Afternoon after missing the earnings target. Expecting more than 780 million. The environment in a 2017 is said to remain challenging. Global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries. Lets take a look at the markets. Trading this afternoon. Inare seeing a premuch flat china. Shanghai shares are down one quarter of 1 . This is bloomberg. Cory i am cory johnson, and this is the best of Bloomberg Technology, where we bring you the top interviews from the week in tech. Coming up, snap hits the streets with its ipo roadshow and faces a slew of investor concerns. The problem with snapchats growth ahead. Plus, tesla pops the hood, reporting fourthquarter loss of midst stalling vehicle sales. Beatingbritish Company Intel and the semiconductor market. Our exclusive interview with arm holdings ceo. Snap kicked off its roadshow ahead of an ipo. They have a lot of work to do. Red herring disclosed slowing and investornt rights treatment. Joe siegel is a portfolio manager. I think anything at 20 billion, you have to justify the evaluation here, the questions four. Around user growth and monetization. I think they danced around the issue of user growth, alluding to issues of the android. Monetization they touched on lightly, but as the story progresses, you will need to see more metrics. And jennifer joined us for more. We were outside the Mandarin Oriental in new york today, trying to grab investors to hear their take. To their point, when asked what was your big takeaway still on your mind, user growth was the first thing a lot of potential estors such as beard investors said to us. The executives blamed it on android, but i heard a lot of instagram being called out by investors who point to the stories feature instagram recently introduced that very much mimics snapchat. Others brought up the new whatsapp feature rollout. You can send images that mimics snapchat. Yes, snap is pointing to internal issues, like needing to build out on the android platform in noncore markets, but investors question the competition factor, and it will be on their mind when they are omps between the facebooks and twitters of the world. Cory the monetization issue is a euphemism if there ever was one. Tons of people are using snap, not tons of people are generating revenue for snap. What do you think of the monetization pathway for this company . I think the underlying opportunity for snap is around the data and the audience. As you know, they skew to a much younger audience. It is a content creating machine, and tapping into that and targeting that audience, and being able to use that data more effectively than their peers is where the opportunity lies. Cory is advertising the only real opportunity for these guys in terms of revenue . Theres nothing wrong with an advertisingonly model. Its the history of media is mostly about that. That has been the historic approach. There are different ways you can monetize around what you are calling advertising, very targeted marketing, and marketing dollars are getting more segmented, so a larger opportunity will be around using that data. And selling that data to a whole host of different applications. Advertising been the largest bucket and then going down from there. Cory the valuations here for this business are outstanding. Astounding. For any business, not based on the lack of profitability but the lack of Gross Margins. The most basic concept of business is to sell something more than it cost, but that is not what snapchat does. Did you get that kind of feedback from Money Managers that this would be a Good Business or bad business, but a very high price. It is a very high price. A few noted that we did see the price come down. Since october last year, they were looking at valuations around 30 billion to 35 billion, that is down now to about 18. 5 billion. So expectations have come down as more information about the company has come out. When you look at where they are spending money, the profitability factor is the next step for them. They talk about that as phase three. Phase one was development, phase , and phaser growth three will be profitability. The biggest cost is their technology infrastructure. There was conversation around that today. The company says it expects the cost of infrastructure, paying for cloud and storage, to eventually decline as google cloud and amazon compete on pricing. It also says it is open to building its own infrastructure, so a bit of new commentary around that right now, and that is important because that is the bulk of their expenses right now, and outpaced revenue. Cory jennifer, i bet you would have no complaints if any of your investments could go public at 17 times sales. That is an awesome number. I think they are banking on that monetization and taking advantage of the massive amount of users and content. It is up to them. It is their game to prove that out. It is common for startups to prove that out in the Public Markets where they feel they can build predictability into their business, and that will be the name of the game. Investors in the Public Domain care about predictability and being able to demonstrate growth while being able to predict and build that predictability into their business will be key. Cory i still think this gross margin issue is a serious one. This negative Gross Margins over the last year, and the last two quarters looked better, but those are quarters where they are dressing up the ipo, so i would discount it. These Gross Margins are generally horrendous in this business. Were not talking operating margins. We are not talking expenditures on the cloud. We are talking about those basic pieces of what they sell. Jennifer it comes back to a couple of different issues. One is the fundamental cost infrastructure. And they have been on a tear in terms of user and content growth, and that has forced them to not focus on cost until they got to size and could take advantage of scale and think about creating a competitive dynamic and their own infrastructure. Google also made a very similar exercise when they first started out and built a phenomenal, low cost infrastructure as they try to focus on Gross Margins over time. Cory that was alex and jennifer. U. S. Tech giants continue to face regulatory hurdles in the eu. This time it is microsoft, facing european privacy probes for windows 10 even after making changes. Regulators from seven countries are concerned that microsoft is failing to meet fundamental privacy requirements. Microsoft says it will continue to cooperate. Still ahead, elon musk delivered a mixed bag on wednesday amid sprawling vehicle sales, declining Gross Margins, and a nearly 1 billion cash burn. All the details ahead. A reminder that all the episodes of Bloomberg Technology are Live Streaming on twitter. Check us out at bloombergtechtv, 5 00 on wall street, 2 00 on the west coast. This is bloomberg. Cory on the earnings front, hp reporting better demand for computers and printers, and thats because they Sell Computers and printers. That leads to better profits and revenue is up 3 , 13 billion for the first fiscal quarter. Speaking of earnings, Tesla Ceo Elon musk, a mixed bag for the Fourth Quarter. He says the massmarket model three electric car will arrive, and the first ships in july. Tesla could be out of money by then. They have 3 billion in the bank. They plan to spend 2. 5 billion by june in capital expenditure. Musk also announced cfo Jason Wheeler is leaving the company after 15 months on the job. Here he is on the quarterly call. Elon musk first of all, i would like to announce that our cfo Jason Wheeler has decided to leave tesla in april. He will pursue opportunities in public policy. Jason will be replaced as cfo. Cory musk says initial production on the solar roof and massmarket model three electric car are on track for the second half of 2017, but with cash burn accelerating and losses mounting, how long can combined tesla and solarcity go before returning to the markets to raise money and perhaps diluting shareholders . To people from tigers holding. I dont think it is so much of a concern because they are in the Capital Investment mode and still ramping up production of the model three. They will be building more gigafactories and ramping up the production of the solar shingle. This is a Capital Investment story. If you believe in the story, you want to see them invest capital in the company. Cory im not good at math, but if they got 3 billion and they burn through 1 billion a quarter, this is not a pretty story a year from now unless they sell more stock or borrow more money. They will probably go back to the Capital Markets again sometime between the spring in and the summer, as they have for the past two years because manufacturing cars is a capitalintensive business, and this is a company in its investment and build out stage. They are ramping up to production of the next model, the model three. They are still building out their dealer network, and they are ramping up to production of the new solar shingles. Michael, talk to me about what you see in this quarter for tesla. A couple of questions, first of all, how well have they integrated solarcity and what are the benefits that will come from the integration of solarcity . Will they get at costs . With they be able to sell more of the shingles . And the second thing is, some of the other services they are talking about, whether it is ridesharing or autopilot, how quickly are those going to roll out . That is part of what people are looking for, not just the equipment, moving the metal, but other services that will be internet based and technologybased. Cory ivan, what is the biggest risk to the stock . It certainly had a great run if you look at the stock price over the last year, it is not as exciting if you look at the last six months or 34 months. What do you think the preeminent risk is for this business . Ivan that there would be a softness in sales for the model three and overall softness and in all the vehicles. So the risk is the public stops buying teslas, but so far the demand has been extremely strong and delivery amounts have been hampered by production and not demand. Cory let me push back on that. In the last seven quarters, four of them has seen sequential declines in revenues from vehicles sold, so it does seem the model s is still selling, but they sold fewer in the third Fourth Quarter than they did in the third quarter, for example. Ivan i think the demand and production is still strong, and they are still strong in anticipation of the model three. The model three will be the game changer for them because it moves them from a niche carmaker to a mainstream carmaker, and the number of model threes projected will significantly exceed those of the x and s together. Michael the jury is still out on whether they can sell enough model threes to become profitable. Up to now, they have been a luxury car. Going forward, the question is whether they can enter into the mass market, especially as the big automakers will be in this business bigtime also. Ivan i do agree. Cory they have lost money on every sale. If they have the same net margins for the model three as the model s, making a lot of cars will be bad for them, not good news. Ivan that math is not correct. They do not lose money on every car. Cory sure they do. Like they sell for 80,000 and cost 84,000 to make, its not like that. Cory gross margin, but not the operating margin. D. R ivan and that is Capital Investment, so they are not losing money on the sale of the car. If you look at the gross margin on sales for the big automakers, ford and gm, they are trying to get to 10 . The gross margin on the publicly traded retailers like autonation is also 10 . You put that together, tesla is exceeding that because they are the manufacturer and retailer. They have a gross margin on the sale of the car of 22 . The losses are coming from the Capital Investment that they are investing in the buildout of each model line and now the model three and the buildout of solarcitys solar shingles. Advocate,lay devils as you mentioned, the models are different, so the gross margin is affected by that. The operating margin, not the Capital Investment research and , development, marketing costs, that is why the company has never made a penny, so in fact it is not profitable, but well take these accounting discussions to another day. Michael, when you look at this company, are you inspired by what the Company Makes and what they are doing . Or are you discouraged by the continued cash flow losses and operating profit losses as well . Michael the biggest concern anybody should have around this company is whether or not they will be able to long term charge a premium for their vehicles and whether or not as they expand production they will have enough margin in each vehicle to make money once they take account of their Capital Investment as well as their individual production selling costs. Cory right, ivan, let me give you the last word. I did not mean to interrupt you so much. There is so much to chew on this thing. Ivan as i was saying, if they were losing money on the actual sale of the car, where the cost to produce the car was greater than the sale price, that would be bad. But i think it is positive that they are investing in r d, marketing, and the factory, and the gigafactory, because the biggest constraint of the electric car is battery technology, and they have invested in a number of technologies, battery technology, aluminum welding technology, so if you look at this ramp up, it is not unusual for a company to invest money, especially a capitalintensive business like auto manufacturing, and not make money for a number of years, but demand is still strong for the car. I think there will not really be competition between other electric cars. I think the competition will be between electric cars and gas cars, because still tesla is not really an electric car. It is a highperformance, luxury car that happens to have an electric drivetrain, so i think people looking at the performance and the luxury and Technology Features is what is driving the purchases. Cory coming up, ciscos chairman puts his weight behind a company that provides phone security. Why voice fraud is a 10 billion problem just in the u. S. This is bloomberg. Welcome back to cory another twist in the Insider Trading case of billy walters. U. S. Prosecutors will allege he made 43 million on inside information in dean foods. They will have to show he had a history of trading in apple in 2013. Prosecutors have yet to reveal the details of those elected trades, butlleged walters was indicted last year for trading on tips fed to him by tom davis. Steve jobs presented the plans for an new ringshaped campus, the last public event before his death, now apple says it will start moving employees into that facility in april. The opening day had been set for 2015, but apple face budget overruns and delays. The cost is said to have hit as much as 5 billion, but apple has not disclosed the amount. A 1000seat auditorium in the building will be named after steve jobs. The Call Center Business is massive. Phone calls, billions of dollars, stock transfers, product purchases, but also one of the Fastest Growing forms of cybercrime. Hackers clean information. Pindrop is fighting phone fraud. We spoke to cisco chairman John Chambers and the ceo of pindrop. The business where they are asking you questions to identify yourself is a really bad idea. One, because it frustrates you. It doesnt catch very much fraud. Right now in the u. S. Alone, they are losing 10 billion to voice fraud, and even more so yeah, 10 billion a year, because every single call to gets through when we started the company, one in every 2000 calls was fraudulent, now it is one in every 900, so there are so many calls coming into these call centers because what they have realized is that people as people secure the online and physical side, but it is the easy thing to pick up a phone and get them to do your bidding. These call centers are about customer service, so they are not catching the fraud. It is not their job feared what is happening is all these questions are translating to in additional 12. 8 billion asking people stupid questions. Cory how big is this business . John it is big in terms of the opportunity. You think about the 22 billion being spent on fraud or fraud prevention, and it upsets customers. You think what the real takeaway is. It will become a digital world. Ist was a surprise to me that voice is not the past it is the future. This is the company that would lead in security and authentication, so its not just about how you prevent fraud. They detect 80 of fraud calls with less than 1 false positives. Almost every major Security Breach you read about, 61 started with the a voice call into the company. Cory to some degree, i would imagine your job is to create jobs at pindrop, but take calls away from the call centers. What our technology does is it empowers callcenter agents to do their job better. They are treating everyone who comes to them like a criminal, so now for 99 of the calls they can treat you with a wonderful customer experience, and for the 1 that is not good, they can treat those fraudsters. If you have a wonderful customer experience, you will call back with your smart phone or your standard phone, and when youre making all of those calls, because you make those calls when you really are in need of something, by giving people a great customers experience, you will get them to come back over and over again, which means more jobs. Cory how many times have you been to the white house in your life . John probably 30 or 40. Cory thats what i figured. You know how that place works better than any other ceo in Silicon Valley. I wonder wh