Chegg CEO on Today's IPO: Bloomberg West (11/13)

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Nov. 13 (Bloomberg) -- Full episode of "Bloomberg West." Guests include Chegg CEO Dan Rosensweig, Jawbone CEO Hosain Rahman, Enders' Benedict Evans and Polaris CEO Scott Wine. (Source: Bloomberg)

Relatively immune to that.

I appreciate your insight.

"on the markets" again.

"bloomberg west" is next.

? . . x live from pier three in san francisco, welcome to the early edition of bloomberg west where we cover the global and technology companies that are reshaping our world.

I'm emily chang.

Let's get straight to the rundown.

Turning the page, twitter as the next unprofitable tech company to hit the ipo market.

We talked to the ceo of chegg about how he plans to change that.

One analyst says facebook is just one photo sharing app among many -- that instagram is just one photo sharing app among many.

And we take a ride and see how new technologies are transforming the legendary indian motorcycle.

First, to the lead, the first chapter of chegg's progress is not off to a great start.

Chegg, the first internet company to go public since twitter's big debut last week, raised about 187 million dollars in its offering.

The company recently posted a $50 million loss in the first nine months of the year despite a 23% rise in sales.

Joining chegg us for more on the numbers behind chegg's business, -- joining us for more on the numbers he hind chegg's business, cory.

When you look at the growing revenues for this company, all we see is the ability to grow this business and expand into the market.

It is a seasonal business, of course.

When you look at $60 million in revenues in the last quarter, it does not really help you.

If you look at it on a year- over-year -- year-over-year basis, you can see it is growing and growing faster.

It has picked up at 820% rate year-over-year, and pretty steadily.

That is a -- it has picked up at a 20% rate year-over-year, and pretty steadily.

That is a great rate.

How dependent are they on textbooks?

Well over 80% of the revenue from this company comes from print textbooks.

They have shown the ability to grow other businesses.

And their nonprint business is growing at about 13%. they are renting electronic books as well.

And they are doing some other things as far as following and monitoring students and not just putting better prices across the board.

A are very aware of this big trend, which in some ways has taken them away from their main business.

As books go to tablets, then they are losing their book business.

They are cognizant of that and trying to grow.

You would think that they would be trying to take it vantage of that shift.

The problem is that the publishers are perfectly set up with e publishing to go directly to students.

They don't need student bookstores anymore.

Authors and professors who demand that you read their textbook can sell directly to the students.

It is more possible with tablets.

What do you make of the timing, doing this now?

The entire stock market is hot.

The fed is pumping money into the system.

Ipo's are coming out like crazy.

The ducks are quacking.

Feed them some a like they say on wall street.

-- feed them, like they say on wall street.

I think the difference here is chegg has a unique cost in their income statement that is a non- cash cost.

Writing down the value of a print textbook is a substantial cost to their business, but not a substantial -- but not to their appreciation.

And the -- and because of appreciation they are not being taxed on it.

As i mentioned, check is the first chegg -- is the first tech ipo since twitter went public.

Jon erlichman has more.

Like twitter, chegg is a company that has yet to turn a profit.

We spoke earlier today to the ceo and i asked him how the ipo affected demand for check -- chegg's offering.

I think the costello has been a really good job.

I think people are focused on good category leaders and bad category leaders.

The opportunity is so much bigger looking forward than it is backwards that they are excited about these offerings right now.

You told us before on "bloomberg west does quote chegg -- "bloomberg west" chegg is a highly profitable business.

You said there was no guarantee of profitability in the future.

Do you want to be profitable?

Of course we do.

That is not the issue.

When you're going after a trillion dollar market opportunity like education, and in just 3.5 years we have expanded from doing textbooks for college gets to high school kids, and now we are doing college recruitment and get commit -- get kids connected to the right schools and get them required materials and nonrequired materials.

We have expanded so dramatically, and the opportunities have got not much bigger.

We are investing for the future.

All of our businesses are growing close to 100% and have 80 corporate -- 80% gross margins.

The future growth is a much higher growth, higher margin business.

And we believe print will go away in a couple of years.

But -- does dan rosen worry about amazon?

He worried about everything.

In the required text the business, demand is generated by the publishers.

It is very difficult for someone to get a license to give everything away for free, which amazon has historically tried to do.

The demand is created by the publishers.

We do not think that will be an issue when he goes digital.

Plus, we are helping the kids pick their classes and we will roll out more and more services over time.

Amazon has been in the market for a wild.

They are a tremendous company, but you saw in quarter three that are units grew seven percent year-over-year just in that part of our business.

Right now, we are able to compete very effectively and we think others are worried about how to compete with us.

Acquisitions have helped to broaden this business.

How much money has been earmarked as part of this offering for future acquisitions?

One of the things the best companies have our straub -- strong balance sheet.

We have the leverage not only of currency, but of capital.

And as we need capital for the textbook business, because we have become so efficient at it, we are armed to make smart acquisitions when they are available.

You can look at it and say, can we grow into a whole new category?

We opened up a high school category and that is growing at 100% per year.

Or the class scheduling, which over one million students use, which allows them to get the required reading material more efficiently.

You can see our annual year- over-year marketing dollars going down.

We have earmarked -- we have not earmarked a dollar amount, but now that we have a better balance sheet, we will use it effectively to grow for our shareholders and our students.

Apple is spending billions to develop new products.

Most of its customers will never see them.

We explain, coming up.

You can watch us straining under tablet, your phone, and at bloomberg.com.

? lex welcome back.

I'm emily chang.

The heart of apple innovation may be more than just the products you see.

It is also innovating the way it makes those products.

Ceo tim cook is tweeting -- putting a record 10.5 billion dollars into their process.

Will this give them a leg up on the competition?

What kind of machines are talking about?

But these are the high-end, behind the machines -- these are the high-end, behind-the- scenes machines that will be used to put a laser in so that the light shines through, or the plastic that is putting.

A lot of this equipment goes into the apple devices that people are buying.

Are these machines that have been made before, or new things?

It is based on technology that existed, but then using them on a scale to produce millions of devices.

It is volume's that have not been done before.

In some ways, we are inventing new tools, for instance, the gyroscope to tumble the iphones to make sure that the tracking technology works.

How significant is it that apple is inventing its own technology to make the stuff that they make?

This is something they have done throughout their history, but the difference is the scale they are doing it at.

And they are putting in a record $10.5 billion, which is quite a bit more than other companies.

Typically, contract manufacturers will do a lot of the work.

Are these machines going to be in fox contractors, or in the plants opening in arizona?

Both.

A lot of it is factories opened by others, be it fact -- fox or someone else, but also in the united states.

They partnered with this company to buy these high-end furnaces to make a material that goes on the iphone.

Is this something steve jobs would have done?

This is something that apple would have done when he was ceo, and now that tim cook is ceo.

But as the company is getting bigger, they have had to continually invest more and more money and it lays the groundwork for what future products they may have.

Does it give them a leg up on the competition?

I think so.

You see a lot of other companies following what apple has done in the areas of design and manufacturing.

And the use of these machines is becoming more commonplace in the industry as a result of apple using them.

Adam, thank you.

Netflix's home page is getting a facelift.

The video service has unveiled a new design aimed at delivering a richer experience to viewers who watch on tv sets.

It will be rolled out on smart tvs and devices that connect to them, like set-top boxes and game consoles.

Jon erlichman, what do you make of this push to improve the viewing experience, or the user interface if you will?

What i find interesting is that netflix gets positioned to having this big advantage of not being tied to traditional television.

It is a service you sign up for and can take me where with you.

And yet there are a lot of people that like to use their service sitting in front of a flatscreen television.

Netflix has been asking a lot of users what they would think about if they made this change or that change to take advantage of all of the real estate on the television.

But what has not changed is that necklace is using its technology to bring you toward new shows that they have in their library, and specifically keeping you watching content that they have the rights to.

I will add that this change is not coming to all platforms.

It is not coming to apple television or microsoft's xbox one.

There are specific rules about the design and layout for the application of those devices.

It is interesting to follow that side story, because a lot of players like netflix will want to make changes going forward and you have this back and forth with the platforms as well.

Jon erlichman, thank you.

A quick programming note, as we had to break be sure to catch our bloomberg west special, inside the google of china.

My exclusive interview with the baidu chairman and ceo.

That is at 6:30 p.m. eastern, 9:30 p.m. -- 6:30 p.m. pacific, 9:30 p.m. eastern.

Coming up, you can -- introducing job owns new up 24 band.

? welcome back.

I'm emily chang.

A year ago, jawbone got into a health and wellness system that combines fitness with your smart phone.

It connects wirelessly to your device through bluetooth.

You have been trying all of these through the last year.

What do you think?

I am totally geek out about the up, and the next as well, which my next guest is not want to hear.

I'm glad to see you and i'm excited about the new product.

This is something that only a geek like me would care about.

Wearable technology and the fitness trend seems to be blowing up.

Is it?

Absolutely.

This is last year's model.

And they also have won the my daughter made, which has no functionality, but she made it.

This is essentially a pedometer.

It is more than that.

It tracks all aspects of your movement, your sleep, so we can tell you how long it took you to fall asleep, light versus deep sleep, what time it took you to follow asleep and how deeply you sleep.

And the way this cleverly got synced up with my information was that i take the cap off and plug it into my iphone and it would sync up.

The new one is different?

It has a different mechanism.

It is wireless, so you don't need to lug it into sync it up.

Although a lot of users love plugging it in and seeing their data.

It is about real-time versus not real-time.

A lot of people want to look at their data once or twice a day, measure their sleep, see how they did for the whole day.

This product is a lot more about real-time interaction.

It is not just wireless for the synced up, but for reducing the gap of information and being able to take action on it.

The wireless can shrink that whole chain, if you will.

You can understand your data and take action immediately.

We are providing you -- i will give you an example.

Let's say, you are within 10% of your goal.

I can tell you at 6:00 or at 8:00 to get walking for a little bit more, so you will actually go hit it.

The some people will like that interactivity.

It can help you manage your goals accordingly.

I started logging my food again, using your app.

I really found great results from that.

It is a little bit of an anal- retentive thing to do, and a little bit of a pain, but i find i get these great results personally from keeping detailed track of that.

I wonder how much i'm in line with trends.

People are getting comfortable with his knowledge of knowing more and more about themselves.

Understanding their different patterns and how that correlates together.

I think that is the separation from our system to anything else.

All detailed aspects of your sleep, your movement, even how long you are sitting, standing, how long you sit or stand, your day-to-day movements.

I know that between 1 p.m. to 4 p.m. right after lunch, i have very little movement, the classic office pattern movement.

It will tell me to get up and move during those time frames so i can manage myself.

How big a business is this?

It is big.

That is not definitive.

Give me some sense.

We are millions of years behind on orders.

How big is this market?

I don't think anyone really knows how big this opportunity is.

I think we have hit this fundamental core with people in that everything a person after we met when we got in this business wants to be better, i don't care if you are a high- performance athlete like lebron james, or you are a housewife who wants to give back -- get back to your pre-kid weight, or anything like that.

I'm back to my pre-kid weight and i feel great.

You look rate.

-- great.

But it is a fundamental truth that no matter where people are in life, it doesn't matter, everybody wants to be better.

I think that is what this is about.

It starts with knowing yourself and then taking action.

That is why i'm so excited about 24. we really hit that on the head.

We said, we will give you this data and we will help you take action on it immediately with this gentle coaching, caring kind of way.

Talk to me about the trade- offs you make.

I love this thing, i told you that.

I've also told you that i had problems with it and i've had to return a couple of them.

They have broken down.

The first one, it you had to creek -- the first one you had to completely recall.

Yes.

You have to have some way of making this bulletproof, but then it might be too expensive.

How do you make those decisions?

First, i'm sorry it had issues and i think we have been very proactive in taking care of those customers.

And when i call your customer service, they don't know who i am and they have been able to fix it.

And the good news is, as you look at the data, the vast majority of users have had a great experience and we are happy about that.

It is along for the right in your life.

There are things that people do to it that in a computer or phone you can tell it is broken.

When you drop your screen on your phone, it cracks.

There are things that happen with the wearable device, too.

Inc.

You for your time.

-- thank you for your time.

What is instagram really worth to facebook e that is next on -- what is instagram really worth to facebook?

That is next on "bloomberg west." ? this is the early edition of "bloomberg west." i'm emily chang.

Now for your top headlines.

Goldman sachs has promoted 280 employees to managing director after 266 last year.

The promotions take effect january 1. earlier this year, the bank announced it would start promoting nanjing directors every three years instead of every year.

Officer todd park is testifying before a top committee about fraud with the new health site.

He said that users can now create accounts without problems, but acknowledges there are still issues after accounts are created.

A majority of toronto city council members are now calling on the mayor to take a leave of absence and seek treatment after he admitted to smoking crack cocaine.

He disclosed he purchased the league -- the illegal drug while serving as mayor.

No more curves, no more stacked rankings in an effort to foster collaboration.

Microsoft is doing away with it evaluation system that rates employees on a bell curve.

An internal memo describe the change as an effort to align the company with the one microsoft changes outlined by steve ballmer back in july.

Cory johnson is back with more.

Tell us how this works.

It is a bell curve.

It is essentially like being back in high school?

No, because they don't get rid of you if you're great stink.

They try to teach you a little bit better.

-- if your grades stink.

They try to teach a little bit better.

In this case, for the best performers it is a good thing.

For the mimi -- medium performers, it is ok, but for the worst performers, it is bad.

What do you think about the timing of this, given that ballmer is on his way out?

Wouldn't the new ceo want to set up his or her own evaluation system?

The system itself became a problem at microsoft because for a long time you went to work at microsoft and you could walk out of their a multimillionaire if you picked your projects right.

The problem they started to think about was that some of the best engineers wanting to get to the top of that bell curve and getting richmond that they had to work with some of the crummy as engineers -- and get rich meant that they had to work with some of the crummy asked engineers so they could look better.

They did not want to work with the best and brightest if they were the best and brightest because it would make them look bad when he came to compensation.

This is microsoft's effort to address that.

But to your question of timing, very interesting that they are doing this as steve ballmer is marching up the door.

A lot of people at microsoft have expressed concern that the next ceo might have different plans.

It could tie the hands of the neck ceo, or they may come up with something entirely different.

Doesn't yahoo!

Used this system?

A lot of companies do.

Possibly one third of fortune 500 companies.

Really?

This is the thing that made jack welch so admired at ge.

The idea was to get rid of your worst people every year, don't keep the stragglers around.

It seems very not like silicon valley.

Yes and no.

Silicon valley eats its young.

They like to get rid of the users.

It can be a tough place to work and those who do well are greatly rewarded.

But microsoft has manipulated the system to put out crummy products.

We will see what they come up with instead.

Facebook acquired instagram in april of last year for nearly $1 billion.

Since then, the photo sharing service has grown from 30 million users to 150 million.

My next guest calls the instagram purchase increasingly irrelevant for facebook.

Benedict, my next guest, you say that it is not as great an acquisition as it looks, but that it is a relevant.

Why?

When it was bought, it look like a major strategic win, because you had instagram photos on facebook with a core function . the problem is, instagram is growing really well and facebook is sharing many as well.

What happen if there is not just one alternative product.

The nature of the smartphone and the mobile platform is that you could have dozens of different products all plugging into photo, into push notifications, etc.

Facebook did not find "the" photo service, but merely one of them.

We did a survey and three quarters of u.k. teenagers are using the social network, but half of them are using more than one.

They did not solve that unbundling problem for the service.

Snap chat and others have no intention of selling.

What should facebook have done, or what should they do now?

The crisis for facebook is the mobile opportunity so big that [indiscernible] it doesn't seem that people will give up on using all these other options and go back to facebook.

And it looks like they are finding other ways to monetize.

Just because they are not the only way that people are using does not mean that if that is not doing very well.

They are doing very well.

What if other companies came out with a post to contradict yours saying that he thinks instagram could actually be one of the best acquisition ever?

One of the things he points to is the monetization potential of instagram will stop of course, that is just beginning.

What about that?

Snap chat, at least, does not make any money.

I think what we see is a range of different marketization strategies that flow out of different products.

A product like twitter or facebook or instagram, you have one set of monetization options.

And then you have another set of monetization options with other companies.

It is not like there are no monetization options.

They are just different.

One of the things you could say about instagram is that it is not the same.

What you actually find is that users are using all of these products for everything.

But also photographs and using instagram to arrange for drinks that evening.

People are swapping their usage of these products.

Advertising comes into play as well.

Where does this leave twitter?

We know they tried really hard to buy instagram, but lost to facebook.

I think twitter is off on its own in terms of an operating model.

It is not any particular user model.

It is kind of a blank canvas.

Everyone logs into twitter and you get this blank screen and you say, what am i supposed to do now?

That has been a challenge to their growth.

On the other hand, when you are in there and you are over that hump, you have this very engaging experience.

For some people it is about media.

For others it is about music.

It is about all kinds of things.

In retrospect, i think instagram would have been a great acquisition for twitter, but it does not seem like twitter needs that to become a communications channel.

Facebook is now the most dominant of all that we have discussed.

But down the line between facebook, twitter, snap chat, web chat, which do you see becoming the most dominant?

It seems that facebook will be the single largest project, maybe just like yahoo!

Remains the single largest portal.

But it does not necessarily mean it will have dominance on the desktop.

That is the message of mobile, with its much larger environment and the barrier switching between.

Social networks are sticky in different ways.

I don't think he will necessarily see one big winner.

You also see a lot of regional variation.

Facebook kind of nailed social on the desktop, but no one has mailed it -- nailed it on the mobile yet.

Thank you.

Coming up, we go out on the pier to show you how high tech reviving a 50-year-old motorcycle brand.

? we have some breaking news to report.

The new blackberry ceo posted a message to blackberry users.

In the note, he says the company has significant financial strength and is not dwelling on the past.

He writes, "i know it will take time, discipline, and tough decisions to replicate like perry's success and we are ready for the challenge -- blackberry 's success and we are ready for the challenge.

A dash for the challenge." when the indian motorcycle debuted it was the motorcycle to have.

But then it went under to harley-davidson motorcycle.

How do you revise a 50-year-old motorcycle?

Indian motorcycle was resurrected.

Reviving this brand was interesting in this era, because it used high-tech 3-d printing and white light scanning to make it happen.

The ceo joins me now.

Welcome from the wiles of minnesota.

The bikes -- i toured your factory like 10 years ago and those were great, but these are gorgeous.

How is this different from how it might have been done even 20 years ago?

In 1901 when bikes first came out, they were leading edge technology at the time.

The brand has so much innovation, and historically we have to bring that out.

When we thought about what to do with this by, we relied on the experience we had with victory for 15 years, but we also have tire pressure monitoring, abs brakes, 111 cubic inch thunder stroke engine.

Is that -- that is for going fast.

That is what the bikes are for.

We have a phenomenal team behind at.

We have some of the best technology behind 3-d printing in order to bring consumers to try it very quickly.

We have several machines and rely on a lot of suppliers for it as well.

What kinds of things were you able to do with those technologies?

We actually built an entire bike using 3-d printing and rapid prototyping.

Really?

We would have -- we have, what i would argue are the best clay designers in the world.

We went from design to finished in three months.

Compare that to what you have done in the past.

It would have been impossible.

10 years ago we were looking at 15 months process, and we were able to do it in less than three now.

The indian brand stands for so much throughout history and victory is a bike meant to ride.

It is a great performing bike and is an alternative to some of the japanese bike.

But indian goes to the heart of the market.

We are excited to be bringing this bike back.

A bigger market than victory?

Victory does not compete with some of the classic him -- laughing cruisers in the industry, and -- with some of the classic cruisers in the industry and now it does.

Wow, this thing is awesome.

I know you have something important to say to me, but i cannot hear you, and i don't really care.

I would like to see you take off on that thing, cory.

Wear your helmet.

The helmet laws are kind of important in california, aren't they?

You look good.

We will have more "bloomberg west" after this break.

? x this is "bloomberg west." i'm emily chang.

Best buy is getting its groove back.

It is up over 270% in the s&p 500 year to date.

Order that could be due to the store strategy highlighting major brands like apple and samsung.

Sam grobart has this look at the new best buy.

Pop quiz, everybody.

Can you name for me the single best performing stock in the s&p 500 in 2013? it is these guys, best buy.

They are up more than 270% this year.

Let's go in and find out why.

There are many reasons why best buy had such a banner year in 2013. let's go take a look.

Electronics companies are not just selling gadgets.

They are now trying to sell an entire ecosystem, and here at best buy the store is pursuing a store within a store strategy to show off all of one company's products, like this one from samsung, all working together in perfect harmony.

They can teach you how to use them.

And samsung is not alone.

Microsoft, google, sony, and apple as well.

It used to be a company like microsoft only sold one kind of thing at bass -- at best buy, some software.

And now they have moved on to much more extensive hardware, and with the purchase of nokia, microsoft is also looking to sell a lot of smart phones as well.

And google is in the same boat.

They started out as a search engine, and now they own motorola.

It means both of these companies are going to stores like best buy more than ever to get as much of their product in front of as many as -- as many customers as possible.

Do you see all of the cds and dvds?

This used to take up a lot more space.

But recently, the company has been getting rid of low margin products.

Wise l and 1199 -- $11.99 new kids on the block cd when you can sell a vacuum cleaner?

I'm strapped -- i'm shocked that they still sell the new kids on the block cd.

Inside the google of china is on at 9:30 p.m. eastern time.

You don't want to miss that.

? x welcome back.

I'm emily chang.

Coming up on the later addition of bloomberg west, netflix's homepage is getting a facelift with anime at designing a richer -- with the aim of designing a richer experience for tv viewers.

That is later today at 3 p.m. pacific, 6 p.m. eastern.

And it is 56 past the hour which means bloomberg tv is "on the markets." alix steel has more.

The s&p continues to grind higher, and the dow jones also flipping into positive territory.

We have janet yellen testifying tomorrow before the senate banking committee.

More sugar for the markets.

Good news for stocks.

Two movers for you, the first is macy's. posting a third-quarter profit that topped analyst estimates.

The company said better local selections helped to boost sales.

And ceo harry lundgren said macy's is entering the fourth quarter with confidence.

Also, lulu lemon.

The athletic retailer shares are climbing after j.p. morgan gave it an overweight rating.

And the company posted a video on youtube in which it apologized for blaming problems with yoga pants on women's bodies.

And doubled the number of americans on drug therapies.

For more what this means on the pharma sector, let's bring in our guest.

What are the new recommendations?

I very much doubt you have high cholesterol, but perhaps your have been for the past couple of decades trying to excessively get their cholesterol below the level of 100. suddenly overnight, that is seemingly out the window and patients will be advised from here out to take statins to lower their cholesterol whenever the doctor deems there is a health risk.

That means overnight, nearly double the americans will be candidates for statins.

33 million americans, or 31% of the adult population.

That is a huge amount.

Also, since hitting a number is no longer the goal, there will be a lot fewer blood trusts -- blood tests.

It a lot more people possibly wanting very medication.

It is kind of a drug braced for cholesterol.

There will be winners and losers and the winners will be the statins.

For example, crestor, astrazeneca, and did you know that crestor is the only one of the major statins that has a major statins e lipitor is still bringing in about -- is the only one of the major statins that still has its patent full stop lipitor is still bringing in about $1 billion a year.

Merck is the drug that works by

This text has been automatically generated. It may not be 100% accurate.

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