Live from pier three in san francisco, welcome to the early edition of "bloomberg west" where we cover the global technology and media companies reshaping the world.
We focus on innovation, technology, and the future of business.
Twitter is planning to go public.
The company tweets it has confidentially filed for an ipo, but it is keeping all other details secret under new sec rules.
We ask just how much twitter is worth.
And what is more important to the twitter ceo, getting to one billion users or $1 billion in revenue?
I asked him in an exclusive interview.
Just days after it was revealed , apple's two per iphone -- cheaper iphone 5-c, some seem to be giving it away.
Twitter suppresses the tech world and and ounces in less than 140 characters that it has filed to go public -- twitter surprises the tech world.
The news came earlier than expected for the seven-year-old company with more than an estimated $583 million in revenue.
But the news left many questions unanswered.
Twitter took advantage of new rules under the jobs act which allows certain companies to file confidentially with the sec.
Leaving the company's books closed-end financial details unknown.
One detail bloomberg news has learned is that goldman sachs will be the lead underwriter for this offering.
Cory johnson joins us from outside twitter headquarters.
What more can you tell us about this confidential filing, and what do we not know yet?
We do not know much at all.
It is kind of amazing that this confidential filing is not confidential.
It exists thanks to twitter tweeting it out and we know people are getting excited about the ipo.
There talking about the business and looking at the business without any hard facts.
We have heard estimates of $5 million and revenues.
We do not know if the money -- company is actually profitable or not.
All of this will remain as they have conversations back and forth with the sec, making sure they are accounting on everything else and their risk statements are clearly expressed , at least satisfactory.
Only at that point in time will twitter actually that the document be public.
And 21 days later, do the ipo, 21 days or more.
We have heard a lot about the jobs act with this filing.
Tell us more about what that has to do with the actual ipo and the fact that there are also reports twitter actually filed several months ago.
What does that say about the timing?
The "new york times" saying what are started this process a few months ago, telling employees yesterday that they had filed.
The jobs act is going to get a lot of scrutiny here, maybe in ways that it did not when they actually passed this provision of the jobs that.
This provision was meant to make it easier for companies to go public.
What that means is it will reduce the amount of time people can examine the companies, reduce the amount of time investors can model the business, understand the business, discuss the business.
It is reducing things that investors might want to do and take their time with your at it is shortening that process into a 21-day window.
But, yes, it will help a lot of companies, good and bad, go public.
But it will be tougher to analyze the business.
Let's talk a little bit more about the business.
How is twitter changing the earnings landscape?
Well, we know that twitter has had a lot of success with their sponsored tweet business and is experiencing -- experimenting with different ways to put ads in their service.
They are talking about the ways they have monetized in mobile and physics as they have had as a mobile application and revenues in mobile.
It is in ways that have been difficult for other companies.
They found lots of different successful ways to generate revenue, we understand tiered we will get a sense of that when those numbers are finally published.
It has been set in the past that twitter makes more money from its mobile app than it does from the internet.
Facebook 80 money from mobile when it went facebook -- facebook made zero money when it went public.
Let's go to l.a. and jon erlichman who is standing by.
Obviously twitter would not be going ahead with this if it did not feel confident about its growth.
Tell us how big twitter is.
How fast is twitter growing?
It is growing quickly, and there are always lots of factors that go into an ipo.
Sources said months ago that one of those factors would be market conditions.
Well, guess what, the market is pretty hot for tech stocks.
Facebook and google, pandora, even zynga -- the returns on all those well-known technology names has helped give the check mark on that box that is market conditions.
But on the issue of the business itself, look, you have seen a whole bunch of ad products rolled out by twitter that are helping to bring in that revenue that people are estimating on.
One of those obvious ones would be the promoted tweets that you are talking about.
It is a very simple product in a lot of ways.
It shows up in your twitter feed , and if you engage with it as the twitter user, and that means clicking, replying to it, retweeting it, favoriting i t, it is coughing up some money.
The other program is licensing data streams, a great way for twitter to get recognition on other parts of the web.
And a program called amplify which is fairly recent.
It allows media partners of twitter to put more video on twitter, and then there is an ad before the video opportunity for twitter overall.
All that said, twitter clearly is leaving some upside on the table, and that is by design.
If you think about what facebook has done with some of its programs over the last year, twitter could very easily continue to roll out some of that stuff and enjoy the upside of the market appreciating that down the road.
What about how people use twitter everyday.
This is much more now than a social network.
It is really a media company.
Yeah, and i think what is so interesting is if you look at the estimates for twitter's revenue next year.
Some people suggesting perhaps that will get up to $1 billion.
Guess what, based on analysts polled by bloomberg, facebook is estimated to generate close to $10 billion in revenue in the next year.
Google, 55 billion dollars.
On google, you search, and advertisers like that.
They like what they are able to discover about you on facebook.
There are still some questions -- because twitter is more of a media company, a place where people are finding out what is happening, what do the advertisers really know about you?
They know who you are following, but do they have a really clear picture the way they seem to be getting with google and facebook ? that is one of the areas where i think the business is going to have to prove itself.
Jon erlichman, thank you.
As twitter heads into its ipo, a much is the company really worth?
A twitter investor placed it at $10.5 million last month, but it is reported that the company is worth more like $14 billion.
The founder who made the $14 billion estimate joins me on the phone.
You are hearing that some investors are willing to pay up to $28 a share for twitter secondary?
Yeah, that is what we heard recently, about 10 days ago, summer between $26 and $20 -- $28 made.
I think that is where you will see them go out of the company in terms of initial valuation.
Of coarse the first-day pop is anybody's guess.
By comparison, facebook has a valuation of $107 billion.
Do you think twitter is worth this much?
If 2014 revenues are any indication, then it is 1/10 the valley of facebook, so yeah -- and the value of facebook, so yeah.
If you think of them as just a media entity, they have all the attention.
They are the new it-girl of media.
They have all the attention.
Even though they may not have one billion people like facebook does, they still have a lot of attention, and that is worth a lot of money.
Cory, do you agree?
Do you think twitter is worth this much, if not more?
I do not do stock advice.
Just because facebook is trading at an extreme valuation does not mean twitter should as well.
The evaluation we are talking about, if we're talking about $500 million and talking about a $14 billion valuation, you're talking about an enormous multiple of revenue, along the lines of companies like tesla, like facebook.
So much more than a google or an apple.
So a very, very high valuation without any notion of whether it is profitable or whether there is a free cash flow returned.
Just on revenues, there is a very high number of the assumptions we're hearing about revenues and the offerings are correct.
We're hearing the remedy could be as high as $600 million this year.
Om, we do not know a lot about twitter's financials.
The paperwork with the sec is confidential.
So how much do we really know about how much money they make, whether or not they're profitable, and how can we come up with an accurate valuation?
I wrote a piece about this on august 28 when they launched twitter conversations.
I made two points.
One was that they need to attract a lot more people than they have in terms of growth.
Right now they have somewhere around 300 million people on twitter.
They need much more than that in order to really grow fast.
So they are running behind that part, their own target of between 400 million to 500 million people by the end of 2013. they have had significant issues, people come and do not know what to do, and they leave.
They are making some product enhancements to keep people around.
The whole point of that exercise is that the longer people are around, more people are around, and they can display more advertising.
I think the change to conversations view was one way of them tackling that.
I think there somewhere in the $500 million to $600 million in revenue for 2013. a pretty substantial revenue base.
From what i have heard, they are either in the black or almost in the black.
I guess they're pretty close.
It is not like they are losing a ton of money or anything.
They would not go public in less they ready.
They will not go public when they are losing money.
I think by the time they hit the market, they will be profitable.
Collects i think people underestimate the value of this company because it is in our backyard, and it does not have the global scale of facebook.
We talk about -- trust me, twitter is not a less company than any of these big names cory was talking about.
Wax hang on and we will get back with you after this break.
Finding the valley of twitter's archives.
We are talking to the founder of a company that has done that.
And be sure to watch "bloomberg west" next week.
I will speak to the twitter chairman and cofounder about his other company square.
? welcome back.
I am emily chang.
I want to continue this conversation about twitter.
I am joined again by gigaom ceo, om malik, and cory johnson is joining us.
Put this into context with twitter, given how closely we followed some of these other ipo's like zynga, facebook, groupon, and linkedin.
A lot of people are making comparisons to facebook, saying that is the most likely to parents and company.
I really think the groupon ipo is the instructive lesson here.
Because of all the problems had in filing and refiling and having to change their idea of how they countered revenues to conform with what the sec demanded of them, i think the way that process played out publicly, twitter will avoid that.
We will see the filings back and forth, but it will come in a torrent, in that window when they can release the documents and do the ipo as early as 21 days afterward.
I think groupon is the instructive one.
But i think some of these big deals are getting a lot better scrutiny than they did, certainly during the dotcom era.
I hope they include the churn r ate information, people going on twitter and then leaving.
That is important to understand this is nice.
You have to know how long the users are around and how they use the service.
Quite someone one final went from om on that issue . do you think that twitter can go mainstream?
Obviously facebook has more than one billion users.
Twitter has more than 200 million users.
But as you mentioned earlier, some able find it confusing.
Some people go and then leave.
Can twitter get to one billion or more?
I think that is their number one challenge, and i think they are working on it.
If you look at the changes they have made as a company, they are towards growth and users.
All the product changes are happening around that.
The reason they are doing it, they need these users to grow the revenues.
Those revenues are equally important for them to go public.
I think that is a challenge.
From what i have heard, they have a lot of resources that have been put in that direction.
We will be -- you will see my interview from earlier this year were i ask what is more important, one billion users or $1 billion in revenue?
We will be back with you later in the show.
Back with more of "bloomberg west," talking about twitter, coming up.
? this is "bloomberg west." i am emily chang.
From awards shows to political discussion, twitter has become an important for him for public conversation.
It offers a search function that favors recent tweets and ones that twitter things is imported.
There is real time search and analysis of the twitter stream, and that company has expanded its twitter index and has archived every twitter message since jack dorsey's first tweet.
Joining me is the cofounder and chief of this company.
I have to ask about filing for this ipo.
What do you make of this company?
We have a great relationship with twitter and we are excited for them.
Does it impact your relationship with twitter?
I do not think so.
It shows they are successful and growing.
You're basically the only company that has access to twitter's data directly, the firehose, as they call it, for search purposes, right?
There are other companies that has access to the firehose, but we're the only company that did an index.
Quite how did you make the deal?
Twitter has cranked down on a lot of third-party apps, even to the firehose away from google.
Google did not want to pay to extend their relationship, perhaps, and it was not a good relationship between them.
We had an interest before they even had the firehose in 2009. then after that we made a deal with them, one of the first licenses for the firehose.
So you pay them for this?
Right now, we pay for access to the firehose and they pay us for access to the analytics.
We actually found my first tweet when i joined bloomberg.
I said -- it is official, i left china and cnn to anchor a new show on bloomberg about tech innovation and more.
This was three years ago.
This is a huge undertaking to index these tweaks.
-- these tweets.
We actually have 405 5 billion tweets, videos, webpages, log posts, and things like that -- we actually have 405 billion of these things.
It our index is bigger than bing, google, facebook, or others.
We have a big team of engineers and operations people.
More than 3000 servers in our own data center.
We build hardware.
It has been a very big undertaking.
We build the technology from ground-up.
We did not design it to index web pages.
We designed it to index conversations here twitter has been a lot of time to improve its own infrastructure.
You saw the fail we hale come up in the early days, but that is a lot less common now.
What do you make of some of the changes twitter has made to its infrastructure, and had it that impact third-party companies like you?
For a lot of users of twitter, obviously the fail wh ale impact of them.
It is very important because it works as a media platform.
It is important to have that working well for us because of the firehose.
Twitter has clamped down on third-party apps, said you have any concerns that twitter could take it away from you guys?
They started doing images and clamped down on third parties doing those things fear their essential goal is to have access to the entire stream from people's eyeballs to the tweets so they can advertise to them.
We are paralyzed to that process.
We have a public search engine, but we also have analytics.
Thank you so much for joining us today.
We will be right back talking about twitter's surprise ipo.
? this is the early edition of "bloomberg west." i am emily chang.
Now for top headlines -- the top u.s. mobile carriers are touting their plans for selling apple boss new iphones, some even offering the cheaper iphone 5-c without a dine -- without a down payment.
T-mobile customers can get it for zero down and a $22 a month spread for deed of years.
At&t can't pay $20 a month for only -- can pay $20 a month for a certain amount of time.
The cheaper iphone is available for pre-order starting today.
Video games held in the u.s. showed signs of life in august.
According to a market researcher group, sales of new products group 1% to $521 million.
Nude idols, including walt disney's infinity -- new titles help drive sales.
The man responsible for bringing the sound of cinema to life has passed away.
He revolutionized the recording industry with the invention of the dolby noise reduction system and dolby digital surround sound.
He passed away at his home in san francisco at 80 years old.
Twitter's surprise conventional ipo filing is our top story.
Cory johnson is outside twitter headquarters with more on the most anticipated tech ipo since facebook.
What more can you tell us?
I think one of the big deals people are talking about today, because they do not know much, but we have learned that goldman sachs is going to lead this deal.
In the old days, you would read a filing and he gets called a red herring and a gets plopped on your desk.
This is a big win for goldman sachs because of the wrist each -- prestige.
Investment banks have been chasing after twitter for years, hoping for the stay when they would get to lead a deal towards an ipo.
A member of goldman sachs on the west coast probably helped when this deal, former cfo of the nfl . he is probably doing a touchdown dance today.
Why do you think goldman won the deal?
They have not done as well with some of the consumer facing technology ipo's. why now?
They have done a ton.
Goldman -- and they are big boys.
The control quarterly trading on stocks more than any other firm, arguably.
Who knows what kind of deal they have got in fees.
That is what i will be looking for in the filing.
We were surprised that facebook got morgan stanley to negotiate down there fees for their ipo.
We will see if twitter was able to follow up on that and get goldman to do the same thing.
Ok, cory johnson.
Costilla may not have sounded twitter, but he helped transform the ebony into a global communications powerhouse with a steady revenue stream.
He says building a strong business starts with developing strong managers and even teaches a management class of his own at the company.
I sat down with them for an exclusive interview in march and asked how he would describe his own management style.
I guess if i had to summarize my management style, it would be present.
I try to make sure that i understand what all the various things are working on.
I think i have a strong understanding of who the great individual contributors and the company are across organizations that spend a lot of time with individual teams trying to understand what is preventing them from moving faster, what is preventing them from getting things done that a want to get done.
And then helping remove roadblocks from those kinds of things.
I pride myself on spending a great deal of time in meetings and one-on-one conversations with individual contributors, as opposed to my direct reports in service to having contact for what is going on in the company and then being able to help people understand this.
You spend a good part of your time teaching a management class.
Tell me about this class, what is the goal?
It actually started when one of my engineers a couple years ago approached me and said that i just switched teams and my former manager had one-on-one meetings with me every week and my new manager does not believe in that.
So what should we be doing?
Is the right way to do this at twitter?
I realized i had never -- funny thing is, it was one of those examples where you hear this and then you start seeing examples across the company of the inconsistent ways people are managing based on other the success biases from the company they came from or they were just promoted to manager here and i am doing it the way my manager did before, not because it is necessarily right or wrong.
It is a six dollar course now.
That is essentially how i want you to manage at twitter.
And what i believe is imported and how i want you to lead.
What is the twitter way?
Three sections of the course.
The first section is setting direction.
It is articulating the model that's motivation for your team, creating success metrics, and holding people accountable to those metrics.
And providing them with ownership.
Ownership is giving them context for what you want to do, the success metrics, and then letting them go do it the way they want to do it.
The second section is getting feedback here at one of the things i observed was that my managers were not particularly great -- i think this is probably generally drew up and down the valley, giving direct, honest, straightforward feedback.
They might tell you story "a" and then you get a slightly different variation of it to make you happy, instead of being very direct and making sure everyone understands the same thing.
The third section is improving your team and making sure you are spending time with your team . this is the importance of making sure you are having one-on-one meetings with your team every week and motivating them motivating them through training and other things.
You have done so much work recruiting great talent and moving pieces around.
How do you respond to this , that the company's organizational chart still kind of needs to be untangled?
I do not feel that way.
I feel like we're constantly looking to clarify the organization as we grow.
As you expand and you are in hypergrowth, you are adding to the organization in lots of different ways.
You start heading that is no complexity's of you have got an international organization now, so you may have a matrix organization where the head of an international office is not the person who the communications person in that office reports to darkly, but they are there.
But as you grow and look at international regions, i think you are constantly looking to clarify the organization and civil five the organization.
I do not think that there is an end state that you " get to" where things are, ok, now things are perfect and wilma change.
The importance is helping people understand this will be an ongoing process.
We will bring you more of my interview with twitter ceo dick costolo.
He will speak about his relationship with cofounder jack dorsey.
And we ask what is more important, one billion users or one billion dollars in revenue?
Be sure to watch next week.
I will be speaking with twitter chairman jack dorsey about his other company, square.
? this is "bloomberg west" on bloomberg television, streaming on your phone, tablet, and bloomberg.com.
We returned to my exclusive interview with bloomberg ceo dick costolo from earlier this year.
I began by asking him about his relationship with cofounder and chairman jack dorsey.
Dick costolo is known as a great communicator, but jack dorsey has set his communication skills are his biggest weakness.
Take a listen.
Jack is one of the most forthright communicators i have ever had the good fortune to work with.
In fact, i have been in a meeting with him where there was a particularly difficult piece of news to begin indicated which he handled simply and elegantly in a high tension environment.
So he is being humble about that.
It is certainly the case that i am much more, and i think jack would agree, that i am much more of an extrovert and he is much more of an introvert, but the two of us have a great relationship.
I think we have found a great way to work together.
What is more important to you, getting to $1 billion in revenue or one billion users?
Our user growth drives everything.
You know, as i think about the service and what we're trying to accomplish and why we have to achieve what we have achieved, it is entirely in service to reach every person on the planet.
All of the benefits of the business and growing the business and extending the platform are derived from that.
I think it is fair to say -- we had a product meeting yesterday where people started laughing about this, and we were describing a new capability we wanted to deliver.
One of the product managers in the meeting said that we think this will have a positive impact on revenue because x, y, z. a couple people started giggling because they said this is where dick is going to tell you to never bring that into the meeting.
The idea is to deliver great user experiences.
We will figure out how to build a business if we are delivering great user experience is that more people come.
You mentioned that tension can be healthy, competition is healthy.
How do you keep employees and your teams focus on products and consumers when it seems like your primary rival, facebook, is making a lot of impressive moves lately?
There is an sick ram and they rearranged their newsfeed.
-- there is the instagram thing and they rearranged their newsfeed.
We have wrought x now as we have -- we have products now including vine and other things.
We have a very specific, clear, and shared understanding of where we are taking this thing.
I think it is fair to say that we do not let other companies decisions affect the way we think about where we are going.
Obviously you have to understand the competitive landscape and know what other people are doing in the space so you can be thoughtful about whether you need to move faster on something or prioritize this over that in a particular quarter.
In the general scheme of things, in the year overall vision of where we are going, we do not let those other things change our notion what we are trying to do.
Twitter ceo dick costolo speaking with me just a few months ago.
? this is "bloomberg west." i am emily chang.
As we talk more about twitter's business, i want to bring someone who helped build out their early ecosystem.
He is the ceo of betaworks, a firm invested in a number of companies.
Names include tweet deck and others.
He is a shareholder in twitter and joins me now from new york.
John, what do you make of the timing here?
Timing when going public is so critical.
Is this the right time for twitter?
I think it must be the right time.
There is no model built into the financials.
Twitter is an extraordinary company that has had a very strong year.
The way i see it is this is the first truly mobile first company that is starting to make money and make money on mobile, and doing it in a way which can scale to very big numbers over time.
Given your role and some of the companies involved in the early twitter ecosystem, you were a large twitter shareholder.
You have sold most of your shares, but you still hold some shares of twitter.
What was twitter's valuation when you sold, and what do you make of some of these reports of a valuation of $14 million.
-- $14 billion.
Some say $16 billion.
We build companies.
We were active in the early days of the twitter ecosystem.
Our job and our focus has been building early-stage companies.
You are right, we sold some of our twitter stock about two years ago, most of it.
It was more of a reflection of the fact that as an early stage, as both builder of the company and investor, it did not seem right to hold that all the way through.
We always believed twitter would go public.
I think that this is to be expected.
In terms of valuation, i cannot really speak to -- we have nothing many of the numbers yet.
All right , you have seen the product from the very early days . what do you think about how twitter has evolved from a product perspective?
I was just speaking with om malik who said it can still be confusing for people.
People sign up and leave.
Do you think this is a product they can go mainstream like facebook has?
Twitter really started out in this 140 character messaging space, and it was independent of platform.
They managed to build out this huge business.
It is certainly scaled to be a global business.
I hear that point, but i think the cold start and getting new people on twitter has been a child -- challenge over the years.
It is one of the things that once you start using twitter and get engaged -- they probably have precise metrics.
But when people get sort of more than about 30 people that they are publishing and are publishing, they become highly- engaged users.
It is a remarkable service that was invented by a group of guys and has scaled up.
It is truly one of these lightning in a bottle companies.
It is fundamentally mobile.
They have a strong decks stop -- desktop experience, but the mobile experience is a lightweight.
It can attach itself to media but can also travel independent of media.
Lightning in a bottle.
Thank you so much.
More of "bloomberg west" after this.
? welcome back.
I am emily chang.
Coming up on the late addition of "bloomberg west," what made twitter an attractive investment to early attract others -- at -- to early attractors?
We will find out.
Bloomberg television is on the markets.
Julie hyman has more.
We do have this rally today.
For the eighth session and nine, the s&p is higher and higher for the week.
We want to look at a couple of individual stocks for you.
Let's start with name stop.
A winning gay -- day for them.
It offered a positive outlook for the second half of the year.
Second, looking at intel.
It was raised to buy from hold at jefferies.
As you are probably aware, sunday marks five years since the collapse of lehman brothers and the start of the financial crisis.
We have been talking a lot about this anniversary.
I want to bring in jon kopecky, a bloomberg news banking reporter.
We want to look at all of the changes.
First, i want to talk about the stock.
Even if you look at bank of america or citigroup, they are considerably lower than they were five years ago.
Many other banks have come back.
If you had invested in them in 2007, you would not have necessarily made all your money back or just barely.
But they have recovered.
They all have probably twice as much capital as they used to have.
If you look at the actual capital ratios, it is not twice as high.
But because certain things that used to count as capital no longer count as capital.
They are much more well- capitalized now, much more liquidity.
That is partly because the regulations have all become a lot tighter for the banks.
Dodd frank passed.
You have a host of new regs from the fed.
International bank capital rules.
That is depressing stock prices a bit.