♪ in san taylor riggs francisco in for emily chang. this is "bloomberg technology." hitting highs, southwest on a rip. does it have more room to run? app -- appetizing, those lips coming up.

uber and lyft went on public with much fanfare. what does 2020 have been store? the s&p 500 returning 46% so far this year. the last time we saw these gains was 2009 with the index returned 60%. the breakdown for what is driving this is michael regan. what is fueling this massive rally? mike: mostly chipmakers. lam research. there has been talk about this rotation out of growth into value. sells whatcell

happened. it wasn't a great year for growth for most chip stocks. it is about the next big thing. what are the next big things? 5g, a lot of chips needed for that. is in early stages. machine learning, ai, there is a lot of optimism tilted around these innovations. the cloud computing arena has still not completely matured. the next big thing used to be social media, google, facebook, and those have matured to some degree. people are looking forward to that next big bump up in tech innovation we will see in 5g and iot and on and on and on. taylor: i want to look at this chart i'm showing, terminal. i wonder if this rally means the tech sector is overbought.

it is purely from a technical standpoint. what are you hearing from the street about the tech sector being overbought at this point? >> tech can get overbought and stay there for a while. got rsi has been known to above 70 that signals overbought and stay there for a while. when you look at that moving average, it is pretty high above that 200-day moving average, but a sector no stranger to extended rallies above that average. that average is still pointed higher, which is bullish, even if it goes back to test that level. the long-term trend is higher. it would take a lot from a technical perspective to break that uptrend. hearr: i was shocked to hardware is outperforming software. ?s that all on trade mike: apple is the biggest

weight it in those. , butest gainer is xeroxe there is a lot of optimism built in the attempt to take over hewlett-packard. i know carl icahn is on board with it. them and basically get a lot of synergy and come out the other end with a leaner company that is complementary enough that people are getting excited about it. xerox cameat gain in after that announcement. taylor: one analyst at tesla,imer talking about so set him up nicely and talk to me about what has been going on with tesla the last few days,

another day, another record for tesla. they introduce the cyber truck, that did not turn we sawbe bulletproof, so a bad reaction in the stock. it has rallied since then. not a lot of reaction from the analysts. they say this will be a niche vehicle. i question that. landscapersple like , contractors, people who drive the truck a lot, they are incurring big gas bills. pickup truck owners are notoriously loyal to their brand, but if they have an opportunity, the small business owners, to save a bunch every month on gas prices, i wonder if it is more than a niche product. taylor: we will find out. michael regan. tesla shares closing in on elon

musk's goal of 420 dollars a share. in august 2018, he tweeted he sought to take tesla private at that level. the most recent stop surge came from report that tesla is considering cutting the price of its china-built sedans by 20% or more next year. this senior research analyst and director at oppenheimer joins me now over the phone. a 300 $85 price target. he has an outperform rating. let me get your take on the share price. at $404, what is fair value of that company? aboutst we have to talk what's going on with the company . not only did we get rumors around price cuts in china, but were seeing cars in the lots outside the china facility.

the company promises a significant cost reduction out of that facility. that facility is ramping on schedule. they do get the synergies and efficiencies they have been expecting. the potential for material improvement in the cost structure is higher. ,s we think about the price cut that may be indicative of where their cost structure will shake out. you look at a $385 price target now with news on china and potentially raise the price target into 2020? obviously we can't anticipate any price target changes before we do them, but we are looking for more data. this has been an extremely volatile stock. we certainly have seen big moves

up and down. as we get more information about volumes, and there is a big push to finish with strong volumes, and more information about gross margins and potential earnings power as they hit these higher levels of production, we will reevaluate our price target and where we think the company can go. since we published that price target, they announced they will be laying off 10% of management and misses the eu emissions targets, even after buying credits from other companies for zero emission vehicles. we see tesla has a two year to three year lead from technological perspective and leveraging that into market share, and they will do so for the next two to three years. chart to'm showing a our audience right now which i would describe over the phone,

showing car sales in china folling for a straight year. as you look at tesla defending market share in china, is orting their prices by 20% so year enough to offset what looks like falling demand in china? one, there has been demand for electric vehicles because there were subsidies, which have been adjusted, but were seeing flat sales. in terms of where tesla is at in the market, just introducing the smaller vehicle with the model three, we see a larger addressable market for them. it has always been a niche , and china has been a minor part of their sellthrough. as they ramp up model three production, we see a share gain,

particularly if they drop price and address the larger market. model threenow the was the least profitable of all of tesla's models, so does cutting price by 20% or so change profitability models and targets? it depends on what the gross profit is on a per vehicle basis. done valuation and potential cash flow analysis on tesla looking at how much cash they are capturing per vehicle, and we have been seeing around $10,000 per vehicle. numberee that sort of with the model three in china on the volumes they could begin producing, that would be a bullish signal for us. look into 2020, how is their cash outlook. what would be the biggest catalyst for the stock as you see it? >> two things.

about $5 billion of cash on the balance sheet, so we don't think they have any needs for cash flow. next year we're looking at volumes. we think they have done a nice job of controlling operating expenses and there is a lot of operating leverage at they scale -- as they scale the set. we think earnings leverage will drive the stock higher. thank you. congress has earmarked $400 million to boost election security where voting is slated to begin in february. under the spending bill, states would use the money for upgrading voting equipment, conducting post-election audits, and cybersecurity training. the national security chiefs have warned russia and others

remain interested in attending to interfere in u.s. elections. coming up, which apple was the most downloaded and 2019? we will find out next. if you like bloomberg news, check us out on the radio. this is bloomberg. ♪

taylor: facebook continues to buy companies as it is building its own operating system software. to buy atalks semiconductor company and announced the purchase of a videogame company. is this facebook attempting to advance its hardware ambitions?

joining us to discuss is sarah frier. about their hardware ambition. focused on has been winning the future of hardware. they tried to be big on the mobile phone, but they could not make it. iphone,e rise of the android, facebook has had to build its business in other people's ecosystem. they did a pretty good job. they own four of the most popular apps of the decade, but in the future iteration of hardware, ar, vr, facebook wants to own the hardware. taylor: talk to me about the operating system. you said they built so much on ios, android. what is this about an operating

system on facebook? sarah: it would help them reduce the reliance on others. it would help them make sure ify can take a part, even they create an operating system that does not become the dominant one, they can chart the path of the market and build something other people have to compete with, and that helps them determine a future that is more centered around social product, which is what is most important to facebook. whatever happened after the error of mobile phones, it will have a big space for people to be connecting with each other over instagram, whatsapp, and messenger, and messenger come in the other properties. taylor: i want to look at one chart i'm looking at, the forward pe ratio. -- unlessd facebook said facebook is relatively undervalued. say facebook is

relatively undervalued. how is facebook continuing to make these acquisitions with this regulatory overhang on the stock? has dominated in digital advertising and social media. if they were going to acquire tictoc or other social media app, it would be difficult to do that. if they want to acquire a gaming company, that is less concerning to the government and they could probably get away with it. yes, there is regulatory overhang and there are deals they could get done that aren't getting done because of that concern, but facebook will continue to try to move along 10 to 20 years in the future on this hardware bet. taylor: as you wrap up 2019 and look at the stock, it is up 55%. do investors not care about data privacy, antitrust? it seems like they don't.

sarah: only if facebook stops growing or slows down in their growth. they have warned about that a little. they said we can't continue to grow revenue at the rate we have been growing it. these hardware investments are so much more expensive than software products, but investors are betting they will continue to gain more and more territory over our free time. taylor: i will be looking for that ad revenue growth for facebook and google as we approached 2020. sarah frier, thank you. coming up, our subscriptions the next big thing? they might be. we will bring you the list of 2019's top apps next. "bloomberg technology" is livestreaming on twitter. check us out and follow our global breaking news network at quick take on twitter. this is bloomberg. ♪

♪ 2019 has been a landmark year for mobile. the apps and new streaming services come here to discuss them is the executive vice president of global marketing and market insights for apple annie. >> the key thing we saw from the download perspective is the popular social and communications apps continues to dominate in 2019. if you look at the top 10, social apps were seven of the top 10 in terms of downloads, with facebook claiming four of the top five. taylor: one that caught my eye

was tinder. how has it changed the landscape? >> it is not just video or music apps that have done well to monetize outside of games on thate, but were seeing dating app. i think it is an indication of the natural social experience. it is a social component, the .bility to quickly communicate there are behaviors to bring people back. we are seeing more competition. we are seeing so many in that space continue to grow. taylor: you hinted at this, the ability to monetize. appsof the most successful

have those reoccurring revenues, that subscription model that is so important to investors. be are they able to successful with the generation known for not wanting to pay anything. >> if you deliver great value, it is built into the experience. it is expected. you might be binge watching something, but you're coming back a week later for the next show, or coming back to music. people are listening to music and our subscribers day in and day out. people are using these apps regularly, so they have captured and delivered on a value, that need. taylor: a lot of the subscription-based apps are within the gaming sector. that is taking off with this virtual online gaming. is that which you see feeling growth into 2020? gamingall in mobile,

drive 75 cents of every dollar that consumers spend. typically in-app purchases. subscription just started to take off. it is something to watch in 2020. we have just started to scratch the surface with games. it is the one area games is behind on. it will be a new opportunity for publishers to monetize games that did not lend themselves well to in-app purchases. taylor: we talk about nine innings in a game, where are we in those nine innings in terms of app able to utilize engagement and monetize as you think about a wide variety of where we are? >> engagement is everything. we spend roughly three hours a , and half goes to

social. some of that might be transactional, ordering a ride, a coffee, but then you have this entertainment and so forth. engagement becomes about time spent or sessions. snapchat tends to lead in terms of sessions per user, versus inebook which is successful terms of time use, but they offer different social experiences. it is important to understand which metrics are correlated and associated with the heavy consumer. taylor: one app we talk about a lot is tik tok, huge growth overseas. do you expect to see it as successful in the u.s.? when does it take off? 660 5 millionhed monthly active users globally.

that's about 20 million in the u.s., so starting, but tik tok towardsards --leans gen z and younger consumers. people are also using snapchat, instagram, and so forth, but were starting to see some compelling adoption of tik tok. taylor: thank you for joining us , recapping all those apps in 2019. coming up, tesla considering a price cut to china-built cars next year. we will have the breakdown next. this is bloomberg. ♪ here, it all starts with a simple...

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taylor: this is bloomberg technology global link, where we bring you the loudest -- latest in technology. tops take a look at the tech stories of the day. paul: amazon is getting prepared for brexit. bloomberg has learned the world's largest online retailer is looking for its first warehouse in ireland. it will be used to fulfill orders currently shipped from the u.k. amazon would have a problem if the u.k. does not agree on a trade deal that would ensure the smooth movement of goods across the irish sea.

sell onen't talks to of its businesses for less than one quarter of the price it paid eight months ago. be valued at less than $55 million. a group of investors and tech tickets are negotiating the purchase. we work is trying to cut costs and unload assets. takeaway.com just raised its bid for just eat minutes after another upped their offer. on thursdayoup said it increased its offer to 916 57.5% of there, whole group. the company is valued at about $7.2 billion. those are the top global tech stories we are watching. shery: title is considering cutting the price of its model

three in china next year. they are hoping it will lure buyers as the world's biggest electric vehicle market slows. how much would this help in lowering the mass market in china, especially when you consider the competition. they are already much cheaper than tesla. craig: you have a lot of electric vehicles and just cars in general that are priced, even premium cars priced below where you see the tesla model 3. when the price came out for the made in china model 3, it caught a lot of people by surprise because it is not that big a reasonnce and the whole for building this plant locally is the idea they can bring the price down by avoiding important duties and so forth. that theree betting will be this natural sort of goodwill of getting a plant open, getting governments onboard. there are a lot of government

purchases of electric vehicles in china. and tesla making a bet that the initial buzz about having the model 3 built in china will itself kind of carry them through the first six months of next year, then you bring the price down. shery: i want to show a chart here inside my terminal which is the big headwind in the macro backdrop that is slowing car sales across the curve in china for the rest -- last year or so. is a 20% price cut enough to offset this drop in demand? craig: that is a really good question. if you are elon musk and looking at that chart, you are a lot more nervous about the state of the china market than really if you look at when those drops were really kicking in, it is around the time that tesla was getting a deal, signing on the dotted line to get this plant built. it was built extremely quickly. it is unusable -- this was a muddy field in january of this

year, and we are talking about a plant that has already opened and is cranking out cars, potentially delivering them to customers within the next few days or weeks. this all happened extremely fast. we have seen some softness in the china market, but the degree to which the market really deteriorated this year i think caught a lot of car companies off guard. and it is cause for concern if you are tesla, despite the fact that you have real brand power and a lot of star power as a company that is sort of on the leading edge of this. shery: so what has changed for tesla that they can afford bringing the price down now, instead of from the get-go? given that some customers could wait and hold out and wait until prices drop. craig: i think that is a really interesting point and it will be interesting to see how long they can hold out before doing a

price drop. when you think about what tesla has been up to this point, it has been a company that has made all of their cars in high cost california. it does not have the most serious manufacturing breadth across the world in lower-cost markets. so labor costs are going to come down significantly. you are able to avoid levees and tariffs and get special treatment in terms of incentives and so forth. so, definitely you could see the price come down further if the initial demand is not quite what they are expecting. taylor: i want to sw another chart i am showing inside my terminal, which is basically the stock price at a record 404, blowing past everyone's estimates. the medium is about 291. i got off the phone with oppenheimer, even he admitted the 404 has blown past even his

estimates. i know you focus on the company, but if you take a look at sentiment, consensus on the street, is there any sense now that at 404, a record, tesla's run on the stock price has been a little overdone? craig: i do think that you just have to look at what the analysts have done with their price target. they have been pretty stingy about taking those up, despite the rally that you are pointing out here. this is a company that did eke out a profit in the third quarter. they really loaded that report a lot of positive things to get people excited about the china plant being ahead of schedule, get them excited about the model y coming early next year and that being out of schedule. there are a lot of things to be excited about. also really pumped about the cyber truck, despite the fact that initial reaction to that was like, what is that? but i think this is a company that is on a little bit of a run

right now. that being said, you look at the financials, it is still a company that is not making significant money. i think a big question is you think about how much people were caught off guard in the early part of this year just with tesla's inability to weather the seasonal downturn you see in demand for cars in january and february. he saw them cut a lot of employees very suddenly. that kind of scared everybody. he saw deliveries drop significantly. how they handle that seasonal dip you see in car demand early in 2020 will be key for them to sign the -- this time around. shery: beijing opening up the car market, with that have an effect on tesla, especially when we see other foreign carmakers trying to do exactly what they are doing? craig: it will be interesting to see. one of the things we have been following is you have read all the tesla bears are skeptic.

talking about waiting until the established carmakers get into the electric vehicle game and tesla will be toast. but that has not been what has come to pass. you have seen some of the big german carmakers. you have seen gm, even hyundai, kia, they have brought electric vehicles to market that have not hit the specs tesla manages to hit. they just do not have the brand and excitement around them to where you see even the likes of out or jaguar put decent-looking electric vehicles. that is not so much the problem where it used to be where they all look like science projects. but the electric vehicles are still really underwhelming. recentlye porsche disappointed everyone with an underwhelming range rating. taylor: craig trudell not only on fundamentals but the price target we got on thursday, thank you for joining us. much more ahead. stay with us.

this is bloomberg. ♪ loomberg. ♪

taylor: now to our week long stories, big tech rewind, where we look at the big technology companies and the challenges they faced over the last year. it would not be 2019 if we did not describe it as a year of the tech ipo. it was one in particular that had investors waiting for. it was supposed to be the ipo of the year. the ride-hailing startup that was supposed to be the world's most valuable with a suppose in market value of as much as $120 billion. but all of that changed during their debut, dropping 11% in the first two days of trading. while words like debacle or being thrown around to scribe uber's coming-out party, the ceo

remained optimistic. >> you cannot pick when you go public. you can control how you execute is a company. believe that, we our business can and should be profitable over time. taylor: promising that the timeframe would be 2021, and people agreed. >> you will get that here soon. >> i do not see that as the end of the road. it's an important milestone. i see it as an achievement making the company available to public investors. taylor: but they have continued to take hits including hitting a record low in november. despite a licensing battle in reportand an uber disclosing more than 3000 sexual assaults, uber remains optimistic. >> the business itself can be quite profitable. we are confident of that. but the next two, three, four years will be about growth. taylor: he spent the year

cost-cutting and significant waste, shedding 1000 jobs, and rearranging divisions within uber. after watching other companies like lyft and peloton look lackluster after going public, he is now thankful for the may 10 debut, saying that thank god we went public when we did. to continue the conversation on uber's performance in 20 and its competition with lyft, we are joined by tom white and ygal arounian. i want to ask you both the same question. tom,ilstart with you. you know this story better than anyone. since the ipo's, both lyft and uber down 35%. what do you make of the performance year-to-date? tom: first of all, thank you for having me. it is clearly disappointing. i think what uber and lyft, part

of the problem is they were slow to react to how investor expectations around demonstrating a apth to profitability would be clearer. an investor expectation shifted relatively quickly. uber and lyft were slow to react. did not necessarily communicate very clearly that path, and investors punish them for it. the other thing that was ateresting was we have seen lot of high-growth companies over the years that went public when they were not yet making money, but the ipo's were still relatively successful. in uber's case, the sheer magnitude of the losses was something investors struggled with. and i think that was a large function in how long these companies were private for before they went public. taylor: ygal, your take on the 35% drop? ygal: i think what you saw out of the markets this year over

the course of the year was less of a willingness from public market investors to accept large --ses and on profitability and unprofitability, a record-setting year for tech ipo's. uber kind of led the class. and i think all of that ipo supply led to some technical challenges. you also had lyft and uber and others, the trend kind of turned to stay private for longer. i think that stunted the demand when they went public. a lot expired and that -- there were a lot of technical issues at play i think as well. had negatived uber news. they were a lot of regulatory issues, performance problems,

and other things they disclosed over the course of the year. that kept sentiment low. we will look to see if that can slip over the course of 2020. taylor: tom, you mentioned a lot about the magnitude of the losses. you are going to have to clarify for me. when i went to my cfa school we were taught profitability met on the bottom line. somehow i moved to san francisco and people think on an adjusted ebit a basis, that is good enough. in my being hard on the company's or is adjusted ebita profitability good enough? tom: i don't know if it is good enough. unfortunately in our call -- our industry we see companies to convince you to look even farther of the income statement to things like contribution arjun or gross profit. at the end of the day it is about cash flow for me. and the present value of future expected cash flows. a decent proxy for cash

flow. ultimately gaps, net income profit ability is important as well. i think looking out into 2020 what will be interesting is how uber and lyft manage that growth versus profitability trade-off. here in the u.s. market, i think it is going to be cat and mouse between the two companies. uber is in a position to sort of dictate how competitive the environment is for ridesharing when it comes to prices and promotional activity. willutside the u.s., uber have to make some really tough decisions about that growth and profitability trade out. we have seen them already make some decisions already. 'sey exited south korea, there news reports the last couple weeks that they will exit in india. and so, those are tough

questions and big decisions that the company is going to have to make. and i think they are going to clearly weigh how the public investors are valuing those things. taylor: let's get into some of those fundamentals. clarify it for me. uber because like of their big diversification strategy. is it clear which strategy will payoff? -- pay off? ygal: i guess it depends over what time frame you're looking at. our own view on that has kind of changed over the course of the year. certainly uber is playing a bigger game. it has a much bigger opportunity ahead of it. it is going to do the things it is talking about doing, and rationalize in places it needs to. the competitive environment, especially in rideshare, can ease up a little more.

then they do have a much bigger opportunity. but in the near term, international market competition remains really challenging. it's been much harder than i think most people thought it would be on the food delivery side, and i think that was they competitive or even a longer period at this point. you are going to see consolidation in that space. and so on the international side, there's not really that much clarity as for when things could ultimately get that much better and they can become profitable on an international basis. but that is a challenge and that is why when you balance lyft's domestic only and rideshare only opportunity with what uber is trying to capture, lyft's opportunity to become profitable has become a little bit clearer. what is interesting is that lyft

is expected to become profitable , it is debatable as we are talking. basis byusted ebita the end of 2021. that kind of goes against that whole concept that we are talking about, that international weighs down on uber. i think a lot of investors remain skeptical about whether either can get there in that timeframe. there is a lot of show me for the stocks. taylor: when you look at the regulatory landscape, particularly here in california, do you see these ridesharing companies being able to overcome that? and if so, how much does the stock change? tom: i think to extent, yes, i do think uber and lyft have some levers that they can pull to offset the impact of higher

expenses. be it related to 85 or surcharges that are levied against the businesses by cities like new york. but only to some sort of an extent. i think the bigger question is, uber and lyft have communicated that as their regulatory expenses increase they are going to pass those higher operating costs into higher prices for consumers. to some degree consumers will be able to withstand that. at if we continue to see flood of additional surcharges, and one of the most egregious ones we have seen recently is what has been proposed in chicago, a tripling of the tax ridesharing companies would have to play -- pay. at some point you will see an impact on ride volume. an impact on just how attractive or appealing taking a ridesharing ride is for a consumer relative to what the

other alternatives for transportation are in a given city. so, again, they have levers. they can increase price. but at some point you may see sort of a reduction in the number of use cases where ridesharing really makes sense. i do not think it means that businesses cannot be profitable, maybe just the businesses are not as big as they were pitched to investors on the roadshow or have as much of a trance rotation on the industry. taylor: biggest catalyst for the stock in 2020? ygal: the biggest i guess potential catalyst will be competition. competition is a huge factor. most probably the meaningful impact to profitability in markets where there is not as much competition . each is significantly more profitable. so i think if we are going to

get to a place where investors start to feel more comfortable with the market opportunity and the profitability, i think the single biggest thing going to have to be competition continuing to ease. without that, i do not think we are going to get anywhere, really. and i think the regulatory environment will have to ease up as well. they are battling california, they are battling uber in london. and as we continue to get more and more examples of that, that will not change sentiment. taylor: teaching me all about profitability on this thursday, tom white and ygal arounian, thank you for joining us. still ahead we will go through today's topic calls, including why pivotal is raising its price for netflix. this is bloomberg. ♪ rg. ♪

taylor: let's take a look at

today's topic calls. netflix was raised to 425 a share by pivotal research group, in the wake of the company giving the breakdown of its international subscribers. the disclosure gave us greater confidence in our overall forecast, wrote the analyst. andeiterated a buy rating says knoefler is well-positioned among streaming companies. grubhub was released -- 2020nalysts said while appears to be an investment here, expanding restaurant selection and loyalty programs should drive growth food sales acceleration in the second half of next year. stock,s upgraded the citing lowered valuation and new-product amendments. -- announcements. cisco has a key -- that was a look at your top tech calls.

that does it for this edition of bloomberg technology. bloomberg technology is livestreaming on twitter. check us out at technology. be sure to follow our network at cook -- quick take on twitter. this is bloomberg. ♪ is bloomberg. ♪

paul: good morning. we are under one hour away from the market open in japan and south korea. shery: welcome to daybreak asia. hour,p stories this talking trade. steve mnuchin says the interim deal with china is in final review and will be signed and made public in the new year. optimism too over the new nafta. the agreement passes the house and is set to add .5% to gdp growth.