little bit cautious looking into the later part of this year. the fed have really made their job quite difficult. putting the balance sheet back on the table as a meaningful monetary policy tool has created a lot of fog around >> that cautioned not being exercised today, up .9%. thettle bit lackluster, but -- rallying into the close. joe: it's kind of a legit rally. not nothing. wonder, when you guys are talking about how the fed really gave a gift to the market, are you surprised the rally is not bigger?

think it is in scale of what you would expect. there is a degree of caution when i'm talking to clients that they would like to participate in this rally, but there is a creeping feeling that this is we one final blow off before start to see a slowdown in 2020. meaning you want people to they may be ok sacrificing a little bit of upside with some downside protection. us the feeling creeping in. joe: what is your perspective when you talk about how people are positioned. >> it feels like 2016. i vividly remember coming out of that correction in early 2016. the recession was coming. same stuff we heard in the fourth quarter, we have dug our way back out. we continuously in this cycle failed to of knowledge of couple of things. the crash and oil prices is always stabilizing for economic

growth in the u.s., and we are experiencing that now. marketsin equity relieves any sort of exuberance in the equity markets. we have to knowledge that. i would have the fed, which is saying we got your back to some degree. those three things have been enough to stimulate pretty big rally. >> were seeing fourth quarter paid clicks on google properties of 66%. fourth-quarter revenue excluding some of their costs they pay out to their partners, slightly ahead of expectations. earnings-per-share coming in for the fourth quarter at $12 $.77. that is well ahead of what expectations were for growth. operating profit coming in at a point to be in dollars, slightly shy. so there's a mixed set of

numbers overall it seems as though the revenue number is up about .9% after hours. the earnings-per-share number is a significant beat. we have to delve into how the costs are playing out for this company overall. it is a business that does have to pay to get in front of their user base. .raffic acquisition costs ae: just stepping back for second, 23% revenue gains europe your for company this side, it's still extraordinary, that 66% --rease in clicks on global google properties. all these company showing incredible growth. >> apple may well become the most valuable company again. superseding microsoft and the other the he miss -- otherbehemoths.

the numbers are coming out and we are parsing through them as we get them. caroline: we almost got a bit exuberant about some of the big communication services am a facebook outperformed what was a relatively weak consensus, but it coming down by 30%. this is a company that is managing its bottom line. alex: i will step away from talking about individual stocks and leave that for the experts. lower.re coming in once the fourth-quarter earnings season has been reassuring, it's the forward guidance that is starting to concern me. cfo saying we've had a good 2018. were starting to see a little bit of capex being reinvested, and that is a good, positive sign for forward growth but it seems to be a genuine downgraded

expectations. there are two schools of. silly game ofe a lowering expenses. wages and interest paid on servicing debt. wages are beginning to rise, albeit from a low base, and the cost of servicing debt has gone up. you are starting to see bottom line pressure coming in and i wonder if that rears its head in 2019, damaging earnings expectations. aftert's now down 2.3% hours. investor still digesting this result. it is up dramatically, like 14% in december, so even with the volatility after hours today, it's not the end of the world or anything, but they have reversed their initial perception of the results. >> the idea that they are reducing cost per click and consolidation, how much is what we are seeing with the big

mediatech conglomerates, how much are they consolidating much arere and how they a reflection of a generally benign and positive backdrop in the u.s. economy? gina: it's a good question. on the question of cutting their costs, it is a key benchmark that companies need to cut costs at this stage in the cycle to reflect the deceleration in revenue growth and plummeting expectations. we need to get to a point where cost pressures are assumed by companies in the form of cutting all their expenses. to create a margin bottom, to create recovery spirit it's a classic, how does the recovery in earning stream work, and we are not seeing that yet. this is one of the first reports have seen were companies are adequately cutting cost and managing to the bottom line. so it could trigger a much better environment going forward. perspective,market

we have yet to see our margin bottom. we have yet to see enough cost-cutting, cost-containment, overall consolidation to really get things moving. it is one of the keys to creating an earnings recovery in the second half. in 2019,king later that focus on the bottom line. late in the cycle are starting to see that cost pressure will. you have to wonder why when they have $100 billion of cash. i think investors are beginning to see some focus on capital expenditure. that's where i would like to see some sort of investment go in and it really has been the missing part of the jigsaw for much of this cycle. terms delivering on share buybacks and deliveries. it's a problem for down the road. other154 million in

revenue, it's up from a year ago, but it is nothing. you are focusing on the revenues. i want to focus on the costs. $6.8 billionpent in capital expenditures on google, only $61 million on the other bets. there, andx was maybe that is why they are being punished. this is what the cfo has to come to grips with, dow and back the moon shots that spun out the biotech. first you need to distinguish between capital spending and operating spending. within the tech space in general, if you're spending on as, you are outperforming

the consistent winner of the cycle. operating expenditures what we need to worry about because that will contribute to margin pressure. , you got a lot of different stories there. if you are spinning the right amount of money to drive long-term sales growth over time, i think investors will report that. but it is a matter of distinguishing which component of expenditure we are really talking about. -- theat does the terms term earnings recession actually mean? does it sound scarier than it is? alex: it does seem to mean different things to different people. the last time we actually got an earnings recession, it was 2016, late 2015. then ishave seen since stabilization. believe it or not, earnings recession's normally do want good news for the upcoming quarter. big downgrades in earning

testaments often see endless overshooting on the downside, getting very pessimistic. down come the expectations, markets come down, and his over the lowered expectation, you see a bit of a relief rally. what we are seeing from december into january is almost a textbook play around the earnings recession. >> do you think stocks have not rally enough, given that the we have seen? would you have expected things to be popping more? gina: no, i think we have had a fantastic start to the year. it has been a really strong recovery where stocks are responding to earnings beats in a positive manner and not responding to mrs. in a negative manner. i would say we are adequately responding to the data as it comes in, reflecting where we have just been. the downward revision of expectations is a huge part of the story.

we had negative expectations coming in and we are marginally beating those expectations. it is a case of less bad than anticipated. >> thank you so much to both of you. we appreciate you being here. that does it for the closing bell. we will dig into alphabets fourth-quarter results and find out what is driving shares lower in aftermarket trading. from new york, this is bloomberg. ♪

>> i'm caroline hyde. here is what you missed potentially in u.s. stocks, closing up higher, the nasdaq driving gains, will it be sustained? joe: the question is, "what'd you miss?" shares of alphabets slumping after hours. the tech giant reported fourth-quarter earnings. the end of an era, bill gross retires after transferring bond investing's. venezuela's national's injury -- assembly leader is hoping to maduro ischina that back in business. but most of the numbers at the top line came in around what investors were expecting with regard to operating margins. as well as some of the other bets.

they are seeing concerns about capital expenditures, coming in at about $7 billion. the estimate was for expenditures of about $5.6 billion. to talk a bit more about that we have a senior tech analyst at bloomberg intelligence who joins us now from san francisco. when you look at this earnings report, what is the main thing that jumps out at you? >> like you said, on the top line numbers, 66 percent growth shows he was strong for the advertising business. if you look at the expenses side, you mentioned capex. to expand so this is a large expense. big jump in the losses they reported. so in terms of spending ramping, on the call, what revenue offsets we can expect from this

ramp up and spending. as far as the top line numbers, it remains strong. joe: what kind of momentum does alphabet have in its cloud business going up against aws? >> if you look at the customer base and the google customer base, it is slightly different. google is primarily geared toward cloud native applications are companies. put up a tougher fight. somewhat microsoft has a legacy enterprise business it can tap into and get into the hybrid cloud model. so google has a tougher fight among the three. given how vast -- fast the cloud market is rolling and the room there is for three companies to play, they should be fined in terms of growth rate for the next couple of years. caroline: what are? you wanting to hear from the cfo? is it about explaining away the pressure being felt on margins

and over exuberant spending, potentially? >> basically three things. if you look at the cash balances, put some cash on the you talkcond come about expenses. what is the ready outcome of those expenses? should we expect acceleration in cloud growth going forward? business,is the waymo the spending that is happening, what is expected to happen in waymo, what kind of revenue growth potential the company sees. as soon as we are offsets or return on investment to the capex spending, that will help pay the picture. >> do you have any worry about the regulatory issues of all the companies that rely on data mining? >> is going to hang on all these kinds -- companies for the foreseeable future. fines, it'sdy paid

an ongoing team over here. as far as antitrust issues are concerned, analysts see the risks lower for both the companies, but henceforth it will be an ongoing issue for investors. at out of it look earnings, the two companies that really dominate the online ad space, overall is there any concern for this -- i don't want to call it duopoly, but are there any signs of concern at all for them? of all, amazon is stepping up its game in advertising to try to break this duopoly. we think they have a good shot at doing so longer-term. having said that, like i mentioned about the antitrust issues you are bringing up, our analyst don't see the risk as high in the u.s.. in europe, the story might be

different. the risks are higher over there. so this is an ongoing concern. thank you, joining us from san francisco. other earnings moving across the wire. gilead reporting earnings beating on revenue but the shares have fallen in after hours trading. the estimate was for $1.70. the company is using their and providing a forecast for product sales that came in slightly above analyst estimates. caroline: coming up, more to come on the bond part of the equation. ill gross has announced his retirement. he has all the details on his final act, his legacy, and much more. that's next. this is bloomberg. ♪

caroline: time in a -- for a look at the story streaming across the bloomberg. bowl was theer first one after sports betting was legalized outside nevada. the spending could keep the bull market of float might not come .rom consumers reporting that economist may see spending from states and cities and the trade war staving off a recession. the most in 2.5 years in the third quarter. in the chinese calendar begins afresh tomorrow, ushering in the year of the pig.

tictoc on twitter has a guide to the do's and don'ts. do where already and give out red envelopes with an even number of bills. don't cut your hair for a month or you could lose your luck. you can follow although stories on your terminal on tictoc on twitter. joe: after storied career in bond investing, bill gross has announced his retirement today. tom keene spoke to him earlier today about his choice to step down. >> it has been almost a half-century of watching screens and waking up in the middle of the night to check asia and europe. that is a long time. i have a few super bowl rings along the way to look at and it's time to enjoy myself and enjoy my family. welcome brian, you had an interesting column about bill gross's career and

the betsy was taking related his career, things like merger arbitrage and stuff like that. approach he took. >> he was contemplated in the interview, which was interesting to see. his main issue was he best the treasury yield and german bund yield would converge, and they did the exact opposite, obviously. that was a huge miss, and that sort of was the undercurrent of the entire fund. he also has a big bet on a mexican bond that we reported on today and on top of that, like you said, he started investing in stocks as well. it became more of a hedge fund like strategy. mark.ays lee missed the >> what happened to him, though? he left pimco, he goes to

janice, at its peak it had a couple billion dollars. why did we not see more money following him to janice? brian: that is an important question. possibly the messy exit he had might've played a part in it but i think largely it came down to , people understand that total return is. bill gross pioneered that and he said as much in the interview, maybe i should have stuck more with total return and been a little more constrained. he was ultimately investing a lot of his own money and for those who followed, the returns were not quite there. he suddenly got the ability to be more nimble. he had been almost constrained in his previous investment house, largely because of the sheer scale of the money he was managing. brian: exactly. when you only have $2 billion to invest, you can make big bets.

-- he startedrm off at blackjack tables. he mentioned i should not take more than 2% of my capital but i didn't do that. joe: what is his legacy going to be? brian: he founded pimco which is now giant fund. the later have is sort of maybe a bit more of a referendum on the unconstrained strategy. it says it all that they are changing the name of the unconstrained funds. the going to call it the absolute return income opportunities. the kind of telling about concern that the bond fund managers can go anywhere in up in the wrong place. explanation,reat brian. meanwhile, a quick check on the eight his business flash headlines. an investment group will buy

software in a deal valued at 11 million dollars. it represents a 32% premium for the company's average stock rise during the 30 days leading up to february 1. buyers -- jpmorgan says there are number of companies that would be a strong strategic fit for apple. it's deciding to use potentially its massive pile of cash. the company could go after netflix. billions roughly $130 in cash. that's your business flash update. >> let's do a quick recap of what we're learning with help a vet. the biggest issue is fourth-quarter profit coming in up from the year earlier. that seems to be weighing on the shares. this is bloomberg. ♪

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>> hello, everyone. let's get the first word news right now. after a tumultuous start to the year marred by the longest government shutdown history, and a rescinded state of the union invitation, president trump will be delivering the address to the nation tomorrow. he will deliver the delayed speech with the second shutdown looming just days away. eight say he's hoping to use the remarks to reset his agenda and begin to gear up for his 2020 reelection campaign. the federal judge in the paul clearing the courtroom to discuss secret evidence gathered by the government. the judge must decide whether manafort lied to investigators.

and afford is already set to be sentenced next month on to charges of conspiracy. days after the official launch of the presidential bid, cory booker is making steps and early voting states. booker has named state directors and i will, new hampshire, and south carolina. the yuan secretary-general said he is been in contact with supporters of the rival initiative to deal with the venezuelan crisis and has decided the you and will not be part of any of them. he said he has been following the situation in venezuela was a lot of concern. president nicolas madero has vowed to resist u.s. intervention. president trump he is confident the transition of power to the opposition leader is underway.

global news, 24 hours a day, on-air and @tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. caroline: let's take more of a seeing sharesd falling after all the back of concerns about spending from the company. been ony chain has just the phone with the person in charge of those. give us a sense of what she was saying to you on the phone. of the big was one questions, we ask about capex and mention that the shares are trading down. here is what she had to say. we remain focused on investing for the long-term. capex is growing at a sizable clip in the primary driver continues to be investing in technical infrastructure to support growth. by that we mean data centers and machines. this reflects our outlook for global growth, and ask him

assert, u2, and cloud. basically she is saying we expect the market to keep growing and earnings to continue to get better. therefore we believe investments are worth it. she did single out that the real estate purchase they make in new york, buying the chelsea market building. that said, we've talked a lot about how amazon's ad business is growing. facebook is google's major competitor, but amazon is taking a bigger bite out of the pie. amazon reported in its earnings report that their other revenue, who we believe mostly accounts for advertising, hit $10 billion. we asked how much of a threat she thinks amazon is. she said whenever new inventories created that attracts consumer interest and advertisers will be interested in advertising against that inventory. the market is continuing to grow. there is still a tremendous amount of line.

it sounds like you think there's continued opportunity for the market overall to grow and willfore perhaps amazon not be making a big dent in the business. we've heard this story with google and alphabet and its cost before. we wonder why the investor reaction is always negative to google spending as opposed to company like amazon, which seems to get a pass for a lot of its. in the lee coel and that has been the story of amazon spending for the last 20 years -- that has been the story. a lot of it has to do with perceived growth in the advertising market. when facebook reported strong results last week, we saw google shares move upward on that. google is very much -- don't want to use the word one trick pony, but that's the best phrase i can think of in this moment. it isn't advertising driven business. they are not telling us how much

youtube or google cloud are driving the business. other bets wrought in $154 million in revenue. that is miniscule compared to the giant ad business. amazon also has the clout as a huge contributor to the business and they also report those numbers to us. joe: if they want to teach the pony more tricks, could we see more acquisitions? emily: that is an interesting question. company hasth, the not made any huge acquisitions in the last three years. she pointed out that they have made a number of small acquisitions. she told me we do believe acquisitions are a complement to what we do to drive organic growth. we are very open to acquisitions. we want to make sure we are doing the right deal and it could be in accelerant for the business.

it's early sounds like google is keeping an open mind about acquisitions. one of the areas we think could be interesting is the cloud business. google is third behind amazon and microsoft in the cloud. high potential and rapidly growing, but still in third place. in lee chang with the info on out for that. bloomberg businessweek has a report out tonight that sheds on while way, specifically allegations that it has been trying to steal u.s. trade secrets. erik schatzker followed the story. he spoke exclusively to the ceo. collect theame to sample and do the analysis and once they came up with the determination of the cause, reached back to the company and introduced members from the department of justice and the

prosecutor from new york and a few others. >> they ask you to do what? what happened in? >> they indicated they would like to proceed forward in terms of information sharing and making ourselves and materials available for the investigation. we gave them the official sample from our email communications, the nondisclosure agreement and letters of intent that we had from huawei. >> there was a point when you learned with confidence that this sample of yours had actually left the united states. how did you learn about that? >> initially thought we had caught it on a call with one of , theontacts from huawei u.s. technology scout. to verify that we had a follow-up conversation within that was recorded, in which they

indicated they had in fact to where ourchina company is headquartered. >> if the sample left the united states, went to china and in came back broken to the united states, what does that mean? >> it means at least set date violated export restriction and covenant int, the terms of bad faith negotiation and explicit legal agreement. , it's difficult to know, and you may never know exactly what they wanted to know, but what might they have wanted to know about your product, about your technology? technology,ing the where very well reputed in the market, so in terms of the optical parameters, the street performance, the quality of the deposition material, i think it is a good representation of what

the material should look like. beyond that, how we came about construing the diamond matrix, the techniques we use to implement this, and perhaps taking it a step further, some of the work we are doing on the defensive side. >> you have worked with the federal government on energy applications and on military applications. do you think that is what the chinese are really most interested in? >> i don't want to interject my own personal opinion there. it is potentially the case that i can't determine anything at this point. >> explain how it is that kind of be used for military purposes. that's it similar to the properties that give rise to its benefit on the consumer side. dimon is an exceptionally efficient material. it is versus heat and energy in a critical and effective way. for things like high-power lasers for you have a tremendous amount of energy being put

through a narrow beam, having diamond to be able to mitigate some of the heat is critical. not only from an authentic perspective but from defensive perspective in mitigating against these type of laser attacks. >> let's say the chinese were able to master your technology. what might they be able to do? improve their aviation, aerospace, telecommunications, both from a transmit signals site from laser optics but also run their technology cooler and use lighter weights in terms of aircraft and systems. >> where is directed energy fit in? >> actually it's from the laser side. diamond has extremely high thermal shock resistance. having a tremendous amount of very fast.r heats it diamond being extremely resilient allows not only for you to push more energy through the system but also protecting against from incoming laser

attack. founder that was the and ceo of a con semiconductor. just a quick recap of alphabet earnings, the cfo is on the conference call right now. she seems to be explaining her some of the cost increase came, and 80% jump in capex. saying r&d, headcount and marketing were responsible for that. saying the rising cost driven primarily by youtube content and expenses came from hiring, mostly for the cloud business. shares moving lower, still down 2.3% in after-hours trading. this is bloomberg. ♪

caroline: a quick check on the latest business flash headlines. startup company plans to go public. it could sell it shares to bidders in a direct listing. buy maxwellreed to technologies in stock. it's paying a 55% premium. the deal will give tesla or expertise in capacitors that could speed up the charging process of the car. that's your business flash update. meanwhile, a phenomenal story we have all been looking at in around the results -- the death of the founder.

digital while it to have been lost after he died in december. he took sole responsibility for handling crypto customers. in exports brought into hack it has had little success. this is going to be a movie. joe: on the one hand, it shows the risk, of one guy knowing the his own security seems to be very good and even if they brought in the hackers, they cannot find his passcode. romaine: it's like when only one person knew the coca-cola recipe . in this case i guess he is the only one who knows it. aroline: but if you have digital wallet you have to be slightly frantic right now. your heart has to go out to this widow come having to get out statements about this, having just lost her husband. story thatweird

would only happen in the crypto world. we will turn to another world, the world of hedge funds and pizza. papa john's is the embattled pizza chain that got in the fight with the founder and ceo. and is now invested looking to take control of the reins of the company and the direction of the company. craig is here to talk more about it. star board was pretty famous a few years back when it put out this epic 300 page report about all of garden and nitpick every little minor detail. caroline: we love olive garden. next they have experience in this area. thing that resonated with people and still does is the specific recommendations about the food at all of garden. they said the breadsticks were like hotdog buns, that the

quality of the food had fallen off. a mounted a turnaround, so they are credited with getting olive garden back on track another coming back with a different case. joe: we know that papa john's had all kinds of issues but the founder allegedly having said races comments and that tarnished the brand. what is the theory here, is it about food nitpicking, or what do they see as the issue? say they have the best food in the issue, saying we have the best pizza, but we are not given credit for it. has always been better ingredients, better pizza. her premium has been a strong play for them for a long time. in troubley got before was at dominoes improved their pizza and was cheaper. papa john's think

is not given enough credit for having the best pizza among the three delivery players. caroline: the fact that we got the fourth-quarter numbers out of the business today and shows the stress there has been on sales. craig: it has basically been going down since november when john schneider was running the company. he brought up the nfl national anthem controversy, that put them in a bad light. fast-forward to the summer when he used a racial slur in a conference call. but sales predate any of the controversy. romaine: in addition to the perceived quality of the pizza, there were issues of not embracing a recognizing the challenges from grubhub or others. it goes beyond how good the pizza is. for a long time, this was the only thing you could get delivered. dominoes, pizza hut, papa john's. now you can get everything delivered. joe: is the pizza better?

i haven't had it in a long time. when they do surveys of people, is it better? craig: it's very popular in maine. it has fans that think it is the best among those three. john was always vocal about using the best ingredients. a tough one for me to answer. caroline: we have to resolve it. dominoes did have a problem with the quality and they improved it. dominoes was always cheaper the people thought papa john's was that her. dominoes managed to close the gap. there is a lot of tech tied to delivery that does have value. there is potentially some value their. craig there with the lowdown on pizza. thanks very much. to out: let's turn back

of debt the company now saying it has authorized the repurchase of stock of about $12.5 billion. we will see if that does anything to cushion the blow. share still down more than 2% after-hours but again they are authorizing the stock right of $12.5 billion. this is bloomberg. ♪

>> we don't discuss any corrective action so far. we are at the beginning of the new year. caroline: we continue to get updated headlines from the conference call on on with the leaders of google and alphabets. talking about you too, saying they are seeing great traction on the new program like it's music and tv services. the alphabets cfo also spoke about you to. take a lesson. >> the key drivers were first, content acquisition costs, primarily for you to him a mostly for our advertising

supported content in what is a seasonally strong quarter for youtube, but also for our newer subscription services, which have higher cap as a percentage of revenues. caroline: shares after hours remain lower as we digest how much more expenses have grown of alphabet, the parent of google. joe: elsewhere in the world, allies,etting more recognizing the interim president of venezuela. one notable country that still backing maduro is china. saying we want to establish a transparent relationship with china and put it into the plundering of our resources that has prevailed under the maduro government. shery ahn is here with the story

. i read the interview and he seemed to be making a very pragmatic case for china's backing. saying we want a return on investment, i'm a better option, back me. is china looking for a return on investment in venezuela in a traditional sense, or does it sort of influence count for more? shery: $60 billion of investment by china in venezuela, a lot of it being paid by oil imports from venezuela to china. china one of the biggest buyers there. as you said, it's more about political influence. with thebeing careful line on where they put support. china does not want to repeat history and what happened with tree-lined and malaysia -- with and malaysia. there is a cautious response from the chinese side. romaine: do we know if he has

reached out directly to china? heard that he not has reached out to wreck lee. there have been cases that we are hearing from their size -- their side that they want to talk with the chinese. take a listen to these conversations. >> we want to have conversations with them. should keep they neutrality at this moment in time, and have to understand it is a movement led by venezuela, that we want to have a mutual elation ship with different countries, including china and russia. fory: very important venezuela's interim government to keep the balance between relations with china and also with the u.s., which has this ongoing trade war with the chinese. caroline: $60 billion is a lot. shery: this is where china stands out, it could be a better partner than russia.

russia has been more vocally backing the maduro regime because china has the pockets and the money to invest for longer-term influence in the region. right now what we are seeing is an is waylon oil going into china -- then is waylon oil going into china. venezuelan oil has deteriorated, people are saying it will be hard to find new buyers aside from china and india. caroline: we will see how that push for a transparent relationship goes. meanwhile, president trump delivers his state of the union address tomorrow. joe: and by, reporting first-quarter earnings before the bell. and disney reports its first quarter earnings after the bell. romaine: bloomberg technology is up next in the u.s.. joe: have a great evening.

this is bloomberg. ♪

emily: i'm emily chang in san francisco. this is "bloomberg technology." alphabet reports fourth-quarter results. highlights from my conversation with the alphabet cfo, ahead. tech's -- slack filed paperwork for its direct listing. the crackdown on