♪ emily: i am emily chang. this is "best of bloomberg west." we bring together the top interviews from the week in tech. this week it is all about earnings and apple posted its first sales declines 2003. shares have taken a serious hit. is it a new era for apple? we will discuss. a tale of two tech companies as facebook hits the sweet spot. mark zuckerberg says more big

bucks to come. and interview with the twitter cofounder and how he thinks twitter can right the ship along with a major announcement about his latest startup. first, to the lead. it is official, apple, the world's most valuable company, grappling with slowing demand for its flagship product, the iphone. it reported first sales declined since 2003 on tuesday. while that was expected, the numbers still caught some investors off guard. second quarter revenue was down 13%, and earnings per share was down 18% and warnings we could see another decline in the next quarter. shares dropped steeply on the news. i spoke to frank gillett in boston. what are the main takeaways? cory: iphone units down 18% is the big thing. we know it is two thirds of revenue for the company.

you've got growth in the market and shrinkage at apple. it really shows this is increasingly a seasonal product story. secular growth taken away. the real concern though, and the reason the stock is down is because the margin number was disappointing. if they hold up market share, but keep most of the profits, but a little slippage in the growth margin is disappointing although it comes at a time of the release of this 6se phone which likely has lower margin so it may not be horrible news. emily: we spoke to the apple cf o. we talked about the iphone se. the cheaper iphone. he said the phone is incredibly popular. it is so popular they cannot meet demand. there is a question as to whether it will cannibalize sales of the previous phone. he said it is too early to tell

there. what would you say? >> i think we will see market expectations for smartphones come down. because i think we are not just at a pause. i think it's a realignment and apple is suffering. i think the se will bring margins down further. it was not included in the last numbers and that will bring them down a little bit further. i think it's a challenge because people are finding that the smartphone that i have a sufficient and i don't need to upgrade that often. i have a big screen, i will hang on as long as i can. i think that foretells a different future for apple. it's good that services grew because that's where there are opportunities. emily: let's talk about what's going on globally. they say they are seeing more first-timers than ever buy the iphone. he says they attract millions of new customers. for example, in india, iphone users are up 56%.

overall, customer demand he says is over 2 billion higher than guidance they are providing. we continue to see a macroeconomic environment that is very weak. so we will be taking channel inventory down. what do you make of that? frank: i think we are entering uncertainty about the way it will perform so i don't agree with bob that we are talking about a dramatic shift down. i think the most important thing and many are overlooking is how tough the compare was to one year ago, and the huge burst they got off of the large iphone 6 and 6s. we are entering a time when it will be harder to predict but we are coming off torid growth and a difficult comparison. what is interesting to me is that the energy around the big screen burst your go did not continue this year. what that says that there were a bunch of people that cared and there are bunch of people who are pretty easy-going. and so, the idea that the lifecycle of phones may stretch out and last

longer as long as you don't drop it in the water or break it, there is something to that. the real question here is will we see a burst of new innovation that will motivate people to get the act on two-year upgrade cycles and get them more excited? that is where the question is in my mind. are we entering a more seasonal and a bit volatile period where it's less about people got to have the latest version of the device. can apple keep converting people from android? you don't see them doing strongly in europe yet. bob: i think frank raises some good points but my concern is i see nothing on the horizon from a component and a technology perspective that will drive the upgrades. there is talk of a dual camera and maybe a telephoto lens. cameras are interesting but i

don't think they are going to drive this dramatic upgrade. i think we will see people hold onto these things longer just like we saw with pcs. and just like we saw with tablets. cory: with the tablet thing, we are not talking about ipad because the ipad is less important. nine consecutive quarters of falling sales for the ipad. the combination of going from one device, the pc, to pc, phones, tablets is stretching out the cycle for all of these products. people are holding onto all of them longer. dear point we are starting to see that with phones. also, one of the reasons that was hidden before is because apple released products over time and now they added most of the major geographies within a couple of weeks. as a result, if there was an 18 month cycle, it was hidden before and it's no longer hidden. cory: let's look at what tim cook said over the call.

emily: there was a question about china where they were seeing weakness. take a listen to what he had to say today. tim cook: china is not week as has been talked about. i see china as -- may not have the wind at our backs that we once did but it's a lot more stable than what i think is the common view of it. and so, we remain really optimistic on china. emily: frank, i want to talk about this with you because we have been talking about growth in the services business but in china, they recently said no i-movies. nope, can't play those here. you think that is actually a bigger deal than others have said. frank: one of the mistakes we all make as investors is we focus too much on unit shipments and not enough on installed base. so i think it's interesting to

think about one billion iphone users out there and the power that has for apple in terms of an ongoing ecosystem. it's also important to say investors are getting dramatic because they are worried about the stock of apple. but if you think about the company of apple and its importance in the technology ecosystem, today's results don't change that at all. this company is still hugely important for which apps do build, how you reach customers, how you engage customers and the whole mobile ecosystem. when we see sales up 20% is interesting. it does not have the same margins. it does not have the same revenue volume. but it represents the beginning of a shift in how you think about these companies. i have been arguing with the ceos of these companies some time and it's about your installed base and not how many iphones you sell to them.

emily: later in the show, t mobile adds more than one million customers for the seventh quarter in a row. john ledger slams the competition and verizon's interest in yahoo!. ♪

emily: now to facebook. facebook saw shares surge after reported better-than-expected revenue on wednesday, up 52%. also pleasing investors, positive engagement metrics and steady growth in active users but the biggest surprise is a proposal for a new class of stock. ceo mark zuckerberg wants to issue a new class of nonvoting shares so he can continue to make big that on some things like virtual reality without diluting his own ownership stake. i sat down with gene munster and josh marshall and steve case for a

deeper dig into what this means for the company. jean, i want to start with you. facebook beat on every measure but i have to ask about the stock. what do you make of mark zuckerberg asking for this new class of shares? what does it mean? jean: it means he wants to have more control in terms of the direction of the company and i think he is wise to do that. the good news is that given their runaway success, investors will be fine with him taking the reins. this is him making it very clear that he's in charge of this company and he wants to see some longer-term bets through and does not want to be pressured quarter to quarter. emily: he spoke about this in more depth on the call. take a listen. mark zuckerberg: today's or proposal will allow us to maintain and improve the voting structure that has service well allow me to fund the chan-zuckerberg initiative.

in december i will not sell more than one billion shares of facebook shares over the year. that is still my commitment. emily: i spoke with the facebook cfo who said a large part of facebook's success has been due to mark's leadership and the proposal will allow them to maintain that founder-led approach. as a founder yourself steve, what do you make of this? steve: facebook has been an extraordinary success and this proves that the momentum is strong and i applaud these big bet projects and applaud what he is doing on the philanthropic side. i think this dual class is a tricky issue. when it's going well, it's a good thing but when things are not going well, it can be about -- that thing. i'm not sure long-term it the right thing but he has earned the right to steer the ship because he is staring you in a great way. emily: why might it not be a good thing in the long run?

steve: sometimes there is a change in strategy and if someone is locked in and has complete control, sometimes that results in not making the right turn. obviously that has not been a problem in the past decade and may not be a problem in the future. i'm not talking specifically about facebook, but in general, i think there are folks that question the dual class structure. is it the best way for the markets to work? the underlying issue is how the make sure -- do you make sure ceo's have an incentive to take the long term and invest in long-term projects? there is a concern about wall street being too short term. but that's a different problem. emily: it's something that happened that google. i assume it's a good time to ask that when you be on every measure, on that note, one thing we have looked into his personal -- is personal sharing. personal sharing has been in decline on facebook. overall, people are sharing more and facebook but how they share is evolving and they want to

share in different ways. what you make of that response? josh: there have been reports that some of the original sharing of personal content and photos as opposed to sharing social media have been dropping. that could be a big challenge for facebook if that continues. it doesn't seem to impact the revenue so i do not see it having a negative impact right now but it's something to keep an eye on because so much of the facebook revenue is driven by newsfeed advertising. the interest in newsfeed is largely governed by original sharing. emily: when you look at the results, they look great across the board. what are your main takeaways? the good and the not as good. >> the main takeaway is that they are drawing revenue at a similar pace as they did in the december quarter despite their comments that would slow down. they said the competition would catch up with them and it didn't and the reason is they are

finding more ways to insert more ads into the feed that don't feel like ads to people. that is one of the genius things that they had been doing, so that is the positive. they are having success without really tapping into these other bets like instagram and others. i think it's hard to find things that are not working. i am at a loss to try to point to something that is disappointing in these results. emily: you talk in historical perspective. it's hard to imagine a time when facebook will be challenged. but looking over the next decade, what do you think their biggest challenges will be? steve: they have done a great job even recently. facebook live has been a great success and is getting attraction so they are doing innovative things. they have had smart acquisitions to make sure they are positioned well. instagram or whatsapp or what

have you. as we transition from the second wave of the internet to the third wave, the focus of my book is there will be innovation in other sectors like health care and education and transportation and energy, and the leaders will continue to lead the way and some new companies will crop up so it's a challenge when you are the incumbent and so strong to maintain that strength in a world evolving quickly. emily: josh, they are in early days of monetizing instagram but they have not turned on the firehose yet. do you see much more potential in the long-term to make a lot more money with this family of apps that mark zuckerberg has made these big bets on? >> it's usually exciting like with messenger and what's app, they effectively have another two facebook's that they have not started monetizing. they need to figure out how to monetize those platforms because they cannot stick advertising in them like

facebook. but they are powerful channels for directing one-on-one engagement between businesses and customers. and we worked with messenger to enable sprint and hotels to start delivering customer service over the last year. so, they are still very much in the early days. but that is hugely exciting for the future. emily: coming up, we take a look at how linkedin is performing and will sit down with the ceo. ♪

emily: we take a look at linked in and i sat down with ceo jeff weiner.

last quarter, the stock had plummeted 40%, today it's surging. what have you learned from all this? jeff: at the end of the day, stock volatility, we will leave that to the market because they determined the day today price. we determine the value and do that through execution we will continue to focus on executing the business. it was a positive quarter for us. we were able to focus on fewer things done better. we saw the consumer engagement accelerate by virtue of a new application we launched, our mobile application, which accelerated our desktop growth and we continue to focus on our core business product like recruiter and sponsored content. emily: that said, why do you think the linked in shares have been so volatile after earnings? it seems investors have such a strong reaction.

jeff: you would have to ask the investors. i understand volatility and, at times, we will do our best to try to provide as much visibility as we can into the business. as our business continues to grow, we are introducing some additional lines and i think it takes time for people outside the company to learn those businesses and calibrate expectations. emily: so, for the talent solutions business, you said the addressable market for linked in is $12 billion. you have penetrated about 20% there. if the market is large and penetration is low, why can't you grow that faster, like facebook? jeff: the objective is to grow the business faster overtime. we are investing in our recruiter application. we just rolled out the next generation version of that application. it's a complete overhaul, the

largest overhaul of its kind in seven years we've been operating that product. we rolled out 2 new sku's in terms of connectifier and our referrals business and we see a growth analyst. we have also been investing in our job seeker application and the job seeker part of the site so this should help future growth in our talent solution business. emily: that is 2/3 of your business. would you say that the business is mature or saturated because growth is decelerating? jeff: no, hardly saturated. there are multiple billions of dollars that are addressable that we believe we can start to further penetrate by virtue of these new products with improvements to existing products, so plenty of growth ahead. emily: let's talk about mobile engagement that is driving the

advertising business. how much do you see growth accelerating there in a digital ads market where facebook and google are king? jeff: we are very focused on the b to b components of that and we think we bring unique data to sponsored content has been our fastest-growing part of the business and we expect that to continue to be the case. growth drivers continue to be acceleration of engagement, engaged feet sessions which is what generates the inventory for our sponsored content business. we are seeing better roi for marketers so that is increasing the number of customers who are sticking around and purchasing more. improvements to targeting will continue to focus and develop api and improve those. and we are now starting to pilot off network sales. still very early days there. but all of those things can contribute to future growth and that business.

emily: let's talk about china. you've got 20 million members there. you have localized the core app and developed a china team but when we spoke him you said you have hardly cracked the core in china. -- cracked the code, i should say. what will it take to crack the code? jeff: we will continue to learn the best way to meet the needs of members and customers in the market the longer we are there. we started by localizing the global platform and we have been seeing strong growth there in terms of new members. we also launched the first localized application in china. recently, we saw sign-ups for it growing in parallel with the core platform there which was very encouraging. we will continue to learn. we've got a talented team in place there. and as we continue to grow, the we are turning our attention to engagement and once that reaches

critical mass, we'll start to focus more on monetization. emily: at what point will we see the navigator contributing more meaningfully to the business? jeff: it is contributing today but it's still early days. everyone would like sales navigator and sales solution business to replicate the success and growth trajectory of recruiter. and our talent solutions business is now well north of $2 billion. it's a hard act to follow but we've got a great team in place and i think we are off to a strong start. emily: now, given that linkedin is becoming more of a mature company, do you think you have the right people in place or do you need to hire more enterprise/sales focus people who can take the business to the next level? jeff: i definitely think we have the right team in place. it's a portfolio of products at this point. we've got hydro-products,

durable growth products, and we will continue to invest in those high-growth opportunities and the areas of more durable growth. we will focus on margin expansion, and i think we have exactly the right team in place to make both of those things possible. emily: and just, giving your global exposure, how would you describe the macro environment. we have seen other big tech companies taking a hit due to currency issues. what do you see? jeff: we have not seen any material impact to the business. after the first quarter, or going into the first quarter, we had talked a little about some challenges in the asian pacific. in q1, we saw strength across all of our business lines, so i'm not sure that's as much a

statement about the macro but we did not see any material impact based on macro economic forces. emily: coming up, pandora cofounder and recently reinstated ceo sits down for an interview and we hear about the companies latest earnings, plus where he wants to take the company now that he is back at the helm. later this hour, an interview with the twitter cofounder and how he things twitter can right the ship along with a major announcement about his latest startup, jelly. ♪

emily: now we look at pandora, the first quarter earnings they reported since the ceo returned to the company and we heard about the company's performance and his vision of pandora's path ahead. >> i love the company and i believe in it. i have not been gone. i have been on the board and i feel connected, genetically. i feel it is the right time for me to take the role. emily: what does it say about

the strategy going forward? tim: the strategy is intact. we are working to build from this huge foundation we have created, this massive ad supported radio product, and to expand it into new features, new sets. it's intact. emily: we reported that pandora had explored a sale earlier this year. is that off the table? tim: if you want to sell the company, you don't hire a ceo. and then invest like we are, in our strategy. we spent 10 years building the underpinnings of a really big business. that is where we are headed. emily: in the corridor, active list has picked up but not a huge increase. what will it help to drive the growth faster? tim: we have 100 million people come to pandora every six months and one million every month. how do you make the quarterly

listeners monthly listeners into daily listeners? a big catalyst is ce and auto so making it more of a habit in more places. we will start rolling out a more expansive features we have talk about like on-demand that will allow us to provide for all of the things they want in music in one spot. we leak listeners because they want to rewind it and they cannot. we want to add live events and that will add to the completeness of the experience. just be your one-stop shop for music. emily: here's a great stat -- millennials spend more time on pandora than youtube. but the stock has dropped 40% since last year. what is it that investors are not getting?

tim: there is a lot of misperception about the company. my job is to make sure that story is clear. it could be true because our strengths are not immediately visible. with personalization, the engine that drives our song selection and creates personal radio is a hard problem. even as we have had competition and free alternatives, hour per listener, per month listeners have increased. that's a reflection of the massive investment we've made in personalization. the second thing is monetization. we monetize our product pretty close to the way radio does. those are two huge strategic pillars for us and i don't think they are yet well understood. so, we will tell that story and i think it should show. emily: what about an on-demand product where listeners can choose what they hear next rather than just waiting for what comes up? how close are you to having what you need in place for that on-demand platform? tim: we know how we will approach

that. the acquisition will help with that. this is not going to be a "me too" service. the 30 million songs on a search box approach is not how we will come to this. we have 100 million people who come to pandora in 24 hours and we know a ton about them. we know your preferences so we can bring you into this interactive environment in a contexturally -- relevant way. we take you in with the music you already know and create playlists and repopulate your experience of solving the problem of walking into a record store where you can have everything and pandora will solve that. it's a version of on demand. emily: are the labels asking for the same rate they give spotify, 70%? would you pay that to them? tim: i expect they will be in the same ballpark but we have a slightly different approach. we are really hoping that labels will look to be more flexible on how the products can come to market. i think one of the great opportunities

we have is to address this huge tens of millions of listeners who were not the $10 subscribers and have not thought about it, to introduce them to premium services, to upsell essentially this take fat middle of listeners into higher products. if we have flexibility there, i think we can expand the industry. emily: you said pandora's about to get louder with its advertising, what do you mean by that? tim: it's time to stake your claim. as you said, we are a huge service. we account for more usage than youtube in the u.s. we need to be louder at this level of maturity and size to have that voice. emily: what does louder mean? tim: it means speaking louder and be a stronger marketing presence. we are investing more this year and as we rollout products, you will see us be more vocal about that.

emily: beyonce just dropped an entire album on tidal with exclusive streaming rights. what is your take away? can that change the future for tidal? we see more and more artists rebelling against streaming services. tim: i think you will see a handful of artis who have the stature and the audience to do those kind of things. i do not think that will be a broader trend. artists will generally want to make their music broadly available. i do not think that will stretch beyond the top artists. emily: coming up, t mobile adds more than a one million customers for the seventh quarter in a row and johneger slams the competition. if you like bloomberg nwes you can check us out on the radio. "best of bloomberg west" continues after the break.

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emily: welcome back to the "best of bloomberg west." back to earnings, t-mobile beat estimates for adjusted earnings and revenue. the carrier also raised its forecast for the year and gained more than one million new monthly uses for the seventh straight quarter. i spoke with the company's ceo john leger earlier this week. i asked how long they can keep it up. john: service revenue is up 13.6%. emily, we still have less than 20% market share. our main competitors, otherwise known as dumb and dumber, are just not adapting to the uncarrier revolution and the things we are doing to change wireless. this can and will continue because we will not stop. emily: you summed up the verizon earnings in a rap. how would you rap t-mo's takeaways? john: first of all, i am trying to help verizon. their earnings could be

summarized as we lost topline revenue, we lost post a phones, we walked back on 5g and we are still longing for millennials. that's all you need to know in a form that's absorbable by the millennial group and i put it in an auto rap format. i actually used fran chamo and i put his words in. t-mobile's summary is 12 quarters in a row, we grew postpaid customers and the model is working. we are now generating huge service revenue and adjusted ebita, which is leading to cash flow growth. stay out of the way because we will not stop. emily: we can add a new talent to your things you can do. you predicted a slowdown. what's driving that? john: i talked about a slowdown?

if you think about it emily, we have just about 66 million customers. when you and i started having these conversations, we had 29 million. we have less than 20% share. i did raise my guidance for the year. my guidance going into today for postpaid subscribers was up to 2.4 million and i raise that to up to 3.6 million. i raised my guidance. i also raised my adjusted ibita to 10.2. pretty much steady as she goes and things like binge on, music freedom, 225 million songs are streamed free by t-mobile customers and now twice as much video is consumed. the underpinnings of what it means to be a t-mobile customer changing drastically. and i think there is a huge

population out there that are still considering the move from dumb and dumber and even yellow over to t-mobile. emily: let's talk about that. verizon has put in a bid for yahoo!. what do you make of their interest in focusing on media and content? do you understand what they are doing? jeff: there is a lot of things that verizon is doing that makes more sense of what they are running away from than what they are running to. you think about their attempt to portray 5g as coming tomorrow, when consumer wireless applications will most likely be 2020. they have lost their ad -- edge. we are participating in a low-ebb option area it takes their old edge and we have parity with them from a network standpoint so they are attempting to create a new brand for themselves. if you look at the last three years, postpaid phone

subscribers. here are the numbers. if you just assume consensus for at&t ends print, sprint has lost almost 3 million post a phones and at&t have lost 1 million and have not added one for the first quarter and verizon has added 4 million and we've added 10.5. they are trying to find a new future. things like go90 are the biggest curated content site that nobody asks for. $5.5 billion so far on junk that nobody wants. and i hope they drop a boatload, and continue to run down this lane. emily: coming up, the twitter cofounder on why he is holding onto his stake in twitter and is happy jack is back. ♪

emily: biz stone, who cofounded twitter, was back in the spotlight this week after

hitting refresh on his latest startup, jelly. it's a very specific type of search engine. i asked him why i would want to use it instead of google. biz: it does not search the web. there is a very significant percentage of questions that are way better answers than a person, especially when you are asking the wrong question. only jelly can tell you that you asked the wrong question. emily: you say it's like using amazon echo. explain that to me. biz: i envision a world in which voice is the main ui. if you see the movie "her," the guy is not falling in love with the ai. he has the thing in his ear and he just speaks. emily: you guys have been working on this a couple of years and gone back to the drawing board.

how many actual people are behind the scenes? what is the technology? biz: the first version -- we have always had eight people and five engineers which is not enough, especially for this grandiose vision we now have of the future of search. but the first version was very much tied to your social id, which turns out was not a great idea. think about it, if googles were tweets, how many google's would you do? being on twitter is great if you want to expose your question. i have a huge network on twitter but i don't want some people to know what i am asking. this time around, there is more computer science in this. there is a layer of ai that will determine whether it's actually a real question. then it passes it through to the

next layer which is it categorizes the question and then it is routed with our algorithm to people who are also tagged with things they know. it gets sent to the right people and you don't know those people. they just have experience with the thing you are asking about. emily: let's talk about twitter. the stock is down since the last earnings report. biz: it is? emily: it's down over the last six months since jack childress became ceo. why are investors not feeling it? biz: that's a short period of time. twitter has been around 10 years. it takes a long time to take over as ceo in turn the ship around. it's not an overnight thing. wall street thinks in quarters. people like jack, they think in decades.

they think decades ahead. maybe it's down now but he's got these long-term plans. like jeff bezos does. it won't take a decade, but it could take longer than six months. give it a couple of years. i am holding onto my equity, that's for sure. jack is so great and it's great that he is that. the world needs twitter. it's not going away. it is now a staple, it can't be un-needed. once it's there, it's there and it will only get better, in group. it's a temporary thing. emily: facebook is getting into live, twitter for ten y ears has been the place for live. facebook has incredible resources to scale this. do you think twitter can grow significantly bigger than it is right now?

or is it fine is a small platform. is that what it becomes? biz: i always thought -- jason goldman who used to work at twitter and works with me at google, accuses of me of spinning things but i think i have a positive attitude. when people say twitter only has 300-something million people using the service and facebook has over one billion people, i say great, that's a many people can use twitter. there you go, that's the number twitter can grow to. and people are like, are you spinning this? no, that is just an aspirational number. emily: what about snap chat and instagram? we also seeing them surpass twitter in terms of users. biz: i actually don't know.

i use instagram because i like to put the filters on there but i stopped using it because my pictures were of my kids and people were complaining. is this all you're going to do? i use a lot less now because it's the same thing every time. look at jake, isn't he cute? everything grows. some things fall. it depends on the value. if it's delivering value, it's here to stay. twitter delivers value. historically, getting information first historically is key and it makes you win. the same thing with jelly. getting information, the right information, the good quality answers rather than just looking through results, you win. you know what i mean? you get through life. that whole idea of value is here to stay. emily: that was biz stone, cofounder of twitter, on his

latest startup am a jelly. that does it for this edition of "bloomberg west." next week will be speaking to the founder and ceo of the khan academy. ♪

signs of stability. new data suggests china's economy -- indicating little need for added stereo speared economics under pressure. the government says it is prepared to act if the eyyen rallies. first-half profit rises but misses estimates on dad deb -- bad debt. to read train an upgrade to tackle what the prime minister says are deep and structural changes. good day. i'