And discuss how the company is positioned for the rest of 2020. Speaking of the cloud, microsofts ceo set down with bloomberg in davos. We will hear his thoughts on the competition between microsoft, amazon and google. First, to our top story. Netflix shares initially jumped the for a racing the gains after reporting fourthquarter earnings. Now fluctuating between gains and losses. The company has hit a milestone to passing subscribers outside the u. S. During the quarter. Growth this slowing with forecast at just 7 Million Subscriber addition in q1. To discuss Earnings Report in further detail we are joined by emarketer and ceo andre. The shares were trading off of the First Quarter subscriber guidance, which came in a light. Are you worried that for the competition is slowing down growth for netflix . Not at all. Strong in thetty developed markets. There is not a lot of growth for them in the u. S. They have a lot of room to grow, but that will be difficult. That 7 Million Subscriber guidance, that is compared to a strong q1 in 2019. When you look at the yearoveryear comparisons a are very weak compared to last years. Get youret me thoughts. Typically they are conservative when they forecast some of their guidance. Do you feel netflix is being conservative, or is there real potential underway . I have said that the real competition for netflix really starts in 2020. And i still believe that to be so. If i were them, i would be conservative. I do think it will be difficult to tell what the full impact of all the other solutions will be on netflix in the First Quarter. And Second Quarter probably more so than q1. Quickly take ato look at a chart inside my terminal. To mention how the u. S. Mystic market is a very mature market. You could see in the Fourth Quarter with the u. S. Market that has struggled, is that normal, like you said . Would you like to see more u. S. Subscribers coming online . The subscriber growth in u. S. Will be lumpy moving forward. Thats largely because they are reaching well over 50 of all u. S. Households. There is more growth for them, but when you consider more people watch netflix and actually subscribed because of household sharing, but also password sharing outside of the household, theres not a lot of room for them to grow within the u. S. In terms of subscribers. I still offer a great value to consumers and can continue to raise prices moving forward. Taylor i want your thoughts on that competition. I often hear that that domestic user is a much more valuable customer because they are more profitable. I know that the growth is international because it is less of a mature market. The customer over there is not as profitable or valuable. How do you view the mix between domestic subscribers and the International Subscribers as well . Andre i think the domestic subscribers, especially over the next year, and i would disagree that netflix can increase revenue by just increasing the price, netflix is now priced at a premium compared to their competitors. Comcast and announcing peacock as a free tier. With disney coming in at a cheaper price. Tv and others that are free streaming. The challenge for netflix could a difficult thing to retain the clients than i think people are giving it credit for. There are so much more Free Solutions that are coming on and cheaper Price Solutions with netflix. I just dont think they can spend their way out of it like they had in the past. Taylor i want to get additional because from you, netflix did say customers are leaving due to recent price increases. At what level of price increases are you really comfortable with . Andre its difficult to say with the level of churn. Comfortable with any additional price increase from netflix. It is not feasible. About it, two years ago, having a netflix if you had connected tv or any streaming device, was like a utility. It was pointless to have these devices if you did not have netflix. Now you have people that dont mean netflix. A lot of the most popular content is coming back to the original owners and going to other platforms. There are half a dozen cheaper options that have significant content. Tvre are things like pluto and peacock that are free and still have a lot of content. Imdb from amazon. I dont think it is realistic for netflix to increase prices. I would argue that to have success in 2020 will have to diversify the business model. Have a cheaper app supported tier. Do something. Taylor eric, do you also think they should create more of a tier subscription and come up with a lowerpriced model . A lot of people think they are missing out on 1 billion a year by not having ads. Eric introducing a lower add twoyear is a great idea. Will never time, ads be a major driver for revenue for netflix. Adgely because a low end supported tier would be there to keep people in the ecosystem. When you look at all these other supported options, people spend a lot less time watching them. When netflix is constantly talking about retention, its driving these back. When you introduce ads, time spent will drop specifically for the users. It is important for netflix to continue to do what they are doing, produce content people want to watch and produce value. Taylor andre, i want you to take a look at this chart inside my terminal. The story we know is how capital intensive this business is. Is coming inarter at 1. 5 billion. Netflix said 2019 is a peak deficit year for Free Cash Flow. Does that give you optimism . Reportshere has been that they will spend 20 billion on content. They spend so much money already. What the street has given netflix credit for was the massive growth they were seeing. If growth slows and competition rises, i dont pick they will be able to spend their way out of it. The other concern i have is that all the spending is a pretty old strategy in terms of becoming a traditional media strategy. They have not done things like some of the other major media companies, or Technology Companies have in terms of diversifying. Playing ordeogame other areas. When i look at their spending it is not the dollar amount, it is the lack of diversity in terms of how they are leveraging that capital. As we talk about the diversity, leveraging capital, you hear one off random rumors about what they buy a movie studio or could they enhance a vertical or horizontal supply chain. Question, out of the where would you want to see netflix go forward in 2020 . Eric i cant imagine them buying a large movie studio because they already are a large studio. They have a lot of content they produce inhouse and that will only continue to increase the share of their total library content. Also talking about things like diversity revenue and looking into other areas. Theyre looking into companies that have large Diverse Revenue streams like disney, amazon, apple, but netflixs hyper focused on making this work. Its a pretty big sandbox for them to play and when you look at how much people pay on traditional paytv, as well as other forms like movie theaters. Taylor eric, 14. 8 billion in from 10. 4 down billion a year ago, are you worried about the Balance Sheet or do you like that they are borrowing . Eric Interest Rates are low right now, hopefully they will stay low for netflix to continue. Their biggest strength right now is scale and they are still growing by quite a bit. With that scale, that debt, that Balance Sheet does get spread out over more customers. When you look at Something Like disney or apple, and they spend all that money on a small number and they are hoping for it to grow. Netflix is already there and have achieved large scale. The question of spending to keep off competition is a story we will continue to discuss urine discuss. Thank you both for joining. Lyft is teaming up with lebron james to give away free bike share memberships for thousands across the country. This is part of a Larger Initiative to expand transportation access to communities in need called lyft up. \ provide free and discounted rides. In this hour we will bring you ts conversation lyf cofounder. Ibm broke five consecutive quarters of decline. We will find out what is pushing the company back into topline growth. That is next. If you like Bloomberg News, check us out on the radio. Listen on the bloomberg app, bloomberg. Com and in the u. S. On sirius xm. This is bloomberg. Taylor ibm posted fourthquarter earnings tuesday. Revenue growth in five consecutive quarters has declined. Appears to be paying off. I am joined over the phone by david. A return to growth. Only 1 10 of 1 , but investors probably are pleased. What is driving that growth . Me. D thank you for having with the ethics impacts, those were slightly smaller. Back to 60 basis points versus 100. There were in line with the expectations of around 200 basis points. Was you go deeper, it towards a higher end of expectations of around 9 . High singledigit growth was expected, but transaction ,rocess platforms actually grew even bumping up tough costs from the year prior. On top of that you did have the sea 15 mainframe ramp that grew ibmz grewhole but the about 50 to. Taylor i want to die down into the different sectors. As you look forward to 2020, do you believe the promises of a sustained return to Revenue Growth and Margin Expansion . David i think a lot of it comes down to the dollar. When you look at this on a cost and currency basis, if the currency goes into the second half, especially with the contribution you are getting from that have, which, on a normalized basis grows mid20s as of this quarter. It is accelerating and scaling through some of their own services segments, which is 60 of the revenue. That is to keep components to Revenue Growth on a cost and currency continual basis into 2020. Taylor i want to talk more about the cloud Revenue Growth. Where did they stand relative to competitors . You mention the acquisition around 2018, they spent 34 billion on it. Where does that position them among the other competitors in this hybrid Cloud Strategy . David i think this puts them in a middle air opportunity, especially when you consider linking toward some of their consulting divisions. It definitely does not put them facetoface with some of the other bigger competitors in the space. When you mentioned google or amazon. More so that some of the workflows can be scaled through to their services, which hopefully drives the and Margin Expansion for 2020. Some ofreading through your research notes, it was interesting that they said they would keep the red hat acquisitions and some of the things independent. Is that the right strategy . David i think it is. Compartmentalizing our red hat and keeping that separated, it definitely helps assemble the right errors that come up for ibm. But at the same time it does not make red hat change their strategy, which has not been working well with growth prior to the acquisition. Thewhat you are seeing is growth accelerating and the contribution you are getting from red hat on a normalized basis helping and giving a boost to cognitive, which is overall good for ibm. You on theid, i have phone but i want to take a look at the chart i am showing for our bloomberg viewers. Going backe story since early 2012, ibm down 12 relative to amazon and microsoft with the broader index, which are up to 200 or 1000 over the last six years. Is it purely a valuation standpoint given the recent underperformance of this company . Isid i will take it valuation specific, but when you look at what happened in 2019 and a banner year we had, and the multiple expansion that occurred, that is 80 of the Market Performance we have had. Ibm did not fully participate in that rally in 2019, but when you shift over and look at the markup that occurred in 2012, that leaves us much more susceptible to bad news, as we have seen today. If that happens, when you look towers thate are are hopefully in place when you look to 2020. It depends on what happens and what is on the call today. But when you look at it on a dividend yield basis, it is especially when you are looking at the full investment she is able. Investment as a whole. Taylor thank you to david holt. From davosrom who will lead a panel on artificial intelligence. Ibm has called for certain rules aimed at eliminating bias. The company is trying to ease concern that the Company Relies on data that puts in past discriminatory practices. Companies are looking for a consensus on industry rules what rather than wait for government regulation. Next, talking trade. Bloomberg sits down with chuck at the World Economic forum in davos. How evolving relations have affected ciscos business in china. Bloomberg technology is livestreaming on twitter. Follow our global breaking news network on twitter. This is bloomberg. Taylor prior to the phase one trade deal between the u. S. And china, cisco saw the China Business struggle. Sales fell and the state owned enterprises were no longer taking bids from cisco. After the trade deal, the company is working to gain a firmer foothold. The ceo sat down to discuss at the World Economic forum in dollars. The need to have Global Communication standards will take over, and we will figure out ways to deal with multi vendor systems. There areat discussions going on right now and washington around how to make sure we are engaging on standards, so i think everybody realizes this is an important thing for as to get right. No one wants us to get to a bull demised situation bulk anised situation. As a u. S. Come. Places of, at your getting bigger pretty remote. Chuck the standards issue is just to ensure that we can pass traffic. Which is foundational. What happens in china is up to the chinese. We have worked hard for years over there to build up trust. We have been there for 30 years. This situation that we have right now has created some shortterm confusion, shortterm challenges, and my hope is that once we get past it, we will accelerate our business in china. Clear tensions between the United States and china. At the moment we finally have a phase one agreement, lets call it a truce. Something that has been weighing on cisco stock is business spending. Have things changed for the better . What are you seeing in the business right now . Think about what has happened over the last six months, the activity with our customers is not declined. Our customers understand that andtechnology we build other companies build, it is score to their strategy moving forward. It does not enable their business, it is the business. Everything they do is dependent upon technology. We still see the same level of activity. We are engaged in the same number of activities. Its just that we saw a little bit of a pause because of the uncertainty around what will happen with china and the usmca. Brexit, which we soon why have resolved. Believe resolve i believe that we have more clarity the markets dont like uncertainty. Jonathan you look at the market class and execution, getting ready for the tariff and adjust the supply chains, then you get hit on the head by the macro issues. Lot about cannot do a it. You have to continue innovating and continue doing the things you do. Be prepared, be ready with your customers. This has not been a massive significant falloff. This is a shallow pause where we see customers if you are buying capital equipment, its easy to say lets wait another month or two or get another set of eyes on it. We have seen huge progress on our software. The tough part in this environment is 70 . Taylor that was cisco ceo chuck robbins. Fewerx expects to have subscribers in the First Quarter than wall street estimated. New streaming competition is hurting growth. We will get investors insight on netflix next. This is bloomberg. And they lived happily ever after. The end. The end might not be as happy as you think. After all, 4 out of 5 people who have a stroke, their first symptom is a stroke but the good news is you can rewrite your ending and get screened for stroke and cardiovascular disease. 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Apple is in discussions to make original podcasts related to programs on its video streaming service. They sent out a request asking podcast producers to pitch ideas ith connection to its shows. And the u. K. Telecom giant says it wants to focus on its own payment efforts. It is now down to 20 members from expected 28 when it will launch in june. Those are the top global tech stories we are watching. Taylor netflix has since recovered in afterhours trading. For reaction on the netflix numbers lets bring in dan rgan, which owns shares of netflix and joins us from atlanta. I want to show you a chart that im showing inside my terminal and the story that you are pointing out as well and the slowing rate of growth for these u. S. Domestic subscribers, how worried are you about the growth is slowing . On the Fourth Quarter, th