facebook, inc. (fb) fourth quarter and full year 2017 ... · pdf file2.1 billion people now...
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Facebook,Inc.(FB)FourthQuarterandFullYear2017ResultsConferenceCallJanuary31st,2018OperatorGoodafternoon.MynameisMikeandIwillbeyourconferenceoperatortoday.AtthistimeIwouldliketowelcomeeveryonetotheFacebookfourthquarterandfullyear2017EarningsCall.Alllineshavebeenplacedonmutetopreventanybackgroundnoise.Afterthespeakers'remarks,therewillbeaquestionandanswersession.Ifyouwouldliketoaskaquestionduringthattime,pleasepressstarthenthenumber1onyourtelephonekeypad.Thiscallwillberecorded.Thankyouverymuch.Ms.DeborahCrawford,Facebook’sVicePresidentofInvestorRelations,youmaybegin.DeborahCrawford,VPInvestorRelationsThankyou.GoodafternoonandwelcometoFacebook’sfourthquarterandfullyear2017earningsconferencecall.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.2017wasastrongyearforFacebookinmanyways.Ourcommunitycontinuestogrowwithmorethan2.1billionpeoplenowusingFacebookeverymonthand1.4billionpeopleusingitdaily.Ourbusinessgrew47%year-over-yearto$40billion.
I'mproudoftheprogressthatourteamhasmadeandthewaysFacebookishelpingpeoplearoundtheworld:givingpeopleavoicewhodidn'thaveonebefore,strengtheningrelationshipsbyhelpingfamilyandfriendsstayconnectedwherevertheyare,andenablingmorethan70millionsmallbusinessestogrowandcreatejobs.
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But2017wasalsoahardyear.Theworldfeelsanxiousanddivided—andthatplayedoutonFacebook.We'veseenabuseonourplatform,includinginterferencefromnationstates,thespreadofnewsthatisfalse,sensationalandpolarizing,anddebateabouttheutilityofsocialmedia.Wehavearesponsibilitytofullyunderstandhowourservicesareused,andtodoeverythingwecantoamplifythegoodandpreventtheharm.Thisismypersonalchallengefor2018.
Oneofthemostimportantthingswecandoismakesureourservicesaren'tjustfuntouse,butalsogoodforpeople'swell-beingandforsocietyoverall.
Sofarthisyearwe'vealreadyannouncedacoupleofimportantupdates:
Thefirstisprioritizingmeaningfulsocialinteractionsoverpassiveconsumptionofcontent.Researchshowsthatstrengtheningourrelationshipsimprovesourwell-being.Whenweusesocialmediatoconnectwithpeople,thatcorrelateswithlongtermmeasuresofwell-beingthatyou'dexpect,likehappinessandhealth.Butpassivelywatchingvideosorreadingarticlesmaynothavethosesameeffects.
Youcanthinkaboutitthisway.WhenyouseeaphotofromafriendinNewsFeed,that'snotjustcontentthatmakesyousmileorlaugh,it'sanopportunitytoconnectwiththatfriend,toreachouttothemandtoremindthemthatyoucareabouteachother.Thatconnectionisdeeplyimportanttousaspeople.Butwhenyouseeavideooranewsarticle—evenifit'sinformativeorentertaining—unlessyoustartaconversationaroundit,you'renotbuildingarelationship.
We'vealsogottenfeedbackfromourcommunitythatthesemomentsthatleadustoconnectaretheuniqueexperiencethatpeoplewantandexpectfromFacebook.Butinthelastcoupleofyears,theecosystemofpubliccontentlikevideo,news,andpostsfrombusinesseshasgrownmassively—tothepointwhereit'sstartingtocrowdoutthepersonalconnectionpeoplevaluemost.
NewsandvideowillalwaysbeanimportantpartofFacebook.Butwhenpeoplearespendingsomuchtimepassivelyconsumingpubliccontentthatitstartstakingawayfromthetimepeopleareconnectingwitheachother,that'snotgood.Soletmebeclear:helpingpeopleconnectismoreimportantthanmaximizingthetimetheyspendonFacebook.
Asaresultofthisupdate,youwillnowseemorecontentfromfriends,familyandgroupsthatleadyoutointeractwithpeople,andlesspubliccontentthatleadstomoreoveralltimespent.
Now,asImadeclearannouncingthesechanges,IexpectthetimepeoplespendonFacebookandsomemeasuresofengagementwillgodownasaresult.ButIalsoexpecttheamountweactuallyinteractwitheachothertogoupovertime.
We'realreadystartingtoseethisplayout.Onourlastearningscall,Isaidthatvideodonewellcanbringpeopletogether,buttoooftentoday,watchingvideoisjustapassiveexperience.Toshiftthatbalance,Isaidthatweweregoingtofocusonvideosthatencouragemeaningfulsocialinteractions.AndinQ4,weupdatedourvideorecommendationsandmadeotherqualitychangestoreflectthesevalues.
WeestimatetheseupdatesdecreasedtimespentonFacebookbyroughly5%inthefourthquarter.Toputthatanotherway:wemadechangesthatreducedtimespentonFacebookbyanestimated50
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millionhourseverydaytomakesurethatpeople'stimeiswellspent.That'showseriousweareaboutthis.
Now,wedon'tnormallysharetimemetricsbecausethey'renotthebestwayofunderstandingengagement.ButthisshowshowcommittedwearetomakingsurethetimeyouspendonFacebookisvaluable.
Throughthisprocess,wehavealsogottenasenseforhowsomeupdatesimpactothermetricsaswell.Forexample,changeswemadetoimprovequalityinthefourthquartercontributedtoadeclineinpeopleusingFacebookdailyinsomecountries.
Byfocusingonmeaningfulinteractions,IexpectthetimeweallspendonFacebookwillbemorevaluable.AndIalwaysbelievethatifwedotherightthinganddeliverdeepervalue,ourcommunityandourbusinesswillbestrongeroverthelongterm.
Inthiscase,itintuitivelymakessense.Ifpeopleinteractmore,thatshouldleadtoastrongercommunity.AndwealreadyknowthattimeinNewsFeedinteractingwithpeopleismorevaluablethantimepassivelyconsumingvideoornews.Whenyoucareaboutsomething,you'rewillingtoseeadstoexperienceit.Butifyoujustcomeacrossaviralvideo,thenyou'remorelikelytoskipoveritifyouseeanad.
SoIwanttobeclear:themostimportantdriverofourbusinesshasneverbeentimespentbyitself.It'sthequalityoftheconversationsandconnections.Andthat'swhyIbelievethisfocusonmeaningfulsocialinteractionsistherightone.
ThesecondupdateweannouncedisaboutmakingsuretheinformationyouseeonFacebookcomesfrombroadlytrustedandhigh-qualitysources,inordertocountermisinformationandpolarization.
Theideaisthisupdatewillshowmorenewsfromsourcesthatarebroadlytrustedacrossthecommunityandnotonlybythosewhoreadthemdirectly.Forexample,taketheWallStreetJournalortheNewYorkTimes.Evenifyoudon'treadthemorifyoudon'tagreewitheverythingtheywrite,mostpeoplehaveconfidencethatthey'rehighqualityjournalism.Ontheflipside,thereareblogsthathaveintensefollowingsbutarenotwidelytrustedbeyondtheircoreaudience.Wewillshowthosepublicationssomewhatless.
Preventingfalsenews,hatespeech,andotherabuseisanotherimportantareaoffocusforus.Inordertoprotectthesecurityandintegrityofourplatform,we'reinvestinginbothpeopleandtechnology.Wenowhavearound14,000peopleworkingacrosscommunityops,onlineops,andoursecurityefforts.That'salmostdoublewherewewereayearago.We'vealsobuiltnewtechnologytodetectsuicidalpoststhathashelpedfirstrespondersreachmorethan100peoplewhoneededhelpquickly,andwe'vebuiltAIsystemstoflagsuspiciousbehavioraroundelectionsinrealtimeandremoveterroristcontent.ThankstoourAIsystems,99%oftheISISandAl-Qaeda-relatedterrorcontentwetakedownisnowremovedbeforeanyoneevenflagsittous—andinsomecases,beforeanyoneseesit.
We'vealsomadeprogressdemotingfalsenewsinNewsFeed,whichtypicallyreducesanarticle'strafficby80%anddestroystheeconomicincentivesthatmostspammersandtrollfarmshavetogeneratethesefalsearticlesinthefirstplace.
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Finally,we'vestartedrollingoutamajoradstransparencyeffort.WesupportCongresspassinglegislationtomakealladvertisingmoretransparent,butwe'renotgoingtowaitforthemtoact.We'vealreadybegunlaunchingawayforanyonetoviewtheadsapageisrunningonFacebook,Instagram,andMessenger—eveniftheyaren'ttheintendedaudience.We'retestinginCanadafirstwiththegoalofrollingitoutintheUSthissummeraheadofthemidtermelections.
AsIsaidlastquarter,Iexpecttheseinvestments—ontopofotherinvestmentswe'remaking—willsignificantlyimpactourprofitability.Butjustlikethechangeswe'remakingthatwillimpacttimespent,theseinvestmentswillhelpusbuildastrongercommunityoverthelongterm.
Now,buildingastrongercommunityalsomeansdeliveringonourproductroadmapforthenext3,5and10years.
Overthenextthreeyears,weknowvideowillcontinuetogrow,soourjobistobuildvideoexperiencesthathelppeopleconnectwithfamily,friends,andgroups.That'swhyI'mexcitedaboutWatchasaplacetoconnectwithpeoplewhohavesimilarinterests,andit'swhywelaunchedproductslikeWatchPartywherefriendscanwatchashowtogether.
Anotherimportantshiftthatwe'reseeingacrosstheindustryisthegrowthofStories.WeexpectStoriesareontracktoovertakepostsinfeedsasthemostcommonwaythatpeopleshareacrossallsocialapps.That'sbecauseStoriesisabetterformatforsharingmultiplequickvideoclipsthroughoutyourday.ThegrowthofStorieswillhaveanimpactonhowwebuildproductsandthinkaboutourbusiness,includingWhatsAppandInstagram,whicharethe#1and#2most-usedStoriesproductsintheworld.
Beyondvideo,wehavealongroadmapworkingtohelppeopleconnectinmeaningfulways.
Today,morepeopleareusinggroupsthanever.Theseincludesmallergroupsoffriendsandfamily,andalsolargercommunitieswherepeopleconnectaroundsharedinterests.We'refocusedonhelpingmorepeoplefindtherightcommunitiesforthemandgivinggroupadminsandleadersthenewtoolstheyneedtorunthesegroupsandhelpthemgrow.
ThegoalofMarketplaceistoconnectpeoplethroughcommerce.Morethan700millionpeopleeachmonthnowcometoFacebooktobuyandsellthings.WelaunchedMarketplacein30countrieslastyear,including11countriesinthelastquarteralone.
Overthenextfiveyears,weremainfocusedonbuildingecosystemsaroundourservicesthatlotsofpeoplealreadyuse.
InMessengerandWhatsApp,we'reworkingtogivebusinessesmorewaystocommunicatewiththeircustomers.Welaunchedaplug-inforMessengersopeoplecanchatlivewithcompaniesontheirwebsites,andnowmorethan2billionmessagesaresentbetweenbusinessesandcustomerseverymonth.
WhatsApprecentlycrossed1.5billionmonthlyactives,withpeoplenowsendingmorethan60billionmessageseveryday.Agrowingnumberofthesemessagesarebetweenpeopleandcompanies,whichiswhywelaunchedWhatsAppBusiness—anewappdesignedspecificallyforsmallandmediumbusinessestoconnectwithpeopletheywanttoreach.
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Overthenext10years,we'reworkingonthefoundationaltechnologiesneededtobringtheworldclosertogether.
OurgoalwithAIistounderstandthemeaningofallthecontentonFacebooktohelpusbuildbetterservices.Inadditiontomakingiteasiertogetpeoplethehelptheyneedandremoveharmfulcontent,thiswillalsohelpusshowmorecontentthatencouragesconnectionandconversation.
OntheVRside,we'reexcitedtogetOculusGointopeople'shandsthisyear.TimeMagazinenameditoneofthetopinventionsof2017,andIcan'twaitformorepeopletouseit.
So2017wasagoodyearinmanyways,butitwasalsochallenging.That'swhyourfocusthisyearwillbemakingsureourservicesarenotjustfun,butalsogoodforus—andI'mconfidentthatwewillwe'llrisetothechallenge.Thankstoallofyouforbeingpartofthisjourney,andI'mlookingforwardtomakingmoreprogresstogether.
Andnow,here'sSheryltotalkaboutourbusiness.SherylSandberg,COOThanksMarkandhieveryone.Wehadastrongfourthquarterandagreatendtotheyear.Q4adrevenuegrew48%year-over-year.Mobileadrevenuewas$11.4billion,up57%fromlastyear,andcontributedapproximately89%oftotaladrevenueinQ4.Fullyear2017mobileadrevenuegrew56%comparedto2016–andwasbroad-basedacrossregions,marketersegmentsandverticals.Wecontinuetomakeprogressonourthreepriorities:helpingbusinessesleveragethepowerofmobile,developingnewadproductsandmakingouradsmorerelevantandeffective.FacebookandInstagramarewherepeopleandbusinessesconnectandareespeciallymeaningfulplatformsforsmallbusinesses.Globally,70millionbusinessesuseFacebook.Wesurveyedsmallbusinessesin18countries,and57%ofthemareemployingmorepeopleduetogrowthindemandsincejoiningFacebook.Lastweek,ImetAdamofKingsBarbersClubwhostartedwith2employeesinBirmingham,Englandandnowhas15salonsand70employees.IalsometDomingofromPescaria,arestaurantinSouthernItalythatusesFacebookandInstagramtoconnectwithcustomers.80%oftheirdiners–and70%oftheirrevenue–comesfromFacebook.Theyopenedtheirsecondrestaurant,andnowemploymorethan60people.LikeAdamandDomingo,smallbusinessownersaresomeofthemostdedicatedentrepreneurs.Theyaretheheartofeveryeconomyandcreatethemajorityofnewjobsthroughouttheworld.AsMarksaid,wearetakingstrongactiontomaximizethegoodwedoincommunities.Aspartofthis,weareinvestingheavilyinsmallbusinessesandinhelpingpeoplegaindigitalskills.InNovemberwelaunchedourCommunityBoostprogram,whichprovidesdigitaltrainingforpeopleinneedofworkandhelpslocalbusinessesandnonprofitsgetthemostoutoftheinternet.Duringmytriplastweek,Iannouncedwe’reexpandingtheprogramtotheEU.Thisyearwe’llvisitmorethan30citiesintheU.S.andEuropetoworkside-by-sidewithSMBs,startupsandNGOs.Over2millionpeopleandbusinesseshavealreadyusedouronlineandofflinetraining–andby2020,we'llhavetrained1millionpeopleandbusinessesacrossEuropealone.
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Aspeopleandbusinessesshifttomobile,Instagramcontinuestogrowquickly.Therearemorethan2millionactiveadvertisersonInstagramandweannouncedinNovemberthatmorethan25millionbusinesseshaveprofilesonInstagram–upfrom15millioninJuly.Instagramisabusiness’smobilevisualshop,andwe’reseeingmorepeopleseekoutbusinessesthere.Abouttwo-thirdsofthevisitstoInstagrambusinessprofilesarefrompeoplewhodon’tfollowthemyet–andthisishelpingbringinnewcustomers.Oursecondpriorityisdevelopinginnovativeadproducts.Eachyearmobileadvertisingreachesnewmilestonesduringtheholidayshoppingseason.Ayearago,wesawmobileconversions–actionstakenonamobilewebsiteafterviewinganadonFacebook–surpassdesktopconversionsforthefirsttime.In2017,mobileconversionscontinuedtoaccelerate.Datafrom17marketsshowsmobileaccountedfor69%ofonlineconversionsonBlackFridayand64%onCyberMonday.Italsodrove80%ofconversionsonSingles’Day,apopulardayforonlineshoppinginChinaandincreasinglyothercountries.BigshoppingdayslikethesearethekindofglobaleventsthatFacebookandInstagramareuniquelypositionedtosupport.Duringtheseeventsandthroughouttheyear,businessesareusingourinnovativeadproductslikeDynamicAdstoconnectandreconnectwithshoppers.Forexample,HolidayInnExpressrecentlyusedDynamicAdsforTravelwithourCollectionformattoadvertisetopeoplewhosearchedforhotelsontheirwebsitebuthadn’tyetbooked.Theyranadswithavideothatshowedapersonalizedselectionofhotelsforthecityanddatespeoplehadlookedup.Thisresultedin3Xhigherreturnonadspendthantheirpreviouscampaigns.InQ4wealsolaunchedDynamicAdsforAuto,whichallowsdealersandmanufacturerstoshowtherightcarstotherightaudiences.
Asweexpandandimproveouradproducts,advertisersareincreasinglydevelopingmobile-firstadsratherthansimplytakingtheirTVcreativeandputtingthemonline.Mobile-firstvideowas50%ofourvideoadrevenuethisquarter,comparedto41%lastquarter.We’reseeingtheseshort-formvideosworkwellinInstagramStories,wherepeoplecanwatchafull-screenverticalvideoandswipeuptoquicklylearnaboutaproductorbrand.60%oftheseadsareviewedwithsoundon.
Recently,OpenTableusedInstagramStoriestoadvertisetheirreservationservicetoUSadultswhoarefrequentdinersorareinterestedindining.Theycombinedfoodandrestaurantfootagewitha“BookNow”button.Theadsreached1.5millionpeopleandachieved33%lowercostperreservationthantheirothercampaigns.WearemakingiteasierforanyadvertisertotryStoriesadsaspartoftheirothercampaignsonourplatform.
Ourthirdpriorityismakingouradsmorerelevantandeffective.Targetingmakesadvertisingbetter–morerelevanttopeopleandmoreeffectiveforbusinesses.Thisisespeciallyimportantforsmallbusinessesastheyhavelimitedbudgetsandneedtomakeeverydollarcount.Facebookgivessmallbusinessesthesamepowerfultoolsthatwerepreviouslyonlyavailabletolargeadvertsiers–sotheycanreachtherightpeopleattherighttime.Forexample,we’recontinuingtoinvestinValueOptimization,whichhelpsadvertisersshowtheiradstopeoplewhoarelikelytospendmorewiththem.We’vebeengraduallyrollingthisouttoadvertisersusingWebconversion,DynamicAds,andMobileAppInstallads.Theearlyresultsarepromising–over2,500businesseshavetriedValueOptimizationsinceJuneandmanyareputtingmoreoftheirbudgetstowardit.
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Wetakeourresponsibilitytopreventabuseofouradsystemsveryseriously,andweareinvestingheavilyinbothpeopleandtechnologytoprotecttheintegrityofourplatform.InadditiontorollingouttheadstransparencytoolinCanadathatMarkmentioned,we’vedisabledtheoptionthatletsadvertisersexcludepeopleinspecificmulticulturalaffinitysegmentsuntilwecandevelopbettersafeguardsagainstdiscrimination.We’realsofocusedonimprovingadqualityanddeliveringabetterexperienceforpeoplewhointeractwithmarketersonourplatform.Thisholidaywetookadditionalstepstopenalizee-commerceadvertiserswhocreatedmisleadingornegativeads.In2018,we’llcontinuetofocusonoursamethreepriorities–anddomoretoensurethequality,transparency,andauthenticityofadsonourplatform.Aspartofourefforttobemoretransparent,lastquarterwepublishedourAdvertisingPrincipleswhichhavelongguidedourapproachacrossallofourplatforms.Theseprinciplesareourcommitmenttothepeoplewhouseourservices.Theyare:
• Webuildforpeoplefirst• Wedon’tsellyourdata• Youcancontroltheadsyousee• Advertisingshouldbetransparent• Advertisingshouldbesafeandcivil;itshouldnotdivideordiscriminate• Advertisingshouldempowerbusinessesbigandsmall• Andwe’realwaysimprovingouradvertising
AsMarksaid,2017wasachallengingandimportantyearforFacebook–ayearwherewecommittedtoincreasingourinvestmentinthesafetyandsecurityofourcommunity.Itwasalsoastrongyearforourbusiness,whereourinvestmentsinhelpingourclientsgrowpaidoff.Wewillcontinuetomakealloftheseinvestmentsin2018andinthecomingyears.I’mthankfultoourpartnersaroundtheworldandtoouremployeeswhoworksohardtomakeusbettereveryday.Thanks,andnowhere’sDave.DavidWehner,CFOThanksSheryl,andgoodafternooneveryone.Q4wasastrongquarterforFacebookandagreatendtotheyear.Full-year2017totalrevenuegrew47%toover$40billionandwegeneratedover$17billionoffreecashflow.Let’sbeginwithourcommunitymetrics.Overallourglobalcommunityisstrongandgrowing.DailyactiveusersonFacebookinQ4reached1.40billion,up14%comparedtolastyear,ledbygrowthinmarketslikeIndia,IndonesiaandBrazil.
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Thisnumberrepresentsapproximately66%ofour2.13billionmonthlyactiveusersinQ4.MAUswereup269Mor14%comparedtolastyear.AsMarkmentioned,certainproductqualitychangesimpactedourDAUgrowth.IntheUS&Canada,thesechangescontributedtoaDAUdeclineof700,000comparedtoQ3.Wedon’tseethisasanongoingtrend,butwedoanticipatethatDAUinthisregionmayfluctuategiventherelativelyhighpenetrationlevel.WecontinuetoseehealthygrowthacrosstheFacebookfamilyofappsincludingInstagram,WhatsAppandMessenger.Turningnowtothefinancials.Allcomparisonsareonayear-over-yearbasisunlessotherwisenoted.Q4totalrevenuewas$13billionup47%or44%onaconstantcurrencybasis.Foreignexchangetailwindscontributed$329MofrevenueinQ4.Q4totaladrevenuewas$12.8billion,up48%or44%onaconstantcurrencybasis. Mobileadrevenuewas$11.4billion,up57%.InQ4,theaveragepriceperadincreased43%andthenumberofadimpressionsservedincreased4%,drivenprimarilybyfeedadsonFacebookandInstagram.Payments&otherfeesrevenuewas$193million,up7%.TotalexpensesinQ4were$5.6billion,up32%.Headcountremainsaprimarydriveroftotalexpenses.InQ4,weaddedapproximately1,900peopleandendedtheyearwithover25,000employees,up47%comparedtolastyear.In2017,wemadesignificantinvestmentsinR&Dandsecurity.OntheR&Dside,weaddedmorepeoplein2017thanwedidin2016and2015combined.Onthesecurityside,asMarkmentioned,wehaveacceleratedoureffortsandattheendoftheyearhadaround14,000employeesandcontractorsworkingacrosscommunityoperations,onlineoperations,andintegrityefforts.Wealsocontinuedtoinvestaggressivelyinkeyareassuchascontentandourlong-terminnovationefforts.Q4stockbasedcompensationexpenseswere$814millionwhichwasdownfromthe$831millioninQ4oflastyearduetoadeclineindeal-relatedstockbasedcompensationexpenses.AsareminderweacquiredOculusandWhatsAppin2014andweexpectthedeal-relatedSBCexpensestobesubstantiallyrecognizedbytheendof2018.
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Q4operatingincomewas$7.4billion,representinga57%operatingmargin.Oureffectivetaxratewas43%.InQ4,werecordedapproximately$2.3billioninone-timechargesasaresultofthe2017TaxCutsandJobsAct.Thiswaslargelydrivenbythemandatorytransitiontaxbasedontheaccumulatedearningsfromourforeignsubsidiaries.Netincomewas$4.3billionor$1.44pershare.Again,theone-timechargesrelatedtothetaxonaccumulatedearningsreducedEPSbyapproximately$0.77.Full-year2017capitalexpenditureswereapproximately$6.7billion,drivenbyinvestmentsinservers,datacenters,officefacilitiesandnetworkinfrastructure.In2017,wegeneratedover$17billioninfreecashflowandendedtheyearwithnearly$42billionincashandinvestments.In2017,weboughtbackapproximately$2billionofourClassAcommonstockandhadapproximately$4billionremainingonourcurrentauthorizationasofDecember31st.Weremaincommittedtorepurchasesofourstocktohelpmanagedilution.Turningnowtotherevenueoutlook.WebelievewehavegoodopportunitiestogrowthebusinessacrossbothFacebookandInstagramin2018.WecontinuetoimprovetheeffectivenessofouradswhichhelpsdriveROIforadvertisersanddemandforouradproducts.Onthesupplyside,weexpectwewillbeabletocontinuetogrowadimpressionsatamodestpace.In2018weexpectconstantcurrencyadrevenuegrowthratestodecelerateconsistentwiththetrendswehaveseenoverthepastyear.Iwouldalsonotethatinthefirsthalfof2018wewilllikelybenefitfromfavorableexchangeratetailwindsduetotherecentdepreciationofthedollar.Movingontoexpenses.Wecontinuetoexpectfull-year2018totalexpenseswillgrowapproximately45to60%comparedtofull-year2017.TurningnowtoCapEx.Weexpectthatourfull-year2018capitalexpenditureswillbeintherangeof$14to$15billion,drivenbyincreasedinvestmentindatacenters,servers,officefacilitiesandnetworkinfrastructure.Wecurrentlyanticipatethatourfull-year2018taxratewillbeinthemid-teens.Insummary,2017wasanothergoodyearforFacebook.Wecontinuedtogrowourglobalcommunityanddelivergreatresultsforouradvertisers.Importantly,weacceleratedourinvestmentstomakeourproductsbetterandthecommunitystrongeraswepushforwardonourmissionofgivingpeoplethepowertobuildcommunityandbringtheworldclosertogether.
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Withthat,Mike,let’sopenupthecallforquestions.
Operator: Wewillnowopenthelinesforourquestionandanswersession.Toaskaquestion,
press“star”followedbythenumber“one”onyourtouchtonephone.Pleasepick
upyourhandsetbeforeaskingyourquestiontoensureclarity.Ifyouarestreaming
today’scall,pleasemuteyourcomputerspeakers.
YourfirstquestioncomesfromthelineofBrianNowakwithMorganStanley.
BrianNowak: Thanksfortakingmyquestions.Ihavetwo.Thefirstone,thequalitychangesthat
youmentionedthatleadtoanimpactondailyactiveusersinNorthAmerica.Iguess
anyfurtherdetailonwhatthosequalitychangeswere?Andwhatmakesyoufeel
comfortablethatthisisn’tlikelytocontinue?Ithinkyoumayneedtomakefurther
changesincleanupthroughoutthecourseoftheyear.
Andthesecondone,Mark,IthoughtyourcommentaryonStoriesengagementwas
reallyhelpful.I'dbecurioustohearaboutearlylearningsonmonetizationofthe
Storiesformatandanychallengesmadetoovercometodrivemonetizationthrough
thatconsumption.
DavidWehner: OnthequalitychangesandtheimpactonDAUandtheU.S.andCanada,really,no
furtherIthinkelaborationonthat.Iwouldjustsaythatwedon'tanticipatethatthat
willbeacontinuingtrend,butgiventhehighpenetrationrates,wedothinkthat
therewillbesomefluctuationthere.There'salotofdifferenteffectsthatcome
fromthedifferentqualitychangesandthefocusonmeaningfulsocialinteractions.
Butthat'sourexpectationatthispoint.
SherylSandberg: Onstorymonetization,adsinStoriesandInstagramisasmallbutquicklygrowing
partofourrevenue.Thereare300milliondailyactivesonInstagramalone.Andthe
formatisprettyexcitingfromasalespointofviewbecauseithasalotofpotential.
It'sfullscreen,it'sauthentic,it'sveryengaging.Sotheopportunityinthefuturefor
ustocombinethepowerofthisnewformatwiththetargetingandmeasurement
weoffer,wethinkisgoingtobereallypowerfulinthebusinessofourclients.Its
earlydays,butI'mprettyoptimisticaboutthis.
Operator: YournextquestioncomesfromthelineofDougAnmuthwithJPMorgan.
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DouglasAnmuth: Thanksfortakingthequestion.First,Mark,youmadeitprettyclearthatdriving
meaningfulsocialinteractionsisthecompany'sprioritythisyear.Butcanyoutalka
littlebitabouthowthechangesyou'remakingimpactadvertising?Maybeyoucan
talkabouthowyou'rethinkingaboutanychangesaroundadloadorjustoverall
impressionvolume.
Andthenhowdoadsworkinanenvironmentofmorefriendsandfamilycontent,in
anenvironmentwhereyoudon'tseeasmanybusinessposts?Andthensecondly,
canyoutalkaboutGDPRaswell?Idon'tthinkyoumentionedit,butjustcurious.I
mean,youputtheblogpostouttheotherday.Butifyoucouldtalkabouthow
you'repreparinghere,that'salittleoutoverthenextfewmonths,andwhetheryou
thinkthatpresentsandtherisktoengagementormonetization.
DavidWehner: Doug,it'sDave.I'llstartoffontheimpactonthebusiness.Thebiggestfocus--the
biggestimpactonthefocusonmeaningfulinteractions,asMarkmentioned,willbe
inareaslikepassivevideowherefromabusinessperspective,wemonetizelesson
thetimespentbasis.Soifyouthinkaboutitintermsofthingslikeposts,viewsin
NewsFeedwhichdrivesimpressiongrowth,wethinkthiswillhavealessofan
impact.
Sothat'ssortofbuiltintowhatIhadsaidaboutthebusinesscommentarywhenI
commentedon2018revenueoutlook.Westill,Ibelieve,wehaveanopportunityto
growimpressionsonamodestpaceyear-over-yearacrosstheplatform.
SherylSandberg: WhenIthinkabouttheMSIchanges,obviouslyanychangethat'sbeneficialforthe
communityisgoodforthelong-runhealthofourbusiness.BecauseasMarksaid,
wecarenotjustabouttimespendonFacebook,buttimewellspent.Buteveninthe
shorterterm,alltimespentonFacebookisnotequal.Becausewhenpeoplespend
timeviewingmoreposts,becausethey'reinteractingwithfamilyandfriends,and
they'renotinvolvedinlongerposts,wehaveactuallymoremonetization
opportunities.
We'renotdoingthistobepositiveornegativeforrevenue,we'redoingitbecause
it'stherightthingforourcommunity.Buttheimpactithasonmonetizationis
certainlynotclearlynegative.WhenyouthinkaboutGDPR,theFacebookfamilyof
appsalreadyappliesthecoreprinciplesintheGDPR,whicharetransparencyand
control.Andwe'rebuildingonthistomakesurethatwe'rereadytofullycomplyby
May.
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We'regoingtocontinuetogivepeopleapersonalizedexperienceandbeclearhow
we'reusingdataandgivechoices.Andwerealizethatthismeansthatsomeusers
mightoptoutofouradstargetingtools.WealsoknowthattheremaybeaDAU
impactforimplicationsonEuropeanusage.Butfromthetargeting,we'renot
forecastingabigimpacthere.There'ssomeriskandwe'rewatchingclosely.Over
thelongrun,wefeelconfidentthatwe'reverywellplacedtonavigatethe
transition.
Operator: YournextquestioncomesfromthelineofHeatherBelliniwithGoldmanSachs.
HeatherBellini: Great,thankyou.Ihadtwoquestions.One,Iwasjustwonderingwhatthe
advertiserresponseisthentothelowerengagement,andalsojustthekindof,I
guesscleaningupoftheNewsFeed,ifyouwill.What'skindoftheirviewonthis?
Andalso,canyousharewithusanymetricsonWatch?AndIknowit'sreallyearly,
butanythingthat'sinterestingfromanengagementperspectivehereandkindof
howyouthinkthiscouldevolve?Thankyou.
SherylSandberg: OntheDAUimpactandtheadvertiserresponse,ourbusinessisstrong.Wehave
over184millionpeopleusingFacebookeverydayintheU.S.,whichisconsiderably
morethanSuperBowleverydayonmobilealone.Wealsohavewethinkthebest
abilitytomakeadvertisingrelevantforbusinessesandpeoplewhoseeads.
We'recontinuingtobuildproductsthatallowbusinesstogetahigherreturnforthe
dollarstheyspendandallowpeopletoseemorerelevantinformationandadson
ourplatform.Sowe'repleasedwiththegrowth,andwebelievethatdeliveringthe
strongquarterwehaveshowsthat.OnWatch,it'sjustearlydays.Wehavea
dedicatedplaceforpeopletowatchandcomment.We'reheavilyfocusedonthe
socialaspectsofvideoviewing,butit'stooearlytoreportanyrealfindings.
Operator: YournextquestioncomesfromthelineofEricSheridanwithUBS.
EricSheridan: Maybefollowinguponthethemearoundengagementandthechangesonproduct
first.Howwouldyoubedefiningsuccess?Whatwillyoubewatchingforintermsof
eitherthetimespentontheplatform,ortheusergrowthontheplatform,or
relativeengagementtosaythatyougotthemixrightandthatpeopleareseeingthe
rightcontentandhaveahealthyexperiencewithFacebookoverthenextcoupleof
years?
13
Thatwouldbenumberone.Andnumbertwo,Dave,withrespecttotheOpExand
CapEx,giventheintentofthecompanythatyougetalotofthingsrightonthe
securitysideandwithrepositioningproduct,shouldweexpecttheretobea
differentcadencethisyearintermsoftheinvestmentsthatthecompanymight
make,maybemorefirsthalfversussecondhalf?Wanttoknowiftherewasany
colorthere.
MarkZuckerberg: Icantakethefirstpointaboutmeaningfulsocialinteraction.Sotheproduct
directivethatI'vegiventoallofourteamsistoshiftfromfocusingonshowingthe
mostmeaningfulcontenttopeopletoinsteadtonowencouragingthemost
meaningfulsocialinteraction.SothatwillfirsttakeholdasaseriesofNewsFeed
changes.Butovertime,therearegoingtobenewproductsthatwebuild,new
interfacesthattheteamhasdesignedwiththatgoalofencouraginginteractions
betweenpeople.
Sothethingthatwe'regoingtobemeasuringisbasically,thenumberof
interactionsthatpeoplehaveontheplatformandoffbecauseofwhatthey're
seeingthattheyreportthemtousismeaningful.OneinterestingthingthatIthink
that'sworthbeingclearaboutintermsofhowwedevelopNewsFeed,Ithinkthere
isthismyththatwedesignedNewsFeedinordertoadjustoptimizeforatime,or
forlikesorcommentsorsomesignalslikethat.
Therealityisthewaythatwe'vedonethisforyearsiswe'vehadapanel,asurvey,
ofthousandsofpeoplewhobasicallyweasked,what'sthemostmeaningfulcontent
isthattheyhadseenintheplatformortheyhaveseenofftheplatform.Andwe
designoursystemsinordertobeabletogettothatgroundtruthofwhatpeople,
realpeoplearetellingusisthathigh-qualityexperience.
Sonowwe'regoingtoshiftthatmethodologyalittlebittoinsteadofjustbeing
focusedonthecontent,nowtobemorefocusedontryingtomeasureandhave
peopletelluswhatiscreatingthemostmeaningfulinteractionintheirlivesright?
NotjustonFacebook.ItcouldbeamessagethatyouhaveonMessengeror
WhatsApp,butitcouldalsothatyouseesomethingonFacebookandhavea
conversationaboutthatintheworldwithsomeonewho'smeaningfultoyou.
Andthat'ssomethingthatweneedtounderstandthat.Butthat'sbasicallywhat--
wherewe'regoingtobemovingallthesystemstowards--overthenextperiodof
timeandisnotgoingtobeoneNewsFeedchangethathappensovernight.Itwillbe
14
aseriesofrolloutsandthenanumberofproductchangesthatgototheinterfaceof
theproductofthingswelaunchedofthosethingsaswell.
DavidWehner: Andthen,Eric,youhadaquestionabouthowwemightexpectexpensegrowthto
progressthroughtheyear.There'snospecificoneitemthat'sgoingtodriveit.So
wewouldexpectexpensegrowthtorampthroughouttheyear,largelyduetothe
factorsthatwe'vetalkedaboutonpriorcallsintermsofwhat'sdrivingtheoverall
acceleration.There'sthecontinuedinvestmentonthesecurityfront.
WetalkedaboutthatinbothMark'scommentsandmycomments,andwe're
continuingtorampthatinvestment.Wearecontinuingtoinvesttosupportthis
videostrategyonWatchsoweexpectthatcontentinvestmenttocontinueand
ramp.Andthenfinally,we'recontinuingtoinvestinthelong-terminitiativesin
areaslikeAR,VR,AIandconnectivity.Soacrosstheboard,wewouldexpect
expensegrowthtorampthroughouttheyear.
Operator: YournextquestioncomesfromthelinefromPeterStablerwithWellsFargo
Securities.
PeterStabler: Thankyou,TwoifImay,oneforDaveandoneforSheryl.FirstofallforSheryl,I'm
wonderingifyoucouldupdateusonthesearchopportunity.Giventherapidgrowth
ofproductadvertisingontheplatform,isthereanopportunityforFacebookto
transitionfrommoreofademandgenerationplatformtodemandfulfillment?
AndthenforDave,canyougiveusasenseofthetimingchangestotheNewsFeed?
Isthisafullycompletedrolloutwheretherearedifferentcohortsthatsawitfirst?
Wasthereanyregionalphasingoranythinglikethat.Thankyou.
DavidWehner: Yes,Peter.I'lltakethesecondpartfirst.Webegantomakechangesarounda
numberofdifferentqualityinitiativesinthefourthquartersothataffectedmetrics
thatwe'vetalkedabout,includingboththetimespentandtheDAU.Butwe
continuetomakechangestoimproveandtooptimizearounddrivingmeaningful
socialinteractions,asMarktalkedabout.
That'sgoingtobeanongoingjourneythroughouttheyear.Sothere'sno--Idon't
thinkweeveraregoingtodeclarethatwearedonemakingchanges.changes.SoI’d
expectwewouldcontinuecontinuetomakechangesandevolve.
15
SherylSandberg: Onthesearchopportunity,there'sagrowingnumberofsearchesonFacebook,but
we'restillawaysofffrommonetization.It'sworthnotingthoughthatbecauseof
ouradstargetingandourabilitytoreachpeoplemultipletimes,wedobelievethat
someofouradsuccessistakingpeoplefromdemandgenerationthroughdemand
fulfillment.
Sowehavemultipleclientswhowillshowanad,videoadtoeveryoneintheU.S.,
forexample,ortoabigcohortofpeople.Andthenthey'llfollowupwithanadthat
targetsoneitherInstagramorFacebook.Thepeoplewhoengagedwiththatfirstad;
thentheycanfollowupwiththenextteam.Andweareseeingasbusinessesare
increasinglymeasuringtheiradspendintermsoftheirrealROIpersalesthateven
withinourownplatforms,wecanmovepeopledownthatmarketingtunnelfrom
demandgenerationtodemandfulfillment.
Operator: YournextquestioncomesfromthelineofJustinPostwithBankofAmerica,Merrill
Lynch.
JustinPost: Great,thankyou.Dave,maybeyoucouldtalkalittlebitaboutthesustainabilityof
thepricinggrowththatyou'reseeingwithadvertising.Obviouslyyouroutlookfor
nextyearsuggeststhatitdeceleratesmodestly,butit'scertainlyataveryhighlevel,
andtalkalittlebitaboutthat.AndthenmaybeMarkorDave,justtalkabouthow
theWatchtabisevolving.Areyouseeingalotofusagethere?Andhowdoyou
thinkaboutcontentintheWatchtabversusthenewfeed?Thankyou.
DavidWehner: Yes.Sure,Justin.Onpricinggrowth,Ithinkthere,wefeellikewe'remakinggood
progressinourgoalofdrivingbetteroutcomesandROIforouradvertisersthrough
thingslikebettertargeting,betteradunits,drivingbetterconversion.Andwethink
we'remakinggoodprogressthereandthewillingnessofadvertiserstocontinueto
growbudgetswithus,Ithinkhighlightsourprogressthere.
Remember,they'reoptimizingattheendofthedayforbusinessresultsforgiven
dollarsspent,nottheimpressionpricethatwe'rekindofnormallyreportinghere.
Soyouthinkofallthiswork.AndSheryltalkedabouttheValueOptimizationefforts
aspartofthatofbeinganefforttoimprovetheyieldoftheimpressionsthatwe
havetodrivedownstreambusinessresultsforouradvertisingpartners.
Andifwecandrivethoseeffectively,thatwilltranslateintohighereffectiveprices
forourbusiness.AndasImentioned,Ithinkwebelievewestillhavealotofworkto
doyoutocontinuetoimprovethat.Sowethinkthere'sopportunitieshere.
16
MarkZuckerberg: AndforWatch,I--it'searly,therearesomepromisingsigns.Butintermsofhowwe
thinkaboutthisoverallcomparedtoNewsFeed,Iwouldsayit'sreallyimportantto
internalizethattheNewsFeedvideoecosystemandtheWatchvideoecosystemare
almostcompletelyseparatethings,right.SotheWatchbehaviorthatwe'rebuilding
isonewherepeoplecomeintentionallytowatchspecificvideosandtointeractwith
thecommunityaroundthat.
That'sincontrasttowhatweworryistoopassiveconsumptionofanexperiencein
NewsFeedtoday,wherepeoplejusthappentooftenseeavideo,andmaybethey'll
watchitforafewminutes,butmaynotinteractarounditasmuchinNewsFeed.
Sowe'restillveryoptimisticlongtermthatWatchwillbeauseforvideothathelps
tobebringpeopleclosertogether,andthatwillcorrelatewithallthethingsthatour
communityistellingustheywantandthatcorrelateswiththemeasuresofwell-
beingthatwethinkthatsocialproductscangeneratebyhelpingpeoplebuild
relationshipsintermsofallthelong-termmeasuresofwell-beingthatwecare
about;likelongtermhappinessandhealth,etc.
Operator: YournextquestioncomesfromMarkMahaneywithRBCCapitalMarkets.
MarkMahaney: Twoquestionsplease.Europeanadvertisingrevenuegrowth,oryouradrevenue
growthinEurope,accelerated.Isthatjustcurrency?Oranythingelseyouwouldcall
rightthere?Andthenyoutalkedaboutprogressinmovingawayfromkindof
demand--orcreationtowardsdemandfulfillmentorincludingdemandfulfillment.
AndIwaswonderingifyoucouldgiveanymoreexamplesofthat.Iknow,Sheryl,
twoyearsagoorso,youmentionedbooking.combeingontheplatform.Istillthink
thoseOTAs,basedonourwork,arestilldoing10xasmuchspendonGoogle.So
there'sarealopportunityversusFacebook.Arethereexamplesoranyother
evidenceyoucanshowortalkaboutthatcompaniesarereallyfindingtheabilityto
dodemandfulfillmentonFacebook?Andwhat'scausedthattochange?Thanksa
lot.
DaveWehner: SoletmejustquicklyhitontheconstantcurrencyquestionIthinkyouhadatthe
beginning,Mark.TheaccelerationthatwesawfromQ3toQ4wascurrencyfor
Europe.ButEuropecontinuestogrowataveryhealthypace,andonaconstant
currencybasis.Sowe'reverypleasedwiththeresults,bothinconstantcurrency
termsandnominalterms.AndthenSheryl.
17
SherylSandberg: Sototakethefirstquestion,theEU,thestrengthinEuropewasdrivenbySMBs.We
grewacrosstheboardwithlargecompaniestoo,butSMBswerereallyimportant
forthis.Thereare18millionsmallbusinessesonFacebookinEurope,andIhada
chancetomeetalotofthemonmytrip.Buttomentionjustone,whichjustshows
thepoint,acouplenamedLindaandMariusstartedacompanycalledIELM.They’re
akidsclothingretailer.
TheystartedonSwedenonFacebook.Shewassewinginherlivingroomandselling
them.Facebookisdrivingabouthalftheirsales.Theythenopenedafactoryin
RomaniaandmovedbacktoRomaniawherethey'renowemploying100people.
Andthey'reshippingacrossSweden,Romania,GermanyandAustria.They’restilla
smallbusinessat100people,butthey'reagrowingbusinessandshowingthepower
ofhowourworkwithSMBsisgrowingjobs.
Youwereaskingalsoforanexampleofdemandgenerationgoingallthewaydown
todemandfulfillment.Here'sanotheronefromEurope.GymSharkisafitness
clothingbrandbasedontheU.K.TheyranFacebookvideoadsandInstagramstory
adsfortheirBlackFridaycampaign.Andthentheytargetedwithlook-alikespeople
whohadpreviouslypurchased,andCustomAudiencesforpeoplewhostartedbut
didn'tcompletethepurchase.
Andtheysawa9.3xreturnofinvestmentoverthetwoweekholidayperiod.What
happensonourplatformisoftenpeoplethatwillstartoutdoingdemand
generationandusetherepeatopportunitytoshowpeopleads,movingdownthe
funneltodemandfulfillment.Ifyouuseourtargetingtoolswell,youcanactually
startoutwithdemandfulfillment.
SosomeoftheseexamplesI'vesharedonthiscall,fromHolidayInntoGymShark,
areaboutpeopleusingthetargetingtoolstofindpeoplewhoareinterestedinthe
products,andthenyoucangetcloseranddownthefunneltodemandfulfillment.
Operator: YournextquestioncomesfromthelineofRossSandlerwithBarclays.
RossSandler: Justtwoquestions.Mark,onthetopicofpassiveversusactiveconsumption.Can
youtalkaboutwhatpercentoftheDAUsactivelycontributetodayversusjustthe
leanbackpassiveconsumption?Andhowhasthatratiomaybechangedversus5or
10yearsagobasedonsomeoftheproductchangesthatyouhadinNewsFeed?
18
Andthen,Dave,justtofollowuponpricing.Sotherewasabunchofnoisegiventhe
growthratesofdesktopversusmobile.Canyoutalkaboutwhatpricinggrowth
lookslikeinmobileonalike-for-likegeographybasis.Isthat20percent,30
percent?Anycolortherewouldbehelpful.
DavidWehner: Yes,Ross.IguessI'lltakeboth.Yes,wedon'tbreakoutthetypeofmetricthat
you'retalkingaboutonthepassiveversusactiveconsumption.Sowedon'thave
anythingspecificallytosharethere.Intermsofbreakingoutpricingona--ona
mobilebasisImean,Ithinkoverallthatthetrendsreflectgenerallywhat's
happeningonmobile,butthereisstillanoverlayoftheshiftfromdesktop.But
overall,weareseeingpricesincreaseonmobileinregions,soIthinkthat's
consistentwiththereportedtrend.
Operator: YournextquestioncomesfromthelineofBrentThillwithJefferies.
BrentThill: Thankyou.OnInstagram,I'mjustcuriousifyoucouldgiveabitmorecoloronthe
progressthatyou'reseeing.Anymetricstohelpfillinwhat'shappeningthere?
DavidWehner: WecontinuetobepleasedwiththegrowthofInstagram,bothonauserbasisand
onarevenuebasis.Itcontinuestomakeanincreasingcontributiontothebusiness.
Sowe'reverypleasedwiththeInstagramresults,nothingspecificallytohighlight
fromametricspointofview.
SherylSandberg: Onthebusinessside,Ithinkwehave--arebothpleasethattheresultsbutseea
verybigopportunityinfrontofus.Wehave6millionadvertisersonFacebook,
whichmeansthatwehavealotofopportunityonInstagram,whereweonlyhave
twomillionadvertisers,togrowtheirengagementwithusandtheirspend.
Operator: YournextquestioncomesfromthelineofMichaelNathansonwith
MoffettNathanson.
MichaelNathanson:IhaveoneforMarkonnewstrustworthinessandthenthegroupandsports.So
Mark,Irealizethatyou'retakinggreatpainnottoplaytheroleofnewseditoron
yourplatform.You'reaskingusersabouttrustworthiness.ButIwonder,doesthat
pickupbiasesinourowntheoriesofwhatwebelievetobetrustworthy,andhow
doyougetpastthat?
Andthenwoulditmakesensetojustsimplyyouplaytheroleofpopulatinganew
NewsFeed,maybeitsowntab,withnewsthatweallbelieve--webelievetobe
trustworthy.Soatsomepoint,youtakeamoreactiveroleandidentifythenews
19
thatyourplatformbelievestoberealnewsandmaybecreateanewtabthatway.Is
thateversomethinginyourthinking?
MarkZuckerberg: Thevaluethatwecareabouthereishelpingtobuildcommonground,right,and
helpingtodoourparttofightfalsenewsandpolarization.Sowhatwe'redoingwith
thisspecificchange,whichisoneofanumberofNewsFeedchangesthatare
gearedatimprovingthequalityandtrustworthinessofnewsonFacebook,istowe
basicallyaskpeople--wedon'twanttoassessbyourselveswhichsourcesare
trustworthy.
Ithinkthat'snotasituationthatorapositionwe'recomfortablewithourselves.I
don'tthinkpersonallythatthat'ssomethingthatourcommunityoroursociety
wantsustodo.Soforallofthefeedbackthatwegetthatweshouldtakemoreofa
viewonthat,Iactually,Idon'tbelievethat,thatistherightthingbroadly.
Whatwetrytodoisgetourcommunitytotelluswhatmatterstothem.Because
webelievethatwhenwecangetanaccuratesignalfromthecommunity,then--
peoplearesmart.Theyknowwhattheywantandwhat'sgood.Andtheycantellus
thatifwecanasktheminasimpleenoughwayandgetaggregatedata.Andsowhat
we'redoingiswe'rebasicallyjustaskingpeopleifthey'refamiliarwithnewssources
andwhethertheytrustthem.
Andtheeffectofthatisthatitbasicallynormalizesfor--therearegoingtobe
peoplewhoreadagivennewssource,whowillprobablytrustitbecausetheyneed
that.Butthequestionisforpeoplewhodon'treadwhoarestillfamiliarwithit,do
theythinkit'strustworthy?Andthat'stheexampleIgavebeforeofTheWallStreet
JournalorNewYorkTimes.Alotofpeoplereadthose,alotofpeopledon't.
Butpeoplewhodon'tstillthinkthehigh-qualityjournalismingeneral.Andthat's
nottrueforalotoftheotherstuffthat'soutthere.Andwefoundthatthat'sa
reliablesignalofcontentthathelpstobuildcommongroundthatisunlikelytobe
polarizing,thatisunlikelytobefalsenews.Andwhatwe'redoingishelpingtoshow
thatalittlebitmore.Again,we'renotgoingtotellyouthatyoucan'tshareother
stuff,right?
Youcansharethatontheplatform.Peoplecangotoyourprofile.ButinNewsFeed,
we'regoingtoshowthatalittlebitmoredotowhatweviewasourroleishelping
usbuildingcommongroundandcountersomeoftheseotherforcesintheworld.
20
SherylSandberg: OntheSportsanswer,sportsisoneofthewaysthatpeoplegettogetheron
Facebookandbuildcommunity.We'reexcitedtobringtheUEFAChampionsleague
soccerandcollegebasketballtoFacebook.Andwe'regoingtocontinueto
experimentwithdevelopingmanydifferentformsofcontentforFacebook.
Operator: YournextquestionisfromthelineofJohnBlackledgewithCowenandCompany.
JohnBlackledge: Greatthanks.Twoquestions.OnMarketplace,withtheexpansionto30countries,
justwonderinghowthebusinessmodelevolvesovertime.Doesitkindofmirror
Amazon'sthird-partybusinessoreBay'smarketplacebusiness?Andthenjustonthe
adunits,onamidrollvideoad,justwondering,Iknowit'searly,butjustanycolor
ontheaddemand,andperhapshowyouthinkabouttheimpactofthisadunits
overthenextcoupleofyears.
SherylSandberg: OnMarketplace,we'rejustgoingtocontinuetoiterateontheadstest.We'repretty
encouragedbywhatwe'veseen,eventhoughit'sprettyearlydays.Whatwe're
excitedaboutisthatourbusinessishelpingpeopleconnectwiththingstheywantto
buy.It'salsoimportanttonotethatcommerceisareallyimportantverticalinour
adsbusinesssoit’snotjustthatcommerceisbeingdriveninadsinMarketplace,
butinamuchbiggerway,commerce,discoveringproductsallthewaythroughto
salesisabigpartofwhat'sdrivingouradsbusiness.
Operator: Yournextquestion.
SherylSandberg: Sorry,onadbreaksformid-rollvideo.Earlydays,prettygoodresults,morethan70
percentofadbreaksupto15secondsinlengthonFacebookandAudienceNetwork
arebeingviewedtocompletion.Mostarebeingviewedwiththesoundon,but
again,it'sveryearlyforthis.
Operator: YournextquestionisfromthelineofAnthonyDiClementewithEvercoreISI.
AnthonyDiClemente:Thanksfortakingmyquestions.Sheryl,justhopingyoucouldhelpusthinkabout
howmarketingbudgetsgrowasretailmovesonline.Soinvestorswespeaktoask
thequestionabouttheaddressablemarketforFacebook.Isit--istheaddressable
marketrunningoutofopportunityastheplatformgetslarger?Doyoubelievethe
overalladmarketortheTAMispossiblyexperiencingstructuralexpansionduetoa
shiftine-commerceoverall?
AndthenMark,IwantedtoaskaboutAI.Canyoujusttalkaboutthebroader
applicationsofthetechnologiesthatyouareinvestingintoimprovetheuser
21
experienceandsafetyontheplatform?SoIunderstandyou'reusingAItoimprove
thequalityoftheexperienceandengagement.Butshouldwebethinkingabout
theseinvestmentsasalsoenablingnewfeaturesandproductsovertimewhetherit
beshippinghardwareorcustomchipsorpotentiallyAIasaserviceexternally?
DavidWehner: Anthony,onthemarketingbudget,wecontinuedtothinkwe'vegotgreat
opportunitiestogrowinthelargeglobaladvertisingmarket.Whenyougetsortof
downtothemicrolevel,youtalkedaboute-commerce.E-commercewas--isand
remainsoneofourstrongestverticalsinQ4.Andwethinkwe'redoinganexcellent
jobofbuildingtherightproductsfore-commerceretailers.
AndSheryltalkedaboutValueOptimizationandthatsortofworkthatwe'redoing.
AndsoIthinkwe'vegotcontinuedopportunitieswithe-commercegoingforward.
SoIthinkwe'reverywellpositionedinthee-commercespace.OnAI?
MarkZuckerberg: IcantalkaboutAI.Somachinelearningis--theimprovementstherearebyfarthe
largesttechnologicaltrendsthatwe'reseeingintheindustryandacrossthe
business.Andwereallyseeitinthreeways.Thefirstandmosttacticalarejustthe
optimizationtoeverythingthatyousee,fromrankinginNewsFeeds,torankingof
ads,orsearch,orimprovingoursecuritysystems.
Andthat'sdrivingalotofthebusinessandthequalityimprovementthatwe're
seeing,andthat'sreallyimportant.Thesecondcategory,Iwouldcallqualitative
changesinhowwedobusiness.Forexample,inNewsFeed,historically,allthe
contentthat'sbeeninNewsFeedhasbeencontentyou'reconnectedto.You
becomefriendswithsomeone,oryoufollowaPage,andthentheircontentcan
showupinNewsFeed.
Butlongterm,--ornotevenlong-term,overthenextseveralyearsaswedevelop
anunderstandingofallthecontentonFacebook,thatwon'tbeaconstraint
anymore.Atsomepoint,we'llbeabletounderstandthemeaningofallthecontent
that'spostedthatyoucouldpotentiallyseeandusethatascandidatestopotentially
improveyourexperienceandmakeitthatyoucanviewmorecontentthanyou
mightbeabletotodayandofcoursewe'lldothattohelpencouragemoresocial
interaction.
Thewaythatthisisimprovingtheworkthatwe'redoingaroundsecurityand
integrityisalsoveryfundamental.Today,thatwholemodelisthatpeoplecanpost
whattheywantandthenapersoncanflagitandthenoursystemswilllookatit.
22
Butincreasingly,aswemoveintothefuture,we'regoingtobeabletoproactively
takedownsomenegativecontent.Igavetheexampleoftheterrorism-related
contentandsomethingsaroundsuicidalpostswheresomeonepostssomething
thatthey'rethinkingaboutsuicide.
Nowtoday,wedon'thavetowaitforsomeonetoreportitalotofthetime.Inthe
lastfewmonths,therehavealreadybeenmorethan100instanceswherewe've
beenabletoreachoutandgetintouchwithfirstrespondersthatcangivepeople
thehelpthattheyneed.That'sabigstructuralchangeinthewaywedobusinessin
termsofprotectingtheintegrityofourcommunity.
Thethirdmajorcategoryisgoingtobecompletelynewproductsandplatforms.So
there,we'vetalkedaboutallthethingsthatwe'rebuildingaroundVRandARand
theabilitytobepresentwithanyone,anywhere.Certainly,AIisgoingtobeabig
partofthat,bothonthevisionsideandthevoiceside.Andtherearegoingtoneed
tobebigadvancesthere,butthat'sreallyexciting.
ButIthinkineachofthosethreecategories,theoptimization,theupgradinghow
wedobusinessandreallychanginghowthatworksinourproductstoday,andthen
thenewproductsthisis--Iwouldsaythatimprovementsinmachinelearningare
themostimportanttechnologicaltrendintheindustrynowbyfar.
DeborahCrawford: Operator,wehavetimeforonelastquestion.
Operator: YourlastquestioncomesfromthelineofMarkMaywithCiti.
MarkMay: Justwantedtoaskafollow-upquestionregardingMark'scommentsthatuser
engagementhaddeclinedbyIthink50millionminutesanddailyhoursinthe
quarter.Iguessthequestionis,howconfidentareyouthatthatimpactwasdueto
NewsFeedchangesthatyoumadeproactivelyversussomeotherfactorsoutside
yourcontrol?
Andifyouarestillfairlyearlyintheprocessofmakingthesequalityimprovements
totheNewsFeed,doyouexpectforengagementdeclinestocontinuegoing
forward?AndjustforDave,Iknowyouchooseyourwordscarefully.Justwantedto
clarify,youmentionedthisyear,youexpectconstantcurrencyadrevenuegrowthto
decelerate,consistentwithtrendsthatwe'veseeninthelastyear.Ithinkyour
constantcurrencygrowthratein'17declinedbyabout12percentagepoints.Isthat
kindofwhatyou'retryingtoleadustowards?
23
DavidWehner: Icantakethesecondquestionfirst,Mark.IthinkwhatIamtryingtosayisthatwe
doexpectconstantcurrencyrevenuegrowthtocontinuetodecelerate,consistent
withthesteadydecelerationthatwe'veseenoverthepastyear.Sowedoexpect
thattrendtocontinue.I'mnotputtingspecificpercentagesaroundit.
MarkZuckerberg: Icanspeaktothefirstone.
DavidWehner: Yes.
MarkZuckerberg: SoinQ4,wemadeanumberofqualitychangesthatwerelargelyaroundvideo.We
aregoingtocontinuetomakequalitychangesnowgoingforwardaround
meaningfulsocialinteraction.AndIdothinkthat,thatislikelygoingtocontinuethis
trendofdecreasingpassiveconsumption.Butifwedoourjobswell,itshould
increasethenumberofmeaningfulinteractionsthatpeoplehave.
Andwethinkthat'sgoingtobepositive.Sowethinkitwillhelpmakethe
communitystrongeroverthelongterm,andwethinkitwillbegoodforthe
businessinthelongterm.Butthisiswhatpeoplearetellingusiswhattheywanton
theproduct.It’stheuniquevaluethatyoucanexpectfromFacebook.Youcouldgo
toalotofplacestoconsumecontent,buttherearen'talotofserviceswhereyou
couldstrengthenyourrelationships.
That'swhatpeoplewant,sothat'stherightthingforustofocuson.Italsolinesup
withallthewell-beingresearchthatwe'vedonewhich,asyouknow,there'sbeena
lotofdebateoverthelastyearabouttheutilityofsocialmediaandtheInternet.
Wetakethisveryseriously.It'sourresponsibilitytomakesurethatweunderstand
everythingthat'sgoingononourplatform.
Andoneofthebigtakeawaysfromthatisthattimewhenpeopleareengagingand
buildingrelationshipsisgoodtime.Thatcorrelateswithalltheaspectsoflong-term
well-beingthatyouwouldexpect,likehappinessandhealthandfeelingmore
connectedandfeelinglessalone,andallofthethingsthatqualitativelymatterin
ourlife.Andwethinkwecanhelpdrivethatandimprovepeople'slivesbydoing
that,sowe'reabsolutelygoingtodothat.
DeborahCrawford: Great.Thankyouforjoiningustoday.Weappreciateyourtimeandwelookforward
tospeakingwithyouagain.
24
Operator: Ladiesandgentlemen,thisconcludestoday'sconferencecall.Thankyouforjoining
us.Youmaynowdisconnectyourlines.
END