tv Bloomberg West Bloomberg August 31, 2016 11:00pm-12:01am EDT
mark: i'm mark crumpton. you're watching "number west." -- "bloomberg west." donald trump held talks in mexico with the president. trump defended the right to build a border wall. mr. trump: we recognize and respect the right of either country to hold a physical barrier or walls on any of its borders to stop the illegal movement of people, drugs and weapons. mark: trump is scheduled to deliver an address on immigration tonight in phoenix, it arizona. hillary clinton told an american legion audience cannot make up -- told american legion audience that trump's trip cannot make up for what he has said about mexico.
the brazilian president will appeal her removal from office. she became the second president to be impeached in brazil's 30-year-old democracy. legislators decided not to and are from seeking public office in the future. the first commercial public flight between u.s. and cuba touchdown today in santa clara. regular air service was continued at the height of the cold war. global news 24 hours a day powered by more than 2600 journalists and analysts in over 120 countries. i'm mark crumpton. this is bloomberg. "bloomberg west" is next. emily: i'm emily chang and this is "bloomberg west."
salesforce slides as the software giant faces deeper competition in the cloud. regulatory filings share -- shed light on how the solar city merger came about. our automotive team has the details. palo alto networks plummeting after reporting weaker than expected guidance. yet analysts remain upbeat on the stock. first, to our lead -- salesforce shares are sliding in after-hours trading. the company forecast third-quarter sales that may face some pressure anymore competitive cloud market. oracle has been making headway here and is a bigger threat after buying microsoft -- after buying netsuite. microsoft be out sales force with the winter the biggest tech deal of the year, $26.2 billion for linkedin. salesforce has been on its own buying spree, spending more on acquisitions in february than it
did in all of 2015. here is the ceo talking about that on the earnings call. >> it has been an incredible time to acquire some phenomenal assets and i've never been more excited about salesforce and coming into dream forces just awesome. emily: is the strategy paying off? our analyst joins us in new york. what is your take away? guest: the biggest thing we heard his there was some slippage in the quarter, largely at the end of july, which is why the billings number was below with the street was back -- street was expecting. emily: salesforce has been acquisitive. they've announced 3.5 billion dollars in deals in the last few months. is that asking what margins are actually doing?
guest: those numbers are not in the financials of the company. they will add to the revenue base later on. there were some execution issues at the end of the quarter and they say they will have addressed it and we will see how the number comes out because that's what's going to drive revenue growth for next year. having said that, cloud competition is heating up and they are spending more money on marketing and sales which may be impacting the growth rates of the cloud companies. emily: what is the product line he is so excited about and how do you expect the next three months to be different from the last? guest: that has been the case with salesforce for some time. they have new products coming like the marketing cloud that has in growing in the 20% range. demand where they have an e-commerce platform will help them get new customers or expand their current portfolio of products.
emily: talk to me about the shares. they have been underperforming for the last three months. do you expect that to continue or will that change? guest: i think a lot will depend on how billings court changes. they did not see any big macro economic issues. they had some issues in the u.s. and they have addressed it and the hype line is very strong. we want to see whether that gets converted into deals are not. emily: salesforce shares on the move. thank you.
turning to tesla, we have more details on how it's planned merger with solar city came about. we learned elon musk discussed the idea of a tie up with his cousin sometime when tesla's board was briefed on the idea. the timeline is important because it's four months before musk made that plans public and three months before a share sale. david welch joins us now. talk to us about why this timeline clarification is such a big deal. guest: the conversation started between elon musk and his cousin in february. the board look at it and basically tabled the discussion. in may, we have this 1.4 billion dollars stock offering and 13 days after that, tesla possible or it starts hiring attorneys to start to look at this deal with solar city.
i june, they make a proposal. the board did table the discussion, but not long after, they do the share offering and they are gaining momentum on this. the people who bought those shares were buying tesla motors, electric car company. he did not know that was coming and that they could end up owning shares in a company that makes solar panels and a company that burns a lot of cash and will need to raise a lot more money going forward. emily: is this unusual compared to how other mergers come about? i'm sure a lot of talk happens before anything is official or officially explored. is this legal or is it going to
raise red flags? guest: it is legal in the sense that they had not decided to make a proposal to source of the yet. that's where it gets a little sticky. there's the appearance with shareholders that they knew they wanted to do a deal like this when they did a secondary offering and there are requirements that if there's a likelihood of a deal that you may have to disclose that. it's not really cut and dry as to whether they should have disclose this, but you did have some shareholders who did not like the deal, which is evidenced by the fact that the shares went down the day it was proposed. you could have shareholders suing over it if you think they were not even all the information before they bought into the secondary offering. there could he some controversy here. emily: how are investors and analysts feeling about this deal now? guest: some of the large shareholders have bought more tesla shares.
there's a desire to see this conglomerate of saturday's and solar panels come together and that could work for them. there are still some investors to don't like how things were disclosed and are not crazy about the fact that the ceos of the two companies are cousins. elon musk owns a big chunk of debt and solar city needs to raise some money. the company has been trying to raise funds all summer long and is worried about liquidity and we are getting closer and closer to being in default. they are still on firm ground but they are getting closer and closer to it. you get down to a question of are the companies to close? is tesla bailing out solar city because of the companies cash problems? is it too much for them to buy out when they are trying to get new models out and satisfy their own cash requirements? these are questions shareholders have and we will see how it all comes out. emily: we will be watching to see if this garners any additional regulatory attention. thank you. turning to another top story -- continued follow-up from the eu ruling that apple owes more than $14 billion in back taxes. u.s. treasury secretary, jack lu, was asked about this in
washington. >> i raised the issue that the pattern of action appears to be highly focused on u.s. firms. they point to smaller action against non-us firms but the actions appear to be aimed squarely at our tax base. emily: he went on to say tax laws should make it impossible to escape taxes and he sees a growing consensus in congress to move forward with such tax reform. coming up, palo alto networks adjust its forecast or next year and wall street reacts. we will hear from mark mclaughlin, next. this is bloomberg. ♪
emily: turns out drop box's 2012 data be -- data breach was bigger than previously known. the hack impacted more than 69 million accounts. this is just the latest example of a company resetting only passwords with is known to be compromise while leaving all others unchanged. pulling back from palo alto networks -- shares falling in wednesday training. the company released better-than-expected earnings but its outlook for next year is not as rosy. pundit sales are expected to wednesday training. decelerate as the sales mix shifts from products to subscriptions. mark mclaughlin, ceo of alto networks joins me now.
you guys are behind cisco and checkpoint, almost for number two. how do you expect this to versus subscription mix to change? mark: we've been telling people that we are driving a move into more since services than hardware overtime. that has been the case for a while and that's good for our business. it's high free cash flow. it makes us stick year customers and we are driving expectations on the product side. the services are higher and in the mix of things were we said we would be a hike growth mode at a billion plus scale for the next years to come, so we iterated very high growth. emily: so why do a buy back now? why not use it on m&a? there are so many out there. mark: the industry is in
transition, so this is an opportunistic thing, possibly. we got a lot of conviction in the business and we know there is some anxiety over how the model works out, so it is an opportunistic thing to buy shares. we have fantastic free cash flow generation. we have plenty of cash to invest in the business and return capital shareholders opportunistically. everything we've done works in a highly automated fashion together. over 11 years, we almost everything and that's why it works so well. we had gone to market a few times for small transactions, so that is our main motion. it doesn't mean you wouldn't, but that has not been our
history. emily: i recently spoke to a ceo that had strong feelings about what is going to happen in the market. >> there are a lot of companies that don't deserve to exist and they are going to shake out. in aggregate, we may not be in a bubble. we hope to be one of the companies that will break out and become 20 billion dollar or $30 billion companies, but a lot of the companies being funded today don't have anything worth funding. emily: he describes the coming decimation of the cyber security market. do you believe that? mark: there are cycles of investment. if things are growing thickly and there's tons of investment
and a lot of companies get money and overtime, that shakes out. i think he's talking about the age of the platforms. things that you used to purchase i standalone basis and companies having capabilities from dozens of vendors, that's going way. companies want less vendors and better value. on that point, i completely agree, the market will move in that direction and we see it already in the industry. emily: but it really hasn't happened yet. when does it come to fruition? mark: i think it's coming. if you look at small companies and security from a funding perspective, it is eerie difficult to get funded. we have not seen a lot of people go public. this is playing itself out over time. emily: we heard about the hack on the dnc but we have not heard about businesses being hacked.
i don't know if it's because it's not happening as often, but how do you see the spending in this market? mark: spending is healthy. there might just be some media exhaustion, but there's lots of attacks occurring. emily: what is your take on the dnc hack mark:? it's another example of you should be very careful and use the best technology. the password and you mentioned, it's going to take a commendation of technology, education and ross is to get things as best that they can be. emily: there's a strong belief this hack initiated in russia and may be tied to the russian government. do you see more state sponsored acts, specifically against the u.s. government? mark: attacks come in a lot of different flavors and ovations. one that gets a lot of attention is state-sponsored attacks. a are by far the broadest swath -- they are criminals actually trying to steal money and information they can monetize.
there's a huge amount of attacks and most of them are in that category. the state-sponsored ones get a lot of airtime because they are political in nature and geopolitical in nature. emily: mark mclaughlin, great to have you back on the show. coming up, new unicorns have been few and far between this year, but real estate startup compass just join the club. we will catch up with the ceo, next. this is bloomberg. ♪
emily: unicorns have become nearly extinct or certainly more rare in 2016. think to the third quarter last year when 25 venture backed unicorns were created. third quarter of 2016, only six of those venture backed startups codding -- crossing the threshold. real estate startup compass became the sixth after a round led by wellington management.
that compass ceo joins us now from new york and i want to bring in someone who knows the vc environment, the cofounder of evernote. thank you for joining us. what was your experience as you were fundraising? i know you are revenue numbers are strong, but how was this different from before? robert: what we found is the time, people are more focused on profitability than he had been in the past. this is a $75 billion broker commission market that we are playing an innate down that very compelling. emily: talk to me about your business in particular. i know you can buy, sell and properties. what is the technology? robert: it is a technology powered real estate rocher platform and we combine real estate agents with innovative technologies. we do everything the aggregators do but combine them with the best in class agents across all the markets we play in.
we are in 24 offices nationwide and we intend to expand later this year. emily: you have a mutual fund operator participating in this round. how's the influx of nontraditional investors changing the overall vc environment? phil: i think there's a great opportunity for investors all kinds and i like what compass is doing because they are adding more data and information to a process that has been close looped and kind of slimy. i think people want to invest in something that is slimy and take it out of that. robert: my mom is a real estate agent. full disclosure, she works at compass. i think there are great actors and less so. we are focused on hiring the best agent and giving them the
most wonderful experience possible. think about drivers -- they're a great drivers and drivers that are not so great job of hiring great drivers and empowering them to have a better experience. emily: do you see unicorns becoming even more rare than they are right now or to? will that trend let-up? i realize it's an artificial designation. it has become a sort of right of passage and a feel of some sort of success. phil: i think we had a slightly artificial number over the past year or so but if they're going to be more companies or fewer companies worth a billion dollars more, there are going to be more. the opportunities are tremendous. maybe we are in a temporary lull
but the market overall is externally strong. emily: how do you tin -- how you intend to invest the money here and get to the next step? robert: the first thing we are going to do is come to you. we're coming to san francisco and then we plan to expand further. we're going to invest in r&d and the technology team and build the best in class rocard technology in the country. phil: was the swirl around the ilion dollar number helpful in your fundraising efforts?
robert: we don't talk about valuation and i don't focus on valuation. i'm focused on providing the best experience for the team in a company of 300 people that i'm proud of you have ultimate and the 900 collaborative agents working to build the best experience in real estate for the end consumer. emily: you tell me why a billion dollar valuation can be a double-edged sword. phil: all real companies are trying to build a business and not focus on an arbitrary milestone. when you have a milestone, it sets expectations and confuses employees and send mixed signals to investors. i think it's a great accomplishment to raise money from high-end investors, but ultimately, it's important to not let that it to your head. emily: do you recommend companies not raise a valuation that high? phil: the most important thing is to pick the right investors. pick the investors first woman of people you want to work with and the valuation is one of the least important factors. emily: the ceo of compass, fresh off a big raise. phil, you are sticking with me. some call it a silent revolution. could the adoption of it shall health care disrupt the u.s.
he said the president will ask leaders to increase spending on a training workers and that yet -- china has yet to make ss.gible progre other companies are expected to reveal losses later. in was reported to have $4 million at the admin of june. -- the end of june. let's get the latest from the markets as japan comes back online. iette: the nikkei has held onto those morning gains.
importantly, holding your the one-month lows. having said is -- hang seng is up. still doing very well, up by 3.5%. inw know what energy also ua g also in shen the black. was inicial pmi gauge line or better than the market was looking for. korea being weighted down by samsung electronics today. reports that it may actually recall it's [indiscernible]
new zealand off by about a quarter of 1%. some weakness coming through in taiwan as well. there is some upside. generally, for the first trading day of the month, it hasn't been a very positive one. emily: this is "bloomberg west." i'm joined by veteran health-care investor in this space that heads up the firm's health care investing. thank you for joining us. we're going to get into a deeper discussion about the future of health care and tech investing, but i want to talk to you about this lead testing startup that has withdrawn its application for emergency clearance of a big test for the zika virus after problems were found in the way it gather data.
this comes after they were sanctioned for failing to run their laboratories up to standard. you have an investing in this space for a long longer than newer investors. i wonder if you have seen anything like this? guest: it is amazing and for someone who cares deeply about putting products and services in the hands of patients and doctors, it is maddening. the company has had to pull back test results and they have had partners leave them and this zika result shows they did not operate the clinical trier all -- clinical trial well and overshadows one of the great work happening out there. she did not pitch to anyone who had real health care experience. it's such a complex industry where you have folks with health care experience and contacts on
your board and as investors, we can talk about a lot of promising companies and is proves that if you try to put valuation than profits ahead of customers, you will get burned. emily: there are a lot of newer investors getting out of this space that you and into it for a long time. guest: this is a great time in health care. it is an industry that has been archaic. it's behind a lot of other industries in terms of technology. we are in the 1990's in terms of enterprise software. 50% of doctors did not use software to capture your medical information. that's shocking. that is a problem and it is changing. your data is nowhere and if you want to manage a population's health and don't have that fundamental data to do analysis on it, you cannot change health care for the better. literally, that's where we are sitting today.
now you can do things that are happening in other industries like complex data analytics and that can improve the quality of care. emily: where do you see the most potential for disruption? guest: i think it's the analytical layer -- you have companies that have raised attractive rounds and they are attractive companies. the consumerization of health, you see the rise of individual exchanges and see individuals having to pay a thousand dollars or more. 10 years ago, only -- individuals are bearing a lot of cost from the health-care system and they want to be involved in that decision-making. they want that in health care. consumerism is an interesting place to invest. emily: apple bought a company called glimpse and they have rarely scratched the surface. do you think they can become a big player? guest: i think apple is making
moves. this concept of a personal health record, we should all want to own our health data and know about our health data but the idea of a personal health record has been around for almost a decade. i think apple has the interface and dominant market share ware may be the integration of that health record can make it a reality for patients and get them involved. i think it's an interesting foray for them. emily: how do you see the excellent environment for biotech and health care companies compared to enterprise tack? apple and ibm have then acquisitive. it also requires a lot of money.
guest: especially on the biotech side. they require a lot of capital. i think does look a lot like consumer technology companies. they are companies that game scale in the marketplace and companies like ibm and apple will come in and acquire them for i think they have to have exposure to the largest sector of our economy. it is an economic exposure play and all of the compositions will make acquisitions and in pharmaceuticals, it's different. large pharma companies have started outsourcing their research and develop into biotech companies, so they are making those acquisitions. emily: a company you invested in exemplifies what you do. they went public very fast and are focusing on reproductive technology where there hasn't and a lot of this. talk to me about making a bet on a company like this where
there's so much attentional, yet a lot is unproven. guest: having a child is one of the most in orton things humans can do. it gives them technology that gives them hope to have a child. it's a finding that reversed scientific dogma, that women are born with a certain number of eggs and that depletes overtime. that actually may not be true. women have stem cell like properties in their ovarian pools was so these eggs can replicate and refurbish. you can harness that technology to help women become fertile and have a child. i can't imagine a greater company to invest in. it's the perfect combination -- we invested in a huge dream that affects people's lives and that company went public. how could you not want to invest in that? it's a huge, multibillion-dollar opportunity.
emily: what is your take on the epipen -- guest: it's unfortunate at a time it is going back to school for their stock price is taking a hit and it's good when the stock market has morals. it's a debate we have to have about how we deal with innovative pharmaceutical companies and how you regulate and allow exclusivity for those companies versus a company like mylan which is marketing a generic. those companies should not be marketing the same. they should have much rater market exclusivity and have greater pricing power. emily: trump versus clinton on health care, who's better? guest: clinton because she will provide stability to the market
and it's important for the long-term involvement of the health-care. emily: a recent biotech deal had huge acquisitions for 10.2 billion dollars. a lot of vcs were not in this company. how do you make sure? guest: we always try to make sure we get the next one. emily: but it wasn't just you. guest: it's a really interesting area. it is a moonshot, it will prove to be a good acquisition and if it doesn't, it will be zero. emily: so fascinating it could be zero yet they are paying $10 billion. guest: it could work -- imagine -- these are highly profitable companies when they were. they are multibillion-dollar franchises.
dorsey. evan: my faith is high in jack. emily: i know you can only go so far but we see a lot of m&a. the twitter remaining an independent company? evan: no comment on that. we are in a strong position right now and as a board member, we have to consider the right options. emily: our guest post is still with me. how much did he really say there? phil: it's the same answer everyone has given, but it's good to hear him say it. emily: what are you make of it? phil: i think it's true. i have less at stake in twitter and i think they are likely to be an acquisition target. emily: by who? fill: anyone looking to reach a younger audience.
all the normal players you would expect, microsoft or google may take another shot at it. it's a strong and important brand but down from its highest a year or two ago. emily: do you feel his pain at all? we always talked about evernote doing bought. what is that like? phil: you have a duty to the investors and always want to look at the best options. twitter is already a public company. they've already accomplished that. it doesn't mean they have to stay private forever. emily: how do you handle the naysayers? phil: if you start paying attention to naysayers, being a ceo is not a good idea. emily: mike moretz said
companies were the flimsiest of edifices and there's a big crash everyone is addicting but it hasn't really happened. do you think a fallout is coming? phil: i don't think it's going to be as somatic as people think. companies have already tightened their belt and companies have folded. i think this is a normal part of the cycle. we are at the end of the current high growth cycle in your the beginning of the next. a year from now, i think things will be very fast again. the next year or so -- emily: -- emily: what kinds of companies do you think will get acquired? phil: there's a lot of companies that have cash right now. basically anything that has traction in areas that are going
to be important is likely to be acquired. anything in ai, that's a topic everyone is interested in. autonomy, vr, a new generation of enterprise software -- there's a ton of enterprise companies with a ton of cash and not a lot of innovation. i think this will be a good acquisition market. emily: they told you that you could start something and again if you wanted. what are you working on? phil: i'm focused on bots and ai. we will be able to interact with technology in a similar way that we track with people. i've invested in a few small companies and started a small --
started a few small companies that were hatching. i'm having a high-tech -- a fantastic time. i selected which vc to join. it 90% chemistry. emily: the cofounder of the -- cofounder of evernote. we will be right back. tencent gets a half $1 billion headquarters. we will check in with our asia tech team for details, next. this is bloomberg. ♪
>> all of these devices are based on the concept of the internet of things. all the hardware devices, all of these vices are connected to the cloud and we have the platform on top, in other words, all the devices have $.10 dna because it includes qqq. emily: joining us is our asia tech editor in tokyo as well as my cohost -- there are parking spot alerts. they will send you an alert about where the best parking spots are and conference rooms that will adjust temperatures when you walk in. i know it's more of a campus style. is that common in china? they all have campus style headquarters. guest: it's unusual for this
part of china. this is better known for its manufacturing prowess than it technology companies, but $.10 is trying to make a statement. they were trying to create a vertical campus like atmosphere. so within the bridges that connect the two towers, there are running tracks and there's going to be a swimming pool and a climbing wall, so they can create an atmosphere were they can interact with each other, which is common for silicon valley. it really is a test lab for new technologies, particularly the internet of things. you will have sensors in your car that will tell you where the best parking spots are and they can track you not just when you come in the building, but where you are in the building. there are some energy implications and you'll get
reads on how much energy the building is using. >> every time i go to china, it feels like i'm in the future. it feels different there, both in good ways and bad. what is going to transfer over to something you would see in the u.s.? guest: the architecture firm they have tech has done work for google, amazon and samsung among others. i think some of these ideas will be picked up. it depends how well they work. they were closely integrated with some of the instant messaging services in the clip. that's something you could expect to find on every employees phones. if some of those messaging services take off and get more
sophisticated capabilities, you could see some of these technology experience come to the u.s. and other markets. phil: some of these technologies have privacy implications for users. would people in the u.s. be less willing to subject themselves to that kind of tracking? guest: that's a good question. it offers more than you would expect then some of the standard messaging apps in the u.s. their payment systems, social networking and all sorts of additional things. they are using that data for a whole bunch of offices, including advertising. those are big questions, as you see facebook develop additional capabilities with whatsapp, you may see them delve into some of these day use area.
emily: our asia tech headquarters -- tech reporter on the new headquarters there -- thank you so much for joining us today. a story we are watching -- samsung unveiled new smart watches at a trade show in berlin today. it will support a platform for contactless payments. it allows users to make phone calls or call uber without the need for a smartphone to be connected. samsung says the smartphone -- smart watches are the biggest part of its wearable growth this year. we will pick this up with the vice president of samsung. don't miss that conversation at 8:30 on bloomberg . that's all for now from san francisco. ♪