taylor: i am in for emily chang and this is "bloomberg technology." a strong showing. netflix reports solid fourth quarter as it sees a 20% subscriber boost. but that kind of growth will fall short next quarter. we will look at every angle. the computer and i.t. giant eked out revenue growth thinks to its cloud. we will break down the numbers and discuss how the company is positioned for the rest of 2020. speaking of the cloud,

microsoft's ceo set down with bloomberg in davos. we will hear his thoughts on the competition between microsoft, amazon and google. first, to our top story. netflix shares initially jumped the for a racing the gains after reporting fourth-quarter earnings. now fluctuating between gains and losses. the company has hit a milestone to passing subscribers outside the u.s. during the quarter. growth this slowing with forecast at just 7 million subscriber addition in q1. to discuss earnings report in further detail we are joined by emarketer and ceo andre. it seems like the shares were trading off of the first quarter subscriber guidance, which came in a light. are you worried that for the competition is slowing down

growth for netflix? >> not at all. netflix is pretty strong in the developed markets. there is not a lot of growth for them in the u.s. looking abroad, they have a lot of room to grow, but that will be difficult. we talk about that 7 million subscriber guidance, that is compared to a strong q1 in 2019. when you look at the year-over-year comparisons a are very weak compared to last year's. taylor: let me get your thoughts. typically they are conservative when they forecast some of their guidance. do you feel netflix is being conservative, or is there real potential underway? >> i have said that the real competition for netflix really starts in 2020. and i still believe that to be so. if i were them, i would be conservative. i do think it will be difficult to tell what the full impact of all the other solutions will be

on netflix in the first quarter. and second quarter probably more so than q1. taylor: i want to quickly take a look at a chart inside my terminal. you mention how the u.s. to mystic market is a very mature market. you could see in the fourth quarter with the u.s. market that has struggled, is that normal, like you said? would you like to see more u.s. subscribers coming online? eric: subscriber growth in the u.s. will be lumpy moving forward. that's largely because they are reaching well over 50% of all u.s. households. there is more growth for them, but when you consider more people watch netflix and actually subscribed because of household sharing, but also password sharing outside of the household, there's not a lot of room for them to grow within the u.s. in terms of subscribers. i still offer a great value to consumers and can continue to raise prices moving forward. taylor: i want your thoughts on that competition. i often hear that that domestic user is a much more valuable customer because they are more profitable.

i know that the growth is international because it is less of a mature market. the customer over there is not as profitable or valuable. how do you view the mix between domestic subscribers and the international subscribers as well? andre: i think the domestic subscribers, especially over the next year, and i would disagree that netflix can increase revenue by just increasing the price, netflix is now priced at a premium compared to their competitors. comcast and announcing peacock as a free tier. with disney + coming in at a cheaper price. there is pluto tv and others that are free streaming. the challenge for netflix could be a difficult thing to retain the clients than i think people are giving it credit for.

there are so much more free solutions that are coming on and cheaper price solutions with netflix. i just don't think they can spend their way out of it like they had in the past. taylor: i want to get additional thoughts from you, because netflix did say customers are leaving due to recent price increases. at what level of price increases are you really comfortable with? andre: it's difficult to say with the level of churn. i am not comfortable with any additional price increase from netflix. it is not feasible. if you think about it, two years ago, having a netflix if you had connected tv or any streaming device, was like a utility. it was pointless to have these devices if you did not have netflix. now you have people that don't

mean netflix. a lot of the most popular content is coming back to the original owners and going to other platforms. there are half a dozen cheaper options that have significant content. there are things like pluto tv and peacock that are free and still have a lot of content. imdb from amazon. i don't think it is realistic for netflix to increase prices. i would argue that to have success in 2020 will have to diversify the business model. have a cheaper app supported tier. do something. taylor: eric, do you also think they should create more of a tier subscription and come up with a lower-priced model? a lot of people think they are missing out on $1 billion a year by not having ads. eric: introducing a lower add two-year is a great idea. at the same time, ads will never be a major driver for revenue for netflix.

largely because a low end ad supported tier would be there to keep people in the ecosystem. when you look at all these other ad supported options, people spend a lot less time watching them. when netflix is constantly talking about retention, it's driving these back. when you introduce ads, time spent will drop specifically for the users. it is important for netflix to continue to do what they are doing, produce content people want to watch and produce value. taylor: andre, i want you to take a look at this chart inside my terminal. the story we know is how capital intensive this business is. the fourth quarter is coming in at $1.5 billion. netflix said 2019 is a peak deficit year for free cash flow. does that give you optimism?

andre: there has been reports that they will spend $20 billion on content. they spend so much money already. what the street has given netflix credit for was the massive growth they were seeing. if growth slows and competition rises, i don't pick they will be able to spend their way out of it. the other concern i have is that all the spending is a pretty old strategy in terms of becoming a traditional media strategy. they have not done things like some of the other major media companies, or technology companies have in terms of diversifying. for like videogame playing or other areas. when i look at their spending it is not the dollar amount, it is the lack of diversity in terms of how they are leveraging that capital. taylor: eric, as we talk about the diversity, leveraging capital, you hear one off random rumors about what they buy a movie studio or could they

enhance a vertical or horizontal supply chain. if that is out of the question, where would you want to see netflix go forward in 2020? eric: i can't imagine them buying a large movie studio because they already are a large studio. they have a lot of content they produce in-house and that will only continue to increase the share of their total library content. also talking about things like diversity revenue and looking into other areas. they're looking into companies that have large diverse revenue streams like disney, amazon, apple, but netflix's hyper focused on making this work. it's a pretty big sandbox for them to play and when you look at how much people pay on traditional pay-tv, as well as other forms like movie theaters. taylor: eric, $14.8 billion in debt backed down from $10.4 billion a year ago, are you worried about the balance sheet or do you like that they are borrowing?

eric: interest rates are low right now, hopefully they will stay low for netflix to continue. their biggest strength right now is scale and they are still growing by quite a bit. with that scale, that debt, that balance sheet does get spread out over more customers. when you look at something like disney or apple, and they spend all that money on a small number and they are hoping for it to grow. netflix is already there and have achieved large scale. taylor: the question of spending to keep off competition is a story we will continue to discuss. thank you both for joining. lyft is teaming up with lebron james to give away free bike share membership's for thousands across the country. this is part of a larger initiative to expand transportation access to communities in need called "lyft

up." provide free and discounted rides. in this hour we will bring you our conversation lyft's cofounder. ibm broke five consecutive quarters of decline. we will find out what is pushing the company back into topline growth. that is next. if you like bloomberg news, check us out on the radio. listen on the bloomberg app, bloomberg.com and in the u.s. on sirius xm. this is bloomberg. ♪

taylor: ibm posted fourth-quarter earnings tuesday. revenue growth in five consecutive quarters has declined. ibm's market appears to be paying off. i am joined over the phone by david. finally, a return to growth. only 1/10 of 1%, but investors probably are pleased. what is driving that growth? david: thank you for having me. with the ethics impacts, those were slightly smaller. back to 60 basis points versus 100. there were in line with the expectations of around 200 basis points. when you go deeper, it was towards a higher end of expectations of around 9%. high single-digit growth was expected, but transaction process platforms actually grew,

even bumping up tough costs from the year prior. on top of that you did have the sea 15 mainframe ramp that grew 60% as a whole but the ibmz grew about 50% to. taylor: i want to die down into the different sectors. as you look forward to 2020, do you believe the promises of a sustained return to revenue growth and margin expansion? david: i think a lot of it comes down to the dollar. when you look at this on a cost and currency basis, if the currency goes into the second half, especially with the contribution you are getting from that have, which, on a normalized basis grows mid-20's as of this quarter. it is accelerating and scaling through some of their own services segments, which is 60% of the revenue. that is to keep components to revenue growth on a cost and currency continual basis into 2020.

taylor: i want to talk more about the cloud revenue growth. where did they stand relative to competitors? you mention the acquisition around 2018, they spent $34 billion on it. where does that position them among the other competitors in this hybrid cloud strategy? david: i think this puts them in a middle air opportunity, especially when you consider linking toward some of their consulting divisions. it definitely does not put them face-to-face with some of the other bigger competitors in the space. when you mentioned google or amazon. more so that some of the workflows can be scaled through to their services, which hopefully drives the and margin expansion for 2020. taylor: reading through some of

your research notes, it was interesting that they said they would keep the red hat acquisitions and some of the things independent. is that the right strategy? david: i think it is. compartmentalizing our red hat and keeping that separated, it definitely helps assemble the right errors that come up for ibm. but at the same time it does not make red hat change their strategy, which has not been working well with growth prior to the acquisition. but what you are seeing is the growth accelerating and the contribution you are getting from red hat on a normalized basis helping and giving a boost to cognitive, which is overall good for ibm. taylor: david, i have you on the phone but i want to take a look at the chart i am owing fo r bloomberg viewers. you know the story going back since early 2012, ibm down 12% relative to amazon and microsoft with the broader index, which are up to 200% or 1000% over the last six years. is it purely a valuation standpoint given the recent underperformance of this

company? david: i will take it is valuation specific, but when you look at what happened in 2019 and a banner year we had, and the multiple expansion that occurred, that is 80% of the market performance we have had. ibm did not fully participate in that rally in 2019, but when you shift over and look at the markup that occurred in 2012, that leaves us much more susceptible to bad news, as we have seen today. if that happens, when you look at ibm, there are towers that are hopefully in place when you look to 2020. it depends on what happens and

what is on the call today. but when you look at it on a dividend yield basis, it is -- especially when you are looking at the full investment she is able. -- investment as a whole. taylor: thank you to david holt. we will hear from -- from davos who will lead a panel on artificial intelligence. ibm has called for certain rules aimed at eliminating bias. the company is trying to ease concern that the company relies on data that puts in past discriminatory practices. companies are looking for a consensus on industry rules what -- rather than wait for government regulation. next, talking trade. bloomberg sits down with chuck at the world economic forum in davos. how evolving relations have affected cisco's business in china. "bloomberg technology" is livestreaming on twitter. follow our global breaking news network on twitter. this is bloomberg. ♪

taylor: prior to the phase one trade deal between the u.s. and china, cisco saw the china business struggle. sales fell and the state owned enterprises were no longer taking bids from cisco. after the trade deal, the company is working to gain a firmer foothold. the ceo sat down to discuss at the world economic forum in dollars. >> ultimately, the need to have global communication standards will take over, and we will figure out ways to deal with multi vendor systems. i think that there are discussions going on right now and washington around how to make sure we are engaging on standards, so i think everybody

realizes this is an important thing for a's to get right. no one wants us to get to a bull demised situation -- bulkanised situation. >> as a u.s. come. -- company, at your places of getting bigger pretty remote. chuck: the standards issue is just to ensure that we can pass traffic. which is foundational. what happens in china is up to the chinese. we have worked hard for years over there to build up trust. we have been there for 30 years. this situation that we have right now has created some short-term confusion, short-term challenges, and my hope is that once we get past it, we will accelerate our business in china. >> clear tensions between the

united states and china. at the moment we finally have a phase one agreement, let's call it a truce. something that has been weighing on cisco stock is business spending. have things changed for the better? what are you seeing in the business right now? chuck: if you think about what has happened over the last six months, the activity with our customers is not declined. our customers understand that the technology we build and other companies build, it is score to their strategy moving forward. it does not enable their business, it is the business. everything they do is dependent upon technology. we still see the same level of activity. we are engaged in the same number of activities. it's just that we saw a little bit of a pause because of the uncertainty around what will happen with china and the usmca. brexit, which we soon why have resolved. i believe -- resolve.

i believe that we have more clarity -- the markets don't like uncertainty. jonathan: you look at the market class and execution, getting ready for the tariff and adjust the supply chains, then you get hit on the head by the macro issues. chuck: you cannot do a lot about it. you have to continue innovating and continue doing the things you do. be prepared, be ready with your customers. this has not been a massive significant falloff. this is a shallow pause where we see customers -- if you are buying capital equipment, it's easy to say let's wait another month or two or get another set of eyes on it. we have seen huge progress on our software. the tough part in this environment is 70%. taylor: that was cisco ceo chuck robbins. netflix expects to have fewer subscribers in the first quarter than wall street estimated.

new streaming competition is hurting growth. we will get investors insight on netflix next. this is bloomberg. ♪

bloomberg technology global link where we bring you the latest in global tech news. i am taylor riggs in san francisco with shery ahn in new york and haidi stroud-watts in sydney. let's take a look at those top global tech stories of the day. y: shrugging off the threat of the u.s. imposing stricter sanctions against its company. speaking during a panel discussion at the world economic wasm in davos, he said he confident huawei can survive further attacks from washington on business impact

would not be very significant. apple is planning a move into original podcasting. people familiar with the plans tell bloomberg apple is in discussions to make original podcasts related to programs ons would not be very significant. its video streaming service. apple sent out a request for pictures last summer asking , podcast producers to pitch ideas with connection to its shows. librane has left facebook project. it wants to focus on its own digital payments efforts instead. the libra association is down to when it wasrom 28 launched in those are the top june. global tech stories we are watching. taelor. taylor: thank you. netflix has since recovered in after-hours trading. they expect to add fewer subscribers this quarter than analysts had expected. for reaction on the netflix numbers, let's bring in dan morgan, senior portfolio manager at a company which owns shares

in netflix. dan joins us from atlanta. i want to show you a chart that i'm showing inside my terminal here, and it is the story that you are pointing out as well and the slowing rate of growth for these u.s. domestic subscribers, how worried are you about the growth is slowing? taylor. are right, it is really interesting, because on this fourth quarter, they only get 400,000 domestic subscribers, which was a 72% drop from the fourth quarter of last year and yet they were still able to ink out some -- eke out some growth in terms of revenues, up 23% in terms of domestic subscribers. it looks to me like they are countering the dropoff of domestic subscribers with these price increases and getting more revenue per total subscriber which is allowing the domestic revenue to go up but you are seeing a huge dropoff like you mentioned, 400,000 domestic

subscribers of 8.7 million total subscribers in the fourth quarter so it's a very small piece of their overall growth. haidi: is itry: -- the competition from disney, from apple tv that is starting to bite here? dan: it looks like it is. if you were a bear on netflix and concerned about competition, when you look at that number, you have to say they are starting to feel some sort of negative impact because they there was such a dropoff, 72% of year over year and we look at these other services. this will be the first quarter of this fourth quarter was the first quarter that we saw disney plus was fully on and apple tv came out with their introduction and these are lower cost. disney plus is $6.99 a month and apple is $4.99 and compare it to netflix is $15 to $20 a month. domestically, it looks like some

of these competitive forces are impacting that overall subscriber growth. taylor: it wasn't just competitive forces, but the price increases and netflix responding to that, and saying, yes, customers are leaving due to recent price increases. what level of turn are you comfortable with to remain a buyer? dan: the question we are zeroing in on is the domestic front. and the growth component is the international space. that did very strong in the quarter and 8.3 million new subscribers. how can they maximize the subscribers internationally and keep it growing. we don't have a huge position taylor in netflix stocks. we have a minor position. but i think for our viewers out there looking at the shares, you will have a black cloud going into upcoming quarters because of these concerns we are talking

about today in terms of competition. haidi: it is interesting because they always said their strategy is full steam ahead and on course and regardless of the competition, it doesn't change their tactic, does that still ring true to you? dan: i think so. they are spending $19 billion a year in content and their goal is to hook as many people as they can. again, it's like a pedal to the metal strategy. they have free cash flow burn. so it's almost like at amazon and trying to get as many subscribers as they can. so far it's worked. they beat estimates. just that subscriber growth number estimate for the upcoming

was a huge miss. taylor: -- dan: so maybe they are just giving us a low-ball number they are going to beat down the road. taylor: you mentioned free cash flow burn and my ears are perking up and look at a graph that free cash flow burn results in saying, don't worry 2019 was negative cash flow, do you believe that? dan: well, the estimates going into next year are little bit less than next year. the obligation they have to continue to add content is very sizeable and a catch-22 and add debt. they closed this year at 14 billion and so that is a challenge going forward for them. negative free cash flow leads to

the issuance of more debt and puts pressure on operating margins. so that is a challenge for them, as you probably talked about, their bonds are not investment grade. they are a bb type of territory and considered junk bonds. so that is a challenge going forward. this vicious cycle of content, free cash flow burn and debt, where does this lead us at the end, we'll just have to see. haidi: are you comfortable with the 12% increase in marketing? looks like we lost dan. taylor: haidi, i'm going to let the producers and bring dan back online. let's talk about that question because it is so interesting when you talk about the increase in marketing expenses. we talked about that competition coming online and increased their debt load to 14.8 billion from 10.4 billion.

not only are they increasing debt and spending that for cash flow but the marketing expenses rising to 12%, it will be interesting to see if analysts are comfortable with that number. haidi: and the sustainability of that going forward as we were talking about it, they have the cash to burn, but to what end and what am i getting for how much they are pushing out the marketing to highlight the new content. something else i thought was interesting that we highlighted is how netflix changed the way they measured viewership.

it used to be a viewer had to watch 70% of the shows to be counted and now just watch two minutes. and probably including people at home and watching the first couple of minutes and change inminds and doing something else. i guess that's an accurate way of measuring that metric. >> a lot of different reporting -- taylor: a lot of different reporting requirements that are coming out. thank you to haidi, my colleague, and thank you to dan morgan. stay with us because we do have much more ahead. this is bloomberg. ♪

taylor: there is a truth in the dispute between u.s. and france on digital taxes. that means neither president trump or president macron will -- punitive taxes this year.

that means google, apple, and amazon. microsoft c.e.o. sat down with bloomberg news editor-in-chief john micklethwait at the world economic forum in siew mee yeo -- davos on tuesday. he explained why the tech giant has has been carbon negative. and dropped the cloud competition with amazon and google. >> this came down to what is microsoft's responsibility? we are becoming a big consumer of energy because of what they are doing with the cloud and was very clear to us given the signs that climate change requires immediate action and wanted to say let's make some good commitments and the commitment to be carbon negative, we have to make sure our operations are consuming renewable energy and we take all the carbon we have put out and ensure that either

through new technology or natural means we can take it out. >> that is all the historical carbon. >> that will be by 2050 and go back to 1975, when we were founded, and take out the historical carbon as well. when it comes to these billion dollar fund, we need breakthroughs. no one company is going to do this so we are committed to putting our own balance sheet money on it and seeing the ecosystem. >> you are in the news a bit because there's been a backlash against narendra modi's citizenship act, which people think it discriminates against muslims. you pointed out that this is not the job of ceo's, this is the job of governments to do these things.

do you worry about what's happening there? >> i'm an india optimist. the multi cultural society and the economic opportunity that the country has to raise 1/5 and -- of the world's population, and precipic participate in the industrial revolution i'm an , optimist. for india to stay on track, it has to manage the challenges and the social resource that made the country what it is and celebrate its 70 year as a republic. >> this republic was founded on the idea of tolerance and people say this does not bespeak tolerance. >> the fact that there is that 70-year history of nation building it's a very strong foundation. i grew up in that country and proud of that heritage and influenced by that experience as well as my immigrant experience in the united states. i'm an optimist and what is happening in india today is building on that multi cultural society.

>> they have pushed right hard against this current flavor of immigrant bashing. do you think it is being changed in america? >> first of all, the america is a country of immigrants and nation formed by immigrants and to me, even i look at the contribution that immigrants even going forward can make is something i think the united states should be absolutely tapping into. so that is what i speak to and microsoft has benefited from it and i have benefited from it and we are clear why immigration policies in the united states is one of the most important things for its own competitors. >> are you worried that it is

now getting slightly un- enlightened? >> america is the place people want to come to. every country is rethinking is what is in their national interests. borders are real and immigration policies help. but in there they have to maintain that enlightenment and not think about it very narrowly and what has made it possible for those values that helped come. people will only will come when you are an immigrant friendly country. >> do you think the number coming from the cloud side is going to continue to grow? >> 5% of the world's g.d.p. is taxed and going to double by -- tech and going to double by 2030 to 10%. being in the cloud business and being in the cloud business across all these layers means you get to participate. it's not about the 10% of the tax spent but what about the other 90% of the g.d.p.?

what is of deep interest is to see the productivity grow, really happy up because of digital tech following and the contributions we make. >> you are still beyond amazon on that and how do you close that gap? >> we had competition in the past in the previous era and this era we have new competitors and we feel good about opposition. five years ago and started -- is when we started talking about hybrid cloud and cloud on the edge and now it is conventional wisdom. we have an architectural advantage in terms of the cloud . that is what you see play out in the marketplace. >> advantage over amazon and google? >> we have a fabric recognizing

that computation will be more distributed. it is something like 5g where you see that play out in a big way. how is the microsoft ceo. lebron james is lyft's latest partner. what are they planning, next. this is bloomberg. ♪

tuesdays, general motors shows -- designed to operate without a driver. bloomberg lacks traditional controls like pedals and a steering wheel and free up room for commuters. and lit is turning to one of the -- lyft is turning to one of the

famous players. lebron james is on board to help promote lyft up, to expand access to bike sharing across the united states. young people are being offered one year bike share memberships for lift bang systems. take a listen. >> we just launched a bike access initiative with lebron james giving bike membership on city bike to thousands of kids across new york. 16 to 18-year-olds making sure that they can get where they want to go, job, school in the summer, or wherever they want to go and part of a proud broader effort called lyft up. >> how does this partnership come about? and how did it come about with lebron specifically?

>> lebron's manager and i have known each other probably from the beginning of lift bang. he was one of the first people who believed in me and what we were doing so we have been talking for many years and we wanted to work together and be truly authentic to who he was, and who lebron is. and he told me the story about how important the bike had been for him and lebron when they were growing up, to get them to practice, so the idea was now that we run the largest bike share program in north america, let's make that accessible to those who do not have access to transportation. >> what are you learning when it comes to bikes in terms of the complication, especially as it relates to the rest of your platform? >> each mode you have to invest in and go really deep. with bikes and scooters, you have to get really good at making sure there's bikes where people need them, that they are charged, if they are electric bikes, and that when you are dealing with hardware, and making sure it is available at

all corners of the city, obviously, that is different, but there's a lot of relation to rideshare because we have to make sure our drivers are well positioned throughout a city when the demand comes. mapping demand and the supply, whether that is a writer vehicle or a bike, there are quite a lot of similarities. >> i have to ask you about cars and a bike takes a human to very much be invested and paying attention as he or she is driving on two wheels. what is the future of autonomous driving at this point based on what you guys are seeing across your business? years, wee next few already have in markets like las vegas and arizona, some of our self-driving partners. i see it growing out as a small percent of our rise to may be something like 10% of our rides. it is not something that overnight, autonomous cars do everything, but i do think

autonomous will be launched on a bike sharing network like lift bang because we have all these other modes of transportation and other ways to get around or autonomous vehicle that can only do select things. >> i want to ask you a little bit of a political question. a lot going on in california as it relates to how you and uber deal with the get economy, all -- gig economy, all those sorts of regulations. what do you make about this announcement that they might let some drivers set their own fares. is that something you are looking into as well? >> i will not comment on specific features we may work on at some point but i can tell you that i think what is happening in california is a big opportunity to think about how of thisne the benefits new type of work with benefits that work. we are navigating that and excited about the year ahead. >> you did this deal with

lebron. not that there is anybody exactly like lebron, but do you expect to do more deals like this to further expand the bike share business? >> bike share is just at the beginning. we are in multiple programs. the program for lift up -- lift bang up to bring access to others. we are doing grocery access, jobs access, and we launched with lebron. we hope to do more like this but it is really important that it is authentic and that is why we decided to work with lebron because it is authentic to what he wants to do, who he is, and what helped him get to where he got. bangr: that was lift president and cofounder, john zimmer. oft does it for this edition bloomberg technology. check us out at technology and be sure to follow our global breaking news network at quick take on twitter.

this is bloomberg. ♪

>> the following is a paid program. the opinions and views expressed do not reflect those of bloomberg lp, its affiliates, or its employees. is a playedwing advertisement for flex a played advertisement for taxidermy skincare. >> i took the plex interim -- challenge10 minute and my face looks amazing. > i took the 10 minute challenge and this is what it did for me. and this iss old what the 10 minute challenge did for me. >> i am stacey.