emily: i'm emily chang in san francisco. this is bloomberg technology. a rare miss for facebook. plus, on the heels of facebook results, investors gave a thumbs several tech peers in market trading. qualcomm terminates its deal to acquire nxp, bringing an end to

a nearly two-year saga. we discuss where they go from here. to our top story, facebook shares tanked in after-hours trading after a lackluster second-quarter report. this is the first time they see user disenchantment in the midst of the scandals. in a very rare occurrence, the tech giant missed estimates on revenue for the first time since 2015. investors seem to be shocked the social platform's revenue is not continuing. facebook also missed the monthly daily active users. users remained the same in the united states and at 185 million and declining in europe to 279 million. from new york, we have david kirkpatrick. we also have melissa parish of e-marketer. melissa, what is the biggest headline here?

>> the fact that facebook has not missed in quite some time. an 11% year-over-year increase is still a win. the headline is perhaps a little different than my own interpretation of the numbers. emily: and david, they missed, but not by a lot. are investors overreacting? david: it is a historic day because it is a sign of a turn. i would also agree with melissa, revenue is up 42% year-over-year. this company is not hurting, but they did disappoint expectations and that is historic. it is probably healthy for the company to see the results get criticized because it will force them to take these problems they are in the midst of even more seriously and be more candid with how they are addressing them. i do not think they have been very candid. although, some results suggest they spent more than we thought

trying to remediate it. emily: we have great commentary happening right now. a lot of people are asking perennial questions, has facebook reached the end of new users? melissa, what do you think? melissa: i think that is a fair question to ask. they are at 30% of the worlds population. there will be a ceiling at some point. i do not think they are there yet. we know sentiment and interest among the users has not been as strong as previous generations, i still think there is room for growth. there are in off a lot of young people in the world who have yet to get on facebook >> david, how much does this have to do with scandals do you think over data privacy? david: as you asked the last question of melissa having being no longer

possible, i think it occurred to me that there are still people to come to facebook. we know for example in india, people are flocking on facebook right now. if growth is slowing globally, it could mean even more people are coming off in some of the more developed countries or slowing their usage. that could be significant. those are the users that are the most profitable for facebook at the moment. there is a massive unserved community of people in the billions in the developing world that once facebook, will get facebook. growth has not ended for facebook. again, this is a historic shift. things are not as good as they were. that is significant. emily: i want to talk about instagram, facebook does not break down instagram revenue. according to estimates, it is continuing to grab a bigger share of that ad revenue pie, continuing to grab more users. melissa, instagram is saying they will generate 8.06 billion

dollars in ad revenue, giving it 3% of the total ad market in the world. that is kind of huge. melissa: it is huge. i cannot speak to e-marketers numbers but at forrester we list something similar. this is not surprising looking at other trajectories that are trending. internet usage has been moving mobile on a global scale for the past many years. one of the other interesting numbers i thought about facebook's earnings was that 91% of their ad revenue was now coming from mobile. the portion of the pie is continuing to grow as well. i think we will see that shift a bit as other rivals start to shift more toward mobile as well. i think instagram is capturing a large portion of the mobile dollars because of their innovation in their ad product and core products as well.

emily: david, at a certain point, could instagram outshine facebook or become an actual threat to facebook? david: you foreshadowed what i was about to say. i think instagram is doing so well and it seemed so well-suited to the psychology of the modern internet user, compared to facebook, which is a dated framework. it is a 13-year-old product. i think instagram could become the core of this company down the road. somebody i heard earlier said maybe they should spin it off and make it a separate company because that is where the future lies. facebook is still a very healthy business despite today's news. but instagram may be a key part of the company's future. it is brilliant that they bought it. it is worth hundreds of billions now. they paid $1 billion for it.

emily: mark zuckerberg opened the conference call talking about a new metric saying they are releasing the number of people who use at least one facebook app. 2.5 billion people every month. that is facebook, instagram, messenger, whatsapp. is this new metric something you think counts, melissa? melissa: i think it is because does, because the idea they are truly diversifying in the terms of the products they offer in the marketplace is important. because of what david was saying, this is a strong business. the more we look at the different products at make up their portfolio, the stronger i think the picture becomes in terms of long-term growth. i like this metric and like that we are not slumping every user -- lumping every user into the core product or assuming that is what it means. emily: melissa parrish of forrester and david kirkpatrick of techonomy. david, you'll be sticking with me.

the attributing the user dip in europe to gdp are. we will be covering facebook more throughout the show. paypal stocks after the third quarter revenue was projected below estimates. payments were up 5% by the second quarter and added 7.7 million customers. earnings-per-share came in at $.56. the revenue was $3.6 billion. the estimates was 3.81. coming up, we turn to the chipmakers qualcomm, the ceo says it is terminating the deal to buy nxp after it was held up by chinese regulators. we spoke to nxp on the earnings next, and xp on the earnings call. the decision to move forward without nxp was a difficult one. we weigh the risk against the

likelihood of a change in the current geopolitical environment, which we did not

emily: qualcomm announced it is abandoning the bit to acquire nxp, which would have been the largest deal in the chip industry. this is after chinese regulators held approval amid rising trade tensions with the united states. the news came as qualcomm released its earnings in the company outlined its plans to live back nearly $30 billion or so worth of shares. in washington, we have isaac stone fish. how big of a blow is this?

isaac: they had banked a lot of its future on a merger with nxp, and now that it is not happening, there will be questions long-term about what the future of qualcomm is. and, how it will be able to grow. it did cushion the blow today with the stock buyback announcement, but that probably will only give a temporary boost to the stock until we get a little more clarity from management on what they can do. as far as nxp, it is murky on what options they have. in less some of the rhetoric on the u.s. side between the u.s. and china changes, in the next few months, i think both companies will have to go on sort of a solo path if you will. emily: nxp has a tough job ahead convincing investors it is an independent company and has a strong future in doing so. the ceo of qualcomm said they had to move on. there were probably bigger

forces at play than just us and we are still big fans of the deal. chinese regulators as far as bloomberg has been reporting on track to approve the deal, but did not. they did not say no either. what should we read into this? >> the ceo said a week ago in the "new york times" that trade tensions had is something to do with this deal being held up. this is a very classic beijing strategy. they did not deny the deal, they did not block it, no official statement saying this deal is not going forward, they just let the deadline expire. we're six hours away. they said we will just let this one go. it gives them somewhat plausible

deniability when they're having this conversation. they say we did not have enough information from qualcomm. this is not part of the trade tensions. if they do make the point with of the u.s. side, it allows them to say we are blameless on this. you guys have to make other concessions. emily: how big a shadow does this cast on potential deals in the chip industry? this after president trump the -- after president trump essentially blocked the acquisition of qualcomm by broadcom. romaine: there's a pretty clear message coming out of the administration here. that's really any mergers, especially cross-border mergers are going to be denied. not in the context of whether it is good business, but whether in the context of whether it is in the trade war or in good politics. he saw qualcomm alluding to that and that is one of the reasons they wanted to walk away. i think that will give a lot of

companies pause going forward because you're not really navigating antitrust issues in some of the more traditional issues with regulators. this is really about how does your merger fit into the new policy initiative by the united states government, and doesn't -- does it conflict with what they are trying to do in asserting their influence over trade partners. emily: the blocking of the broadcom and qualcomm deal is something qualcomm wanted. isaac, has president trump hurt an american company, qualcomm, as a result of this america first a strategy? >> it certainly would not be the first time. i think there is a lot of frustration among american companies about how trade tensions are going and tariffs on chinese goods making it harder to deliver products to american consumers.

american companies don't have the same of session with the trade imbalance that trump does. trump, navarro, other people at the top of the administration feel strongly about rectifying a trade imbalance, but most of the serious economists out there and businesspeople out there do not feel that is a problem in terms of doing business with china. there are more interested in intellectual property issues in market access issues. they don't care about the trade imbalance. emily: qualcomm, romaine, has other problems. the stock is on his way to its third year of annual declines and also in a big standoff with apple around the world. romaine: that is getting overshadowed. the stock was down 8% this year before today. yet to consider the rest of the semiconductor space was up about 9% so far this year. it is really lacking. lagging. that is because of the fundamental issue plaguing this

company something we did not see , a lot of discussion about. this is something i think once the euphoria over the buyback dies down, investors will have to reassess, is the growth is still there for this company? can they resolve the issues that they are having with apple? those questions are still out there now. emily: bloomberg's romaine bostick and isaac stonefish, we will continue to follow. facebook's second quarter was lackluster, but what does that tell us about how users value their privacy on the social media site? we discuss that next. this is bloomberg. ♪ emily: facebook is out with

second-quarter results. since the first time since 2015, facebook missed topline estimates as the data scandals piled up. this comes as pew research studies showed the majority of adults say they do not have confidence social media companies will adequately protect their data. they also say while the users new -- knew about the cambridge analytica scandal, they did not change their passwords. data, -- david, we have conflictingnew information about how much users actually care about privacy. us facebookshow user engagement is decreasing. how much do people care about whether or not facebook is responsible with their data? >> people are starting to care a lot more than they did several years ago. we surveyed our users and found

most of them said about 70% of the time, they do not mind sharing stuff on facebook and are not concerned about their privacy. 30% of the time, people said they were very concerned. that 30% is when it comes to your health, wealth, family. those are the things that people are concerned about and they want to protect, and they are looking for simple solutions to tech their digital lives when privacy matters to them. -- protect their digital lives when privacy matters to them. emily: should we be suspicious of facebook? david: my biggest concern is not that they share our data with advertisers, they are not only selling our data, they are also buying it. if you are on another website, they could add that search information to your profile. that information could be sold to facebook.

they could get more information you never explicitly gave them. everybody is so focused on facebook selling data but they are ignoring the fact that they are buying your data from other sources. it is not just facebook. there are a number of corporations, governments, and hackers that have a lot to gain from exploiting our data. it is hard for consumers to take control over the privacy and security into their own hands. consumers and businesses. emily: you're talking about a number of different issues coming up in mark zuckerberg's testimony. lawmakers asked him about this. david kirkpatrick, indeed, facebook is doing other things aside from selling facebook to advertisers aside from just renting our data essentially to advertisers, but do you think this drop in users, this plateau that we may be seeing, it is it just a blip or a longer trend? david k.: that is a $64,000 question emily. i don't think there is a reason

to see fundamental shift toward a long-term trend. it is a decline in rate of growth really. i do think in developed countries and even in some of the key developing countries like india, which is growing but where these issues matter, the issue of privacy, issue of how much data facebook has and how it treats that data, is extremely important and of concern among consumers. i don't think the company has done a good enough job explaining to people how they think about the data. the gdpr problem in europe that has affected the number of users there, it's maybe a signal of where we go elsewhere. other countries will impose rules that are not that dissimilar to the gdpr. i think facebook has to change

the way they relate to their users and they are starting to do it, but not fast enough. emily: buzzfeed published a memo from the facebook security chief who was on his way out the door , talking about how we need to build user honesty and not just optimize to get clicks. there is interesting data about spikes in usage, around things like target breach, icloud hack, u.s. presidential election, but how do you think user behavior around privacy is going to change? is this something users will pay for? or that they will expect for free? david g.: some people are willing to pay for privacy read some people expected for free. in the u.s., about two years

ago, privacy was something that only technology geeks cared about. today it has gotten mainstream. if you look at the apple app store in the top 50 most popular apps, you will see facebook, twitter, instagram, and others. among the top 50, we are the only privacy and security related product in the u.s., it signals millions of u.s. consumers have a found that security and privacy is important to them. it went from something really niche to something that is really mainstream. more businesses are realizing their data is on facebook, their data is all over the internet and they look to protect their data. hotspot shield is more than just a vpn. it protects against a number of different online threats. one is that it makes your ip address anonymous. it also encrypts public wi-fi if you're connecting to the web connecting at a public location.

malware is a lot more robust on -- it is a lot more robust on mobile. and works very well. emily: quickly, david kirkpatrick, is this something you see taking on more broadly among u.s. and global users? david k.: i think the thing gaining a lot of interest in the tech industry. there is this idea that users should be paid for their data instead of having it taken from them and used to target advertising. there is an extraordinary explosion on people working on systems that might allow people to somehow monetize their own data rather than have facebook do it for them. i do not think it is inconceivable that facebook could do that as well. emily: david kirkpatrick and david gorodyansky, thank you both.

coming up, a question that has been asked for years. is facebook finally running out of new users? we will discuss. this is bloomberg. ♪

emily: this is bloomberg technology. i am emily chang in san francisco. things don't seem as good as they once were for facebook. for the first time, facebook missed estimates on revenue. zuckerberg document gdp our laws. -- talked about gdp our laws. mark zuckerberg: gdpr was a big time for our industry. we saw a decline in active users in europe. at the same time, we had users confirm they want to

make asthma relevant and improve overall services. emily: joining us, james and martin. martin, you don't have a position in facebook but you do , follow the company closely. how much does this have to do with concerns about data and privacy? martin: we don't have a position in facebook because its esg score is relatively poor compared to the rest of the tech sector. it didn't meet the cut off to be included in the portfolio. emily: what does that mean? martin: in terms of scores for environmental, social, and governance, compared to the rest of its peers, it scored poorly, and that was related to data privacy and security concerns which caused it to be downgraded

from a bbb rating to a bb. the lowest rating within our tech sector is a single-a rating. emily: it is a miss across the board's but not a huge mess. james: by facebook's standards, it is a surprise. since the ipo, they have performed reliably. there revenues continue to grow at 40%-plus. i think it is important to have good contacts. facebook has indicated that the gdp our will have an impact-- gdpr will have a good impact. heading into the close, facebook has been trading at pretty much all-time highs. wall street pretty much ignored that and assumed everything

would be picture-perfect. it is not picture-perfect and i think that is why we are seeing this. emily: how much do you think this has to do with carriage analytical concerns, -- dow tih can bridge in a -- do with cambr idge analytica concerns or is , the market just saturated? martin: it has definitely slowed up in north america and obviously declined a little bit in europe. some of that will be driven by cambridge analytica. i think another stat is that their headcount is up significantly and a lot of that is driven by user moderation. some of that is driven by cambridge analytica, but also around the spreading of so-called fake news. what did those issues mean for the company? does it effect profitability and dent the efficiency of the operating model? emily: does it affect the rest of the sector?

we saw strong earnings from alphabet. we have been wondering whether the high that tech has been on will be continuing or not. james: it is important not to lose sight of context here. facebook is still trading at pretty much all-time highs. we had a metric come out this quarter, that they have 2.5 billion unique users across all their platforms. i only need two fingers to count the amount of companies with those kind of metrics, and it is google and facebook. they will continue to have that strong position. instagram will almost certainly reach 2 billion users, and they are about to turn on the monetization for whatsapp and messenger. there is plenty of potential ahead. emily: facebook, session low, down 17% in after-hours trading.

instagram is the shining light, by all accounts. estimates are consuming a piece -- bigger piece of that digital advertising pie. what about the rest of the sector? we are still in the middle of earnings season. we have seen reports on both sides of the coin. what is to come? martin: we have definitely had a massive run-up. i think james is right, context is important. what is important is looking at how the long-term operating models work and possibly how certain operating models need to be tempered. it doesn't necessarily mean they need to be thrown out completely. emily: facebook cfo, dave wagner, speaking on the call. he talked about what is driving such rapid deceleration in revenue growth.

he talked about currency, he talked about engaging new experiences, giving people more choices around privacy. which of those stands out most to you? james: i think video is the most obvious opportunity. i think facebook has been pursuing that wisely. facebook watch, their viewing platform, has been gaining traction. that is where they have the most leverage. the video platform they launched just a month ago, that could become a one billion user platform. being a video platform, you can rack up hours of daily usage time. the global advertising industry for tv is still $200 billion large, and that would give facebook plenty of room to grow. emily: james wang, arc investment, and martin, thanks. spacex launched a rocket from

the california coast, the14th mission of the year for the company run by billionaire elon musk. they are looking to launch 30 rockets in 2018. coming up, we will hear from blue energy ceo as the company looks to get the public market. shares are spiking over 60% in its first day of trading. why it is so rare for public energy companies to go public at all. this is bloomberg. ♪ emily: manhattan office

buildings and sprawling data centers cannot get power without connecting to an energy grid. blue energy is making that happen. the $270 million ipo means more cash to fund expansion. it is the first alternative energy ipo the u.s. since october 2016. the best debut of the past five years. shares were up over 66% in its first day of trading. alex barinka reports. alex: imagine a future where anyone can be their own power provider. that is the vision that the blue energy ceo set out to create. now he is selling that to public market investors. bloom energy began trading on the new york stock exchange this

-- wednesday morning. valuehave a very simple proposition. we are more reliable than the grid. we are cleaner than the grid. we save them money. alex: bloom sells what it calls energy servers. they are customizable systems that generate power for companies like morgan stanley and at&t, without the need to connect to a power plant. these high-tech boxes run on natural gas or biogas 24 hours a day, seven days a week. only 1% of ipos have been alternative energy companies, and it has been over a year since one went public. they are writing the details of the more than $100 billion the obama administration piled into the industry. under the trump administration, enthusiasm has faded. the reinstatement of an investment tax credit for fuel cells in the massive tax

overhaul bill worked in bloom energy's favor. the systems have become more efficient. for years, bloom had been racking up a huge deficit totaling $2.3 billion. , the company's finances are turning a corner. in the first three months of tripledr, revenue compared to the same time in 2017, 2 121 billion dollars. $121 >> the world needs billion dollars. reliable electricity. alex: an alternative energy company inching closer to profitability is something public investors can get comfortable with. emily: with us, bloomberg's alex barinka with more on bloom energy's ipo. what makes it so unique? alex: it is a fuel-cell company.

when you think alternative energy, you think solar. china is the biggest market for solar. they ended their initiative in may. you saw those big boxes. as you heard kr sridhar say, the ceo, it does help with costs once companies get them installed. there has been this gap because the industry is in a lull. emily: will there be more? alex: that is the hope. the issue is trump seems to be talking a lot about coal. this investment tax credit they have got reinstated for fuel cells was a bit of a luck -- bit of luck in lobbying on bloom's part. emily: you also listened in on the qualcomm call. we talked about them walking away from this nxp deal.

it has been a two-year saga. the chinese government didn't actually say no, they said nothing, and the deadline is expiring. how much is this going to hurt a u.s. company in what is supposed to be an america first environment? alex: if you were only in the u.s., you probably won't have issues. something the ceo said on the call was very revealing. he asked whether this was a nxp issue or a broader m&a issue. he said it was about the broader environment. he said they made the decision now because they don't expect relations with china to improve in the near term. it seems like, whether you are selling or buying, whether products or companies, into or out of china, you might have issues. our sources told us in the last month that the regulator in china approved the deal, the announcement just had not come yet.

emily: could there be times in this global trade war? alex: our sources told us in the last month that the regulator in china approved the deal, the announcement just had not come yet. as we have seen this back and forth, this seems to be a car d kept in the back pocket of the chinese political side. emily: could the deal be recovered? alex: if we hear something before 11:59 p.m. eastern time, that is the go-no go date. i will be watching my clock. qualcomm is prepared -- emily: at this point, qualcomm is prepared to pay that $2 billion cost of the divorce. alex barinka, thank you so much. coming up, a tough 2018 keeps getting tougher for facebook shares. earnings down 22%. zuckerberg making it clear this is the year to turn the company around. earnings call is still going on.

we will bring you the latest headlines, next. >> this is a critical year for facebook. we have made progress preventing abuse, forging ahead with new innovations. our emily: tech companies like

google are well-known for extravagant campuses and benefit packages but not all workers are able to reap the rewards. alongside thousands of direct employees, google employees hordes of contractors, many of whom don't get the same treatment or benefits although they are full-time colleagues essentially. earlier this year, those contractors outnumbered direct employees for the first time in the history of the company, accounting for more than half of the labor force. to discuss, bloomberg's josh eidelson. one of the reporters who broke this story. walk us through a number. what are they actually doing?

josh: people are employed at google without being legally employed by google, doing things like writing code, managing teams, cleaning the building. emily: they are legally employed, just not full-time google employees, right? josh: many of these people are employed, but they are employed by an outside company, what we call subcontracted workers. they have, for example, the minimum wage. they have the ability to unionize but with this outside company, not google itself. emily: google is a business, they have a bottom line just like anybody else. should we expect them to be more generous than other companies? should we expect them not to employ so many contractors? josh: what google would say is they have an expectation that everyone in their community gets treated with care and respect, and they have a supplier code of

conduct, and they are able to ramp up and down people working on particular project because of this. emily: you've found many employees didn't feel cared for, right? josh: many of the people we talked to said they felt like they are there but they are not there. anything from not getting benefits, to getting kicked out of a room before they serve booze in a meeting, to spending much of your day tagging your work, documenting what you are doing, so they can slot you out and use someone else. one person talked about their five-year plan for career development, came back the next day and apologized, saying, i didn't realize you were not a google employee. please forget what i said. emily: you talked about how this is indicative of the broader future of work, or a fissure of work, as you call it. josh: people are doing work that

creates a lot of wealth for a well-known company but they are not getting their paycheck from that company. everyone from franchised fast food workers to people working in warehouses like for amazon, to uber drivers, who uber says are not employees of the company. it means these workers are not entitled to the same opportunities to bargain intellectually with that company. the company doesn't have responsibilities for things like payroll tax or a sexual harassment lawsuit. i like to call it the "who's the boss" problem. seeing inring we are all kinds of areas of the economy. emily: josh eidelson, great stuff from you. returning to our top story of the day facebook out with a lot , less than impressive second-quarter results. shares plunging. however, there was a bright spot, and that was instagram.

zuckerberg said instagram grew almost twice as quickly as it could have on its own. mark zuckerberg: this is a moment to reflect on how this acquisition has been a success. and joined us, the team had only 16 people. since then, kevin and the team has built stories, and now ig tv . this has been a great story of product execution. it has also been a story of how effective the integration has been. emily: with us now, bloomberg tech's sarah frier, who was in on the earnings call. i wonder if mark has to convince the ceo of instagram on a daily basis why selling to facebook for $1 billion was a good call. sarah: i don't know how he came up with that twice as fast number. certainly, facebook has been

integral to the international expansion. it has become clear that facebook is going to be a lot more reliant on instagram for its future growth, especially as we have seen, in quarterly earnings, that user growth is stagnating or slowing in some areas. emily: looking at the way shares are trading right now, all of facebook stock gained year to date would be wiped out after the after-hours move we are seeing at the moment. they missed, but it wasn't a huge miss. is this warranted? sarah: this is just incredible because facebook stock doesn't move like this after earnings. they don't miss like this ever. this is the first time they have missed on revenue since 2015. the cfo, on the call, said we should expect the company's revenue to decelerate further in the third and fourth quarter. revenue will decline in high single digits from the previous

sequential quarter. he also said operating margins time are going to trend into the 30% range, much lower than people have predicted them to be. a lot of analysts will have to rethink their models. it is an enormous advertising engine but it can't grow forever and i think wall street is coming to terms with that idea. emily: one of the other interesting tidbits that you pull out of here, zuckerberg gave a new number for all of the people who access any facebook app, one of the family of facebook apps, trying to push the idea that facebook isn't just facebook, it is a much broader company. we are also getting trickles of information about why, when it has to do with facebook fatigue. sarah: facebook needs to walk a fine line.

they need to convince the public that they deeply care about solving their issues with not just election interference by foreign entities, also fake news, also violence that is spurred by misinformation spread on the platform. their data privacy scandal, we didn't even get to that. this is a quarter in which zuckerberg had to testify for 10 hours in front of congress. they have to say, we are on that, but they also have to give people a little bit of hope for the future of facebook not being dependable on the big blue app, facebook itself. facebook may be growing a lot more slowly, maybe even declining as we saw in europe, but they still have plenty of other places to draw from. one of them is instagram. they also have whatsapp and messenger for which both have more than one billion users. zuckerberg also mentioned

virtual reality. all three of those business models are less mature. they are really going to have to ramp up investment in those properties to make sure they can tell this growth story for a long time. emily: we also saw some executive reshuffling, which doesn't happen often at facebook. chris cox taking on more responsibilities. colin stretch, the top lawyer, stepping down. sarah frier, thank you so much. taking a look at facebook after hours, the stock now down more than 23% on the back of these disappointing earnings. facebook missing across the board. on ad revenue, mobile ad revenue, monthly and daily active users. much more earnings to come. that does it for this edition of "bloomberg technology."

lots more amazon and more up next. that is all for now. this is bloomberg. ♪

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