Dissension within the gop, trump said he is not ready to endorse House Speaker paul ryan or senator john mccain. New york congressman Richard Hanna is the first house member to announce support for hillary clinton. In an oped, the retiring that donaldwrites trump is unfit to serve our party and cannot lead this country. Italy says it will evaluate any use of the sicilian airbase to launch strikes against the Islamic State stronghold in libya. Italy agreed to let armed u. S. Drones to take off, but only to defend American Forces targeting extremists. Global news 24 hours day powered by more than 2600 journalists and analysts in more than 120 countries. Im mark crumpton. Emily im emily chang and this is bloomberg west. The latest inbit the tech parade. Plus, tech megamergers maybe you keep rolling in. And, instagram takes a page or maybe a whole chapter from the snapchat playbook. Are the latest product changes enough to take on the disappearing competition . First to our lead, investors liking fitbit. Revenue growing up 46 to 586 billion from a year earlier, suggesting new fitness trackers are getting a leg up. Xe shares with a boost, popping as much as 6 . Gross merchandise sales, the value of the goods that passed through the platform increased to 670 million. So are things turning around for the stock market rookies that went public last year . Here with me to digest is cory johnson and the cofounder of Elevation Partners and my guest post for the hour. On on at the, pull out the highlights and why things seem to be looking up for this company . Guest i think its a matter of expectations. After the ipo they set expectations that were way too high and then then they set up underdelivered. Then they set up expectations that were reasonable and they have been exceeding those expectations. That gms number you talked about was a slight revenue acceleration. The real take away here is that ecommerce is accelerating. We side with amazon and ebay. Moree are buying more and online at an accelerated rate. Emily we had a note from an analyst at citigroup saying it is unfair to compare xe to amazon. Amazon has it own division called handmade to take on etsy. What do you think . Is there any comparison . Guest im a big believer that the market place, when you get enough people in it develops a life of its own. Things dont compete exactly. People develop cultures. Ebay developed a early culture that remains and betsy has developed its own. The issues these guys face is much less related to competition, and the activity of the members of that community. Are they doing things and is that Community Growing . For fc etsy, time will tell. Want a giant ball of yarn, there is nowhere else to look. Reason, i waseird looking for a giant ball of yarn and it was my first stop. It turns out they offer a lot of giant balls of yarn. Emily ive gone there for pillows for every shape and color, but the problem is, i do not go back to the same retailers, the same shops. Marketplace develops the brand value. It is really hard to break out of that. Maybe thats not such a bad thing. Maybe the value is in aggregating everything. If you are making large balls of yarn, my sense is that etsy, even if it is not promoting you for a second and third sale, getting the first one is a big deal. Well iswill his etsy doing when it comes to developing relationships between buyers and sellers and increasing these the keenness of the warm so that these purchases are not just one off mark just one off . Guest that is the limits. The sales are continuing to decline in the sellers are realizing it may be better to have their own storefronts. They are going to shopify because they realize they are renting customers from etsy. It has been declining for four quarters in a row. ,mily i want to turn to fitbit they went public and had a bit of a rough go. What would you pull out here . They talked about the watch and how it is doing well, 50 of sales. Initially, the wall street reaction was confused about this. If you go to bloomberg and look at the trading of the stock stock falls immediately because , investors may have looked at the gross margin number. The gross margin number was really weak. Let me show you how it changed. This is me doing my weatherman. You missed me looking for flying squirrels on etsy. They have taxidermy did squirrels on etsy. You may think youre paying more for it. The stock pops back up, but the gross margin number was a concern. The gross margin is going down into this quarter. Numbers like a 55 . This quarter all the way down to 41. 8 , a substantial change. What is the change . They decided they could charge the cost of sales and decide to put aside more money for potential warranties. They said this quarter, that charges going to reduce gross margins. It was additional warranties taken a side a conservative measure by this company. And the way the warranty is being used, how many actual returns they get, those numbers tebows been less than the money put aside. This one in particular this quarter, they have a bigger reserve, a Rainy Day Fund for warranties. They will explain that in the quarterly numbers, how much the returns were. I dont know if they are going to say anything in the call about it, but there was some initial confusion. I think this company does a pretty good job of disclosing those numbers and talk about how they were putting money aside for warranties. Product a massive problem and recall. Emily roger, you have been nodding along. Fitbit has been trying to transform itself into a Digital Health company. They are competing with apple and xiaomi in a wearables market that is fairly nascent. What do you think about fitbits process . Guests product cycles are the only cycles that matter, you can ignore the economy. Fitbit is a perfect example of this. The watch is an interesting product. Fitbit has done a brilliant job of establishing a beach head underneath apple. A great job of getting people to share information and motivate friends in group activity. I like the product cycle short term, but i dont think its ever going to be a giant company. I do not think this is a stock you could put away forever. You are buying it with the expectation that at some the point, product cycle will run its course. I would like to see how this pays out because the people i know who have fitbits, its a social experience. So i think the angle of them becoming wellnessoriented is not new. That has been part of their story from the beginning. If they are successful they will , find more ways to get people emotionally engaged. Emily you mentioned social experience. S sixlaws got fitbit months ago, but they have been 33 of them because they have broken. Cory that is an issue. They have warranty reserves as a regular part of their business. There is a new model looking at the warranty reserves. Their warranties, the money put aside, ranges anywhere from 3 to 5 . We do not know about the numbers for this quarter. That may havengs confused people on wall street, the numbers are high. Interesting here when you look at these numbers, idc reports a smart watch category. Apple, the biggest seller of down watches, had numbers 55 yearoveryear in the first quarter. Is not considered a smart watch by idc because the only apps they run our four are for fitbit. But they have had Great Success at wearables, if you percent growth year over year with the number of units sold. To your point, it is a social thing, it is a thing where people to wear these things, it is a very active part of their life. When bad, i ran out and got another one and one for everyone in our family. Guest and people brag about it. And people brag about it. There is this concept of the net promoter score, which is a gauge of how much your customers believe in your product. And fitbit has a high promoter score because theres something about that experience were people dont just share with their social group but in their broader facebook community, families and friends. I think that is the secret weapon. I dont think this is going to be an easy business. I dont think you will ever feel secure in the stock, but it onld not surprise me at all this product cycle if it does play out. Emily we are going to talk about ea earnings out after the bell. I want to thank cory johnson and the director of wedbush securities. Watching,ks we are earnings after the bell. The big mover is the glue. Shares plummeting after their profit loss would be whiter after originally estimated. They are behind games featuring Kim Kardashian and katy perry. Electronic arts shares down the Company Posted a surprise profit per share but the revenue disappointing some analysts. Roger, you are a very early investor in ea. Ony say they are working augmented reality, but it not seen any impact from pokemon go. Guest baloney. Pokemon go has changed the entire conversation in the mobile market. The issue that everyone in games faces today is that there was this extraordinary growth for mobile, but we have hit saturation relative to new purchases of smart phones. Once people get comfortable and stable in a product like that, the rate of purchases declined. Games have held up better than most, but i am not super confident that the nearterm outlook in the games market is going to be good for anyone who does not have a product like pokemon go. Nintendo has something really special going on here and who knows how big it is. But vr is not here yet, ar, you have your first glimpse, so these are new opportunities for game developers. My impression is that until those things are in the marketplace it is going to be , tougher sledding than people would like but you can see what , is coming. It is a matter of time getting , the product cycle and figure out who has the most leverage to play there. Ea has not shown us that they are going to be the one but i wouldnt be surprised if they have some kind of effective play. Emily we will continue to watch that. You are with me for the hour. We are going to dig more into mobile gaming this thursday with we will talk about how kimmy ks game is doing. Our next guest says the age of smart phone adoption is over. So why does he think it is worth hanging onto apple shares . We will discuss. Imitation is the sincerest form of flattery. Instagram just paid snapchat a serious complement we will talk about what some are calling a copycat move later this hour. This is bloomberg. Emily the Worlds Largest smartphone maker, samsung, trying to build on its lead over apple. They unveiled their large screen a phone display curves down both , sides of the phone and it can be unlocked with an iris scanning camera. It comes one month before apple is expected to announce an update to the iphone. Smaller chinese rivals are expected to release more sophisticated android devices. The age of smart phone adoption is over. So says my guest host who says we are on the verge of smartphone adaption. Businesses like amazon web services, uber, and lyft. Our smartphones over . What do you mean by that . Roger all product cycles follow a relatively comparable arc. They all follow a certain curve and there is a period of time when people are adopting a new technology and if enough people adopt it, it becomes standardized and really big. Before smartphones, the biggest cycle we saw was personal computers. And it was so big that by the time everyone had adopted it, if you are a business, you could count on the fact that every customer you wanted to reach had a personal computer. And you needed a way to reach them and market to them. The adaptation phase is only something that happens when you cycle thatt product gets the product to the entire population. Everyone has a, smart phone, how does that change my business . How do i take advantage of the fact that everyone has one . Emily how does that affect Big Companies . Guest its going to be difficult. Five years ago, many people were still getting their first smartphones and they were open to all kinds of applications. They would upgrade every year or every two years. Now you are at the point where the evolution of the product has slowed down dramatically so the need to upgrade is every three or four years. If you are a manufacturer, you are past peak. Just in the not united states, but europe and china. Emily samsung is out with a phone that unlocks based on scanning your eye. Is it possible that we could we see more innovation . Roger i expect tons of innovation. What i dont expect is theres there is nothing obvious they can do that causes the install base to upgrade at once. You need a big bulge to cause a major product cycle. For apple and samsung, they will be value stocks. I think apple is interesting because the pe multiples are so far below the s p 500, yet the cash flow is exceptionally favorable. The dividends are very high. Things, youthose can safely own apple and not worry about the product cycle. Every once in a while, everything does lineup, you have a good period and the stock is up. Apple iphone sales are struggling, it is still one third of their business. What do you think of the apple watch, or the next big thing . Guests i do not think apples problem is innovation, they have the most successful product in the history of technology by a mile and its almost impossible to imagine a Company Coming up with a bigger thing than the iphone just when you need it. They may eventually come up something bigger, but the notion it will lineup perfectly, that is sort of going on at facebook, but that is unusual. I dont think you can penalize them for that. There was no way the watch was ever going to be a substitute for the phone. What the watch is about is facilitating Services Like apple pay and getting apple to be more engaged and more connected in the customer experience. Emily you have been consistently critical of Apple Software. What do you think of the state of Apple Software right now . The watch has not taken off. Roger i dont care about the watch. I care about products like itunes and their productivity applications are all buggier than they used to be. The user interfaces are more complicated and much less useful to people. Emily why dont you care about the watch . Roger because watches are a tiny market and apple is a giant company. If they make a car, that will be there isif they make a car, that will be just no way that mathworks. Interesting. Emily what are they going to do . Roger i have no idea. My point is they dont tell me and i dont read it in the newspaper. I dont see anybody who has any great insight, but the stock is so cheap i dont care. Im looking at this going i will take my chances. Apple is a great company, their products still deliver a better experience than their competitors. Yes, the software is worse than it used to be, but not enough to get me off the platform. That is the fundamental people point. Who are android customers will remain android customers and people who are apple customers will remain apple customers. They are stuck. This is the point i am makingthey are stuck. , they are not adopting a lot of new things. They are huge issues if you are an app developer trying to make new sales, all of that is terribly complicated. It used to be very cheap to have a app. What is going on with pokemon go is so unusual because it has been so hard for apple vendors to break out of the noise. The key thing to understand is that the adaptation phase will be different than the adoption phase. In the adaptation phase, most of the benefit goes to the companies that figure out how to integrate smartphones into their business the way that uber did. The way you are saying with Companies Like starbucks, relative to preordering and every company has to do this. I suspect it will create a small number of mega independent companies. The way the internet cycle did after pcs. The internet was the Way Companies integrated pcs into their business. So we will see an analogous kind of thing relative to smartphones. Different, new, and there will be different winners. Emily we will continue more in the show. Stay with us. Emily coming up, the tech megamergers keep rolling in. We will look at the likely targets and whether the largest Internet Companies will be getting in on the game. If you like us, you can listen on the Bloomberg Radio app and on serious xm. This is bloomberg. The top stories our our, japans fiscal stimulus package failing to fire up investors. It is down for a third day with 1. 5 cials, as again drops last session. Crude has halted its to, below 40 in new york i had of that u. S. Inventory data. With a shares jumped 6 sales surge. Honda was a standout, overall, it american sales fell. Industrywhy deliveries rose. 7 in july. Toyota, while other companies saw small gains. Because hackers stole about 65 million of the digital currency. Will stillhey investigate details and cooperate with law enforcement, and of knowledge that some of bitcoins have been stolen from users. Powered by over 2400 journalists in 150 bureaus around the world, lets get the latest in the markets now. Midweek, the selloff we are looking at right now began yesterday. Fell. 6 . S if you put everything together, we are down 1. 5 , roughly speaking. That was at the close on monday. Some of these markets still look attractive, indonesia, for example. Still outperforming. Philippines it received declines, only two stocks. A bigng seng index story here, a merger. We are looking at the kleins here in south korea. Concern, 180 million for the company. What do we do now . It is about the dollar recovering some of those losses overnight, weakness in the yen and euro. That is just about the story across the market. A little bit of Dollar Strength coming through. Big story here, the selloff in japan, thursday into this morning. That is stabilizing a little bit right now. Yields rising across the region. Emily this is bloomberg west, i am emily chang. , ubersls in tech news China Business and elon musks merger of solar city and tesla. What is driving this recent boost in tech dealmaking . Me,ation copartner with also a cofounder of silver lake back in the day. How much more m a activity will we see . Roger i think we are going to recognize when merger and acquisition activity rises, it is always a signal the environment is difficult for earnings. Fundamentally, youve got europe, not just because of brexit is almost certainly going to add drag. Things are not as robust in china and if you look at the s p 500, more than half of the earnings come from outside the u. S. If you have bad trends in europe and the biggest parts of asia, you have to anticipate margins for the s p 500 companies have probably peaked. Theres a lot of analytical support for that notion. Against that model, how are people going to keep their stocks up . Buyhave to get people to things they give investors hope about the future. A is a great way of doing. I look at linkedin and its a perfect example. Microsoft had a big run. Its not obvious were the next growth leap is going to come from and its like an obvious it is not obvious linkedin can provide it but it changes the story. If you are able on microsoft going income a gives you something to be bullish about. Emily are you a bull on this deal . Roger im not. i want to applaud the management on this. They went from nothing to tens of billions of dollars of value, they sold it and got paid. Emily they sold it for far less than what it was worth. It for far less than what it was priced at an , not less than what it was worth. Extraordinary outcome for the management of linkedin. To get 26 billion of value will require some gymnastics. I do not know that they cannot do it, but it is by no means a certain thing. But linkedin is tiny scalewise compared to microsoft. This really provides the lift to keep things going, but it does change the story. Therefore, it probably is going to work. Emily what about some of these other deals like verizon and yahoo and solar city and tesla . Which are good deals in which are bad deals . With lets start bloomberg, it did not look like they would be successful in china. They were bleeding a billion dollars a year. This is clearly a loss relative to the longterm strategy, but if you look at the opportunities that they face it probably the best play they could have had. I look at that is very smart. I think ubers situation is challenging. It appears that the competition is a lot easier into the marketplace than they were originally asserting. Getting rid of the distraction of china will help them compete better in the markets where they have stronger positions and opportunities. They will need that. They have addition through subtraction. Theyve got aol and aol is not if i look at verizontheyve got aol and aol is not going to , change the direction at all. It has helped the Management Team and feel better about itself. All he does is double down on that opportunity. Make that big a difference. I think the sad thing about yahoo is that you have had several generations of onagement cast with building the great brand they had. For whatever reason no one was , able to do that. It points to the fundamental flaw in how executives are compensated in american industry. Because every one of those executives got paid royally to leave because the next one was going to be the one who saved it and made it worth paying those people off. Up, i think you get a quarter of a billion dollars. Really serious money for what . I look at it and go i think shareholders were not particularly well served, but the pain is over, so that is a good thing. Emily our shareholders being well served by elon musk . Roger that remains to be seen. One person described it as a strategy of putting two boat anchors together in the hopes that they would float. The problem elon musk has is tesla is an amazing company, but is bleeding a lot of cash. It is not clear how putting them together addresses the fundamental problem either company faces, it merely delays the inevitable for them. Emily i want to do a quick lightning round. Which of these companies do you think get acquired in 2016 or soon thereafter . Gopro . Roger i doubt it. I imagine they have buyers, but i do not think so. I think they are an independent thing and its not obvious where it is a great fit. Emily pinterest. Roger probably. Emily who . Roger i dont know. I can see a lot of buyers imagining folding pinterest into it and saying its a good addition to our portfolio. I would way sooner own pinterest than yahoo , for example. Emily lyft . Roger they are sort of doing it now in the automotive industry. Partnering with gm, which i think is the right strategy. My great fear is that when lyft and uber entered the market, the price was so compelling that it drew millions of customers into the market, but unfortunately did not create a Business Model , with what i would describe as adequate margins to provide a return on the capital invested in them. I dont know how they get out of that box. I think that suggested a sale would be in the interest of everybody. Emily pandora. You are a musician. Roger i dont know. The Music Industry feels an ever shrinking business. The lack of imagination of all participants has been simply staggering. You remember back 25 years ago they had the entertainment field , to themselves with the exception of television and movies. That wastopped the last time they innovated when they created the music , video and put it on mtv. Since then, they have done nothing that has been Customer Value added. We have created video games, the internet, smartphones social , networks and a zillion forms of entertainment and music guys expect to get paid and i dont see it happening. I can imagine a consolidation acquisition of pandora but i dont see an acquisition that provides a great deal for anyone. Emily twitter . Roger yes. Emily by who . Roger i dont know. But someday. I think twitter has enormous value. I think the issues they face internally, they dont appear to have an internal solution. I keep hoping they will. Because i think the product is extraordinary, but it just has not been there. I can easily imagine a scenario where the board asks a few people wouldnt you really like to have this, and who wouldnt . If you are a media company, when wouldnt you like to have twitter . Emily maybe, nobody seems to be buying yet. I want to talk to you about instagram. You were an early investor in facebook. Facebook of course owns instagram. Instagram now doing disappearing stories, must much like snapchat it disappears after 24 , hours. Is that blatant copycatting . Roger why are those two things inconsistent . I think its important for any business to recognize when they are at a disadvantage and to do what they can to offset those disadvantages. And this is just software. It not a patentable, copyrightable technique. Customers clearly love that. The incredible thing about facebook is the core business continues to grow. Mobile and video together continue to drive Earnings Growth even from a large scale. They have just begun to monetize the other core apps that they have. They havent started on messenger, and barely started on whatsapp and instagram, they started but its a small fraction of what it is going to be. The right thing to do is to make sure there are no there are no holes in your lines. Clearly, the advantages their competitor had in that space was so significant, they needed to fix it. Emily i talked to the ceo of instagram and i asked if he was afraid of snapchat. He said we are not resting on our laurels and we know what they have come out with. He was quick to give credit where credit was due and complement snapchat. Roger i dont think snapchat has harmed instagram at all. Emily do you think they could because it is so popular with millennials . Roger i think it is its own thing. It has its community. Arent there a billion users of instagram . Half a billion users, it is huge. From facebooks perspective, the path to a billion is obvious because there are all of these ways to integrate and extend to more people. They are never going to get everybody and they dont need to beat everybody. They just need to have a great business of their own. I could be wrong, but half a billion is a number you can build a lot of revenue on with a product as good as instagram. With each of these additions, they enlarge the opportunity. Emily does snapchat get acquired . Roger they have shown an ability to remain independent and i wish them the best because they have been right so far. They turned down some offers at the time i thought they were nuts. Emily 3 billion from facebook. Them waytip my hat to , to go, guys. Knock them dead. I wish them nothing but the best. Emily roger mcnamee, you are with me for the rest the hour. Coming up, uber may have waived the white flag in china but will a tech giant follow suit . We will look other disruptors trying to crack the market. This is bloomberg. Emily uber has waved the white flag in china, but what about other companies trying to make a push into the country . I want to take a look now at airbnb, airbnb has had some difficulty gaining a foothold but it is pushing forward. In china fewer than 50,000 of , its listings are in china. On the other hand, airbnbs biggest chinese competitor has 400,000 listings. Airbnb is not giving up. They have teamed up with sequoia china to expand into the country and is planning to hire a ceo for its China Business. Joining us now live from tokyo is our bloomberg tech editor and still with me in the studio is roger mcnamee. First of all, they are not exactly the same company. They have different Business Models. But talk to me about airbnbs chances in china. Are the odds as much against them as they were with uber . Guest you are right. They are somewhat different businesses. They manage a lot of its properties and behaves in some ways more like a hotel chain. As we know, airbnb wants people to open up their doors and living rooms and extra property so people can stay. One way to think of it is airbnbs interest in china is twofold. It wants to open the inventory of Properties Available to people going into china but what is critical in terms of airbnb having a presence is outbound chinese travel. Chinese tourists are fanning out across the globe, and asia, europe and the u. S. , and they want places to stay where they can, in some cases, accommodate a lot of people because they like to travel in groups of family and friends. Theres a lot of moving parts there and i do think airbnb hasnt given up on trying to at least expand the number of rooms it is also renting out in china. Emily the road is littered with u. S. Tech companies that have tried and failed in china, whether they got pushed out or left on their own from facebook to twitter to google to now uber. Should airbnb even be bothering . Guest i think there is always that each companys situation is enough different that they can find a home. I cant speak to what the other opportunities at airbnb are. My observation at china about china is that there was a period which ended about a year and half or two years ago when they started to make the changes, the purchases of routers favoring their own products. But there was a long time where china was getting progressively more open to western companies. Where it was a really good place to build a business. But now things have slowed down, the rules are changing, and they are changing in a predictable and unpleasant direction. I suspect it will be hard for airbnb to get the traction they would like. Whether they can solve this issue of building a brand that allows Chinese People to be aware of airbnb when they are traveling outside of china, thats an interesting way of thinking about it. The cost of making that happen may be quite reasonable in the broader context. Emily you have a story that uber is going to redeploy 150 engineers from china to other regions, Southeast Asia and indonesia, regions that could benefit from additional uber resources. The uber of Southeast Asia put out a statement saying with the deal in china, we expect uber to divert more resources to our region. We will make them lose again. They have lost once, tell me more about where you expect to see more uber firepower and if they will run into the same regional problems they ran into in china. Guest theres a whole other war going on in Southeast Asia which has not quite gone on to other peoples radar screens. Growinge thriving, delivery businesses in southeast , asia in particular, malaysia and coming up in india. We are not just talking about people getting rides. This model has already existed for a long time, people hopping onto the back of scooters. The business down there involves a lot of delivery and services, for example bringing a masseur , to your home or cleaning people to your home. I think the challenge for uber there is figuring out what he should do differently. I dont think going in and offering rides will be enough at this point because people have discovered they can tap a button on their phone and get groceries delivered from a guy on a scooter. In a sense, i think this explains the 150 engineers. You will see a lot of features being built into the uber app. Ly does it over become does uber become is it truly a 62. 5 billion business . Roger the market gets to decide how to value it. My own view is they have yet to prove a sustainable Business Model that justifies a high valuation. Im afraid each of these efforts that they have made that do not work the opportunity cost is so , great that they dont get a chance to recover. Im very nervous about uber as a stock and if they allow people to short it, its interesting to see how many people would jump on that opportunity. A great idea and a great product, but a very high price stock. Emily great to have you with us. We would love to have you back with us soon. We will be right back. This is bloomberg. Emily alphabet said on tuesday that it plans to sell 2 billion in bonds. Its the companys first on sale since 2014. Take a listen. We remain focused on optimizing our capital structure, recognizing the Strategic Value of our balance sheet. We completed alphabets Debt Exchange in the Second Quarter which gives us flexibility, including the ability to use Debt Financing if appropriate. We may opportunistically access our market to turn out commercial paper. Emily Tech Companies have been among the leading issuers of u. S. Debt, selling 103 billion of highgrade bonds. Apple, dell and microsoft are the three biggest issuers in the category this year. That does it for this edition of bloomberg west. Tomorrow we will take a deep , thats all for now from san francisco. . C sv global selloff is gone and there are concerns with gold near its highest. Unlock 27ts could billion with the bond sales. Accuses the west of plotters