tv Best of Bloomberg West Bloomberg May 1, 2016 9:00am-10:01am EDT
♪ emily: i am emily chang. this is "best of bloomberg west." we bring together the top interviews from the week in tech. all about earnings and apple posted its first sales in 2003. sales declines 2003. shares have taken a serious hit. is it a new era for apple? we will discuss. a tale of two tech companies as facebook hits the sweet spot. mark zuckerberg says more big bucks to come. and interview with the twitter
cofounder and how he thinks twitter can right the ship along with a major announcement about his latest startup. first, to the lead. apple, the world's most valuable company, grappling with slowing demand for its flagship product, the iphone. it reported first sales declined since 2003. while that was expected, the numbers still caught some investors off guard. second quarter revenue was down and earnings per share was down 18% and warnings we could see another decline in the next quarter. i spoke to frank gillett. what are the main takeaways? cory: iphone units down 18% is the biggest take away. we know it is two thirds of revenue for the company. you've got growth in the market and shrinkage at apple.
this is increasingly a seasonal product story. the real concern though, and the reason the stock is down is because the margin number was disappointing. a little slippage in the growth margin is disappointing although it comes at a time of the release of this phone which likely has lower margin so it may not be arable news. -- it may not be horrible news. emily: we spoke to the apple cf o. se.alked about the iphone he said the phone is incredibly popular. there is a question as to whether it will cannibalize sales of the previous phone. what would you say? >> i think we will see market
expectations for smartphones come down. i think we are not just at a puse. i think it's a realignment and apple is suffering. i think this will bring margins down further. it was not included in the last numbers and that will bring them down a little bit further. i think it's a challenge because people are finding that the phone that i have a sufficient and i don't need to upgrade that often. i will hang on as long as i can. i think that foretells a different future for apple. it's good that services grew because that's where there are opportunities. emily: let's talk about globally. they say they are seeing more first-timers than ever by the iphone. he says they attract millions of new customers. in india, iphone users are up 56%. customer demand he says is over 2 billion higher than guidance
they are providing. we continue to see a macroeconomic environment that ak.we we will be taking channel inventory down. what do you make of that? >> i think we are entering uncertainty about the way it will perform so i don't agree with bob that we are talking about a dramatic shift down. the most important thing and many are overlooking is how tough the compare was to your go -- to one year ago, and the huge burst they got off of the large 6.one we are entering a time when it will be harder to predict but we growthing off torid and a difficult comparison. the energy around the big screen burst your go did not continue this year. that says that there were a bunch of people that cared and there are bunch of people who are pretty easy-going. the idea that the lifecycle of phones may stretch out and last longer as long as you don't drop
it in the water, there is something to that. will we see a burst n people to get the act on two-year upgrade cycles and get that more excited? -- get them more excited? that is where the question is in my mind. are we entering a more seasonal and volatile period where it's less about people having the latest version of the device. can apple keep converting people from enjoy? -- android? you don't see them doing strongly in europe yet. >> i think frank raises some good points but my concern is i see nothing on the horizon from a component and a technology perspective that will drive the upgrades. there is talk of a dual camera and maybe a telephone lines. -- telephoto lens. cameras are interesting but i don't think they will drive this dramatic upgrade. i think we will see people hold onto these things longer just
like we saw with pcs. cory: the ipad is less important. nine consecutive quarters of falling sales. the combination of going from one device, the pc, to pc, phone, tablet is stretching out the cycle for all of these products. people are holding onto all of them longer. one of the reasons that was hidden before is because apple released products over time and now they added most of the major geographies within a couple of weeks. it was hidden before and it's no longer hidden. cory: let's look at what tim cook said over the call. emily: there was a question
about china where they were seeing weakness. >> china is not week as has been talked about. i see china that may not have the wind at our backs that we once did but it's a lot more stable than what i think is the common view of it. we remain really optimistic on china. emily: we have been talking about growth in the services business but in china, they recently said no i-movies. you think that is a big deal? >> one of the mistakes we all make as investors is we focus too much on unit shipments and not enough on installed base. it's interesting to think about one billion iphone users out there and the power that has for
apple in terms of an ongoing ecosystem. it's also important to say investors are getting dramatic because they are worried about the stock of apple. if you think about the company and its importance in the technology ecosystem, disease results don't change that at all. this company is still hugely important for which apps do build, how you reach customers, how you engage customers and the whole mobile eagle system. -- ecosystem. sales up 20% is interesting. it does not have the same margins. it does not have the same revenue volume. it represents the beginning of a shift in how you think about these companies. i have been arguing with the ceos of these companies some time and it's about your installed base and not how many iphones you sell to them. emily: later in the show, t
emily: now to facebook. it saw shares surge after reported better-than-expected revenue on wednesday, up 52%. also positive engagement metrics and steady growth in active users but the biggest surprise is a proposal for a new class of stock. mark zuckerberg wants to issue a new class of nonvoting shares so he can continue to make big that some things like comic 70 and virtual reality without diluting his own ownership stake in i sat down with gene munster and josh marshall and steve case for a deeper dig into what this means for the company.
i want to start with you, jean. facebook beat on every measure but i have to ask about the stock. what do you make of mark zuckerberg asking for this new class of shares? what does it mean? >> he wants to have more control in terms of the direction of the company and i think he is wise to do that. the good news is that given the runaway success, investors will be fine with him taking the reins. this is him making it clear that he's in charge of this company and he wants to see some longer-term bets through and does not want to be pressured torture to quarter. emily: he spoke about this in more depth on the call. take a listen. >> today's or proposal will allow us to maintain and improve the voting structure that has service well allow me to fund the chan-zuckerberg initiative and i will not sell more than one billion shares of facebook shares over the year.
that is still my command meant -- commitment. emily: i spoke with the facebook cfo who said large part of they spoke success has been due to mark's leadership and the proposal will allow them to maintain that founder-led pproach. as a founder yourself steve, what do you make of this? >> facebook has been an extraordinary success and this proves that the momentum is strong and i applaud these big bet projects and applaud what he is doing on the philanthropic side. the dual class stocks are a tricky issue. when it's going well, it's a good thing but when things are not going well, it can be about -- that thing. i'm not sure long-term it the right thing but he has earned the right to steer the ship because he is staring you in a great way. emily: why might it not be a good thing in the long run? >> sometimes there is a change in strategy and if someone is locked in and has complete control, sometimes that results
in not making the right turn. that has not been a problem in the past decade and may not be a problem in the future. in general, i think there are folks that question the dual class structure. is it the best way for the markets to work? the underlying issue is how ceo's have an incentive to take the long term and invest in long-term projects. there is a concern about wall street being too short term. emily: it's something that happened that google. i assume it's a good time to ask that when you be on every measure, on that note, one thing we have looked into his personal sharing which has been in the client on facebook. overall, people are sharing more and facebook but how they share is evolving and they want to share in different ways. >> there have been reports that some of the original sharing of personal content and photos as opposed to sharing social media
have been dropping. that could be a big challenge for facebook if that continues. it doesn't seem to impact the revenue so it should not have an a negative impact right now but it's something to keep an eye on because some much of the facebook revenue is driven by newsfeed advertising. the interest in a newsfeed is not governed by original sharing. emily: when you look at the results, they look great across the board. what are your main takeaways? >> the main takeaway is that they are drawing revenue at a similar pace as they did in the december quarter despite their comments that would slow down. they said the competition would catch up with them and it didn't and they are finding more ways to insert more ads into the deed that don't feel like ads to people.
that is one of the genius things they have done so that a positive. they are having success without really tapping into these other bets like instagram and others. it's hard to find things that are not working. i am at a loss to point to something that is disappointing. emily: you talk in historical perspective. it's hard to imagine a time when facebook will be challenged. over the next decade, what do you think their biggest challenges will be? >> they have done a great job even recently. facebook live has been a great success and is getting attraction so they are doing innovative things. they have had smart acquisitions to make sure they are positioned well. as we transition from the second wave of the internet to the
third wave, the focus of my talk is there will be innovation in other sectors like health care and education and transportation and energy in the leaders will continue to lead the way and some new companies will crop up so it's a challenge when you are the incumbent and so strong to maintain that strength in a world evolving quickly. emily: josh, an early days of monetizing instagram but they have not turned on the firehose yet. do you see more potential in the long-term to make more money with this family of apps that mark zuckerberg has made big bets on? >> it's usually exciting like with messenger and what's app, they have another 2 facebook's that they have not started monetizing. they have to figure it out because they cannot stick advertising in them like facebook. they are powerful channels for directing one-on-one engagement between businesses and customers.
we worked with messenger to enable sprint and hotels to deliver service over the last year. there is still very much in the early days. emily: coming up, we take a look at how linkedin is performing and will sit down with the ceo. ♪ emily: we take a look at linked in and i sat down with jeff weiner.
it's surging. what have you learned? >> the stock volatility, we will leave that to the market because they determined the day today price. we determine the value and do that through execution we will continue to focus on executing business. it was a positive quarter for us. we were able to focus on fewer things done better. we saw the consumer engagement accelerate by virtue of a new application we launched, the mobile application, which accelerated our desktop growth and we continue to focus on our poor business product like recruiter and sponsored content. emily: why'd you think the linked in shares have been so volatile after earnings? it seems investors have such a strong reaction. >> you would have to ask the investors. i understand volatility and, at times, we will do our best to
try to provide as much visibility as we can into the business. as our business continues to grow, we are introducing some additional lines and i think it takes time for people outside the company to learn those businesses and calibrate expectations. emily: for the talent solutions business, you said the addressable market is $12 billion. you have penetrated about 20% there. if the market is large and penetration is low, why cannot you grow that is this faster like facebook? >> the objective is to grow the business faster overtime. we are investing in our recruiter application. we just rolled out the next generation version of that application. it's a complete overhaul, the
largest of its kind in seven years. we rolled out 2 new skews in terms of connectifier and our referrals business and we see a growth analyst. we have been investing in our job seeker application and the job seeker part of the site so this should help future growth in our talent solution business. emily: that is 2/3 of your business. would you say the business is mature or saturated because growth is decelerating? >> no, hardly saturated, there are multiple billions of dollars that are addressable that we believe we can start to further penetrate by virtue of these new products with improvements to existing products of plenty of growth ahead. emily: let's talk about mobile engagement that is driving the advertising business. how much do you see growth accelerating where facebook and
google are king? >> we are very focused on the b to b components of that and we think we bring unique data to that part of the is no's. sponsored content has been our fastest-growing part of the business and we can -- and we expect that to continue to be the case. growth drivers continue to be acceleration of engagement, engaged feet sessions which is what generates the inventory for our sponsored content business. we are seeing better roi for marketers so that is increasing the number of customers who are sticking around and purchasing more, improvements to targeting will continue to focus and develop api and improve those. we are now starting to pilot off network sales. is early days there. all of those things can contribute to future growth and that business.
emily: you've got 20 million members in china. you have localized the core app and develop the china team but when we spoke him you said you have hardly cracked the core in china. -- cracked the code. what will it take to crack the code? >> we will continue to learn the best way to meet the needs of members and customers in the market the longer we are there. we started by localizing the global platform and we have been seeing strong growth they're in terms of new members. we also launched the first localized application in china. recently, we saw sign-ups for it growing parallel with the core platform which was very encouraging. we will continue to learn. we've got a talented team in place there. as we continue to grow, the we are turning our attention to engagement and once that reaches critical mass, we'll focus more on monetization.
emily: at what point will we see the navigator contributing more meaningfully to the business? >> it is contributing today but it's still early. everyone would like sales navigator and sales solution business to replicate the success and growth trajectory of recruiter. our talent solutions business is north of $2 billion. it's a hard act to follow but we've got a great team in place and i think we are off to a strong start. emily: given that linkedin is becoming more of a mature company, do you think you have the right people in place or do you need to hire more enterprise/sales focus people who can take the business to the next level? >> i think we have the right team in place. it's a portfolio of products at this point. we've got hydro-products, durable growth products and we will continue to invest in those
high-growth opportunities and the areas of more durable growth. we will focus on margin expansion, and i think we have exactly the right team in place to make both of those things possible. emily: giving your global exposure, how would you describe the macro environment question mark we have seen other big tech companies taking a hit due to currency issues. what do you see? >> we have not seen any material impact to the business. after the first quarter for going into the first quarter, we had talked a little about some challenges in the asian pacific. we saw strength across all of our business lines are you i'm not sure that's as much a statement about the macro but we did not see any material impact based on macro economics. emily: coming up, pandora cofounder and recently
reinstated ceo sits down for an interview and we hear about the companies latest earnings and where he wants to take the company now that he is back at the helm. later this hour, and interview with the twitter cofounder and how he things twitter can right the ship along with a major announcement about his latest startup, jelly. ♪
emily: now we look at pandora with the first quarter earnings they reported since the ceo returned to the company and we heard about the company's performance and his vision of the path ahead. >> i love the company and i believe in it. i have not been gone. i have been on the board and i feel connected genetically. i feel it is the right time for me to take the role.
emily: what does it say about the strategy going forward? >> the strategy is intact. we are working to build from this huge foundation we have created, this massive ad supported radio product and to expand it into new features. it's intact. emily: we reported that pandora had explored a sale earlier this year. is that off the table? >> if you want to sell the company, you don't hire a ceo. we spent 10 years building the underpinnings of a big as ms. -- of big business. that is where we are headed. emily: in the corridor, active list has picked up but not a huge increase. what will it help to drive the growth faster? >> we have 100 million people come to pandora every six months and one million every month. how do you make the quarterly listeners monthly listeners? a big catalyst is ce and auto so
making it more of a habit in more places. we will start rolling out a more expansive features we have talk about like on-demand that will allow us to provide for all of the things they wanted music in one spot. we leak listeners because they want to rewind the customer and they cannot. we want to add live events and that will add to the completeness of the experience. emily: millennials spend more time on pandora than youtube but the stock has dropped. what is it that investors are not getting question mark >> a -- that investors are not getting? >> there is a lot of misperception about the company. my job is to make sure that story is clear. it could be true because our
strengths are not immediately visible. with personalization, the engine that drives our song selection and creates personal radio is a hard problem. even as we have had competition and free alternatives, hour per listener, per month listeners have increased. that's a reflection of the massive investment in personalization. the second thing is monetization. those are two huge strategic pillars for us and i don't think they are yet well understood. we will tell that story and i think it should show. emily: what about an on-demand product where listeners can choose what they hear next rather than just waiting for what comes up? how close are you to having that in place? >> we know how we will approach that. the acquisition will help with that. this is not going to be a me too service. the 30 million songs on a search
box approach is not how we will come to this. we have 100 million people who come to pandora in 24 hours and we know all about them. we know your preferences so we can bring you into this interactive environment in a relevant way. we take you in with the music you already know and create playlists and repopulate your experience of solving the problem of walking into a record store where you can have , everything and pandora will solve that. it's a version of on demand. emily: are the labels asking for the same rate they give spotify, 70%? would you pay that to them? >> i expect they will be in the same ballpark but we have a slightly different approach. we are hoping that labels will look to be more flexible on how the products can come to market. one of the great opportunities we have is to address this tens of millions of listeners who were not the $10 subscribers and have not thought about it and
introduce them to premium services, to up sell essentially this take fat middle of listeners into higher products. if we have flexibility there, think we can expand the industry. emily: you said pandora's about to get louder with its advertising, what you mean by that? >> it's time to stake your claim. we are a huge service. we account for more usage than youtube in the u.s.. we need to be louder at this level of maturity and size to have that voice. emily: what does louder mean? >> >> it means speaking louder and be a stronger marketing presence. we are investing more this year and as we rollout products, you will see us be more vocal this year. emily: beyonce just dropped an entire album with exclusive streaming rights.
what is your take away? can that change the future for dal? we see more and more artists rebelling against streaming services. i think you will see a handful of artis who have the stature and the audience to do those kind of things. emily: coming up, t mobile as more than a one million customers for the seven quarter in a row l and johneger slams the competition. you can check us out on the radio. "best of bloomberg west" continues after the break. ♪
and revenue. the carrier also raised its forecast for the year and gained more than one million new monthly uses for the seventh straight quarter. i spoke with john leger earlier this week. i asked how long they can keep it up. >> service revenue is up 13.6%. we still have less than 20% market share. our main competitor otherwise known as dumb and number are just not adapting to the uncarrier revolution and the things we are doing to change wireless. this can and will continue because we will not stop. emily: you summed up the verizon earnings in a rap. how would you rap the t-mo takeaways? >> i am trying to help verizon. their earnings could be summarized as we lost topline revenue and post a phones and walked back on 5g and we are still longing for millennials.
that's all you need to know in a form that's observable by the millennial group and i put it in an auto rap format. i actually used fran chamo and i put his words in. the tea mobile summary is 12 quarters in a row, we grew postpaid customers and the model is working. we are now generating huge service revenue and adjusted ebita. emily: we can add a new talent to your things you can do. you predicted a slowdown so what's driving that? >> i talked about a slowdown? we have just about 66 million customers. when you win i started having these conversations, we had 29 million. we have less than 20% share.
i raised my guidance for the year. my guidance going into today for postpaid subscribers was up to 4 million and i raise that to up to 6 million. i raised my guidance. i also raise my adjusted ibita. pretty much steady as she goes and things like binge on an music freedom, 2 million songs are streamed free by t-mobile customers and twice as much video is concerned -- consumed. the underpinnings of what it means to be a t-mobile customer is changing drastically. i think there is a huge population out there that is still considering the move from dumb and dumber and even yellow
over to t-mobile. emily: verizon has put in a bid for yahoo!. what do you make of their interest in focusing on media and content? do you understand what they are doing? >> there is a lot of things that verizon is doing that makes more sense of what they are running away from than what they are running to. you think about their attempt to portray 5g as coming tomorrow when wireless applications will most likely be 2020. it lost its edge and t-mobile has 194 million of loeb band and we are participating in a low band rock s option area it takes their old edge and we have parity with them from a network standpoint so they are attempting to create a new brand for themselves. if you look at the last three phone postpaid
subscribers. here are the numbers. if you just assume consensus for at&t ends print, sprint has lost almost 3 million post a phones and at&t have lost 1 million and have not added one for the first quarter and verizon has added 4 million and we've added 10.5. they are trying to find a new future. we have the biggest curated content site that nobody asks for. $5.5 billion so far on junk that no one wants. and hope they drop a boatload, and run down this lane. emily: coming up, the twitter cofounder on why he is holding onto his stake in twitter and is happy jack is back. ♪
startup, jelly. it's a specific type of search engine i asked him why i would want to use it instead of google. >> it does not search the web. there is a very significant percentage of questions that are way better answers especially when you are asking the wrong question. only jelly can tell you that you asked the wrong question. emily: you use amazon echo. >> i envision a world in which voice is the main ui. if you see the movie "her" the guy is not falling in love with the ai. he has the thing in his year and he just speaks. emily: you guys have been working on this a couple of years and gone back to the drawing board.
how many people are behind the scenes? what is the technology? >> the first version -- we have always had eight people and five engineers which is not enough especially for this grandiose vision we now have of the future of search. the first version was very much tied to social id which turns out was not a great idea. if googles were tweets, how much would you do? being on twitter is great if you want to expose your question. i have a huge network on twitter but i don't want some people to know what i am asking. there is more computer science in this. there is a layer of ai that will determine whether it's a real question. then it passes it through to the next layer which is it categorizes the question and then it is routed to people who are also tagged with things they know.
it gets sent to the right people and you don't know those people. they just have experience with the thing you are asking about area emily: let's talk about twitter as the stock is down since the last earnings report. >> it is? emily: it's down over the last six months since jack childress became ceo. why are investors not feeling it? >> that's a short period of time. it takes a long time to take over as ceo in turn the ship around. it's not an overnight angry at wall street things in quarters. people like jack, they think in decades. maybe it's down now but he's got these long-term plans. like jeff bezos. it won't take a decade but it
could take longer than six months or you given a couple of years. i am holding onto my equity, that's for sure. jack is so great and it's great that he is that act. the combination of him and adam -- the world needs twitter. it's not going away. it is now a staple and cannot be un-needed. once it's there, it's there and it will only get that her and -- get better, in group. it's a temporary thing. emily: facebook is getting into live but twitter has been the place for live. facebook has incredible resources to scale this. do you think twitter can grow significantly bigger than it is right now? >> i always thought -- jason
i use a lot less now because it's the same thing every time. everything grows. some things fall. it depends on the value. if it's delivering value, it's here to stay and twitter delivers value. getting information first historically is key and it makes you win. the same thing with jelly. getting information, the right information, the good quality answers rather than looking through results, you win. you get through life. that whole idea of value is here to stay. emily: that was biz stone on his latest startup am a jelly. that does it for this edition of "bloomberg west." ♪
emily: he got his start as an improv comedian, performing on one of the most famous stages in chicago. but, when comedy couldn't pay the bills, he dusted off an old skill -- coding. he founded three companies before he even moved to silicon valley, then took a chance on a fast growing startup that was getting an unusual amount of attention. that startup invented the tweet. once mocked as a way to describe your breakfast in 140 characters, it is now a $30 billion public company. the darling of celebrities and presidents worldwide, yet