♪ >> i'm taylor riggs in san francisco this is bloomberg technology. coming up in the next hour -- >> it's a very intense budget and it's risky. described itrberg as complex and risky. ofe on his testimony effort a house committee wednesday on capitol hill. plus, tesla reports third

quarter earnings and shares a spiking on a surprise profit. we have the latest. cloud carries clout did microsoft revenue beats the highest analyst estimates. demands come in strong that it may be waning. we will explore. first, to our top story. mark committee on merits of its plan to establish its own digital money called libra. while he struggled to convince them of the plan, he did share one major view with lawmakers. too big forect is anyone company to do on its own which is why we set up this independent association with other companies and nonprofits areas it is a very complex project. as you say, it is risky. >> for more, we had to washington where our own reporter was at the hearing.

what's your first takeaway? >> people still do not trust facebook. that was the overarching theme from the questions we heard today. a lot of the feedback from members of congress was basically pointing out that -- things that facebook has done wrong in the past and asking given your track record, why should we trust you with a new cryptocurrency? at the end, it was representative of mchenry after almost six hours of questions and testimony said i'm not sure we learned anything new here. unfaira little bit of an blanket statement but at the same time, despite the fact that we had all this time to hear from mark zuckerberg, we did not walk away with a bunch of big questions answered. >> when pressed on why we should trust facebook, what was his response? isa lot of the response similar to the clip you just showed which is the idea that a spoke is just one of 21 different companies that are

overseeing the cryptocurrency. facebook is putting out there that we are not the only people making a decision here. we want to work with regulators and we want you to tell us how this is going to work. it is not going to be only our call. that is a very important element of all of this because for the people who think is because too much power or it cannot be trusted, the idea that they are bringing others into the fold or that they are following rules that someone else creates, that will give them a lot more flexibility to get this thing off the ground. him also bringing china and saying if we don't do this, china will so we have to do is to get ahead. we have a sound bite from what he was saying about china. take a listen. >> as soon as we put out this white paper on libra, we saw in china especially they immediately kicked off this public-private partnership with some their biggest companies in order to race to try to build a

system like this. a digital -- that they could use as part of their initiative, their foreign and economic policy to grow influence throughout asia and africa and other areas. right inuckerberg bringing in china here or is he just playing to all of our fears about china taking over? >> i think there is probably some validity to this concern. this idea that there are companies and of the government in china that really wants to accomplish a similar problem. they have the technical ability to do something like this areas i do think this is a very convenient argument to make especially right now and especially in front of this congress given the issues we are dealing with with china. toseems like now is the time play up the spear that china is the real threat here.

we heard him say this last week. when he gave a speech at georgetown about free expression, he talked about the internet rules and china and it tech companies like facebook don't support free speech, you might look up and see the that is gone from the internet because chinese companies are controlling it. he has played on the china fear before areas >> we also talked about political ads. remind us what you heard today from zuckerberg about why he does not want to be the arbiter of fact checking these political ads from politicians as we head into election season. ask he has been consistent over the last week about the question that he has been asked many times. we've heard him answer it time and time again. he says we don't want to be in a world where tech companies are responsible for determining with 100% certainty what is true and what is false areas he says i don't want to be in that world and you as a user to want to be in that world either.

that obviously creates a lot of other problems but the general perception here is that facebook doesn't want to be taking a side and if it were to go out and say were going to block this ad from president donald trump for senator warren, is that constitute them picking a side one way or the other? there want to let things slide and they are asking journalists and users to point out what is true and what's not. >> thank you for joining. tesla is also out with third-quarter earnings. in revenue.dollars it's the first decline since 2012. the stock is jumping. down themanaging income statement and posting bottom line earnings-per-share beat 186 versus estimates of a loss of $.24. that is an unexpected profit. our guess is joining me to a surprises areas

profit? >> indeed. you mentioned the bottom line numbers already. they are a real surprise for us. drovempanies gross margin the bottom line numbers. >> what is the gross margin? are we looking for and what do we get? >> we were forecasting 15.1%. they came in at 18.9%. for a cup a like tesla, that is a big difference and it surprised us. >> how surprised are we by the profit in the third quarter? we thought maybe it would be elusive for a little bit. and the company have been saying that this is the big goal. they have been saying we got the production right now we are all about getting cost down. because tesla has been so last 18 monthse

or so, there has been a lot of skepticism but this is a case where they delivered. there is more money coming in that is going out. the cars are selling in greater numbers and when you look at what they have ahead, their pitfalls -- they have pitfalls in there factory opening shanghai will potentially be great for sales areas the investor letter they just posted said they are ahead of schedule on the new compact suv model. we know from a lot of these companies that you cannot cut your way to growth. problem here is that topline revenue growth is falling for the first time since 2012. while you are able in one quarter to manage and get a bead on the bottom line, how concerned are you that going back to the top line, you are not seeing growth? >> that's a good question.

a holdwhy we moved from to a buy. we are concerned about the demand out there. y -- thist the model company does need to generate growth. >> we should note that tesla an , they ares trading poised for the highest since april. investors are surprised and happy with the company. as we talk about profitability, walk me through the mix. between the model three which is under volume but lower margin versus the model s and the model x and the production of the model y. >> the model s and model x have been the higher-margin luxury vehicles. is a middleree range mass-market car. the knock here was the tesla had ton doing these contortions

get the price down. to get it as low as possible. that was going to cut into sales of the others and destroy margins. what looks like to be happening is that the sales of the model three have been so good and tesla has been so good at keeping the margins in check and getting their manufacturing process which was so all over the place for so long under control that it looks like they are making the numbers work. at the end of the day, this is a but iteaper luxury car is still a pretty expensive car. you have these add-ons the tesla has been effective in selling including semi-autonomous add-ons. there's a lot of ways for them to get a next her margin on this thing. thatrop in revenue, does show you that demand in the u.s. is saturated? >> i'm not sure i would say saturated. accessed most of the early adopters already.

you are getting to the plan our you have to deliver reduced rices and better economics on the mark -- model three to keep the volume going. mayink their rate of growth attenuate a little bit until we see china come online. >> they just opened up the big factory in shanghai. producingooking at 1000 cars per week in that factory by the end of the year. is that what you need to see out of the numbers from china to see that you are getting that demand? >> certainly china helps. it sound like we are pretty close. that will help with the margin. i do think it will be very important for them to get the lineup of products refreshed in the u.s. and europe as well. what we got surprised on today was the gross margin. it is much more profitable than we thought areas the concerns i articulated about demands and the rate of growth are still there. >> tesla coming out and saying

they are confident they can 360,000 deliveries this year, we were looking for 360 to 400,000. how confident are we now that we can meet the annual target? >> this is a company that is famously a little bit freewheeling. it is honestly hard to say. and putting it out there, you have to take that as a good sign if you are an investor. a lot of this future growth as joe was saying depended on china. jenna is very politically chaotic right now. obviously, tesla has done well and has opened the factory with remarkable speed. there are beautiful pictures of the factory in the investor letter they just posted. with china, you have to look at it as something you should be cautious about.

there is the trade war that is simmering down that could heat up again. we have a tech ceo doing car manufacturing in china. that is to -- potentially politically sensitive. thank you to our guest. up, microsoft cloud efforts pay off. the company beats annual assessments that there are signs that demand may be waning. we get a full picture ahead. as we go to break, paypal exceeded analyst estimates when the reported earnings on wednesday. they became the first to pull out of the facebook cryptocurrency product -- project. this is bloomberg. ♪

taylor: microsoft reporting earnings today as well. joining me on the phone to discuss is an analyst who currently has a reading on microsoft. you have to hand it to the company. 14% topline growth

consecutive quarter of double-digit growth. how are they getting there? >> the cloud. their crushing it. they accelerate growth from 15 up from 14 last quarter. they are really embracing the shift to cloud. the cfo and ceo really got ahead of this ahead of anyone. if they are taking shares of oracle, ibm and many others in the industry. we think that the momentum continues with -- what is notable is they have a massive backlog. many of these contracts a are signing they are not recognizing the revenue in the quarter they are recognizing it over multiple quarters. the opportunity for investors is incredible because these are multiyear contracts that are now measured in the billions of dollars. that is you future visibility. that's what the stock continues to grind higher. i think it's off a little given the overhang across tech right now with texas and the other software names turning off. overall, you can't dream of a better quarter. >> our analysts would agree. had an analyste say microsoft was placed for the transition to the cloud even

more than amazon. they are taking business from oracle and i'm -- ibm. what are they doing that other companies are not? >> they got to as your early. azure early. secondarily, they added the whole microsoft suite from server products to desktop to new applications are you that they have been very opening about embracing new technologies like the next. in the past they were never open to them. they have been agnostic to what is going to go on the desktop and effectively just saying we want to be the back and to support that. i think it has been great leadership and multiple years in the making. honestly, they are reaping the success of years ago decisions they made strategically. now, this is an off. they are gaining the trust of the top corporations and realizing that what they want to

use amazon, they want to use google. they are using a lot of microsoft also. large enterprises are using a lot of amazon or microsoft cloud. this multi-cloud world continues in large enterprise. this really a couple choices. >> away from the cloud, are you seeing enough broad-based demand in some of their core businesses that legacy i.t., that if cloud were too slow, there is enough support in the other business lines? >> they have an upgrade cycle to windows 10 that will wane. it's a tailwind. questions in some the call about how much demand got pulled forward on the traditional pc side because you have an end-of-life product. that is something we are watching but that will be a rounding error and what is more important is the success they are seeing across the board in cloud.

>> thank you for joining me. conference calls. the era of bizarre excess has come to an end at we work. how are employees feeling about eight dollar payout? is bloomberg. ♪

taylor: it's the end of one of the biggest business debacles in history. a $9.5 billion package. the japanese conglomerate will get most of the startup. the wework founder will walk away with $1.2 billion. last january, wework had a $47 billion valuation. this valuation lists the company at less than $8 billion. $9.5 billion? walk me through the components

of that. >> there are three parts. there is a debt package. a $3 billion tender offer. it is available for adam neumann to use if he wants to sell back his shares. then $1.5 billion of accelerated dustnt in which self by softbank is going to take more. >> if there is a payoff, they could win big. what are the other investors at the still bought in high prices and are participating in the lower round of shares? >> this is going to be an ongoing conversation for wework and the details of figuring out the deal because you are right, softbank is doubling down on its ownership wework and buying shares at lower and lower prices. if $1.5 billion is coming in lower than the tender

offer. they clearly believe that if this could be valuable in the future they will come out with a win. at the same time, you have a lot of other employees and shareholders looking at this thinking how am i going to get what i expected this equity might be worth? particularly for employees who joined when they got options many of them are underwater. this came up in an all hands meeting today with the executive chairman of wework. employees are concerned about how this is going to play out for them. >> described other reactions you got from the employees when they talk about these bailout packages. >> one former employee called it a platinum parachute. they feel like him walking away is a billionaire, to them it hurts and it feels painful that the company didn't even have enough cash to pay out severance packages for the thousands of employees they plan to lay off meanwhile adam neumann walks away with on top of his tender

availability, eight $185 million consulting fee which was explained to employees, that the was something they had to pay agree to ahim to noncompete and remove himself from the board. >> during that all hands meeting, executives came out to say they emphasize profit overgrowth. at this point, one would hope. when we get there? >> that is a big question up in the air. it seems like the company feels like it needs to act quickly to try to show profitability but to be honest, this the company that was losing almost $1 billion the first half of this year. in order to trend things around, they will have to make a dramatic changes and i don't imagine it will happen overnight. this is the new mission of the company. it's no longer growth at any cost. they have turned that over. >> finally, do they feel like the ship has stabilized?

you had a lot of executive departures and some frustrated employees have said thanks for hanging in there going forward. all hands on deck we are trying to boost morale. is that working? >> if you are an average employee, you are still concerned if you're going to have a job in a couple of weeks areas they confirmed layoffs are coming and they won't talk about when but we know it's soon. it's going to be a major part of the company that will no longer be working there. morale is low. we have talked to people who have said people are just not showing up for their job areas. lit upernal channel is with employees frustrated about how is this happening and they still skeptical about the show future and you can't blame them. >> inc. you for joining us. coming up, it's all back to facebook. mark zuckerberg may be done with testifying today but lawmakers are not done with facebook or its proposed cryptocurrency. more follow from wednesday's hearing next areas this is bloomberg.

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♪ taylor: this is "bloomberg technology." i'm taylor riggs in san francisco. back to our top story -- facebook ceo mark zuckerberg is defending his social network before congress. let's listen to some of wednesday's exchanges between zuckerberg and lawmakers. >> is it a currency? are you a bank? what is this association? >> it's a very complex project, and as you say, it's risky. >> do you consider libra to be money? >> i consider libra to be a payment system. >> is like me having my money in

wells fargo bank. >> you could think about it that way, although we are not a bank. we are not applying for a bank charter. >> but that's the problem. that is what we are facing here. >> my commitment is we are not going to launch the libra payment system here or anywhere else around the world until we approval from financial regulators. >> the american competitive nest angle -- competitiveness angle and competition with china is relevant. >> china immediately kicked off a partnership with some of their biggest companies in order to raise to build a system like this quickly. >> will it be possible to conduct anonymous transaction using libra? there's a whole host of problems. will libra and now -- allow anonymous transactions? >> like i said, it's an open question. >> it is pretty hard to stop anonymous trading. have i missed something?

>> this is probably more of a policy issue in question. >> as your code currently exists, can you transact anonymously with libra? >> it certainly would be possible to build a system that would allow that. >> i want to ask you a very simple question -- are you a capitalist or are you a socialist? >> congressman, i would definitely consider myself a capitalist. >> frankly, i am not sure we have learned anything new here. taylor: joining me to discuss in washington, managing partner and cofounder of financial analytics, the washington-based advisory firm. also in washington, the deputy director of the open markets institute, sarah miller. karen, let me start with you -- is there any more trust with regards to facebook and libra today than there was yesterday? >> i think nothing was answered that than the commitment

libra will get regulatory , butances before launching in what form and if the product exists after that i think is still very much to be determined. a promise but not one with any specifics, any timing, or in my opinion, any clarity. about: other problems not libra but the fact it is libra and facebook and that facebook's name is attached to the project? >> i think that certainly does not help. there are two takeaways from the hearing in my view. one is that libra is toast. number two is that mark zuckerberg got roasted. he did not do himself any favors here. the idea that regulators in the u.s. or around the world are going to allow mark zuckerberg to potentially undermine the entire u.s. financial system is highly unlikely at this point. i don't think he did himself any

favors at all, and a just open him up to being a punching bag from both the right and left on a whole host of issues that went far beyond libra. taylor: you chuckled a little bit when karen said that libra was toast. do you agree that libra feels a little bit dead on arrival? >> i said before that i think this is the worst product launch ever, and that is counting the new coke. the reason for that as they did not understand a very fundamental fact -- the payments system, currency, financial transition -- transaction, it's about other people's money. social media raises a lot of but other issues, you're putting economic quality on the line when you start dealing with other people's money, and i don't think to this day mark zuckerberg or facebook at that. this is different. congress told him that today from both sides of the aisle.

i'm not really sure they get it now. taylor: zuckerberg brought up china and said, "if we don't act, china will." china announcement, already started making some of the digital cryptocurrency gains in the market as well. is that an accurate statement, or is he just playing to our fears about china taking over? absolutely the latter. a few years ago, we saw facebook trying to find and create new censorship tools so they could launch in china. there is no real principle here. the talking point was actually rightly called out by one of the members in the hearing today, which was encouraging to me, saying, "i don't think this is about us choosing china or else having to choose mark zuckerberg. i don't think that is a real choice." right aboutsolutely that. zuckerberg should not be up there saying, "if you don't let me do whatever i want, china is

going to take over our economy. that is absolutely silly. we should not be modeling our economy after the chinese state. taylor: not only did we hear about libra, but we heard a lot of commentary about political ads and facebook's decision to produce and take and promote political ads regardless of if they are fact checked or not. take a listen to what he had to say about that. >> we believe people should be able to see for themselves what politicians are saying. that does not just go for trump. that goes for any of the candidates for any of our national offices. people need to be able to see for themselves and be able to make judgments on what the candidates are saying and their character. >> i applaud you for that and i don't want you to be bullied by politicians to relinquish our treasured free speech under the first amendment. protect it and don't be bullied by politicians who want to censor politically incorrect speech.

taylor: let me get your reaction first -- isn't that smart? we don't want big tech deciding what is news, what is not, what is true, what is not. we want them to stay out and just be the platform, correct? >> we do, but mark zuckerberg says he wants voters to see what politicians have to say for themselves. i think the concern is a lot of what is on facebook is other people pretending to be the politicians and speaking for them and speaking inaccurately. difference, i suspect, at least the one that troubles me a lot, is facebook's responsibility to be not just open to free debate but also open to fraudulent, deceptive, or criminal discussions or even misleading, doctored videos and so forth. that i'm not sure is protected. taylor: we had christopher riley -- christopher wiley on the saidam a few weeks ago who

facebook is like a highway. they built the highway, so it is their job to create rules around it. do you agree? is that the solution will require action by congress and federal agencies and the solution is not to kind of weak things around the edges. facebook built a business on surveilling users and using that data to manipulate them. it is inherently determined toward -- it is inherently discriminatory and extremely dangerous for democracy. it should not be a thatnications platform billions of people around the world use that can also kind of this manipulative content. it is a business model question. it's about how they make their money, and it is not sustainable in a democratic society, and it is as simple as that. that will require congress and

to drop it. taylor: do you think facebook should stick with their core business, and fix it, which is the crux of the problem, at least when it comes to the election? >> yeah, certainly they are in a position to do more on this, but at the same time, karen was right. we do not necessarily want facebook censoring what everyone is talking about. that is not the role for mark zuckerberg in a democratic society. the business model itself is deeply problematic, and it will have to change at some point. that is what these antitrust investigations can start to move towards. theor: mark zuckerberg said 2016 election clearly had caught them on their heels. do you feel any more confident they are more prepared for 2020? >> no. i wish i could say yes. no. i know that just last week, they

shut a few folks off, but this -- a verywiley enemy enemy. there is an inherent conflict between facebook's data manipulating and sales business culture and an honest, free, fair election. in the old newspapers, the ads for new cars were on different pages from the political commentary. now it is all mixed up and it's hard to tell which is true. taylor: when we -- as we wrap up today, did you see a different mark zuckerberg today? was he more prepared,,, more calmer,- more prepared, more mature than the last time we saw him testify? >> i'm so old asking me if he is more mature is an unfair question. more fundamental is -- does he understand what is going on? why libra?

why is facebook under such scrutiny? i don't think so. issue.eally a structural sarah has pointed this out. this is a new business model with vast reach. now it is a reach into money. the payment system is anachronistic. mark zuckerberg said today that the banking system is -- i think he said stagnant, and that is true. reasons for that is the rules. because it's other people's money and you don't to move fast and break things if the things you break are other people's life savings, and he doesn't get that. i don't think he does. taylor: what a roundtable. me.k you both for joining , tesla reporting a surprise profit topping wall street estimates for the quarter. we talk to an analyst from

wedbush. this is bloomberg. ♪

taylor: tesla shares spiked after the company reported a surprise third quarter profit. ceo elon musk took to twitter, of course, less than an hour later saying he was "super .roud" of tesla's team with more on the earnings-per-share picture, margins, and what the company is saying about china, and analyst from wedbush securities. come into my terminal. the story of the day has to be those margins. is the margin picture for you what you needed to see this quarter? >> that's the key.

if you look at the margins and profitability, that is the feather in the cap, and i think that is the surprise. this is something they need to the folks andn to profitability. this should be a potential game changer for them going forward. taylor: the problem is you cannot cut your way to growth. if you are seeing a topline decline for the first time since 2012, is it sustainable to cut your way to growth? >> that is going to be the challenge for them, to navigate profitability while they are trying to get to growth, fix what is happening in china. that is going to be the key in the conference call, majors short covering, but that is really -- major short covering, but that is really the key going forward. taylor: part of the profit picture has been the competition we have talked about between the

y, and the model three, which is the lower margin. how do you feel about the competition? >> with model three, that is going to be the difficulty to get there from a margin perspective. y is going to be key going into 2020. the key focus on the conference call as well as china and the gige three build out. taylor: brought up the conference call. what is your biggest question to management? >> lighting profitability, what does it look like with the china buildout and what does sustainable demand look like next year. that is going to be the key for musk and tesla. this is a major positive for bulls. is it sustainable? that is what they need to show in the conference call.

taylor: as you mentioned, all eyes are on 2020 profit. i show you another chart i'm looking at inside my terminal, and it is a similar story, which is free cash flow. we are getting positive free cash flow, but is it sustainable? they be able to sustain free cash flow and eventually have to raise more capital? they took that off the table today in terms of these numbers, but as we have seen with tesla, it has been a one step forward, two steps back story. that will be the key knowing forward. taylor: are you confident they can produce 1000 vehicles a week in shanghai by the end of the year? >> i'm not confident in that. that's going to have to be delayed. that will be a focus on the call in terms of china. for tesla stock and production demand to go higher, it all , and that isga 3

going to focus on what china looks like. reaction,lision price 10%, 20% in after-hours trading. is that warranted? massive shortis covering. no one foresaw a profit this quarter. you will see a knee-jerk reaction. move in my opinion is overdone. we would be a seller of that move. taylor: we speak about profitability, and lo and behold, lyft comes out this week and says they will post surprise profitability by the fourth quarter of 2021. your take? >> that is really what investors need to see. they need to get to profitability quicker. more and more pressure from lyft , i think it's the right move to announce that. right now, investors are not looking at nonprofitable stores.

the path, andhow it is something they will talk about in their conference call next week. atlor: when we look expansion, how much of it is management for the company, looking around at the environment for growth -- where growth at any cost frankly does not work anymore and they are saying we better get a grip. >> is a public company. the pressure has changed. for uber, a lot more pressure. is only alyft domestic player. is the overhang legislation in california. that continues to be a very fluid situation that is an asrhang on both lyft as well uber.

taylor: we did have a story saying that uber's u.s. margin 's.ansion would exceed lyft do you agree with that? >> i agree. i think right now there's a lot of pressure on these companies in terms of managing profitability. for is a learning season .yft as well as uber right now, investor credibility is really small in terms of what you see on stocks, and they need impressive guidance going forward to move. taylor: thank you for joining me . , uber,ngs tesla, lyft and profitability. up next, we discussed apple's gain the top spot in a

crowded market next. this is bloomberg. ♪

taylor: shares of apple hit a record high this week. morgan stanley has raised its price target to the highest on the street. the firm called for apple to hit $289 a share mostly on next month's release of the apple tv pod. that implies a 20% upside from tuesday's close. sticking with apple, the tech giant is buying its way into hollywood. its streaming service debuts next friday with original shows starving celebrities like witherspoon and jennifer aniston, but apple is positioning it in a highly crowded market. to discuss, i bring in bloomberg news reporter chris palmeri.

what is your general take away about how crowded this market is? where does apple fit into that? >> it is very crowded and getting more crowded every day. there are already dozens of streaming services competing for customers. there will be more launched over the next year. people saying the most a customer will subscribe is maybe three or four, so there will be a mad gold rush and a big shakeout over the next couple of years. taylor: i want to show you a .hart you know the story. you have been covering capital. total cash, a few hundred billion dollars. can take on netflix or disney, is it apple, frankly, because they have the cash? is one of the ironies. apple's brand name, cash, customers all around the world, it would seem to be the most formidable competitor, but at least in terms of hollywood, it

is kind of the least feared, and that is because it strategy -- strategytegy -- its has not come to focus. netflix developed content after its most popular content. apple does not seem to be that focused. they just seem to be paying top dollar for well-known celebrities, which is kind of the mistake people make when they come into hollywood. taylor: netflix had a great strategy, which was original content. +, when they launch, they will have all of this backlog content they can push forward. any sense what apple will focus on? >> they are focusing entirely on original content and people will tell you, it is original shows that make the difference if you look at the surge hulu has seen

in the last couple of years, but you cannot do it with just that, which is one of the most perplexing things about apple's strategy. with all the cash they have, why don't they buy a library of movies? are people going to go to just see this one movie or two shows that they are launching? it is a very confusing strategy for a lot of people here, but we quickly, veryy, interesting in terms of strategy, t-mobile had been offering customers netflix. verizon has been offering customers disney plus. any sense that apple really does just go it alone, or do they partner with someone? >> basically if you buy an apple product, you will get a year of this new service, and a lot of people think that is really what this is about, linking the hardware to the content. taylor: thanks for joining. that does it for this edition of "bloomberg technology."

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idi: welcome to "daybreak australian." sophie: we are counting down to asia's major market opens. shery: the top stories we are covering in the next hour -- earnings galore in wall street. tesla post its first profit in almost a year, but there is