tv Best of Bloomberg West Bloomberg August 13, 2016 6:00am-7:01am EDT
jet.com give it enough ammo to challenge amazon? diversification is paying off for alibaba, driving revenue up 59% in the latest quarter in the main e-commerce business is holding up in the face of a weaker chinese economy. viceoke with the executive chairman and i asked him about the ma strategy and if any mega acquisitions are in the cards. >> if you look at our core operations, $2.5 billion of operating income in our core commerce business and that is growing at 38% year on year. if you look at eps, it is growing at 33%. we did consolidate the twoations of you who --
other companies and we take the long view and despite consolidating these losses, we are generating 61% operating margin.-- operating that gives us the luxury and the resources to invest aggressively into new businesses like digital entertainment and our new innovation initiative such as internet cars and things like that. we are comfortable with our margins and we have a lot of resource and cash flow to in -- to invest in new growth. emily: yahoo! is going through a sale of its core business, has -- have they discussed what they plan to do with the shares they hold? >> what they need to do is figure out what to do with the alibaba shares. they could do nothing, but we will be fairly reactive when it
comes to that and we believe it to the yahoo! board to decide what they want to do with the alibaba shares. the important thing to know is if yahoo! sold their stake, they would ensure a huge tax liability and that would not solve the problem, even if we our -- are invited to acquire the shares of what they call the remain co, because we would not be able to cancel those legally and we end up inheriting the tax liability. it will be a difficult question for us. emily: alibaba has been inquisitive in the past, more than $24 billion in yields in the past year. how open is alibaba to really big deals? have 61% operating margin in your core business you
have to think about how to smartly use the extra cash flow, the margin, to invest for future growth. when it comes to our and and a will be disciplined about it. a- when it comes to our m& strategy we will be disciplined about it. improving our customer experience and expanding in our categories. if you look at large acquisitions and investments we have made over the last year, they fall consistently into the principles. we acquired one company because we want to get into digital entertainment and we pardoned -- partnered and invested with one of the largest -- with the largest -- and omni strategy to own the electronics retail race in china.
these are examples of acquisitions we have done. we are open to large deals and small deals. the important thing is they stay consistent with our m&a principles. emily: you made an investment in a company. according to reports, at some point alibaba stopped paying. what happened there and how do other companies know you will not do this to them? >> we have actually fully paid our investment into that company . the fact is, by far we are the largest capital provider to that company, over 100 million dollars and we have paid on time and we fully paid up. i think what you have seen was a report regarding a contract where there is some technology that they were supposed to and the fact of
the matter for the china market markets a very different and for the kind of product they were trying to develop, it was very difficult to gain traction. by no means was there any kind of dispute. we have a very good relationship with them and we are supporting the entrepreneurs. when we invest in markets in the u.s. we want to back our -- onto the norse. -- we want to back entrepreneurs . emily: we will dig into disney's new acquisition as they look to offset investors cord cutting concerns. we will also hear from two veteran investors on how to spot diamonds in the rough. this is bloomberg. ♪ ♪
emily: walt disney reporting earnings come a reflecting tough times for the company's cb business. our bloomberg anchor caught up with bob iger soon after the earnings release and asked about the new earnings deal. >> i would love to talk about the amtech -- bamtech. we used to have a discussion about content versus distribution and this is the first time you have made a major investment into bamtech.
i think it would be safe to assume this is our largest investment and what you would call distribution. we look at it as an investment in technology. we have been saying that our strategic priorities include quality content and using technology to make the product and the content better, but also use technology to distribute in more modern ways and more ubiquitously. enjoysat the consumer more and is gravitating toward. is safe to assume it is a ittribution play, we view more as a technology play and that is vital to the future of this company. david: for those of us who like we areh baseball, familiar because we have watched
what mlb has done. i would assume you would not make this investment if you are not inclined in the direction of putting disney content on this platform. when can we expect that to happen? bob: we have been incredibly impressed with what major league baseball and bamtech have created and our due diligence proves we are right. clients of their product cap raved about it, content owners that has used it -- that have used it and consumers. we have used competing platforms and nothing comes close to what this offers. they have a great product, the user into space -- user interface perspective go miami up a big fan of major league baseball and it is a great platform. we are investing in this to use it as a sports platform and we are going to launch an espn branded service utilizing rights
that bamtech has already acquired and adding rights that we have acquired. this provides opportunity to jumpstart us and other branded businesses into the directed consumer space, notably disney branded and possibly marvel and may be a star wars down the road. we do not have specific plans, the platform does not offer design yet, nor do we have a date. this will put us into that business. served -- safe to say that espn is probably first as you get into the process? sports is first up. one of their big clients is hbo now and it can be used for many different types of product, but sports will be first for us and espn ranted. .- espn branded
we think we can launch something that is a compliment to the current channel. i know you take interest in the creative process for the us a senseou -- give early on how you are doing and if you are on track for what your plans were for shanghai. bob: it was more than a labor of love, it was one of the most important steps the company has taken. the biggest investment outside of the united states in the most populist city in the most populist country. me.as a journey for i was quite involved. we are building something that was large and complex and unique and there is a lot of original product in shanghai disneyland and it opened flawlessly.
the reaction has been great puritan visitation has come from all over china and has taken great advantage of shanghai as a tourist destination. high and is extremely people are staying about two hours longer per visit than we expected. that suggests people are enjoying it a lot and the per cap spending has been strong. -- we were just guessing how it would do because it is a brand-new market for us, we are pleased with what we have seen. well over one million people have visited since it opened on june 16. we have already broken ground with expansion. we feel great about it. advice.ive us we talk a lot about doing business with china. you say you spent 17 years and had a lot of success learning how to work with the most senior
leadership all the way up to the top of china and other companies have had a tougher time. what advice do you have for others who want to do business with china? bob: i thought about that question because i have been asked a few times. imo not sure any two situations are the same. -- i am not sure any two situations are the same. china -- disney is well-known in china and accustomed -- trusted company. it took a lot of the and a lot of patience and perseverance and tenacity. there were many times it would've been easy to fold the tower tent because it would take , and we did not do that because we believe in the market and how are our -- how our product would perform in the market. we had created a tremendous repo
and theur partners government of shanghai. we build up a trust because you are speaking truth and you have faith in them and as partners they have been great partners to us throughout this process. my only advice would be, it is a big complicated market. it is a market -- there is a lot that does not meet the eye. you may feel there -- that you are an expert, there are a lot of surprises, not necessarily good or bad. you have to have real patience and commitment to be there. i think the patients we showed off.tience we showed paid it was not easy to negotiate and it was not an easy product to build, yet our partners have
emily: can walmart turbocharge the e-commerce business? they are hoping to do that with a $3.3 billion acquisition of jet.com. they put billions of dollars into the online operation and they still trailed amazon. can jet.com help turn things around? we spoke to david kirkpatrick and brad stone, and a former
employee at amazon and ebay. this is such a young company and they say they process 25 -- 24,000 orders a day, but there are reports that have been struggling. this is the best way for them to spend $3 billion? >> it is a year old company. look to the left or right of you come are any of those people jet.com customers? probably not. , have to go back to my book six years ago walmart stepped up to the deal and was talking to a -- through a combination of distraction and lost -- like a faith, they lost the deal. mark lohr has a team, scott hilton, nate foss, he has a team of people that can think strategically about e-commerce
and now they have a record of identifying opportunity alongside amazon. nobody can beat amazon inconvenience, you probably cannot beat them on selection. what jet.com has been able to do is beat amazon on price, find opportunities to speak a brand -- create a brand that will speak to economic minded consumers. emily: the walmart e-commerce business is not only declining as a percentage of their overall business, that their online business grew last quarter. >> in this game of e-commerce it is either grow fast or die slow and walmart realizes they see decline in e-commerce and it is a game of how to get back into the war. one -- the crowned jewel is the pricing technology that jet has
built. we have tracked all three over the last year and as brad pointed out, we have seen walmart.com has been expensive. jet has been trading the same lines as amazon, sometimes even cheaper than amazon.com. this is a good game for walmart to take a look at what the pricing technology is an bring and wrote their e-commerce business. emily: the more you buy, the cheaper it gets. the algorithm encourage you to buy in bulk. --poke >> we do not suit -- see amazon or anyone else as a direct competitor, we see a market in the u.s. growing. we think this space plays to
multiple players. emily: amazon is far and away the leader in e-commerce, is this a play for number two? can walmart ever be number one? >> the simple answer to that is no. i do not think there is a scenario where walmart will be number one in e-commerce. if you listen to what we say here, it is for talent. it is to get a better pricing methodology. -- they pay billion and they are obsessed with the issue that they have to become a more digital player. shows how hard it is for some of these lumbering behemoths to make the pit they have to make -- make the pivot they have to make. emily: how much can jet really
turbocharge walmart's e-commerce business? >> we will see. the biggest challenge is how do you utilize or exploit the assets that walmart has? the huge distribution centers and bigger stores, how do you exploit that it -- advantage for e-commerce? the question is, mark lohr and his team running walmart.com, can they get to the desired benefit if they are not running walmart? can they kill the prized assets for the benefit of growing the online business? that is probably what you have to do. if anyone can pull it off, maybe it is them. emily: more data from the bloomberg, walmart is opening fewer stores and revenue is growing more slowly. we have a chart to show you that. the bigger question is, what is the future of walmart? out -- how do they balance in
efforts with physical store efforts? it is like an existential identity crisis. >> let's fast forward five years from now, this will be a or.-tech game, not either walmart has the physical presence and the store network and they have that high touch game already figured out, being so close in proximity to the american shopper. they lack in the high-tech game and this is a shot in the arm for them to bring high-tech into the picture so they can get a chance to compete with high touch and high-tech and go head on with amazon potentially. emily: that was david kirkpatrick, brad stone, and boomerang commerce ceo. coming up, a shakeup in the right hailing wars, we talk about partnering with a legacy carmaker and how they are taking
emily: welcome back to the best of bloomberg west. i'm emily chang. the wars are rolling on. halo weeks back, nnounced a merger with taxi. this came before over sold the chinese business to didi. we sat down with the c.e.o. to ask if there were other markets that cannot be cracked. take a listen. >> i would not ever say that. a company of that scale will get he quality of execution and it will be foolish to make a blanket statement. clearly one of the challenges
you have operating a global siness is how much you do centrally and how much you do locally. it is reflective of the chinese situation. when you are a local player, this will give you an advantage in terms of size, scale and funding. emily: we have seen a lot of m&a and volkswagen is taking steps. apple is investing. ow will this play out and will you see consolidation in this industry? >> it is difficult to know what the end game is. i would be surprised if it is a winner takes all. a player ends up through the market domination and winning the entire globe.
what we're seeing is uber playing on a global basis. lyft to a degree in north america. there are two or three players that are starting to emerge in europe. i think for a while you'll start to see that regional domination start to play out. will they end up merging or talking together, i'm not quite sure. we'll see the dominant players tarting to take shape. you probably have four or five regional champions who can play strongly and it is a scaled game and you have heavy, fixed costs
at the center and the more volume you can push through those, the more economically viable it becomes. for the regional players, it starts to make sense. to your point, you could start seeing these and you are seeing a form of these working together and moving together. hether you will see one or two globally dominant ones and then very small local players beneath that, i doubt it. i think you'll start to see this regional evolution and players will play strong for the for seeable future. mily: what kind of subsidies are you seeing and how will the resources of daimler help you take that on? >> clearly that is one of the benefits of the dealers that now we have a shareholder base that
will go after the shares in the state. ou see this capturing data and urban s of ondemand transportation is key to this strategic future. they really want to see this business become the dominant player and even more dominant player across the european footprint and the ability to fund this plan will help us play on a more even playing field than might have been the case before. emily: what is your plan to overcome some of the regulatory hurdles that we have seen in europe, facing a lot of different technology companies? >> i think it is important to note that either the halo playeds or taxi business within the regulatory framework. we use a phrase called
constructive disruption. the european theory is different from other markets around the globe and i would say that it is more social he democratic in nature where the regulatory environment is trying to deliver the best resolution for the city. we play within the regulatory and for structure and this is, going back to the original question, one of the advantages that we have, playing within this infrastructure and to the benefit of the city rather than to necessarily change it dramatically. emily: halo's c.e.o. andrew pennington from our london headquarters. is the internet start-up space getting saturated? i'll ask two investors where they see the seeds of opportunity. this is bloomberg.
round table, we dive into tech investing and venture capital themes . we heard from two veteran investors. jeff has been known in the venture community as a super angel. we also heard from brian o'malley. a partner with excel. an early backer of slack and square space and spotify among others. take a listen. brian, you have had a couple of ins in the last few weeks. excel just got bought by wal-mart. >> recognizing a great way to innovate is to acquire talented teams with unique insights.
if you look at both of those companies, they are not traditional tech acquires or the types of traditional companies that would get acquired. a great ino vator when it comes to their approach with markets and their business model which hand been done previously in the c.b.g. space. these guys are reselling razors you can already buy on amazon for less money. hat is the opportunity here? on the jet side, a lot of people kind of scratch their head, but they are focused on an audience that is not your typical amazon customer. a lot of people store it first based on price and convenience second. emily: here is what i scratch my head about -- this is a barely one-year-old to me that got bought for $3.3 billion. how can it be worth that much?
>> a lot of times the value is based on what the opportunity is with the acquirer. another example is facebook buying oculus. a lot of people might scratch their head at the value there or a g.m. buying a company like cruise. if you are one of these businesses, for walmart, they are getting threat by amazon and their e-commerce growth has lowed in recent years. instead of doing these smaller acquisitions, they decided to make a bolder move and work for a company like jet which has a fresh brand that appeals to a younger demographic. emily: these are huge exits, but there are companies that had big ambitions to be independent usinesses. do you think m&a or ipo's would be the next exit strategy? the new exit strategy?
there are i.p.o. market has been very challenging this year. only five so far. they are looking at what is going on the the i.p.o. market. the bankers are saying maybe you can go, or you can't go. there is not like a pressure to go out in this environment where there has been a lot of awesome m&a. whether it is in the consumer space or the enterprise space. people are opening up to those opportunities given once you are ut as an ipo, you need to look at the average performance of he 2015, 2014 i.p.o.s. as a c.e.o., you look at a payback of a few hundred million dollars or more. i know a couple of my guys who say i would rather look at m&a. emily: do you prefer companies
go the m&a route? a, you get a faster return and t is more a search engine. you don't necessarily have control over what's going to happen. >> for us, we're really focused on building strong, durable businesses. facebook had several opportunities to sell early on and we are happy they did not. having a public currency has helped them be aggressive with things like whatsapp and instagram. emily: what about in this particular environment where it seems like the funding environment is tightening up and people are getting more picky? >> as jeff mentioned earlier, being a public company is a really hard existence. if you have one bad quarter, it can take a long time to get things back on track. it depends on what is the setup for m&a.
if you have a strong business and you're able to approach it from a position of power, you can set it up running a business under the umbrella of the acquirer. if you look at the founding teams of things like dollar shave and jet have, they are not going to put some office on the side to roost. they have really important operating roles within those companies going forward. at the end of the day, it is the founder's choice. it's hard to push someone down one path or another because acquirers can tell if someone doesn't want to be there. but if you are building strong, durable businesses, whether you're going to have m&a offers approach you are just keep growing the company and think about liquidity down the road, that's the kind of flexibility we want our founders to have. that's why a lot of companies have raised decent sized rounds to give themselves that flexibility. >> despite everything you said around the investors
employment on the founders -- investors influence on the founders, you are going to think as an investor that you will make the argument that ultimately you will go with him or her. likewise, if there's a greater opportunity to sell, you will do the same. it is our job to present the pros and cons and support and work with others. emily: coming up, start ups that improve living standards in low income communities. e are speaking to kosla impact next. ♪
what makes a good social impact investment and how is it different from a consumer internet investment, for example? >> the big thing to define social impact is a company that can improve the standard of living and access to opportunity for low income consumers. there are many different impacts. that is our gold standard and that is what we look for. the most important criteria we have when we invest like this is to put consumers first. today you see a lot of conflict between shareholder interest and consumer interest. if you look at traditional industries, you look at airlines, hotels, banks, especially, you see the conflict between what is best for shareholders and what is best for consumers. our focus is to put low income consumers first for the company
and the goal of the company is to sell as many consumers as possible with the best quality product of service and build the sustainable company around that. for really good consumer internet companies, they should have the same agenda. there should be a shared ision. like amazon for example would definitely share that same vision. not all companies are built that way. we enter the very active agenda and say, this is how companies should work, putting consumer interest first and that will reate the most long-term sustainable shareholder value. emily: one thing that is interesting, you are investing in things that people will definitely use but will need like energy, education not consumer products that they may or may not use. >> exactly. emily: tell me about the specific kinds
of services that you are focused on. >> we look at what we call basic services as opposed to discretionary services, energy, education, access to finance. these are core products that improve standard of living everywhere. what we do is we find companies that can take existing technologies and put together a product that creates access to that service. that means, taking something really standard like solar panels. how do you create an electricity service for rural, sub-saharan africa? sing technology everywhere and developing business models around it. we have invested in companies that have electrified hundreds of thousands of homes and rural frica.
they also work in partnership with local government because they have found ways to automate that product or service using technology and make it far more efficient than local businesses have been trying to do. emily: how do you assess risk and return and how might that be different from your traditional consumer investment? >> that is a great question. he way risk and return works, it is not so much a function of a company's mission but the boat working in, right? the market has less money. the return spectrum is lower. if you are working in silicon valley where customers would pay a lot for convenience, if you are working in rural india they will not pay the same for that service. the return is much more a
function of the market than the business model often which means when you look at the kind of market we are operating in, our expectations for highly successful companies are lower than the expectations we have from that same kind of business model say in silicon valley. what we do is we adjust our investment model to fit that. we make smaller investments and hence the return rate we can expect are similar to the model. emily: how is the organization structured? i would imagine in be different elling the social investment then the hottest app within the organization. >> the people we work with understand how technology can bstruct a market and build affordable, cheap solutions and very expensive solutions.
we are working with people that really understand that and are highly motivated to support positive innovation. it is very focused on a different kind of consumer then other investors may be. really, 99% comes down to the same basic which is, how do i do delight my customer and how do i build something that is cheaper than the customer is willing to pay for it? emily: you are focused on india and africa and you actually used o work at sequoia. i am curious how the approach to india is different given that that is where so much potential is right now. >> sequoia has a much bigger presence in india. they are a much larger fund, but hopefully in a few years there won't be much of a difference. emily: investing partner, that
carol: welcome to "bloomberg businessweek" i'm lisa abrohm wits in for carol massar and david gura. in this week's special interview issue we talk to some of the top you know what i mean business. head of i.b.m. talks about where she sees the company positioning itself in the a.i. revolution. we talk to the head of microsoft about where this company will go in its middle age and we talk to the beatles great ringo star and why that band benefited by not being part of the digital revolution. that and more ahead on