♪ alisa: i am alisa parenti in washington and you're watching "bloomberg technology." let's start with a check of your first word news. president trump's made in america we kicked off at the white house. firms from all 50 states were invited to showcase domestically manufactured products. trump enjoyed overwhelming support from people who voted him in, but they are less enthused on his leadership on health care according to the bloomberg national poll. 60% think it is unrealistic a bill that improves on premiums and coverage will pass. u.s. trade representative robert lighthizer released a comprehensive summary of renegotiating objectives for nafta. the administration plans to seek

a better deal that reduces the u.s. trade deficit and improves market access for americans in canada and mexico. moscow is demanding the u.s. returned the russian embassies country houses seized last year by the obama administration in retaliation for election hacking. russia calls it a breach of international law. o.j. simpson will ask officials this week to let him out of a nevada prison. he served more than eight years for armed robbery after a failed bid to retrieve memorabilia. he will appear by video conference thursday to face parole commissioners. global news 24 hours a day. i am alisa parenti. this is bloomberg. "bloomberg technology" is next. ♪ ♪

caroline: i am caroline hyde from london in for emily chang. this is "bloomberg technology." coming up, netflix's record second-quarter. why content is king as tech earnings get underway. plus, uber fit for business? the west coast head joins us to discuss the business platform and rebuilding the company culture without a c.e.o. at the wheel. and the highs and lows and hacks affecting cryptocurrencies. we dig into what is driving digital currency volatility and the bitcoin selloff. first to our lead netflix's . second-quarter earnings have seen the company shares climb 30%. the streaming service delivered on its key stat, adding 5.2 million streaming subscribers with a big portion of that coming from outside the u.s.

shares are rallying in after-hours trading, up 10%. record highs if they hold onto these games. cory johnson joins us from san francisco. completely smashing it on the subscriber side. now it seems they have 50/50 when it comes to international and u.s. users. cory: i like the way you say smashing. it sounds very british. yes, smashing, and the results are fantastic in terms of the number of subscribers added. netflix wants to focus on its profitability. meager profitability, but some profits nonetheless. as i look at my numbers, i guess what i am looking at is cash flow. the number everyone is focused on now is the subscriber number. here is why. when investors look at this stock, they do not see the financial results needed to grow into this valuation. what they see is a business that might someday generate those results. how do you have the free cash flow to pay for the cool

content on netflix? by having subscribers who pay you every month and keep on paying you. what they see in these numbers is an accumulation of subscribers who are sending their credit card numbers in online and the payments keep flowing, and the hope is we will see geographies that are profitable in the rest of the world for netflix. caroline: 104 million users. they say by 2017, for the first time, international users will bring them some profit. i'm looking at the financial analysis for bloomberg. you can see the revenue breakdown is substantially in the u.s. you are looking at 2016. i am seeing 57% of revenue coming from the u.s. 36% international streaming. they want to get that to 50/50. do we have any inkling of when revenue will come into line internationally speaking and how they continue to do so well in content?

cory: you know me, i am always a pessimist. when i look at these numbers and i look at how little of the u.s. population netflix has when it looks like that market is pretty full for them, it suggests there may be a lot of growth for them internationally. we will see how the spending patterns are different. they do not give us a lot of country by country detail. that might be too much to ask. they got queried the fcc about doing business with sudan, a country u.s. companies are banned from doing business with. they pointed out their revenues are de minimus in sudan, as low as $8,000 for the 15 months that preceded their letter to the fcc. so the $8,000 not moving the needle, but i do think it is kind of important. it tells us not every place is going to run netflix like they do in san francisco or in london. in fact, the different parts of

the world are different. it is not just about the way the internet exists in different countries. people are just not going to be able to stream as much in certain places. they will not want to stream the netflix content as much. it is still a hit driven business. they have done a good job with shows, whetherd house of cards or luke cage they . have done alright with some of these things. a lot of stuff has missed the boat. that is tough to deal with, dealing with so many different geographies and cultures. caroline: that is what helped the second quarter, an amazing array of content. it was really interesting if you dig into the letter you are getting from the c.e.o. to investors, he seems as though he is trying to deflect competition saying there is room for everyone. in fact their words are they , make the internet tv market expand. they say hbo has exclusive

content. more people are using hbo. we have exclusive content. more people are using us. more people are using youtube. is he really right? why is he trying to downplay the competitive landscape? cory: it is ridiculous. it is flat-out ridiculous. it is great for us as viewers and great for us if we are creating content. we are both of that. it would be more fun if we were in hollywood doing that. but it is horrible for netflix because the cost of content is going up. the number they do not put on the balance sheet is their long-term cost of content. at the end of last quarter, they had over $15 billion in long-term commitments to content. that number is going up. how high is it right now? we do not know. they will not tell us until they release the quarterly finally. filing. what is interesting about today's report is they put a separate presentation on their investor relations page explaining the accounting for

those long-term commitments in content. i will tell you for a business getting a $50 million profit every quarter with $15 billion in long-term content, it is hard to pay for $15 billion in content when you have a run rate of profits that is about $100 million. if you want to go 10 times that, it is still hard. they are going to have to jack up profits a lot. the problem with hulu, hbo, and showtime raising the cost of content is they are raising it for netflix when netflix does not have free cash flow to burn. in this quarter, netflix lost over half $1 billion in free cash flow. that can't continue forever. caroline: it certainly cannot. cory johnson, stay with us for a moment, because i want to go into another company where profit is keen to the eye. it is a stock we are continuing to watch. blue even dropping as much as

12% in monday's trading session after amazon filed a trademark application for a prepared food kit. blue apron tried to calm investor fears during the ipo roadshow. now amazon meal kit seriously undermines that pitch. amazon gets in everyone's face. it had already been flagged for blue apron. with this trademark coming out of the weekend, it is clear it will eat blue apron's lunch. cory: so to speak, really? i think the market has this one wrong. nobody asked me. amazon is not even in this business yet. if you know anything about the restaurant business, you know food offerings fail all the time. just announcing you will get into a business does not mean you will do it well. blue apron is failing on its own in terms of its marketing expenses, spending spending 25% of revenues on its marketing costs.

it's cost of adding new subscribers is hundreds of dollars and going way up. they cannot keep the subscribers they have got. they are spending more to acquire new subscribers. that is the problem with blue apron's business. restaurants are tough. food delivery is tough, but if you get the blend right, if you have the right recipes, the right costs, if you give people what they want, a meal quick to cook that tastes good enough and delivered the way they like it, i think these businesses can be very successful. what we see in blue apron is they are not able to get to the scale they want affordably. i think it is ultimately about the recipes. unless they can get to that, they will have a struggle whether amazon is competing or not. amazon will have to solve the same problem and have to solve that same problem. caroline: all eyes on hellofresh in europe, owned in large part by rocket internet. thank you, cory johnson. coming up, tesla adds two new executives to its board.

this after months of pressure from investors. we will break down the decision next. this is bloomberg. ♪

caroline: tesla shares falling as much as 4% in monday's session after a man initially claimed his vehicle suddenly accelerated after he engaged the cars of driver assistant system and crashed into a marsh. despite the day's decline, is has rallied on anticipation of starting production. elon musk in fact queried if it had gone too far over the weekend. it added two new executives today. the c.e.o. of 21st century fox and the chair of johnson

publishing will join tesla's board. joining us is david welch from detroit. plenty to digest. let's do the new board members first. this comes after plenty of pressure from investors. i think we are having technical difficulties with david. david, can you hear me? >> i can hear you now. caroline: let's talk about the board members first. plenty of investor pressure to do this? >> yes, there was. this goes back to april. you had a handful of pension funds to add people to the board because he has a seven-person board, one of whom is him. five of the others have connection to him, spacex, or solarcity, which has been merged into tesla. they are mostly insiders helping him to run the board. as you recall come back to the solarcity merger last summer, there was a lot of dissension among investors who said that

company was run by his cousins and he had two boards of people knowing each other agreeing to get together. you had all this pressure coming up. elon said in april we will add two new members to the board, but a lot of shareholders wanted him to have annual elections. you have a couple of new people coming on. they are both media executives. i am not sure this will keep everybody happy because you still have a large number of insiders or friends alongside him. caroline: talking of how investors might not always like what elon musk has to say, we have seen c.e.o. elon musk saying over the weekend the company's current share price , he in fact mentioned perhaps -- have a listen. >> i have gone on record several times saying the stock price is higher than we have any right to deserve.

and that is for sure true based on where we are today and have been in the past. the stock price reflects a lot of optimism about where tesla will be in the future. caroline: he cleared up those comments on twitter today , writing, "i should clarify tesla's stock is high based on past and present but low if you believe in tesla's future. place bets accordingly." what do you make of this backtracking and what it meant for the share price? >> it is just another day in the life of a tesla investor. right? he says over the weekend, they are overvalued. the shares of open down. there's a car accident involving autopilot and the shares go down some more. it turns out it did not really involved autopilot according to the owner and the shares come back up a bit, so it bounces around in just one day of trading. that is kind of how these people live. he has said before the shares are overvalued. i think he is trying to take

a little bit of the pressure off of himself because they have a very big year. this year and next, they have got to launch the model 3. it has to be pretty flawless and they have to show profit eventually to deliver on the expectations he is talking about. i think that is what is driving a lot of what he is saying right now. caroline: fascinating stuff. you brought is that complicated news of an autopilot issue that was apparently not an autopilot issue. great coverage of that. thank you for joining us from detroit. coming up, we bring you a sitdown with an uber executive on the prospect of growth for the embattled startup after a tumultuous few months. ♪

caroline: there is a mass s happening at

hampton creek. the entire board has reportedly abandoned ship according to people familiar with the matter who say the only board member left is the c.e.o., joshua tetrick. at least five directors have quit over the past month. others were fired or have worked out since april. the news comes after a string of controversies last year, including a bloomberg report showing that hampton creek quietly bought back its own products from supermarkets. now the global business travel association convention has kicked off in boston. the annual event is the world's largest business travel event , hosting over 7000 business professionals from around the world. one big name in attendance is ride-hailing giant uber. erik schatzker caught up with head and askedst about the companies corporate program and how it differed from the traditional offering. >> uber for business is effectively a tech layer, a platform we put on top of the existing application.

where that came from was, in the early days of uber, we saw a ton of momentum coming from the business traveler community. and as a result, we realized there was a lot of friction for business travelers that we could remove. uber for business was initially intended to remove that friction. we are continuing to extend the reach of uber business into other avenues as well. to appealare trying to corporate customers, what services do you feel you need to add? or is this tech layer baked in? >> uber moves people and things. in the most fundamental sense, we are putting people and things in cars. for businesses, this is about your employees, your customers, so moving your customers to bring them to an event like this or send them home from the auto dealership when they drop off their car for repair.

and then finally, there is the movement of goods. you want to get goods to customers or pull things from customers. as we start to build this business and platform further, we focused on the low hanging fruit which is business travel where we know the most because there are so many people are already using it. it is a $250 billion market opportunity globally. >> uber has been prospecting for growth on a lot of fronts. food, logistics, freight, self-driving cars, flying cars for example. how fast does uber for business need to be growing to remain a strategic priority? >> at uber, we focus primarily on the customer experience. are we solving big enough experiences for our customers? the answer is yes. the roadmap we have is going to continue to have us solving more and more interesting problems as we evolve the business.

>> do you see growth accelerating? >> we see growth accelerating. >> a lot of uber's success was the product of deals emil michael did. he was instrumental in the early days of uber for business. now that he has left the company, where does that leave uber? >> we are set up for success. the work done by the team over the last five or six years has set us up in many ways strategically, domestically, internationally for success. we are in a really great place. >> what about travis? how have things changed since he left as c.e.o.? >> it has been a short time. the company is incredibly focused on solving the issues in front of us. we are focused on solving the cultural issues. the leadership aspect we are focused on. finally from a driver

perspective, you have probably seen the recent releases around tipping, wait time pay, all these sorts of things are actions to start to solve some of the things that have been exposed over the last few months as issues. >> you came in only a few short months ago from facebook. given the culture there, did you see those as deficiencies at uber when you arrived? did you see a need for them to be changed in the way they are being changed now? >> i will tell you this. facebook has an amazing culture. that is something that has been cultivated over the years. uber has all of the nuggets that you need to build a great culture. it is just a matter of maturity and the leadership structure, the organizational structure continuing to evolve which we are heavily invested in now. >> here is what outsiders wonder

and perhaps insiders as well. whether it is uber for business, the uber app, how does a company make big and important decisions without a c.e.o.? >> i don't know i have the right person to answer that question. >> but you have to live with the consequences of that situation. >> yes. >> who is calling the shots for you right now? >> there are a myriad of different people who were already in place when the executive team left, and they are incredibly competent leaders. they understand the business and have taken the reins. >> do you think morale is a risk given the fact something so many employees are looking for, the the ipo, is on hold until management issues are resolved? >> we are focused on resolving any sort of morale issue. i think as we start to have things like what you saw from the driver rollout, as we start

to put people and pieces in place for an evolved culture, i think that will be solved. >> having spent so many years, seven years, at facebook, you know what sheryl sandberg can do and has done for that company. would you like to see her coming come and run uber? >> i cannot comment on that. i think any opening would be happy to have someone like sheryl sandberg. caroline: that was uber's west coast head, peter jonas. coming up, we bring you the global head of business travel for airbnb to get his take on the next year of growth. if you like bloomberg, you can listen on the radio. this is bloomberg. ♪

>> it is 11:29 a.m. in hong kong. i am all allen. malcolm turnbull has announced a shakeup of national security, creating a new ministry of home affairs that combines authority over federal police, security, intelligence, and the border force in one portfolio. the opposition party calls it a lurch towards a police state. brazilian judge has denied a request for companies and individuals related to a dam disaster to pay financial guarantees. and vale do not

have to pay while the case is being tried. 21 people face charges, including murder. 91 people killed when the dam collapsed. makers voting for a new president. governor of the eastern state and a longtime associate of a hindu group accused of stoking religious hatred. the votes will be counted on thursday. kovind is seeing winning easily. global news 24 hours a day powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. pbothe stock rally hitting a wall. the updated data is helping to sustain a rally in the yuan.

ore surging, oil extending a winning streak. safe havens like the yen and gold catching a bid, and the dollar sliding today along with on thetures as hopes ebb health reform bill. back below225 load 20,000. aussie stocks down by 1.3%, bond yields rising, and the aussie dollar popping 1.2%, catching up with that surging euro. are seeing a reversal for losses in the key weak dollar, , shaking up doldrums

sparked by week inflation data. the kiwi trading at the horizons november 2016 after falling in the early hours tuesday morning. ♪ ♪ caroline: this is "bloomberg technology." i am caroline hyde in for emily chang. it is making a push into the world of business travel putting the company in more direct competition with hotel chains. we send it out now to erik schatzker who is standing by with airbnb's global head of business travel. >> thanks very much. i'm here with david holyoke from airbnb for business. good to see you. announcer: the corporate lodging market is enormous, hundreds of billions of dollars. help us understand where this fits into airbnb's business strategy now.

what percentage of airbnb's revenue does it account for? if you are successful, how much could account for two or three years from now? >> today, it is 15% of our trips. that's how we look at it. by 2020, we expect it will be about 30% of our business. >> with airbnb presumably growing at that pace, it will be vastly larger. >> we will grow at a 4x clip and keep that trajectory for the next few years. as the core business is growing, that is our challenge to continue to keep up with that pace. >> last week, you signed a partnership with the company . what does it entail? why is it important? all of those companies are

taking something in the way of the business you want to do directly with your customer. companies need to be able to have visibility for their employees. there is an element to that where you will need to work through some channels to help them manage that. onpill your inventory end the established business travel service companies? we have third-party booking capability on airbnb.com today, so anybody can book on behalf of a guest. how that evolves, those are conversations we will continue to have. had you anticipate or expect the hotel industry to respond by this incursion?

>> i don't lose a lot of sleep about what the hotel industry is .oing it > >> why not? here to make a direct assault the hotel industry. we are a complement to traditional accommodation, and we look for where the use case is maybe not ideal with the hotel and how we can complement. >> they see it differently. that should not surprise you. the american hotel and loving association is complaining the playing field is not level, , ther because airbnb properties don't have to comply with the rules and regulations the hotel industry must comply with. for example, access for disabled people. >> we have over 275 agreements

in place and we continue to show we want to work with government and with community to make sure this is done in a responsible way. >> i can only imagine that if i would think ofi that as a legitimate complaint. i'm sure there are disabled people who would show that point of view. is it reasonable to expect that the people who would list of properties with airbnb for business would make the investments the hotel industry has had to make to bring those properties up to the standard for the fair disability act? >> i don't want to comment on the fair disability act, but what we continue to do around standards on our properties. , a subset of our 3.5 million properties around convenienceave

features, checking features, safety features that are more in line with what you would expect from business travel. thehat are some of requirements you need to meet to deliver of business ready launching product compared with what many of us might know as an airbnb for leisure purposes? you mentioned some of them. homes orare apartments, so is the actual residence. it is 24/7 check in. as business travelers come and go, you work on their timeframe. safety features, things up to code, smoke the attackers, carbon monoxide protection, and you want to make sure there is reliable wi-fi, things that a business traveler would not want to pack are made available in the home for them. is maintaining quality

control, i have to imagine it involves more on the part of airbnb than your leisure properties do. >> we care a lot about quality. you do a lot working with our host community to make sure they are educated around what guest'' needs are so they can continue to deliver a memorable experience. we will continue to refine and improve on the quality. degree the hotel industry is successful in waging its battle against what they perceived to be a threat, will you respond similarly in the way airbnb has in san francisco and new york and fight for your own interests? >> we continue to demonstrate our commitment. we work with cities to find out what their concerns are and how we can work together. we are protecting a community. areant to make sure we

doing right by our guests and hosts. >> i want to thank you. nice to see you here. the global head of airbnb for business. coming up, ibm betting g on cybersecurity. how big blue is planning to bring encryption to all of your data, next. ♪

♪ caroline: now to another interview for you. the cyber security industry is booming.

according to the market research firm, it will reach over 171 billion dollars global revenue by 2021 driven by fears of hacks and losing confidential information as attacks continue to rise. one key tech giant is betting big on cybersecurity. ibm announced a rollout of the mainframe capable of handling 12 billion encrypted transactions a day. it seeks to address cyberattacks which have compromised financial data. joining us to discuss from cambridge, massachusetts, ahead of threat intelligence for ibm. thank you for joining us. talk to us about the new mainframe. you are working with companies who want encryption. how big a revolution is this? >> this is a really big deal.

this is the largest innovation on the z platform in a decade. what this involves is looking at encryption and how we make it pervasive. in this particular case, we are talking about a system that can process 12 billion transactions a day. to put this in perspective, let's take something like cyber monday as an example. on cyber monday, we see maybe 30 million transactions globally. this single system can process up to 12 billion transactions a day. part of the technology that comes into play is this new chip. on this chip, we have over 6.1 billion devices. 14.4 miles of wire. there are 24 of these in a single new ibm z. caroline: how difficult was it to do? how much r&d and time? you were doing this over the course of two years with 150 companies. >> we work with a variety of companies including high mark health care that services about 50 million americans in the pittsburgh area along with companies like adp. what is important to our company customer base is they have a way to encrypt traffic and data. if you look over the last five years, over 9 billion records lost or stolen. only 4% of those were encrypted.

why is that the case? historically, it has been too expensive. i don't mean expensive just in terms of money. expensive in terms of processing time in order to encrypt all of that data. one of the things the new system does is make the encryption everywhere pervasively possible. caroline: how expensive is it if i want to upgrade to the new mainframe? >> for new customers, this new mainframe costs about $500,000. but when we consider the average cost of a data breach is about $3.6 million, this is a good bargain considering the threat out there. those numbers go up or down depending on the number of transactions and the configuration a particular client might have. caroline: you have been working on this understanding what they want and need, how big of a mass adoption do you need for this to make inroads?

>> because we have worked with clients along the way, we know this is something badly needed. let's put it this way. 2015 was a great example of the problem. just the first half of 2015, 100 million people lost their health care records. those health care records contained data that cannot change like your social security number, the fact you have diabetes, your mother's maiden name. if we think about that, that is roughly one in three americans lost this data forever. if that data had been encrypted, all the bad guys would have is gibberish they could not read. that is why this is so important to us. you have to remember that most of what we are dealing with is organized crime to the tune of a $445 billion industry every year. if we can pervasively lay down encryption on top of our data, we can change the economics for

the bad guy, making it more difficult and expensive for them to get access to our critical data. caroline: how much do we need the whole ecosystem to take this on? clearly if one company starts in , thatting their data helps, but there is so much interconnection between businesses nowadays. how much of corporate america do you need to get on board and use this if you are going to be able to stave off these attacks? >> you are on a key point. encryption and having encryption pervasively is incredibly important, especially when we talk about large transaction volumes. the beauty of this is most people end up having their data on a system z and may not even realize it. 87% of all credit card transactions occur on system z. so part of what we are trying to do is make this possible. then you are absolutely right. what we need to make sure encryption occurs everywhere regardless of what platform it operates on because it is so important to protect our data.

caroline: what about regulators? how are they reacting to this? many have a headache when it comes to encryption for our own use of communication when it comes to the like of whatsapp, facebook. are they going to be able to access the encrypted data if need be? >> the keys are in the hands of the customer. in those cases, they would need to go to the individual that owns the system and get access to those keys. remember, we are talking about backend transaction systems. we are not talking about a phone or consumer device that has g.p.s. information, things like that. i think we can all agree if we are talking about our travel records, banking records, health care data, think these are things as a society we can all agree are best kept locked up. caroline: i agree. the ibm vice president of threat intelligence, caleb barlow, great to have you live from boston, massachusetts. thank you for joining us. coming up, a hack into the latest initial coin offering

raises more questions about cryptocurrencies. we will discuss what is behind the digital currency selloff. a quick programming note, erik schatzker interviews barry diller. catch that conversation this tuesday at 1:00 eastern. this is bloomberg. ♪

caroline: bitcoin investors have been on a wild ride this year with a digital currency more than doubling before plummeting last week into what is labeled a bear market. a third oft losing its value since june. now we are going to discuss what is driving the fluctuations in the market for cryptocurrencies with lily katz who covers the cryptocurrencies for bloomberg news. talk us through it. it is interesting with bitcoin, there was real buildup toward the end of the week where we could see bitcoin 2. remind us. >> after last month, bitcoin surged to an all-time high of around $3000. in the last couple of weeks, it has lost around of its market one third value. in the last week, it fell below $2000. a lot has been going on in the

cryptocurrency world. one of the hottest debates has been the scaling debate. for the last couple of years as bitcoin has become more popular, its blockchain has experienced some congestion, slower transactions, and higher fees. two rival camps have emerged. they both have their own ideas about how to deal with these issues. everyone in the cryptocurrency community is gearing up for august 1, which is when we will get an idea of who wins the battle. one side has proposed a software update. but if less than 80% of bitcoin miners implement the updates. , then there is a chance bitcoin could split and there would be two separate cryptocurrencies. this has caused a lot of volatility in the market. caroline: we have seen some sort of precedent for this before. ethereum did split into ethereum classic and ethereum.

talk about the other cryptocurrencies. it's not just bitcoin seeing a selloff. we have seen ripple, ethereum, many other cryptocurrencies down. why? >> i think investors tend to lump cryptocurrencies together as one thing. the whole cryptocurrency market has lost a substantial portion of its market value. in june, the peak of the whole cryptocurrency market was around $115 billion. now it is around $70 billion, so the scaling debate is one thing. i've heard people say maybe some of the interest and initial excitement is starting to wear off and then there are continuing concerns around the security and safety. caroline: talk to us about those initial coin offerings. we saw one today that did not go quite according to plan, a hack actually affecting one. it seemed very easy to do.

>> there is a start-up called coindash. they offer the cryptocurrency base trading platform. today, they were scheduled to start their initial offering and were planning -- hoping to raise around $12 million in that ipo. and they were hacked and lost around $7 million. they said the address they had told investors to send money to was compromised and exchanged with a fraudulent address. and so $7 million was stolen. they had to stop the ipo. they told investors they would refund the money. this adds to concerns in the market about security. there have been other hacks. it is definitely something investors are focusing on. caroline: fred wilson in new york saying easy come, easy go sometimes. don't always suspect a lack of volatility. thank you very much, lily katz. fantastic reporting, making a

complicated situation easy for us to understand. thank you. coming up, we will be discussing the next addition of "bloomberg where tuesday's show will be from the tech conference in aspen. ♪ qqqqqqqqqqqqqqqqqqqqqqqqqqqqqqq

♪ yousef: the u.s. ways to measures on iran, saying it is complying with the letter of the nuclear deal but not the spirit. >> asia-pacific shares are under pressure after a six-day search that to them to the highest. local stocks at an all-time high. -- global stocks at an all-time high. nosef: the uae says it warns -- there is no solution