♪ emily: i'm emily chang in san francisco and this is "bloomberg technology." coming up in the next hour, tech gets off to a rough start in 2019. does disappointing news from apple and other signal trouble for the rest? the u.s. and china had into trade talks next week with a shared set of worries. the markets and a macroeconomic slowdown, will that strengthen desire to cut a deal? netflix is dominating new media. goldman sachs added the company to its conviction list while traditional companies are raising prices to offset

cutting. to the top story, it has been a short week starting on trading in 2019 but it has not been a slow one. the travesty that has happened over the past couple of days, apple sucker punched the market with a cut that caught investors by surprise. apple shares seeing the worst drop in almost six years. suppliers in asia are also tumbling on the news. even before the apple newsweek chaos, customers reported its own results. to discuss further, sarah ponczek. let's start with tesla. investors seem to think the original selloff was overdone. >> some investors are saying that original selloff we saw was overdone. we are seeing a bit of a bounce. we see the comeback since the first day of the year. we see a really rough day for tesla, but the back to the matter is that we keep seeing concerns surrounding the company. we're talking about a company

down 30% at one point and bounced back to end the year, up 7%. clearly, a very volatile stock, but what happened this time is that they will put out model three delivery numbers. they came in below estimates, but what was worrisome, because some traders and investors -- to some traders and investors is that they cut. we saw this and the stock price, the worst performer in the nasdaq 100. you are seeing that clearly. it will be interesting. emily: apple stole the show. to investors think this is company specific? do we think other companies will be impacted? sarah: i've heard investors looking at apple in saying there are long-term investors and apple sales were valuable, but at the same time, this is an

apple issue. they blamed china at the thing time so it does give you some evidence of what is going on in the back of u.s. and china as a relates to trade and how that is filtering through different the back of u.s. and china as a patterns. consumers in china are not going and buying iphones anymore it seems. the fact of the matter is that apple will not be the only company to cut revenue estimates or cut its earnings outlook. we have a white house representative saying white house is not alone but we expect to see other companies lower their guidance until everything between the u.s. and china is figured out. considering many of these companies should be the one to do so. emily: many big tech companies don't have any business in china because they are not present in the country. sarah: exactly. it's not those other names you might imagine, but it is largely

the semiconductor names. we sought filter through an spiral down the chain. the semiconductors are some of the worst performers in the industries. if you look at broadcom, nvidia, their exposure to china is very large. not only are they timed apple, they have business there as well. you would expect to see a filter through those names as we have this week. emily: sarah ponczek, thank you for weighing in. another weekend we will see. back in august, our colleague sounded a warning saying storm clouds are brewing over the tech industry. apple is among the healthiest in the sector. take a listen. >> apple's stock hanged after tim cook admitted that they

weren't going to make fourth-quarter guidance. the thing is, if you look at what is going on in the supply chain, apple is better positioned than anyone else. i wrote a column in august warning about storm clouds in the hardware supply chain. foxconn, pegatron, those are the companies that supplied apple. i looked at the numbers again today and they have risen even further. apple is the only company over the last few that has been cutting its inventory. when they come up with these bad numbers, they are prepared for its more than anyone else. looking elsewhere in the supply chain, including xiaomi, their industry has risen 90% year-over-year. they are a fast-growing company, but not that fast. we have these companies that manufacture for everybody. these companies are saying -- seeing their inventories rise and rise, despite the fact everything is slowing down. what we are seeing with apple is

not worse. there are going to be bad things to come. what will happen eventually, these inventories, inventories not worth much. at some point, companies are going to have to realize they're not worth what they thought they were and they will be asset write-downs. investors need to look at what else is happening in the supply chain and be careful on what is to come. emily: so the big question is, if apple's fate has turned, what's can other big tech companies expect going forward? to answer that, we're joined by the managing director at wayfish securities. is this bad news for apple and the bad news for tech? >> the faang stocks, other than apple, have no real exposure to china. i don't think, other than perhaps google, how for bets,

that anybody expects any of the faang stocks to be in -- anytime soon. there's little in their market cap that reflects the expectation of moving into china. china weakness will not impact them directly. uncertainty over trade policy is an issue. and facebook have its own unique issues. i think those two will drop more than others. primarily because people are worried about security and safety and privacy with facebook

and the potential for government regulation. they are worried about the continuing demand for streaming in the face of disney and watching its own service and pulling content from netflix. amazon is more immune from that. google alphabet is completely immune from that's. in the price the kleins, the ones that got hit more of the ones with specific problems. the ones that got hit less have lighter problems. emily: if you look at the bigger picture, apple has lost $445 billion in value since october 3. there are only four companies that see more than what apple has lost. amazon, microsoft, alphabets, and berkshire hathaway. facebook is not even on the list.

when you look at the numbers, they are not dramatic. does the market get anything from here. or is there a ways to go down. >> the fangs are responsible for a giant chunk of market gains in the last few years. they are clearly responsible for a giant chunk of the market decline in the last few months. the stocks they go down that have the biggest market cap have a greater impact on the overall market. i think some of these valuations are crazy. i heard one of your earlier guests comment about apple. dan thinks apple is worth a time. he is copyright back up to 200. i can see paying a relatively low multiple. thing with facebook. people will not all way and turn off their accounts. the one of the faang stocks that

i think has risk is netflix because they don't own enough of the content we watch. they own -- their originals are something like 35% of the hours viewed, but their own originals are probably closer to 5%, so they are pretty vulnerable when disney and amazon start bidding up for content. it means netflix's costs are going to rise the same time the revenues are under pressure. i have seen the matrix for the last seven or eight years and it seems like the market is beginning to see it as well. i think apple's decline just tells you the bigger they are the harder they fall. emily: on netflix, shares have been volatile, but in the last deed of weeks, shares have spiked backup. just today, goldman put it on its conviction list, and it is a

very polarizing name. we had one guest saying netflix could be the aol of otc and another who completed disagreed. why such binary views? >> i am on one side of that. i think the simple analysis for netflix is that they don't own much content. our count is down about too -- 2% and that's not enough to constitute a private label brand. at the end of the day, they are a retailer of other people's content and their content is 2% of what they have and they won't replace another 90% for another decade or two. if disney pulls content, that is literally about 20% of everything on netflix. if one or and nbc universal follow, that is the hulu owners, you have more like 60% of all netflix content. they are super vulnerable because their supplier is responsible for content.

louis vuitton doesn;t sell bags -- louis vuitton doesn't sell bags on amazon, and those are brands trying to protect pricing. it's not true of average vendors of iphone power cords or paper mate tens. those will be there. emily: you covered facebook as well. do you think facebook would overcome its trust issues this year? michael: i think they have probably -- they probably need to bring in an adult to run the country. i thought sheryl sandberg was that adult. she has been tainted lately. i think zuckerberg will have to bring in somebody. we saw speculation from someone

from american express. it will be somebody who wall street has confidence in, and when that person says trust me i will fix it, i think investors will trust them to fix it. people don't trust zuckerberg now. he said i'm sorry everything all-time and yet there is a new revelation almost every week. if they bring in adult supervision, i think that stock goes all the way back up to 200. emily: zuckerberg has made a lot of apologies over the years. michael, always great to have you back here. >> think you, emily. emily: trade talks between d.c. and beijing are set to resume next week. just how will the recent tech terminal impact negotiations? we will discuss. if you like bloomberg news, check us out on the radio. listen on the bloomberg app, bloomberg.com, and, in the u.s., sirius xm. this is bloomberg. ♪

♪ emily: president trump's top economic adviser laid out what he thinks is necessary for trade talks between the u.s. and china on friday. according to larry kudlow, one point maybe a particular interest to apple. >> as a whole issue of ip theft. that may be part of the apple issue. i don't want to surmise too much but apple technology may have been picked off by china and now china is becoming competitive with apple. you have to have rule of law. emily: to bring and we bring in the senior fellow at the asian society. what do you make of that comment? >> it feels like he has something that he wants to say, but feels like he can't quite

come out and say. he is alluding to some sort of ip theft in china involving apple, possibly, and i'm speculating here, involving hauwei, which is the largest cell phone producer in china and the company very much in the news for the rest of the cfo in december. [coughs] emily: xiaomi also has been accused for a long time of copying apple's design, right? >> certainly. you have the ceo of xiaomi who likes the turtleneck steve jobsian way of giving presentations and had taken -- has taken a lot from apple. it feels like with the top administration, while way is the target -- hauwei. it seems like being directed at something with more state ties like hauwei other than xiaomi. emily: these companies are taking market share from apple

is selling apple in china and even as the chinese smartphone market plateaus. how bad is it for apple in china? michael: i don't think it is terrible. i think the expectations that people had were quite high. things are now coming down to earth. a big issue apple is facing is that people are not buying new phones after holding a phone. it used to be they would have a phone for a year or two, but now people are getting more used to the phone they have. the newness has worn off. chinese people are moving towards buying local brands, but for apple, it is a major global structural problem, and it is not just the china issue. emily: see you don't think it is just a brand issue in china? >> i think it is more than that. emily: let's talk about this trade issue, talks resuming next week.

how optimistic are you with this new twist in the story. apple also employs lots of people in china. >> it is providing thousands of jobs in china because it incentivizes the chinese government to not let apple it and china go into a freefall. it is something that people across the specter once to happen. trump wants them to come back and manufacture in the states, but if a manufacturer in china, it's a way to incentivize the chinese government to keep letting them do business and more successfully than otherwise. emily: iva chart in a bloomberg that shows how u.s. imports from china have grown over the last 20 years. we see -- demands for apple phones in china has fallen off of a cliff. how'd you think that impacts the dynamic of these discussions next week?

are you optimistic about a deal and who does that deal favor? >> i think the real question over the deal favoring, is less to do with concrete a to and more to do with an issue of confidence. is the u.s. side confident that the trade war is worse for china or that the chinese side is confident that it is worse for americans. right now, in reading between the lines, it seems the american side is more confident in the american economy feels like it is in a better place than the chinese economy. if we do see a deal, it will likely be one that broadly favors the united states. for sure, if we see a deal, trump will claim it entirely favors the united states and it is the deal of a lifetime. we will get a lot of rhetoric surrounding what might be a very modest arrangement.

emily: isaac, thank you as always. there has been a massive hack in europe. the personal data of angela merkel and hundreds of other german politicians has been released to the public. bloomberg news has more from berlin. >> politicians' email addresses, phone numbers, that is just a small snippet of what was leaked in the hack. it looks as though the hack has gotten the passwords to ego, facebook, and twitter accounts -- email, facebook, and twitter accounts. it's unclear who is behind the hack. this is not a unique case. germany has seen several breaches in the last few years. no small to believe the parliamentary attack in 2015

where hackers were in the network for more than a week before they were detected. the german government is taking the attacks seriously, and all security agencies are involved. the federal office for information security is heading the investigation into the data done by the cyber defense center. emily: we will keep watching that one. coming up, another year and another increase to your cable bill. will price hikes drive more? "bloomberg technology" is livestreaming on twitter. check us out @technology, and be sure to follow our global news network, @tictoc, on twitter. this is bloomberg. ♪

♪ emily: walmart and amazon are teaming up in india to lobby the government on e-commerce regulation.

the companies are asking a february 1 deadline can implement new rules being extended. this requires online marketplaces to treat all equally. this allows them to offer big discounts. google continue to reduce its taxes for another year by taking advantage of a loophole. bloomberg law reports the government -- the company shifted billions of dollars to bermuda through intercompany transactions flowing from a shell company in the netherlands. google has employed the same arrangement in prior years going back to 2014. irish law in 2015 stopped companies from taking advantage of such a structure, but companies with current structures can continue to use it until 2020. a democratic u.s. presidential -- is going after the te for hiring -- zte for hiring joe lieberman. senator warren asked if it is legal for lieberman to lobby for

the firm. president trump is considering banning american companies from using zte equipment for security reasons. coming up, ai was the buzzword of 2018. later in the program, netflix having a fine time on wall street, but it has a cash burn problem. that is coming up. this is bloomberg. ♪

♪ emily: this is "bloomberg technology." it has been a rough week for apple following news it cut its revenue outlook for the first time in two decades. apple stocks plunging the most in almost six years as the company cited struggling iphone sales in china. investors are concerned the company flagship product may be losing its luster more broadly. here to discuss, the ceo and cofounder of an ai starter, also an advisor at venture capital firm general catalyst. when it comes to apple, is it all bad news? >> i certainly don't think so. it's kind of mixed. apple is one of the most iconic and globally integrated companies in the world, so it will be particularly susceptible to disruption and politics.

emily: what's the good news? >> it really feels like apple is on the right side of history, so to speak, in terms of their push to privacy, which is very different from facebook and twitter and google because apple's fundamental business model was they just want you to buy more of their hardware. people are not going to buy expensive phones more if they are agitated and nervous. apple has no interest in stirring up anxiety. they just want people to be happy and prosperous so they can buy their product. it's all about getting people to engage and click and heightened emotional space. big picture, apple is on the right side of that fight. emily: let's talk more about apple and then moved to facebook. this is a company trying to sell $3000-plus phones in china get

transitioning to a services model. growth in those services depends on people buying iphones. >> yes, and they have not had a major new type of product -- like, the iphone was a major advance -- since the iphone, and it's overdue for the next couple of years. it's only so long they can keep riding the same product. this is the famous definition of what an innovative company is, which is what percentage of their product did not exist five years ago? five years ago, apple would have fit that definition, but now it's a little bit less so, so they need to start coming up with some innovative products over the next couple of years. new categories so that five years from now, a lot of the revenue comes from product -- emily: you are excited about the apple watch, but it's not going to become the iphone any time soon or ever, right? >> i think the products are finally fulfilling their

potential, their promise, so i expect sales to really pick up over the next couple of years. the apple watch in particular is the first mainstream generation of what i think of as the wearables 2.0 market. these are medical devices or devices that have really good health applications that, unlike the 1.0 versions, actually do something useful. i think all the hard stuff in the new apple watch is fundamentally important and there's probably other stuff coming that will be medically transformative for a lot of people. i think there's good news on the device front as well. emily: you talked about how facebook and google may be on the wrong side of history, so what does that mean over the next five years? what happens to those businesses? >> i like to look at how aligned the company's money mission is with its business. apple wants to make and sell you desirable phones and products,

but amazon is fairly aligned. amazon wants you to buy stuff from amazon. facebook is pretty unaligned at this point here they make money exclusively by trying to collect as much information about you as possible, information most people do not actually want collected about them, and use that information to sell you ads. that is a big disconnect. i think facebook is going to have a hard time remaining at its current size in terms of market cap and having all of the businesses it has lumped together. i think there is a good question about if the business in the data business -- the ad business and data business and messaging business belong in the same company because they are all backed up and that may just become politically untenable. emily: facebook of course also

has instagram, but do you think either or both will be challenged by an upstart social networking terms of usage? >> that always happens. it is rare for a company to stay fashionable for decades, so, yes, and i think we are already seeing things in china that are more about short form video format that is really starting to challenge the established social media networks. i think we will see disruption over the next couple of years. emily: all these companies use ai and have been trying to export. >> we're going to make the transition where people see real, understandable products, which we have not seen up to now. is a lot of deep tech, and a lot of talk about generalized ai becoming supersmart and taking over the world and a lot of that is because there is this vacuum of actual things people can point to and say this is a smart

product that is great and we understand why it exists, and i think you are going to start seeing a lot of those this year, so ai will integrate itself into the fabric of pretty much all of our products and stop being a thing. just like dot-com stop being a thing. emily: there has been talk about the ai hype cycle being out of control and that ai is not delivering on its promise. >> most people have no idea what the promise is. most people would say something like take a computer that is smarter than a person, but that is a weird promise. like, why is that a good thing? what is the purpose of it? who really wants this? what ai is doing is making a generation of products that are easy to understand possible that were not possible before. emily: you make ai products.

what kind of ai-based products are you excited about, and how will they change our lives? >> all the products have to be explainable in one or two sentences. emily: we love that. >> for vimplecom one is called spot, and it's an ai for workplace harassment and discrimination reporting because workplace harassment and and discrimination sucks to report. it could not have been built without the ai technology, but it itself is a fundamental, simple to understand, simple to use product. we focus on ai product that solves pharaoh problem, easy to explain. emily: always great to have your thoughtful analysis here on the show. really appreciate you stopping

by. tesla is close to winning approval to start selling its model three electric car in europe. bloomberg has learned the company expects to receive certification after some authorities return from the holidays. selling the model three in europe is a priority for tesla ceo elon musk, who is targeting potential customers of the bmw three series as well as the volkswagen golf and coming up, netflix bouncing back from december lows, just what is fueling the faang standout? we will discuss next. this is bloomberg. ♪

♪ emily: cable and satellite subscribers beware. comcast, the largest cable company in the u.s. is raising its fever broadcast channels by two dollars a month while

directv is raising fees by three dollars to eight dollars. the latest price hikes could risk alienating even more subscribers as consumers increasingly turn to cheaper online options like netflix and hulu. >> at a time when consumers are preferring to go to netflix or youtube tv, this is something that's very alarming and that ceo's should kind of pay attention to. emily: what's the strategy? is there a reason? >> generally, you think this is something that is super bad. at this time, this may not be something that is specific to the cable industry.

i had a chance to speak to a top investor of comcast. one of my sources a clear bridge, and they say this is not something that's just for cable companies. something that may transpire over to something like youtube companies as well. emily: you go netflix for one thing, apple, disney, amazon, hulu, you go to your cable company less and less, but will consumers want some sort of consolidation? >> that is a good question. we're also looking at comcast. they are thinking about their service also. maybe that is not hurting comcast. emily: what else would cable companies do to stem the bleeding?

>> that's a question they are also trying to find out themselves. emily: how, up to this point have they avoided price hikes? >> they are giving disney+, espn+, trying to circumvent and go to where viewers are actually at. emily: all right, well, another year, another cable bill. thanks for joining us. among the faang stocks, there is one currently standing above its peers, and that is netflix. the streaming giant rose for the sixth time in seven sessions, meaning shares jumped at least 25% since lows back in december. when thing going in netflix's favor, vote of confidence from goldman sachs. analysts call it one of the best risk/reward propositions in the internet sector. the newcomer who wrote about it

in this friday's fully charged newsletter. we talked about how goldman added netflix to its conviction list of top stocks. you point out that netflix has a cash flow problem, which is kind of a big deal. >> it is a huge number. about $2 billion last year, projected to be about $3 billion. emily: $3 billion in negative cash flow. >> exactly. it sounds shocking. the rationalization is that it is spending money now for what it claims to be a much bigger business in the future, right? it is an investment for when it has more users, more reach. you start the content pipeline today, and it takes several years for that to pay off. emily: yet, you have some very binary views on netflix's future. we were just talking to one analyst who thinks the only way to go is down. yet, certainly, many investors think otherwise. you have some ideas about how netflix can fix its cash flow problem. >> right.

if you assume the strategy is to become the best content company in a generation, you pay whatever it takes to get that content, and that is just a bidding war. then it is a matter of how you price that. there are clear options for netflix to price discriminate between customers. disney does not just sell you a ticket to "star wars." if you are a super fan, you buy a toy, go to a theme park, watch "clone wars" on netflix. there are tons of ways for disney to monetize brands. right now, netflix's strategy is just one price for everybody. clearly, there's opportunity for them to find ways to tax their superuser more and start making more money from the content they put out. emily: how so? the more i watch, the more i paid? >> i think it is not metered pay, things like you could have a higher end tier like hbo. there are different ways of

saying you are watching 10 shows, we charge you more than someone watching too. emily: but netflix is not going to be starting a "stranger things" theme park any time soon. what options are available to a company things like this? >> they literally hired someone, a cfo with experience working in disney. anything like that down the road is possible because these companies are fundamentally creating sort of content that can be monetized in all sorts of ways. i don't think sticking to a streaming fee is good way to think about a company competing with disney. emily: one of the problems we talked about earlier is that netflix actually owns a very small percentage of the original content that you can find. >> that is another way that cost

can start making more sense. netflix had a strategy where they were taking outside content and they are trying to bring that more and more in-house, which allows them to control the cost and see the upside in the long-term, so the switch to more in-house content gives netflix more control over its own cost. emily: i wonder if there is a quality versus quantity issue. there are just so many shows, and i wonder, would some consolidation or weeding out the in netflix's favor or no? >> you think about people watching "the office" over and over again. you can monetize those people so much more by trying to find premium -- you could send them bonus content -- there's a kind of stuff you could sell to them

to upsell them. emily: all right, so you are predicting a "stranger things" theme park. >> i don't think it is as crazy as you think it is. emily: always good to have you. still ahead, as the holiday season winds down, retailers are facing a surge of returns. how the industry is streamlining this issue. ♪

♪ emily: according to the wall street journal, private equity firms are bidding for videogame retailer, gamestop. the reports says a deal could be announced at the middle of next month. now that holiday gifts have an bought, given, received, retailers brace themselves for return.

it's turning into a big problem as many returned items never make it back to store shelves but to landfills as more customers shop online and return more goods. a number of companies are developing tech to tackle the issue. >> this year, we are predicting there will be $390 billion of goods returned in the u.s., and that number has been growing fairly significantly over the last several years with the growth of e-commerce. we have seen the e-commerce return rate at roughly triple that of brick-and-mortar, which is pushing the overall return rate up, and on top of it, it's even more complex because people like to buy goods online and often return goods to stores when possible, so you have to deal with an omni-channel world of returns and stores are getting back goods they never sold in the first place and they may not keep in stock because their online catalogs are much larger than what they keep in store

the dark side of returns being easier and all these goods being bought online is an explosion and returns, which has been costly for retailers, so we help them in a couple of areas. one, we do make the returns experienced easier, so we give them technology that streamlines the processing of returns and makes it so a return can happen faster so a refund can occur faster, and it's an operational cost of processing those goods that can be a lot more efficient. we help them once a return comes back to route the good to its next best home as efficiently as possible. in the past, a lot of returns would end up -- the new ones would be put back on the shelf and the rest would go to this black hole where goods would be liquidated for pennies on the

dollar or actually going to landfills. when the good comes back, our technology looks at why the item is being returned, what was wrong with it, what is the condition it is in and what is the specific item in terms of where it is location-wise, and then looks at if it can be resold and that condition. can it be resold at the storefront, an outlet store, online, to secondary markets online if it is used through ebay or amazon, can it be sent to charities, recyclers if it is broken, for parts? it looks at how much each of those channels will pay for that good and how much it costs to get there, and then algorithms determine which channel to send it to. ..>> ultimately, the retailers involved are recouping costs perhaps they were unable to before. >> yes, they are able to save money on the process being streamlined. they get more money by a higher yield, by picking the right

price point and the right channel lesson is possible to send it good to. they save a ton of waste. we really focus on trying to make is so none of these goods end up in a landfill. >> who are your customers? who are the retailers using the software and technology you have developed? >> we work with typically the bigger, well-known retailers and brands out there. some of them include target, staples, groupon, jet, and bj's wholesale, just to name a few. we're dealing with the retailers and the companies responsible for them. >> you founded the company eight years ago. you've raised hundreds of millions of dollars. you have some big-name investors behind you. what is next?

>> we are focused on continuing to grow and scale our technology to the entire industry. we want to help tie together the ecosystem between retailers and brands, and we want to help leverage the data more and more so that we can help prevent returns from happening in the first place and focus on creating a better customer experience. >> is that data side of things perhaps the next growth area? >> i think we would like to leverage more insights. at the end of the day, we would like to create less waste. >> looking 10 years and the future, hopefully, you have prevented all kinds of returns from even happening. if that doesn't happen, do you see yourself being acquired by a bigger company, becoming a bigger company? do you see something in the

cards? >> we are not as focused on the exit strategy as on the opportunity in the industry. i mentioned there will be $390 billion of returns this year. it's growing. in the next couple of years, it will be $500 million of returns in the u.s. and over $1 trillion a year worldwide. i see us being global, being hopefully the industry standard at a point, reducing the amount of waste that is caused in retail both financially and physically in an environment at that point. emily: optoro's ceo. that does it for this edition of "bloomberg technology." next week, be sure to tune in for our coverage of the consumer electronics show. we are, of course, livestreaming on twitter. you can follow our global news network tictoc on twitter.

have a wonderful weekend, everybody. this is bloomberg. ♪

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