Warn about refugees are not islamophobes. Theyre not. Mark in italy, rescue crews continue the search for survivors following yesterdays devastating earthquake. At least 250 people were killed. There were more aftershocks today. Former fifa president sepp blatter is appealing his ban from football. He pledges to accept the verdict of the court of arbitration for sport. Blatter denies wrongdoing in authorizing a twoyear 1 million payment to former fifa Vice President michael plantini in 2011. From new york, i am mark crumpton. Bloomberg west is next. Emily im emily chang, and this is bloomberg west. Coming up uber burning through , significantly more than 1. 2 billion in the first half of the year. We will take you through the unprecedented losses. From the companys latest investor call. Plus, driverless car tech may be racing ahead, but who is writing the new rules of the road . We will hear from the u. S. Secretary of transportation about self driving regulation. And, could someone hack your pacemaker . We will take a look at the security vulnerabilities of medical devices and a bold new call from carson block. But first to our lead mounting , financial losses at uber. On a private Conference Call with investors, head of finance good to gupta explained that uber lost more money in the Second Quarter even than it did in the first, totaling more than 1. 2 billion in just the first half of the year. Uber turned a profit in the u. S. In q1 but lost 100 million in the u. S. Into two. In the Second Quarter alone investors were told losses , exceeded 750 million. And uber has lost over 4 billion over the course of its lifetime. But with more than 16 billion already raised in cash and debt, how big are these losses . Here to help us break it down, these possibly unprecedented numbers our Bloomberg News uber , reporter eric newcomer. Great job, eric. It is growing fast, but it is losing faster. How worried should we be . Said, uber has a lot of money in the bank. They have 1 billion in cash. They have a credit line of 2 billion and 1. 2 billion in loans. They have the money. It is a matter of when can they turn around their burn rate . It is something they can do, but the question is whether it will be as big of a business as it is today if they have to pull back on their losses. Emily where are these losses coming from . Is it china, is it subsidies . Eric it is definitely subsidies. China mostly. In two years, they have lost 2 billion there, especially in the Second Quarter. They were getting ready to negotiate with didi to cut a deal. They had every incentive to get as much market share to say, we deserve this bigger stake in your company because we are a bigger stake of the market. And so they were going full tilt in china. Emily and these are subsidies in china. Can they remain competitive . Eric when they are competing in a market with another player, drivers are super pricesensitive. Anyone in san francisco, new york where lift and uber are competing, you can sort of see drivers with both apps. So, you have to make sure youre giving drivers the best pay if you want them to work for your service. Emily so didis going to get uber 1 billion for its china business. Im out with these losses change or subside how much will these losses sub side when uber is no longer in china . Eric it is hard to say. Just the First Quarter of this year, uber was profitable in the united states. Now it is losing 100 billion. Uber can really change its rough and ability by saying instead of , 20 from bookings from drivers we will only take 15 and all of , a sudden things skyrocket. Without even knowing what they are sort of goals are the next quarter, it would be hard to guess exactly what is going to happen because the environment is so fluid. Emily now, another new number in your reporting is that the valuation is 69 billion. That is up from 62. 5 billion, which is already eyepopping. Explain that number. Million is what is called the premoney evaluation. Then you get all of this money, you add it up and then the postmoney valuation for a while, uber was spending at 68 billion. Didi invests another 1 billion. We end up at 69 billion. The first post valuation. Emily my favorite part of your story is where you talk about whether or not there is precedent for this, and its hard to recall a company that lost this much money this fast. You mentioned amazon never lost more than 1. 4 billion in 2000. That was a lot 16 years ago. ,eric and they laid off like 15 of the workforce. Emily is there any precedent for a company to lose this much money this fast even if it has this much potential . Eric right, you know, i went around and emailed a bunch of academics. We cannot figure out a lot, but a lot of people pointed to amazon. I looked at cosmo, the dot com era of lost phantoms. Together they only lost 1 billion. Even if you look at public chip makers, it is hard to find companies that have invested quite as much as uber. So it is really hard. And of course ubers not buying , big manufacturing facilities or anything like that. They are spending money on subsidies that go away after they have spent them. So it is really unprecedented, but it has the ambition of amazon where it is like we want , to build this huge network. Then we are going to turn on the profit. Emily they also have their projects, Driverless Cars. Launching in pittsburgh this month. Eric newcomer, great reporting. Thank you so much. Keep it up. We are going to have much more coming on the future of transportation in our interview with secretary of transportation anthony foxx later this hour. Another story we are watching, apple is working on a video sharing and editing app as the Company Looks to catch up with snapchat and facebook. They have already developed successful social media platforms. The news comes at a time when apples hardware business is slowing. Tim cook is turning to the Services Business as a way to generate more revenue. I want to bring in a reporter who broke this story. Mark, explain how this would work. Mark apple sees that lots of users are really hooked on snapchat, facebook messenger, twitter, instagram, and they want a piece of this pie, this big social media and social Media Network industry. They are creating an application to allow users, and to do this the goal is to do this under one minute, to record something, edit it with filters and then be able to upload it and send it to any existing social network from within the app. They are basically entering this as the content creator which will really push the iphone to a new generation of social users. Emily is that in competition with facebook and snapchat, or would it really be competitive . Mark i would not say this would put apple in direct competition with snapchat and facebook, but it would put apple in competition in terms of eyeballs. In terms of looking at these programs really important. How many minutes a day people spend in each of these applications. Snapchats latest numbers indicate that people spend 50 minutes a day in the application. So if apple can get those eyeballs, even a few minutes from snapchat, they are still going to have many more monetization opportunities. And on top of that it really , pushes people to buy these products if they like the applications compatible to the iphone. Emily how much revenue could this actually add to the Services Business . Obviously this good increase engagement, increase interest in the actual hardware, but what about that Services Business that tim cook is trying to grow . Mark right, so the Services Business grew 20 yearoveryear in the previous q3 quarter, netting 6 billion in revenue for this past quarter which is a big increase in the Services Business than prior years. We will not know how much this application, if it indeed launches, will affect the revenues of services until we know how they monetize it. The application is an Early Development within apple. I do not even think they know exactly how they want to make money from this product yet. Emily when might we see this, mark . Mark right now the plans call for release sometime next year in 2017 as a standalone app to download from the app store. Were preinstalled, but it is to be seen if apple ends up launching it. They have created applications in the past to kill them and development. We will see how this goes. Emily and last question, i know you said they are not necessarily going to be in direct competition with facebook and snapchat, but these platforms already have well entrenched ways that users get their video up on these networks. We have seen, you know google , try and fail many times to get into social networking. Do you think it is too little too late for apple . Mark you know, i think it is too little too late for apple , but what they bring out is nearly identical to what every player is doing. But the design, this application is focused around being able to record a video, edit it, draw on it, ship it anywhere to friends all under one minute. The goal to be able to do this onehanded, making it quick and easy for users. So we will see if apple is able to reach that goal. Emily all right, looking forward to seeing it. Mark gurman, thank you so much. Mark thanks. Emily well, gamestop shares are taking a big hit in afterhours trading. The video Game Retailer posting a sales decline of 10 . The Second Quarter is typically the slowest of the year for games. But that number was steeper than the maximum 7 decline. Gamestop has been trying to reduce its dependence on physical game sales. More players of buying products online. Coming up, the unorthodox pairing of a team of hackers and one of wall streets most respected shortsellers. We are talking about the complicated ethics of carson blocks lifechanging short next. This is bloomberg. Emily renowned short seller carson block has set his sights on a new target, st. Jude medical. The Muddy Waters Research founder warns that tens of thousands of americans are living with ticking time bombs in their chest. Pacemakers and defibrilators that can be easily compromised by low level hackers. And in a nightmare scenario, could be tampered with to match launch an attack on users. Holdings studies security flaws in medical devices and found that st. Judes stood out in a bad way. St. Judes stock sunk on the news, part of what he wanted. Erik schatzker sat down with carson block for an exclusive interview and asked about the ethics of publishing information that could be dangerous in the wrong hands. Carson somebody might make the argument, well, if you kept your mouth shut, everybody would be safer. What they really . Statequite possible that actors are aware of this already. We have to be more concerned with nonpaid actors. I mean, we believe that the balance of interest is clearly in informing people of the risks and holding the Company Accountable so that something can be done. I do not believe that sticking ones head in the sand and pretending a problem does not exist and hoping nothing goes wrong i do not believe that is the ethical course of action ever. Erik why do it in a public forum as opposed to a private channel . Carson we do not have confidence that st. Jude would do anything to make patients aware of this. Erik how about the fda . Why not just inform the fda . Carson you know there is , precedent for, there is a researcher named billy rios who identified flaws in an insulin pump. He informed the fda, and he ultimately became very frustrated because nothing happened, and he went public. Now i think the fda, it sounds as though they are more concerned about Cyber Security , and they are more attuned to the risks, but ive never dealt with the fda. And again, we feel it is important that users know, and and we dont just necessarily have confidence in saint jude and maybe even some of the institutions of government that the right thing is going to happen. I mean st. Jude is a large company. I am sure it is very politically connected. It could bring a lot of pressure to bear on the fda if there was a private back channel discussion. I mean, this is just the real world here. We did not want to risk that. Erik how many people are at risk . Carson i meancarson , st. Judes the number of implantable device users, we do not know how many still have devices, but over the past, since 2008, looks like there have been in the u. S. About 1. 1 million of these devices implanted. And now that is including crts. I want to make clear, people really should read our report because there is important detail in there that we obviously cannot get into here. But one of the things that is an important caveat here is that medsec tested icds and pacemakers. Of the ecosystem, they can the same communication protocol roughly. Because of lack of device availability, they were not able to test of those, so the crt portion remains theoretical. Erik if the fda is not creating treating Cyber Security as a critical issue why should , investors feel any different . Carson so that is draft guidance which they have given industry time to comment on. It should largely resemble that. Generally over 90 of medical device recalls have been initiated by manufacturers. Now that is probably because there was the sort of sword of damocles where the fda says, you do not recall this, we will. So, you should look like youre wearing the white hat here. That guidance shows the fdas current thinking on Cyber Security, and is it is really important for people to understand that in that guidance, there is actually an example of an implantable cardiac device that is compromised, and where the fda says that ok, this would likely , rise to the level of, this would be an uncontrolled risk that would mandate some sort of remediation. So, based on that draft guidance, it is clear to us, our interpretation of the draft guidance, that the st. Jude implantable devices fall far below the standard established by that draft guidance. And when we say that we think there is risk of having to recall their devices, it is based on looking at that which does illustrate the fdas thinking on the matter. Erik ok, but as you point out these are Draft Guidelines and , they have yet to be finalized. We do not know necessarily what the calendar for that is. In the meantime, what reaction are you hoping for . What, at a minimum, needs to happen if your short is going to be successful . Carson look, there is what we hope happens, and there is what probably one happens. Probably happens. I have been probably shorting companies for six years. Very seldom have they ever said, you know what, some of this criticism is valid. So we are expecting to be told patient security is number one. These guys are shortsellers, they are looking to profit on the back of a price decline, etc. , etc. Erik dont be fooled by a wolf in sheeps clothing. Carson that is what they will say. They could take it seriously. They could investigate this. And they could without kicking and screaming recall the devices and stop selling them until they fix the problems. Erik ok what if that does not , happen . Carson we are hoping that the fda, which we are expecting to facilitate a dialogue between the fda and medsec, we are hoping that the fda says you , need to recall these devices. Emily muddy waters founder carson block with our very own Erik Schatzker there. Besides the ethics of possibly top tipping off malicious hackers to this vulnerability, there is the ethical question of why. Why they came to a short seller instead of the fda. Earlier, matt miller and scarlet fu asked the ceo to clarify her firms business arrangement with muddy waters. What we are interested in achieving here it is mitigations. We also want the consumers matt critics are going to say they are interested in achieving profitability for your company. You maximize profit first by going to carson block in publishing this short, rather than going to st. Jude first. Justine i believe that carson has a track history of holding Large Companies accountable. And that is why we are excited to partner with muddy waters. Not only do we want saint jude to be held accountable but to and to respond with urgency, but we want the patients and the public to be aware. The public has a right to know. About the risks associated with this bit of technology. And we felt very strongly that st. Jude medical were likely to shut this up and potentially do nothing. Matt medsec is for profit. You are first and foremost, this is a Business Model to make money. Justine we are a research company. We incur a lot of expenses in the process of conducting research. This is not lightweight equipment, this is not software only. Our lab has a lot of hardware. Of course we are looking to recover our costs. But our motivations here are to medical places accountable so mitigations can be done as quickly as possible. Keep in mind, that is not going to be a small undertaking because of these inherent vulnerabilities throughout the ecosystem. And to draw attention to the public eye so patients are aware of the risks associated with the technologies coming out of st. Jude medical. Stephen how do you respond to, or what do you think about the companys response . St. Jude says the allegations are absolutely untrue. Their chief Technology Officer says there are several and security measures in place. We conduct security measures and an ongoing basis. We work specifically on merlin at home and on our devices. Justine what i do know is that we found vulnerabilities across the ecosystem. We developed what we called proof of concept to demonstrate those vulnerabilities. To verify that they exist. We put together by chaining all these vulnerabilities together, we put together three different attack scenarios which we reproduced internally under controlled conditions. We have demonstrated to muddy waters, and they reproduced them as well. We have definitely verified the existence of these vulnerabilities that are used, that are present in st. Judes medical equipment that is being deployed today. Scarlet you are monetizing your research. You obviously have a business arrangement here with muddy waters. Tell us specifically how you would make money off of this by passing on information to muddy waters . Do you make money regardless of whether muddy water