saturated . Im not sure i would say saturated. They have accessed most of the early adopters already. You are getting to the plan our getting to the part of the plan where you have to deliver reduced prices and better economics on the model three to keep the volume going. I think their rate of growth may attenuate a little bit until we see china come online. Taylor they just opened up the big factory in shanghai. They are looking at producing 1000 cars per week in that factory by the end of the year. Is that what you need to see out of the numbers from china to see that you are getting that demand . Certainly china helps. It sound like we are pretty close. That will help with the margin. I do think it will be very important for them to get the lineup of products refreshed in the u. S. And europe as well. So what we got surprised on today really was the gross margin. It is much more profitable than we thought. The concerns i articulated about demand and the rate of growth are still there. Taylor lets push this forward. So tesla coming out and saying they are confident they can still exceed 360,000 deliveries this year. We were looking for 360,000 to 400,000. How confident are we now that we can meet to that can meet that annual target . This is a company that is famously a little bit freewheeling. It is honestly hard to say. Them coming out and putting that out there, you have to take that as a good sign if you are an investor. A lot of this future growth as joe was saying is dependent on china. China is very politically chaotic right now. Obviously, tesla has done well and has opened the factory with remarkable speed. There are beautiful pictures of the factory that are in this investor letter they just posted. With anything with china, you have to look at it as something you should be cautious about. Because at any point, the trade war, which obviously seems to be simmering down a little bit, could heat up again. We have a tech ceo doing car manufacturing in china. That is potentially politically sensitive. Osha. analysis from joe thank you both for joining. Coming up, microsofts cloud efforts pay off. The Company Beats annual assessments, but there are signs that demand may be waning. We get a full picture ahead. As we go to break, paypal exceeded analyst estimates when the reported earnings on wednesday. Paypal became the first to pull out of the facebook led cryptocurrency project. This is bloomberg. Microsoft reporting firstquarter results as well on wednesday. Joining me on the phone to discuss is jeffries analyst who currently has a five rating on microsoft. You have to hand it to the company. 14 topline growth and ninth consecutive quarter of doubledigit growth. How are they getting there . The cloud. They are crushing it. They accelerate actual cost and currency growth from 15 up from 14 last quarter. They have really embraced the shift to cloud. The cfo and ceo really got ahead of this ahead of anyone. They are taking shares of oracle, ibm and many others in the industry. We think that the momentum continues. Whats notable is they have massive backlog. Many of these contracts they are signing, they are not recognizing the revenue in the quarter, they are recognizing it over multiple quarters. The opportunity for investors is incredible because these are multiyear contracts that are now measured in the billions of dollars. That gives you future visibility. Thats why the stock continues to grind higher. I think its off a little given the overhang across tech right now with texas and the other Software Names turning off. Overall, you cant dream of a better quarter. Taylor our analysts would agree. Coming into this report, we had our analysts say microsoft was placed for the transition to the cloud even more than amazon. They are taking business from oracle and ibm. What are they doing that other Cloud Companies are not . They got to azure early. This is years in the making. I think the legacy vendors did not pivot quick enough. Secondarily, they added the whole microsoft suite from server products to desktop to new applications. They have been very opening about embracing new technologies linux, which in the past they were not open to. They have been agnostic to what is going to go on the desktop and effectively just saying we want to be the back end to support that. I think it has been great leadership and multiple years in the making. Honestly, they are reaping the success of years ago decisions they made strategically. Now, this is an off. They are gaining the trust of the top corporations and realizing that what they want to use amazon, they want to use google. They are using a lot of microsoft, too. Large enterprises are using a lot of amazon or microsoft cloud. This multicloud world continues in large enterprise. Theres really a couple choices. Taylor away from the cloud, are you seeing enough broadbased demand in some of their core businesses that legacy i. T. , that if cloud were to slow, there is enough support in the other business lines . They have an upgrade cycle to windows 10 that will wane. Its a tailwind. It turns to a headwind early next year. There will be some questions in the call about how much demand got pulled forward on the traditional pc side because you have an endoflife product. That is something we are watching but thats more of a rounding error and what is more important is the success they are seeing across the board in cloud. Taylor thank you for joining me. Coming up, Conference Calls, tequila, plans to live forever. Uman era ofw bizarre excess has come to an end at wework. How are employees feeling about a payout . This is bloomberg. Taylor its the end of one of dramatic business debacles in history. A 9. 5 billion package. The japanese conglomerate will get most of the startup. The weworkn, founder, will walk away with 1. 2 billion. Last january, wework had a 47 billion valuation. This valuation lists the company at less than 8 billion. 9. 5 billion . Walk me through the components of that. There is three parts. There is a 5 billion debt package. A 3 billion tender offer. It is available for adam neumann to use if he wants to sell back his shares. Then 1. 5 billion of accelerated warrant in which softbank is going to take more. Taylor if softbank is coming in at a lower and lower average price for their transaction, so if there is a payoff, they could win big. What are the other investors bought in at that the higher prices and are participating in the lower round of shares . This is going to be an ongoing conversation for wework and the details of figuring out the deal because you are right, softbank is doubling down on its ownership wework and buying shares at lower and lower prices. 1. 5cularly, if the billion end of the package is coming in lower than the tender offer. They clearly believe that if this could be valuable in the future they will come out with a win. At the same time, you have a lot of other employees and shareholders looking at this thinking how am i going to get what i expected this equity might be worth . Particularly for employees who joined when they got options, many of them are underwater. This came up in an all hands meeting today with the executive chairman of wework. Employees are concerned about how this is going to play out for them. Describe other reactions you got from the employees when they talk about these bailout packages. One former employee called it a platinum parachute. They feel like him walking away as a billionaire, to them it hurts and it feels painful that the company didnt even have enough cash to pay out severance packages for the thousands of employees they plan to lay off and meanwhile, adam neumann walks away with on top of his availability, a 185 million consulting fee which was explained to employees, that the was something they had to pay him to get him to agree to a noncompete and remove himself from the board. Taylor during that all hands meeting, executives came out to say they emphasize profit over growth. At this point, one would hope. When we get there . That is a big question up in the air. It seems like the company feels like it needs to act quickly to try to show profitability but to be honest, this the company that was losing almost 1 billion the first half of this year. So in order to turn things around, they will have to make dramatic changes and i dont imagine it will happen overnight. This is the new mission of the company. Its no longer growth at any cost. They have turned that over. Taylor finally, do they feel like the ship has stabilized . You had a lot of executive departures and some frustrated employees, they have come around and said thanks for hanging in there Going Forward. All hands on deck, we are trying to boost morale. Is that working . If you are an average employee, you are still concerned if youre going to have a job in a couple of weeks areas they confirmed layoffs are coming and they wont talk about when but we know its soon. Its going to be a major part of the company that will no longer be working there. So morale is low. We have talked to people who say people are just not showing up fortheir job their job. The internal channel is lit up with employees frustrated about how is this happening and they are still skeptical about the future and you cant blame them. Taylor thank you for joining us. Coming up, its all back to facebook. Mark zuckerberg may be done with testifying today but lawmakers are not done with facebook or its proposed cryptocurrency. More fallout from wednesdays hearing next. This is bloomberg. Taylor this is bloomberg technology. Im taylor riggs in san francisco. Back to our top story. Facebook Ceo Mark Zuckerberg is defending his social network before congress. Le