big story the moment. introduced to negative interest rates for the first time. -1/10 of 1%. will it work? fred: the jury is out.

there is a diminishing return of these big monetary policy moves. it can be counterproductive. they havebelieve that to save even more to compensate for the fact that their savings are declining faster. you are paying to save. u.s. futures are up. they are seeing it as stimulus. portfolios get shifted around. you might live more foreign assets you might buy more equities. bank of japan adopting negative interest rates.

coming up, amazon tanking after-hours trading as the retail beast misses on profits and sales. plus, full steam ahead for microsoft. the software giant reported a strong quarter. and the biggest win of the day, facebook stocks surging after reporting a record report. first, to our lead. amazon delivers its best earnings ever but shares getting slammed in after-hours trading. the company surprised investors who might have been hoping on more profits in the quarter. shares coming in at $1. shares of $35.7 billion, fourth quarter sales. but those sales are 22% of the big numbers from a year ago. the question is whether amazon can readjust its investments.

joining us right now, a senior research analyst in minneapolis and new york. and let me start with you. it seems that at least the wall street sell-off, that this has been one of the biggest gainers in the major markets, whether it's the s&p 500, the nasdaq, you name it. but these numbers are not the kind of profitability that investors may have hoped for at the end of the third quarter. >> that's right. if you look at the stock, it looks more like ebay. but the fundamentals are much different. the fundamentals did not produce the same yield it had on that nine-gap operating margin. in the september quarter, they blew the numbers out. they were up 60% ahead of analyst expectations.

i want to emphasize the reason they didn't blow it out is they had higher-than-expected unit growth, 26%, adjusting for prime day. it was 24. so an acceleration in the growth basically dipped margins in the december quarter. >> wait. so they made less because they sold in volume? >> right. the incremental units that come at the very end are expensive for them to fulfill. they've got to put their own logistics to work. so that incremental cost of delivering that hurts them. >> so capturing market share actually hurts them a little bit in profitability, as they capture the customer. shelly, what do you see? >> like we were talking about earlier, you know, this is a great quarter for amazon. it's just not what analysts were expecting. so you're starting to see this sort of topsy-turvy, we're going to do a little bit of profit, growth. and analysts were thinking, once they showed a profit, they're going to keep going with that profit. and amazon never really made that promise.

they're saying that the reason that their profit was lower this time around was because they increased higher shipping costs, because they're shipping more things for more of their marketplace sellers. so that's kind of pointing to the future growth for where amazon is going. >> and i think that you share those convictions about operating margins. i wonder, when i look at profit margins, web services may be not as profitable as last quarter. you know, pointerring towards -- pointing towards the run rate right now, which is pretty

fantastic, i wonder what you take from what we learned about amazon web services. >> the growth slowed slightly, kind of high 70's to 68 or 69% in the december quarter. the reason is that they are coming up a little bit more difficult accounts. that's one of things investors look like. it's 10% of the business. what we were expecting was for the growth to be kind of 60% to 65%. so actually, the growth was good. that to us is more important than the operating profit because it's such a nascent business. i would say everything is spot on track, despite what the stock is saying in the aftermarket. >> have you talked to any investors yet? probably a couple called to scream at you for being bullish on the stock today. >> yeah. we get that. we also just get e-mails typical during the conference call. i think one of the things that was a little bit -- again, investors generally see that amazon is doing all the right things.

i think gene is right. they did not do a very good job of being transparent at all. but this is amazon. and they're not really known for that. but, you know, they said, you know, we are going to ebb and flow. those are the words they used. so i think that's really tough

for analysts, for investors to follow, because they're not -- they're saying we don't really know what our profits or what our sales are going to be next quarter. and that's really tough for the market to digest. >> i just feel we've got 20 years of history from this company. we know that they don't manage towards profits so that any wall street surprise about any slight variation of profitability is schizophrenic, because amazon has shown us it's a top-line story, not a bottom-line story. >> i think that's right. where gene makes a good point is also about aws. are we really expecting a profit from them yet or should they still be this more nascent business where we're going to expect more growth, more investment, before we start seeing a profit? it took, you know, almost 20 years for them to start doing a profit from the retail side of things. so for aws, you know, it is the growth that's more important on that side of the business. >> right. >> last word. gene? >> it's a great story. you've got an opportunity to own

it lower today. they're going to end up taking over the retail world over the next decade. >> senior analyst, always glad to have you on. it's been so long. well, maybe a day. shelly, good to see you! check her stuff out on bloomberg.com and on the bloomberg terminal. the video maker is sliding more than 7%. looks like 8% to me. weaker than expected. overshadowed the fact that the third quarter looked pretty good. sales of the star wars game, battle front, surging past 13 million companies. that means they're looking at the biggest calendar fourth quarter they've ever had.

they have really managed to revive the company and maybe compete with amazon web services. ♪

carl icon will receive three board seats with the split. the shiers -- the shares were undervalued, he said. he essentially unravels the 2010 purchase. $6.2 billion they spent a few years ago. microsoft shares up after-hours. the company delivering a very strong quarter. quarterly earnings of 78 cents a share, above the expectation. the analysts, wrong again, also on revenues. the company reporting $25.7 billion.

>> it's going great. doing a great job at the top line, amy hood on the bottom line. >> the chief financial officer. >> that's correct. it's been a pretty consistent message that the move to cloud is happening. they got in front of this. they're trying to catch amazon. but everyone else is trying to catch microsoft now. they really got out in front and invested, reset the margins. now the margins are actually up on a year to year basis. it's a new thing for microsoft, margins going up. >> margins going up across the board? >> on the overall business. showing really good improvement in their personal computing business. so that margin structure is really improving.

i want to stick with windows. then i want to go back to cloud. windows last quarter, unexpectedly wrong. there was a question about what inventory looked like. they got into saying we're going to go back to normal inventory levels. looks like that has happened.

>> i think with windows, you have that surge. but i don't believe that anyone is thinking about os that they take out of their pocket. they're thinking about their system. so i think when adele was trying to think through this, this isn't the windows company anymore. this is the cloud and infrastructure company. windows is an enabler. but my thesis and anyone on wall street, it does not hinge on windows. what can they do on productivity apps and with server and with azer? they're doing fantastic around the fringe there. >> so azer, we did not see -- >> well, amazon web services, we saw a little bit of a compression in terms of profitability. i keep wondering why microsoft also has decided, what do we want from this business? we want market share. we want to crush anyone else who wants to get into this business and start to own it. >> so microsoft thinks about

azer very broadly, a collection of 40 different services. they're never really going to break the margin structure out but i think it ties into a lot of things they are doing. they will match amazon on pricing. we haven't talked about google. their coming. obviously i think we'll get stronger here. so we think the market is taken in formation. microsoft is the challenger. and google is the up and comer.

if you're uber, you go to amazon, because you host your own stuff. but in compute, maybe not the most important thing. if you're proctor and gamble, you're -- >> microsoft apps. you can run them. as a developer, and i was a microsoft developer before i got into this business, you can say i want to run on cloud. so they give you that flexibility. so -- >> what does it leave for google. >> i think google right now has a great opportunity in small and mid. where people want raw compute. we'll see where they come with their apps. my 10-year-old does his homework on goodwin -- on google apps. i think there's a tremendous opportunity for google.

the aerial founder whose first attempt to shake up the industry was quashed in the supreme court. he's taking aim at privacy and internet packages. >> delivering internet. there's no legal process -- >> i was going to say. did you check with your lawyers ahead of time and say, we're not going to be at the supreme court again with this? >> no, we're not. >> you're sure about that? >> yes, pretty sure. >> ha ha! >> his new service is called starry, a new way of delivering internet. he mentioned using high-frequency waves rather than broadband networks. a fraction of the cost.

he suggested targeting price of less than $80 a month. coming up, alibaba, strong earnings report this morning. why are shares of the company falling? we will discuss it, next. ♪

>> a big comeback in the trading session today. julie has the news from new york. >> corey, like the other two major averages, the nasdaq sort of vacillated throughout the day, although it did have a better consistent performance than the s&p and dow. we have, of course, seen the nasdaq as the worst performing of the three benchmarks. part of the effect we saw today was that big tech rebound. of course, it was led by facebook, after that companies earnings estimates. and it saw growth in mobile users, among other metrics. but we also saw the rest of big tech rise. amazon and microsoft rose ahead of earnings. we saw apple do well. all of that contributed to those gains overall. but, of course, facebook wasn't the only company reacting to earnings. we got numbers from ebay and paypal that seemed to perhaps validate their split last

summer. paypal coming out with numbers that beat estimates. the c.e.o. said the company is really holding up well in a crowded marketplace because of its strong brand. ebay, on the flip side, suffered from competition and marketplace revenues, down by 5% in the fourth quarter. i also wanted to mention earnings from qualcomm, as that company was also a lagger in the biggest single drag on the nasdaq. the chip maker said second quarter profit and sales may fall short of analyst estimates. there is increasing competition from hardware makers, now making their own chips as well. in addition to that, there's just a generally slowing smartphone market hurting qualcomm too. >> julie in new york. all right. alibaba, big quarter, 32% revenue gains. the chinese economy slowing down.

alibaba is able to offset that, expanding into more and more rural areas and setting a record from back in november. brian is in new york. bloomberg reporter chen. since you got up so early, i want to thank you for that. tell me about what is happening in terms of the regional expansion of alibaba. >> well, on the whole, it was a solid quarter for them. you say their revenue grow by a third, beating estimates. profits doubled. the mobile rates were a highlight. more than 68% of the company transactions. in terms of expanding in rural areas, the company did grow in 12,000 rural villages. still a long way to go. but they have held to their promise, which is that they are expanding in china and also tapping into that growth for middle class chinese consumers

moving up the valley chain. >> interesting. brian, when you looked at this quarter, we talked on bloomberg radio this morning, but tell me sort of your big takeaway. you've had plenty of time to look at this now. >> absolutely. it was a great quarter for alibaba. it really pushed against the prevailing sentiment and the prevailing mood around china. we saw growth across the alibaba businesses. i think the rural story is an important point. what is it they're getting better at? is that about monetizing better off of payments, suddenly more

merchandise? >> they're selling more high-end merchandise. that's a piece of it. the second is they're increasing the actual purchase rate peruser on the site. and then third, they're growing the overall merchandise value across the entire platform. a huge part of this is mobile. mobile growth for the quarter, 300%. that's really monumental. there's this prevailing sentiment that mobile is really about showrooming, about looking but not necessarily about buying. what we're seeing is alibaba start to crack the code in terms of mobile commerce in a way that no other company globally, other than perhaps ten cent in their own backyard, is really starting to conquer. >> just given the nature of the chinese consumer and their state of technology adoption, i can't imagine there's ever been much of a desktop business. most alibaba users, are they mobile first? >> well, in terms of trying --

in terms of what we're seeing, alibaba is really trying to grow its user base, moving from pc to mobile. one of the ways they're trying to monetize this is sending targeted advertising to the customers. so every advertisement is action-driven, where the user can immediately take a response based on very targeted information delivered to their mobile screens. as advertisers cut their spending budget, actually it gives their money better spent and they can actually track how the users are looking at the

advertisements and also what items they are purchasing. it's important to remember, corey, that many schizophrenics can be geniuses. i'm kidding. but what we've seen with alibaba -- >> enough said. thank you very much! you are watching "bloomberg west." ♪

the only way to get better is to challenge yourself, and that's what we're doing at xfinity. we are challenging ourselves to improve every aspect of your experience. and this includes our commitment to being on time. every time. that's why if we're ever late for an appointment, we'll credit your account $20. it's our promise to you. we're doing everything we can to give you the best experience possible. because we should fit into your life. not the other way around.

the bank of japan introduced negative interest rates at its latest meeting. the current account of each bank will be divvied up into three. a different interest rate will be applied to each one. you have the existing balance. required reserve banks are nothing. excess of what they are required to set aside with the bank of japan that is where this negative rate kicks in. banks will now have to pay to save.

there is some additional form of support for the economy. perceived as stimulus. this takes effect the 16th of february. we will have more details when the bank of japan governor has a press conference in about an hour and a half. let's check out markets are reacting. yvonne: the stock market, in japan, shot up and then came back down. the decision is still not enough the $80 trillion monetary base that they are going to be expanding. whiplash on the equity markets.

for the japanese yen we are still seeing some weakness here. we are off the lows. we are counting down to the reopened in hong kong and china at the top of the hour.

what we are seeing overall in digital is it big move towards video created and consumed digitally. and the numbers use on facebook were more than 100 million hours consumed each day of video content by more than five and 2 million people around the world. cory: the results of the business success where resulted in the stocks today. eight hours today -- look at that. more than three times twitter's market value. i think i treated this stat that facebook has added more users in two years than twitter has added in its cumulative entire existence. >> and that isn't even counting instagram, whatsapp, messenger -- the other companies they've amassed that they haven't even started to monotype. instagram mayday huge quarter.

it is an experimentation year for them and that is fine because the company is in the money right now. they are using their advertising powerhouse on facebook, all of the advertiser connections and technology -- anything that you see powering news feed ads and applying it to instagram so it was very easy for the company to ramp up advertising. cory: so the lesson learned for facebook and facebook mobile, they knew this would work smoothly. we had to target the right kind of people. >> and they can use the target data from facebook for instagram. they might show you the second set in eight series of ads after you first seen it on facebook. it is totally streamlined. they know where you have been on mobile and desktop because when you login, that is your identity. corey: our advertisers saying that they like the results or they saying that this works better all the time. even with they bidding process that we have seen with google? >> it is all in the eating style. but what advertisers are really looking at right now on facebook is the video at which really contributed over the last quarter. it is also that facebook has increased the percentage of ads in your newsfeed which they can only do so many times until it is too saturated.

cory: so they have put more ads on the page. you can only do that so much. >> but they have been doing it gradually over the past couple of years and people have not turned away from facebook. they keep using it just as much as ever. cory: the engagement rate has gotten better. it really couldn't get any better. right now we are watching for walgreens. they are telling the blood testing company to stop using the lab. there is a severe deficiency at that location. walgreens has paired up and partnered for the last testing.

caroline: i just happen to be working in palo alto and it is the only place where they have it wellness center in the walgreens store. they have about 40 locations in arizona but only one in california. so the impact has impacted the store here. i decided to walk down and see what was going on and there is they sign on the door that says it will be closed for now until further notice. and i tried to talk to an employee who was leaving the building who had the there are notes -- the theranos badge on her of it. she had it imported on her jacket and she had her bag and was leaving. so i guess she came in this morning and was told that we are

not in business. cory: are you sure she wasn't shopping for toothpaste? caroline: it said it on her shirt. so this decision does not impact any of the stores in arizona.

but still, it is one setback after another for the company and of course the big question now is what will walgreens do about the arizona branches. yahoo! layouts have begun again. they will cut costs due to an underperforming market. they are closing in mexico and argentina. it doesn't say how many employees were affected. they summer day in history -- 30 years since the challenger space shuttle disaster which some of us are member all too well. if you minutes after takeoff, it exploded killing all of the crew members. among the crew was in first ordinary person to be on the spacecraft. coming up, two guys who built the ultimate gift search engine. check it out. ♪

the tesla of the 1980's is back in business. replicas of the story -- of the car -- it was made famous by the movie actor the future and the infamous arrest of the maker who was busted in a cocaine deal that eventually led to the company going bankrupt. but the delorean is back. they plan to release new models in 2017. $100,000 per car. speaking of the 1980's, -- has

been around since the inception of the decade. it is not debatable. and the growing importance of gif in the market. i am hilarious when i use them in my text messages. texts -- it makes me aging yes. it is aimed low tech and stupid thing. no offense. [laughter] >> they were really popular in the 1980's, it's what you use to make your website link. all of the technology that was available to chop up movies into short segments and once it was shareable online, now you see

the resurgence of them as people embrace pop culture. and with social media they can send them out to their friends. cory: you say people embrace pop culture now, i mean, something about gif's is unique about why they are happening now. i don't know if it was technological? alex: it is just they seen in him movie. anyone has ever quoted in funny scene from anchorman or any other movie, they are essentially doing a gif. now with text messaging and social media we were the first search engine. that is kind of why you see them take off. they were always popular.

i wonder in this political year whether there might be great opportunities. alex: the new york times came up with a great article explaining how this year, the soundbite is eight gif. the hillary clinton campaign uses it all the time to explain what she is talking about. we saw a lot from the benghazi hearing about her brushing it off. so you will see a lot of political activists using them to express campaigns coming up. cory: how do you make money? alex: we will express our numbers pretty soon.

but we do tens and tens of billions of gifs. we have trillions of them. we make money the same way at google does. traffic. when you are serving 100 billion gifs, if we wanted to we could turn in her ads on our website at we are going for it larger audience. cory: does adding ads slow down the audience growth? alex: maybe. our growth is exponential so we are hanging back and letting -- and finding out how big the market is.

and only this year, facebook and other companies haven't been -- companies have been embracing it on their platforms. when we see how big the market is we will turn on revenue and we will make the same amount that google did back in the 1990's. cory: after the show i will text you some of my more hilarious gifs. alex: totally. cory: dallas alex chung, the ceo. will be questioned by the u.k. government on february 11. she says she is investigating the deal. this comes days after google agreed to pay $185 billion in -- 185 million dollars in back taxes. the search giant makes billions of dollars in year and it should be paying more.

>> you would have thought that more tax was it good thing for the public. but this inflamed the international debate because many feel that $185 million is too low. you have to remember that research engine has been criticized for years for pain just they fraction of the taxes in the u.k., even corporation taxes down to financial engineering. now the european union has gotten involved with the chief saying she is ready to investigate a deal if there are

complaints. italy has also got in on the act google now finds itself ensnared snared in the same sprawling investigation like amazon, apple and starbucks. they may also find themselves caught up in this. the competition chief has the power to call back unpaid taxes if she can prove the deals have been unfair. so google has continued to state that the company paid taxes in all companies -- in all countries and complied with the law. uber is claiming they will break even in 2016. -- groep taxi -- grab taxi says they will break even in 2016. they have it loose alliance in china and india. the partnerships are going well. they are spending aggressively in asia. coming up, amazon shares continue to slide. why was this report is it rise? we will dig into those numbers

in little bit deeper. and tomorrow, john kamas is guest hosting. we will have more bloomberg west next. ♪

cory: dell ceo just joined in bloomberg panel moderated by vonnie quinn. check it out.

>> i am very bullish on china, long-term. the path in the next 30 years we knew was going to be all of the developing markets don't go on a straight path upwards. but when you look at the enormous number of people and the incredible opportunities that are there and the use of technology, it rapidly has become the country to sell our products outside the united states. and while there is volatility. for durations, -- volatility and arms, we are long-term on china. cory: amazon shares are down 13% after surprising investors who were not ready for the profits.

we go to the coverage of amazon. you and i have talked about this before it happened and after it happened. what did you make of it? the main thing here was managing expectations. cory: they seem to think the same thing. there was it crummy job with expectations. >> absolutely. the last couple of quarters when we put it in terms of profit growth and you look at the numbers, this is the highest it has been reported in 15 years. cory: look at the other profit margins, the best i can remember. in the fourth quarter.

>> yes, but the sentiment was that the investments now are slow and it will be more about managing profit in a new way. cory: managing profit or topline growth to make it get bigger? 3.1% is eight pathetic operating margin. come on. they are still managing progrowth. >> right. that is what we used to focus attention on. but now the sales growth is at 28%. it is still strong but the perception that the profit growth is going to happen in it much more predictable manner going forward, that perception got hammered today. cory: do you think they wanted that? i have it on good knowledge that someone put in number on the whiteboard about where the stock will open at this morning. and they are wildly off all the time.

>> the surprise here was that -- the program they have that is gaining traction. it is supposed to be in big profit driver going forward. clearly the whole prime thing has not reached that scale yet. cory: i've done these live shots for them on cyber monday and it has been an amazing thing to see when you get a sense of what the shipping and packing logistics are. it is hard to imagine. and then when they asked the prime now service and the delivery time -- the delivery time is the biggest hook for amazon prime members. what is going to be the impact on margins going forward? there are a lot of content things that will come up going forward. they are media revenue growth is

not star. it is more towards investments. on investments, they used evidence low. cory: thank you very much. that does it for this edition of bloomberg west. we have more tomorrow. ♪

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