>> hi from pier three in san francisco, welcome to "bloomberg west" where we cover innovation, technology, and the future of business. the social network stores. facebook touches an all-time high as the company's mobile money machine keeps on growing. we look at how facebook has been able to grow its mobile and business so quickly and whether the company is primed for other areas as well. as facebook rises, amazon gets another chance to prove to investors that it can turn a profit and expand its notoriously thin margins. the world's largest e-commerce company reports today.

they are pursuing a number of business lines including the fire as well as delivery drones. bitcoins and bankruptcy. was supposed to hit the auction block the day but that has been postponed. we will look into the current state of the virtual currency. our lead story, facebook is crushing it in mobile advertising and that has shares of the social network hitting a record high. 76ching an all-time high of $76 and$.74 apiece -- .74. facebook is investing heavily in advertising to keep revenue growing. our editor at large is joining me in the studio.

paul kedrosky is with us from san diego. always great to have you. is it as good as it looks, paul? >> probably even better than it looks in many ways. these are produced running numbers. someone was asking me yesterday, i was trying to put it in context, companies of this size growing at this speed. the only when you could point to , growing at 60% topline year-over-year, was apple in 2005 on the back of probably the single most epic product introduction in modern history. these are giant numbers. incredible transition to mobile. that is the product. the product is the ads. cory, would you agree? >> these are freakishly awesome numbers. >> but they have been --

>> something changed just today, looking forward, if we are to believe their guidance. we are starting to see a business that has much greater profitability than we knew going into this. the operatingt profit margins for the company, they are getting a lot better four ory were even eight quarters ago. it is becoming a massively profitable business. and going forward, it will be even more profitable. i calculated some of the numbers, taking on the non-gaap numbers, and in their case, there were a lot of stock compensation charges because of the ipo. when you take that out, you see a march toward greater and greater profitability on a very in terms of dollar amount as well as percentage. let me put it another way.

revenue is growing really fast. costs are growing slowly. that has every indication that that will continue. >> what about other potential revenue streams? they have not even started to monetize instagram or whatsapp. they are experimenting with a buy button. there are questions about whether these revenue streams will turn out. optimistic are- you that they will get beyond advertising on a regular facebook? >> honestly, i'm not convinced it matters. it is like the old what have you done for me lately? of global mobile ad revenues, 22% of global revenues in general, 100% year-over-year. 48% gross margins. i'm not convinced anything else is anything more than an entertaining distraction in the short run. they can grow this business at these rates for probably another year or two in the core business

without having to make a transition to making oculus being successful or loading instagram with ads. when apple was selling iphones in 2007, a shocking position to be in. >> i am shocked that he did bureau of our biggest skeptics are so optimistic on facebook. how often do that happen? what about the fact that there are questions about how many people in the younger generation are actually going to be using facebook. >> i don't think those questions are ringing true. i saw a skit about the same topic the other day. someone said, teams are no lover using facebook. what do you mean, i'm using facebook all the time? what we see from these numbers is the pervasiveness of facebook and the way the business works.

fundamentally, they are getting more revenue from the ads they are putting out there, but they more and in the news stream and fewer on the front of the page. they have made the transition. they have found a way to make their core product work. those other things are just gravy. amazonnt to talk about -- >> one last point. i meant to make it before. when the company went public two years ago, we looked at the payment business. we thought maybe another zynga. the payment could grow. .e have seen the opposite payments have fallen apart down --single digits, so that is the other things that are growing the business is not very important. advertising is the big deal. >> if the profits are so important, here we are having amazon reporting after the bell, and they have not turned a profit yet and we do not have information on how particular products and services are doing.

paul, does that matter? >> it has not mattered, so why should it now? that's the obvious answer, but i think there is a sea change coming to amazon. it will start to matter because there is a sense that the company is in a position, given its scale and size, that it should be producing more profits. in particular, initiative to drive that, like the phone. they are getting poor reception. kindle unlimited has gotten a waffling reception. i think you will see much tougher questioning of amazon, in particular, about its new products, and how they would do anything to change what has been a pretty lousy picture in terms of cash flow generation. >> and yet they completely dominate e-commerce. what about the set top box, the smartphone, the one for shopping? all of these side projects, we

do not know about. amazon drives lots of revenues and rose at a big clip, but at a slower clip. from growth has come down 40% year-over-year to 27% year-over-year. on aecent quarter was 22% year-over-year basis. you add to that the margins collapsing. we know that they are pathetic at amazon. stock investors decided they do not care about that. fundamentally, i think the biggest transformation that we do not talk about a lot -- this has gone from a media company selling cds to books. five years ago, that was 50% of revenue. in the last year, 25% of revenue, so expanding the categories that they sell into has grown revenues but has pushed margins even lower for the company to the point where you wonder where can they grow,

and do these projects matter whatsoever? >> if investors are so excited about facebook turning a profit, why don't their care that amazon does not turn a profit? >> because it has not mattered. investors are wonderfully backward looking and extrapolating forward. you have been hit over the head with a mallet on amazon if you are focused on cash flow. it has been you up since the ipo. people talk about their problems with cash flow. it has never paid to focus on their cash flow. people said i get it. as i said earlier, there is a sea change. people are saying there is a broad new spectrum of issues, a lot more places to allocate your capital. there are open questions with its ability to generate cash. why do i own it? >> we will be all over their earnings after the bell today. thank you so much.

one area where amazon is spending money is original shows. we will hear from the man leading their efforts in that area, next on "bloomberg west." ♪

>> i'm emily chang. this is rickie fowler --"bloomberg west." qualcomm earnings are causing the stock to tumble today. they are having trouble collecting licensing revenue from china. the president told bloomberg that this is an issue the company is taking care of although he admits the timing to get those payments is uncertain. amazon'st for

earnings, content is a big area of focus and spending -- in spending for the company. they are spending on original programming to help it compete with streaming services like netflix and hulu. jon erlichman recently caught up with the man leading amazon's original programming efforts. he is with us from the l.a. with more. what did he have to say? >> this is an interesting guy, roy price. he has been with amazon for a long time. this is a company that is not afraid to spend, whether on the warehouses or devices that ultimately get sold at cost, or now whether it is making original tv shows. this is not a cheap business. if you want to be a standout, there are shows that we talk so much about, whether it is "house of cards" or "game of thrones. thrones .a." they were clear that it was willing to spend. >> the idea that these shows

have lower budget and maybe the shows they enjoy on tv now or takinge cast were significant pay hits to work on amazon shows. i can assure you that that is definitely not the case. the priority for us, as i said, is creating shows that our quality, that people care about, and shows that will last. i think we have stepped up to really do that. >> we are now gearing up for the emmys. there was a thought that maybe amazon's originals might get some attention like "alpha house" but his goal is to have people talking about these shows that the award ceremonies, the way that netflix has had success with their shows. itstill a long way to go,

seems. as a prime customer, i love the fact that amazon video is part of prime, but is there any chance they would split off the tv and film offerings from prime to have something to more directly complete -- compete with netflix? >> this is an idea that a number of people have brought up. maybe if you had a standalone netflix, that might get people to sign up for prime, if by becoming a prime customer they can avoid the payment that would go along with the single video subscription account. would they be willing to do that? i got the sense that amazon was not planning that any time soon. here it is in his own words. >> we are focused on making prime fantastic, which i think we are doing pretty successfully , so we are more focused on that man subdividing it. about the talked

number of devices that are out there, amazon's ability to spread its wings, if you will, as more people buy all of these new tv devices available to them. that is where they see the opportunity. >> jon erlichman, thank you. i want to turn to a story we have been following closely. rupert murdoch's $75 billion bid to buy time warner. this potential deal would reshape the media industry, but time warner's board this week eliminated a provision in its bylaws that could've made it easier for fox to get the deal through. cory johnson is back with me. alex sherman is also with me, who has been covering the story. great to have you. so what is the latest? it seems like not much has developed this week. >> agreed, there has not been all that much progress this week . the question is what is the timeline on this thing?

that depends on who you ask. if you asked outsiders, analysts, other bankers not working on the deal, they assume it is only a matter of time before fox acquires time warner. if you look at the market, investors feel the same way. the stock is trading above its $85 price. clearly, they think some deal will be done, either by fox or some other company. from my company, no other company is interested in making a bid. , that theyof that are busy? not that the teams could not handle it, but getting it through the fcc and ftc -- you have bottlenecks at dish, at&t, comcast -- all trying to push these deals. maybe t-mobile and sprint is not the best candidate, but maybe it could be? >> in essence, that is time warner's argument not to sell now. ,ll of these potential buyers

verizon, at&t, comcast, are tied up in their own deals and have taken themselves out of the running. so time warner is saying why should we sell now when you cannot get fair value because all of these other bidders that could compete with fox are not bidding? >> are they not interested or are they just busy? >> it is unclear. if you go to those companies directly, they probably will not say anything on the record, but from my reporting, i think some of those companies -- in fact one source told me that rise about that time warner and past. at&t and comcast are large companies now, they -- would they be willing to shell out another $90 billion? maybe they would just push up the price higher. >> comcast in particular is are doing this will lead to more

competition in the future. they cannot then suggest another company -- >> you have to believe that regulators would have to take a close look. it would make the media company really big. is probably warner easier for regulators, so that is on fox's side, in addition to the other things. >> quickly, the changing of the bylaws to prevent shareholders from calling a special meeting. how big of a roadblock is that? significantfairly in the near term. time warner was far to do that. there has been a 50% change in shareholders already -- 15% change in shareholders already. they will push for a deal. time warner did this in order to say, you step aside, let deal with our long-term institutional shareholders who really know about this company in order to make our pitch that we can have longer value. so that delay things

fox is basically put in a position where they want you to raise their bid, and in essence, bid against themselves, in order for time warner to come to the table. >> thank you so much. we will be right back with more "bloomberg west" after this quick break. ♪

>> welcome back to "bloomberg west." i'm emily chang. we are looking at how tech is changing the future of transportation. cars the race to get connected and the security risks that can happen when dashboards become more high tech is something we are exploring. our cyber security reporter is with me now from washington, d.c. connected cars, can they be hacked? is that what you are saying? having me on. for

they can, and they have more connections every day. gps, and thatth, allows hackers to potentially hack your car like they do with your computer except with your car you have the threat of slamming on the brakes or popping doors or disabling alarms. >> someone argue that cars are safer if they have gps capabilities, etc.. how do you weigh the risks versus the advantages? >> google certainly makes a strong argument that the more you have self driving cars, that can illuminate a lot of the surprises of human drivers but you also have to factor in that hackers are creative. if they spot an opening, that is potentially a threatening thing. >> could hackers start driving the car to a different destination? >> they can. once you control the car, once you get into the central nervous

system of the car, you can do anything you want him and just like a computer. you could force it to accelerate, stop, drive it somewhere else. it depends on how much control the car allows a computer to have, but you can basically take over the whole thing if you have the right levels of access. that is a downside and need to be considered. >> if manufacturers are aware of these risks, what kind of securities can they put in place to prevent this from happening? >> there are some companies that are pretty forward-looking on this. tesla was a supporter of a hacking competition. is month in china, researchers show that they can do some pretty bad things to tesla cars, but by hiring researchers, these researchers can figure out how to limit access. it is a problem the computer makers have faced and it is extending to cars. hiring good people. that is the central thing. robertson, it never

ends, the potential and reach of hikers -- hackers. coming up, bitcoin. can it ever replace the dollar or the euro? that is next. ♪

x you're watching bloomberg west, where we focus on the future of technology and business. i'm emily chang. today's option of a domain name for bitcoin.com has been postponed after a federal court in seattle issued a restraining order, this after coin lance sue to stop the option of the name, which is -- going labs sued to stop the option of the name full stop coin lab is suing mount and said it should not be allowed to have any assets until the matter is resolved. the reserve amount is nearly $800,000. how was it going created?

-- how was it going created? it was treated to a complicated process called it going mining -- bitcoin mining. check it out. >> bitcoin mining is a process that generates new bitcoins. here's how it works. first, you need a mining program and a computer with enough power to solve extremely complex problems. the problems you are solving our software algorithms that are used to validate recent bitcoin transactions. once the problem is solved and the transaction is complete, the computer server that solves it is issued a reward in bitcoin. the entire process is designed to mimic the production rate of a commodity, like gold. but here's the catch. just like gold, there is a limited supply of bitcoins, 21 million to be exact. and earning new ones gets harder and harder as new ones are generated. from mining bitcoins to

the evolution of the virtual currency, some have questioned the stability of the coin, following the collapse of the gox exchange earlier this year. is the real value in currency or is a transaction service? andjoined by jon erlichman toni collette the -- tony gal lipi here. out with au are story about bitcoin. please explain. .> bitcoin is a store of value i think that ignores the possibility of how good it is at transfer. it is a very cheap way to transfer money from place to

place, which far outstrips its value as an asset that might accrue in value. one of the things we are seeing right now is the number of transactions within bitcoin and the number of wallets within bitcoin is still increasing, even after the collapse in value of bitcoin. it's a -- what that says to me is that there will be nice, long, stable groups -- growth and actual use of it instead of something that willingly place the dollar. -- that will replace the dollar. >> tony, what can you tell us about the adoption of bitcoin? obviously, it has run into challenges, but there are people out there singing its praises for the future. >> that is right. i think you are sorting to see the technology emerge. bitcoin itself is a technology. we are using it as a currency, but you can also use it as a payment system or as a distributed lender, to prove property rights. what gets people excited is its utility. it is not necessarily its scarcity, but what you can do

with it. we are starting to see a number of businesses adopting it, because the value proposition is clear. it is lower risk and lower cost. >> mount just went incorrupt and you -- mt. gox just went bankrupt. >> if you want to accept bitcoin as a form of payment, when a customer pays you, there's no reversing that. it's not like a chargeback or fraud. if you are excepting payments over the internet, you have to be careful as a business because you cannot collect a signature or id. and if you try to collect payment from someone in another country, they do not have the same fraud detection systems we have here. if the critic art olin, bitcoin does not have that risk. is stolen,redit card bitcoin does not have that risk. >> when i talk to people in silicon valley who are looking at bitcoin, they are saying, there is a big idea here.

it is the ledger they talk about, the ability to track the history of the currency. why is that valuable? of when you> think buy a house today. you are paying $5,000 or $10,000 in closing costs. ofording this record transfer and ownership and manual databases. chain, you cann improve that transaction. the entire world has access to that record to show them a yes, i own it, now you do, and the entire chain of custody backwards and forwards is in a ledger. i'm excited to see a property rights database built on top of it. andreessen not the very least of those who are very excited about bitcoin. who should be most nervous? redit card companies? >> i think we will have to watch what the actual cost of a brick -- bitcoin transfer is.

the iconic ideas, i've got bitcoins, you got bitcoins and we transfer and it does not cost money whatsoever. that is not what is actually happening. you are actually paying a small in order tocent, have them take on the currency risks. that is already a transaction fee. it is possible that in the future the fdic might have deposit insurance for those who hold bitcoins, which would drive the cost up again. the real question is, if the cost of a bitcoin transfer can stay below two percent, then yes it is going to be very competitive and could provide a problem for visa, and in particular for transfer services. you know, for remittances. that is possibly a long-term problem. one of the things i'm sure is about that i would like to hear from tony is -- how high do we think ultimately transfer fees will go for bitcoin transfers? >> that is a great question.

if the benchmark for you think is successful is two percent, i don't think we'll have a lot of problem. right now, the average industry is one percent and the transaction costs are going down from your because every company is able to add scale and enhanced features. when you look at a service like ours or others, the marginal cost, it is related to our overhead, salaries, servers. it is the distributive network that really helps to reduce the costs. you don't have to have a central data center like visa or mastercard or american express. validatesk is what the transactions. it is much more effective. >> and you are pitching the business to customers, what is the principal objection you have to get them over? >> they all say, why wouldn't i do this? >> why do they say no then? >> it is not that they say no, but every company has priorities and they have a pipeline of 100 other things that they need to be doing. but if they understand the value

of what bitcoin can bring to their business, especially as an early adopter, they're likelier to bring it higher on the priority list. and you see that with dell bringing it forward and launching it this year as a photo -- as opposed to x year. as opposed to next year. paymentntional 2.5% fees consume half the margin. that is my that could be reinvested in the business, pass back and simmers, or tax by the government. of all of those choices, the internet is the worst possible choice. this from mark andreessen. is it realistic to think that the fees will not rise? if it ever becomes a more effective form of currency? >> i think we've just seen the first player of infrastructure. we've seen one percent for companies offering to get cash in and out of bitcoin. we don't know how many players will move on top of that. i don't think zero percent is realistic.

peopletty confident that who use bitcoin and businesses who use bitcoin managed to carve off some sort of margin. that will go right back into competing with their competitors. thinkss confident -- i bitcoin might be something you have to adopt because your competitors are, rather than something that gives you a competitive advantage. >> brendan greeley, thank you so much. and they pay cofounder, tony gallippi, thank you for joining us. ♪

>> i'm emily chang and this is "bloomberg west" streaming on

your television, tablet, and at bloomberg.com. we turned back to our wireless serious and one company that is using technology to change the future of transportation is general motors. g.m. is aiming to turn your chevy and buick into why high -- wi-fi hotspots at 2015. cory johnson is back with us. g.m. in particular is a company that wants us not to focus on recalls or problems, but the future and the technology they are trying to put in the cars. it is an interesting challenge for a company that wants to be on the cutting edge while it is dealing with what is going on with the trailing edge. phil joins us right now. what are the killer apps for cars right now coming out of g.m.? for us isler app really about connecting people with their vehicle and bringing people and their digital lives into the vehicle.

introducing this year in many of our 2015 model cars is a high speed four g lte connection. 4g lte connection. it is a source for you to indicate while you're traveling and a way to interact your vehicle when you're not in it. >> what do you mean "interact with your vehicle when you're not in it"? >> for example, those who live in the country this past winter where we had a terribly cold winter, we have an application on your smartphone that allows you to remotely start your car. we are doing over 20,000 remote starts an hour in the month of january. and we get almost as many digital interactions with our customers in january's as -- in january as we did through our advisors. when you have this kind of benefit, people gravitate to it

and adopt it at an incredible rate. but how do you know it has been used that much? -- >> how do you know it has been used that much? >> because each of those connections comes through our back offices. we are starting a car on their behalf. >> so many companies in silicon valley are developing on platforms that are principally on ios, and a lot of them on google's android. the car companies have had typical -- have had different development, a lot of it internal. how do you open up the development without opening up the risk of a dangerous driving situation? >> the vehicle is a highly contextual environment. we are not a smart phone. we are not intended to have the same capability or at locations as a smart phone. -- or applications as a smart phone. we are intended to be a car, to move you and your stuff from one place to another. the good parts and the relevant parts of the smartphone are connected into the vehicle in a

way that make sense for the vehicle. a couple of that ways. one, the connection i just talked about. the other is working with people whenapple and google bringing those devices into the vehicle, a person can use those devices in a way that is consistent with the fact that it is a car. that means we take care of driver distraction. we focus the number of applications in that vehicle to those that are relevant to the driving activity. we are very fortunate to work with both apple and google on trying to extend the usefulness and the integration of the car with peoples smartphones. >> in terms of the problems you think you have fixed, let's say, this year, you've been talking for a while about a company that is developing the in car electronics. is separate from the vehicle trust us in a lot of ways.

what do you think you have fixed in the past year? ltene example is the $g --4g lte that we have rolled out this past year. we are rolling it across our models. we announced we were going to do this and we announced our partner, at&t, in february of last year. from february of last year until june of this year, we were able to take it from reaching an agreement with the carrier, to implementing and rolling it out into production. that is 15, 16 months. which in terms of the auto industry is a rapid turnaround. the other thing we did was, as we did this, what we are putting inside the vehicle is a connectivity platform. it is not just a single-purpose dedicated to a single application. and we areore offering data services, like a wi-fi hotspot. -- it is the platform called onstar and we are offering data services, it -- like a wi-fi

hotspot. we can continue adding to those services. but thank you. plex -- >> thank you. >> is twitter more or less than our tech giant? we will tell you, next. ♪

>> welcome back. i'm emily chang. twitter off -- twitter's diversity numbers are more or less the same as google and facebook. 20% are female. 88% is classified as white or asian. in a rod post, twitter, like other companies, says it is not satisfied with this and is working on a number of diversity programs, including girls who code. is the password dying? one man pau city twitter password in an article to prove that they do not -- one man

posted his twitter password in an article to prove that they do not matter anymore. hacked, butwas not someone did try to access it and get a phone number as well. is this really the end of the password? i spoke with jonathan klein, the manager of microstrategy, that ties your eyes and your phone, allowing you to log in without a password. i asked him whether this was a good idea. >> i think he was trying to illustrate a point that passwords are dying and on their way out. which is a point that i think most people would instinctively agree with. >> they are dying, but certainly not dead. how long will they be dying for? it seems like this will be a very long process. >> passwords have been around for a long time, since the advent of networks, and they are the standard way that we protect access to online systems, to gain access to bank records over

the phone and the like. be around forwill a while, but with 80% of all cyber breaches being caused by compromise usernames and passwords, i think most people realize this is an issue that has to be grappled with sooner rather than later, because it is economy.toll on the >> what kind of a toll? >> president obama recently gave a speech and he said that cyber economic --ects the is equivalent to the economic ss ofity and prosperousne the nation in the 21st century. it is becoming a board of directors level issue. it is an enormous issue. our company, microstrategy, has launched a product called usher. essentially what it is, we take all of the forms of identity that are used today, whether it is a drivers license, a username

and pass code, getting into a physical location like a door reader, and it physically materializes it on a smart phone , which has lots of identity -- identification advantages. if you can use your phone as a digital key to get into any door you want. use your phone as a digital key to get into any door you want. does this put too much power into your smartphone? what happens if you lose it or it is stolen? but what happens if your traditional forms of id get lost or stolen today. if you lose your life -- drivers license, has an expiration date of three years from now. if someone picks it up and uses it, they are you for the next three years. there are 40 mins and -- 40 million lost or stolen credentials in circulation today. there's no way to deactivate them. your smartphone, you can deactivate it, locate it, instantly turn it off. that is the power of a software

solution to this problem. >> you are marketing this product mostly to enterprises. what kind of a pickup have you seen? >> we have seen a tremendous pickup and an enormous interest across lots of industries, from financial industries to insurance to government and universities. a major university here in d.c. is about to roll out usher as their major form of student id on a smartphone. that should hit within the next 30 to 60 days. >> what is -- what if your phone malfunction? what if you drop it in the sink? in theou drop your phone sink, then probably what you need to do is get another phone and instantly constitute your id on the new phone. -- a a lot better the and lot better and more convenient than going and spending the day at the dmv trying to get a new driver's license, or going to a locksmith and getting a replacement physical key to a door. >> you decide for yourself if

the password is dead. microstrategyith president jonathan klein. time now for the bwest i -- bwest byte. >> the number is 400 $9 million. this video came out of the surface people at microsoft. it is a parody of something. i don't know what. microsoft one note staff showing how cool the surfaces. surface is. >> what is one note? >> it is cool. people take notes with a pen like thing, do drawings and animations, markup document, and it instantly goes out to all of your microsoft devices. >> but somebody did not want this video out there, because it has now been deleted. links to tweet out the this. it is up. >> these videos have become the tech into do.

-- have become the thing to do at tech companies. >> i thought it was clever. >> thank you for watching. ♪

>> from bloomberg world headquarters in new york, i'm mark crumpton and this is "bottom line." today, ukraine's prime minister abruptly resigned. and then the big new burzynski discusses russia, ukraine, and the possibility of peace. and we will take a look at amazon. ♪ to our viewers here in the united states and for those of you joining us from around the world, welcome. we have