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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.