tv Bloomberg Technology Bloomberg July 26, 2018 11:00pm-12:00am EDT
♪ emily: i'm emily chang can san francisco. this is "bloomberg technology." amazon reports earnings with sales from amazon web services surging nearly 50%. we have full coverage and analysis over the next hour. $120 billion wiped off of facebook's market cap and after earnings disappoint. this is the longest single loss for a single company in history. investors weigh in. tech earnings continue to roll through with spotify reporting. we discussed were new users are
coming from and how the company is fighting off competition from apple and amazon. to our top story, amazon reported better-than-expected results and forecasts more of the same in the current one. investors were perplexed by the numbers. shares were teetering in positive and negative territory in aftermarket trading. the company missed analysts estimates on revenue. advertising was strong in the company beat massively on earnings. it shows amazon is managing to keep a lid on expenses while investing heavily on new businesses and expenses. joining us now is the ceo of the e-commerce platform boomerang and a former executive at amazon and working on the supply chain and retail merchandising. you are excited about these earnings, why? >> the profit was awesome. margins improved across the board.
one of the key things that jumped out was, looking at the advertising revenues, it continues to be strong. 130% growth in the segment. a combination of advertising and the amazon program picking up and private goods are helping margins. that is driving this monster beat. emily: the cfo talked about improving efficiency across the board. even as they are making the investments in alexa and other areas. >> right now, it is achieving a big snowball effect creating momentum. there three plays they have perfect. number one is they have to play in the cloud services
businesses. there are comparatives coming in like microsoft making a big acquisition and acquiring getup and google going big on the cloud businesses. there are two other areas where they can play massive offense and gain a lot of revenue and margins. number one is the amazon marketing services. that is a very high profile and higher-margin business for amazon which is growing rapidly. it is a measurable technique for packaged goods to get in front of shoppers. the other is the grocery business. having acquired whole foods and picking up momentum, that is a big opportunity, revenue opportunity for them. emily: amazon saying on the call that whole foods is driving new prima memberships and on prime day they saw more new
subscriptions than ever despite the big push. jitendra: i think the pace is accelerating at a smaller than expected pace. like you said, it is a very big market in penetration right now. they have to build infrastructure first. emily: are there any red flags? guru: even slower revenue growth could be a strategy in terms of starting to capitalize are on some of the profitability levels. they have a good way to capture customers and that allows them to reinvest all of that back into r&d. that expense when up significantly in the gives them competitive modes in the long run. emily: do not see a lot of
challenges ahead? jitendra: we talk about tax challenges and if you look at the core business, especially the marketing services business, we are seeing google and facebook going after the traditional advertising dollars. amazon can go after both. the retail and trade promotions bucket. they can grow without directly competing with google and facebook in a lot of ways. if you look at the traffic on the platforms in the u.s., they're getting very close to where google and facebook are. they have the at industry and we have seen alibaba do this successfully in china. we see rapid growth in profits from advertising. emily: they talked about improving efficiency in europe and japan as they continue to invest heavily in india.
guru: india is a big growth segment for them. the head of india is now the head of the senior team at amazon. having missed the boat in china, they are serious about india. they announced a big entry into australia but have bumps in the road with that. there's a big market to have over there. europe is very strong for them. all of these vehicles we talk about in terms of advertising other to be prime, subscribers, and groceries, these are all significant amount of opportunity internationally. emily: what about prime video? how big an opportunity is that? it is huge for netflix, but for amazon, the division has had a lot of struggles lately. where does prime video go from here? jitendra: prime video is available in 200 countries and
territories globally. prime, and it's true glory, is available in 16. it is trying to use content to attract more people onto the prime bandwagon. the hits are missing largely, but the investments are there. guru: from prime video, they saw good growth. now, with the 2.0 version being the category king of video or books with kindle, it is a big opportunity for them to grow. it is a high gross margin profile for revenue business. emily: amazon continues to chase apple for the chilean dollar market cap finish line. trillion dollar market cap finish line. gentlemen, thank you very much. the new york times is reporting robert mueller is specifically
scrutinizing negative statements from president trump about jeff sessions in the former fbi director, james comey. they also report mueller is examining whether the president actions at up to its obstruction. this news comes following word that 11 conservative house members introduce articles of impeachment against rod rosenstein, the official who overseas the russia investigation. intel reports for the first time since the sudden the parts are of the previous ceo in june. we will bring you the highlights. if you like bloomberg news, check us out on the radio and listen to us on the bloomberg radio app, bloomberg.com, and in the u.s., sirius xm. this is bloomberg. ♪
emily: intel reported results after the close thursday the give upbeat forecast for sales signaling they are staying competitive even after the departure of their previous ceo. for more but spring and romaine bostick in new york. what are the highlights? >> they beat estimates pretty much. the company came out last month and they basically gave guidance and analyst set expectations based on the guidance, and today, intel came in at the guidance or slightly above it. unfortunately, you do not get rewarded in this market for coming in at to guidance anymore. this is a growth market. people are looking for growth stocks. what intel give the market today was certainly reassuring in some respects, but not necessarily enough to generate enthusiasm.
emily: and there is continued concerns about a slowdown ahead. this is as they are looking for a new ceo in the midst of a pretty big scandal. romaine: the fact that they did not really say a whole lot about what the future of the top spot is going to be, that is going to take them some time given how abrupt the departure was last month. until people get a better sense of who is going to leave the company and where the direction is going to be, none of the analysts seem to be all that down on the strategy that the company had before we got to the end of june. since then, there has been a lot of questions as to whether this can be an opportunity to steal the company in a more aggressive direction so that they can keep the lead they have on some of the smaller competitors like amd and nvidia.
emily: we got off the phone with the interim ceo who talked about overall performance and said we had a fantastic quarter again. this quarter is another indication bond us building a journey. no mention of the big hole to fill. we're seeing earnings on the back of the qualcomm and nxp deal falling through. it is an uncertain future for the chip sector overall. where does intel fit? romaine: it is interesting. there is a little bit of an busy -- a little bit of enthusiasm for the chip sector as a whole. think about today when you had the nasdaq down 1%, the philadelphia semiconductor up 1.8%. of the stocks in the index, you only had seven or eight stocks down and intel was one of the
companies. that tells you about how people view the chip sector now. people are looking for growth and see it in a the and to a certain extent in nvidia. intel is not growing as fast. maybe it is not fair to put that on their shoulders given the size they are, but that is where investors are looking now. they want to find the next big thing, see it in these companies, and they don't necessarily see it in intel. intel will move along and dominate certain sectors, but going forward, if you want to see a pop in the stock higher than what it is, it is up 13% this year, but that is lacking compared to its competitors. emily: we had to talk about facebook, the huge plunge right after earnings in aftermarket hours continuing today. what you make of this fact that they could not recover? this is the single biggest drop for company ever. romaine: it was quite remarkable.
it was a momentous day for all the wrong reasons. we were talking about why people did not expected this. to have 18%, 19% drop in a stock of this stature, to take people off guard like that raises questions, did zuckerberg and sandberg guide long enough to let them know this is coming or was analysts that dropped the ball? keep in mind there are still a lot of analysts out there defending this stock today. you only had three downgrades and one of them was from a strong buy to a buy. the dominance of facebook and near monopoly they have in the space they operate in will continue to serve them well. they will have to work through
these things. i think it is possible that you will see bidding back into the stock. you saw that at the tail end of the trade session as bidders came back in in the last 15 or 20 minutes. we will see what happens as the next few days and weeks go by. keep in mind, it took only two weeks to shake off the cambridge analytica scandal. emily: i interviewed roger mcnamee who has been incredibly critical of facebook and he was even surprised at the drop and suggested this could be the trigger that leads to a much bigger market correction. would you agree? romaine: it is the fourth largest stock and the nasdaq 100 and is a pretty large weight in the s&p. the one encouraging sign you had was that you did not see the contagion.
even when you saw earlier in the day twitter was down pretty significantly, but some of that had to deal with issues unrelated to facebook. then, use all stocks like stocks likesaw spotify, pandora holding up pretty well. this could trigger some concern, particularly when you look at earnings out of amazon today which, while good, are not generating enthusiasm. there is a narrative that this sector as a whole, the broader tech sector, has peaked or reached saturation in maturity level that it will have to be reckoned with read it is possible that could lead us to a correction given how much of await a weigh the stock has in the market. emily: bloomberg's romaine bostick, thank you so much. we will be speaking with bob swan tomorrow about these results. tune in for that.
another story we are watching. ajit pai questioned the legality of a $3.9 billion deal spinning off stations to meet ownership limits. the deal will brought before a judge which could delay or killed the deal. coming up, facebook sought biggest one-day drop ever after the company reported slowing saw its biggest one-day drop ever after the company reported slowing user growth in the second quarter results. we hear from an investor pushing back on company's actions in the past. that is roger mcnamee. this is bloomberg. ♪
i spoke with roger mcnamee earlier and here is what he had to say about the big red flag. >> i think they are running out of users in their most profitable markets. secondly, i believe the weight of the scandals over the past year's beginning to show up in user behavior. emily: for more reaction, natasha lamb joins us. how much does this hurt? natasha: it hurts a lot. i think facebook was pretty lucky to see the recovery after the cambridge analytica scandal. we have been calling on the company to a knowledge the risk of faces. these are not new problems.
what we saw in earnings was really the fallout from what we have seen in terms of corporate governance, platform and if you ,- platform manipulation whether that has been election interference, fake news, and hate speech being propagated over the platform. it is pretty notable that we have now seen twice in one year an over $100 billion loss in shareholder value. that is due to issues that could have been addressed more proactively and earlier on. emily: what did you make of the earnings call or you had mark where you had mark zuckerberg talking about a solid quarter, pumping up instagram, and you had the bombshell from the foj talking about the headwinds and that people are changing their privacy settings and blaming it on gdpr?
natasha: it is a good time when there is negative news the pylon all of the news and really let on all of the news and really let investors understand the risk that facebook has faced all along. facebook is in over its head. we have operating expenditures growing faster than revenue. that is never a good thing. the fact that headcount is up and all of the numbers seem like necessary investments given that facebook needs to fundamentally address some issues with the platform. where we start to get concerned is on the revenue side. you bring up the new regulation in europe and how that is affecting users and we see active daily users go down in europe. the regulatory risk is coming to
play and i think there is a huge erosion of trust because of the timing between some of the issues to election interference. -- like election interference. between when investors were asking for answers and the company knew there was a problem, and when the users discover there was a problem. it was nearly a year from when we started fighting it before flagging it before nine months later we learned 126 million americans were viewing russian propaganda over the platform in the lead up to the election. four months later, cambridge analytica with the 87 million americans data was compromised . that is a lot to have to fix going forward. even in their developed markets, the next step is to rebuild their trust. emily: as you say, it is a lot
to digest. revenue is growing 40% year-over-year. that is despite all of these negative headwinds. take a listen to what roger mcnamee, an early investor who has been outspoken about privacy issues, has been grappling with. roger: there is a lot of growth opportunity. the issue is where we'll issue is what pe multiples investors put that given facebook's underlying model is based on promoting disinformation and hate speech. not because facebook approves of disinformation or hate speech, but rather because those are things that generate the most engagement. emily: mcnamee also told me he thinks facebook is not unlike philip morris when you think about the harm it inflicts on people. it is a dramatic comparison. what do you think?
natasha: when we talk about issues of addiction, we can universally agree that people are addicted to the smartphones. the kind of information being viewed over facebook is often not that's great. we know for a fact there has been these huge fake news flows, that hate speech is an issue, and that sexual harassment being propagated online and over these platforms is an issue. all of that being said, those things are outside of the company's own terms of service . when users sign-up, that is not what they are supposed to be doing. the company has been incredibly culpable in terms of letting it go on. what roger mcnamee is saying is that is been a benefit. emily: we could go on and on, but natasha lamb, thank you so
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which could save you hundreds of dollars a year. plus, get $150 dollars when you bring in your own phone. its a new kind of network designed to save you money. click, call or visit a store today. this is bloomberg technology. i am emily chang. amazon out with whether -- better than expected earnings. but trailing analyst estimates. the cloud computing division showing solid growth. adntime, the nascent new business is showing promise as well and subscription services rose 57%. ervin from reality shares. it is an index provider that has amazon among its biggest holdings.
also, garrick the big. i know you have been listening into the call. we are getting you information about amazon. overall, the company was more efficient across the board and was able to squeeze more profits from all of its divisions. forett: the profit forecast the next quarter is above expectations. the main reason seems to be third party merchants. these are the people who do -- it is not amazon selling your products, but people who might have their own store and use amazon is a shopfront. they are selling more. that is why revenues flatlining a bit. but in terms of the actual margin that profit takes from that because there is more work they need to do for those transactions, that is why it is growing. emily: is this everything you want to see? >> something to look forward to in the future is all that
constand infrastructure and those expenses we have seen over the years, those are starting to bear fruit. revenue may be flat for amazon, but up 35%. in the end, earnings are up 500% in the last year. this is exactly what you want for a business like this. innovation leads to profit expansion. amazon still has a lot to work on on some of these new businesses it is expanding into. it bought pillpack for prescription drugs. what do we expect to see? garrett: that will probably take some time. acquisition, i spoke to folks close to the founders. there's interest for -- from walmart for that acquisition. amazon's plan was the one that aligned the most with what they
wanted. there will be something interesting coming from amazon. are obviouslyrugs a huge market, a multi-multibillion-dollar market. i'm sure it is something investors are excited about. race: amazon is in the with apple for that trillion dollar market cap. do you think amazon can get their first? first?- get there eric: that seems to be the case. they are getting ever more closer to where they might crossover apple's market cap and hit that trillion dollar number. they have a lot to prove. everything is priced to perfection. they continue to deliver on that perfection year in and year out. the stock is not without volatility either. in 2015, the market had a selloff and amazon was down almost 30%.
yet the stock continues to plow forward and recover from those gains or those losses and enter into new territory. another thing i think people are missing and there is a 10 a focus on it but this aws business is so much bigger than most people think. is a buzzword that keeps getting bounced around. it is a service, whether it is ibm or amazon, they are all benefiting from this and many of them are using aws in their storage facilities. emily: let's talk about the cloud business. we saw strong cloud growth with microsoft, with google, so it must be that this pie is expanding rapidly and amazon is in the lead. exactly. one of the key questions in this earnings period was that. we saw microsoft come out with good results. maybe it is just microsoft. . may be they are taking more of amazon's business than was expected. then google came out with good results.
ok, it is google and microsoft. the google ceo speaking about how this is something that is bigger than just that company, bigger than microsoft. this is something that all businesses are looking to the cloud. they are jumping on, whether it is blockchain or traditional retailers, whatever you have. they are going onto the cloud and using parts like aws with the big growth number. the pie is expanding. emily: let's talk about the ad growth. there is so much optimism about amazon becoming one of the top two competitors in online ads with google being the top and number two.ng but with facebook's performance in the last way for hours, may amazon does have a shot, even if it is in three to five years. flip essential juice ei -- what potential duties either -- potential do you see there?
is anwhen there entrenched incumbent, amazon is coming for you. this is one of those classic examples. they are positioned for that. . they have 100 million prime users, and that doesn't mean others who are sitting on the site day after day using it for shopping services. so they have those eyeballs. they might as well start monetizing them in ways. not to mention all of the artificial intelligence they have and the advancement they have made into that, so they can continue to step forward farther and farther down that path. the next area is health care. we have to watch for financial services. but they are coming. they are coming big. emily: on the call, amazon continued to tout efficiencies across cloud, advertising, and all of the operation. what do you think is amazon's
achilles heel. -- heel? it is still a company that is turning a profit, a stronger than expected profit, but a smaller profit than some of its peers. eric: that is the big thing. it is trading at almost 300 times earnings. that is not che biennium -- cheap by any means. hiccup -- one could be political risk. we have seen trump talk about their use of the postal service as its delivery boy. i don't know if that is just banter or something that could cause them some pain for amazon with wider margins are getting crushed. -- or getting crushed. if we see political risk, it will hit the equity market, really in the stock price and you can see massive selloff. innovators sometimes fall off
their innovation wave. as they stop innovating and get more comfortable, summary is comes in and start to take over. then that stock at astronomical highs starts to lose that luster and they never see that peak again. we saw that with cisco, dell, a lot of companies in the late 1990's and early 2000's, and they never recovered. that is the biggest risk for an investor in amazon right now. emily: we are all waiting for that next presidential -amazon-"washington post"-tweet. intodent trump waded controversy. it is a known practice called shadow banning. the president quoted -- shares dipped after that tweet.
pattersonalyst justin joins me now. where do you think is driving the subscriber growth? justin: is a couple of things. it is still in the -- it is a couple of things. it is still in the early phase. subscription has gained more awareness with customers. it is early innings. people are shifting from a traditional purchase model to a rental model. there's a lot of growth across the globe at this point in time. spotify is one of the beneficiaries. . emily: we talk a lot about the prescription -- subtraction service. spotify, it is about 10% of revenue. somemissed this quarter do -- due to some gdp are--- gdpr -related issues. emily: talk about the
competition with apple. we are still waiting for apple to report, but this is a company that has really deep pockets and really long-term relationships with artists that spotify has to compete with. justin: apple does have a platform advantage. it can push apple music to iphone owners, ipad owners in the market. that said, if you look at the global market, apple has a small marketshare share relative to android and other devices. that market share for their --gments wayne you see that when you see that amazon echo is the dominant speaker. device works on every and it is getting a data advantage that will be difficult for others to compete with. they are all china to push here. it is a unit -- they are all
trying to push here. it is a unique situation. spotify is the market leader. by looking at each one of those businesses, they do one device well, but not every device well. none of them are optimized to work on one another's devices. spotify works well on every device in the marketplace. that is why it is wrong so rapidly. emily: talk to me about the data spotify has and why it is so valuable. wayin: if i look at the artists are compensated, it is more toward live performances and building up an audience. bringingfy is doing is that data back to musicians, helping them grow their audiences. in this past quarter, spotify increased audience was ownership by about 5% -- audience listenership by about 5% per artist.
emily: how does that differ from what apple does and amazon and pandora? justin: the data advantage is basically if option of spotify's scale. it is multiples bigger than any other player in the market. with that, it consumes substantially more hours listened. apple is still a subset of the market. pandora only looks at the u.s. if you are a global players, trying to build a global audience, you spot a five's data -- spotify's data. for emerging markets, it is about launching at this point in time. spotify is in developed markets at this time. it was and 65 markets this past quarter. it is starting to launch in the rest of the world a bit more. its first launch in africa last quarter. watching the transfer downloads for spotify.
is a getting partners to push into those markets? and what is the price point? if you do go into the rest of the world, discretionary income gets less and you need to price it accordingly for different markets. emily: what about it this and all content, non-music? justin: i call that a long-term bet. spotify, it does not have too much modernization in those platforms. someone reading spoken advertisement and you don't have the degree of ad targeting that a google or facebook gives you. formatsmething that ad are still being experimented on, that can be monetized more overtime. a three to five-year driver as opposed to next quarter's numbers. emily: thank you for stopping by. investors may have been frustrated by second quarter forecasts. can the company maintain its
emily: a new product for users, credit cards. become well-known name in payments by making it easier to process. we talked about keeping the competition at day -- at bay. consumernk all those payment systems will be really successful overtime. what has always been lacking is a platform for businesses to just manage complexity of doing business online in 2018. you look at what businesses are doing today, business models are
changing, more global, more complex, interaction, something like that. that is what we are focused on. apple pay has been growing like a weed and that is phenomenal for shareholders. paypal investors were not celebrating. it announced third-quarter sales that fell short of analyst estimates. investors are concerned about its competitive edge. john rainey caught up with caroline hyde to talk about the report and future m&a. a very goodt we had quarter and gave good guidance for the year. quarter,or the second reported 23% revenue growth. to your point, we announced a $10 billion share buyback. the back half of the year, we increase our revenue guidance by $100 million and increased our
eps guidance. we are pleased with the progress we're making. i think the quarter's asian -- the quarterization of that is not what the market expects and that is why you are seeing what you are seeing in the stock. caroline: what a day of record-breaking day in terms of what we see in facebook. your shares up. doesn't it make it harder and harder to live up to these expectations? >> i cannot predict what wall street will do and the stock price reactions. what i can do is focus on what we control at paypal, and that is grow digital payments we are growing at 25% to 30% year on year. you see interest in digital payments and thin tech in in general.in tech network with-sided
almost 250 million customers on one side and 20 million merchants on the other. that is where you see interest in our stock. facebook is a friend emy.- frien does it right new what happened to shares today? >> we do partner with a lot of technology platforms in marketplaces. we have an open digital claimants -- payments platform. we want to partner with companies like facebook and other large technology platforms. but i cannot speak to what is happening with facebook. caroline: you also want to buy. you are still on the hunt for
acquisitions. where would be the best place to invest at the moment? >> our capital allocation strategy has three pillars. investing organically come internally. another is returning cash to shareholders. acquiring companies for growth. these are acquisitions that helped our merchants of the platform. we want to be balanced and focus on the consumer side. we look at opportunities around the world to acquire different growth.or we will make sure we are continuing to offer capabilities that are complementary to our platform for merchants, things like risk as a service or payouts, things that the companies that we acquire do. at the same time, we will make sure we provide consumer offering on the customer side that is appealing to them and continues to provide services like our one touch technology, where they have a frictionless checkout.
caroline: does it frustrate you when you are looking at merchants, it is still 20% of online sales? do you need to get into a partnership with amazon? with that occur? what has been -- would that occur? what has been delaying it? >> we would like to partner with every large company in the world. we see opportunities for growth around the world. is thing that is obvious that we are under-penetrated in many markets internationally. we have a strong presence in the u.k., but there are five or six core markets where we have a full suite of products rolled out. we are focused on increasing our penetration among the digital these largee of international markets, like india or china or mexico or brazil. caroline: international is a key focus. , therew, that -- venmo was concern about the growth rate. it has been slowing. how do you start to make it more
revenue-generating? best quarter its for growth. we added more customers to our platform than we ever have before. if we look at the total payment volume, the annual run rate is about $60 billion of tpd, total payment volume. there are very few companies around the world that have that amount of payment volume that are growing at that rate. to your point, one thing we are focused on is monetizing venmo. it is largely a peer-to-peer application, where you might be exchanging money with a friend or someone in your network. what we have moved towards in the last part of last year is to allow our venmo customers go shop at merchants. that is appealing to merchants because of the social aspect of this platform. it is akin to free advertising for them. emily: john rainey with caroline
hyde earlier on bloomberg markets. a wrap of amazon's second-quarter results, the company missed estimates on revenue and the revenue forecast. growth on web services are strong and they beat on earnings. amazon is keeping a lid on expenses while investing heavily on devices and new businesses, like selling groceries and prescription drugs. take a listen. had what i achieve needed to continue strength in our most profitable areas. 49% fx neutral growth. advertising also had strong growth. elsewhere, we saw probably better than expected efficiencies in operations. emily: that does it for this
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