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Facebook,Inc.(FB)SecondQuarter2017ResultsConferenceCallJuly26th,2017OperatorGoodafternoon.MynameisMikeandIwillbeyourconferenceoperatortoday.AtthistimeIwouldliketowelcomeeveryonetotheFacebooksecondquarter2017EarningsCall.Alllineshavebeenplacedonmutetopreventanybackgroundnoise.Afterthespeakers'remarks,therewillbeaquestionandanswersession.Ifyouwouldliketoaskaquestionduringthattime,pleasepressstarthenthenumber1onyourtelephonekeypad.Thiscallwillberecorded.Thankyouverymuch.Ms.DeborahCrawford,Facebook’sVicePresidentofInvestorRelations,youmaybegin.DeborahCrawford,VPInvestorRelationsThankyou.GoodafternoonandwelcometoFacebook’ssecondquarter2017earningsconferencecall.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,CEOThanks,Deborah.Andthankseveryoneforjoiningtoday.Thisquarterwereachedabigmilestoneforourcommunity:2billionpeoplenowuseFacebookeverymonth,andmorethan1.3billionpeopleuseitdaily.Wealsosawgoodresultsonthebusiness,withtotalrevenuegrowingby45%year-over-yearto$9.3billion,andadvertisingrevenueup47%to$9.2billion.We'reproudoftheprogresswe’remaking,anditalsocomeswitharesponsibilitytomakesurethatwehavethemostpositiveimpactontheworldthatwecan.That'swhy,lastmonth,weupdatedFacebook'smission.
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Forthepastdecade,we'vefocusedonmakingtheworldmoreopenandconnected.Wehavealotmoretodoheretogivepeopleavoiceandhelpeveryonestayconnectedwiththeirfamilyandfriends.ButnowIbelievewehavearesponsibilitytodoevenmore.Ournewmissionistobringtheworldclosertogether.Abigpartofthismissionisbuildingcommunity.Communitiesgiveusthatsensethatwearepartofsomethingbiggerthanourselves,thatwearenotalone,thatwehavesomethingbetteraheadtoworktowards.Lastmonth,wehadourfirst-everFacebookCommunitiesSummittotalkaboutourproductroadmapfocusedonbuildingwhatwecall"meaningfulcommunities."MeaningfulcommunitiesonFacebookaregroupsthatquicklybecomeanimportantpartofyoursocialnetworkexperienceandyourrealworldsupportstructure.Andrightnow,over100millionpeoplearemembersofthesegroups--fromnewparentstopeoplesufferingfromrarediseases.Thesegroupsoftenspanonlineandoffline--andbringpeopletogetherphysicallyaswellasovertheinternet.Ourgoalistohelpmorethan1billionpeoplejoinmeaningfulcommunities.Partofthisinvolveshelpingpeoplediscovertherightgroups,whichiswhywe'rebuildingtechnologylikeAIthatbetterunderstandspeople'sinterestsandsuggestsgroupsthatmightbemeaningfultothem.Andinthesixmonthsafterwestartedworkingonthis,we’vealreadyhelped50%morepeoplejoinmeaningfulcommunitiesthanbefore--butwehavealotmoretodohere.Wealsowanttomakeiteasierforpeopletobuildandleadcommunities.Lastmonth,welaunchednewtoolsforgroupadmins--makingiteasierforthemtogetinsightsintowhotheirmembersare,filtermemberrequests,andremovebadactorsandtheircontentquicklytokeepapositiveandsafeenvironment.Next,Iwanttogiveaquickupdateonwhatwe'rebuildingoverourthreetimehorizons:makingourexistingservicesmoreusefulnow;buildingnewecosystemsoverthenextfiveyearsaroundourproductsthatalotofpeoplealreadyuse;andcreatingfoundationaltechnologiestoachieveourmissionoverthenext10years.Sowe'repleasedwiththegrowthwe'reseeingwithStories.InstagramStoriesnowhasmorethan250millionpeopleusingitdaily,andWhatsAppStoriesalsohasmorethan250millionpeopleusingitdaily.We'realwaysworkingtoimproveandgivepeoplemorewaystoshare.Andthisquarter,weaddedtheabilitytoreplytostorieswithaphotoorvideo,andshareareplayofLivevideoonInstagram.I'mexcitedabouthowAIwillimprovepeople'sexperienceacrossourproducts.We'refindingAIisbothdeliveringconsistentimprovementstomanyofoursystems--likeNewsFeed,search,ads,securityandspamfiltering,andmore.Butmorethanjustimprovingtheseexistingexperiences,IexpectAItochangethewaywedobusinessinsomeimportantways.Forexample,today,tokeepourcommunitysafe,werelyonpeopleflaggingcontentthatmightviolateourcommunitystandardsforustoreview.Inthefuture,AIwillbeabletohelpflagmoreofthiscontentfasterandbeforeanyonehastoseeit.
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We'vestartedusingAItofightterrorismandkeeppropagandaandextremistaccountsoffFacebook.We'veevenstartedexperimentingwithusingAItounderstandtextthatmighthavebeenusedtopromoteterrorism.InNewsFeed,wecurrentlymostlyshowyoucontentfrompeopleandpagesyou'reconnectedto.Wecanrankthisbetterwiththealgorithmimprovement,butthereallybigimprovementfromAIwillbewhenwecanunderstandalltheothercontentthat'souttheresowecanhelpyoudiscovermuchmoreofwhatmatterstoyoubeyondjustwhatfriendsareupto.Onthebusinessside,we'reseeingalargeshiftinthewaymarketingworks.Inthefirstwaveofmarketing,peoplewouldbuyadsinmediatheythoughttheircustomersmightwatch--likeaTVshowthathadsimilardemographics.Buttheywouldn'tknowwhosawtheirad.Theinternetgavepeoplethepowertotargettheirmessagesatpeoplewhoactuallymightbeinterestedandtomeasureresultsmuchmoreprecisely.Thatwasabigimprovement.AndnowAIistakingthisastepfurther.Nowyoucanputacreativemessagethere,andAIcanhelpyoufigureoutwhowillbemostinterestedinit.Youdon'tevenneedtotargetnowbecauseAIcandoitmorepreciselyandbetterthanwecanmanually.Thismakestheadsyouseemorerelevantforyouandmoreefficientforbusinesses.ThosearejustafewofthereasonsI'moptimisticabouthowAIisgoingimproveourcoreservicesoverthenextfewyears.Overthenextfiveyears,we'regoingtobuildecosystemsaroundproductsthatalotofpeoplearealreadyusing.We'vetalkedabouthowvideowillcontinuetobeabigfocusandareaofinvestmentforus.It'sgrowingquickly,andwe'reintroducingnewfeaturestomakethevideoexperienceevenbetter.Forexample,inMay,wemadetheoptiontogolivewithsomeoneelseavailableforallprofilesandPagesoniOS.WealsolaunchedclosedcaptionstomakeLivemoreaccessible.We'realsoworkingtobuildabusinessecosystemaroundMessengerandWhatsApp.MessengerandWhatsAppbothhavelargecommunitiesandaregrowingquickly--with1billionpeoplenowusingWhatsAppdaily.It'sstillearlyonthemonetizationsidehere,althoughwehavestartedshowingadstoasmallnumberofpeopleonMessenger.Iwanttoseeusmovealittlefasterhere,butI’mconfidentwe’llgetthisrightoverthelongterm.Finally,overthenext10years,we'reworkingonfoundationaltechnologiesthatarenecessarytoachieveourmission.InVR,welaunchedLivefromSpacessoyoucangolivewithfriendsindifferentplaces.Wethinkithasthepotentialtobeapowerfultooltobringpeopletogetherandhelpbuildcommunityinnewways.We'realsoworkingtohelpeveryoneintheworldaccesstheopportunitiesthatcomewiththeinternet.InMaywesuccessfullyflewAquila--thesolar-poweredplanewe'rebuildingtobeaminternettopartsoftheworldthatcurrentlydon'thaveaccess–anditwasthesecondsuccessfulflight.Theseinitiativesandotherprojectsrequireongoing,aggressiveinvestmentintheinfrastructuretoserveourcommunity.LastquarterourFortWorthdatacenterwentliveandisnowservingtrafficusing100%renewableenergy,andwe'realsoexpandingourdatacentersinLosLunas,NewMexicoandAltoona,Iowa.Thisfirsthalfof2017hasbeenanimportantperiodforFacebook.We'veachievedsomemajormilestones,deliveredgoodbusinessresults,andsetcleargoalsaroundbuildingstrongcommunitiesandbringingpeopleandtheworldclosertogether,butwehavealongwaytogo.Thankstoourcommunity,
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ourteams,ourpartnersandallofyouforbeingapartofourmission.I'mlookingforwardtomakingmoreprogresstogether.Andnow,here'sSheryl.SherylSandberg,COOThanksMarkandhieveryone.Wehadastrongsecondquarterandagreatfirsthalfoftheyear.Ourbusinesscontinuestodeliverterrificresults.Q2adrevenuegrew47%yearoveryear.Mobileadrevenuegrew53%yearoveryearto8.0billionandisnow87%oftotaladrevenue.Ourgrowthcontinuestobebroad-basedacrossregions,marketersegments,andverticals.Ourgoalistobuildmeaningfulconnectionsbetweenpeopleandbusinessesbyfocusingonourthreekeypriorities:helpingbusinessesleveragethepowerofmobile,developinginnovativeadproducts,andmakingouradsmorerelevantandeffective.Ourfirstpriorityishelpingbusinessesleveragethepowerofmobile.Peoplearerapidlyincreasingthetimetheyspendonmobile,andbusinessesknowtheyneedtobewhereconsumersare.Giventhesizeandengagementofouraudiences,FacebookandInstagramarethebestplatformstoreachpeopleanddrivebusinessresults.Wehaveover70millionbusinessesonFacebook,andI’mexcitedtoannouncetodaythatwenowhavemorethan15millionBusinessProfilesonInstagram.Videoisanimportantpartofourmobilestrategy.MorevideoisbeingsharedandwatchedonFacebookthaneverbefore,andit’sincreasinglyhelpingpeopleandbusinessesconnect.That’sbecausevideoonFacebookispersonal--builtaroundconnections,conversations,andcommunities.Thisiswhyitcreatesopportunitiesforbusinessestoreachpeopleinnewandcreativeways.Peopleconsumecontentfasterontheirphonesandmarketersareincreasinglyrecognizingthatthisbehaviorisdifferentthanonothermedia.Thismeansthatdevelopingshort-form“snackable”contentisabigopportunityonmobile.We’reworkinghardtohelpmarketersadoptmobile-firstvideoadstrategiesforFacebookandInstagram.Inamobileenvironment,nativemobilevideoadstypicallyoutperformmoretraditionalads.Forexample,whenTropicanalauncheditsprobioticjuice,thecompanytested6-secondvideoadsagainst15and30secondads.Theshorteradsresultedinhigherbrandmetricsacrosstheboard,includinga16-pointliftinbrandawarenesscomparedtoa6-pointliftforthelongerads.
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Oursecondpriorityisdevelopinginnovativeadproducts.We’relisteningcloselytofeedbackfrommarketersaroundtheworldtodevelopnewadformatsandinnovateonexistingones.LastquarterItalkedabouthowourDynamicAdshelpretailersande-commercecompaniespromotetheirproductsacrossdevices.DynamicAdsshowpeopletheproductsthataremostrelevanttothembasedonactionsthey’vetaken–suchasviewingitemsonacompany’swebsite.Thisquarter,wecontinuedtoimproveDynamicAdsandextendedthemtonewverticalsandcategories.DeltaAirlinesusedournewflightformattoreachpeoplewhohadsearchedforaflightbutnotyetbookedone.Deltawasabletorunpersonalizedadsbasedontheroutespeopleviewedontheirsiteandthenbringpeoplebacktotheirbookingpage.Thisresultedina12.7timesreturnonadspend.Thisquarter,wealsorolledoutadsinInstagramStoriesforalltypesofmarketerobjectives.AsMarkdescribed,InstagramStoriesaregrowingincrediblywellandarethereforeabigopportunityformarketers.Fromdrivingbrandawarenesstoincreasingsales,businessescannowusefullscreenInstagramStoriesadsforanygoal.Forexample,Ben&Jerry’screatedabrandawarenesscampaignusingverticalvideoinInstagramStoriesandsawa14-pointliftinadrecallanda2-pointliftinpurchaseintentforitsnewPintSlicesicecream.Ourthirdpriorityismakingouradsmorerelevantandeffective.ThismeansbettertargetingandbettermeasurementacrossFacebook,Instagram,andAudienceNetwork.Marketersofallsizesareincreasinglyfollowingourbestpractices–likeoptimizingtheiradstodrivereal-worldoutcomesratherthanfocusingonproxymetrics,suchasPagelikesandvideoviews.53%ofourrevenuefromSMBsisfromcampaignsthatusethesetoolsandstrategies,upfrom23%inthebeginningoflastyear.Thisquarterwealsoaddednewwaysformarketerstoimprovetheirtargetingandspendmoreefficiently.Forexample,weintroducedvalueoptimization,whichhelpsbusinessesshowadstopeoplewhoaremostlikelytospendbasedonpreviouspurchasebehavior.Wealsointroducedvalue-basedLookalikeAudiences,whichusemachinelearningtohelpmarketersreachpeoplewhoaresimilartotheirmostvaluablecurrentcustomers.Forexample,California-basedaccessorycompanyNomadbuiltaCustomAudienceofpeopleintheUSwhoboughtsomethingontheirsite–andthencreatedamulti-countryLookalikeaudienceofpeoplewithsimilarcharacteristics.TheytargetedadstotheirinternationalaudienceacrossFacebook,Instagram,andAudienceNetwork,resultingina2.7timesreturnonadspend.Weknowthatmanymarketerswanttoverifyandcompareresultsacrossplatforms.Thisiswhywe’refocusedongivingourclientsmoreoptionsforthird-partymeasurementandverification.Wenowhave24partnersinourmeasurementsystem,including3partnersmeasuringviewability,andwe'reintheprocessofaddingtwomoreviewabilitypartners,DoubleVerifyandMeetrics.
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Asthefirsthalfof2017comestoaclose,wefeelgoodabouttheprogresswe’remaking.Asmarketersbuildmoremeaningfulconnectionswithpeopleonmobile,wehelpthemgrowtheirbusinesses–whichinturngrowsours.Icontinuetobegratefultoourclientsandpartnersallaroundtheworld,andtoourglobalteamswhomakeallofthispossible.Thanksandnowhere’sDave.DavidWehner,CFOThanksSherylandgoodafternooneveryone.EchoingMarkandSheryl’scomments,Q2wasanotherstrongquarterforFacebook.Wecontinuedtoseestronggrowthandengagementinourglobalcommunityaswellasmomentuminourmobileadsbusiness.Let’sbeginwithourcommunitymetrics.InJune,1.32billionpeoplevisitedFacebookonanaverageday,up17%comparedtolastyear.Thisnumberrepresents66%ofthe2.01billionpeoplethatvisitedFacebookduringthemonthofJune,whichwasup294millionor17%comparedtolastyear.OurcommunitygrowthwasagaindrivenbyproductimprovementsonAndroid,ourInternet.orgeffortsandongoingthirdpartypromotionaldataplansinmarketslikeIndia.WewillbeginlappingtheimpactofthesepromotionsinQ3ofthisyear.Wearealsopleasedtoseestrongadoptionandcommunitygrowthacrossvideo,InstagramStories,MessengerandWhatsApp.WhiletheseproductsdonotmonetizeatthesamelevelasNewsFeed,theyareprovidingnewwaystobuildglobalcommunity.Turningnowtothefinancials.Allofourcomparisonsareonayear-over-yearbasisunlessotherwisenoted.Q2totalrevenuewas$9.3billion,up45%.Hadforeignexchangeratesremainedconstantwithlastyear,totalrevenuewouldhavebeenapproximately$140milliongreaterorup47%.Q2totaladrevenuewas$9.2billion,up47%or49%onaconstantcurrencybasis.Adrevenuegrowthwasstrongglobally.RestofWorldandAsia-Pacificgrewat56%and54%,respectively,whileUS&CanadaandEuropegrewat45%and43%respectively.Mobileadrevenuewas$8.0billion,up53%andrepresentedapproximately87%ofadrevenue.Desktopadrevenuegrew17%despiteanongoingdeclineindesktopusage.NotethatourQ2desktopadrevenuebenefittedfromoureffortstolimittheimpactofadblockingtechnologies.
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InQ2,theaveragepriceperadincreased24%andthenumberofadimpressionsincreased19%,primarilydrivenbymobilefeedadsonFacebookandInstagram.Payments&OtherFeesrevenuewas$157million,down20%.Totalexpenseswere$4.9billion,up33%.WeendedQ2withover20,000employees,up43%comparedtolastyear.Ourhiringgrowthrateincreasedforthethirdconsecutivequarteraswecontinuedtoinvestinthemanyopportunitiesahead.Q2operatingincomewas$4.4billion,representinga47%operatingmargin.Ourtaxratewas13%.Inthequarter,excesstaxbenefitsrecognizedfromshare-basedcompensationdecreasedoureffectivetaxrateby6percentagepoints.Netincomewas$3.9billionor$1.32pershare.Q2capitalexpenditureswere$1.4billion,drivenbyinvestmentsinservers,datacenters,officefacilitiesandnetworkinfrastructure.Wegeneratedover$3.9billioninfreecashflowandendedthequarterwithover$35billionincashandinvestments.Turningnowtotheoutlook.Growth,engagementandadvertisingdemandremainhealthybuttherearecertainfactorsthatwillimpactrevenuegrowththatareworthmentioning.Aswehavediscussedbefore,wecontinuetoexpectthatFacebookadloadwillplayalesssignificantfactordrivingadvertisingrevenuegrowthgoingforwardandthatdesktopadrevenuegrowthrateswillslowinthesecondhalfof2017whenwebegintolapeffortstolimittheimpactofadblockers.Inaddition,weexpectthatourstrategicfocusondrivingengagementwithmobilevideomayslowadvertisingimpressiongrowthgiventherelativelyfeweradimpressionsinvideorelativetoNewsFeed.IwouldalsonotethatwedonotseeourearlyeffortsinMessengermonetizationoffsettingthefactorsthatIjustmentioned.Forthesereasons,wecontinuetoexpectthatouradrevenuegrowthrateswillcomedownastheyearprogresses.
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Wecontinuetoexpectfull-year2017Payments&OtherFeesrevenuetodeclinecomparedtofull-year2016.Turningnowtotheexpenseoutlook.Basedonourupdatedviewoftheremainderoftheyear,wearetighteningourinitialexpenseguidancerange.Weexpectthatfull-year2017totalGAAPexpensegrowthwillbeapproximately40-45%narrowedfromourpreviousrangeof40-50%.Iwouldnotethatweexpecttoaccelerateourheadcountgrowthratesinthesecondhalfoftheyearasweremainsolidlyininvestmentmode.Wealsoexpectthatourvideocontentinvestmentswillcontributetooperatingexpensegrowthinthesecondhalfof2017.Intermsofcapitalexpenditures,weexpectthatfull-year2017capitalexpenditureswillbeinthelowerendofthepriorrangeof$7-$7.5billiondollars.Wearerampingourinfrastructureinvestmentstosupportglobalgrowthandanticipatemoredatacenterbuildingactivityinthesecondhalfofthisyear.Forexample,werecentlybrokegroundonnewbuildingsatourNewMexicoandIowadatacenters.Turningnowtotax.AsIhavenotedpreviously,ourtaxratewillvarybasedonourstockprice.Atthecurrentstockprice,wewouldexpectthatourQ3andfull-year2017taxrateswillbothbesimilartoourQ2rate.Insummary,thefirsthalfof2017wasastrongperiodforFacebook,bothfinanciallyandintermsofgrowthandengagementofourcommunity.Wewillcontinuetoinvestaggressivelyinthemanyopportunitiesweseeaheadaswemakeprogressonourmissiontogivepeoplethepowertobuildcommunityandbringtheworldclosertogether.Withthat,Mike,let’sopenupthecallforquestions.Question&AnswerSessionOperator Wewillnowopenthelinesforaquestionandanswersession.
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Toaskaquestion,pressstarfollowedbythenumberoneonyourtouchtonephone.Pleasepickupyourhandsetbeforeaskingyourquestiontoensureclarity.Ifyouarestreamingtoday’scall,pleasemuteyourcomputerspeakers.YourfirstquestioncomesfromthelineofBrianNowakfromMorganStanley.
BrianNowak: Thanksfortakingmyquestion.IhaveoneforMark.Mark,theofferingsonthecore
FacebookapphaveimprovedandchangedalotovertheyearsfromGroups,Live
Video,Search,etcetera.I'dbecurioustohearhowyou'venoticedconsumer
behavioronthecoreproduct,thecoreFacebookappchangeasInstagramhas
grown.Andhowdoyouthinkaboutthatevolvingoverthenextthreetofiveyears?
Thanks.
MarkZuckerberg: SothemainvaluepropositionfortheFacebookappishelpingpeopleshareanytype
ofcontentthattheywantwithanyaudiencethatmatterstothem,right?Soyoucan
gofromtexttophototovideofromsmallgroupstolargergroups,fromyourfriends
toeveryoneintheworld.
Andthat'salwaysbeenwheretheFacebookapphasexcelled.Therehavebeen
differentexperiencesthataremorefocusedonspecificthings,butwherethestrong
technologicalfoundationsupportingallofthesedifferentusecases,theFacebook
apphasalwayssupportedpeopleusingallofthem.Nowthebiggesttrendthatwe
seeinconsumerbehaviorisdefinitelyvideo,right?
Andthere'sastrongtechnologicalunderpinningforthat,whichisthatifyougoback
5years,youtrytowatchavideoonyourphone,itwouldprobablyhavetobuffer
foraminuteorsobeforeyouactuallygettowatchit,whichwasn'tagood
experience.
Andifyouwanttouploadavideolikewhetherit'salongervideolikewhatyoupost
toNewsFeedora10-secondstorylikewhatyou'dpostonanyoftheapps,Imean,
eventhatmighttake30secondstouploadsoitwasn'tagoodexperience.Sonow
asthetechnologyonthenetworklevelimprovestosupportthat,whatwe'reseeing
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istheabilitytoservewhatisalargeamountofdemandforwhat'saveryengaging
typeofcontent.
Andthatdemandflowsacrosssocialcontentlikewe'reseeinginStoriesandfeedto
clearlyahugeamountofpubliccontent.Imean,Pagesareengaginginthisand
someofthetrendsthatDavejusttalkedaboutforjustalotofvideobehavioracross
theplatform.
Operator: YournextquestioncomesfromthelineofRalphSchackartfromWilliamBlair.
RalphSchackart: Goodafternoon.Mark,inthepreparedremarks,youtalkedaboutMessengerand
WhatsAppbeingintheearlyinningsofthemonetization.Andthenyoualsotalked
aboutyourdesiretomovefasteronMessenger.Justcuriouswhatarethefactors
sortofdrivingyourwillingnesstomovefaster?Andthenhowshouldwethinkabout
thatbothfromaconsumerandmonetizationexperience?
MarkZuckerberg: Well,onMessenger,therearetwobasicthingsthatwe'redoing.Oneiswe're
startingtoputsomeadsintotheproductjusttoseethebasicparametersaround
howthatperforms,howpeopleliketheadsordon't,howtheyworkforbusinesses
andjusttrytogetanunderstandingofthat.We'restartingtorunthatacrossthe
world.ButasDavesaid,we'restartingtorollthatoutinalotofplaces,thevolume
startsoffprettysmall.
Thebiggeststrategicthingthatwereallyneedtodoinmessagingrightnowismake
itsothatpeoplehaveorganicallyinteractwithbusinessesandthatisagood
interactionbothforpeopleandforthebusinesses.Sohere'sonewaytothinkabout
this.
Ifyou'reabusinessandyouhaveahigherROIforinteractingwithapersoninyour
messagingthreadthanyoudoonthemobilewebortryingtogetthemtoinstallan
app,thenthatcreatesthispositivefeedbackloopwhereyou'regoingtopointyour
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adtowardstheMessengerthread,you'regoingtoinvestmoreofyourengineering
resourcesinbuildingoutthecontentandexperiencearoundtheMessengerthread.
Sowe'recurrentlyworkingonmakingitsothat,thatisthehighestROIthing.Ithink
we'remakingprogressthereisnotthatwe'regoingtocrackeverymarketatonce,
butinsome,Ithinkwe'redefinitelygettingthere,we'regettingpositivefeedback
fromthemarket.Butoncewestarttoachievethatinmoreandmoreverticals,I
thinkthat'sgoingtostartunlockingalotofbehavior.
Andalotofbusinessesaregoingtowanttopushmoreinteractionstohappen
there,whichIthinkwillreallybethefoundationforbuildingthatintoabigbusiness.
DavidWehner: Yes,andRalph,it'sDave.Iwouldjustaddthatwithmessagingmonetization,thisis
earlyandit'snotanear-termoverallFacebookgrowthdriver.Andmuchlike
Instagraminitsearlydays,we'regoingtobecautious.ButunlikeInstagram,this
isn'tafeedproductsotherearejust--therearemoreunknownshere.
Operator: YournextquestioncomesfromthelineofHeatherBellinifromGoldmanSachs.
HeatherBellini: Great,thankyou.Iwaswondering,SheryltalkedalittlebitaboutInstagramStories.
Iwaswonderingifyoucouldsharethekindoftheinitialfeedbackfromadvertisers.
DidtheyseeitassimilartoadvertisingintheIGfeed?Oraretheyusingittoreach
peopleinadifferentwayifyou'venoticedanythingovertheperiodthatyou've
beendoingit?Thankyou.
SherylSandberg: Soit'sprettyearlyforadsinStories.AndIthinkthewaypeoplelargelythinkabout
thisisthisisanotherwayofusingtheFacebookadsystem,includingourtargeting
andmeasurementcapabilitiestocreateadsthataregreatcreativethatcanreach
people.Sothefullyimmersiveformatwiththetargetingandoptimizationof
Facebookadsisaprettyunmatchedopportunity.
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WealsohaveahugeopportunitywithinInstagram,andobviously,theuseofadsin
Instagramismuch,muchbiggerthantheuseofadsinStories.Thewaywethink
aboutthisiswe'retryingtohelpmarketersreachtheircustomers,boththeir
existingandtheirnewcustomerseffectively.
Andwethinkit'sthecombinationofalltheseofferingsthatreallyarethestrength
ofourbusinessandexplainswhywecancontinuetogrow.Sowithinoneinterface,
we'reworkingwithonesalesrep.Ifyou'realargecompanyorasmallcompany,you
canbuyFacebook,youcanbuyInstagram,youcanbuyAudienceNetwork.
YoucanbuythedifferentadformatswithinFacebookandInstagram.Andthat
meansthatyouhavemultipletargetingopportunities,multipleopportunitiesand
evenopportunitiestoseewhoengagesinanadinoneplaceandthenreinvestto
continuetheconversationwiththosecustomers.Sowethinkallofthesethings
worktogetherandthesenewformatsfitinreallynicelywithadsystemwebuilt,
whichunderliesalloftheopportunity.
Operator: YournextquestioncomesfromthelineofPeterStablerfromWellsFargo.
PeterStabler: Thanks,goodafternoon.OneforSheryl,ifIcould.Sheryl,youguyshaverolledout
someinitiativesdesignedtoaddressspecificadvertisingcategorieslikeDynamic
travelAds.Couldweanticipatemoreeffortsgoingforwardtoaddresscategories
thatmayberelativelyunderpenetratedbyFacebook,InstagramandAudience
Network?SoI'mthinkingaboutcategorieslikefinancialservices,auto,forexample.
SherylSandberg: Sowe'rereallyhappythatourgrowthhasbeenreallystrongacrossourverticalsand
thatcontinuestobethecase.Ourtopverticalsareprettyconsistentine-commerce,
CPG,entertainment,media,retailandgaming.Forthemostpart,whenwebuild
products,webuildthemtoworkforallverticalsandyouseeusdothat.Beingable
touploadyourcatalogofproductscanbeusednomatterwhatyourproductlists
are.
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Wedobuildvertical-specificadproductswhentheyarenecessary--soDynamicAds
fortravel,forexample,asyoumentioned,beinganexample.Ithinktheheaviest--
heaviestliftingoftheworkwedoisreallyhelpingmarketersindifferentverticals
focusontherightmetrics,whicharethesalesmetricsbecausefortoolong,our
industryhasbeenfocusedonproxymetrics.Howlongsomeoneviewedavideo.
Evenbrandlift,measurementswecareaboutbuttheseareallproxymetrics.What
reallymattersisyouseeanadandyoubuyaproduct,youseeanadandyoudrivea
caroffalot.Youseeanadandyouorderaservice.Andsothere'sverydifferent
processeswiththesedifferentverticalsintermsofhelpingthemunderstandtheir
ownpurchasingdata,sothatwecanconnectouradstotheirultimatepurchases.
Webelievethat'soneofthemostimportantthingsthatwe'vebeenvery,very
focusedon.Andwehavealongwaytogo.Andpartoftheresultsyouseefromusin
differentverticalsareactuallyexplainedbytheabilityofustohelpthosemarketers
measuresalesattheendoftheday.Themorethatwecantieadviewingtosales,
thestrongerourcaseiswithourclients.Andsoweneedtodoalotofworkaround
themeasurementwithdifferentverticals.
Operator: YournextquestioncomesfromthelineofDougAnmuthfromJPMorgan.
DouglasAnmuth: Yes,thanksfortakingthequestion.TwoifIcould.Mark,youvisitedmanydifferent
partsofthecountryoverthelastseveralmonths.Justcurioushowyou'reapplying
whatyou'velearnedtoFacebookandthebroaderplatform.AndthenDave,canyou
justgivesomemorecoloronhowthingshavechangedintermsofOpExandCapEx,
justgiventhatyou'recomingdowntowardthelowerendoftheranges?
MarkZuckerberg: Soalotofthethemesaroundbuildingcommunityandbringingpeoplecloser
togetherhavebeenunderscoredbyalotofexperiencesthatI'vehadtraveling
around.AndI'vetriedtowriteaboutthem,Idon'twriteabouteachvisitthatImake
onFacebook,butit'sbeenreallystrikingtomewhenyoutalktofolksinalotof
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differentcommunitieshowimportantlocalinstitutionsandtheirlocalcommunities
areforsupportingpeoplethere.
Andtherehasbeenaclearlydocumentedtrendacrosstheworldofdeclining
membershipinalotofdifferentkindsofcommunities.AndIthinkthat'san
importantproblemthatiseatingatthesocialfabricnotonlyofourcountrybut
aroundtheworld,thatIhopethatwecanplayaroleinaddressing.
Andthat'snotsomethingthatwecandodirectly,butIbelievethatwecan
empowerpeoplewhowanttobuildlocalcommunitiesandwanttoplaya
leadershiproleintheirlocalcommunitytohavethetoolsthattheyneed.AndIthink
ifwecandothat,thenyoustartbringingpeopletogetheratalocallevel.Andwhen
peoplefeelmorecomfortableintheirlifeatalocallevel,thenIalsothinkthat,that
helpsbringpeopleandbringtheworldclosertogetheratagloballeveltoo.
SothatallhasbeenunderscoredbyalotofthevisitsandwhatI'veseenaswellasa
lotoftheresearchthatwe'vedoneatFacebook,andit'sallreflectedinthenew
mission.
DavidWehner: Doug,it'sDave.Idon'tthinkthere'sanythingthat'sreallyfundamentallychanged
ourtighteningtherangeto40percentto45percentexpensegrowthduetobetter
visibility.Weremainsolidlyininvestmentmodeand,ifanything,we'refindingnew
opportunitiestoinvestin.Fromtheperspectiveofhiringgrowth,I'dreallypointto
thefactthatwe'vebeenconsistentlyacceleratinghiringsofarin2017.
AndIpointedtothefactthatweexpecttoacceleratehiringinthebackhalfofthe
yearaswell.Andthisquarterwasthebiggestrecruitingquarterintermsofnethires
everforFacebook.We'recontinuingtoinvestinanumberofkeyareas,hiring
engineerstodrivethe3-,5-and10-yearpriorities.We'regoingtobeinvestingin
contenttohelpbuildaplatformforcontentproducersthatfindanaudienceand
monetize.
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Wearealsocontinuingtoinvestinareaslikecommunityoperationsandother
areas.Soweremainsolidlyininvestmentmodefromatotalexpensepointofview.
OnCapEx,westillexpecttobewithintherangeof$7billionto$7.5billion,and
we'reinvestingaggressivelyinourdatacenterfootprinttosupporttheglobal
growththatwesee.
SoIthinkacrosstheboard,we'reinvestingheavily.Onheadcount,Iwouldjustpoint
outthatourpayrollgrowthtendstolagheadcountgrowthbecauseheadcountisan
endofperiodnumber,sotheaccelerationthatwe'reseeingin2017willultimately
playoutin2018aswell.
Operator: YournextquestioncomesfromthelineofRossSandlerfromBarclays.
RossSandler: Good,Ihaveacoupleofquestionsonthemessagingapps.Ithinktwoyearsago,at
F8,youtalkedaboutWhatsAppuserbaseaboutalittleover1billionsendingout50
billionmessagesaday,andMessengerwho'sabout1billionand20billionmessages
aday.Soimplyingkindoflike2.5xtheengagementonWhatsAppcomparedto
Messenger.
Isthataccurateandwheredoesthatstandtoday?Andthenbothofthese
messagingappskindofstartedindifferentgeographiesaroundtheworld.Sohow
doesthatimpactyourthinkingaroundmonetizationideasbetweenMessengerand
WhatsApp?
DavidWehner: Yes,Idon'tthinkwe'resharingdetailedstatsonengagementbymessaging
platform.They'reobviouslybothcriticalplatforms.Bothhaveover1.2million
monthlyactives.AndWhatsApphasdemonstratedsignificantengagementwith
crossingabilliondailyactives.SoIthinkthatindicatestheengagementthatyou
haveonthatplatform.Therearedifferentgeographieswherethemessaging
platformsarestronger.
16
Anddependingonthat,thatshiftsourprioritiesindifferentways.Butoverallfroma
monetizationperspective,Ithinkthestrategythereiswe'refocusedongrowingthe
userbase,firstandforemost,andthensecondly,it'saboutbuildingorganic
connectionsbetweenbusinessesto--andconsumers;andthenthird,it'sabouthow
webuildmonetizationaroundthoserelationships.
AndIthinkthere,we'refurtheralongwithMessengerthanwearewithWhatsApp.
AndsoIthinkyouseeusrollingouttheglobalbetatherewithads.SoIthinkwe'll
watchandlearnfromthat,andaswelearnthings,wecanapplytheminother
areas.
Operator: YournextquestioncomesfromthelineofJustinPostfromBankofAmericaMerrill
Lynch.
JustinPost: Great,thankyou.MaybeaquestionforMark.Iknowvideoisapriorityforthe
company.Tostartwith,anychangeinusertrendsorengagementasyou'veadded
videotoFacebook?Andthensecondly,justhowdoyouthinkaboutsemi-
professionalorprofessionalvideoforFacebook?
Isthatagoodbusiness,givenallthecontentsharingcostsandtheproductioncosts
whenyoucompareittokindofyourexistingsocialbusiness?Anddoyouseeitas
cannibalisticoradditiveasfarasusage?Thankyou.
DavidWehner: IcansharealittlebitaboutitthenMarkwouldwanttojumpinonanyothercolor.I
mean,IwouldsayasImentioned,Justin,inmycommentary,aspeoplespendmore
timewithvideoandmoretimeisgoingtovideo,thatisgoingtohavealimiting
factortohowmuchtimetheyspendinNewsFeed.Andsothat'sgoingtohavean
impactonimpressionrategrowth.Sothereis,inthatsense,acannibalisticeffectof
sortithappensthere.
17
ButwhatMarkalludedtoisvideoiswherepeople,asnetworksimproveanddevices
improveandourproductsimprove,videoisthemostengagingexperiencethatwe
canoffer.Andsowe'reseeingconsumersadoptingthatandwe'rebuildingproducts
forthem.Intermsofthetypesofcontent,Ithinkwe'relookingatawidevarietyof
contentfrom,ofcourse,atthecoreaspeopleshareexperiencesintheirlives-
that'satthefaceofwhatweofferintermsofbringingtheworldclosertogether.It's
justthatcommunitycontentbutthenthere'sopportunitiesforsemi-professional
andprofessionalcontent,andwe'reexploringthingsaroundtheplatformofmaking
surethatwe'reaplatformwhereprofessionalcontentproviderscancomefindan
audienceandthenalsomonetizethat.
Operator: YournextquestioncomesfromthelineofColinSebastianfromRobertBaird.
ColinSebastian: Great,thanks.Mark,Iwantedtoaskaquestiononconversationalinterface;
specificallyifweshouldthinkofFacebookbecomingintegratedastheskillappor
featureonplatformssuchasAlexa?OrshouldwethinkofthingslikeOculus,
MessengerandperhapsevenadedicateddeviceaspartofFacebook'salternative
platform?AndthenDave,justhopingyoucouldputafinerpointonthetiming
aroundthereductioninadloadgrowth.
MarkZuckerberg: Imean,tothefirstquestion,we'regoingtobuildtheservicesthatwethinkare
useful.Someofthemaregoingtobeplatformsandsomeofthemaregoingtobe
appsanddifferentthingsontopofplatformsthatotherfolksbuild.But
fundamentally,we'retryingtoserveourcommunitythebestwecanandwe'lldo
thatacrossalltheseplatforms.
DavidWehner: Yes.Andintermsofadloadgrowth,Ipointedtothefactthatwecontinuetoexpect
thatadloadwillbealesssignificantfactorintheremainderof2017.Andthat's
certainlythecase.ThatstartsinQ3butthere'sanumberofotherfactorsthatIalso
pointedto,includingthedesktoplappingsomeoftheeffortswemadeondesktop
intermsofunblockingorworkingagainsttheadblockingtechnologies.
18
Andsothathasafactorondesktopgrowth.Andthen,ofcourse,Italkedabout
videoandourfocusondrivingandservingtheconsumerdemandforvideo.And
that'salsoleadingtoapotentiallylowerimpressiongrowthaswell.
Operator: YournextquestioncomesfromthelineofRichGreenfieldfromBTIG.
RichardGreenfield:Hi,thanksfortakingthequestion.Ononeofyourblogs,youputapostupbasically
detailingbasicallywhatpeopleweredoingduringTV.Andyoushowedkindofa
controlgroupwhereFacebookusagewasreallyconstant.Andthenyoudidagroup
thatwaswatchingtheTVshow,andyousawhugespikesofFacebookusageduring
thetelevision--duringtheadbreaksduringtheshow.
Wonderinglikeasyougotalktomarketers,obviously,TVratingsaredownalot.
Howdoesthattypeofstudy--Irealizeit'sjustoneTVshowbutasyoumakethe
pitchoflikewhyareyounotshiftingdollarsfastertoFacebook,howdoesthattype
ofresearchstarttoplayintotheirthinkingandwhat'sholdingthemback?Isitjust
thecreativedoingortheembracingof6-secondads,likewhat'stheblocktogetting
moreofthat$70billionofTVaddollarstoshiftoverfaster?Thanks.
SherylSandberg: Well,thatisjustonestudyandIdon'twanttooverstateitsimportanceinhowwe
sellads.Wemakethecasetoourclientsthatconsumersaremovingtomobileand
thattheyneedtomovetomobile.Andnotthatmobileshouldreplacealloftheir
otheradvertisingbutresponsiblemarketersatagreatcompanylargeandsmall.
They'lladvertiseonTVandadvertiseonmobileandtheyadvertiseinotherplaces.
Ourgoalistobethebestdollarandthebestminuteanyonespends.Andthecase
wemakeisthatwewantthemtotakeadvantageoftheopportunitythatismobile
andtheopportunityforthetargetingweofferandthemeasurementweoffer.I
thinkwhathastakenustimeandcontinuestotakeustimeisweneedtoconvince
marketerstomakemobile-firstvideoandvideoandotheradformat.
19
WetalkedalotabouthowthefirstTVadswerepeoplereadingtheirradioadsin
frontofmicrophones.Andwe'restillinthecasethatwhenpeoplegotoputanad
onmobile,theyoftenwilltakeanadthat'sreallyproducedforTVandputiton
mobile.Andthoseworkandtheycanworkwellbuttheydonotworkaswellasads
thatarenativelymobileliketheTropicanaexampleIsharedinmyearlier
comments.
Mobileadswhenthey'revideoareshorter.Thebrandcomesinfaster.Theytella
storythatdoesn'tevolvebutreallygetsyoutounderstandthebrandandoffering
reallyquickly.Wetalkedaboutitasthumbstoppingcreative.Andsotheworkthat
wehavecutoutforusistohelpmarketersandworkingwiththeiragenciesinvolved
theformatoftheadssothat'soptimizedformobile,optimizedforFacebook,
optimizedforInstagram.Ithinkwe'remakingprogressbutwehavealongwayto
getthere.
Operator: YournextquestioncomesfromthelineofMarkMahaneyfromRBCCapital
Markets.
MarkMahaney: Great,thanks.Mark,youtalkedaboutmaybetryingtoacceleratealittlebitthe
messagingmonetization.AndI'mwonderingifthere'sanythingmorebehindthat
statementisthatyouwerefrustratedwiththelevelthatyou'dseentodate?Orthat
yousawsomeopportunitythatyouthoughtyoucouldacceleratethepushtowards,
Iguess,monetizing?
Andmaybebigpicture,Iwanttoaskjust,asyouthink--Iknowthemonetizationis
veryearlystage,it'sbarelyevenbegun.There'sveryfewplatformsaroundthe
worldthatgotabillionusersthatareunmonetized.Soyouwouldthinkthatthere's
alotofopportunitytherebutmaybenotandmaybepeoplearemakingamistakein
tryingtolookatAsianassetsandseeingwhatthey'vedonethereandthinkingthat
youcandothatwithyourassets.
20
Sowhat'stheupside,likewhenyouthinkabouttherealopportunitylikewhatgets
youexcitedabouttheabilitytomonetizethoseassetsfiveyearsfromnow?
MarkZuckerberg: Sure.Sowe'recurrentlygoingthroughtheprocessoffiguringoutwhatwewantto
investinoverthenextyearandduringourlong-rangeplanning.Andthisiscertainly
oneoftheareaswhereIthinkwewanttobeinvestingalotmoreinandbelievethat
there'sabigopportunityandcanacceleratealltheeffort.Idothink,asyousay,this
isoneoftheraretimesinbusinesswhereyoucanlookatmessagingplatformsthat
existandseehowthey'vesuccessfullymonetizedinotherpartsoftheworldand
havethatbeafloor.
Ithinkthatovertime,weshouldbeabletodobetter.Butthatatleastprovidesthe
existenceproofthatdespite--regardlessofwhatourinternallogicisofwhatwe're
doing,thatsomeonehasdoneit,sothatgivesussomedegreeofconfidencethere
inadditiontoourownexecutiononotherthings.ButIthinkthere'saprettyclear
playbookthatwehavehereoffirst,buildinguptheconsumerusagethenbuilding
uptheorganicpersontobusinessinteraction,makingsureitworksforbothpeople
andbusinesses.
Andthenonceyouhavethat,thequalityofthoseinteractionsisreallywhat
contributestoscaleofhowmuchyoucangrowit.We’veseenthisinNewsFeed
too.Oneofthefactorsthatcontributedtoadloadovertimeisthequalityofthe
ads.Ifadqualitywaslow,wewouldn'tbeabletoputasmanyadsinbecause
peoplewouldn'twantthat.
Butinalotofmarketsaroundtheworld,weseethatadqualityisincreasingata
veryfastrateandthatmakesitandalotoftimespeopleaskforthecontent,which,
ofcourse,createaverydifferentdynamic.Weneedtogettothatinmessagingand
there's--becausemessagingreallystartedfromthisplaceofpeoplecommunicating
one-to-onewitheachotherisnowaddingalltheseotheruses,it'sjustalotof
investmentandalotofdifferentfunctionalitythatneedstogetatit.
21
ButforallthereasonsthatI'vesaidherearoundourownexperiencedoingthisin
othercontextwithFacebookandInstagram,proofpointsinthemarketofhowit's
worked,Ithinkoverthelongterm,I'mprettyconfidentthatwewillgetthereand
wegetourjobtojustgodothat.
DavidWehner: Yes,andIwouldjustadd,wedon'tknowatwhatlevelthatis,right?Sowe'remore-
-wehadmoreexperiencewithfeed-basedproductsowekindofknowhowthose
playout.Andsowe're--thisisinverymuchearlyday’smode.
Operator: YournextquestioncomesfromthelineofJohnBlackledgefromCowen.
JohnBlackledge: Great,thankyou.TwoquestionsontheMessengerads,recognizethatit'searly
days.Butjustwonderingifyouthinkthere'llbemore--thoseadswillbemore
complementaryforcoreFacebookandInstagramadvertisersorperhapsservea
differentadvertiserbaseordifferentusecasesversuscoreFacebookandInstagram.
AndthensecondquestionwouldbeatthehighendoftheOpExguide,itimplies53
percentyear-over-yearOpExgrowthinthebackhalfoftheyearversusplus36
percentinthefirsthalf.JustwonderingifyoucandiscussotherkeydriversofOpEx
growthinthebackhalfoftheyearasidefromheadcount.Likeshouldweconsider
investmentinvideocontent,thenumbertwodriverofOpExgrowthinthebackhalf
oftheyear?Thankyou.
SherylSandberg: OntheMessengerads,Ithinkthewaywethinkaboutitis,asMarksaid,wehavea
lotofworktodotoworkontheformatofthat.Thisisnotafeed-basedproductand
thisisamessagingproductsoit'sadifferentconsumerformat.Andwebelievethat
theadformatshouldfollowconsumerformatsoit'sreallyintegratedaspartofthe
experience.Andthat'swherewehavealotofworktodo.
Wedothinkthattheadvertiserbaseandthetargetingmeasurementweoffer,once
wefigureouttheformat,wewillbeveryconsiderableadvantage.Wealreadyhave
22
5millionadvertisersonFacebook,1millionadvertisersonInstagram.Andoneof
thereasonswewereabletoscaleintoInstagramadsmorequicklyisbecausewe
werebuildingoffoftheFacebookadvertiserbase.
Andsimilarly,theworkwe'vedoneinFacebookandInstagramandAudience
NetworkwillhelpusexpandtoMessenger.Butwereallywanttoemphasize
especiallysincetherearesomanyquestionsonMessengermonetizationonthiscall
thatwe'regoingtobeslowanddeliberate.Wearealwayslookingatthelongrun.
Wedonotmanagethiscompanyquartertoquarter.Weprotecttheconsumer
productandtheconsumerengagement.
Messagingisreallystrategicallyimportantforthecompanyandthelong-term
engagementwithourusersandtheorganicfeeloftheengagementwithbusinesses
ofconsumersiswherewewillbefocused.Soit'searlydaysthisyearandit'sgoing
tocontinuetobeearlydaysforawhile.
DavidWehner: SoontheOpExguide,clearly,thebiggestdriverthereisgoingtobetheaccelerating
headcountgrowth.Inaddition,Imentionedvideocontentasbeingadriver.And
thenalsowe'rejustsupportingtheglobalgrowthoftheplatform.Wecontinueto
seegrowthinusers.
WecontinuetoseegrowthintimespentperDAUacrosstheFacebookfamilyof
appsandFacebookandwe'rebringingmoredatacentersonlineandthelike
supportthatgrowthsothosewillstarthittingcostofrevenuewithdepreciation.So
there'sgoingtobeavarietyofcontributionstothatgrowth.Likeyoumentioned,I
wouldpointtobothheadcountspecificallyinR&D.R&Dheadcountgrew48
percentyear-over-yearinQ2.Andthatisjustgoingtobeakeydriver,alongwith
thecontentlayering.
Operator: YournextquestioncomesfromthelineofMarkMayfromCiti.
23
MarkMay: Thanksfortakingmyquestions.Sheryl,inyourpreparedremarksaboutacase
study,youdiscussedthebenefitsofshortervideoads,butIwashopingyoucould
provideanupdateonthemid-rolladbreaksthatyou'venowbeentestingforafew
monthsandmaybewhatkindofprogressthatyou'reseeingintermsofcompletion
rates.Areyouatapointwherethose--oradbreakscanstarttorolloutmore
broadly?
AndthenDave,youmentionedthatthegreaterfocusonvideocouldimpactgrowth
inadimpressionsbutwouldyoualsoassumethatagreaterfocusonvideoadscould
alsodriveimprovedadpricingandyieldonyouravailableinventory?
SherylSandberg: Onadbreaks,we'recurrentlyreallyjusttestingtheabilitytoputashortadbreakin
uploadedvideos.Wedoifthevideoslongerthan90secondsorlivevideosorlonger
thanfourminutes.We'rejustintheprocessrightnowofexpandingtomore
publishersintheUnitedStatessoit'sreallyearly.Intermsofthemetricswe're
lookingfor,it'sagreatquestion.
Andobviously,wecarethatpeopleviewtheadbutmostimportantthingistying
thoseadimpressionsevenifthey'reshortviewsallthewaythroughtothatsame
purchasedatathatwekeeptalkingabout.Andsoasweworkonrollingoutmoread
breaksandwearerollingoutslowly,wearereallyfocusedonfindingwaystohelp
marketersmeasuretherightthings,andthat'saveryimportantfocusforthe
companygoingforward.
DavidWehner: Youwereaskingaboutvideoandimpactsonpricinggrowth.Iwouldprobablystep
backandlookatitfromanoverallsystemperspective.Andsostartingwiththe
supplyside,there'savarietyoffactorsimpressiongrowth.AndImentionedslower
adgrowthandthenincreasingvideolaunchtimebeingtwoofthem.Andgiven
there'sanauctionthatdrivesthepricinginhowwerunthebusiness,there'salways
aninterplaybetweensupplygrowthandpricinggrowth.
24
Andtotheextent--whatwereallyfocusedonisdrivingbetterROIforour
advertisers.AndSherylalludedtoitinherearliercommentaryaboutifweget
betteratconvertingourimpressionsintothingsthatarevaluableforadvertisers,we
getmoreefficientatdoingthat,we'llberewardedwithbetterpricingandhigher
demandandbetterpricingasaresultofthathardwork.
Thatdoesn'tnecessarilyspecificallypertainjusttovideo.Itreallyisacrossthe
board.Soifweareeffectivecontinuingtodothat,thenthatshouldbenefitpricing
growth.Andifwecangrowdemandfasterthanwegrowsupplythenwearegoing
toseethatplaythroughinprice,andthat'sreallythegoalofalotofthehardwork
thattheadteamdoestomakeourproductsbetterandmoreeffectivefor
advertisers.
Operator: YournextquestioncomesfromthelineofMichaelNathansonfrom
MoffettNathanson.
MichaelNathanson:Thankyou.IhaveoneforDave,oneforSheryl.Dave,goingbacktoyourprepared
comments,Ithinkyoumentioned24percentgrowthinpricingthisquarteronunit
pricing.Canyouhelpusexplainorunderstandunderlyingthatgrowth,which
productsyou'reseeingthegreatestinflationmaybequarter-over-quarteroryear-
over-year?
DavidWehner: Yes,Idon'tthinkthere'sany--Iwouldreallyjustkindofpointtotheoverall
dynamicsofthesystem.Andagain,whatwe'reseeingiswithslowersupplygrowth,
that'sgoingtoplayouthigherpricing,andagain,areweeffectiveandwe'vebeen
effectiveatdeliveringgoodreturnoninvestmentforouradvertisersandgetting
betteratconvertingwhatwehaveasinventoryintowhattheycareaboutas
outcome.
Andthatfromasystemicpointifheiswhat'splayingthroughthe--fromaproduct
perspective,aswegetthingslikeDynamicProductAdsrolledout,thoseare
incrediblyvaluableasweconnectmoreadvertisersandbringmoredataintothe
25
system,andwecangetmoreoftheimpressionsthatareveryhighlytargetedand
veryrelevant,thenwe'llberewardedwithbetterpricing.
AswecanexpandthatoutintothingslikeLookalike,wetalkedalotaboutonthis
call,thatbasicallytakessomeofthatreallygoodtargetingandextendsthatintoa
muchbiggeraudience,andthenwecangetmoreimpressionsatbettervalue
becausewearereallyconnectingthatwithendresultsattheadvertisersvalue.So
it'sreallythosetypesof--allthattypeofworkthatwedotogetthesystembetter
andbetter.
Andsowe'reconstantlyworkingtogetbetterpenetrationofthesekeyadproducts.
Intermsofthesupplyside,obviously,NewsFeedisincrediblyvaluablebecauseit's
verypresentfortheconsumerandimprovedthequalityoftheadsofNewsFeed,
andthat'sanotherdriverfromthesupplyside.
Operator: YournextquestioncomesfromlineofRobSandersonfromMKMPartners.
RobertSanderson: Yes,thankyou.Goodafternoon.AlreadyfeelslikeacallaboutMessenger
monetization,almostreluctanttoaskanother.Butjusttwothings--comparedto
whatyousawanearlystagesoftestingNewsFeedads,whatcanyousaysofar
aboutusers'responsivenesstoadsinMessenger?Andthensecond,obviously,
there'salotofmomentuminthedevelopmentofbotsontheplatform.
Anddoyouseethisenablingagreatorganicinteraction,asMarkputit,asawayto
ultimatelymakeMessengeragreatadplatform?Ordoyouthinkthatenabling
theseotherbusinessservicescanleadtoothermonetizationopportunitiesdown
theroadindependentofadvertising?
SherylSandberg: It'sreallytooearlytounderstandtheimpactoftheadonconsumersbecausethere
aren'tenoughofthemandtheyhaven’trolledoutforlongenough.Intermsofthe
bots--whatwereallythinkaboutisourbusinessisinpeoplemakinguseful
26
connectionsonbothsidesonMessengeroranyplatform.Iftheconnectionisuseful
formarketers,businesses,andusefulforpeoplethenitwillgrow.
Andwe'reopentoautomatedbotsbeinguseful,we'reopentootherformsof
thingsbeinguseful.Ithinkwhenyouthinkaboutwhatbucketofspendthatisin,
whichisaquestionweget,itreallyisbothmarketingspendandanyotherspend
companieshavewheretheyarereachingtheircustomersofwhichifyouthink
aboutmarketingspendandcustomerservicespend,marketingspendisaway
biggerbecausemarketingspendgrowsasyoucangrowsales,andcustomerservice
spendissomethingthatpeoplegenerallytrytominimize.
Sothewaywethinkaboutitisa--wewanttogroworganicconnectionswhether
theyareautomatedorwhetherthey'repersonalizedandmakesurethat,thatis
growingthebusinessofourcustomers.
Operator: YournextquestioncomesfromthelineofBrianWieserfromPivotalResearch.
BrianWieser: Thanksfortakingthequestion.Iwaswonderingifyoucouldcommentonhowyou
thinktheEuropeanCommission’sGDPR,andrelatedprivacyinitiativeswillimpact
thebusiness,eithergenerally--possiblynegativelyandwhetherornotthose
policiesaroundprivacymightyetbecomeglobalstandards.Curioushowyouthink
thatimpactsboththeconsumerproductaswellastheadvertisingbusiness.
Andmaybeseparately,I'mjustcuriousamongthoseadvertiserswho'veexpressed
particularconcernaroundthird-partytoolaccess.We'vecertainlyheardfromsome
who'vesaidverypubliclythatthey'rereducedtheirspending.Obviouslyothers
clearlyareincreasingtheirspending.Butcurioushowfaryou'vegonetowards
allayingthoseconcernsandpossiblyregaininganylostspend.
SherylSandberg: Whenwethinkaboutanyregulatoryissues,GDPRoranythingelse,werespectthe
locallawsandregulationsandwehavetoworkreallycloselywithregulatorsto
27
makesureweunderstandourbusinesspractices,understandhowtheycontribute
toeconomicgrowthintheircountriesandunderstandthestepswehavetakenand
continuetotaketoprotectprivacy.
Certainly,regulationisalwaysanareaoffocusthatweworkhardtomakesurethat
weareexplainingourbusinessclearlyandmakingsureregulatorsknowthesteps
wetaketoprotectprivacyaswellasmakingsurethatwe'reincompliance.When
youthinkaboutthemetricsquestionyouasked,howwethinkaboutwhatIthink
youareaskingaboutjustthird-partyverification.
We’reveryinterestedinmakingsurethatmarketerscanverifyormeasure
outcomestothirdparties,andthat'swhywe'reworkingtoactivelyexpandthose
partnerships.
Operator: ThenextquestionisfromthelineofLloydWalmsleyfromDeutscheBank.
LloydWalmsley: Thanksfortakingthequestion.AnotheroneonMessenger,soyouguyshavetalked
ofbuilding--theimportanceofbuildingorganicconsumertobusinessinteraction
here.Sowonderingifyoucansharekindofwhatsortofadoptionyouareseeingin
thosekindofinteractionsandaretherecertainverticalsorgeoswhereit'sreally
takingoff?AndthenasecondifIcan.
We'vetalkedalotobviouslyalreadyaboutadimpressiongrowthandhowit'ssetto
slowinthesecondhalf.Youarealreadyseeingabigslowdowninimpressiongrowth
inthefirsthalf,andyetasyou'venotedwithsupplygrowthslowing,pricinghas
goneupashebattedalotofROAStoyourcustomers.Sowonderingwhyshould
thisphenomenonnotcontinuetocarryadrevenuegrowthinthesecondhalf.
MarkZuckerberg: I'lltakethis.SotherehavebeenanumberofquestionsaboutMessenger,andin
general,we'reseeing--I'mhappywiththerateofgrowthintheexperiencesthat
we'reseeingonMessenger.Butifthere'sonemessageherethatIthinkisactually
28
importanttosay,it'sthatwe'retryingtocommunicatethatthepaceofgrowingthe
Messengerbusiness,it'salonger-termthing.
Iactuallythinkin--overthenextcoupleofyearsorafewyears,themuchbigger
driverofthebusinessanddeterminantofhowwedoisgoingtobevideo,not
Messenger.Messenger,Ithink,isareallyimportantthingandWhatsAppovera3-
to5-yearperiodandwe'reinvestingalotandthatishugeopportunity.
Butashasbeennotedonthecall,videoisbothatlargescaleandtheeconomicsare
quitedifferentfromwhatthecurrentfeed-basedbusinessesthatwehavetoday,
especiallyaroundhow--withmid-rolladsandrevsharearoundthatthemargin
structurewillbedifferent.
Sooneofthebigquestionsisthatwe'refocusedonaswebuilditoutwe'revery
committedtobuildingitoutbecauseit'swhatpeopleinthecommunitywantbut
oneofthebigthingsthatwearereallyveryfocusedonismakingsurethatweget
thisrightsothateventhoughthisbusinesswilllikelybe--notlikelyIthink,almost
certainlywillbealowermarginsourceofrevenuethanthecurrentthingthatwe
do,there'sabigquestionofhowincrementalisthatbehaviorgoingtobe.
Imean,Ijustwantto--I'mjustthrowingthiscontextouttherebecausesomany
questionsheretodayhavebeenaboutMessenger.AndIwanttomakesureon
thesecallsthatwedoanaccurateandafulljobofconveyingwhatwe'reactually
thinkingaboutasthebusinessandwhatwethinktheoutlookisgoingtobe.
AndIthinkthatthose--thosequestionsaroundvideo,whichI'moptimisticabout
buttherearerealquestionstherethatweneedtomanagewellisgoingtobea
muchbiggerdriverofthebusinessoverthenexttwotothreeyearslikelyeventhan
thetrajectoryofwhatwe'redoingonMessengerandWhatsApp.
29
DavidWehner: AndLloyd,youaskedaboutwhythegoodworkthatwe'vedonesofarinbasically
providingvalueforadvertisersisplayingthroughintoprice.Look,that'snotjust
happening.That'sabunchofhardworkmakingouradsmoretargetedthatmakes
theoutcomesthatadvertisersgetmorevaluable.We'regoingtocontinuetowork
todothat,andwe'regoingtocontinuetoinvestinmakingimprovementsinthead
products.
Butyes,there's--andwethinktherearegreatopportunitiestocontinuetomake
improvementstoROI.Butobviously,ifyouhaverisingprices,that'sgoingtomake
thatworkagainstanupstreamtrend,soweneedtocontinuetoworkhardto
delivermorevalueforadvertisersinthefaceofthat.Sowe'vegotourworkcutout
forus,andwethinkwe'vegotagreatteamworkingonthat--onthosechallenges.
DeborahCrawford: Operator,wearegoingtotakeonelastquestion.
Operator: ThelastquestioncomesfromBenSchachterfromMacquarie.
BenjaminSchachter: Thanksfortakingthequestion.Mark,you'vestatedthatARmixedrealitycould
bethenextcomputingplatform.Andobviously,thisiswayoutinthefuturebutif
thatimpliessomethingsolargehowdoyouthinkaboutallocatingresourcesforthat
howmuchyou'rewillingtospendonitandhowyouthinkanynewthoughtsonhow
thisallevolves.
Thenrelatedtothat,thenextiPhoneiscomingoutsoon.Doyouthinkthatthere'll
becapabilitiestherethatwillimpacttheARevolutionmeaningfully?
MarkZuckerberg: Well,thisiscertainlysomethingthatI'mreallyexcitedaboutlongterm.Ithinkit's
notonlypossibilityofbeingthenextmajorcomputingplatform,ARandVR
together,butIthinkithasthepossibilityofbeingmuchmoresocialandintuitive
andnaturalthansomeofthedevicesthatwehavetoday,whetherthey're
computersorphones.Andthat'swhyI'mreallyexcitedaboutthat.
30
WhenyouthinkaboutARglasses,thetechnologyandsciencetobuildanexperience
thatwouldbebothcomfortabletowearandsomeofthepeopleactuallywantto
wearoutinpublic,thatdoesn'texistyet,right?Sothere'salotoffoundationalwork
thatneedstogetdonetherethat'spartiallywhyI'mexcitedaboutdoingtheVR
workbecauseitdoesn'thavethatconstraint,you'renotwearingVRoutinpublic.
Butalsorecently,Ithinkoneofthethingsthatwe'veseenisthattherearealotof
ARexperiencesonmobile,right?Sotheworkthatwe'vestartedtalkingaboutatF8
thatwearereleasingslowlyoverthecourseoftheyeariscertainlyoneofthe
precursorsforbuildingoutthatecosystemthatI'mexcitedabout.
ButImean,look,ifIwasjustsayingthatvideoisgoingtobetheprimarydriveror
oneofthebigdriversoverthenextfewyearsandMessengermaybeafterthat,I
thinkARisquitefardowntheroad.Butwhenyou'rerunninganoperationand
servingpeopleofthisscale,Ithinkyouhavearesponsibilitytoinvestinallthese
thingsthataredownstreamthatcouldhelpshapeandimprovepeople'slives
becauseIdon'tthinkthattherearemanyotherfolksintheworldwhowill.
SoIthinkthat,that'sathingthatwetakeseriously,whetherit'sconnectivityand
makingsurethatpeopleactuallyallaroundtheworldgettoenjoyandbenefitfrom
theopportunitiesthattheInternethasortheimprovementsthatcomefromAIor
eventuallyupgradingthecomputingplatformsthatweallgettouse.Thisstuffjust
doesn'thappenautomatically.Andsomeoneintheworldneedstofocusonbuilding
itandwewanttoplayaroleinthat.
DeborahCrawford: Thankyou.Thankyouforjoiningustoday.Weappreciateyourtime,andwelook
forwardtospeakingwithyouagain.
Operator: Ladiesandgentlemen,thisconcludestoday'sconferencecall.Thankyouforjoining
us.Youmaynowdisconnectyourlines.
