Tech Valuations Too High?: B-West (5/16)

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May 16 (Bloomberg) -- Full episode of "Bloomberg West." Guests: GSV Asset Management's Michael Moe, University of Florida's Jay Ritter, TrueCar CEO Scott Painter, Autodesk CEO Carl Bass, MIT Center for Transportation and Logistics’ Dr. Yossi Sheffi and Imax CEO Richard Gelfond. (Source: Bloomberg)

Live from pier 3, this is "bloomberg west" where we cover innovation, technology, the future and of business.

Interest just learning to open the revenue spout.

Have they are risen to high-end too fast?

They have put a locker in the middle of downtown san francisco.

What is there and what might be inside.

First, editor-at-large cory johnson with a look at your bloomberg headlines.

The founder of mogg suing beats.

Apple is in advanced talks to buy beats for a reported $4.3 billion that could be announced next week.

Apple supplier foxconn says halting production of the vietnam fact rant on monday for safety precautions after a wave of protest swept the country.

Rights broke out at various factories over an oil rig.

Samsung is rebranding it as terminal samsung galaxy s5. they will deck up the terminal from end and with digital screens showing the new phone.

The promotion starts on monday.

Back to the lead story of the day.

A rocking time in the public market but valuation of many hot startups are soaring and show no signs of cooling off.

Uber in talks to raise a more funding nearly tripling its valuation from just last year according to people with knowledge of the situation.

In the meantime, pinterest has just raised another $200 million giving it a valuation of $500 billion up in just the last seven months.

Are these companies really worth this much money?

If so, why aren't they going public?

Jon erlichman is with us from l.a.. university of florida finance professor jay ritter joining us from gainesville, florida, and asset management founder and chief investment officer here with us as well.

Everybody, thank you for joining us.

Michael, i will start with you.

$5 billion for pinterest, $10 billion for uber.

Are those fair?

Investors are excited about those two in particular because they have enormous network effects.

You have fanatical support and a whole ecosystem.

You are looking at the growth and that is why they are putting this type of valuations on there.

I know you do a lot of research on these numbers, j. what do you think about these two particular companies and the valuation going up so much in such a short time?

I would echo michael moe's opinion that some of these have network effects.

The valuations are based upon optimistic assumptions, but google has demonstrated just how profitable targeted search advertising can be.

Pinterest has the potential to make a lot of money with that targeted search advertising.

Why do these venture capitalists want to put so much money into these companies at such a high valuation?

Pinterest is just starting to make money.

Over we know makes good money.

-- uber we know makes moeny.

Guido knew of there even close to turning a profit.

What's interesting is one of the dynamics i notice, and mike you spoke of this, you see different kinds of investors in these late round, mezzanine e or f round.

These are investors you would not normally see in things, fidelity, t rowe.

They play all rounds but i think you see a lot of these that would have gotten into the public marketplace at fidelity getting involved now.

You have a very interesting business that plays in this as well.

Fidelity, t. rowe price, blackrock's of the world are getting involved in companies that historically, the good old days, they would have already gone public.

They have done an amazing job in investing in growth companies.

There has been a real void and you see the hedge fund stepping into that void and they see it as a way to get a toehold in great businesses earlier.

There still a gap in the marketplace.

A company like interest will be competing for ad dollars with the likes of google, facebook, twitter.

Jon erlichman, how do we know for sure that they're going to be able to win those ad dollars?

I think they are in a great position because people go to pinterest with intent.

One thing that makes google so valuable is the thing that you go there and search for something specific.

That's why, in some ways, there's a certain amount of pinterest envy over at google.

I think it's also why this is not necessarily a conversation about the valuations being multibillion dollars.

It's more about the fact that you have venture capitalists who are hungry to invest because they have money to put to work.

There's scarcity and the fact that there's only a few companies that look like interest and -- pinterest and uber.

If they don't invest, someone else will.

Are we in a bubble?

What makes what's happening now any different than what happened a decade and a half ago?

There are several things different.

One thing that's a bit similar.

As was just mentioned, the fact that you have a lot of growth capital and esters with money to spend has been pushing up the evaluation on some of these -- pushing up the valuation.

I would make a distinction between companies like pinterest and uber that have a niche network effect aware, potentially, they could be very profitable without competitors coming in and severely eroding the profit margins.

On the other hand, we have more concern about a cloud storage company where the barriers to entry aren't there.

If we go back to the late 1990's -- actually before the tech bubble reached its height, in 1996 and thereabouts, there were a number of telemarketing companies that went public.

At that time, a lot of companies were outsourcing telemarketing and a number of them went public.

There were very high valuations reflecting very high future profits but the barriers to entry just were not there.

In every single case, public market investors wound up with negative returns.

Collect the late 1990's, i remember them well.

You helped start an investment bank.

Why aren't companies this s ize going public?

What's changed?

Likes it's not as fun to be a public company than it was in the 1990's. there are all sorts of issues you deal with that frankly have nothing to do with business.

Like audits.

Sarbanes-oxley has added some regulations.

The money you spend on being public is an enormous commitment.

Particularly with the fast-growing, dynamic businessman you need to spend all your time on growing the business and executing, to take the kind of resource and do something else with it, who needs it?

Particularly when capital is available to fund the growth.

Uber is looking to raise potentially up to $1 billion.

If they can get that on the private market, why would they want to go public?

Twitter, workday, they have been getting slammed.

In the case of twitter, i think because people were comfortable with where they went public at that then you talk about a $40 billion or $50 billion company size and all of a sudden, you look at the math behind these numbers.

There's a group of ad technology stocks.

You've seen a lot of these companies grow and some of them have been acquired.

You are that there are companies that can avoid going public but there are some that went public as they did not want to be the last person standing.

Sometimes you go public because you want to survive.

Part of the story there is also greed.

That story, for the most part, has not worked out well for public market investors.

J, talk to us about what's different about companies going public today versus bubble time?

One big difference is the maturity of the companies going public today.

In general, other than biotech, they have revenue, usually nonprofit, but much more than a business plan.

In addition to sarbanes-oxley, another enormous reason why we are not seeing a lot of small tech companies going public and that is because most of them are never going to go public.

They will sell out in a trade sale.

Getting big fast is more important than it used to be and there are some companies that, as a stand-alone business, they have very legitimate strategies.

Especially for a lot of technology companies, selling out to a big tech player like oracle, google, or cisco systems is a value-maximizing strategy and they are not being built to go public.

They are being built to be sold.

A quick last word here?

One more fact to jay's comment.

During the bubble, $10 million in revenue.

They went public and had a $1 billion valuation and when ankara in less than a year.

It's a very different environment.

Maybe no profit.

More runway because they have more case.

Michael moe and j ritter from the university of florida, thank you all.

The liberating its public debut on the nasdaq, we talked to the ceo about why he made the decision in the public market right now in this environment.

That's next.

? welcome back to "bloomberg west." i'm emily chang.

Tech valuations and deciding to stay private during a volatile tech market, one company turning to the public market is true car , the auto buying website opening on the nasdaq.

This was below the marketed range of $12-14 dollars per share.

Cory johnson is still with me and the ceo and founder is with us now from the nasdaq.

The stock is up 17% since the open.

Why did you decide to go out now versus waiting a little while?

Obviously, it's a choppy market.

The decision to go public is premised on where we are at in terms of building the brand, awareness, and the size of the company.

We've gotten really good at predict ng and forecasting the business at this point.

We have a lot of confidence that we do prioritize profitability along with growth and we have the ability to balance those factors out.

It was definitely a tough process getting out and we are really glad to be public.

We are looking forward to driving great returns for our shareholders.

Scott, as a read about your business, it looks like data-driven, lead generation for the car sales business.

Is that fair?

We're different family generation.

We are not really focused on getting leads to dealers.

We are focusing on helping people buy cars in a different way.

We provide a no upfront cost, no lead cost him a no impression-based cost or advertising with us.

They pay only when they sell a car because we can track a customer all the way through.

We are the only fully market channel.

We're focused on completely reinventing the way we buy cars by empowering consumers with information.

Scott, you guys have a really interesting comeback story.

There was a lawsuit that took you guys to the brain, really, and you sort of changed the way you did anxiety company and truly came back.

Tell us about that and how you overcame it.

It was not a lawsuit.

It was a lot of industry resistance.

The notion of transparency and everyone in the room knowing what everyone paid for a car is a pretty empowering moment.

For a dealer, it's pretty terrifying.

The idea that no one will make a price decision that's a bad one is terrifying.

The intuition about sort of what we represented is where we got into a little bit of trouble as a company.

We had to get right on message and focus on serving dealers as much as we served consumers.

You can see the numbers where you have just seen tremendous revenue growth acceleration.

I'm looking back at a couple years ago, minor growth, then cost were in line.

To what do you attribute that and and how much longer by continue without costs spiking?

It's a powerful network effect.

I think true car is a really remarkable brand for clarifying what we really feel a lot of anxiety about in terms of buying a car, you have the ability to bringing consumers and the dealers on the program sell more cars.

Then they tend to get more competitive on price and they tend to attract more consumers.

You find a real market clearing mechanism but you also have something good for both sides of the equation.

That has driven everything in the right direction.

I understand you've been an advisor to tesla, facing some similar regulatory issues you have faced.

What's been some of your advice to tesla and elon musk?

I have mad respect for what elon musk and tesla has done.

It's a totally different business area we serve franchised dealers wanted it to consumers looking for a new way to buy a car and this is a network of 8000 certified dealers but all believe in doing business a different way.

They believe that truth and transparencies a better way of doing business.

We focus on helping them and the consumer to find a better process and a better experience to save time and money.

Scott, you've raised a lot of money and you have some stock to do something with.

How will this change or business?

We have been a thinly capitalized does this for a long time.

We are a venture-backed startup and tension comes from that.

We are a nascent brand.

When you look back at that, that's about 50,000 cars per month being originated and sold over the platform by true car dealers to customers.

We have a long way to go.

We want to invest in that growth and solve more of the problem.

Today, we're really focused on price discovery and we want to begin to help people through extensions into loans, leases, and trade to bring the deal around the customer together.

True car founder and ceo scott painter, thanks for joining us.

Given the all-american mall a high-tech facelift with the new digital storefront technology and one of its flagship malls.

That story is next on "bloomberg west." ? welcome back.

I'm emily chang.

They have hired a head for the google glass division.

She was most recently cmo of art .com inches experience ranging from calvin klein to coach and bausch & lomb.

We turn now to wiring the world series where we are focusing on how technology is changing retail.

As more people shop on their phones, traditional malls are turning to tech.

Westfield is the largest mall operator and its flagship new jersey mall, there they took the wraps off of some beefed-up touch screens.

Cory johnson, editor-at-large, is back.

Do we want our shopping experience super charged?

Most commerce happens off-line.

The experience is stores starting to change the way even retailers are setting up shop here you check us out.

-- setting up shop.

Check this out.

This is what it could look like in the future.

It's just like a tablet at home accepted seven feet tall.

Testing the digital storefront in paramus, new jersey.

It's windowshopping, exploring and learning what's available.

From there, visit the merchant.

The displays look like mirrors until you get close and that's when the technology kicks in.

4k hd lcd, cloud-based controls for real-time.

Looking in the display window and seeing what's available, you give the shopper the opportunity to get larger than life imagery.

It's the brainchild of westfield labs and a broader trend to innovate physical retail stores.

Walmart has its own and so does target.

The big challenge is making sure we are grabbing the attention of shoppers and people who are time starved.

We want to make sure we have their attention and provide the greatest, most useful experience possible.

Emily, if you think that's ridiculous then you have not sat at a restaurant and text of the person across from you.

Collect sometimes it's easier to find what you want online and you just going to the store and actually see it, know what it looks like.

I can't imagine a world when you look at the shoe on the giant screen.

Maybe you don't know the shoe exists?

Coming up, a giant yellow amazon locker has appeared in downtown san francisco not far from right where we are right now.

What's inside and how could it help amazon's business?

That's coming up.

? time now for bloomberg television "on the markets." i'm cristina alesci.

Let's get you caught up on where stocks traded today.

Little change but in the red for the week after selling off yesterday, investors handed a mixed bag of data and an unexpected drop in consumer confidence offset by a jump in april housing starts.

The russell 2000 index raising -- erasing earlier losses after falling for three straight days.

For "on the market," i'm cristina alesci." ? you are watching "bloomberg west" where recover innovation and business.

He have long been a leader when it comes to the software behind 3-d printing that now they are getting into 3-d printing hardware as well.

My partner and editor-at-large courtney johnson -- cory johnson is back with more.

An impressive corridor and they unveiled a new open source software platform, spark in autodesk the first 3-d printer for them.

Really interesting but you're not just getting into the making of printers for a software company, which is weird, but also redefining the way the architecture works in 3-d printing.

Why did that redefinition need to happen?

For a long time, i had been fascinated by the promise and frustrated by the reality.

We wanted to put together a software platform to move it to the next level.

Pre-android, there was just a whole raft of os for phones and now there are two in the world and you just make your selection.

We wanted to raise the level to that.

What is it that needed to evolve?

3-d printing industry is really only growing at about a 20% rate and has been for the past it teen years.

People are hearing about it and you guys are the leader in the software to design to get printed by 3-d printers but what was it specifically you are not seeing?

You need a 3-d model.

That's what we do.

We make the 3-d modeling software.

There were a lot of hurdles getting from here to there.

The prints were unreliable.

There's a lot of steps involved and it just needed to be simpler.

And without their needed to be more innovation amongst the printers.

By providing this like google has done with the android operating system, there are more people competing in terms of great hardware devices.

Android is virtually free.

What's your model?

Like same.

Virtually free.

Open license, anyone can have it, anyone who wants it.

Are you getting into this business in a big way?

That's a whole sales effort, distribution, supplied the last tick or the resin to go into these things.

I will answer yes, but let's back up a little.

We grew up in an era where people said you could not do hardware and software like it was some unwritten rule.

We've also seen huge successes.

Apple in a big way, google, microsoft xbox is incredibly successful.

Hp, oracle.

I think it will become standard.

As a matter of fact, one of the very few systems in which hardware and software have been divorced is intel.

We are getting into printers.

We will be bringing out the printer later this year.

Talk to me about what this does for the expansion of your business.

You have to have a sales staff on a global level that knows how to sell treaty printers.

The biggest challenge we are finding and it's probably due to where we are in the process right now.

It's easy to build one of something, or relatively easy, than five of something but how do you scale it up to build hundreds or thousands?

Just like all the hardware startups around the san francisco bay area, learning how you take something from a great idea into a great product.

Autodesk itself is going through a dramatic transformation going from selling boxes with cds, dvds, two subscription software.

Absolutely.

The model is completely changing.

We announced it yesterday but it was our second quarter really into the transformation and it's going well.

We have this firm belief that all software will be delivered on the cloud in the future to all kinds of devices including your mobile device.

We are all in on this.

You've been working in this direction including acquisitions over how long?

Relating to 3-d printing and the software that drives 3-d printing, it's really been over the past 18 months.

We've been building up to this.

It's not like we woke up one day and said we wanted to make an announcement.

Specifically the kind of pieces of technology have been the most difficult to acquire?

-- specifically what kinds of pieces of technology have been difficult?

The company says they have a special way that no one else can do this.

What's unique about what you try to build into this intellectual property?

When you get a new manufacturing process like that, i believe it will be a huge change for the industry.

Very generally, 3-d printing is going to be huge going forward.

It's going to come forward through the advances in hardware, software, materials science.

What we are really interested in is when you have a new science, the things you design should be different.

If you can make things differently, you should design them differently.

You should not take in all design and put it into a new material or process.

Who needs to make a coffee cup with a $3000 printer in your arrived that will be ugly and take six hours?

I think what people are saying about consumer 3-d printing is way overhyped.

When he think about industrial 3-d printing, it's way underappreciated.

And economic impact will be way larger than it ever will be in the consumer context.

Is the development of this open architecture will be open the way that clinic's is an improved ride the community that develops on it -- will be open the way that linux is?

My inbox is full of people who are interested in this.

We did not just get to a base level and move on from there.

I think we will be able to move forward.

There is so much that will be done with carbon fiber, ceramics, metal, bio printing.

This will be an exciting change for years to come.

Autodesk ceo carl bass, thank you so much.

Google, amazon, ebay.

They are all going head-to-head when it comes to same-day delivery.

Who will win?

That still to come.

You can watch a streaming on your phone, tablet, amazon fire, apple tv.

? we turn now to the wiring the world series.

From ebay now to google shopping express to amazon drowns, the rates -- to drones, what does it take to make a same-day delivery successful?

Joining me now is the director of the mit's center for transportation and logistics.

He consults with government and leading transportation enterprises on the logistics worldwide.

Thank you so much for joining us.

This seems to be a really hard problem.

Just how hard is it to have a successful same-day delivery network?

It's not easy, of course.

You need to control a lot of moving things away from the factory floor, away from the warehouse and the experience begins on the driver.

Ups took well over 100 years to develop the system that may have.

It takes a while to develop a nationwide system that can deliver on time and, most importantly, at low-cost.

A system like this exist already.

If you have a server farm and a critical part suddenly doesn't work, this company will have a service level agreement with ups and several other companies who will deliver the missing part in two hours.

When you order a pizza, you don't wait two days.

You get the stuff within half an hour.

You pay for it.

You pay quite a lot for the delivery.

This is where the rubber hits the road, so to speak.

It is the cost of the delivery, not the technical ability, but the delivery that will separate the winners from the losers.

How much does it cost?

[laughter] google will not charge anything for it.

Before i say how much it costs, it depends on several factors.

If you could go to a high-rise building and make hundreds of deliveries in the same building, its not as costly as the bring in rural america when you have to drive 20 miles between package deliveries.

It depends on a lot of factors.

The important thing is white are people doing this?

Many analysts would say, who needs them to deliver?

You need your toaster or toy within a few hours?

It is not clear this is solving an existing problem.

Maybe maybe not.

For amazon and google, the reasons are somewhat different.

For amazon, they started amazon fresh delivery of groceries.

Why?

They need to develop the volume of deliveries that tend to cut costs per pound delivered.

They need something that people need every day.

Groceries are it.

Later on, they can have all the packages right.

For amazon, they get something that they always looked for.

Dr.

sheffi, you're talking about the company specifically now.

I've gotten quite used to getting my stuff really fast.

If i can get it on the same day, why not?

You look at amazon, ebay, google, which do you think is best positioned to do same-day delivery very well and cost effectively?

Is amazon?

It's walmart.

They don't do it yet, but walmart has small warehouses, called stores, and fulfillment centers more than anybody else.

When they get into the market -- and i have no doubt -- they are growing faster than amazon in the online market.

My guess is walmart will be it.

If not walmart, amazon is likely to be -- i hate to call it a winner.

It's hard for me to imagine how they will make money at it, but they will control the customer experience and the overall business will grow.

Go ahead, sorry.

I don't understand why google is doing it in the sense that google is picking stock from costco and walgreens and delivering to customers with contract drivers.

It's not their own drivers.

They don't control the customer experience, but they will get a lot of data and understand what's going on.

Who knows what larry and sergei are thinking.

What do you think of amazon drones?

[laughter] look.

It's very hard to forecast the technology will not work.

We are quite far from a time where drones can deliver in your backyard.

It could work in rural areas, but you'd you imagine how many would have to buzz around new york, san francisco, or boston?

But maybe when you are not close to an airport or other air traffic, maybe something like this could work.

I can't imagine.

It sounds like the apocalypse to me.

Anything is possible.

Dr.

yossi sheffi, m.i.t. director of transportation and logistics.

Speaking of amazon, check this out.

A massive yellow locker that had shown up in downtown san francisco.

We will take you there next.

? welcome back to "bloomberg west." i'm emily chang.

Amazon one thing to get your purchases faster to you does not stop with same-day delivery.

They also have the amazon locker program or you can get your stuff delivered to a locker but a giant version of an amazon locker has appeared now in downtown san francisco.

Cory johnson is there checking it out.

I'm right here in downtown san francisco at the edge of the ferry building is this giant yellow box, the amazon giant locker.

Yes, it's a publicity stunt.

Their experience -- they are experimenting with ways to get closer to the customer.

If they're going to pay sales tax, they might as well be closer.

They have lockers in a handful of major cities including half a dozen in san francisco, partnerships with 7-eleven.

If they cannot get things delivered to their front door, they can be waiting at a locker.

There are a social media campaign and codes.

It's part of a broader effort from amazon to get closer to the consumer.

They are moving fulfillment centers, not distribution centers.

They're moving them closer to major cities.

About 60 miles away in tracy, california, they have a giants the film and center and similar ones in southern california.

The locker is a big change.

Amazon fresh, right now which just delivering groceries but they're learning how to take and then bring them to consumers real-time and get their stuff quickly.

Amazon changing from a business that let you buy stuff to a method in which you get stuff.

Mystery solved.

Thanks so much, cory johnson.

I will have to check that out after the show.

Warner bros.

And "don godzilla" hitting the screens today.

Adding to the anticipated success is its release in imax.

Jon erlichman spoke with the imax ceo earlier.

How big will "godzilla" be?

He's a big guy.

Thursday midnight screenings domestically generated $9.3 million at the box office and almost 23% of that was in imax.

The ceo gives more on his expectations.

We actually have quite high expectations.

We look at what the audience connection would be.

Since the one thing everyone knows about "godzilla" is that he's big.

The association with imax is that it's a good experience to bring them in the movie.

We look at the percentage of box office we do.

For this, we think it will be pretty healthy.

Just a put perspective on that, the last time we spoke, "pacific rim" had just hit theaters and opening weekend you generated something like 92% of the overall box office.

Would you be looking for the same kind of performance for a film like "godzilla?" it depends on what the overall gross is.

Expectations are pretty high for the weekend in regular theaters.

The bigger the overall number is and the more screen that opens in, the harder it is to get an index up there like "pac rim." it's a decent comparable, but i think it will be tough to be that type of percentage.

That the film that came out -- both of these are films that came out three legendary and through warner bros.. how important is the studio relationship to you guys?

It's really important.

Warner bros.

Was our founding partner in the commercial film business.

I forget the business, but we've done more films with warner down any other.

They really get imax.

They understand that our organizations are incredibly well-integrated.

Our marketing teams know each other well, distribution, and we know the warner personnel.

In terms of the partnership, we just work together very well.

Also, legendary, as you mentioned, "pacific rim" particularly in china we work so well with legendary and we have a great relationship with their ceo and the worldwide staff.

That's definitely a plus for us.

"godzilla," "transformers," " marvel guardians of the galaxy." but the films coming in imax.

How do you pick them?

What makes a good film for imax?

The key audience is really the fan boy.

We tried to think how the fan boy, would react.

Then we think of the marketing appeal.

A film like "transformers" directed by chris nolan, we can see a connection or part of the dna.

Ideally, we look at the director, the cast, and think how it will appeal to the audience and if it could broaden beyond the fan boy.

Another thing really important is the international appeal.

Almost 60% of our box office last year was international in 58 countries.

We try to do things that really have a broad global appeal and "godzilla" is one of them.

What is the roadmap at this point?

You talk about china and being on the way to be the largest film market potentially for you guys.

How far out could that be?

We think china will probably exceed the u.s. and global box office probably 2018-2019 on a country versus country basis.

Our tracking is extremely good there.

To give you an example, and china we only have about 100 commercial theaters.

--when "spiderman" opened we did 10% of box office on less than 1% of the screens.

We are part of that filmgoing experience there.

As box office increases, it's a very good thing for us.

Our role will go up to about 400 theaters and really have about one third of that open now so we expect good things.

Rich gelfond on imax and "godzilla." you can see it in theater starting today because it's friday.

Tgif.

Everybody have a wonderful weekend and we will see you on monday.

? .

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

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