Facebook's Payday: Lunch Money (07/25)

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July 25 (Bloomberg) -- On today's "Lunch Money," super-charge the day, and devour all that's driving the markets: stocks, bonds, currencies, commodities, options. (Source: Bloomberg)

? live from pier 3 in san francisco, welcome to the early edition of "bloomberg west." i am emily chang and our focus is on innovation, technology, and the future of business.

Facebook appears to have crashed the mobile code bring in north of 40% of its ad revenue last quarter from smart phones and tablas.

If shares are flying high, up the most since right after the ipo.

Ebay goes beyond auctions to help shoppers get same-day delivery on items big and small.

We will see how ebay can get you anything in under one hour.

Chipotle is trying unusual tactic, faking a hack attack.

We are waiting for a news conference from the u.s. attorney in manhattan on today's insider-trading indictment of stephen:'s s ac etch fund for the insider-trading scheme involves more than 20 companies, many of them technology companies and went as far back as 1999. while we wait, we will tell you about the other big stories happening in technology.

Facebook is finally cracking the mobile code at least in the last quarter.

If shares are soaring today, posting their highest intraday gain ever and touching levels not seen since may, 2012, the month it went public.

The company says mobile ads accounted for 40% of revenue, up from 30% and the number of active users grew 51%. overall revenue surged to 3%, $1.8 billion.

Let's bring in the piper jaffray senior analyst at colors of facebook.

He is in minneapolis.

What do you think of this 41% in number?

When a facebook has a lot of control over that number.

Can we say it has officially figured out mobile advertising?

I think they have figured it out.

The amount of upside bay delivered on mobile was outstanding.

You see those once every few years, kind of a story so they have figured out the code.

Next year, 50% of the revenue -- 41% was this year and 57% should be next year and that trajectory will continue.

The good news for people buying the stock today is that there is other things around mobile bay can continue to do.

They can keep this story going.

The ad dollars going to mobile but are the mobile ads as good as they can be?

Spruce media saidclick rates are down by 30%. in the case of facebook, they talked about the click thru rates improving.

Across broader mobile, is moving because there are different types of mobile adds putting -- being put out there.

Some of them work but in facebook's case, they talked about an improvement on the improvementthreu.

I think these products do have a place.

The amount that to get paid -- that they get paid and i mobile ad is less than desktop but that gap will close over time.

I believe we will see mobile surpassing desktop is what you have said.

When did you think that will happen?

It will probably be in the first or second quarter of next year.

At what point will mobile ultimate late top out at.

It will probably between 60-70%. what are the risks that facebook is facing?

What do you see ads the risks in the rise in the stock?

The biggest risk is is less of a risk today than yesterday.

The biggest risk still is in a statement.

-- is engagement.

They increase the number of ads they are showing people in their mobile news the but the amount of engagement did not change.

I think that gives them a license to try to sell more ads.

At some point, people get upset enough that they stop using facebook or to slow their usage.

There was an important statistic that over the last 1.5 year, the time spent by u.s. teams has not changed but that can and then flow over time so that is the bigger long-term risk.

You guys were the ones that put out that study showing that teens are feeling like facebook is too dramatic and looking elsewhere.

Do you question some of the results you've found?

Do you think this was -- will still happen?

It is happening.

You can think about it this way -- they probably did one hour per day on social a couple of years ago and today they might do three hours per day.

It might be one hour on facebook but two hours on other places teens are spending less little less of their social time on facebook.

The time is not growing and that is a trend we need to be aware of.

There's a big opportunity for facebook to monetize that stable time they have.

With the rise of competing services like snapshots and instagram as part of facebook but more and more people are using that -- does that concern you?

Part of the reason why instagram has not been monetized, that is growing relatively quickly.

Twitter plays into the earlier concerns we talked about and that has been growing quickly in terms of the interest.

Ultimately, there are other areas they can get into that are not in the model.

Graph search allows them to look at different likes and what your friends like or a video product or some kind ofe-commerce offering.

They will not do fulfillment like amazon but it enables e- commerce.

Is there enough other stuff besides that they're doing to get as comfortable with some of the nagging long-term concerns about engagement?

Let's talk about the future of instagram.

Mark zuckerberg said they plan to turn instagram into a business with ads but right now they are building the product and engagement.

How interested are you to see advertising and instagram?

Wendy you think facebook will need to start making money off of it?

It will probably be sometime in the first half of next year.

They reiterated on their call that they are spending about $800 million in investment this year just on people in operations.

It is more when you consider fulfillment centers and data but those will yield some products that we will see late this year and the beginning of next year.

It will likely be an ad to detect based instagram product.

We're very anxious to see it because we have to figure -- it will likely be an ad-bnased instagram product.

We think that will be impact will to the model.

What about facebook home and their attempts to turn every and tried to run into a facebook found?

It has has been mixed reviews.

We will have to leave it there -- i need to had to a press conference in new york.

Thank you for joining dollars.

Let's go to new york and the u.s. attorney called a news conference on the insider- trading charges filed against sac.

They employed the many people responsible for what can only be described as rampant insider trading within those funds.

Second, we have filed civil money-laundering charges against numerous sac funds seeking forfeiture of assets to address sac's led guilty and third, we unseal the guilty plea of yet another portfolio manager at sac, richard lee, who this past tuesday, pled guilty to committing insider trader offenses while an employee at sac.


lee brings the number of employees to 8 convicted or charged with insider trading for the benefit of sac.

The indictment to date makes clear is that when so many people from a single hedge fund have engaged in insider trading, it is not a coincidence.

It is, instead, the predictable product of substantial and pervasive institutional failure.

As alleged, sac trapped inside information on a scale without any known precedent in the history of hedge funds.

As described in the indictment, the scope of illegal trading was how deep and it was wide.

It spent more than a decade in time, and bought the securities of at least 20 public companies, extended across multiple sectors of the economy, had benefited sac to the tune of at least hundreds of millions of dollars.

Today's indictment is not just a narrative of names and numbers.

It is more broadly an account of a firm zer tallero as for low returns but seemingly tremendous tolerance for questionable conduct.

Sac became, over time, a veritable magnate for market teachers.

The sac companies -- for market cheaters that almost never walked the walk.

That is why today the institution itself rather than just individuals stands charged with wire and securities fraud.

Before i review some of the charges in detail, let me introduce our partners in this investigation and prosecution.

I'm joined by our partner, the fbi . i want to thank george and april and they're dedicated team.

They help not just on this case is that all the cases that led us to this point.

. i want to acknowledge the career prosecutors from my own office.

The asa handling the prosecution.

I want to acknowledge the hard work done by the chief of the criminal division.

Let me take a minute or two to talk about the particulars of the charges and guilty plea.

First, the guilty plea we announced today is by one of sac's pour polio managers, richard lee.

He co-manage a $1.2 billion portfolio focused on special situations like mergers and acquisitions.

While still a portfolio manager at sac, he obtained inside information with respect to various securities including yahoo!

And 3-com corp.. the particular story of richard lee's time at sec is emblematic of the broader culture problem at the fund.

As alleged, the sac companies hired richard lee despite a reputation for insider trading.

He was hired over objections from sac legal department despite specific warnings during the application process that he had improperly been part of an insider-trading group at his prior employer.

Predictably, from virtually the inception of his employment at sac in 2009, richard lee began to trade on inside information.

This is conduct that he pled guilty to two days ago.

He is continuing to cooperate with the government's investigation.

Second, as i mentioned, this morning, we filed a civil forfeiture action and civil court.

It alleges that the sec companies engaged in money laundering by combing the profits from illegal insider trading with other assets to use the profits to promote additional insider trading and transferring the profits.

Our action today does not see to freeze any sac assets and we are always mindful to minimize risks to third-party investors.

We have not restrained any money and we will discuss with the company a reasonable method going forward to protect all parties'legitimate interests.

The indictment charges the four sac management companies with insider trading.

If you look at the simple chart to my right -- you see the four-and companies were these.

As i mentioned, the account now is up to eight individuals as either portfolio managers or research analysts while at one of these management companies and they have either been charged or pled guilty.

Six have been convicted and eight are -- and two are awaiting trial.

Richard lee is the most recent portfolio manager at.

The is not even the first richard lee cause we have one over here who has pled guilty with ongoing insider trading at s ac.

Why are the sac entities being charged?

In addition to individuals, some times the organizations that employed them are criminally culpable and merit prosecution, too.

The sac companies are being held accountable for the criminal acts of some money of their employees because the misconduct was pervasive.

Those employees were acting for the direct financial benefit of the firm and because the company did not effectively police its own people.

As alleged, the s ac companies went out of their way to find employees with personal networks of company insiders but did not correspondingly consider whether the employees were using such contacts to obtain inside information despite red flags.

John horvath was an analyst in the tech sector.

The hiring report on him tated that he generated investment ideas by "mining is industry contact network."last september, he pled guilty to mining illegal information from his network.

More generally, the failures of sac to police itself are legion as alleged in the indictment.

Red flags and warning signs were repeatedly ignored until late 2009. the compliance department rarely reviewed electronic communication containing suspicious terms and failed to detect the insider-trading by any of the eight sac employees charged to date.

In its entire history, sac identified possible insider- trading by any of its employees just once.

On that occasion, sac not only failed to report the matter to law enforcement are regulators that those individuals were not terminated from employment.

So far as we can tell, sac never reported suspicious trading to any regulator or criminal authority ever.

The company reaps what it sows.

Sac seeded itself with corrupt traders empowered to engage in criminal acts by a culture that looked the other way despite red flags all round.

Sac deliberately encouraged the no-holds-barred pursuit of an edge that literally carried it over the edge into corporate criminality.

Companies like individuals need to be held to account and need to be deterred from becoming dens of corruption.

To all those who run companies and value their enterprises, but pay attention only to the money their employees make and not how they make it, today's indictment hopefully gets your attention.

It is my honor to call to the podium, the head of the fbi in new york.

Thank you.

Good afternoon, i have a short statement to read.

This case is about corporate conduct and corporate responsibility.

The indictment says it best -- illegal conduct by employees and institutional indifference resulted in insider-trading that was substantial, pervasive, and on a scale without known precedent.

Sac capital and its management fostered a culture of permissiveness, to be blunt, sac, through the actions and inactions of its management not only tolerates it cheating but it encouraged it.

Management at sac capital including the firm's owner actively recruited portfolio managers and research analysts -- you are watching the u.s. attorney's office delivering the charges filed against sac capital.

The u.s. attorney said sac traffic on inside information on a scale never before seen at a hedge fund.

Domenick chu joins us from new york.

What is your take away?

They are making a very strong push this case.

They want to get press and what the american public to understand they are not being soft on white-collar crime.

This is what the federal investigators call the most unprecedented insider-trading scheme since october of 2011, the case against rahaj gupta.

Sac capital, the company itself, is being indicted.

But founder steve cohen is not himself being indicted, just the company, the limited partnership.

Four counts of securities fraud, one count of wire fraud, also the u.s. claims is insider- trading scheme involved 20 companies and back as far as 1999. they talk a little about the compliance department that did enable sac capital to say it had a compliance department but whether or not it was effective, that remains to be seen.

This is a huge deal only because it is such a high-profile case.

There are not steve cohen will actually be charged formally has not yet been determined.

This indictment only covers s ac capital.

Steve cohen, that man himself, is not being indicted, only his head -- only his hedge fund.

We will bring you more details as they become available.

Thank you.

We will continue to follow this story as it develops.

You can tune in to that press conference on bloomberg.com/tv.

Let's move onto each day.

Ebay has become much more than an online auction house.

It is finding new and faster ways to meet consumer demands in an increasingly crowded e- commerce marketplace.

It is called ebay now and was expanded this week.

It promises to deliver purchases in just under one hour.

How do they do it?

Jon erlichman tracked two different packages to find out.

Do you need something now?

If you live in the bay area or the big apple, james or meaghan be waiting to answer your call.

I just got a call.

Portable speakers so it looks like we are going to best buy.

They are shopping valets for ebay now, the newest addition to the online marketplace.

It is an experiment in instant delivery.

Using a mobile apps, customers in san francisco, san jose, and your purchase products from nearby retailers and a valet and delivers the goods and under one hour.

Predominantly today it is price.

You think about ebay local, that connection a buyer and seller takes them to the next level.

Ebay is expanding now service from mobile to the desktop.

Working professionals like this service.

Over half of our usage are between 9:00 this 5:00 during the day and the retailer has been more prominent and people go in and shot by stohr.

As they evolve the experience, the company hopes to expand its shopping base.

The ebay dream is to be a competitor to amazon.

It is focused on solving human problems and the need for convenience and immediacy.

That is not a new trend in e-comers.

Barnes and noble and amazon offered select same day delivery.

It is not clear whether the venture will be profitable.

The infrastructure is immense and the margins are small.

This is a hard business to be in.

My guess is that they do this as a way to be on a trend as a way to bring in new customers.

We believe we can build a business that is profitable and good for ebay and the retailers.

It will launch now in dallas and chicago on the road to seeing if this can benefit their bottom line.

Jon erlichman joins us now from los angeles.

Amazon reports earnings today.

How does this compare to what amazon is doing?

The same way that ebay is spending to help build this business, you see it's not that at amazon -- spending a lot to make a better mode around this business whether it is this spending on the fulfillment centers to get the goods out faster for spending on content the same way that netflix does.

This helps your sales overall.

In the case of amazon, it hinted revenue could be north of $16 billion in this quarter but it comes out at the expense of profitability in but will be important to watch.

Whenever amazon reports, we talk about the razor-thin margins.

How long can amazon key spending like this and operating on such thin margins?

They have done it for a long time.

If you look back at recent quarters, a good quarter is when you've got an operating margin north of 1%. and stronger evidence of growing margins this quarter, maybe they are going further down the road.

When you look for the stock performance of the amazon, it is trading around $300 and has been one of the best performing stocks in the world of technology this year.

In 2009, it was $85 and now $300. most investors seem on board that the strategy baby because it makes amazon that much mightier -- maybe because it makes amazon that much mightier.

Thank you.

We will be all over amazon earnings when they come out after the bell today.

Tune into the late edition of "bloomberg west." let's look at what is moving in the markets.

We see green across the board for the u.s. equities.

All the major indices are eking out some gains.

The nasdaq is powering hire things to companies like facebook and their better than anticipated results.

Some of the names you want to watch are all coming up so keep it right here on "bloomberg west." ? this is the early edition of "bloomberg west,"and you can catch as an hour later time.

Excessive speed is being looked at as the cause of that deadly train crash in northwest spain.

The train, off the rolls and smashed into a concrete wall as it rounded a bend.

It was traveling at around 118 miles per hour in an area with a speed limit of 49 miles per hour.

At least 80 people were killed.

President obama says he had a candid conversation about human rights abuses with the president of vietnam at the white house.

Labor unions and worker advocates have been urging vietnam to improve its human- rights record.

The two presidents talked about trade, climate change, and relations with china.

The faa is ordering inspections of emergency locator beacons on boeing 787 dream miners after it was linked to a fire at london's heathrow airport.

United is the only u.s. airline that currently flies the dreamliner will have to complete the inspections by august 5. chipotle tried out an unusual marketing tactic last week.

It's twitter account appeared to have been hacked but it turns out the hack was a hoax.

Carol masser has more.

Chipotle does things its own way.

What happens?

It is definitely a trademark of the company.

Last week, it's twitter account appeared to be hacked but it was all a hoax.

It was another unconventional way to market itself.

This is a company that does not rollout big national tv ad campaigns.

This twitter hacking stunt was reported yesterday.

As it was explained to day, they said this was something we orchestrated as a broader 20th anniversary promotion.

Every day for 20 days, they are including puzzles.

We embedded one of those answers and a string of 13 tweets of gibberish to get people talking about the twitter feet and make the close easier to find.

It says it is something big orchestrated and the twitter feed was under their control the entire time.

I'd love to meet some chipotle.

There is always a line out the door.

Do they need to do this to get attention?

Do you go -- you go to the ones around the city and they do have lines.

Chris arnold told me it achieved what they hoped it would.

He says the aim was to spark conversation and to call attention to that strength of tweeds that would be relatively easier for people to find the answer to the puzzle and did did that.

He says many people were on to what they were doing.

Buzz feed had a headline out sunday that either to public does not know how to use twitter or they know exactly how to.

But with her account was a stream of consciousness, a research for an avocado store in colorado.

There tweets received more than 3700 new tweets per hour and that is what leveraged their brand.

We will talk later to an expert who says this smacks of desperation.

Did this really work?

Cit public came out with earnings and their numbers are strong -- chipotle came out with earnings and the numbers are strong.

They did add more than 4000 followers that day of the hack compared to 250 followers per day.

It is unconventional but it garnered them more followers than i think they should get out 3 burritos.

They did.

Thank you.

We turned back to amazon and what to expect from second quarter earnings later this afternoon.

We showed you how ebay is taking a page out of the amazon books with ebay now, promising to deliver purchases in under one hour.

What about smaller e-commerce companies trying to break into this crowded market?

With me is a jeremy levin.

He is an early stage investor in pinterest and linkedin.

Thank you for joining us.

You have an interesting theory about the rest of the e-commerce companies?

For the most part, i think amazon is a natural monopoly.

Many people don't think of e- commerce that way because it is retail.

On line, real estate does not come into play.

It is a winner-take-all business online.

My working hypothesis is that any e- commerce business in the u.s. or amazon as strong as no chance.

If you are selling goods made by third parties, s, consumers care about the price and how fast they can get it.

It is virtually impossible to compete with amazon because over time, amazon will have a bigger share of e-commerce and many of the start-ups will ultimately go by the side of the road.

I think we will see a lot of bankruptcies that you think companies like gilt, fab all going to go bankrupt?

It is hard to say every one of them will go bankrupt.

I think they will have to massively change their businesses.

To the extent they continue to sell products made by third parties would brands in also.

And amazon, there is no compelling reason to buy it for someone else.

You will not get it cheaper and faster.

You will get it cheaper and faster from amazon.

I think the companies will change their model if they want to survive.

They will make more of their own products that you cannot find an amazon.

Will go from e-commerce to essentially product companies.

We don't invest in e-commerce companies that are selling third party product.

We have a business called one- stop and that is helping brands like true religion or others who want to sell their own products on line and won control of their own web site but are not able to do it themselves.

We have a company based in canada which has 50,000 retailers using its software and use the software to sell their products on line.

Most of these companies have products that are not sold on amazon so it is a different piece of the market.

You were an early investor in pinterest.

It has e-commerce potential.

That has been one of their options, will that happen?

Right now, they are focused on making consumers incredibly excited about the service.

Over time, my focus and amazon is not an indictment of e- commerce.

Many people are looking at the macro because e-is continuing to grow and you have to think about what element of e-commerce to you want to invest in.

Why is pinterest worth $2.5 billion of that does not make money?

People think a big potential.

Some businesses have more than others.

We are investors so we are excited about it.

They are working on some neat things that only time will tell, what other trends are you interested in?

I am most excited about the idea that small businesses which have had no access to software can now buy it.

Shopify is an example.

If you are running a $2 million retail shop, you had no chance of building a decent on-line presence.

. shopify, you can have something that is really compelling.

This compares to other categories across the board.

Thank you so much for joining us today.

? this is "bloomberg west." the house rejected a bed last night to limit funding for the national security agency but at only after a stiff today.

It is a clear sign that federal programs are under intense scrutiny after edwards snowed in information about them and the end result could have a huge impact on tech companies.

Check point software sells communications equipment.

It created some of the first fire wall tools and help these companies fight off hackers.

The ceo joins me now.

The telecommunications sector is on fire and the cyber security stuff, sourecefire bought by cisco and you tried to buy them at a lower price years ago.

We know internet is critical for any business.

We must defend our own companies.

What did you see in sourcefire?

Many years ago, it was pioneering certain types of attack prevention.

Today, we have capabilities that became bigger and prevention.

In particular, was there a notion of the source of attack?

Was it eastern european hackers going after credit cards or nation state hackers?

I don't know if it is a different kind of problem.

Once the technology is known for an attack, everybody knows it.

It could be the government or someone stealing a credit card or someone maxtor having fun.

You guys have done a lot of work in business and government and have seen the minister of the two types of businesses.

We are intrigued about the spending by the nsa on cyber- security and cyber offensive things.

In israel, you guys of the pioneers.

When you look at this business, do you see this as a growing technology business?

The discussion is always about civil liberties.

I see this as a big technology business.

Our government business is not huge.

We are focused on the commercial side and selling to everyone including the government.

We don't have any special teams serving the government.

In terms of spending, i have not seen the government overspending on it security.

Governments are hiring a lot of people to learn how to protect these systems.

Is it spending on equipment?

I have not seen a lot of it.

There has not been a lot of money is available to companies selling to government.

You don't know what they will do with the things they buy.

In our case, we do many things to defend.

We don't have tools to attack or invade privacy.

When no have to stop attacks from happening.

-- we know how to stop attacks from happening.

It's a fascinating business and it is growing so rapidly.

Thank you very much.

Thank you.

This network is calling to beef up a tougher dvr, which is next on "bloomberg west." ? this is "bloomberg west." dish network has opened up its hoooper dvr allowing trusted partners to access its interface.

Cory johnson has more.

Hopper is the commercial- skipping technology?

Yes, it is interesting.

Many people watching tv are serving on their tablets and phones and the dish is thinking about this and trying to make that part of the user experience.

It is calling on smart phone developers to help.

Joining me to talk about this from denver is the senior vice president and product manager of dish.

Talk to me about how people watch tv now.

Thanks for having me.

We have been looking at how consumers have watch tv and what we have noticed is more than half of consumers either have a smart phone or a tablet while they're watching tv.

They are using these devices to find content or find shows they would like to watch and find information about the show bear watching.

-- shows they are watching.

That is the trend we see and we are trying to leverage on that trend.

I don't understand the experience of hopper and what i would be looking at.

Dish is the third largest pay-tv operator with 4 million subscribers and the hopper error of dvr we lost last year and has won numerous awards like ces.

Customers to have the hopper can record up to 2000 hours of shell and watch in one room and another room and has built-in features that lets -- that allows you to watch tv live and recorded in a mobile device.

One of the other apps we offer is called a dish explorer.

You can download the ap [p. did you are in front of the hopper, you can access the guide with that change your tv or you can't search.

-- or you can search.

I can even find the games on tv or the hottest shows and social media or the show's my friends liked.

That is intriguing stuff and i can imagine that it will be a difficult way to harness this and sell ads.

We're out of time.

Thanks very much.

"bloomberg west"will be back after this.

? welcome back.

Coming up on the late edition of "bloomberg west,"most companies are making the jump from wed to mobile but what about the other way around?

Flipboard is now available on the web as well.

We will be all over the amazon earnings after the bell as well as zynga.

It is time for "on the markets." thank you.

This is our markets are trading currently.

We see the major u.s. industries right around flat.

-- index is right around glass.

-- indexes right around the flats.

. look at the names we want to highlight.

Home builders, all three home builders are among the biggest laggards in the s&p 500. earnings were reported that disappointed.

Pulte and d.rghorton is pulling down all home builders.

One oak is one of the biggest movers in the s&p 500. it will spin off its gas distribution businesses.

This move will allow the company to raise dividends and allow for more cash flow.

With all the earnings today, it is easy to overlook the important economic data.

To help us break down the numbers are michael mckee.

Jobless claims happened once a week but you are focused on something different.

You can overlook jobless claims to day.

There was a lot of furloughs in july so the numbers are not meeting call.

A big increase in durable goods and a lot of that is boeing.

We came off of the paris air show and that is where they ordered planes and that is showing up in the boeing numbers.

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


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