Transcripts For BLOOMBERG In The Loop With Betty Liu 20140220

Social network spend a fortune on a fortune on the fiveyear old instant messaging service . We got paul kedrosky, bloomberg contributing editor, also deals reporter cristina alesci. 19 billion. It is a huge number. How does facebook justify this . Number. It is a big i was just looking at the numbers last night, the largest Venture Capital based company in history which is remarkable, so the way to get at this kind of valuation is on a basis. 400 million users, maybe a billion by the end of the year, adding a million users a day. So on a per user basis, which is the metric we use with the instagram acquisition, dating back to these network of acquisitions come about 40, which puts it on par with apps of with other acquisitions of this area. Lets notw, cristina, forget that snapchat turned down 3 billion dollars from facebook. To that have an effect, cristina alesci, on the valuation for what we are seeing on whatsapp . It is unclear, but facebook needs to grow users, and how much they are going to pay for it, this is their number one priority. It is very clear from its acquisition that whatever product that people are on, facebook once to buy it. Any kind of gross product. This speaks to the fact that you know, they are willing to take a risk here. We dont know too much about internal financial situation is. Are they making money . It is tough to tell but what we do know is at least they have some revenue. Of thoseon users, some users are paying for the service, presumably. Not all of them, however, remember, the first year of the services for free, so you cannot just assume that you multiply one dollar by 400 million users and you have the equivalent of the revenue because we do not know exactly to your point with the revenue is this year. All, why did facebook need this . They have a chat service. I have chatted with you, cristina, on it. Why did they have to get something separate . Growth. 80 yearoveryear compound is the kind of growth that turns you into a facebook very quickly. If you look at how people are using the service, it is much more complex than a messaging service. People are sharing Something Like 600 million photos, sending billions of text messages. These are the kind of numbers that rapidly turns into a facebooklike service in very short order. They are saying this thing could rack up the leak this thing could rapidly be us. We cannot allow that to happen. We are going to buy it and this largely paper acquisition, Something Like 13 billion of this is in facebook paper, and that is really important. Walk us through that. It is still like, what, 4 billion cash . The cash portion is a smaller portion here. We have 12 billion in a stock, and this could be an indication that facebook things that its own stock is fairly or even arely valued because you limiting your downside here by using a lot of stock to do it. So this is actually a statement on perhaps where facebook shares are valued right now. They need to take advantage of that into a stock acquisition is a perfect way to take advantage of an expensive stock price. Very good point. Cristina, how did this deal come together . We were all kind of stunned when it crossed. We looked into 19 billion. How does a 19 billion deal come together . When i started reading some of the coverage, this was brilliantly spun in a way that zuckerberg and the founders of theyapp are best friends, take hikes together. At the end of the day, the founder of whatsapp is going to be on the board of facebook. It is somewhat unusual that a target company gets its feet on the by yours board. Board. He buyers it is smaller than facebook is. It is not like a merger of equals, not that this ever happened. Inple will have some say how facebook does business. And the founders of whatsapp were saying look, we will not do advertising on our platforms to matter what happens. They are reassuring customers. That is a really big point and it could be a real point of contention down the line further. How is it going to make money . You pay . 99 a year . [laughter] i dont think so. That would be lovely if that were the case because it suggests we do not have to worry about ads. My guess is you will sue some version of the promoted tweets and promotions and other things, industry monetization as the kids like to call it, showing up rapidly. Monetization at the kids like to call it. Were looking at a company that could be four times that size and potentially could generate very material revenue doing very twitterlike things within 12 months to 18 months. You mentioned the kids that is an important thing to cover here because kids these days are always looking for the newest thing. Snapchat has been very popular lately, whatsapp has been popular. Though you run the risk if you are facebook of putting all this money and the kids at Something Else by next year that they are using . Yeah, i mean, that is the really important point here. The rapid growth in four years is stunning, so there is your value. But if a company can grow this quickly and still have this fragile position with no real mode in the market, it also makes you wonder exactly where the value is here. That is the essential tension and all of these rapidly growing networks. What is their real motive get someone else doing the same thing . Reallywer is theres not one, but from facebooks standpoint, you cannot afford to take the option a la the of buying this before someone else does. It almost feels like the nightclub. While the kids are flocking to that. Six months. Right, so what is coming next . What does this mean for the Tech Industry as a whole . Obviously blackberry, i think the shares orose on this news because they were rumors they wanted to sell their messaging app. There are two camps out there. There are the camps in Silicon Valley that think that this is crazy and my give some people some pause or at least time to reflect on evaluations out there, and there are some companies that are just going to take advantage, they will try to go couple go public, they will try to get sold based on evaluation of this company. Why not . I am usually the most muchical it feels to me more about this groundswell that is mobile, that there is an incredible, unprecedented transition going on from desktop to mobile at this rapid rate and everyone is filling in all the pieces as quickly as they can in the face of google and others out there who will be trying to do the same thing. The next thing you know what, on a valuation basis, it is not that expensive. That seems like an absurd and to say at these prices, but it really is not. How can you say it is not that expensive . When you look at some of the valuation metrics. I am going to go back to looking at facebook, linkedin, and twitter themselves, look at them on a market capitalization for user bases and say they are trading at two and three times the price that you are buying a faster growing company, whatsapp , so purely based on a direct head to head comparison on a market cap per user basis, you say this is a company that could conceivably generate 1 billion in revenue off the user base that is twice the size of twitter. At twiceitself trading the valuation. So, you know, it looks like it is at a discount to the acquirer s own. You know a lot about m a and tags. I am sure there are some happy bankers. And to be honest, we were talking about this earlier, trish, there was no much work for the bankers to do. It was all Mark Zuckerberg going on hikes. That is what the story is anyway. It is unclear how much work they have done, but i have to say they probably have provided a lot of Free Services to facebook , meeting up to this deal, you know how it goes. It is a Client Service business. They probably provided other services before. Now they are getting paid for those services. Capitalequoia, sequoia were the only Venture Capital backers in this deal. They are doing what we call in the bid a 300 geithner on this thing. It is based on main it is a stunning return. That is unprecedented. Paul, they did not have any other Venture Capital bankers. Whatsapp i am sure could have raised money from other Venture Capital firms. I am wondering if you find that weird and if that is statement about the companys e those and how it wants to remain in control because the companys ethos and how it wants to remain in control because of they sold more they would have less control . Engineers,g like 30 30 four employees total, they have not spent a dime on marketing. Further, the founders had made significant money at yahoo , which they then turn around and put into the company themselves, so basically did not want the money in wanted the control. They end up with it and walking away with what like a 60 Million Investment turning, they hope, into 19 billion. Thank you so much, paul kedrosky, Bloomberg Contributor editor, and deals reporter cristina alesci. Right, moving and shaking at this hour, tesla motors and ceo elon musk reported Fourth Quarter earnings that Beat Estimates. They also revealed plans to wrap up reduction of the model s sedan. Shares are up more than 10 in premarket trading. Mr. Muska slope to in the loop mr. Musk spoke to in the loop betty liu. Selling to apple. I think that is unlikely. We will stay super focus on creating a compelling mass market electric car. I would be very concerned anin an acquisition scenario that we would become distracted from the task, which has always been the driving goal of tesla. Will have more from bettys exclusive interview later in the program, but first, we have a lot more ahead for you, including a look at your worst trouble nightmare. Airportuck at an ugly with no wifi. Why this is happening more and more. And we will bring you the very latest from the ground in key of ukraine, kiev in the what the u. S. Should be doing to help easily resolve this deadly conflict. I will see you right back here on in the loop this thursday morning. Welcome back to in the loop. I am trish regan. We are looking at the futures market which is lower as we get ready for the opening of trading. We have jobless claims coming out so we will be watching carefully for those or you. And a big deal to talk about this morning eight 19 billion deal in the tech space, facebook making a big acquisition. Here is a look at what we are following right now. Also walmart reporting Fourth Quarter earnings that beat analysts estimates. It was the First Quarter for a siteso Doug Macmillan who Economic Trends and higher healthcare costs. We will have more later in the program on walmart. Workers amid the debate about this National Minimum wage hike, the owner of Banana Republic and old navy will be raising wages to nine dollars an hour this year and 10 next year. This increase will benefit about 65,000 workers, but it falls just short of the president s request for a 10 tents and minimum wage 10. 10. Brianke america ceo moynihan is making a lot more than a minimal age. He made 14 million in 2013. A 17 increase from the previous year. He received a 1. 5 Million Dollars salary and 12. 5 million in a stock grants. President obama addressed the deadly violence in ukraines capital yesterday warning the military against intervening. On the phone from kiev, Bloomberg News managing editor, tom. Met bring us the latest. What is going on right now, is the three Foreign Ministers from the European Union from poland, germany, france, they are in a very intense meeting right now with president s yanukovych. We have been waiting on the streets at a barricade for them to come out for more than three hours now. They were supposed to brief us more than two hours ago. That seems to suggest they do have something to talk about, they are really trying to offer something that he may be able to accept. And the concern, of course, is that we are moving closer and closer to martial law. You have the president s fiery as army chief just yesterday and there is a lot of concern at the ukraine could erupt into civil war. Do you get any sense that the tension has died down as a result of this truce, or is visibly burning . The situation is clearly very tense. We dont have an official confirmation yet of the death toll, but it is definitely in the double digits. I talked to a photographer who was on the square it while ago, and he has seen in two different spots at least 20 dead bodies. Protesters that have been shot by snipers, and we also get reports that guns are being handed out to troops under , so therior ministry situation is very, very tense. At the same time, you know, we have to report that the mayor of kiev, he was installed by yanukovych, but he has now effectively defected. He has left the Yanukovych Party and has said he is no longer reporting to him, so, yes, there are signs that the regime is disintegrating, and, you know, for must be very warning yanukovych, and you do wonder what his next steps may be. It is significant. As you were just reporting, the mayor of kiev stepping down from yanukovychs party, distancing himself from the party, and you have to wonder how many people really are going to continue to support the president in this kind of environment. In the background of course as president putin of russia. How much influence is he having right now on yanukovych and the situation on the ground . Well, what were hearing from the European Union delegations, russia is involved in this. So whatever yeah, yanukovych may be able to accept in terms of an upset from the European Union, that will have to be agreed with russia in one form or the other. So i think this is also why the meeting here is dragging on for so long. There is definitely some back channel talks going on between yanukovych and putin. F putin ismately, i a really pushing for yanukovych can one anticipate that this conflict is going to drag on for much longer in that they have for the president has the support of russia, which is so significant right now . Yes, definitely. Unpredictable what will happen. Rocket soings have a quickly over the past 48 hours. You can see that the region and theirst have declared independence from the yanukovych regime. At the same time, some of the eastern regions have said it is imaginable that they may seek it is veryussia, so difficult to predict. Will continue to talk to you, hellmuth. Will he back with more in the loop we will be back with more in the loop after this. Welcome back, everyone. You are watching in the loop live on Bloomberg Television, streaming on your tablet, your phone, and bloomberg. Com. Regan in for betty liu. It is 26 minutes after the hour which means Bloomberg Television is on the market. This is ahead of jobless claims coming out at 8 30 eastern time this morning. Treasuries rebounding this year after falling yesterday. You get yields rising after the last fed Meeting Minutes released, showing there is little chance they will scale back plans to reduce their bond buying program. We will be on the markets again in 30 minutes for you. 2013 the driest marks the driest year in californias history. President obama visited the usually fertile Central Valley. It saw 50 unemployment five years ago during the last big drop. Anker erikers schatzker joining us with more. Myself justen for what the worst drought in a century looks like. I am telling you it is writing. Water iser or the lifeblood for all of us but water is the lifeblood for california, and if the reservoir here if the reservoirs are the blood bank, it is drastic. 50 rvoirs are in most cases below where they are supposed to be at this time of year. The reservoirs hold the water that comes out from the north, the snow that falls in the northern sierras, and collects in the reservoirs to be able to in therted to Farmers Central valley. I want to share with you the perspective of a guy named joe dell bousquet. He is a man whom president obama went to see last week when he wanted to get a sense of what the drop in california is like. Is joe talking to me about the Economic Impact of this catastrophic doubt. If i leave this 60 bakersfield title, this 60acre field could produce anywhere to 65,000 boxes of cantaloupe. Somewhere around 450,000 just on this one field. That is revenue that does not come all to me. A lot of it goes to the people because you have a lot of hand labor. They are earning their wages. But it also impacts truckers and that haul it to markets, it impacts the people who make the baucas that we pack them in, suppliers make the boxes that we pack them in, suppliers and the local town. If we do not plans, we do not buy tractors or pickups. I like to buy one tractor in one pick up every year to keep the fleet updated a little bit. In dry years, we do not buy anything. The thing. Ere is those reservoirs provide the only source of water to people , so thel dell bousquet state Water Authority and the federal water authorities turn that access to the water off, he is faced with a terrible choice. A sophies choice, as he put it, to decide what and what not to plant. Math,s he cannot do the for example, but lots of people have. The farm bureau, for example, in Fresno County, estimates of this drought is going to cost farmers 1. 5 billion of revenue, and joe was talking about the market wire about the multiplier effect. The impact on Fresno County alone is going to be 5 billion. Now take Fresno County and multiply it he says there are many other agriculturally throughoutunteies the state of california will be feeling a similar impact from the worst drought in a century. You just have to go to the sierras and see it for yourself. There is no snow up there. So the situation is battle ready in about two get much more critical. It is pretty unbelievable when you talk about how large those numbers are in if you multiply then, to your point about Fresno County and 5 billion, and there are a lot of other areas struggling with it. Erik, stay with me here. I would like you to join the next conversation with more on how the drug issue will impact the regions economy. We are with the Founding Partner of beacon economics, former economic adviser to the state Comptrollers Office and also served on the Advisory Board for hedge fund paulson and company. Let me start ray asking you, what is the let me start by asking, what should they be doing and what can they be doing . Well, that is a big question. The answer really has more to do with allowing water to flow where it is most needed rather than trying to come in and got say local restrictions on water usage because of various environmental issues. When you think about water, you think about top shape. They ought to have the right to go out and buy water from some other part of the state or somebody else who is growing something less water sensitive, but in california, the ability to buy and sell water is heavily restricted by the sort of medieval water rights, these water rights that dictate how water is allocated in california. A lot of farmers out there, perhaps in other parts of the state, do have water. They had use it or lose its rules and they will continue to in the desertay because for them, not using the water is a waste. It sounds like you are saying they need more of a market economy. Exactly. People do not like the idea of that, chris, because water is something that we should all be able to have free access to. No, that is exactly what got us into this it is bothersome for some people that put us into this problem in the first place. There is nothing in our world that is not scarce, and water is particularly scarce in california where we have these drugs on a regular basis, and that tends to imply that we need to haveere we tend these droughts on a regular basis, and that tends to imply that we need a whole purpose of capitalism as we need it. So to say that we should not allocate water for a market mechanism of course really i think undermines the entire idea of capitalism. And chris, i want to ask you a question about the Economic Impact on the rest of the state because i got a sense up in the high sierra that with the snowpack where it is, and as i was planning to trish earlier, the situation is only going to become much more critical in the months ahead, particularly the summer months, which are already a problem for california. So if you could extrapolate for a what is it going to look like 3, 4, 5, 6 months from now . Well, obviously we are used ishot, dry summers, so that not that critical an issue yet. As you pointed out, some reservoirs are very low, but in other cases of course, reservoir waters are actually in decent shape be in large part because over the last 20 years or so since the last big drought we had in the early 1990s, we built many new reservoirs, so there is Water Capacity out there. We just have to be very careful about how we use the limited supplies until the rains do come back. Hopefully they will. Interestingly enough, back in the early 1990s, we started talking about the drought in year one, and here we are in year three of the drought and this is just becoming a news story because we made these Critical Infrastructure investments in the past. The kudos to those folks who thought ahead and ultimately what we need to take away from the six parent is a how do we have from this experience is how to we have market and be what future investments need to be made to make sure the next time around we are yet again prepared for the set of circumstances . What would you propose . Basic marketof mechanism by which various farmers who have these Riparian Rights may go ahead and sell that water to other farmers who really need it. In other words, folks who have crops, you low value those certain grass, folks probably make a lot more money if they could turn around and sell that water that they would otherwise use to of course the farmer down the road who needs it for the cantaloupe crops. That will be dependent mechanism. We do have the facilities in place to do that because we have a Central Valley Water Project there that carries the water down in there. You have farmers north of the Sacramento Delta selling the rights to those south and transport through the aqueduct. Chris, the folks in the Central Valley do not talk about the they do not complain about the farmers north of the Sacramento Delta. They are complaining about the conservationists, the people that write lawsuits that require water to stay there for example local smelt or the steelhead salmon that they are trying to introduce you to some of those Northern California rivers. Yeah, i realize that everybody likes to target that situation, but realistically that is not the only problem in the delta. You know, we have to keep in mind, you have got to have a certain amount of water flowing through the delta at all points if for nothing else to remove the salt water from San Francisco bay from backing up into the delta system and poisoning the water in there for both agricultural use as well as for the multiple of urban areas they get their water from the Sacramento Delta. So it is not just about fish. There is a lot more to that this situation. Ultimately, keep something in mind there is lots of water out there. Right now, agriculture is made stateskes up 2 of the economy, yet they use 80 of the water. Realistically, the agriculture industry in our state needs to recognize that there are certain times, there are going to be certain years where the certain issues are going to take place and they will have to figure out how to deal with it in a more logical way. Wechris thornberg, appreciate you being with us, Founding Partner of beacon economics, and our own anchor of market makers, erik schatzker. Bloombergs Olivia Sterns has market headlines. We got initial jobless claims, Consumer Price index, both coming end in line with estimates. Lets start with jobless numbers. The number of americans filing for Employment Benefits last week fell by about 3000, so now coming in at 230 6000, 1000 better than estimates. Coming in at 236,000. Continuing claims did rise by 37,000 to 2. 9 million. Continuing the unemployment has been a consistent concern for the fed. As for the cpi number, 1. 6 , that matches economists es timates. Bang in line with estimates. Essentially because these two data points have assessments, were are not seeing a lot of movement in the markets. Futures are still down. 2 in the s p. Thank you for that, Olivia Sterns. Teslas elon musk, apple could get into the car business, just not necessarily his car business. Welcome back, everyone. Are you crazy about uber . The latest edition of bloomberg into theeek dive companys accelerating growth. You can download it right now on your ipad. Anyone who has ever tried to fly on the wednesday before thanksgiving can tell you of course it is a nightmare. A recent report by the u. S. Travel association can you believe it could actually become a more frequent reality . Airports within the next five years. During the with more is executive director of the global gateway alliance, steve biggins, welcome. I shouldnt mention i should mention gga it sounded by a friend of the show. Excellent, yes, love joe. Lets tell how bad it can get. It is one of the worst parts of building on vacation, business travelers can hate it. The situation is already happening. The report you cited found that some of the airports including jfk here in new york and chicago, you already have one day a week that is like the wednesday before thanksgiving, so it is already happening. What you have is a capacity and demand is increasing in capacity is not. Infrastructure in the u. S. , we have not built up the infrastructure in the air or on the ground to support the demand you have from business travelers and vacationers. As a result, you have a situation that is untenable for passengers. You can say that again. As a frequent traveler, it is not find. Fun. We have that an industry that is effectively gotten ahead of itself, or at least have of an infrastructure post up how do you change that . The airlines are invested quite a bit. You have to start in the sky. We like to say you cannot blame your parking lot for the traffic jam on the highway. The traffic jams are in the sky. The u. S. Is the only major country in the world that does not have a satellitebased navigation system. We still use the old radar system from the 1960s that you them, thene blips on their synagogue nexgen which the faa needs to invest in and ramp up. Affected by the sequesters. We cannot seem to get funded. Why arent we see airlines do more . More of the private industry trying to take the Airline Business forward. Why do we have to wait for the federal government . A i think you make frequent, the airlines into investments as well. In new york, theyre putting lots of money into the infrastructure for new terminals, for example. There is a little bit of a chicken and egg problem with nexgen. The airlines will not put it on the plains until they know the federal government is going to invest those infrastructure in airtraffic control. The air traffic control, faa, is saying we cannot do it unless it is on the plane, so it is a little bit of the finger pointing going on at both sides really have to stop and step up that would actually where have a situation the federal government can barely tie its shoes in the morning, much less find a a 40llion fund billion airtraffic control. What youre saying is that by 2022, youll love every day be things giving in the sky, and it will not have the capacity. Just last week, the federal government put out numbers that show delays for 2014. New york airports were number 1, 2, and five most a late run the country, and affected have to record is a delays around the country everyday day. What are travelers doing here . Artist travelers going to sort of throw up their hands and say enough . I think we have had a problem in the past, and i think we make a for points, particularly for business travelers, we started this organization in order to keep a focus on airport investment, and there has not been enough focus on airport investment. People deal with subways and cars and trains, buses every day, even business travelers all these airports once a week, once every two weeks, but they need to get the pressure up on the representative, on the congressional representative, local representatives to airportnd that investment matters. It matters to their quality of life and it matters more to Economic Growth. Youre going to lose Economic Opportunity for every minute you spend extra in the sky. Time is money. Stephen sigmund, thank you so much, executive rector of global gateway alliance. Up next, google going green. A new mapping tool. We will show you how we can help save the rain forest next. Bloomberg big number this morning 5 million. That is how many unique miles of road that googles team has traveled since 2007. Visiting tens of millions of images just so you can see what is like romney around the ground on the one on the ground around the world. Now theyre using them new mapping tool that may help environmental groups track deforestation. As our washington correspondent megan hughes reports, it may help Companies Like walmart, nestle, and others to help avoid a Public Relations disaster. Almost 900,000 square miles of forest have been cleared since 2000. For environmentalists it has been trimmed it has been difficult to track. Google put its Computing Power behind Global Forest watch, the worlds first realtime global deforestation map. It is a natural problem because it is big eight at that requires take analysis, and it represents an information gap. Able toas ever been know where you can you go and find out the state of the worlds for us. Niger with the World Research institute explains the map will update every month using data from nasas satellites are processed in the google cloud. You can actually see where forests were being cleared across the island of borneo. In 2010, greenpeace targeted nestle for using palm oil served source from virgin rain forest and endangering orangutans. A viral Youtube Video graphically showed somebody biting an orangutans finger is a vacant cap bar. Since then, nestle, unilever, walmart, cargo have all made pledges to. The Worlds Largest palm oil trader followed suit. Even Girl Scout Cookies will only use palm oil certified as sustainable. It is relatively easy to say we are going to make sure there is no more deforestation in our palm oil. It is much harder to actually check that that is actually the case and ensure that that is really happening. All the way back up the supply chain. The map is overlaid with palm oil and logging licenses for you can see so what company is in charge. You can see in realtime rather or not thats a player actually doing what they promised. Nannyis almost like a cam. A nanny cam for forests. Google turbocharge is this entire system. It wouldve taken 300 years on a single computer to make that forestbuilding map, but because we ran on 10,000 computers on the google cloud, we had the result in a couple of days. Now if a tree falls in the forest, everyone hears it. Megan hughes joins us right now. Nanny cam, i like that. Where is all of the funding coming from . Who is paying for this . Is it google, do they see market value here . Who google did not get paid at all for this. They donated that team that works on this, they developed something called the google earth engine. Youve heard of google maps. They had a team working for free, but a lot of the funding did come from government, either the norwegian government, the as. , the u. K. As well environmental groups all funding this project. Again, 40 groups working on this in total. It will be announcing and unveiling this together in the next hour. Wow. How do countries and governments use this tool . You had brazil back in 2009 againstledge deforestation. Indonesia just last may made a pledge. We are talking about Companies Making these pledges, but countries have too. They will be able to use this tool to enforce companies, to look at companies. Also singapore is proposing a new law that would allow them to thatter Foreign Companies are flashing that are slashing and burning. Pretty interesting stuff. Thank you very much for bringing it to us, megan hughes. Still ahead, everyone, walmarts earnings are in the spotlight as well as talking about the spaceship concept truck. We will give you all the details after this. 56 minutes after the hour which means Bloomberg Television is on the markets. We have jobless claims coming in pretty much as expected. We saw 3000 fewer people apply for jobless benefits in the last week. So you have got the futures Market Holding steady there. As we approach the open. 30 minutes to the opening bell this is in the loop with betty liu. The countdown begins right now. Welcome back. Got 30 minutes before the opening l and stocks will open lower. The s p 500 came within one point of its record close yesterday. Walmart is still feeling the headwinds of the sluggish economy. It forecast estimates that are lower and blame Economic Trends in higher Celtic Health care costs print tesla is up 10 in market trading. Musk liu talked with elon and we will hear from him in just a few minutes. The facebook move yesterday to buy mobile messaging startup marks the biggest internet acquisition and more than a decade. An acknowledgment that facebooks own messaging attempts have fallen flat . What does it tell us about the tech economy right now that facebook would be willing to pay 19 billion for an app. Jon erlichman joins us with more. Thats a big number. Its a huge number. In the category of mobile communications, that is what facebook wants to dominate. To throw out the idea of social networking and think of facebook as a massive platform are people like to communicate. We watched the communication move from you sitting at your desk on your computer to you doing the same stuff on your phone. Facebook has been obsessed with following that trend. Even if you think of the simple act of photos, its a great way to tie the story together. All the sharing of photos with your facebook friends, the power of the instagram platform which facebook felt it needed to have where you post a photo for everybody to see, and in the whatsapp, people post thousands of photos per day. It is like three parallel tracks. Each of these platforms is different but there is a common tie which that it is people communicating through their phone and facebook wants to own that market. How do you make money on this . Dont worry about money. How does facebook leverage this and have it mean something for the bottom line . If there was any take away from the companys Conference Call that facebook and markers and Mark Zuckerberg and the app, they are not thinking about money but they are wondering how a billion people can use this platform. Isnt there a danger in that . I remember the days in 2000 where nobody thought through all the ramifications of what they were spending. 19 billion is a really big valuation. Here that theger kids will be looking for whatever is now. Dish is new. Is new. Does facebook run the risk of being behind the curve by next year . Want to avoid being behind the curve by doing Something Like this. Its a bold move but on the money side, introducing advertising the clear takeaway is they feel that is not the thing to do right now. And the early days of facebook and the early days of instagram, in both of those cases, that worked out. In someg with whatsapp, markets, they try a subscriber model and that early days. Entry are zero, they dont exist. There are markets like that. I think their hope is the fact 50 hatsapp already has 450 million users. That 450 million users stay there and do not flock to the next version of snap chat. 19 billion if i were an engineer in Silicon Valley right now, i would be highfiving everyone. 55 people work at this company. Thank you so much. Walmart reports earnings this morning and all eyes are on the uphill who faces a new battle as the Company Struggles to keep prices competitive and improve sales abroad. One tool they have used is the systemhtech delivery that is made out of carbon fire. L andeslieie hyman gearhead, matt miller. Did you see the picture . We will get to that. This is a tease and this is how we keep people watching. Lets put things in perspective, we were talking about the cool tech economy. This is a company that in the Fourth Quarter, we are talking about over 450 billion in sales. Its fun to talk about but walmart is still the giant it was. The company is coming out with earnings that met its lowered forecast. 4 10 of oneell percent. They talked about the economy being week in the Food Stamp Program got cut and that is hurting some of the walmart consumers. Issue like was an for most retailers. It is also having issues with its international division. These are the different issues. A lot of headwinds for Doug Macmillan. It . Es, what do you do about they are trying to remain aggressive on price and offering different packaging of some items. Maybe a smaller package and a smaller amount of stuff. One of the other interesting things that walmart is doing is opening smaller formats. You think of walmart as a huge door. Openare now planning to 272 of their smaller Format Stores which includes neighborhood markets which is like a big Grocery Store and whats called walmart express which is a a convenience store. There are only 20 of those so far. Maybe you wont need your card. Or you will need a basket. The thing that people ride, what do you call that . Its a little 4x4. Julie is reporting on the walmart express stores where there are only 20 of them. Its part of the walmart story. We know it is a huge bigbox store that is one of the weirdest social experiences youll ever have. It just shake your entire paradox of life. Has been to a total of one walmart in his entire life. Froms like the movie dusk till dawn. One cool thing that walmart does is experiment with new things. It is like this new truck they have developed, the wave rtruck. Its got a tractor that is using hybrid technology and the trailer made of carbon fiber to save 4000 pounds of weight. At this point, its just a concept . Yes, and they have built another other concepts trucks. They want to double their fleet efficiency by anti15. They are almost there. Are using new trucks and packaging things in a different way. How is this more efficient . This uses hybrid power and reduces drastically the weight. One thing they have been doing to double their efficiency is to reduce the weight and package more stuff into the same old trucks. In canada, they have been using this cube truck but has the ability to package 40 more stuff. It is real innovation. Its important because walmart has one of the biggest truck fleets in the world. Theyve got 7000 drivers in the country. Its incredible when you look at that company and how they need to get around the world and around the country. Have you only been to one walmart in your life . There are no walmarts around here. Was an amazing experience. I want to go back with the camera. Deals andve very good good pricing. One thing they are talking about is that they are going to look at raising the minimum wage. Gap came out and raised their wages. The president would like to see a federal minim wage of 10. 10 and walmart says they are looking at it. On the call, the executives made it clear that this is something they are exploring. They are not coming out and supporting the minimum wage and saying they dont want it. They are exploring the balance. They also said that less than one percent of their associates make the actual minimum wage. You then get the Ripple Effect when that minimum wages increase. If you talk about an employers largest mall as walmart, if they come out and make a proclamation, that will carry some weight. This is the kind of company that is so big and has a staff that is so large that when they raise the amount of money they pay their employees, then they get more money back from their customers because the people that work for them also shop there. We will get you out of the city more with a trip to walmart. I would love to go. Coming up, elon musk speaks out. Tesla is trading at an alltime high and the Company Forecast sales would soar 55 this year. We are going toward the opening bell and we will be right back. Welcome back. Morningock is up this with fourthquarter earnings that Beat Estimates and has plans to boost production of the model s by more than 50 . Betty liu spoke exclusively with elon musk about this goal and she began by addressing those rumors over apple and its potential acquisition of the electric carmaker. Your shareholders got a little bit richer on these reports that you had met with the Acquisition Team at apple. Is there any truth to a possible partnership or merger with apple . Course, if one or more companies had approached as last year about such things, there was no way we could comment on that. Did you have a conversation with apple . [laughter] we had conversations with apple but i cannot comment on whether those revolved around any kind of acquisition. Are you for sale . I think that is very unlikely. When you stay super focused on achieving a compelling massmarket electric car, i would be concerned in any kind of acquisition scenario whoever it is and we would be distracted by that task which has always been the driving goal of tesla. You say it is unlikely but i am not hearing in the years ive known you something is not going to happen, you say no but im not hearing that. It sounds like there is a door open. A scenario where it seemed like it would be more likely that we would be able to ofate the massmarket affordable compelling electric car, then possibly it would make sense to entertain those discussions. I dont currently see any scenario that would them prove that probability. Thats what i think it is unlikely. Toif anything, if apple were come to you and say we want to get into the car business and want to perhaps start making cars, what would you tell them . [laughter] giving your own experience. What would i tell apple that they wanted to make cars . I would probably tell them its a great idea. Ok, all right, as you know, it has been a long and tumultuous road where you have gotten. Some said that what would make sense as some sort of art ownership between your company and google and apple and using their software, their system to power your cars. Is that something you have thought about or you are open to . You mean using ios or android . Yes. We considered using android in the beginning. At the time, it was suggested that android was not ready for implementation into an automotive application. It was too early in the life of android. I can see us potentially doing some sort of protected mode or emulator or something that allows people to use android or ios applications. That is somewhat peripheral to the fundamental goal of tesla which is to accelerate the electric car evolution and make it happen. Thats the important thing. Things like whether it is ios or android in the car is peripheral to that. You can catch that entire interview with elon musk, just go to bloomberg. Com tv. We will be right back with more. Welcome back. Activist investor nelson pelt has renewed his push to have pepsi give up its snack division. He said keeping they said keeping the units together would be their best unit but peltz said he disagreed. He will now make the case to the shareholders. He has criticized applico for the performance of its drink business in north america. Stay in the loop. Welcome back. It is 26 minutes after the hour which means Bloomberg Television is on the markets. As you can see, stock futures have reversed earlier losses. They were lower following week manufacturing numbers out of china and declines in the European Equity market. We got initial jobless claims for the week coming in line showing that fewer americans filed for unEmployment Benefits last week. Cpi numbers are up with inflation slightly up. That was in line with estimates but the markets turned around little bit when we got the Market Manufacturing gauge for the u. S. Which is april limoneira estimate but i came in at a rate of 56. 7 that might be turning around sentiment on wall street. We will be back again on 30 minutes. Lets get to the countdown to the top 10, the only trade you need to know about. I will take it up with numbered 10, marriott international. It reported fourthquarter earnings that met analyst estimates. The results were helped by rising demand from vacation travelers and business customers in north america. We will hear more from the ceo who will join me live today at 3 00 p. M. On street smart. Canada,r nine is trans the Company Behind the keystone pipeline. They reported fourthquarter earnings that trailed analyst estimates. It raised its Quarterly Dividend by four percent. Number eight is home away soars shares are surging after they posted stronger than estimated fourthquarter results. It boosted revenue for the Fourth Quarter. Crocs reported mixed fourthquarter earnings. It would not provide earnings for 2014 estimates. Number six is direct tv. It is exceeding analyst fourthquarter Sales Estimates and said it would back three point 5 billion worth of stock. They are seeking more growth in the u. S. And added 93,000 subscribers during the quarter. Number five is a millennial media. Issued ae ad company disappointing profit forecast for the First Quarter. It competes with google and apple. They report a 67 jump in fourthquarter revenue. Number four is pepsico. For the a renewed push company to split off its snack business and focus on beverages. Peltz was disappointed with his proposal and will take the case directly to investors. Number three is tesla who reported fourthquarter results that beat analyst estimates. Yetopped the biggest year for the company. They sold a Record Number of model s the occult. S for the year. Safeway is in talks to be bought out. Safeway says the discussions are ongoing and there is no guarantee a deal will be reached. The opening bell. Our number one stock of the day is facebook. It has agreed to buy mobile messaging startup whatsapp for 19 billion, the biggest acquisition in more than a decade. Bought instagram for 700 million and has been adding applications to lure tablet users. Many eyebrows are being raised as to the 19 billion price tag. Its a company that does not have a profit and people are wondering how it makes its money. We will talk about that later in the show. As we watch the market trading, i want to bring in steve and joyce from Choice Hotels international. His business as a barometer for the company and we will talk a little about whether or not this market which has been on a tear can really continue this course given where the economy is. Before we get to that, we were talking earlier about whatsapp. I love that valuation. Weve launched a tech Company Called skype touch which is cloud data and we are providing other connections and other products. If that is the valuation it should get, i am loving where we are going. Anybody in teco has in a business like that is probably really happy today. We are looking at what could be an alltime high on the s p 500. There are concerns that this market has gotten frothy and people point to the lack of Economic Growth and ask how is it that stocks can be on this kind of tear. What is your reaction . Lodgingecialty is in stocks and i think we are in for a several year run that will be pretty strong. Thats because of some fundamentals. As mrs. Jen businesses generally Getting Better and gdp is improving because we are the 99 middle america. Theddition to that, supply demand balance for the Hotel Business has been so favorable for the last four or five years because there has been no financing to build new hotels that that will propel the industry for another three or four years until inventory starts being applied. Therefore the demand that is growing on the leisure side and the Group Customers started to come up, business travelers coming back, that supply amend balance will make a good run for the hotels. You feel the economy is on stable ground . I do, i think we have gotten past the government nonsense and i dont think we will have another shutdown. The lodging business in particular works on a couple of fundamentals. It is an employment and gdp growth and then supply and demand. All those look pretty good for the next up couple of years. What happens if Interest Rates go up . It just makes it more difficult to build hotels. That will affect the growth of the industry. That is positive for the existing hotel supply. We have seen a lot of hotel ipos this year. Are we seeing a top because one would choose to go public at the top. What is your reaction . I think we are more in the third or fourth inning. There is room left in this game. I think the ipos show a reflection of the optimism around the industry for the next several years. Ipos are typically in the mid to end of the cycle. See the valuations reflect a strong run but people are optimistic about where the lodging business is going. It sounds like you are optimistic and you believe we are in an environment where we will see growth and the market will correspond to that. At least for our were business for our business. Thats a big barometer of things going on as a whole. People dont spend money traveling if they are worried about their jobs. Business travelers dont spend money or well figure out another way to do a mating by maybe videoconferencing. If you see an uptick there, what about conferences . They are coming back and there is expectation this year that the Group Customers will come back and that has been spotty for the last couple of years. That is not a big issue for our company because we are Smaller Hotels that dont do a lot of group meetings. We do smaller groups and we think that is encouraging for us. That will add to the performance of the industry overtime. Youve got Consumer Confidence rising, you can see that in the personal debt numbers. I think people feel good about their jobs and feel good about their companies and more people are getting work which is a positive thing for us. We look at all those factors and say it will be a be a pretty positive year. Let me ask you about the talk of a minimum wage of 10. 10. You employ a lot of people and i imagine you have a lot of Union Workers as well in hotels. 10. 10, what will that do to the economy . Believe in economic theory. It says that if you artificially inflate wages, you will destroy jobs. The cbo said 500,000 jobs in my concern is that does not include many things. And our business, our guys are getting squeezed on health care. There is a potential tax change and hopefully that will be positive. So far it is not. Their taxes have gone up significantly. Then theyve got issues around labor and wages. As the economy improves, wages will go up. If we artificially inflate them, their profit will go down and they will build fewer hotels because thats for the money goes. The job growth. From an economic standpoint, i understand the social interest to get more people out of poverty but i think its a negative factor. Said 900,000 people would effectively be raised out of poverty. You are talking about a small number. It is 2 billion on the economy. That is a big risk to take when it could be one million jobs are more if you start factoring in growth. Stephen joyce, wonderful to see you. Theg up, whatsapp, founders and our billionaires thanks to facebook. A look at the founders of this much is in of this messaging service who are happy. Whatsapp ceo philosophy of no ads and no gimmicks paid off for him. Mark zuckerberg bought the company for 19 billion. Caught up with the ceo on his thoughts about whether he would be selling his company. Will you go for the big one and not sell out . Thats our goal. We are trying to build a company that we can be proud of and not something that is built just to quickly sell. Joining us right now with petern the deal is newcomb. The valuation is pretty staggering and the ceo stands to make a lot of money. An awful lot of money but we dont know the precise ownership. Clearly, if you only take six percent of that, he will be a billionaire overnight. There are only 55 employees at this company. One would have to assume they have some equity stake. What will it mean for your average person . I would assume many of them will be getting tens of millions of dollars. This will be 55 people perhaps worth north of 50 million each. Have you looked at it separate from the stock . Its a big stock and cash deal, about 12 billion dollars in stock . As long as Facebook Stock holds up, the stock invested over four years, they will have to stick around to get their full payout. Month why said last they are not focused on advertising. People, 250 engineers, it does not get anymore start up than that. Us, the important thing is focus. We focus on messaging, not focused on being in advertising or gaming. Heres the thing, now you are in the big leagues. You are with facebook, Public Company so investors are demanding. They will want to figure out how this company can make money. Stockcannot, facebook price would theoretically suffer. But you are buying more than just this app. You are buying access it was 450 million users yesterday given the hype, it is probably 500 million now. Mark zuckerberg says he sees is going to one billion users. You are eyeing this massive user base. Facebook already has the ability to message. People said the difference here is that this makes it easier for you to send video or send photos and thats what critical along with the 450 million users. And its usually popular around the world. Many of us were caught by surprise in this country but you talk to people in europe and in china, its very popular. 19 billion dollars means theres a lot of wealthy individuals in the company now. Are you seeing a lot of ilya mares come out of technology . I have been doing this for about 20 years but this was eyepopping. It is fueling the discussion if this is another bubble. You cannot help but ask. If you are a kid coming out of school today, Silicon Valley seems to be the place where you stand to see the most opportunity to strike it big. A lot of wealth opportunity continues. Are these billionaires primarily come out of Tech Knowledge he . Well, thats certainly the ones we talk about. There is a passion and luxury goods is minting new billionaires. Atthere is some happy people this company today, thank you for being with us. Coming up, the former United States ambassador to the ukraine will join me to give us some context on the renewed violence in the nations capital. We are tracking this developing story. These are live pictures these are just pictures from last night. These of the protest that have been underway and we will discuss all of this next. Time for the global outlook. The ukraine interior minister has announced that combat weapons have been provided to the police. Tearlly, police only use gas or rubber bullets and i conflict with citizens. Here to talk about what this might mean as this country seems to be getting closer to civil war and what it means for the United States, i am joined by peter cook and also on the phone by the United States ambassador, the former United States ambassador to the ukraine , steven pfeiffer. What is your reaction to this development that the police cannot use live ammo . There are some horrific images coming out of kiev with special police units firing automatic weapons at the crowd. You have seen reports of another 25 killed today. This is the kind of escalation that the Ukrainian Government needs to stop if its going to create any kind of house ability for a dialogue with the opposition to end this crisis peacefully. So far, they dont seem to be inclined that way. Arent they helping to fuel despite arming these police . Exactly, this kind of escalation on the part of the government world only harden the demonstrators. Them makingcalize compromise impossible. As the world stands by and watch as this, where does this leave the United States . Might we see the u. S. And perhaps the eu take stronger measures . There is the threat of additional sanctions and restriction on travel for ukrainian leaders, maybe targeting them specifically. I would like to get the investors take on that. It does not see my there is a huge amount of influence we can apply at this point. Ambassador, what can the Obama Administration do to alter what is happening on the ground in the ukraine if anything . The u. S. Government tools are limited. They took one step yesterday announcing there were 20 more visas band targeted at regime officials who had engaged in force. Hopefully, the European Union when they meet later today will announce parallel sanctions but i would hope that the u. S. Government and the European Union would take a further step in that would be to use targeted visa and financial sanctions to go after people in the inner vich toaround mr. Yanuko get them to think they have to persuade him to adopt a different course. Oligarchs who have properties in london and vienna and want to travel there and they bank their money there. If there were sanctions there, it might begin to change the game. Vladimir putin is seen as orchestrating this. Is this another example of the difficulties and challenges the u. S. Is now facing with russia . Is certainly a difficult issue between washington and moscow. Putin is that mr. Encouraging the crackdown but that should not obscure the fact that the responsibility for whats taking place rest primarily with victor janik over ich. H yanukov is it fair to say that Vladimir Putin is winning this . Whether this is a win or not for the russians, i think that remains to be seen. What we have not yet determined is the ukrainians are fairly peaceful. That the 2004e revolution was bloodless and 60y have now and seen 50 or killed in last few days. I think there will be a huge public backlash against yanukovi ch. That may change the game and may increase the desire of ukrainians to deepen their relationship with the European Union. This could backfire in a way yanukovichutin and have not anticipated. The big concern is that this will erupt into a civil war. Are we inching closer to that now . Im not sure i would use the term civil war because that suggests population against population. Now it is demonstrators against security forces. Even in Eastern Ukraine which is seen as more prorussian, an area that is more Popular Support for yanukovich, there is increasing discussed with her option over the last few years and you have not really seen a popular counter push against with the demonstrators are asking for. Would not put this in civil war terms but it is getting ugly. Thank you so much. We will be back with more. Hits 56 pass the error which means bloomberg tv is on the markets. We are 30 minutes into the trading session. Stocks are fluctuating between gains and losses amidst mixed Economic Data. From china overnight, we saw disappointing manufacturing data and that weighed on asian equities along with european equities and we got jobless claims for the week showing that jobless claims applications fell more than forecast. Then we got a gauge of u. S. Manufacturing. The index showed an unexpected expansion in u. S. Manufacturing so perhaps markets are turning around a little on that. Lets go to the floor of the cme. The s p 500 came within one point of a high yesterday, have markets peaked . I think the markets are catching their breath. I would not be surprised to see it break further. There is uncertainty with the ukraine right now. One thing i am concerned about is the Economic Data and it been soft and attributed to winter weather. Lets see if that carries through and if it doesnt, we will need solid Economic Data before we breach that 1850 level. Do you think too much has been blamed on the weather . Because ofw, just the way it has been here and in new york, it has been pretty brutal. I will give the benefit of the doubt to the weather. Im paying real close attention to upcoming data particularly later february when we start to later february weather and march data. How about the fed meeting . The minutes came out yesterday. That was another surprise because you had some fed governors talking about raising Interest Rates by the end of the year which is earlier than anyone thought. I dont think that will happen but what it tells you is there is disagreement as to what is going on. Lets assume they didnt raise rates later in the year, the market might not take that really well initially but the reality is that if they feel comfortable enough to raise rates, that means the economy is sustainable without the fed being there. That should be a give should be a good sign longterm. Should policy makers back away from that target guidance of 6. 5 unemployment . Is probably not a bad idea. I think bullard from st. Louis and we might be at six percent by the end of the year and then you have this 6. 5 but they did not mean it. Putting a specific target is probably a mistake. They have to be looser in the guidance. The markets like certainty but you have to be flexible in this case. I mentioned is appointing data out of china overnight. How concerned are you about a slowdown in china . Im going by the numbers, they still had seven percent gdp growth. We would die for that now. The gdp growth is still there and i am not too concerned. We have had blitz where manufacturing has gone soft and it has come back so lets see what happens going forward. It is not bothering me right now. Sessage, thanks for joining us and we will be back on the markets in 30 minutes. Live from bloomberg headquarters in new york, this is market makers. Whats up not really. Hatsapp facebook shells out 19 million 19 billion. The worlds most productive ag area shriveled by a historic doubt. Erik schatzker reports live. Dozens dead as government and protesters clash in kiev. The world responds with tough words, but is it enough to prevent the civil war . Welcome to market makers. I am filling in for erik schatzker. He is covering the drought for us. We will be joined by him in the next hour