tv Bloomberg West Bloomberg October 28, 2015 11:30pm-12:01am EDT
what. you don't have a desk bed? don't be left in the dark. get proactive alerts 24/7. comcast business. built for business. paypal inesults from its first solo earnings report. >> i am cory johnson in for emily chang. coming up, a bleak picture for go-pro. shares taking a beating after the company reports a tepid third quarter. the digital assets of the weather company. i will talk about the latest disappointing earnings and a big
stock drop. first of all, paypal's third-quarter sales missed the estimates. were the estimates missed the actual sales. it was the first report after its july separation of ebay. $.31 a share, some of the analysts were wrong. they guessed $.29 and $2.28 billion, according to bloomberg. paypal faces serious competition from square, android pay, apple pay. big companies they are doing battle with now. joining me to discuss what they mean, paul and tom. tom, let me start with you. in the quarter, this was baked in after the company split. but they appear to be doing a little better, after the analysts try to understand the business. tom: here is what happened. paypal split from ebay. what we thought was going to happen was that paypal was
supposed to be this growth business that was supposed to take off. we have ebay numbers exceeding expectations. paypal comes out of the gate and it kind of flopped. people are looking at take rate, the amount they take home per transaction, and they are seeing it drop. you are seeing a lot of purchasing power from big companies that negotiate deals with paypal. cory: it is fairly interesting here. paul, when a company does an ipo, they make sure they have a positive surprise in the first quarter earnings report. what is there to be concerned with in the paypal model? paul: the issue here, it is not a volume business. we saw the total payment volume increased double digits once again. that is kind of supported by the sense that -- electronic payments are going to be a very strong secular growth story across the industry.
we saw that in the paypal numbers. tom mentioned the take rate. that is something a lot of companies have to pay more attention, investors are paying more attention to it, it becomes more competitive in the take rate. the take rate is going to be one of the metrics where investors will see competition. you will see electronic payment companies be aggressive on the rates they charge their customers. that is probably one of the key metrics in the model that i think disappointed investors a bit this quarter. cory: tom, one of the things that strikes me when i look at the financials of paypal which i admit i did not do until today. the slowdown and the addition of new customers is made up for by the fact that existing governors -- customers spend more and more on paypal or are using the service. what are we seeing this quarter in terms of people using the business? tom: i don't think the problem is the gross number of people
using the business existing. i think what you have a at is what happens down the road. something we have all been talking about is competition in this arena. it seems like every other week we hear another player getting into, hey, we are going to get into electronic payments. we will make it easier for you to pay for stuff on your cell phone, mobile phone. just this week, jpmorgan entered the fray. when you add on top of the names you mentioned -- google, apple, square, strike -- it would cause me a bit of concern. as paul was talking about what , you have to do is give your new customers and incentive to come to you. that means you will give them a very small percentage. but you will keep a very small percentage. and that hurts the bottom line. and that is where investors are looking, is paypal the gross -- isst growth is this paypal really this growth business we thought it would be? cory: paul, the venue for
payments is moving, too. we are probably at a place where, and of next year, maybe two years from now most of the , purchases that are happening online -- and there will be more of them -- not be happening on a desktop somewhere. they will be having on a mobile device. and on the devices themselves, you have apple pay which can use the websites. same with android pay. square has some interesting businesses there, too. maybe paypal is not in the right place at the wrong time. paul: paypal initially made its hey on a desktop environment. i think they are generally making good strides in the mobile space as well. across the board, whether it is a social media site like facebook or search site like google, it is all about mobile. whatever place you are in the digital ecosystem, wherever you
are, you half to have a very aggressive and viable mobile strategy. i think paypal is there. they are competing against more standalone mobile players such as square, strike. but i think paypal has done a good job migrating to the desktop to the mobile. that is what investors will be looking for going forward. cory: i think paul sweeney does a good job, almost as good as tom. really good job at bloomberg news. thank you for joining me. appreciate it. gopro, the camera on a stick, the company having a hard time . the after-hours stock is getting crushed earning $.13 a share in , the quarter, which is not what the street was expecting. gopro also missing analyst estimates, though the analysts were wrong, they did not do the $433 million imagined. only $400 million in revenue. they would take some of the cash from the ipo and spend it by
buying back shares, so soon after going to the market to say we need money to grow our business. now they say they will take some stock away. the ceo said the quarter was clearly more difficult than expected. sticking with earnings, baidu reporting third-quarter results. tomorrow. has been a top provider for search for china. the ceo's top priority has been online to off-line. part of that research is not in beijing, but right in google's backyard. bloomberg west got an exclusive look at its lab in sunnyvale, california. emily: speech recognition, artificial intelligence, all part of the work done here at baidu usa. the silicon valley arm of the chinese research giant. >> i think we're in a unique position to see the best ideas
in silicon valley and beijing and to put them together, to create things that no one has seen yet. emily: meet the mastermind behind google brain, one of the most ambitious artificial intelligence projects to come out of google x. ng made a big splash when baidu recruited him to run the lab in sunnyvale, less than five miles from google headquarters. andrew: i am excited about the potential. i think there is a huge gap between what we can do and what we have accomplished so far. emily: what is next is one of the first projects to emerge from baidu. a sort of robocop meets web md , a medical doctor in an app. >> the system really has a lot of intelligence built into it. first of all, the speech part. people can talk to the app, to describe their symptoms. and the system will use deep
speech with voice recognition, and they can decide if they need to see a doctor. emily: this is all part of the c.e.o.'s grand vision. or letting users connect with nearby businesses through the ir smartphones. it is a vision he believes in it so deeply, he's investing billions of dollars, risking investor relations, and sacrificing profit today. all without a money back guarantee on future growth. >> in china, we see your cell phone increasingly becoming a remote control for the physical environment around you. people are transacting so much more often online in china than they do in the u.s. emily: to prove his commitment, baidu has already tapped into a $12 billion pile of cash with products like ai personal assistant. they've made a dozen investments in the last two years, including $169 million in
a group buying program. in total, they have set aside $3.2 billion for online to off-line research. that number is only expected to grow. >> i think if we could get speech recognition to a level where it was completely normal, where you did not have 90% accuracy but like 99%, that would be great. that would be totally transformative. baidu reports earnings tomorrow. investors punishing after a big slowdown in the biggest part of akamai's business. ceo tom leighton tells me what is going on, next. ♪
cory: one of the biggest stock movers in all technology today was akamai. shares plunging the most in six years, after forecasting a weak fourth quarter. they help speed up the delivery of content on the web. all the stuff you are doing on your phone or devices go through their pipes. a lot of it does. but it has been challenged by some of their own customers, including apple, shifting more content in-house. or as the ceo of akamai likes to call it, diy. let's get to it. in your call, i found a little confusion. you talk about the media business slowing down, the in-house content delivery
networks, but you also said you were bullish about the future of this. what evidence do you have that media business is going to get better? tom: the media business never grows linearly. traffic over time grows substantially, revenues grow, but the media business always has ups and downs. last year was a very up here, more traffic than projected. and q3 was good. but we are looking ahead to q4 and thinking that maybe traffic will not be growing as it has. but the business as a whole is very strong, my long-term outlook -- medium and long-term outlook on the media business is very strong. cory: i like your optimism. can i trust you? i wonder what gives you that faith that when the world changes, these in-house content delivery networks being built, you guys can capture a lot of the business going forward in a better pace?
tom: this is not a new phenomenon. most of our few largest customers have been doing that for a decade. and we have always competed with it very successfully, and our job is to provide a better service at lower cost. and we have a very good track record of doing that. cory: when you look at that business, too, and i will paraphrase your conference call, the sense you gave us was for those customers who have grown their do-it-yourself network, that akamai sort of functions as the overflow. and overflow is a great business in a flood. in a four-year drought, not so much. is that a fair categorization as to where you sit? tom: i don't think so. that would not be a very good business for us to be in. we have a very good relationship with our largest customers.
the largest ones do have their internal efforts, we work closely with them. i would characterize it more as shared traffic. when there is more traffic to go around, that is helpful. when there is less, less so. we have a close relationship, and we are not an overflow service. cory: your security business is killing it. you pointed out on the call that , youre measures standalone cloud business would be the biggest in the world. time: we are now at a run rate of a quarter billion dollars a year. that puts us in a very small group of cloud security companies. and i think the nice thing here is, you know, we have been in -- dips in the media business before. in the past, it was the business. now it is less than half. you see the same quarter that media traffic is slowing down, you see security blowing it up. doing a lot of investments there, that is a great success
story going forward for us. cory: tom leighton, i appreciate it. fascinating business and interesting quarter. we appreciate your time. if you were watching the world series last night, you know the broadcaster at fox sports had some issues. fox was not the only company with an issue. a number of google fiber customers in kansas city lost internet just before the game started. the outage did not last too long, but it did force people to miss an amazing in the park home by the royals on the first pitch of the game. google quickly apologized, saying "we know it couldn't have happened at a worse time." the first time in the history of the world series that has happened. internet was restored by 10:15 local time. city toity the first have access to google fiber, which now covers nine cities. coming up, ibm hoping for bigger profits. we will tell you about big blue's plan to buy the weather company.
cory: shrinking profit margins have been driving a wave of mergers in the chip business. today reports of another big deal, texas instruments is looking to acquire maxim. maxim stock jumping on the news. the deal might not happen, they might ask for too much money. maxim does not need as much help as some of the smaller companies, such as pcm sierra.
joining us from new york is alex sherman. alex, these are companies that i have covered for more than a decade. and they have been on their own for so long. what is driving this right now? alex: so some of this, cory, is likely a product of, well, all of my friends are doing it. so why don't i look at doing it? we have seen so many semiconductor deals already that they simply beget other deals. if you are texas instruments and you are a $23 billion semiconductor company and see intel all doing deals, these are you sort of think to yourself that maybe the window is now for me to get in on this and increase scale when direct competitors are getting better. another thing is going on. in the broader secular industry,
growth is slowing. these companies across-the-board need to come up with new ways of growing. is a way that&a companies with slowing growth look to boost profit. cory: the bankers are out there shaking the trees, going to all the companies and say is or any point at which you would sell? but you will believe this, xyz semiconductors is willing to sell at the right price if you want to buy it. c.e.o.'s of a lot of these companies have been around for a while, the founders are getting older. they may want to do new things. i think baker's may specifically target those companies. in terms of maxim today, i do not think they fall in the category of a company that needs to do something. it is an $11 billion company. it already has a lot of scale that the peers do not. however if texas instruments is going to come around and throw
out a 50% premium, it may be hard for maxim to say no. that is the due diligence, the process, the company is going through now. cory: i think you just said semiconductor c.e.o.'s age at a greater rate. that is sad. there are so many. i want to switch gears and talk about ibm. by buying the weather company's digital assets, they will not be buying the tv business itself. earlier today, the senior vice president of ibm joined bloomberg talk about why ibm wanted to do this deal. >> the weather company has a very high-volume platform underlying their capability that people are accessing through mobile devices. it is cloud-based. we're getting a high platform
for the internet of things, specifically around weather. we will extend that. and we're going to bring watson to bear on this. which is, as you know one the , largest, most powerful cognitive systems. so this high-volume platform plus watson will be unmatched in the industry. cory: that was john kelly. you have looked at this deal. this deal actually makes a time -- tong of sense to me. the weather channel is a data business more than anything. alex: right, so the nuts and bolts of the deal are the weather company are selling the digital assets but not the tv channel. ibm will basically by the website, the data behind the website, the applications. the weather company mobile app is actually the fourth most use mobile app in the united states. they will have access to all of the data integrated with watson, , as you just heard. they're paying a price of about $2 billion we hear.
when the private equity firms bought the weather company back in 2008, the weather channel was maybe the most valuable asset in there. now, the value on that asset is probably only a couple of hundred million dollars. and they are holding onto it as ibm buys virtually the rest of the company. cory: this really is a data plan. the way the company gathers data for its forecast is fairly amazing. they have 1000 commercial air flights that give them data on a regular basis. 64,000 weather stations that are gathering data. 220,000 meteorologists who interpret the data. and they run that through and the models to figure out which ones are off and end up with an enormously accurate thing that people are using online 2 billion times a day. alex: and ibm is saying that this state is not consumer facing. i think that is the point you are getting to. you can use this data for
government enterprises, airline companies. this is ibm's new strategy. cory: agriculture. alex: agriculture. ibm bought a health care company. they want to transition away from an old legacy enterprise company and become a cognitive computing company using data and all of these different industries and sort of selling them back into the market and relying on things like watson to drive revenue for the next generation of technology. cory: it seems like a better use of capital than share buybacks and a hell of a lot cooler. alex: a better use of capital than some of these legacy to legacy deals we have seen. i will not name any exactly. it is a less risky use of capital that way. some of those deals may turn out to be good. but ibm is certainly looking ahead. they're still in trouble, though. they do not have high topline growth. cory: we don't have time for you to name names.