Precursors of various human tissues. Global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries. Parenti. Acroline im caroline hyde. This is bloomberg technology. That, microsoft, intel all reporting after the bell. We will fill you in on the rosy outlook and the big misses. Plus, creating the biggest power couple. We will break down the secret meetings between the ceos of verizon and liberty, and the consolidation race of the industry. Private equity explosion in silicon valley, we will get the lay of the land for 2017. First, to our lead. Ultimate reporting fourthquarter profit the trailed estimates. If you look inside the bloomberg, shares dipping in extended trading go to gipa. Share fell short of expectations, perhaps due to an increase in the tax rate aftertax rate growth during the quarter. That is up from 5 last year. The Company Continues its stronghold on advertising, beating analysts expectations clips, and narrowing slightly at operating loss to the other bets. Joining me to break down all the numbers is the president of tech analysis research. Gentlemen, welcome to the show. Can you give us a bit of an overview here . You have to take a step back. Heres a company that makes massive amounts of money, has massive levels of growth, and people are finding those little areas. The problem is always about expectations here. We will talk more about this. Numbers,tio to click the amount per click, is clearly a challenge for them. Whats good is, we are seeing them spending money on some of these other bets that i think we will pay off in the long run. In the shortterm, sure. Theres a lot of extra money being spent. They have a number of interesting opportunities. Google recognizes they have to extend alphabet, has to extend beyond the advertising business model, and these bets slowly but surely are going to start to pay off. I think we are seeing some of those signs of spending in those areas that we will see later. Caroline lets dig into the advertising revenue elements. Im seeing cost per click falling. But, they are still managing to lure and more people to buy those adverts. Is it a worry degree, theee, declining cost per click is part of the trend we would expect as people moved to mobile. Conversion rates are still lower on mobile devices, so the advertisers marketing those businesses are less inclined to pay up for clicks that happen on mobile devices. That is more or less to be expected. The bigger question is around the click metric in general. We are hearing that our customers are starting to question how valuable are clicks are overall. Caroline you dont have to click on ads anymore. Obviously the Search Engine is googles cash cow and has been for quite some time. The default behavior for an ad on a search is to click it and click all those blue links. On youtube, its very different. You are viewing an ad. Your opening up to a whole new range of use cases, michael new range of different verticals. You dont tend to click convert to buy laundry soap, for example, unless you are shopping on amazon. That can open up a cbg category. The whole click metric will end up getting a lot of noise, the bigger and the more important youtube. Caroline interesting. We are hearing from the ceo of google. He is saying that keyhe is sayis powering, machine learning, three biggest bets, youtube their first one. Cloud, and hardware. Lets stick with you about the cloud and hardware. Cloud, they say, the Fastest Growing area of the business. Microsoft also showed big growth in their azure business. Its a very large area and theres a lot of opportunity for everybody. This is definitely a case of raise all boats kind of thing. We will see google to continue to expand the cloud business. As we can start to leverage some of their machine learning, ai capabilities, integrate that into their cloud offering, that offers a great way for them to differentiate somewhat from what microsoft and amazon are doing. Both Lowes Companies are doing that as well, but each one has its own special sauce and flavor. This is a company that is heartily dependent on one area. For a lot of people, it does raise some concerns long term, how long can they possibly sustain that . They spent a lot of money advertising the pixel. As part of the reason why those costs were so high. Weve all seen the ads. Home looks like a nice piece of hardware. They had they dream on the vr side. There are interesting areas they are starting on. Theyre clearly laying a foundation to do some nice growth in hardware and Additional Services on top of that hardware. Caroline back to the youtube element of the business, you think this will become the powerhouse . When does it start to show its dominance . I think its a huge opportunity, and i think where people get it somewhat wrong or diminish the opportunity is thinking of it as tv dollars moving to online video, and thats not all it is. Pie scenario. The there are all sorts of businesses where the owner maybe has an iphone 7 and can create a quick video and then promote that on pie scenario. There are all sorts of youtube and facebook, for example. Thats an example of an advertiser who never would have bought a tv ad. All those tv ads are likely going to move towards digital overtime where consumers ares running time on youtube. It opens up a whole new set of demand because of the lower friction and lower barrier to entry. Caroline its been great having you. Another story we are watching, shares popped in trading. Bloomberg news reporting that the verizon ceo approach the chief executive of Liberty Media. Verizon close down over 1 on the news. Edged up. Nd sprint up, our coverage of the major tech earnings rolling on with microsoft. Well break it all down. Caroline welcome back. The Chinese Financial TechnologyCompany Controlled by billionaire jack ma is buying u. S. Money transfer service Moneygram International or a whopping 880 million. The deal comes at an opportune time for moneygram. A white house spokesman told reporters thursday that President Trump may call for a 20 tax on imports from mexico. The announcement calls after mexicos president , enrique pena nieto, reaffirmed they will not pay for a border wall. Trump previously said he would consider halting money transfers from mexico, which accounts for 10 of money grams transactions during microsofts secondquarter sales and profit exceeded analyst projections. Trading, in extended when you are looking at the bloomberg. Its the first Earnings Report for microsoft since the Company Completed its 26 billion purchase of linkedin. Joining me is kerry johnson, cory johnson, and still with us is bob odonnell. Relatively acrosstheboard the azure business continues to grow for them. Nearly doubled. Theres no sign of that slowing down. Theres a huge opportunity out there, as we discussed briefly before, amazon, google, and microsoft all driving this business. A lot of interest there, and we are seeing each of these vendors and microsoft in particular trying to focus on adding interesting artificial intelligence, speech recognition capabilities, so that other developers can take advantage of this on if im going to use microsofts cloud services. We will see a lot more exciting developments in that area. The office tree 65 business is interesting as well 365 business is interesting as well. In the long run, that has some nice financial benefits. We are starting to see some of the opportunities they are deriving from that as well. Interestingly enough, even those windows. This did ok. Caroline that old chestnut. That old chestnut still has some opportunity. They were heavily involved with gaming. There nicely positioned as we move forward. Putline something the ceo into play. What about the acquisition, linkedin . Did we get any hints as to how that will start be adding to cory they are separate businesses now. The question is how long will that be the case, microsoft almost more than any other company that has survived as screwed up merger after merger going back decades. Can this one be any different . They hope so. This is a separately operated company. The results in the First Quarter that is consolidated is going to be separate the question is how much linkedin will be in the future. 365, there is a very interesting mix between some of the linkedin capabilities with office, as you tie Contact Information from outlook and other things into linkedin, that seems like a reasonable mix. Caroline potential there. What about intel . I know youve been all over these earnings today. Cory intel is really interesting. With all the companies we are talking about today, microsoft, alphabet, intel, we are talking about the seismic change in computing of moving from Companies Buy lots of equipment to companies borrowing equipment and doing it over the counter. You see intel tried to wrestle with that issue, where they have that fantastically profitable business. As the pc business is contracting, their server business very profitable, trying to move into a lower margin environment where they will have the internet of things, more modem, more memory. What he had to say to us about the pc market was interesting. Intel summarizing sales. As we enter the year we have a somewhat cautious view for the pc tam, total addressable market. To continue tos contract. At the same time, they think their Data Center Business might be strong. When a look at how can they guide towards flat margins and that isstill growing, by selling better stuff and try to keep those margins together on the other side. We expect the average selling price to be better for all their products. They bring new products for the Data Center Business. At the same time, we are looking higher growth for low memory products margin products, which will hurt their highmargin business. Caroline what we saw with alphabet, having to sell yet more adverts. Weigh in here. Well. Could do rather cory adverts are ads, translating. Bob i did get that, but thank you. Modem opportunity for intel is clearly there. Intel is kind of like google anyway, in the sense that cory said, they have been focused on a profitable business. Theyve had to deal with the other bets business much earlier than the other folks have. They have data center but they have made Big Investments in automotive now, making Big Investments in iot, and ill tara with fpgas. Even in pcs, the interesting thing is, yes, people are buying less of them, but the ones that people are buying are more expensive. Cory it puts him in a different place in the world of networking. I talked about distributing computing on the cloud. Networking is so important. We are seeing this evolution of the data center from a semiconductor perspective, and intels recognizing we can just sell the othere have to have these pieces. That is what they are starting to bring in. Some of those pieces play nicely in automotive, in iot, and other areas where theres a lot of excitement. That is why i see them becoming much Broader Company as well. Caroline thus far trading afterhours, they are completely flat. Thank you for bringing it to life, both of you. Verizon targets charter communications. Could this help verizon keep pace with rival at t . This is bloomberg. Caroline the verizon ceo approach Liberty Media ceo greg macey about a possible combination. That is according to people familiar with the matter. The entity would create the largest Internet Provider in the u. S. Lets take a look at the possible deal. The combination of verizon and charter wouldnt be a merger, he would be a megamerger. Its not the first one weve seen recently, like at ts bid for time warner and charterss recent move. Those acquisitions may charter the second largest cable operator in the u. S. Currently, verizon is the number one mobile carrier and number two telecommunications provider. The company has been facing a slowdown in its core line of business. The proposed deal would bring together thousands of miles of capacity. Ptic the industry gets more saturated when consumers cut the cord. Caroline quite a bit of information to go through on this potential tieup. Covers me, our guest who the telecom and tech sector. Thank you for your capacity. Time. Verizon numbers as we saw this week worth looking too pretty in terms of the earnings. With this tieup be helpful . The tieup with charter would not cure the ills of the wireless business which is having issues. Competitors are offering unlimited plans and verizon resisted that probably because customers. 00 million buying charter, and people talked about some of the fiber they have, that is in a section of the market. Its unclear how highquality the assets are the charter has that would enable 5g versus perhaps comcast, who has much better fiber investments have been made historically. It doesnt really shore of anything, it adds a different business and when the generates its own free cash flow. Are starting to see perhaps a division in the ranks of what the best tactic is for the future. At t and time warner saying content is king. Here we seem to see a deal that once the infrastructure. Ceo ofa while the verizon, strategy was go all wireless. They were shutting a lot of this fixed stuff. All of a sudden you have this issue where maybe wireless is not the best issue or only thing for them to do. Theres a lot of pressure on the company to make some type of changing transaction for them. Bloombergs alex sherman talked about them looking at 10 companies. That makes a lot of sense to us. They have issues in the wireless business. As a host of companies they are looking at. With the new administration, there tends to be this anything goes mentality where you can really person proceed with any type of transaction. Caroline maybe not an at ttime warner one. What about the 10 other companies that verizon could be looking at . Who would be a good fit in your point of view . If they are interested in fiber, if they want to actually fix the wireless business or have capacity, and hurt tmobiles ability to get capacity, they should by dish. Want to get content, maybe they should look at disney. If they want to diversify the slowing business they have and get more slowing businesses, maybe they should look at vodafone. There are so many different options that verizon can look at Going Forward here. The fact that they are talking to charter, i think its interesting. Its not really surprising given the challenges they face. The bigger question for comcast, if we are in an anything goes environment, why shouldnt comcast also be looking at charter . This will conversation with libertys liberty saying to comcast, why dont you guys come and take a look at us before the spectrum auction is over and all these deals start together some pace . Caroline regulatory hurdles, are you seeing fewer, amid this new administration, or is a land not clear yet . Doj should have major issues with the sprinttmobile transaction, yet the market seems to think with great confidence that that transaction can get done. In the fcc side of things, think the perception is probably rightly that theres not going to be as much problem with usingctions of the fcc the power they have evaluate these things based on the public interest. The doj is a methodical type of organization. We are skeptical if it thatmobile tried they would be successful. If we are wrong and the market is right, why shouldnt comcast be looking at charter right now . Caroline is there if theres one bit to be placed on it that they would be successful. It, it is the growing excitement of m a, telecoms, and media. Is that the way it will go . 2017, it seems like these companies are gearing up. The one company that seems to benefit in all of this is tmobile. Tmobile is unaffiliated. They are controlled by deutsche telekom. There are a variety of bidders who would be interesting in that tmobile assets. If tmobile got bought, that would have positive implications has a lotbecause dish of that spectrum. A growth trajectory that is unmatched in the world is for his revenue growth. No one is growing faster than tmobile right now. Caroline thank you so much for your time. Coming up, alphabet shares plunging nearly 3 in afterhours trading. We will talk about whats working and whats not. With the xfinity tv app, anything with a screen is a tv. Stream 130 live channels, plus 40,000 on demand tv shows and movies, all on the go. You can even download from your x1 dvr and watch it offline. Only xfinity gives you more to stream to any screen. Download the xfinity tv app today. You are watching bloomberg technology. Lets check news. U. K. Minister theresa may embraced President Trump as a friend and ally, but cautioned him not to turn his back on global institutions and longestablished values. She spoke in philadelphia on her First Official visit to the u. S. She becomes the first foreign leader to meet with trump after the inauguration. There is an opportunity for the you to adapt performance to make europe great again. In early trump supporter spoke in brussels, saying, it is high time to take the u. S. President seriously. Toalso called for the e. U. Negotiate a bilateral trade deal with the u. S. France president said he would step out of the race if charged by National Prosecutors investigating and allegedly fake job held by his wife. He says there is nothing illegal about employing his wife as his parliamentarian eight. 14 people with suspected ties to Islamic State were detained in earlymorning raids thursday. That is according to australian officials. They also say suspects investigated for setting up a parallel society in australia. Global news 24 hours a day, powered by more than 2600 journalists and analysts in 120 countries. This is bloomberg. It is just after 5 30 p. M. In new york, 9 30 friday morning in sydney. We will have a look later with paul allen in bloomberg technology. Caroline this is bloomberg technology, lets look at tech earnings. Microsoft, reporting results after close. Down 2. 2 in afterhours trading. It missed estimates, with a slate of new consumer ithabet telling investors was encouraging. We are thrilled with the reception. Home wasular, google popular that many people opened on christmas morning. A have commented on this as way to bring a beautiful,