♪ emily: i am emily chang and this is "best of bloomberg west." we bring you all our top interviews from the week in tech. coming up, diversification at alibaba is starting to pay off and we will hear from the cofounder about the push into cloud and media streaming. plus, the lay of the land at disney and who better to hear it from than bob iger. the media giant's chairman and ceo joins us to discuss the road ahead. the escalating e-commerce war, will walmart's acquisition of jet.com give it enough ammo to

really challenge amazon? first to our lead. diversification is paying off for alibaba with media streaming and cloud revenue driving revenue up 59% in the latest quarter. the main e-commerce business is holding up in the face of a weaker chinese economy. shortly after the numbers broke, we spoke with the executive vice chairman and i asked him about the m&a strategy and if any mega acquisitions are in the cards. >> if you look at our core operations, $2.5 billion of operating income in our core commerce business. that operating income is growing at 38% year on year. if you look at eps, it is growing at 33%. that is very robust growth. having said that, we did consolidate the operations of two other companies and we take

the long view and despite consolidating these losses, we are generating 61% operating margin in our core commerce business. what that means is that gives us -- it gives us the luxury and the resources to invest very aggressively into new businesses like digital entertainment and our new innovation initiative such as internet cars and things like that. so we feel very comfortable with our margins. we feel that we have a lot of resource and cash flow to invest in new growth. that yahoo!ing of , is going through a sale of its core business. have they discussed with alibaba what they plan to do with the shares they hold? >> what they need to do is figure out what to do with the alibaba shares. they could also do nothing, but we are going to be fairly reactive when it comes to that.

we are going to leave it to the yahoo! board to decide what they want to do with the alibaba shares. the important thing for your viewers to know is if yahoo! sold their alibaba stake they would incur a huge tax liability, and that does not solve the problem, even if we are invited to acquire the shares of what they call the remain co., because we would not be able to cancel those shares legally, and we end up inheriting the tax liability. it is going to be a difficult question for us. emily: alibaba has been very inquisitive in the past, more than $24 billion in yields in the past year. we have seen massive deals in technology, microsoft, linked in. how open is alibaba to really big deals? >> when you have 61% operating

margin in your core business you have to think about how to smartly use that extra cash flow, the margin, to invest for future growth. when it comes to our m&a strategy, we are going to be very disciplined about it. we have set several important criteria including growth in our user base, improving our customer experience and expanding in our categories. if you look at large acquisitions and investments we have made over the last year, they all fall very consistently into those principles. we acquired yoku because we want to get into digital entertainment, and we partnered and invested with the largest electronics retailer in china, because we want to execute with them to really own the retail space in china.

so these are examples of acquisitions that we have done. we are open to large deals and we are open to small deals. the important thing is they stay consistent with our m&a principles. emily: you guys made a big investment in a company to be paid over two funding rounds. according to reports, at some point alibaba stopped paying. what actually happened there and how do other companies know you will not do this to them? >> we have actually fully paid our investment into that company. the fact is, by far we are the largest capital provider to that company to the tune of over $100 million. and we have paid on time and we fully paid up. i think what you have seen was a report regarding a contract where there is some technology that they were supposed to develop for us.

the fact of the matter for the china market, it is a very different market and for the kind of product they were trying to develop, it was very difficult to gain traction. joseph: but by no means was there any kind of dispute. we have a very good relationship with them and we are supporting the entrepreneurs. that is the approach we take when we invest in markets in the u.s. we want to back entrepreneurs. emily: alibaba co-founder, jack -- joseph tsai. coming up our conversation with , bob iger. we will dig into disney's new acquisition as they look to offset investors cord cutting concerns. the magic of early-stage investing, we will also hear from two veteran investors on how to spot diamonds in the

rough. this is bloomberg. ♪

♪ emily: walt disney reporting earnings this week, the quarter reflecting tough times for the company's cb business. with the ceo announcing a $1 billion take in a streaming business for major league baseball. david westin caught up with bob iger soon after the earnings release and asked about the new earnings deal. david: i would love to talk about bamtech. i used to work for you and we used to have a discussion about content versus distribution and which one is king. it strikes me that this is the first time you have made a major investment into bamtech. is this a recognition it is not enough just to have content, you also have to have distribution? bob: that is a good question.

i think it would be safe to assume this is our largest investment in what you might call distribution. we look at it as an investment in technology. we have been saying that our strategic priorities include making high quality content and using technology to make the product better, make the content better, use it for production and quality reasons, but also use technology to distribute in more modern ways and more ubiquitously. and more effective ways. ways that the consumer enjoys more and is gravitating toward. that is what this is. it is safe to assume it is a distribution play. we view it more as a technology play and that is vital to the future of this company. david: for those of us who like to watch baseball particularly on our smartphones, we are familiar with this technology because we have watched what mlb has done. this comes out of mlb.

i would assume you would not make this investment if you are not inclined in the direction of putting disney content on this new platform. when can we expect that to happen? bob: we have been incredibly impressed with what major league baseball and bamtech have created. and all of our due diligence proves that we are right. people who have been clients of their product have just raved about it, that is both content owners who have used to distribute it as well as consumers. we have used competing platforms and nothing comes close to what this platform offers. so they have a great product the , user interface perspective. i am a big fan of major league baseball and it is a great platform. we clearly are investing in this to use it as a sports platform and we are going to launch an espn branded service utilizing rights that bamtech has already

acquired and adding rights that we have already acquired. we also believe this provides us opportunities to jumpstart us and other branded businesses into the directed consumer space, notably disney branded and possibly marvel and may be a star wars down the road. we do not have specific plans, meaning we do not have the platform -- does not offer design yet, nor do we have a date. we actually believe this will inevitably put us into that business. david: is it safe to say that espn is probably first as you get into the process? bob: espn sports is first up. that is the business bamtech is largely in, although one of their big clients is hbo now. it can be used for many different types of product, but sports will be first for us and espn branded. very exciting for us because we think we can launch something that is a compliment to the

current channel offering an business that espn participates in, in a very big way. david: i know you take interest in the creative process for the movies, the films, and you also do it for things like shanghai. you mentioned it once or twice. give us a sense early on how you are doing and if you are on track for what your plans were for shanghai at this point. bob: it was more than a labor of love, it was one of the most important steps the company has ever taken. one of the biggest investments we made outside of the united states in the most populous city in the most populous country of the world. it was a 17 year journey for me. i obviously was quite involved. we built something that was very large and complex and unique, and there is a lot of original product in shanghai disneyland and it opened flawlessly. the reaction to it in china has been great. interestingly enough, visitation

has come from all over china and has taken great advantage of shanghai as a tourist destination, particularly in the summer. awareness is extremely high and people are staying about two hours longer per visit than we expected. that suggests people are enjoying the product a lot and the per cap spending has been strong. we had estimates that we were just guessing how it would do because it is a brand-new market for us, we are pleased with what we have seen. well over one million people have visited since it opened on june 16. the prospects for this business look really strong, so much so that we have already broken ground with expansion. we feel great about it. david: bob, absolutely the last question. give us advice. because we talk a lot about china and doing business with china. particularly u.s. companies going to china. you say you spent 17 years and you have had a lot of success at

learning how to work with the most senior leadership all the way up to the top of china. other companies have not had an easier time, they have had a tougher time. what advice do you have for others who want to do business with china? bob: i have thought about that question because i have been asked a few times. it is not an easy answer. we went to china in the sense that disney is well-known in china, and certainly a trusted company. it took a tremendous amount of communication, a lot of candor and patience and perseverance and tenacity. there were many times it would've been easy to fold the tower tent because it would take too long or it would be too hard, but we did not do that because we truly believe in the market and how our product would perform in the market. and so we never backed down. we had created a tremendous rapport with our partners and the government of shanghai.

trusttely, we built a because you are speaking truth , and you have faith in them. and frankly as partners, they have been great partners to us throughout this process. so my only advice would be, it , is a big complicated market. as i think anybody knows. it is a market that i think, there is a lot that does not meet the eye in the sense that you may feel because you spend a lot of time there, you are an expert. there are a lot of surprises, not necessarily good or bad. you have to have real patience and real commitment to be there. i think the patience we showed paid off not just because we hung in there, but i think we were respected because of that patience. because it was not easy to negotiate and it was not an easy project to build, yet our partners have been with us all along and we all feel great about not only the partnership

we created but the product we created. emily: that was disney's ceo bob iger speaking with david westin. coming up, the clash of two retail titans for e-commerce supremacy. can walmart use jet.com to take on amazon? this is bloomberg. ♪

♪ emily: can walmart turbocharge the e-commerce business? the big retailer is hoping to do just that, with a $3.3 billion acquisition of jet.com. it has been a tough stretch for walmart as they put billions of dollars into the online operation and they still trailed amazon by a long shot. can jet.com help turn things around? we spoke to david kirkpatrick and brad stone, and a former

employee at amazon and ebay. emily: this is such a young company and they say they process 24,000 orders a day, adding 400,000 shoppers a month, but there are reports that they have been struggling. this is the best way for them to spend $3 billion? >> first of all, let's discard in the numbers. it is a year old company. look to the left or right of you. are any of those people jet.com customers? probably not. this deal is about history and the people. i do not usually do this, but i need to go back to my book the , amazon acquisition of quincy. is the company that mike founded. >> yes. six years ago walmart stepped up to the deal and was talking to a company and through a combination of distraction and --, they lost the deal. marc lore has a team, scott hilton, nate foss, he has a team of people that can think strategically about e-commerce

and know it better than anyone. now they have a record of identifying opportunity alongside amazon. nobody can beat amazon in convenience. they are going to get you the box in two days, maybe one day. you probably cannot beat them on selection. jet.com folks have been able to do is beat amazon on price, find opportunities to create a brand that will speak to economic minded consumers. emily: we have been digging into some charts on the terminal. the walmart e-commerce business is not only declining as a percentage of its overall business, but their online business grew just 7% this quarter. is it worth it? >> in this game of e-commerce it is either grow fast or die slow and walmart realizes they see decline in the e-commerce sector. for them, it is a game of how to get back into the war. the crowned jewel is the pricing technology that jet has built. we have tracked amazon, walmart, and jet over the last year or so, and as brad pointed out, we

have seen walmart.com has been expensive. roughly about 8%-10% more expensive than amazon. whereas jet has been trading the , same lines as amazon, sometimes even cheaper than amazon.com. this is a good game for walmart to sort of take a look at what the pricing technology is and bring that in-house, and potentially grow their e-commerce business. emily: the way this algorithm works, the more you buy, the cheaper it gets. so it basically encourages you to buy in bulk. i spoke to marc lore. this is when the company was six months old. listen to what he had to say. marc: we do not see amazon or anyone else as a direct competitor. we see a $300 billion market in the u.s. growing. we think this space plays to multiple players. emily: david, i want to bring you into this. amazon is far and away the leader in e-commerce, is this a

play for number two? can walmart ever be number one? david: the simple answer to that is no. i do not think there is any near-term scenario where walmart will be number one in e-commerce. i cannot imagine that. if you listen to what we say here, it is for talent. $3 billion worth of talent. it is to get a better pricing methodology. they are paying $300 billion to reduce their margins and maybe increase their market share. i mean i do agree, and doug , macmillan is obsessed with this issue that they have to become a more digital player. it just shows how hard it is for some of these lumbering behemoths to make the pivot they have to make. it seems like a costly way to achieve a desired result. emily: how much can jet really turbocharge walmart's e-commerce business?

>> i guess we will see. the big challenge is how do you utilize or exploit the assets that walmart has? those big stores, the huge distribution centers, the expertise it has a getting products into stores, how do you exploit that advantage for e-commerce? the question is, marc lore and his team running walmart.com, can they get to the desired benefit if they are not running walmart? you do have some of the best strategic anchors of e-commerce. if anyone can pull it off, maybe it is them. emily: on that note more data , from the bloomberg, walmart is opening fewer stores and revenue is also growing more slowly. we have actually got a chart to show you that. the bigger question is, what is the future of walmart? how do they balance their e-commerce efforts with their physical store efforts? it is like an existential

identity crisis. >> let's take a look at it from a shopper's standpoint. let's fast forward five years from now, this will be a high-tech game, not either or. walmart has the physical presence, they have the store network and they have that high touch game already figured out, being so close in proximity to the american shopper. but they have sort of lagged in the high-tech game, and this is a shot in the arm for them to bring high-tech into the picture so they can get a chance to compete with high touch and high-tech and go head on with amazon potentially. emily: that was david kirkpatrick, brad stone, and the boomerang commerce ceo. coming up, a shakeup in the ride hailing wars in europe. we talk about partnering with a legacy carmaker and how they are taking a different approach to the market than uber. you can now listen on the bloomberg radio at and in the

u.s. on sirius xm. this is bloomberg. ♪

♪ emily: welcome back to "the best of bloomberg west." i am emily chang. are off.hailing wars a few weeks back, halo announced a merger with gamblers my taxi, directly targeting uber. just last week, uber's older china business to their arrival. -- sold their china business to their rival. we sat down and asked if there were other markets like china that they could not crack. >> i don't think i would never say that. the company of that size and scale and depth of funding and the quality of people in -- and in the execution they have shown, it would be foolish

to make a blanket statement, but clearly, one of the challenges you have operating a global business is how much you do centrally versus locally. one of the things where i think reflects that is the chinese situation. when you are a local player with local expertise, that can give you an advantage over in terms of size, scale and funding. emily: we have seen a lot of m &a. halo is an example. gm investing $500 million in lyft, how does this layout? -- play out? do you see consolidation in this industry? >> difficult to know at the end -- what the end game is. i am extremely surprised if there will be a winner take all environment, where one player ends up either through consolidation or through market domination winning the entire globe. i think what we are seeing at the moment is clearly uber

playing on a global basis, but with the emergence of regional champions, whether that is china, india, grab in southeast asia, lyft in north america, two or three players in south america, or europe, so i think for a while, there is regional domination that starts to play out. and then how those players, whether they end up merging or talking together, i am not sure, but i think for the foreseeable future, you will see this evolution of regionally dominant players taking shape. emily: globally, how many ride hailing players do think the market can sustain? ndrew: as i said, you probably have four or five potential regional champions that can compete strongly. it is a scale game. you have heavy, fixed cost at the center and the more volume you can push through, the more

economically viable it becomes, so the regional players start to make a lot of sense. i think to your point, you might see some of those originals, as we have seen in the past, and of those see some form together start to work and move together, but whether you will see one or two globally dominant ones and then very small local players beneath that, i doubt. i think you will start to see this regional evolution and these regional players playing quite strongly for the perceivable future. -- foreseeable future. emily: what kind of subsidies are you seeing from competitors and other cities and how of the -- how did the resources of daimler help you take that on? andrew: that is one of the big benefits of the deal. we now have a show -- shareholder base that is willing to quite aggressively go out to building share in the space.

they see capturing the data, the patent of on-demand urban transportation as key to that strategic feature, so for them, they really want to see them my my taxi business become the leading dominant player or even more dominant player across the european footprint, so having that in their pocket and ability to fund will help us play on a more even playing field compared to what may have been the case before. emily: what is your plan to overcome regulatory hurdles in europe facing a lot of different , technology companies? andrew: i think it is important to note that either the halo business or the my taxi business uses the phrase called disruption, as opposed to destruction, for our

approach. so it is slightly different to other markets around the globe. i would say slightly socially more democratic in nature, where the regulatory environment is there to deliver the best solutions for the city, so we do play within the regulatory infrastructure as opposed to trying to necessarily change and break that significantly. so, that i think is back to your original question, that is one of the advantages we have, we are willing to play within it and improve the regulatory infrastructure for the benefit of the city, rather than to change dramatically. ceo.: that was the hailo coming up, is the consumer start space getting saturated? where they see the seeds of opportunity. this is bloomberg. ♪

♪ emily: this week in our weekly roundtable, where we dive into

tech investing and capital games, we hone in on early-stage investing. and we heard from two veteran investors, one known in the ventu community as a super backing startups. and also an early investor in facebook and spotify among others. take a listen. emily: brian, you have had the couple of wins. you invested in dollar shave at excel jet just xl, which was just bought by walmart, so first of all, what do you make of these huge acquisitions in the consumer space? brian: you have these large companies with billions of dollars on the balance sheet recognizing a great way to recognizing a great way to innovate is acquired talented , teams of unique insights. if you look at both of those companies, they are not

the traditional tech acquirers or the traditional types of companies that would get acquired. it is largely a great innovator when it comes to approach of marketing and the business model --prescription, which subscription, which had not been done previously in the cbg space and a lot of people looked at this where they were reselling something you could our did buy on amazon, and it was attractive to our customer. on the jet side, i think a lot of people in silicon valley looked at the company and scratched their head, but t is focused very much on audience that is not a typical amazon customer. there are a lot of people that search first based on price and convenience second. emily: i am not scratching my head about the idea, but this is what i scratch my head about -- this is a barely year old company that got bought for $3.3 billion. how can it be worth that much?

brian: a lot of times, the value is based on what the opportunity is with the acquirer. if you look at another example, that just be facebook purchased -- or gm buying a company like cruise, but if you are a large business, and for walmart, they are getting threatened by amazon, their e-commerce growth has slowed in recent years, so instead of doing these smaller acquisitions, which may not ultimately move the business, it decided to make a boulder move and work with a company like jet with a fresh brand that appeals and hasnger demographic an amazing team, which could have a broader impact on walmart's business. emily: not to take away from them, but there are companies that have ambitions, presumably to be independent businesses. do you think that m&a or ipo's are the new exit strategy? jeff: i think the market has been challenging this year. only five ipo's so far, and

having a couple of companies in that case are looking at what is going on in the ipo market and bankers are saying, maybe you can go or not go, so there is not the pressure to go out in the environment, whereas, if there has been awesome m&a, whether from the enterprise space, people are opening up to the change. and to those opportunities, given once you are out of the ipo, you need to perform and look at the average performance of the 2015-2014 ipo's, so i think as a ceo, you look at the payback of $200 million or more versus the ipo market. i have a couple of my guys who say i would rather m&a. emily: right. that is my next question. you had a big exit with super cell.

do you prefer companies go the m&a route? you get a faster return. ipo is expensive and it takes a long time and you do not necessarily have control over what will happen. brian: for us, we are really focused on building strong, durable businesses. facebook had several opportunities to sell early on and we are happy that they did not and they went the public path, because the public currency has helped them be aggressive with things like instagram. emily: what about right now in this environment where we do not see ipo's, where it seems up the -- seems like the funding environment is tightening up and people are getting more picky? brian: seen public company is -- so, being a public company is a hard existence because if you have one bad quarter, it will take a long time to get things back on track. some of it depends on what is

the setup for m&a? if you have a strong business and you can approach and monday from a position of power, you can set it up so you're running a relatively independent business under the above the -- under the umbrella of the acquirer. so if you look at the opportunities of things like dollar shave and jet have, they are not going to be put in some office on the side. they have important operating roles going forward. it is the founder's choice at the end of the day. it is hard to push someone down one path or the other. especially the m&a path, but if you have a strong business, you will see if you will have an ipo, or if you keep growing the company and think about it , liquidity, sometime down the road. that is the kind of flexibility we want founders to have and that is why they give themselves that flexibility. around the investors and the founders, if they find

something interesting and they want to sell, then you think as , you are going to make the argument but ultimately you will go with him or her, and likewise, if they have an opportunity to sell but they want to continue, then you will do the same. it is our job to present the pros and cons and essentially supported. coming up, startups that improve living standards in low income communities. this is bloomberg. ♪

♪ turning now to impact investing finding profitable , ways to deliver basic services to rural and low-income communities.

the investing partner joined me to discuss. what makes a good social impact investment and how is it different from a consumer internet investment? sandhya: the way we define social impact is a company that can improve the standard of living and then give opportunities to low-income consumers. there are many different ways to define impact, that is what we look for. and in the most important criteria we have when we invest like this is to put consumers first. today, you see a lot of conflict between shareholder interests and consumer interest, but if you look at industries like airline, hotel, banks, there is a certain point between the conflict of what is best for the shareholder into what is best for consumers. the focus of impact investing is

to put low income consumers first for the company, and the goal of the company is to stall as many consumers as possible with the best quality product of service and build a sustainable company around that. and for really good consumer internet companies, they should have the same agenda. there should be a shared vision there, like amazon, for example, would definitely share that same vision. but not all companies are built that way. investors have an activist agenda of saying this , is how the companies should work. they should put the consumer interest first, and that should create the most long-term sustainable shareholder value asset. emily: you are investing in things that people will not only use but need, like energy, education, not consumer products you may or may not use. sandhya: right. exactly. emily: tell me about the specific kind of services that you are focused on. sandhya: we look at what we call

basic services as opposed to discretionary services. like you said energy, education, these areo finance, so-called products that improve the standard of living everywhere. what we do is find companies that can take existing technologies and put together a product that creates access to the service. which means, you take something really standard like solar panels, how do you go create a n electricity service for rural sub-saharan africa? you use simple solar technology available everywhere and has great tech companies like solar city already developing business models around it. we have invested in companies that have now electrified hundreds and thousands of homes. we have invested in companies that offer high quality standardized education services.

again in africa, india, and also work in partnership with local government because they have found ways to automate that product using technology and make it far more efficient than local businesses have been trying to do in centuries. emily: how do you assess risk and return? how might that be different from traditional consumer investments? sandhya: great question. so the way that risk and return work, it is not so much a function of what the company's mission is, it is a option of the market that we are working in. so the market has less money and the return is lower, so if you working in silicon valley, where customers will pay a lot for convenience, versus working in rural india, where people are value conscious and will not pay the same for that service.

so it is much more a function of the market than the business model, which means that when they look at the kind of market we are creating in, the expectations for having successful companies are lower than the return expectations we have from the same business model in silicon valley, so what we do is we adjust our investment model to fit that . andake smaller investments the return rate that we can expect is similar to the venture capital market. emily: how is the organization? i imagine it is different selling a global impact investment rather than what is in the organization. sandhya: for us, we have very, very supportive investors we work with. they are people that understand how technology can disrupt a market, how technology can build affordable and cheap solutions and very expensive solutions. so we are working with people that understand that and are

highly motivated to support positive innovation, which is very focused on a different kind of consumer man more fortunate investors might be, so that is something we have not the -- not had to worry about. running a business comes down to my customer and how do i build something that is cheaper than what my customers willing to pay for? emily: you are focused on india, africa and he used to work at -- and you used to work at sequoia in india, one of the most venture capital firms in the united states. i am curious how their approach to india is different given that that is where so much potential is right now. sandhya: they have a much bigger presence in india. they are a much larger fund, but hopefully in a few years, there will not be much difference. emily: coastal impact investing partner sandhya hegde. that does it for this edition.

we will bring you all the latest in tech throughout the week. tune in at 3:00 p.m. pacific. we will see you then. this is bloomberg. ♪

♪ it is just after 8:00 a.m. in tokyo, the first major market opens across the region. the economyour, how performed, that in the second hour. this is "daybreak asia". ♪ signs of stability, china says the economy remains on track, despite the stumble. >> the latest data expected to show the economist load last