facebook, inc. (fb) third quarter 2017 results conference call...facebook, inc. (fb) third quarter...
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Facebook,Inc.(FB)ThirdQuarter2017ResultsConferenceCallNovember1st,2017OperatorGoodafternoon.MynameisMikeandIwillbeyourconferenceoperatortoday.AtthistimeIwouldliketowelcomeeveryonetotheFacebookthirdquarter2017EarningsCall.Alllineshavebeenplacedonmutetopreventanybackgroundnoise.Afterthespeakers'remarks,therewillbeaquestionandanswersession.Ifyouwouldliketoaskaquestionduringthattime,pleasepressstarthenthenumber1onyourtelephonekeypad.Thiscallwillberecorded.Thankyouverymuch.Ms.DeborahCrawford,Facebook’sVicePresidentofInvestorRelations,youmaybegin.DeborahCrawford,VPInvestorRelationsThankyou.GoodafternoonandwelcometoFacebook’sthirdquarter2017earningsconferencecall.JoiningmetodaytodiscussourresultsareMarkZuckerberg,CEO;SherylSandberg,COO;andDaveWehner,CFO.Beforewegetstarted,Iwouldliketotakethisopportunitytoremindyouthatourremarkstodaywillincludeforward-lookingstatements.Actualresultsmaydiffermateriallyfromthosecontemplatedbytheseforward-lookingstatements.Factorsthatcouldcausetheseresultstodiffermateriallyaresetforthintoday’spressrelease,andinourquarterlyreportonform10-QfiledwiththeSEC.Anyforward-lookingstatementsthatwemakeonthiscallarebasedonassumptionsasoftodayandweundertakenoobligationtoupdatethesestatementsasaresultofnewinformationorfutureevents.DuringthiscallwemaypresentbothGAAPandnon-GAAPfinancialmeasures.AreconciliationofGAAPtonon-GAAPmeasuresisincludedintoday’searningspressrelease.Thepressreleaseandanaccompanyinginvestorpresentationareavailableonourwebsiteatinvestor.fb.com.Andnow,I’dliketoturnthecallovertoMark.MarkZuckerberg,CEOThanksDeborah,andthankseveryoneforjoiningustoday.Ourcommunitycontinuestogrow,nowwithnearly2.1billionpeopleusingFacebookeverymonth,andnearly1.4billionpeopleusingitdaily.Instagramalsohitabigmilestonethisquarter,nowwith500milliondailyactives.Andwesawgoodresultsinthebusiness,wheretotalrevenuegrew47%year-over-yearandwehadourfirstquarterwithmorethan$10billioninrevenue.Butnoneofthatmattersifourservicesareusedinawaythatdon'tbringpeopleclosertogether--orifthefoundationofoursocietyisunderminedbyforeigninterference.
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I'veexpressedhowupsetIamthattheRussianstriedtouseourtoolstosowmistrust.Webuildthesetoolstohelppeopleconnectandbringusclosertogether.Andtheyusedthemtotrytoundermineourvalues.Whattheydidiswrongandwe'renotgoingtostandforit.Now,forthosewhohavefollowedFacebook,youknowthatwhenwesetourmindstosomething,we'regoingtodoit.Itmaybeharderthanwerealizeupfront,itmaytakelonger,andwewon'tbeperfect,butwewillgetitdone.We'rebringingthesameintensitytothesesecurityissuesthatwe'vebroughttoanyadversaryorchallengethatwe'vefaced.ThefirststepisdoingeverythingwecantohelptheUSgovernmentgetacompletepictureofwhathappened.We'vetestifiedincongressoverthepastcoupleofdaysabouttheactivitywefoundinlastyear'selection.We'reworkingwithcongressonlegislationtomakeadvertisingmoretransparent.Ithinkthiswouldbeverygoodifit’sdonewell.Andevenwithoutlegislation,we'realreadymovingonourowntobringadvertisingonFacebooktoanevenhigherstandardoftransparencythanadsonTVorothermedia.That'sbecauseintraditionalmedia,there'snowaytoseeallofthemessagesanadvertiserisshowingtodifferentaudiences.We'reabouttostartrollingoutatoolthatletsyouseealloftheadsapageisrunning,andalsoanarchiveofadspoliticaladvertisershaveruninthepast.We'realsoworkingwithothertechcompaniestohelpidentifyandrespondtonewthreats,becauseaswe'venowseen,ifthere'sanationalsecuritythreatinvolvingtheinternet,itwillaffectmanyofthemajortechcompanies.Andwe'veannouncedanumberofstepstohelpkeepthiskindofinterferenceoffourplatform.Thisispartofamuchbiggerfocusonprotectingthesecurityandintegrityofourplatformandthesafetyofourcommunity.Itgoesbeyondelectionsanditmeansstrengtheningallofoursystemstopreventabuseandharmfulcontent.We'redoingalotherewithinvestmentsbothinpeopleandtechnology.Someofthisisfocusedonfindingbadactorsandbadbehavior.Someisfocusedonremovingfalsenews,hatespeech,bullying,andotherproblematiccontentthatwedon'twantinourcommunity.Wealreadyhaveabout10,000peopleworkingonsafetyandsecurity,andwe'replanningtodoublethatto20,000inthenextyeartobetterenforceourCommunityStandardsandreviewads.Inmanyplaces,we'redoublingormoreourengineeringeffortsfocusedonsecurity.Andwe'realsobuildingnewAItodetectbadcontentandbadactors--justlikewe'vedonewithterroristpropaganda.I'mdeadseriousaboutthis,andthereasonI'mtalkingaboutthisonourearningscallisthatI'vedirectedourteamstoinvestsomuchinsecurity--ontopoftheotherinvestmentswe'remaking--thatitwillsignificantlyimpactourprofitabilitygoingforward,andIwantedourinvestorstohearthatdirectlyfromme.Ibelievethiswillmakeoursocietystrongerandindoingsowillbegoodforallofusoverthelongterm.ButIwanttobeclearaboutwhatourpriorityis:protectingourcommunityismoreimportantthanmaximizingourprofits.Sosecurityandtheintegrityofourserviceswillbeamajorfocus.Beyondthis,ourfocusisonbuildingcommunity.Italkedaboutthislastquarterwhenwechangedourmissiontofocusonbuildingcommunitytobringtheworldclosertogether,andthat'smoreimportantnowthanever.Andthisgetsintoourroadmapforthenext3,5and10years.
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Overthenextthreeyears,thebiggesttrendinourproductswillbethegrowthofvideo.Thisgoesbothforsharing,wherewe'veseenStoriesinInstagramandStatusinWhatsAppgrowveryquickly,eachwithmorethan300milliondailyactives,andalsoforconsumingvideocontent.WerecentlylaunchedtheWatchtab,whereyoucandiscovershows,followcreators,connectwithpeoplewatchinganepisode,andjoingroupswithpeoplewithsimilarintereststobuildthecommunity.Butasvideogrows,it'simportanttorememberthatFacebookisaboutbringingpeopleclosertogetherandenablingmeaningfulsocialinteractions;it'snotprimarilyaboutconsumingcontentpassively.Researchshowsthatinteractingwithfriendsandfamilyonsocialmediatendstobemoremeaningfulandcanbegoodforourwell-being,andthat'stimewellspent.Butwhenwejustpassivelyconsumecontent,thatmaybelesstrue.Whendonewell,videobringsusclosertogether.We'vefoundthatcommunitiesformedaroundvideolikeTVshowsorsportscreateagreatersenseofbelongingthanmanyotherkindsofcommunities.We'vefoundthatLivevideosgenerate10xthenumberofinteractionsandcommentsasothervideos.Buttoooftenrightnow,watchingvideoisjustapassiveconsumptionexperience.Timespentisnotagoalbyitself.WewantthetimepeoplespendonFacebooktoencouragemeaningfulsocialinteractions.Sowe'regoingtofocusourproductsonallthewaystobuildcommunityaroundthevideothatpeopleshareandwatch.That'ssomethingFacebookcanuniquelydo.Movingalong,overthenextfiveyears,Iexpectustomakesomegoodprogressonseveralnewerinitiatives.Inmessaging,todayalreadymorethan20millionbusinessesarecommunicatingwithcustomersthroughMessenger.Nowwe'restartingtotestbusinessfeaturesthatmakeiteasierforpeopletomakethesamekindsofconnectionswithbusinessesthroughWhatsApp.WerolledoutMarketplacetoCanadaand17countriesacrossEurope,givingpeopletheabilitytodiscover,buy,andsellthingsintheirlocalcommunities.Todaymorethan550millionpeopleareusingMarketplaceandBuy-and-SellgroupsonFacebooktoconnectwithotherpeoplefortransactions.We'realsoseeinggoodprogresswithWorkplace,helpingcompaniesconnecttheirownteamsinternallythroughtheirownversionsofFacebook.It'sbeenlessthanayearsincewelaunchedWorkplace,andtodaymorethan30,000companiesareusingit.Thisquarter,wewelcomedonWalmart,thelargestemployerintheUS.Overthenext10years,we'reworkingonthefoundationaltechnologiesneededtobringtheworldclosertogether.I'mproudoftheworkwe'redoingwithAI.We'renowusingmachinelearninginmostofourintegrityworktokeepourcommunitysafe.WhenHurricaneMariahitPuertoRico,weusedAItolookatsatelliteimageryandidentifywherepeoplemightliveandneedconnectivityandotherresources.ProgressinAIcanunlockalotofopportunities,sothisquarterweopenedanewAIresearchlabinMontrealandwe'rebuildinganotherlabinParisaswell.ThisquarterweheldOculusConnect,andweannouncedOculusGo--ourfirsteverall-in-oneheadsetthat'sgreatforfeelinglikeyou'representwithsomeonewhenyoucan'tphysicallybetogetherin
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person.It'sgreatforplayinggames,watchingmovies,orhangingoutwithfriends.At$199,wethinkit'sgoingtohelpusbringgreatvirtualrealityexperiencestomorepeople.Itshipsnextyear.AtConnect,IalsoshowedoffournewSantaCruzprototype--whichisthefirsttimeanycompanyhasshownthefullexperienceofpositionaltrackinginastandaloneheadsetandcontrollers.It'samajortechnicalachievement,andI'mlookingforwardtogettingthisintodevelopers'handsnextyear.Inordertosupportourcommunity'sgrowth,weneedtokeepinvestinginourinfrastructure.Thisquarter,webrokegroundonournewAlbanydatacenter,andweannouncedthatwe'llbuildour11thmajordatacenterinHenricoCounty,Virginia.Asalways,allournewdatacentersarepoweredby100%renewableenergy.Theselongterminvestmentsareimportantforourcommunity'sfuture.Wecandoalottohelppeopleconnectthroughphonesandcomputers,butsomuchmorewillbepossibleinaworldwhereeveryonehasinternetaccess,whereAIimprovesallourservices,andwherewecanbasicallyteleportanywhereorbewithanyoneanytimewewant.Withalltheissuesweface,itwouldbealottojustinvestinaddressingthose.Butweknowwealsohavearesponsibilitytodeliverthesefundamentaltechnicalandscientificadvancestofulfillthepromiseofbringingpeopleclosertogether,sowe'regoingtokeepmakingsignificantinvestmentslookingaheadtowardsthefuturetoo.We'vemadesomerealprogressthisyear.Acrosstheboard,wehavealotofworktodeliveronourmissionofbringingtheworldclosertogether,butwe'recommittedtorisingtothechallengeanddoingwhatweneedtoforourcommunity.Thankstoallofyouforbeingpartofthisjourney,andI'mlookingforwardtotheroadahead.Andnow,here'sSheryltodiscussourbusiness.SherylSandberg,COOThanksMarkandhieveryone.Wehadastrongthirdquarterwithgrowthacrossallregions,marketersegmentsandverticals.Adrevenuegrew49%yearoveryear.Mobileadrevenuewas$8.9billion—a57%yearoveryearincrease—makingupapproximately88%oftotaladrevenue.We’recontinuingtobuildourbusinessbyfocusingonoursamethreepriorities:helpingbusinessesleveragethepowerofmobile,developingnewadproducts,andmakingouradsmorerelevantandeffective.Todaywe’reannouncingthatFacebookhasover6millionactiveadvertisers,andwerecentlyannouncedthatInstagramhasover2millionadvertisers.Thevastmajorityofthesearesmallandmediumsizedbusinesses,whichareamajorsourceofinnovationandcreatemorethanhalfofallnewjobsglobally.Thesebusinessesoftenhavesmalladbudgets,sotheabilitytoreachpeoplemoreeffectivelyisreallyvaluabletothem.AgreatexampleisLovebook,asmallbusinessinMichiganwhichletsyoumake
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personalizedbooksforthepeopleyoulove.Duringarecentcampaign,theyusedFacebookadstoreachpeoplegettingreadytocelebratetheirfirstanniversary.They’vegrownsomuchfrommarketingonFacebookthatthey’vebeenabletohire10newemployeesthisyearalone.WeareproudoftheroleweareplayinginenablingbusinesseslikeLovebooktoreachpeopleonmobile,togrow,andtocreatejobs.OneofourstrongestareasthisquarterwasSMBsinEurope,withrevenuegrowingmorethan60%year-over-year.WhenIwasinGermanytwomonthsago,IhadachancetomeetVictor,oneoftheco-foundersofBrooklynSoapCompany,whichdespiteitsnameisbasedinHamburg.VictorandhisfriendscameupwiththeideafortheirbusinesswhilestayinginahostelinBrooklyn.Nowtheyselltheirgroomingproductsin38countriesusingmobilevideoadsonFacebookandInstagram.Asaresult,theirsalesincreased62%overthelastyear.They’reoneofmanysmallbusinessesusingmobiletofindnewcustomersandgrowacrossborders.Oursecondpriorityisdevelopinginnovativeadproducts.Videoisexploding,andmobilevideoadvertisingisabigopportunity.Untilrecently,adswereonlyeligibleforAdBreaksiftheyalsoraninNewsFeed.InQ3,wegaveadvertiserstheoptiontorunadsinvideosalone.We’reseeinggoodearlyresults,with>70%ofadbreaksupto15secondsinlengthonFacebookandAudienceNetworkviewedtocompletion,mostwiththesoundon.AsMarksaid,InstagramStoriesaregrowingwell,too.PeopleandbusinessesarefindingcreativenewwaystousefullscreenverticalvideoinStories.Thisquarterwegaveadvertisersevenmoreflexibilityinthecontent,formatandreachoftheiradsinStories.We’realsoseeinghowimmersivevideoandimagescanhelppeoplediscovernewproductsonFacebook.WeaddedanewcreativetemplatetoCollectionAds,whichhelpsretailersbringtheircatalogsonline.WestElm,ahomedécorcompany,recentlyusedthistemplatetopromoteitsfurnitureandhomeaccessories.Theytargetedpeoplewhoalreadygettheirphysicalcatalogandsawa5.5%liftinpurchasesinstores. Ourthirdpriorityismakingouradsmorerelevantandeffective.InQ3weintroducednewtoolspoweredbymachine-learningandautomationtohelpbusinessesreachpeoplemorelikelytospendwiththem.Wealsosimplifiedthetoolsforcreatingads,makingiteasierforbusinessesofallsizestoadvertisewithus.It’simportantforallbusinessestoreachtherightaudience—butit’sespeciallyimportantforsmallbusinessesthathavelimitedbudgets.Targetingallowsthemtoshowadsonlytothepeopletheywanttoreach.NeonRetroArcadeinLAisagreatexample.Theyadvertisetopeoplewithin10milesoftheirlocationwhoareinterestedinvideogamesandcomicbooks.Lastyear,theymovedtheirentireadbudgettoFacebookandInstagram,andtheirrevenueisup25%.Relevanceandeffectivenessarealsoaboutgivingbusinessesmorecontroloverwheretheiradsrun.InQ3weclarifiedwhichpublishersandcreatorscanincludeadsnexttotheircontent.Thisisgoodfor
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creators,whowantguidanceonhowtoearnmoneyfromtheircontentonFacebook–andit’sgoodforadvertisers,whowanttransparencyandcontroltomaketherightdecisionsfortheirbrands.We’realsoworkingtogiveadvertisersmoreclarityonwheretheiradswereshown,sotheycanmakemoreinformedchoicesaboutwheretoruntheminthefuture.Iwanttoclosebytalkingaboutwhatwe’redoingtoprotectourplatformandhelpensurethattheadsandcontentpeopleseeonFacebookandInstagramarelegitimateandauthentic.WhenIwasinWashingtonafewweeksago,Imadeclearthatwearedeterminedtodoeverythingwecandotominimizeabusegoingforward.AsMarksaid,we’reinvestingheavilyinnewtechnologyandpeopletoreviewadsandposts.Thiswillenableustolookmorecloselyatthecontentoftheads,targeting,andtheadvertiserwhosubmitsthem–aswellastightenouradspolicies,particularlyforadsdirectedatsocialandpoliticalissues.Webelievethatadsareimportanttofreeexpressionandwewillcontinuetoacceptadsonissues--butwewillalsodoourparttoelevatethequalityofthatdiscourse.Transparencyhelpseveryonekeepadvertisersaccountablefortheirmessages.We’reworkingwithCongressonnewrequirementsforonlinepoliticaladvertising,butwe’renotwaitingforlegislation.We’rebuildingatoolnowthatwillallowanyonetoseetheadsaPageisrunning,evenifthoseadsarenottargetedtothem.WewilltestitsooninCanadaandthenintheUSinthecomingmonths.ForadsrelatedtoUSfederalelections,we'llstartsharingevenmoreinformation,includinganarchiveofpastads,totalamountspent,anddemographicsaboutthepeopletheadsreached.We’realsogoingtorequiremorethoroughdocumentationfromtheseadvertisers—andwe'lllabeltheiradssoit’sclearwhopaidforthem.Webelievetheseactionswillsetanewstandardfortransparencyinonlineads.Becausetheinterferenceonourplatformwentbeyondads,we’realsoincreasingtransparencyaroundorganiccontentfromPages.We’relookingatwaystoprovidemoreinformationaboutwhoisbehindapoliticalorissue-basedFacebookPage.WebelievethiswillmakeitharderfordeceptivePagestogainlargefollowingsandmakeiteasierforustoidentifymaliciousactivity.Weareallcommittedtogettingthisright,andtoinvestinginstrengtheningourplatformsowecanbetterserveourcommunity.Wearealsocommittedtocontinuingtohelpbusinessesallovertheworldattractcustomers,selltheirproducts,andcreatejobs.Asalways,IamgratefultoallofourclientsfortheirpartnershipandtoourglobalFacebookteamsfortheirhardwork.Thanks,andnowhere’sDave.
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DavidWehner,CFOThanksSheryl,andgoodafternooneveryone.Q3wasanothergreatquarterforFacebook.Wesawcontinuedgrowthandengagementinourcommunityaswellasstrongperformanceinouradsbusiness.Let’sbeginwithourcommunitymetrics.DailyactiveusersinQ3reached1.37billion,up16%comparedtolastyear.Thisnumberrepresents66%ofour2.07billionmonthlyactiveusersinQ3.MAUswereup284millionyear-over-yearor16%.Ourcommunitygrowthwasagaindrivenbyproductimprovements,promotionaldataplans,andInternet.org.NotethatinQ3webegantolaptheintroductionofpromotionaldataplansfrommobileoperatorsinmarketslikeIndia.Beforegoingtothefinancials,letmetouchbrieflyonourongoingeffortstoimproveouruserestimates.Thisquarter,weimplementedanewmethodologytohelpidentifyduplicateaccounts.Asaresult,weincreasedourestimatesforduplicateaccountstoapproximately10%ofworldwideMAUsfromourpreviouslydisclosedestimateof6%.DuplicateaccountsarethosethatwebelieveareusedbythesamepersonandrepresentrealactivityandengagementonFacebook.Wehavealsoincreasedourestimateforinauthenticaccountstoapproximately2-3%ofworldwideMAUs.Inauthenticaccountsarelargelythosethatareusedforspamandotherpolicy-violatingreasons.Wecontinuouslymonitorandaggressivelytakedownthoseaccounts.TheseaccountstendtobelessactiveandthuswebelieveimpactDAUlessthanMAU.Nowturningnowtothefinancials.Allcomparisonsareonayear-over-yearbasisunlessotherwisenoted.Q3totalrevenuewas$10.3billion,up47%or45%onaconstantcurrencybasis.Foreignexchangetailwindscontributed$128millionofrevenueinQ3.Q3totaladrevenuewas$10.1billion,up49%.Onaconstantcurrencybasis,ouradrevenuegrowthratewas47%,down2percentagepointscomparedtothegrowthinQ2.Adrevenuegrowthwasstrongglobally,ledbyEuropeandAPACwith56%and54%growthrespectively.Mobileadrevenuewas$8.9billion,up57%.
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InQ3,theaveragepriceperadincreased35%andthenumberofadimpressionsservedincreased10%,drivenprimarilybyfeedadsonFacebookandInstagram.Iwouldnotethat,comparedtoayearago,priceisamuchmoreimportantdriverofouradsrevenuegrowth.Payments&OtherFeesrevenuewas$186million,down5%.Totalexpenseswere$5.2billion,up34%.Q3wasourbiggesthiringquarterever.Weaddedover2,500peopleandendedthequarterwithover23,000employees,up47%comparedtolastyear.Operatingincomewas$5.1billion,representinga50%operatingmargin.Ourtaxrateinthethirdquarterwas10%.Excesstaxbenefitsrecognizedfromshare-basedcompensationdecreasedoureffectivetaxrateby6percentagepoints,alevelthatwasdrivenbyappreciationinourstockprice.Netincomewas$4.7billionoronedollarandfifty-ninecentspershare.Year-to-datecapitalexpenditureswereapproximately$4.5billion,drivenbyinvestmentsinservers,datacenters,officefacilitiesandnetworkinfrastructure.InQ3,wegeneratedover$4.3billioninfreecashflowandendedthequarterwithover$38billionincashandinvestments.Year-to-date,wehaveboughtbackover$1billionofourClassAcommonstock.Turningnowtotherevenueoutlook.Ouradsbusinessremainsstrong.Butit’sworthnotingthatinQ3,ouryear-over-yearadrevenuegrowthratesdeceleratedforthefifthconsecutivequarteronaconstantcurrencybasis,andweexpectthistrendtocontinuefortheforeseeablefuture.Goingforward,wealsoexpectthegrowthinadvertisingrevenuewillincreasinglybedrivenbyprice.Thisisashiftfromprioryearswhengrowthwasprimarilydrivenbyincreasesinsupply.Turningnowtoexpenses.Weanticipatethatourfull-year2017totalexpenseswillgrowapproximately35-40%versusourpriorrangeof40-45%.Weanticipatethatfull-year2017capitalexpenditureswillbeapproximately$7billion.
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Asmentionedpreviously,ourtaxratewillvarybasedonourstockprice.Atthecurrentstockprice,wewouldexpectthattheQ4ratewillbeinthelowteens.Ialsowantedtoprovidesomecommentson2018expensesandcapitalexpenditures.Pleaserecognizethatthesearepreliminaryestimatesaswehavenotyetfinalizedour2018budget.Thatsaid,itisshapinguptobeasignificantinvestmentyear,andIwantedtoprovideinitialguidancetoaligninvestorswithourmostcurrentthinking.Weexpectfull-year2018totalexpenseswillgrowapproximately45-60%comparedtofull-year2017.Wecontinuetoinvestaggressivelyacrossthebusiness,buttherearethreeimportantfactorsdrivinganaccelerationinourexpensegrowthratesfrom2017levels.First,asMarkoutlinedinhisearliercomments,wearemakingsizeablesecurityinvestmentsinpeopleandtechnologytostrengthenoursystemsandpreventabuse.Secondly,weareinvestingaggressivelyinvideocontenttosupporttheWatchtab.Finally,wecontinuetoinvestinourlong-terminitiativesaroundaugmentedandvirtualreality,AI,andconnectivity.Givenourexpectationofcontinueddecelerationinrevenuegrowthrates,weexpectthesesignificantinvestmentswillbenetnegativeonouroperatingmargins.Inaddition,weexpecttomakesubstantialinvestmentsinourinfrastructuretosupportgrowthandimproveourproducts.Assuch,weexpectfull-year2018capitalexpenditureswillroughlydoublefrom2017levels.Wewouldalsoanticipatethatthefull-year2018taxratewillbeinthemid-teens.Insummary,Q3wasanotherstrongquarterforFacebookacrosstheboard.Weareexcitedabouttheopportunitiesweseeaheadandwewillcontinuetomakesignificantinvestmentstosupportourgrowthandourmission.Withthat,Mike,let’sopenupthecallforquestions.Operator Thankyou.Wewillnowopenthelinesforaquestionandanswersession.Toaskaquestion,press“star”followedbythenumber“one”onyourtouch-tonephone.Pleasepickupyourhandsetbeforeaskingyourquestiontoensureclarity.Ifyouarestreamingtoday’scallpleasemuteyourcomputerspeakers.YourfirstquestioncomesfromthelineofEricSheridan,UBS.
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EricSheridan: Thanksfortakingthequestion.MayberevisitingMark'scommentsatthebeginning
ofthecall.I'dlovetogetabettersenseorgranularityaboutwhatsortofvideo
contentyou'dliketoseeontheplatformthatcoulddriveamoreactiveor
interactiveexperiencethanpassive?
Andthenthesecondquestionwillbewhatdoesthatmeanintermsofthebusiness
model?Wouldtherebelicensingcontent,fundingcontentthatyoutodotobuild
thesortofbusinessyou'reaimingforoverthemediumtolongterm?Thankyou.
MarkZuckerberg: Thestrategyherearoundhelpingpeopleconnectreflectsmoreonwhatwedo
aroundthevideosthansomeofthecontentitself,right?Sohopefully,the
experienceonFacebookwillnotjustbethatyoucomeandwatchavideoandyou
getinformed,youfeelentertainedandthat'sit;wethinkthatthemostvaluable
thingthatpeopledoarehelpbuildrelationshipswithotherpeopleontheplatform.
Totheextentthatthe--thatvideocanserveasatouchstoneforbuilding
communityandhelpingfacilitateinteraction,thenthat'sathingthatwefeellikewe
canuniquelydo.Sowe'regoingtocontinueinvestingheavilyinvideocontentfor
Watch.Thatiscenteredonpeople,thatiscenteredaroundthingsthatpeoplewant
totalkandconnectaround,thatgivepeoplesenseofprideandbringpeople
together.We'regoingtoinvestasmuchinjustmakingsurethatwebuildoutthe
communityfeaturesaroundthat.Andthat,Ithink,isgoingtobethethingthat
differentiatesthisovertime.
Operator: YournextquestioncomesfromBrianNowak,MorganStanley.
BrianNowak: Thanksfortakingmyquestions;Ihavetwo.
JustMark,togobackonyourfocusoncommunityandvideo,Iwaswonderingifyou
couldshowusorkindofhelpusunderstandwhatyou'reseeinginengagement
trendsoryourtimespentperuseronthecoreFacebookplatformasyou'vehadso
manyeffortsfocusedoncommunityandvideo.
AndthensecondlyforSheryl,youmadesuchgoodprogressgrowingtheadvertising
businessacrossSMBandalotofverticals.Iwonderifyoucouldstepback,couldyou
talktoanyareasoranyverticalswhereyoureallyseethepotentialformaterial
improvementsorverticalsyou'rehavingahardtimecrackingintothatyouthinkit
reallybebiggerdriversofadrevenuegrowthgoingforward?
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DavidWehner: SoBrian,justonengagementmetrics,Imean,wecontinuetoseegoodgrowthin
DAU,asyousaw,inthe16percentgrowththatwepostedthisquarter.Inaddition,
wedocontinuetoseetimespentgrowthperDAUontheFacebookfamilyandon
Facebook.
SherylSandberg: Formypart,whenIthinkaboutourmarketersegments--wehaveSMBs,wehave
brand,directresponseanddevelopers--we'reseeingstronggrowthacross.Ithink
ifyouthinkaboutwherethegrowthremains,itreallyisinincreasingtherelevance
oftheads.
Becausetheads,Ithink,aregettingbetterintermsofreachingtherightpeopleat
therighttime,butIthinkthere'sstillalotmorewecando.Andaspeoplereallyuse
ourCustomAudiences,ourtargetingtools,thequalityoftheadsimprovesandthe
returnsimproveandthemore--thebetterwegetatmeasuringthosereturns,the
bettertheadsget.AndsoI'llsharejustoneexamplebutoneIreallylove,whichis
theAlamedaCountyFair,whichisalocalfairgroundinPleasanton,California.
Ihappenedtomeetthiswoman,Angel,who'srunningtheirmarketingthisyear.And
theyusedFacebooktotargetpeoplewithin25milesoftheirfairgroundsaged20to
51whohadspecificinterestinconcerts,music,festivalsandthemeparks.Andwhat
theysawforseasonpassticketsalesfor2017wasa50percentincreasecompared
to2016,andtheyattributethattoFacebook.Andthat'sreallyaboutfindingthe
peoplethatareinterested.
Andifyoulookatthepercentageofouradsbusinesswherepeopleareusingour
mostsophisticatedapproachestofindingtherightaudience,Ithinkwestillhavea
lotofopportunityforgrowththere.Andthatwillimproveboththequalityofthe
adspeopleseebutalsothereturnstomarketers.AndIthinkthatwillhitallofthe
verticalsandallofthesegments.
Operator: YournextquestioncomesfromMarkMay,Citi.
MarkMay: Thankyou.Ihad2relatedquestionsonvideo.FirstontheOpExguidance.Oneof
therealconsistenciesofthebusinessisOpExgrowth;you'vebeengrowingthatat
$4to$5billionincrementalinspendperyear,butthemidpointofyourguidanceis
lookinglikea$14billionincreasenextyear.Isthedifferentialthere--theadditional
$6-7billion--shouldwebethinkingofthatas--ofyourvideocontentspendthat
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you'resettingasidepossiblytospendnextyear?Justtryingtounderstandwhere
thesignificantincreasewouldbecomingfrom.
Andthenrelated,the35percentincreaseinadprices.Wouldyousaythat,that's
predominantlybeingdriven,theaccelerationthere,bythemixtowardsvideoad
breaksandotherlonger-formvideoads?Thanks.
DavidWehner: Sure,Mark.Ontheaccelerationofthegrowthrateinexpensesfrom2017to2018,I
wouldreallylookatthesortof--thegrowthratethatwegrewatin2017,apply
thattothetotalexpensefacedandlookatthatgrowthin2018.AndthenIwould
saytheadditionalexpensethatleadstotheaccelerationisdrivenby3factors,not
just1factor.Andthose3factorsaretheonesthatIoutlinedinmycommentary--
numberone,thesubstantialinvestmentsthatMarkhighlightedthatwe'remaking
tojustimprovethesecurityonourplatform;two,thevideocontentinvestments
we'remakingforWatchTab;andthen3,additionalinvestmentswe'remakinginthe
long-terminitiativeslikeAR/VR,AIandconnectivity.Andeachofthoseare
significantsoit'sreallythecombinationofthose3factorsthat'sdrivingtheexpense
growthacceleration.
Andthenonthe35percentincreasesinadprices,thisisreallybeingdrivenoffofa
coupleofthings.Oneisjusttheauctiondynamic,whichhas--assupplygrowthhas
slowed,thenthere'smorecompetition,andyou'reseeingpricesincreaseas
demandcontinuestogrow.ButIthinkwhatisimportanthereiswe'vebeengetting
betterandbetterattargetingasweoptimizeforrealbusinessresultsfor
advertisers,andwe'rebetteratconvertingthesignalsthatwegetfromthose
advertisersintofindingtherightadspotsforthem.AndIthinkthat'sreallywhat's
allowingustoimproveyieldandeffectivelydrivinghighereffectiveCPMsforus
whilestilldeliveringbusinessoutcomestothematattractiveROIs.
That'sreallywhat'sdrivingit;notashifttoadifferentformatlikevideo.It'sreally
aboutusgettingbetterattargetingandworkingwiththose--especiallypeople
wherewegetthosedownstreamsignalslikedirectresponseadvertisers.
Operator: YournextquestioncomesfromthelineofDouglasAnmuth,JPMorgan.
DouglasAnmuth: Thanksfortakingthequestion.Iwanttohiton2topics.Firstjustonthesecurity
comments,youtalkedaboutheadcountincreasingfrom10,000to20,000.Was
hopingyoucouldjusthelpusunderstand,isthat10,000fullyinthe23,000
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headcountthatyouhavetodayoristhereapartofitthat'snotincludedinthere
perhapsbecauseit'snotfull-time?
Andthenjustsecondly,justgoingbacktotheadpricingchanges.Dave,justto
clarifyonthat,Imean,itsoundslikewhatyou'resayingisit'snotthatadvertisers
acrosstheboardareseeingthatsubstantialofanincreaseinpricingbutthat'smore
anoutputinyoureCPM;isthattherightwaytothinkaboutit?Thanks.
DavidWehner: Right,Doug.Onthefirstone,yes,the10,000number,thatencompassesboth
employeesatFacebookandalsoemployeesatpartnerssoit'snotallFacebook
employees.That'safullyloadednumber;that'salsointheOpExguidanceaswell.
Butyes,youcan’tcomparethe10,000tothe23,000directly.
Ontheadpricing,whatyou'reseeingisthatmostoftheadvertisingthatwegetisn't
necessarilybidonanimpressionbasis;you'regettingpeoplebiddingforother
actionsandoptimizingagainstotheractionslikeaclicktoawebsiteora
downstreame-commercetransactionandappinstall,andourabilitytooptimizethe
inventorythatwehaveagainstthosedownstreamactivitiesallowsustodeliver
thoseatstillgoodpriceswhileseeingeffectiveCPMsgoup.
Youdohaveobviouslypeoplewhoarebiddingonimpressionsifthey'relookingfor
likeabrandcampaignorreachcampaign,butthosearen'tnecessarilypartofthe
businessthat'sdrivingupprices.It'smorearoundjustusdoingabetterjobatbeing
abletooptimizecampaignsforpeoplewhohavedownstreamactivitiesthatwecan
dothatfor.
Operator: YournextquestioncomesfromthelineofHeatherBellini,GoldmanSachs.
HeatherBellini: Great,thankyou.Iwantedtojustaskaquestionaboutyourcontentstrategy.AndI
waswondering,howdoyouthinkaboutFacebookWatchintermsofFacebook
producedcontentversusthelicensingofcontentthatyoumightengagein?
AndIwaswonderingifthere'sacertaintypeofcontentthatyouthinkwillbebest
suitedtooptimizetheWatchexperience.Thankyou.
MarkZuckerberg: Ithinkitmightbeusefultotakeastepbackandfirsttalkaboutwhywe'refunding
LighthousecontentandWatchoverall.Videoisgrowingincrediblyquicklyon
Facebook.Andtoday,mostofthatisinNewsFeed.Butmostpeoplewhocometo
NewsFeedandwhocometoFacebooktoday,ingeneral,aretryingtofigureout--
they'retryingtoseewhat'sgoingonwiththeirfriends,seewhat'shappeninginthe
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world;they'renotcomingnecessarilytoengageinaspecifictypeofvideoorspecific
communityaroundvideo.
TheWatchTabismainly--it'sawaytogivepeopleatooltodothat.Whenthey
wanttospecificallycomeandengagearoundvideoorcommunitiesaroundthat,
theycangototheWatchTab;theintentthereisdifferent.Nowinordertobuild
thatup,wethinkitmakessensetofirstinvestinabunchofLighthousecontent--
somethatwemayproduceorsomethatwemaylicense.Togettoyourquestion,
we'reprettyagnosticonhowthatgoes.Wejustwanttostarttheflywheelgoingso
thatwaythere’scontentandcommunitiesthataretherethatsupportthisusecase
ofpeoplecomingtoFacebookspecificallytoengageinthat.
Longterm,ourhopeisthatthebusinessherewillprimarilybethroughrevenue
sharesofvideosthatnormalcreatorsandbusinessesputintothesystemrather
thanonesthatweproactivelygooutandlicenseourselves.That'salookatthe
wherewe'retryingtogetonthisbutfirst,weneedtobuildthisbehaviorwhere
peoplewanttocomeintentionallytoengagewiththiscontent.
Operator: YournextquestioncomesfromthelineofKenSena,WellsFargoSecurities.
KenSena: Thankyou.Justgoingbackmaybetotheinvestmentandsecuritycomments.Maybe
canyouprovidealittlemoredetailjustonwhatthatinvestmentcouldlooklikeand
howwecouldthinkaboutthatshowingupinR&D,costofrevs,G&Aormaybea
combination?
AndmaybeanyearlythoughtsonGDPRandpotentialimpactthereandmaybe
someindustrytransparencyefforts,iftheycouldhaveapossiblebenefit?Thank
you.
DavidWehner: Yes.Onthefirstpart,Ken,you'regoingtoseethatshowupinavarietyofdifferent
lineitems;wedon'thaveitspecificallybrokenout.We'remakingsubstantial
productandengineeringinvestments.SoaspartoftheoverallhiringonR&D
headcount,that--there'sgoingtobeaprettysignificantallocationofthattosome
oftheproduct-relatedsecurityinitiativesthatwe'redoing.That'sgoingtoshowup
inR&D.
You'regoingtohavesomeoftheadsworkthatwe'redoing--theadsqualityat
workshowingupinthesalesandmarketinglinesoyou'regoingtoseesomethere.
Andthenyou'regoingtoalsojusthaveoverallimpactonG&Aaswellforthingslike
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policy-relatedexpensesandthelike.Ithinkyou'regoingtoseeitkindofimpacting
acrossthespectrumofourlines,butoverall,oneofthesignificantfactorsdriving
theaccelerationingrowthrates.
SherylSandberg: OnGDPR,theFacebookfamilyofappsalreadyappliesthecoreprinciplesinthe
frameworkbecausewebuiltourservicesaroundtransparencyandcontrol,and
we'rebuildingonthistoensurethatwecomplyinMayofnextyear.It'stoosoonto
tellwhetherthiswillimpacttheextenttowhichEUusersoptoutofcertainservices,
butwe'regoingtocontinuetogivepeoplepersonalizedexperienceandbeclear
abouthowwe'reusingthedata.Webelievethatwe'llbeabletoobtainconsentfor
usesofthedataacrossEuropeandthatpeoplestillexpectthecontentandtheirads
toberelevant.Weexpectagoodresulthereandwe'regoingtodoitverycarefully
andveryseriouslyaswealwaysdo.
Operator: YournextquestioncomesfromthelineofJustinPost,BankofAmericaMerrill
Lynch.
JustinPost: Great.Ihave2things.First,asyou'veintegratedmorevideocontentintoFacebook,
areyouseeingbettertimespentperuser?Isthatreallyshowingupinmore
engagementonthesite?
Andthensecondly,itlookslikeyou'rerunningaround$80ayearperusernowin
theU.S.,quitegoodimprovementoverthelastcoupleofyears.Justthinkabout
benchmarkingthatversusothermediacategoriesorotherthingsintraditional
media,doyoustillthinkyouhavealotofroomaheadtogrowthat$80overtime?
Thankyou.
MarkZuckerberg: I'lltalkaboutvideoengagementandthenDavecanjumpinonsomeofthestats.
OneoftheimportantpointsherethatItriedtocommunicateinmycomments
upfrontisthatconnectingwithfriendsandfamilyandhavingthosemeaningful
interactionsismoreimportantthanjustconsumingcontent,right?Videois
growingincrediblyquickly,andthatgoesacrossbothsocialcontentandkindof
morepassivepublicconsumptionofcontent.Andtheycreatedifferentdynamicsin
thesystemandIthinkthat'sanimportantthingtounderstand.
Whenyourfriendpostssomethingandyougettoengagewithit,itmightinform
youandentertainyou,butyoualso--ifyouinteractwithityou'rebuildinga
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relationshipwiththatperson,right?Youfeelclosertothatperson.Andthatisa
reallyimportantpartofwhatsocialnetworkingissupposedtodo.
Whereaswhenyouengagewithpubliccontent,youmightgetinformedorbe
entertained,butit'snotnecessarilyincreasingsocialcapitalinthesamewayor
buildingrelationshipsbetweenpeople.Wereallydifferentiatewhatthecorething
isthatwe'retryingtodo--whichishelppeopleconnectwitheachotherandbuild
meaningfulrelationships--andthat'swhyonalotofthesecalls,Iemphasize
productslikeInstagramStoriesorWhatsAppStatus,whichareveryvideo-based
productsbutthey'reimprovingsocialinteractions.
Andwe'regoingtofocusalotmoreonhelpingpeoplesharevideosoftheirmoment
intheirlivesbecauseinalotofways,Ithinkifyoutakeavideoofyourselfandyour
familyoutTrickorTreating,that'smoreengagingthanaphotoandabetter
representationofthatthanwritingitoutintext.
Butoverall,Iwouldsaynotalltimespentiscreatedequal.That'swhyItriedto
stressupfrontthattimespentisnotagoalbyitselfhere;whatwereallywanttogo
foristimewellspent.Andwhattheresearchthatwefoundshowsisthatwhen
you'reactuallyengagingwithpeopleandhavingmeaningfulconnections,that's
timewellspentandthat'sthethingthatwewanttofocuson.Outofthisbigvideo
thingthat'sgrowingveryquickly,Ithinkthatistherealopportunityandproduct
areathatweshouldbefocusedonmore.Andtotheextentthatthereisgoingtobe
alotofpubliccontent--whichtherewillbe--abigpartofthefocusisgoingtobe
aroundbuildingcommunityandinteractionsaroundthatcontent.
DavidWehner: Justin,onyourquestiononARPUintheU.S.,wedothinkthatthereare
opportunitiestocontinuetogrowthebusinessintheU.S.onalotofdifferent
fronts.WecancontinuetogrowengagementoncoreFacebookaswellasthere's
opportunitieswithInstagramandtheotherservicesthatwehavethatarenot
monetizingsignificantlytoday.There'sopportunitiesthere.
Butmostimportantly,kindofIwouldgobacktothefactthatwe'regettingbetterat
--ontheadproductside--ofbeingabletooptimizeourinventoryforthe
advertisersinawaythatwillwethink,drivegoodpricinginthesystemforusand
getoutcomesfortheadvertisers.Wedothinkthat,thatwillleadtothepotential
foradditionalrevenuegrowthintheU.S.
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Operator: YournextquestioncomesfromthelineofRossSandler,Barclays.
RossSandler: Great.Ihad2questionsforMark.One,Mark,asyoulooktomakechangesaround
safetyandsecurityandkindof(impressionsIthinkasanissue)doyouthinkthiswill
haveanyadverseimpactonengagementorisitjusttoosmalltoevenbematerial?
Andthenafollow-uponthevideoconsumptioncommenthappeningmostlyinthe
feed.Isthedecelerationyouguysareseeingaroundimpressiongrowthrightnowa
functionofpromotingvideointhefeedversuswhatelse--otherthingsthatmight
beinthere?AndIguessaskedadifferentway,shouldweseeimpressiongrowth
kindofrevertbacktogrowthatsomepoint?Andisthatlikelynextyearoristhat
furtheroffinthefuture?Thankyou.
DavidWehner: SoIcantakethesecondone,whichisthequestionaboutimpressiongrowth.
There'sacoupleoffactorsthere.Certainlythisquarter,wesawthatadloadas
predicted--hadamuchlesssignificantimpactonimpressiongrowth.Overall,that
storyhasplayedoutsortofaswethought,andthat'soneofthereasonsyou're
seeingtheimpressiongrowthcomedown.
Andthenyes,Idothinkthattherearelessimpressionswhenpeopleareconsuming
video,sothatalsoisafactorasmoretimeisspentonvideo.Ithinkyouhaveboth
ofthosefactorscomingintoplay.Intermsofhowthoseplayoutgoingforward,
hardtosay.Wejustkindofpointtoouroverallcommentsonjustcontinued
revenuegrowthdeceleration.
AndIbelievethefirstquestionwaswhetherthesecurityinvestmentswouldhavean
adverseimpactonengagement…
MarkZuckerberg: …yes,andIcanspeaktothat.
Letmebeclearonthisthatpeopledonotwantfalsenewsorhatespeechor
bullyingoranyofthebadcontentthatwe'retalkingabout.Totheextentthatwe
caneradicatethatfromtheplatformthatwillcreateabetterproduct,whichwill
alsocreateastronger,long-termcommunityandbetterbusinessaswell.
Thereasonwhywehaven'tbeenabletogetthesethingstothelevelthatwewant
todayisnotbecausewesomehowwantthemontheplatform;it'sthatit'sareally
hardproblem.Andwe'regoingtoinvestbothinpeopleandtechnologybecausewe
thinkthatbotharereallyimportantpartsofthesolutionheretogoafterall
differentpartsoftheseproblems.AndthatwaswhatItriedtostressearlieron.
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We'regoingfrom10,000peopleworkingonsafetyandsecuritytomorethan
doublingthatto20,000.We'rebuilding--we'redoubling,insomecases,moreour
engineeringteamsfocusedonsecurity.We'rebuildingAItogoaftermoredifferent
areasofharmfulcontentandfindingfakeaccountsandotherbadactorsinthe
system.
AndIexpectthatallofthesethingswillmakeourproductbetteroverthelongterm,
butwewillincurtheexpensesalotsooneraswerampuptheseefforts.AndIalso
justthinkthatgoingforward,we'regoingtoinvestigatethesethingsatamuch
higherlevelbecausewerealizethatit'sanimportant--notonlyforourcommunity
andthiscompany--butit'spartofourresponsibilitytosocietyoverall.
Operator: YournextquestioncomesfromthelineofRichGreenfield,BTIG.
RichGreenfield: Hi.Thanksfortakingmyquestion.Acoupleofthings.Youtalkedaboutcreators,I
think,Markcreatingfortheplatformontheirownwithoutyouhavingtoinvest.But
justtryingtoframeitinthesenseofHollywood--likeIlookatwhatAppleisdoing
nowandgoing--hiringacoupleofSonyexecutivesanddoinga$5millionan
episodebuyofaStevenSpielbergshow-andIguess,whatI'mtryingtounderstand
orIthinkalotofinvestorstryingtounderstandiswhattypeofcontentdoyou
ultimatelywant?
BecauseIdon'tthinklikesomeonelikeSpielbergisgoingtoworkforanadrevenue
sharenomatterhowgoodthatadvertisingislike.Howdoyoubalancewhattype
ofcontentbusinessyouultimatelywanttobuild?Andthenwhenyoulookatsports,
whichIalsothinkaboutasbeingkindofreallyrelevantcontentthathasahuge
communityaroundit--somethingliketheNFLmobilerights,Ithink,comeupnext
year--wonderinghowimportantarethosetypesof--orhowimportantisthattype
ofcontent?Iknowyouwerebiddingoncricketrightsoverseasbuthowimportantis
sportsinthismix?
MarkZuckerberg: Well,Ithinkthattheanswertothatiswedon'tknowalltheanswersaroundwhat
kindsofcontentaregoingtoworkandarenot.Wewillprobablyexperimentwitha
numberofdifferentthings.
Idothinkyourpointisrightthatnotallkindsofcontentcanbesupportedbyadsno
matterhoweffectivewemakethat.Thatsaid,thecurrentmodelthatwehaveforat
leastgettingsomeoftheLighthousecontentontotheplatformistopayupfront.
Andwhatwewouldliketotransitionthatmoretoovertimeandwantanincreasing
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amountofthecontentis,isrevenuesharesforadsshowninthevideo.Andaswe
dobetterandbetteronthemonetizationthere,thatwillsupportpeoplewithhigher
productioncostsanddoingmorepremiumproductionandbringingtheircontentto
theplatform.
Andwe'vecertainlyfoundontheInternetandYouTubeandinotherplacesthat
therearewholeindustriesaroundcreatorswithdifferentcoststructuresthan
traditionalHollywoodfolkswhocanproduceveryinformativeandengagingcontent
thatalotofpeoplelike,enjoyandthatbuildscommunitiesandhelpspeople
connecttogetherinawaythatdefinitelycanbesupportedbythisadmodel.Ithink
theansweriswe'regoingtotryabunchofthings.That'sabunchofwhatthe
budgetis.I'mveryoptimisticthatalotofthestuffwillbeabletobesupportedlong
term,butyou'recertainlyrightthatnotallofitwillbeabletobesupportedbyad
modelsalone.
Operator: YournextquestioncomesfromthelineofBrentThillofJefferies.
BrentHill: Thanks.Onvideo,there'sbeenalotofquestionsabouttheultimateprofitabilityof
thisgoingforward.Iwasjustcuriousifyoucouldshareyourview--Iknowit'searly
--butwhatyourthoughtsarethere?
DavidWehner: Yes,Imean,Ithinklook,today,we'retalkingabouttheadditionalinvestmentswe're
makingintermsoftheLighthousecontentontheWatchTab.Weareputtinga
substantialinvestmentbehindthat.Thatclearlyisgoingtohaveimplicationsfor
marginsalongwiththeotherbiginvestmentsthatwe’remakingnextyear.Andthen
evenafterthe--afterweestablishaflywheelhereandcangetcontentbeing
producedforadrevenueshare,that'sgoingtohaveadifferentmarginstructure
thancoreNewsFeed.
Evengoingforward,there'sgoingtoberevenuesharebackto–backtothecontent
creatorssoit'sgoingtohaveadifferentmarginstructurethanthecorebusiness.
SherylSandberg: Ithinkit'sworthaddingthattheadinventoryitselfisreallyvaluableformarketers
andourclientsandalsoworksverywellwithourotheradproducts.I'llsharea
recentone.Visa,withSocialCodeandBBDO,created10-secondvideoswithtext
overlaysshowingpeoplemakingdigitalpaymentsandtheytargetedmillennialsand
earlytechadopters.
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Andtheyranads--onegroupforFacebookNewsFeed-only,onegroupforad
breaksonlyandonegroupforNewsFeedandadbreakscombined--andthebest
resultscombined,theadbreaksandtheNewsFeed,theyhada7xlowercostper
videoviewcomparedtoNewsFeedalone.Andsooneoftheopportunitieswehave
hereisincreasinginventory.Andit'sparticularlygoodinventoryformarketers
becausewe'reseeingniceadoptionofvideoviewsandreallyniceimpactfromthose
sales.
Andit'salsothecasethatouradproductsworktogether.Theabilitytoshow
somethinginNewsFeedandthenshowavideoandwatchitandshowsomething
onInstagramandmeasureresultsacrossthefullfunnel,wethink,areveryworthy
investmentsforthelong-termhealthofthebusiness.
Operator: YournextquestioncomesfromthelineofMarkMahaney,RBCCapitalMarkets.
MarkMahaney,yourlineisopen.
MarkMahaney: Sorryaboutthat.
Acommentand2questions.Ithinkthere'sincrementalspendorthismaterially
increasedspendonsecurityishighlyunfortunate,butIthinkitmakeseminent
sense.Ithinkmostlong-terminvestorsrealizethecommunitymaximization,
includingsecuritywouldleadtolong-termprofitmaximization,soIthinkmake
eminentsense.
Twoquickquestions.TheWatchTab,isthereanyevidenceoranydatapointsyou
cangiveustowhatkindoftractionyou'reseeingwiththatsofar?Iwassurprisedby
howmanypeopleareonMarketplace.AnyrelevantdatalikethatforWatchTab?
Andthensecondly,ofalltheregions,Europereallystruckouttous–stuckouttous
asonethatshowedsurprisingacceleration.AndIknowyoutalkedalittlebitabout
that,Sheryl,abouttheSMBpickupandtractionthere.Anyothercolorforwhy
Europewouldhaveacceleratedsomuchintermsofitsrevenuegrowth?Thankyou.
DavidWehner: Sure,letme,Iguess,hitbothofthoseandthenSherylcanaddanycolorshe'dlike.
OntheWatchTab,Ithinkit'sjustearly.AndsoIthinkit'stooearlytobetalking
aboutanystatsthere.
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IntermsofEurope,onethingtonoteisthatwedidpickupcurrencyadvantages
there.Soitwas56percentonareportedbasisbut51percentonaconstant
currencybasis;stillhealthygrowthrate.Ithinkit'sastrongeconomythere.Ithink
theteamisexecutingwelltheresoIthinkyou'vegotavarietyoffactors.Andthen
asSherylcommentedinherpreparedremarks,SMBhasbeenparticularlystrongin
Europe.AndsoIthinkthat'soneofthekeydriversandoneofthethingswe're
reallyhappywith.
MarkZuckerberg: Oneclarificationonyourquestion,too,isthatthe550millionpeopleisacrossboth
Marketplaceandbuyandsellgroups;notjusttheMarketplacetab.That'sthetotal
amountofactivitythatwe'reseeingthereacrossbothofthose.
Operator: YournextquestioncomesfromthelineofColinSebastian,Baird.
ColinSebastian: Thanksfortakingmyquestion.First,aquickfollow-uponsafetyandsecurity.I
guess,I'mwonderingwhymoreoftheAIandmachinelearningthatyou'vebuiltfor
productandtheadplatformcan'tbeutilizedorcross-utilizedtohelpmitigatesome
ofthecostsofaddingpeopleandtechnologytohandlethoseissues.
Andthensecondly,relatedtohowmuchtimeyoungerpeoplearespendingornot
spendingontheFacebookapps,Iwonderifyou'velookedatoverthecourseoftime
thetrendinusesasyoungerpeoplehitdifferentmilestonesinlifesuchas
graduatingfromcollegeorgettingajobandhowtheirusageoftheappchanges
overthattimeframe?Forexample,ifyou'reseeingasteadystreamoftheusers
comingtoFacebookoncetheyhitthosemilestones.Anycoloraroundthatwould
beinteresting.Thankyou.
MarkZuckerberg: Sure.I'llspeaktothesafetyandsecurityinvestmentandthenDavecanspeaktothe
otherquestion.
Weneedbothtechnologyandpeopleforthis.AndthebestarticulationofthisthatI
canmakeisthattoday,AIhasdifferentstrengththanpeopledo,right?TheAItools
thatwe'vebuiltcanenableasystemtolookatmillionsofpiecesofcontentand
makeroughassessmentsonthemandfigureoutwhattoflagforpeople.But
ultimately,ifyouwanttogetthosehigh-qualityjudgmentstodayonsensitive
contentandyouwanttodowithquicklywhenthestakesareprettyhighintermsof
takingdowncontentorleavingthingsup,Imean,wetakethatextremelyseriously,
youwantpeopletobelookingatthat.
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Earlierintheyear,whenwewereworkingonproblemslikeseeingissueswhen
peopleweregoinglive,right?Therewasthisreallyseriousissuearoundpeoplewith
self-harmand,insomecases,suicideonLive.AndwemadeaninvestmentinAI
toolsandindramaticallyincreasingthestaffingoftheteamthatwasworkingon
thatandbroughttheamountoftimetoreviewthoselivevideosdownthrougha
combinationofthosethingstoIthinkit'sunder10minutesnow.Thatmightstillbe
aconservativeestimate.Andwe'recontinuingtoworkonthat.
Nowwhatwe'retryingtodoisjustincreasetheSLAsthatwehaveacrossallof
thesedifferenttypesofcontentandsecuritythreatsthatwemightseesothatway,
throughacombinationoftheAItoolingthatwebuildandhavingpeopletolookat
thesethings,wecangetitrightfasterformoreofthetypesofcontent.
Andyou'redefinitelyrightthatalotoftheAIresearchthatwedoisapplicableto
multipleareas,butwestillneedtobuildthosetools.Ittakesalotofengineering
investmentandwewillbeprioritizingthat,insomecases,byaddingpeopleto
teamsandinothercases,bytradingoffanddoingmoresecurityworkinsteadof
otherproductworkthatwemighthavedone.Butthisisreallyimportantandthisis
ourpriority.
DavidWehner: Yes,Ithinkonsortofhowpeopleuseourproductsinlifestages,Iwouldjustsortof
--Iwouldsay,generally,whatwe'retryingtodoisbuildavarietyofdifferenttypes
ofsocialproductsthatcanhelpinavarietyofdifferentusecasessoitcouldbeone-
on-onemessagingwithWhatsAppandMessenger.ItcouldbesharingtoGroups
withtheFacebook.ItcouldbethefriendsthatyouhaveonInstagram.
It's--we'retryingtokindofmakesurethatwefleshoutthefullrangeofsharing
experiences,andwethinkthat,thathasapplicabilityacrossallthedifferentlife
stages.Anddependingontheagespeopleusetheproductsdifferentlybutwould
notsharinganyspecificbreakoutsonthat.
DeborahCrawford: Operatorwehavetimeforonelastquestion.
Operator: YourlastquestioncomesfromthelineofYoussefSquali,SunTrust.
YoussefSquali: Thankyouverymuch.Justonequestion.Youguysunbundledthevideobuy;can
youspeaktopricing--relativetothat35percentaverageincreaseinadpricing--
canyoumaybejusthelpusunderstandthedisparitythatexiststodaybetween
pricingonthenewvideoplatformandthelegacyvideoplatform?Thankyou.
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DavidWehner: I'mnottotallyclearonwhatyoumeanbythenewvideoplatformandthelegacy
videoplatform,butIwouldjustsaythatthisisprimarilydrivenbyNewsFeed
pricing,andthenyouhaveright-handcolumnpricingaswellsoyouhave
impressionsonFacebookNewsFeed,InstagramfeedaswellasFacebookright-hand
column.
Adbreaksarereallyarelativelysmall--averysmallfactortoday.Thepricingis
reallyaboutwhatisthepricingthatyou'reseeingintheoverallsystem,primarily
givenonthefeed-basedproducts.That'sreallywhatthedriverisandagainthere,I
wouldpointtothecommentsthatImadeaboutgettingbetterattargetingand
drivingtowardsgoodoutcomesforouradvertisersasbeingkindofthereasonthat
we'vebeenabletosupporthigherprices.
DeborahCrawford: Great.Thankyouforjoiningustoday.Weappreciateyourtime,andwelook
forwardtospeakingwithyouagain.
Operator: Ladiesandgentlemen,thisconcludestoday'sconferencecall.Thankyouforjoining
us.Youmaynowdisconnectyourlines.