tv Bloomberg West Bloomberg January 19, 2016 11:00pm-12:01am EST
>> stocks are down again, we have concerns about the nikkei. all playing in our investors nerves. living things down there, we see this picture in china. it has been urged to weaken the 50% this year.t it with is the pressure on foreign exchange. he has also been betting against the currency for years.
it is hitting growth, and cutting is global growth outlook for 2016. it will bring great challenges. let's get a snapshot of what is going on market wise. china is closer its lunch break, this is all the morning session close -- hang seng another awful section -- session. straight -- looking like a bear market. i am back in half an hour. ♪
emily: i'm emily chang and this is "bloomberg west." star billing for netflix on wall street. shares popping after the company reports a surge in international subscribers. shares of ibm headed the other way. the stock sliding, despite a better than expected earnings report. a tough day for twitter yet again after system problems shut out millions of users. netflix reporting a huge win with better than expected subscriber growth in the fourth quarter. shares spiking over 9% in after-hours trading. the giant added more than 5.5 million subscriptions worldwide, beating analyst expectations. sales grew to $1.82 billion, just shy of projections of $1.83 billion. what is next for the world's largest paid online tv network?
here with me is on trace wants and from new york, with a company that analyzes video streaming data. in l.a., our netflix reporter is here. let's dig into the numbers a little bit. is international subscriber growth going to be enough to offset domestic growth going forward? >> netflix says it is. last quarter we had a similar situation where they exceeded expectations overseas but underperformed in the united states. this time they missed a little bit in the u.s., but i think the number that has investors excited is the forecast for the next quarter showing international growth will keep ticking up. the ceo said to expect considerable growth outside of the u.s. for the foreseeable future. some will adopt netflix quickly,
places like singapore should swarm the service. others will be a slower go but they have a lot of room to grow. there are some hiccups they have not encountered in other places so far and international growth should be steady. emily: reed hastings talking about their progress. listen to what he had to say just moments ago. >> it will be a record for netflix and we are super excited about that. what is amazing is we are seeing new shows like making of murder at only huge here in the u.s. but emerging as a big hit around the world for us. emily: still netflix is spending billions of dollars on this original programming. andre, the company analyzes video streaming data. how popular are these shows,
even though netflix doesn't release any of this information? what is your methodology and what shows are doing well? andre: by far the largest source of downloading content is peer-to-peer sharing. in terms of sharing of this media, what we have seen is that netflix original content that was pretty much irrelevant or not on the radar two years ago is now the most demanded content in 30 much every major market in the world. it's a huge opportunity to drive subscriptions. emily: netflix is big almost everywhere but china. others have said they could be growing too much, too fast.
what do you think? paul: china is obviously a big part of the story. the point about growing too much, too fast, is kind of intriguing to me. netflix gets thrown in a basket with a lot of tech stocks. the thing it is interesting is not really a tech stock at all. it's the idea of kind of a positive network externality. as you grow, there is something that grows in your business that makes your business even more viable faster than the growth of the company. that is not really what is happening at netflix. it's not like it's getting cheaper on a per subscriber basis. in fact we are seeing the opposite. the profits from the business are not doing as well as the subscriber growth. it's kind of a negative network externality, which is worrisome. why should we expect the business to become a bigger generator of cash in the future? it's not clear to me that it will.
emily: at the same time, netflix is seeing more competition from companies like amazon and google. how long can netflix maintain the nice head start that it has? >> it depends on how long it keeps spending the amount of money it is spending. there was a tour for television critics over the weekend where they talked about upcoming shows. one smart executive said he loses out on some shows because netflix is willing to spend more than they are. you also hear from creative people in los angeles that netflix spends more than amazon and google. if netflix is able to keep spending at this rate, they will probably keep apace of or ahead of these other people. if at a certain point they have to rain that in, then it becomes
more challenging. emily: andre, what data do you have around these competitors? how many people are watching amazon video-on-demand, hulu, and how does it compare to hbo? andre: in terms of looking at how people are sharing hbo content versus netflix and amazon, not just in the united states but also internationally, it doesn't matter if amazon content is getting a lot of accolades. it is not shared very much. if people don't want to even pirate your content, that means the likelihood of them paying for it is low. with netflix, people were already downloading house of cards and orange is the new black. that bodes well for them as they are now making those services available to new markets.
emily: maybe it is hbo that is the real long-term competitor for netflix. can they out produce hbo? >> my analogy for all of this is what has happened to espn. there is a winner's curse that kicks in. you can win for a while but being the player with the deepest pockets. you have a subscription service that let you do it, but eventually that becomes the owner's curse. by definition, everyone in the market thinks it is worth less. if you are netflix you have a subscription series that you have owned for a long time. that's where it going to go, but history tells us that doesn't go very well. emily: paul kedrosky is here, thank you both.
another day of big swings among tech stocks but it was a particularly bad day for jack dorsey. erasing most of the gains made since the november ipo. on friday, rival first data announce new technology catering to small businesses, which make up most of square's customers. twitter hitting an all-time low among a string of outages since friday. services including search and news stream were unavailable for several hours, shutting out millions of users. all this coming at a time when twitter is working to prove its value to millions. i asked dorsey about it on the day of the square ipo. >> were constantly recruiting and making sure we are building
the experience that people love. that is all that matters. emily: speaking of twitter, it's former ceo has a new gig. dick costolo is founding a new startup focused on personal fitness and motivating users to work out. he shared the news through twitter, of course. we developed a system that works within this evolving landscape. that's not the only job he has lined up. he will also be a partner with a venture capital firm. coming up, ibm reports fourth-quarter earnings that beat the street but a warning is sending the stock lower. one chipmaker reporting a fifth straight quarter of revenue decline of more than 20%.
this is microchips latest acquisition. atmel manufactures devices for networking gear and industrial equipment. shares of ibm sliding lower after the company warned on this year's earnings. the company expecting full-year earnings of $13.50 a share versus estimates of $15 a share. just after the close, ibm released what appeared to be a positive fourth-quarter earnings report compared to estimates of $4.81. but big blue also saying revenues dropped for the 15th consecutive quarter and that it missed estimates on fourth-quarter margins. total revenues from the cloud business up from 17 billion in 2014. back with me as paul kedrosky. they've been trying to transform
the company into something different but the turnaround has been painful. how much longer is the pain going to last? paul: at current rates of change, a lot longer. the problem you alluded to already is you have two very different businesses wedded together. cloud, social, mobile and analytic side of the ibm business is growing reasonably well, and the rest of the business that most people want to ignore and pretend doesn't exist. as the transition has happened over the last three years, the company has shed something like $116 billion in market capitalization as the transition happened. it's really a horrific mess terms of managing the transition across it. imagine all the things that could have been done with the equivalent amount of capital had they chosen to go the growth route rather than selling off
assets. something like 35% of the business is those four pieces, cloud, mobile, social, and analytics. you still have 65% of the business that is everything else that are declining businesses that probably should have been sold off some time ago. it the new pieces that are 35% of the business are growing 25% year, which is slower than market growth. it's hard to get excited about any of that. emily: you are never one to mince words. we've been listening to the ibm call, talking about the margin myth. let's take a listen. >> are margin performance reflects higher levels of investment and a mix of contracts and resource shifts in our servicing business but also reflects unique items in the
fourth quarter of last year including a $1.4 billion a from the sale of server business. emily: we have interviewed a number of high-ranking executives from ibm here on "bloomberg west." they are super optimistic about watson as the future of the business. is that really a future that we can bet on? paul: watson has nothing to do with future of ibm. it's an interesting project and a lovely thing, but it's not going to generate meaningful revenue or change the fortune of the business. it's a shiny object that is a distraction, trying to get people to focus on that rather than the root problem. 35% of this giant business is growing slower than market and is not putting up a lot of profits yet you still have to support the 65% of business that is contributing to the decline 15 consecutive quarters.
that is staggering. i'm trying to think back to a large-cap tech company that has done that without collapsing. emily: the cloud business is facing a real challenge from amazon. how do you see the cloud playing out for ibm, given that it's not just amazon but microsoft and other big tech companies that all want to own the cloud? paul: right, pressure is immense on the entire cloud business. in terms of the host, we have people hosting private clouds in their own internal businesses. while the growth in that single piece of the four-legged chair we talked about is doing quite well, it's not going to produce
the kind of profits that will offset the declines in the rest of the business. as result we will see continued pricing pressure in cloud services. that will not be the thing that saves ibm. they will face this continued pressure into the future. they all see that as the place they want to be and it is central to their businesses. emily: paul kedrosky, our bloomberg contributing editor, always giving it to us straight. europe's biggest startup factory, rocket internet, has just raised $420 million in a new fund that will allow rocket to keep -- investing. shares rose more than 4% at one point on this news. the ceo told reporters it's an enormous competitive advantage to have a fund in doubt like the biggest u.s. fund. he said rocket will focus on growing its startup rather than
emily: the company saying it will not be introducing third-party ads, instead it will test ways to monetize nearly one billion customers by allowing businesses to communicate with users. facebook bought whatsapp back in 2014. silicon valley's war for talent is reaching epic proportions but some talented coders are quitting their jobs to freelance and making a lot more money doing it. joining us is our tech reporter.
you tell this amazing story about a 27 year old who quit his cushy job at google to freelance. why? >> it does seem like an unorthodox career move. who would ditch that amazing view and all that great food? but it actually makes sense because the talent shortage for people with technical skills has gotten so bad they can actually make more money freelancing. emily: he's doing it to make more money. he is making twice as much. >> it's not just about the money, though. he said he felt a profound unhappiness at google. the matter what he did he wasn't going to make that big of a difference. now as a freelancer he's brought in to do mission-critical tasks and he feels like he's playing a key role in product of element. he is changing jobs every few months.
who doesn't want to work in their pajamas every once in a while? there are so many benefits that come with this. not only are they making better pay but they are doing more exciting work, from many of these freelance coders i have been talking to. emily: you said people are getting paid $1000 an hour. how bad has the talent shortage become? >> it has mushroomed in the past few years. every company has become a software company. everybody needs software developers. demand for software developers is set to grow by 20% over the next decade. if you look at this chart, you can see that by 2020, there will be a million more i.t. jobs than computer science students in the u.s., so that is not looking very pretty.
emily: what are some of the innovations that have come out to mitigate the supply and demand? >> there are many ways to make money from the supply and demand balance. 10 x management is one of the freelance network. they call themselves a hollywood style agency. they say they are geniuses on demand. they say they are the tom cruises of the software industry. they will perform at a very high level. they accept less than 3% of applicants and the have thousands of freelancers in their network. there are all these middlemen that have realized companies are willing to pay top dollar. emily: thank you for spotting that trend for us.
sounds like my ride's ready. don't get stuck on hold. reach an expert fast. comcast business. built for business. >> china's biggest offshore oil company will make fewer than last year. re-for the reduction in production. discussed crude oil plummets to 12 year lows. more outlook for delta airlines with the company expected to save $3 million this year. jet fuel will continue to fall.
>> it is massive. current levels, about $30 a barrel, we think we will get $3 billion of upside and 2016 compared to 2015. furtheruel goes down that will just keep increasing. i think you latest reports coming out was that we will be drowning in excess capacity of fuel next year. while that is bad for some fuel producing countries it is very good news for the aviation business. we're pretty happy about that. much in the red come we have declines resuming. the imf also speaking out by cutting global growth forecasts. they say the nikkei is pleased to enter a bear market.
after a rocky start 2016 come the imf predicting continuing challenges. it cut global growth forecasts. let's check in with the market proper. >> it is ugly out here in the afternoon sessions. down now by 3%. a stronger yen we are seeing investors flocking back. we are seeing them coming back and that is weighing on japanese exporters. definitely a risk of sentiment we are seeing declines across miners and oil producers. singapore stocks are down. byy're being brought down
some of these commodities. this is a broad-based selloff we are seeing here in asia. down to thatng reopened in hong kong and china the top of this hour. emily: major cyber security attacks and what companies can do to protect them. >> according to a new report, cyber attacks are getting stronger and confidence to defend against them is dropping. the report finds it only 45% as businesses worldwide are confident in their ability to prevent an attack and deal with the damage afterward. and only 59% of global businesses say their security infrastructure is up to snuff. so how can companies keep up with the increasing specification and frequency of cyber attacks?
joining us is the chief security and trust officer. a very important responsibility have it cisco. were companies overconfident before? >> i don't ticket was that. -- i don't think it was like that. the good news for us, in that same set of data is that the response is clicking in. more and more businesses are taking it to a board level business strategy and making increased investment. emily: what are the key threats to watch out for this year? >> there is a threat we just call cyber security that there is crime, disruption, espionage, attacks -- you can see it. on a personal level, it is all about being scanned. you get a know about malicious food and you click on it. at the business level it is about the corporate level you
are in and how they attack differently. oil and gas is not the same as electrical or tech. it is a natural way to look at your own business and save these are the threats we are facing myself. emily: what should companies be focusing on this year? >> part of what the survey and data told us is what they are focusing on is around integrated threat defense, making it simpler and more complete. it has not always been true. sometimes it is just buy 50 different companies trying to stitch it together. that strategy is not working. the other part of the business is companies are becoming more aware and making it part of their strategy as a corporation. it turns out it can be a differentiation in the market. emily: one of the things the report talks about is the human factor. you and i might be the weakest
links. are we the just risk? >> i don't think so. it's not as though we cannot be tricked. it has been proven time and time again that we can be one of the risks. in truth, it can be defended against with the right design. emily: what about social media? >> as we pointed out in our report, we saw how many scans are being brought to both of us. a facebook friend request is the new way to deliver what we used to get as an e-mail inbox request. a couple examples around making sure you become part of the answer, doubt and verify before clicking. it's not just can we be the problem, can we also be the answer? emily: when it comes to cyber attacks, the hackers and the spies are always one step ahead.
even as we and companies get better at preventing them, will the attackers just get better and better? >> this is one of the key proud moments for cisco. it is to be 50 hours before even we could see an attack. then you pull it apart figure out how to defend against it. we have taken it down to 17 hours. in most statistics, most corporations on their own might be hundred days to 200 days before they know it is happening. the work we do in our company is how fast can we make that new attack irrelevant. it's that kind of approach have been committed to for a number of years. >> the number one piece of advice for companies. >> take it all the way to the board room, get ready. make sure it is not just the technology discussion and take it right to the way that you deliver value.
emily: turning now to the world economic forum, switzerland, of the 2500 delegates in the spotlight including facebook's cheryl sandberg is a south korean robot called hugo. you may remember this humanoid as the winner of the darpa competition last year. he is there to represent a challenge looming over the conference. how to harness advances in ai and robotics in a way that stimulates the world economy rather than replacing human jobs. oxford university researchers suggest almost half of officers are at risk of being audited but hugo is on hand to show the good things robots bring to the table. ♪ >> his name is hubo.
he is the latest version of the hubo series. it's a very dangerous place. he can open doors and also drive this by himself. he has a camera and data sensor and he can can't -- scan all the 3-d data and he can recognize everything. you can imagine that we cannot go inside so a robot can go through -- this is the very beginning. in 20 years can do everything. we are expecting to make this a very fancy robot.
emily: that is the south korean robot at the world economic forum. when we return, we speak to the ceo for an exclusive interview. how his company differs from airbnb. tomorrow there is full coverage on the ground with some of the biggest names in business. do not miss maurice levy. and later we have another guest at 8:00 a.m. et. ♪
emily: the human rights group amnesty international has put apple in its crosshairs. in report, the group says that apple and some of the other phone makers may be getting the cobalt they rely on from child labor. amnesty international says they are buying cobalt from the democratic republic of congo but are not fully checking their suppliers for labor violations. apple declined comment. speaking of apple, donald trump says he will force the company to manufacture in the united states if elected president. mr. trump: make america great again, i think we can say now that we will get things coming. we'll get apple to build their computers and things in this country instead of other cut countries. emily: during the speech he also claimed is to support free trade but insisted he would impose a 35% tax on businesses producing goods overseas.
in november, expedia purchased a vacation rental site helping the world's second-largest travel company push further into accommodations. cory johnson cut away with home -- began by asking what life is like after the deal. >> expedia has been a great cultural fit so far. they are very respectful of the strategy that we started to execute last year. they're running it mainly as an independent company that are offering to help in lots of different ways. one of the ways we are hard at work on is to figure out how to best expose our inventory on their sites. that will be one of the biggest contributions they will be about to make this year. >> the conversation seems to be dominated by airbnb. how do you take great efforts to differentiate yourself?
>> we did launch a new campaign this week. it is our biggest integrated marketing campaign ever. we are doubling up this year on our brand related investments. part of the reason we are doing that is to make sure that people understand the differences between homeaway and other sharing economies and companies as well as hotels. homeaway is quite different from airbnb. the majority of their inventory comes from primary homes. these are people who live in homes and apartments and choose to share them for a few nights a week and either move out or stay in the home in some cases. whereas homeaway is on most exclusively second-home owners. it's the traditional vacation rental market that when carl sheppard and i started the company in 2015 was already a
$100 billion business we were just the company that brought it online. >> you are doing about half a billion in revenue this calendar year. >> it is a fantastic business. we think this will be an extraordinary growth year for us. it's a very big marketplace. we estimate that homeaway last year did between 16 and $17 billion in booking. we're the biggest in the vacation rental category but we still only have about 15% of the overall basis of their is a lot of room for growth going forward. >> our philosophy has always been that the way that we grow inventory is to keep our suppliers happy by burning travelers in the door. travelers in
the door. our marketing is a most exclusively targeted at travelers. the feeling at homeaway and has been true since we started the company is if the owners on our platform are doing a lot of bookings with us and making good revenue, they tend to live in neighborhoods where there are other vacation rentals. they will refer our services for friends and neighbors and generally the inventory takes care of itself. >> it is an interesting approach to a marketplace kind of business. do you feel that is what this is? like an ebay am a you will have more sellers because you have more buyers and you will dominate this business? >> internally, that is how we have always looked at it. it is a marketplace business. you have two customers, on the supply side and the demand-side. you have to choose to focus on one or the others because if you focus on demand, you will find that the supply begins to come
online to meet that demand. one of the things we spent an extraordinary amount of time thinking about was keeping our various marketplaces in balance from a supply demand perspective. there have been lots of companies in the last 10 years that have through nice venture capital funding have tried to rise up and get into the business. they will typically focus heavily on the supply side and get as many homes as they can. if they do not have the demand to meet that, quickly those homeowners get disenfranchised with the company. they tend to leave and go somewhere else. emily: homeaway ceo speaking exclusively with cory johnson. now, the so-called opentable of beauty appointments announced plans to buy beauty booked.
i spoke to melanie mccluskey ahead of the acquisition and asked why she decided to target the high end of the market. >> high-end is an incredibly lucrative market. we're previously supported independent professionals. we are very excited today to move further on our path to truly support the entire salon and spa. emily: this partnership will add about a thousand salons. coming up, chinese economy may be cooling off. vc funding is still hot we will look at whether the likes of startups are living up to -- we will look at whether startups are living up to skyhigh valuations. ♪
communist leadership continues to grapple with the transition to a consumer-led economy. this is due in part to a boom in private funding. venture capitalists poured a record 37 billion dollars into chinese startups last year, more than double the previous year's tally. joining us now are bloomberg news's managers of tech companies in asia. china will be more innovative than silicon valley. is china really emerging as a legitimate challenger to silicon valley. >> it certainly is coming up with a lot of innovative companies. 2014 was a very strong year. venture investments tripled that year from the year before. last year, venture investing really took off. the china situation was much different at the beginning of last year than it is now.
the economy was quite strong and alibaba had just gone public. right after the ipo, the shares went up. they thought china was the place to be looking. emily: that leads me to my next question, you have company's like xiaomi with a $45 billion valuation. are some of them overhyped just like we are seeing in the united states? >> that is a very good question. we saw the numbers in the fourth quarter that went down sharply from the third quarter. hardly because people were spooked by the chinese economy and certain sectors were overfunded. xiaomi was seen as the next alibaba, but they came up short
in terms of hitting their numbers. that was a problem for them and there will be some pressure on that valuation. didi is the ride hailing app. a lot of money has gone into peer-to-peer, and online to off-line companies, including massages you can get on demand, chefs, or car washes. we could see a shakeout in those sectors. emily: the on-demand economy is exploding here as well. there was a sharp drop going into the last quarter. is there greater scrutiny for some of these startups?
>> the big debate is over whether this is a normal downturn or something exceptional. china has not seen this kind of drop, partly because they have never seen a venture boom what this before. peer-to-peer venture capital money is getting tougher to come by so it will be difficult to see how these companies fair in the year ahead. emily: if the economy keeps struggling, do you see venture capitalists pulling back? >> they are certainly pulling back to a certain extent. the vc's who have been there a long time say that this is normal. the economy is slowing down and there are tons of opportunities that they see. they feel that there are big companies to be built in these sectors and they will be determined to continue to invest in them. emily: we will keep watching our bloomberg news managing editor
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