Facebook, Inc. (FB) First Quarter 2017 Results Conference Call · billion people now using Facebook...
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1 Facebook, Inc. (FB) First Quarter 2017 Results Conference Call May 3 rd , 2017 Operator Good afternoon. My name is Mike and I will be your conference operator today. At this time I would like to welcome everyone to the Facebook first Quarter 2017 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question during that time, please press star then the number 1 on your telephone keypad. This call will be recorded. Thank you very much. Ms. Deborah Crawford, Facebook’s Vice President of Investor Relations, you may begin. Deborah Crawford, VP Investor Relations Thank you. Good afternoon and welcome to Facebook’s first quarter 2017 earnings conference call. Joining me today to discuss our results are Mark Zuckerberg, CEO; Sheryl Sandberg, COO; and Dave Wehner, CFO. Before we get started, I would like to take this opportunity to remind you that our remarks today will include forward-looking statements. Actual results may differ materially from those contemplated by these forward-looking statements. Factors that could cause these results to differ materially are set forth in today’s press release, and in our annual report on form 10-K filed with the SEC. Any forward-looking statements that we make on this call are based on assumptions as of today and we undertake no obligation to update these statements as a result of new information or future events. During this call we may present both GAAP and non-GAAP financial measures. A reconciliation of GAAP to non-GAAP measures is included in today’s earnings press release. The press release and an accompanying investor presentation are available on our website at investor.fb.com. And now, I’d like to turn the call over to Mark. Mark Zuckerberg, CEO Thanks, Deborah. And thanks everyone for joining today. We started the year off with a good quarter. Our community continues to grow with more than 1.9 billion people now using Facebook every month and almost 1.3 billion using it every day. Our ads business is doing well, too. Total revenue grew by 49% year-over-year to $8.0 billion, and advertising revenue was up 51% to $7.9 billion. In my letter to our community back in February, I talked about how, for the past decade, Facebook has focused on connecting friends and families. Now, with that foundation, our next focus will be building community.
Transcript of Facebook, Inc. (FB) First Quarter 2017 Results Conference Call · billion people now using Facebook...
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Facebook,Inc.(FB)FirstQuarter2017ResultsConferenceCallMay3rd,2017OperatorGoodafternoon.MynameisMikeandIwillbeyourconferenceoperatortoday.AtthistimeIwouldliketowelcomeeveryonetotheFacebookfirstQuarter2017EarningsCall.Alllineshavebeenplacedonmutetopreventanybackgroundnoise.Afterthespeakers'remarks,therewillbeaquestionandanswersession.Ifyouwouldliketoaskaquestionduringthattime,pleasepressstarthenthenumber1onyourtelephonekeypad.Thiscallwillberecorded.Thankyouverymuch.Ms.DeborahCrawford,Facebook’sVicePresidentofInvestorRelations,youmaybegin.DeborahCrawford,VPInvestorRelationsThankyou.GoodafternoonandwelcometoFacebook’sfirstquarter2017earningsconferencecall.JoiningmetodaytodiscussourresultsareMarkZuckerberg,CEO;SherylSandberg,COO;andDaveWehner,CFO.Beforewegetstarted,Iwouldliketotakethisopportunitytoremindyouthatourremarkstodaywillincludeforward-lookingstatements.Actualresultsmaydiffermateriallyfromthosecontemplatedbytheseforward-lookingstatements.Factorsthatcouldcausetheseresultstodiffermateriallyaresetforthintoday’spressrelease,andinourannualreportonform10-KfiledwiththeSEC.Anyforward-lookingstatementsthatwemakeonthiscallarebasedonassumptionsasoftodayandweundertakenoobligationtoupdatethesestatementsasaresultofnewinformationorfutureevents.DuringthiscallwemaypresentbothGAAPandnon-GAAPfinancialmeasures.AreconciliationofGAAPtonon-GAAPmeasuresisincludedintoday’searningspressrelease.Thepressreleaseandanaccompanyinginvestorpresentationareavailableonourwebsiteatinvestor.fb.com.Andnow,I’dliketoturnthecallovertoMark.MarkZuckerberg,CEOThanks,Deborah.Andthankseveryoneforjoiningtoday.Westartedtheyearoffwithagoodquarter.Ourcommunitycontinuestogrowwithmorethan1.9billionpeoplenowusingFacebookeverymonthandalmost1.3billionusingiteveryday.Ouradsbusinessisdoingwell,too.Totalrevenuegrewby49%year-over-yearto$8.0billion,andadvertisingrevenuewasup51%to$7.9billion.InmylettertoourcommunitybackinFebruary,Italkedabouthow,forthepastdecade,Facebookhasfocusedonconnectingfriendsandfamilies.Now,withthatfoundation,ournextfocuswillbebuildingcommunity.
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There'salottodohere.Buildingglobalcommunityisbiggerthananyoneorganization,butwecanhelpbydevelopingsocialinfrastructureforcommunity--forsupportingus,forkeepingussafe,forinformingus,forcivicengagement,andforincludingeveryone.
Buildingaglobalcommunitythatworksforeveryonestartswithbuildingmillionsofsmaller,supportivecommunities.Thisisespeciallyimportantsincemembershipinmanyphysicalcommunitiesisdeclining.Werecentlyfoundthatmorethan100millionpeopleonFacebookaremembersofwhatwecall"verymeaningful"groups,likeparentingorrarediseasesupportgroupsthatareanimportantpartoftheirsupportstructure.Myhopeistohelpmorethanabillionpeoplejoinmeaningfulgroupstostrengthenoursocialfabricoverthenextfewyears.Tohelpbuildasafecommunity,welaunchedCommunityHelp,atoolthatallowspeopletogiveandgetthingslikefood,shelterortransportationinthewakeofanaturaldisaster.Wealsolaunchedanewfundraisingtoolthatallowspeopletoraisemoneyforthemselves,afriendoracausethatisn'talreadyonFacebook.
Butit'sclearwehavemoreworktodo.We'regoingtocontinuebuildingnewtoolstokeeppeoplesafeonourplatform.Overthenextyear,we'llbeadding3,000peopletoourcommunityoperationsteamaroundtheworld--ontopofthe4,500wealreadyhavetoday--toreviewthemillionsofreportswegeteveryweek,andtoimprovetheprocessfordoingitquickly.Tohelpbuildamoreinformedcommunity,wemadechangestoourNewsFeedrankingtoreducethefinancialmotivationtospreadhoaxes.We'reworkingwithindependentfactcheckerstogivepeoplemoreinformationaboutwhetheranarticlehasbeendisputed.WelaunchedaneducationaltoolatthetopofNewsFeedin14countriestohelppeoplespotfalsenews.Andwe'rebeginningtotestRelatedArticlesthatappearbeforeyoureadanarticletogiveyoueasieraccesstomoreperspectivesandinformation.
We'realsohelpingbuildmorecivically-engagedcommunities.InMarch,welaunchedTownHalltohelppeoplefindandconnectwiththeirgovernmentrepresentativesonalocal,stateandfederallevelintheU.S..Injustthefirstmonth,wecreatedmorethan1millionnewconnectionsbetweenpeopleandtheirrepresentatives.WealsorolledoutatoolinFranceaheadoftheirelectionthatallowscandidatestosharestatementsaboutwheretheystandondifferentpolicyissues.Thesearesomeofthechangeswe'vemadetohelppeoplebuildstrongercommunities.NextIwanttogiveaquickupdateonwhatwe'rebuildingoverthreetimehorizons:howwe'remakingourcoreservicesmoreusefulandengagingrightnow;howwe'rebuildingecosystemsaroundproductsthatalotofpeoplealreadyuseoverthenextfiveyears;andhowwe'reinvestinginthetechnologiesthatwillgivemorepeopleavoiceandmakesharingmoreimmersiveoverthenext10years.Thisquarterwelaunchedasetofnewcameras.Photosandvideoarebecomingmorecommonthantext,sothecameraisbecomingmorecentralthanthetextboxinallourapps.IntheFacebookapp,youcannowswiperightfromNewsFeedtoaccessournewcamerawithmasks,framesandfilters.We'vedevelopednewcomputervisiontoolsthatcanapplythestyleofapaintingtoa
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photoorvideo—andwecandoitinreal-timeonyourphoneforthefirsttime.Thisispartofmakingthecamerathefirstaugmentedrealityplatform.WewanttogivedevelopersthepowertobuildallkindsofARtoolsintothecamerasomorepeoplecanexperienceaugmentedrealityontheirphones.Creatingthefirstopencameraplatformisahugestepforward,andwe'reexcitedtokeeppushingaugmentedrealityforward.WealsoexpandedtheStoriesformattogivepeoplemorenewwaystoshare.InstagramStoriesnowhasmorethan200milliondailyactivepeopleusingit.Andjustacouplemonthsafterwelaunchedit,WhatsAppStatushasmorethan175milliondailyactivepeopleusingit.Morerecently,wealsorolledoutMessengerDayandFacebookStories,andwe'regoingtokeepputtingvideoatthecenterofallourservices.Overthenextfiveyears,we'regoingtobuildecosystemsaroundourproductsthatalotofpeoplearealreadyusing.IputLivevideointhiscategory.Lastmonth,weannouncedthatoneineveryfiveFacebookvideosisalivebroadcast--andoverthepastyear,dailywatchtimeforFacebookLivebroadcastshasgrownbymorethan4x.ThisyearwealsogavepeopletheabilitytogoLivein360.Messengerisinthiscategory,too.Andwejustannouncedthat1.2billionpeopleuseMessengereverymonth.AtF8,welaunchedthesecondgenerationofourMessengerplatformandintroducedaDiscovertabtomakeiteasiertofindthebestexperiencesquickly.Finallyoverthenext10years,we'redevelopingconsumerusecasesaroundtechnologiesthatareabigpartofourfuture,butwon'tbeabigpartofthebusinessforawhile.Ontheconnectivityside,inAprilwesuccessfullysimultaneouslybeamed16gigabitsofdataineachdirectionbetweenalocationonthegroundandaCessnaaircraftcirclingmorethan7kmaway.Eventually,we'regoingtousethistechnologyalongwithAquila,oursolar-poweredplanewe'rebuilding,tobeaminternettopartsoftheworldthatcurrentlydon'thaveaccess.InVR,welaunchedFacebookSpaces,thefirstsocialvirtualrealityplatformthatletsyoucreateyourownavatarandhangoutwithyourfriends.AndwealsoreleasedtheFacebook360appforGearVRthatmakesiteasiertodiscoverandexperience360photosandvideos.AndwecontinuetoshipRiftandTouchtopeopleeverywhereanddeliverastrongcontentecosystemacrossbothRiftandGearVR.Aspeoplesharemorevideo,asweexploremorethingslikeaugmentedreality,andaswebuildmoretoolstokeepourcommunitysafe,we'regoingtokeepinvestingaggressivelyintheinfrastructureweneedtogrowandserveourcommunity.That'swhyweannouncedthatournexttwonewdatacenterswillbebuiltinOdense,DenmarkandPapillion,Nebraska.We'vemadesomegoodprogress,butwehavealotmoretodotohelpbuildcommunityandconnecttheworld.Iwanttothankourcommunity,ourteams,ourpartners,andallofyouforbeingapartofthis
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journeywithus.
Now,here'sSheryl.SherylSandberg,COOThanksMarkandhieveryone.Wehadastrongfirstquarterandagreatstarttotheyear.Q1adrevenuegrew51%yearoveryear.Mobileadrevenuewas$6.7billion,up58%year-over-year,andwasapproximately85%oftotaladrevenue.Growthagainthisquarterwasbroad-basedacrossregions,marketersegments,andverticals.Ourgoalistobuildmeaningfulconnectionsbetweenbusinessesandpeople.We’redoingthisbyfocusingon3keypriorities:helpingbusinessesleveragethepowerofmobile,developinginnovativeadproducts,andmakingouradsmorerelevantandeffective.Ourfirstpriorityishelpingbusinessesleveragethepowerofmobile.Morebusinessesaroundtheworldareshiftingtomarketingonmobile.Over70millionbusinessesarenowusingFacebookPagesaroundtheworldonamonthlybasis,andmoreandmoreofthemarebecomingadvertisers.Wealsorecentlyannouncedthatover5millionbusinessesareactivelyadvertisingonFacebook,includingmorethan1millioninemergingmarkets.MostoftheseadvertisersstartbyusingourfreePagesproductbecauseit’seasytouse.Peopleareincreasinglyrecognizingthatthesmallscreenisbig.OurCreativeHubisprovidingtoolsthatmakeiteasiertocreateadsoptimizedformobile–whatwetalkaboutas“thumb-stoppingcreative”.MarketerscanseepreviewsoftheiradsacrossFacebookandInstagrambeforerollingthemoutandgettipstohelpdrivebusinessresults.Oursecondpriorityisdevelopinginnovativeadproductsthathelpbusinessesmakethemostoutoftheircampaigns.WecontinuetoimproveDynamicAdswhichenableadvertiserstopromotetheirfullrangeofproductsacrossalldevices.AdvertiserscannowtargetDynamicAdstobroadaudiencesandareseeinggreatresults.Lastweek,IvisitedhomeretailerWayfairinBoston.TheyusedDynamicAdstoreachalargeaudiencewithpersonalizedrecommendationsfromtheircatalogofover8millionitems.Byfindinghigherrevenuecustomersatalowercost,thecampaignbeatWayfair’sreturnonadspendgoalbymorethan20%.
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We’realsohelpingmarketersusevideotocaptureshoppers’attention.PeoplearewatchingmorevideoonFacebookthaneverbeforeandit’schanginghowtheyconnectwithbusinesses.InarecentstudyFacebookcommissionedwithKantar,30%ofmobileshopperssaidvideoisthebestwaytodiscovernewproducts.Thisquarter,weintroducedanewadformatcalledCollection.Collectionhelpsmarketerstellstoriesonmobilebycombiningcreativevideosorphotoswithproductimages.Clickingontheproductsleadstoanimmersiveshoppingexperience,drivingpurchaseconsiderationandultimatelysales.Forexample,AdidaswhichishowyoupronouncethemattheirheadquartersanditsagencyiProspectcreatedavideohighlightingtheinnovativefeaturesofitsZNERoadTripHoodie.UsingourCollectionadformat,Adidasfeatured4moreitemsfromtheirproductcatalogbelowthevideo.Theysawa5.3timesreturnonadspendanda1.8timesdecreaseincostperconversion.It’sstillearlyforthisnewformat,butit’sagreatexampleofhowwecandeliverinnovativemobileexperiencesthatworkforadvertisersandworkforpeople.Thisquarterwealsolaunchedfullscreen,sound-onadsinInstagramStories.Advertiserscannowreachover200milliondailyactivesonStoriestodoeverythingfrombuildingbrandstosellingproducts.Ourthirdpriorityismakingouradsmorerelevantandeffective.Measurementiscritical.Werecentlyintroducednewandexpandedverificationpartnerships,andcommittedtoauditswiththeMediaRatingCouncil.Whethermarketersaretryingtogetpeopletobuysomethingontheirwebsiteorintheirstore,wenowhavesystemsinplacetohelpthemmeasureresultsandthird-partypartnershipstoverifythoseresults.Theseareimportantstepsaswecontinuetobuildtheadvertisertrust.BudLight’sNFLcampaignisagreatexample.Topromotethedesignsoftheirnewteam-specificcans,BudLighttookanationalandregionalapproach.Theyranvideoadsfeaturingthenewcanstopeopleages21-49intheUS.Thentheyalsoranmoretargetedadsineachregion,featuringthe2cansoftheteamsplayingeachother.UsingFacebookpollingandOracledatacloud,theysawa24-pointliftinadrecallanda4.4timesreturnonadsales.Weknowmarketerswanttocompareresultsacrossplatformsandplacements.Historicallywe’veenabledlargermarketerstodothis.InQ1,westartedtestingasetofadvancedmeasurementtoolsthatmakeiteasierformarketersofallsizestocomparetheeffectivenessofFacebook,InstagramandAudienceNetworkalongsideotherpublishers.Weareofftoastrongstartin2017.Wearehelpingmarketersleveragethepowerofmobile,developinginnovativeadproducts,anddeliveringprovenandmeasurableresults.Weareexcitedaboutthegrowingadoptionofourplatformsandwearegoingtocontinuetoinvestinhelpingbusinessesandpeopleconnect.
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Thanksandnowhere’sDave.DavidWehner,CFOThanksSherylandgoodafternooneveryone.Q1wasastrongquarterforFacebook.Wecontinuedtoseehealthygrowthandengagementtrendsacrossourcommunityaswellasbroadbasedgrowthinouradsbusiness.Let’sstartwithourcommunitymetrics.InMarch,1.28billionpeoplevisitedFacebookonanaverageday,up18%comparedtolastyear.Thisdailynumberrepresented66%ofthe1.94billionpeoplethatvisitedFacebookduringthemonthofMarch,whichwasup282millionor17%comparedtolastyear.OurcommunitygrowthinQ1wasdrivenbyproductimprovements,Internet.org,andongoingthirdpartypromotionaldataplansinmarketslikeIndia.Notethatwedonotcontrolthetimingortermsofthesepromotions.Beforedivingintothefinancials,Iwanttohighlightthatwearenolongerreportingnon-GAAPexpenses,income,taxrateorEPS.Giventhatstockisanimportantpartofourcompensationstructure,webelievethatinvestorsshouldfocusonourfinancialperformancewithstock-basedcompensationincluded.Turningnowtothefinancials.Allofourcomparisonsareonayear-over-yearbasisunlessotherwisenoted.Q1totalrevenuewas$8.0billion,up49%.Adrevenuewas$7.9billion,up51%.Exchangeratesdidnotaffectouroverallgrowthratethisquarterasheadwindsincertaincurrencieswereoffsetbytailwindsinothers.Intermsofregionaladvertisinggrowth,RestofWorldandAsiaPacificwereourstrongestgrowersinpercentagetermsat66%and60%respectively.Bothregionsbenefittedfromparticularlystrongadvertiserdemand.EuropeandNorthAmericabothgrewat47%.Mobileadrevenuewas$6.7billion,up58%andrepresentedapproximately85%ofadrevenue.Desktopadrevenuegrew22%,despiteadeclineindesktopusage,andwasaidedbyourrecenteffortstolimittheimpactofadblockingtechnologies,whichwebeganinQ3oflastyear.Ourmobileadsbusinesscontinuedtobedrivenbyhealthysupplyanddemanddynamics.InQ1,theaveragepriceperadincreased14%andthetotalnumberofadimpressionsservedincreased32%,primarilydrivenbymobilefeedads.
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PaymentsandOtherFeesrevenuewas$175million,down3%.Q1totalexpenseswere$4.7billion,up40%.In2017,wehavecontinuedtoaccelerateourhiringefforts.Weaddedover1,700employeesinQ1–predominantlyintechnicalandrecruitingfunctions–andendedthequarterwithapproximately18,800employees,up38%comparedtolastyear.Thismarkedanaccelerationfromthe34%growthrateinQ4.Q1operatingincomewas$3.3billion,representinga41%margin.Ourtaxratewas10%,whichreflectstheadoptionofASU2016-09inthefourthquarter.Excludingthisadoption,ourtaxratewouldhavebeenapproximately9percentagepointshigher.Notethatthenewaccountingguidancedoesnotimpactthecashtaxeswepay,butmerelyhowthetaxprovisionispresentedunderGAAP,wherebynowexcesstaxbenefitsareflowingthroughtheP&LandinthisquarterpositivelyimpactedEPS.Netincomewas$3.1billion,or$1.04pershare.Q1capitalexpenditureswereapproximately$1.3billion,drivenbyinvestmentsindatacenters,servers,officefacilitiesandnetworkinfrastructure.InQ1,wealsobrokegroundonourninthdatacenterinNebraska.Wegeneratedapproximately$3.8billioninfreecashflow.Inthefirstquarter,werepurchased$228millionofourClassAcommonstockandused$771millionincashfortaxespaidrelatedtothenetsharesettlementofequityawards.Weendedthequarterwith$32.3billionincashandinvestments.Turningnowtotheoutlook.Withregardstorevenue,wecontinuetoexpectthatouradrevenuegrowthrateswillcomedownmeaningfullyoverthecourseof2017.Weexpectthatadloadwillplayalesssignificantfactorindrivingrevenuegrowthaftermid-2017.Wealsoexpectdesktopadrevenuegrowthratestoslowinthethirdquarterwhenwebegintolapoureffortstolimittheimpactofadblockers.Wecontinuetoexpectthatourfull-year2017Payments&OtherFeesrevenuewilldeclinecomparedtofull-year2016.Asareminder,Payments&OtherFeesrevenueisprimarilygeneratedfrompaymentsrelatedtogamesplayedonpersonalcomputers.
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Turningtotheexpenseoutlook,wecontinuetoexpectthatfull-year2017GAAPexpenseswillgrow40-50%comparedtofull-year2016.Iwouldnotethataswelookinto2017andbeyondtherearegoingtobeanumberofinitiativeswebelievearevaluabletothecommunityandtothecompanyinthelongtermbutaregoingtobenetnegativeonouroperatingmargins.Weareembarkingonasignificantrampupininfrastructuresupportingglobalgrowth,andwecontinuetoexpectthatfull-year2017capitalexpenditureswillbeintherangeof$7-$7.5billiondollarswhichisupover50%comparedtolastyear.Turningnowtotax.Aswenotedinthelastcall,underthenewaccountingguidanceourtaxratewillvarybasedonourstockprice.Atcurrentstockprices,weexpectthatourQ2andfull-year2017taxrateswillbothbeinthemid-teens,soupfromthefirstquarterrate.Insummary,Q1wasastrongquarterandagreatstarttotheyear.GrowthintheFacebookcommunityremainsstrong.Engagementacrossourfamilyofappsishealthyandgrowing.Andadvertiserdemandfromourgrowingbaseofmarketersisrobust.Importantly,wecontinuetoinvestaggressivelytobuildourbusinessanddrivevalueforourcommunityoverthelongterm.Withthat,operator,let’sopenupthecallforquestions.
Operator: Wewillnowopenthelineforaquestionandanswersession.Toaskaquestion,
pressstarfollowedbythenumberoneonyourtouch-tonephone.Pleasepickup
yourhandsetbeforeaskingyourquestiontoensureclarity.Ifyou’restreaming
today’scall,pleasemuteyourcomputerspeakers.
YourfirstquestioncomesfromthelineofEricSheridanfromUBS.
EricSheridan: MaybeonethematicquestiononInstagramforMarkandSheryl.Wantedto
understandwhatyou'reseeingintermsofthedevelopmentofthecommunityon
theusergrowthside,theengagementsideaswellasonthemonetizationsidewith
respecttobreadthofadvertisersandadproductevolution,whatthatmeansfor
Instagram'sfutureandhowitcomparestomaybewhatyou'velearnedgrowingthe
businessontheFacebooksideoverthelastcoupleofyears?
DavidWehner: Eric,whydon'tItakethebeginningofthatandthenSherylcanaugmentwithsome
additionalcolor.SowhenyouthinkaboutInstagram,we'reseeinggreatgrowth
therewiththecommunity.Sothispastquarter,weannounced700milliondaily--
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sorry,monthlyactivessothatwasabigannouncement.Andthat'sbroad-based
growthacrosstheglobesowe'repleasedwiththat.Intermsofthedevelopmenton
theadvertisingside,we'renotspecificallybreakingoutInstagramrevenue,asyou
know,becausethat'ssoldthroughthesameFacebookadinterfaces.
Butwe'reseeingreallygoodcontributionandgoodgrowththere.Andwe're
developingitacrossawidevarietyofadproductssoVR'sbecomingamore
significantpartoftheInstagramStorieswhereitwasoriginallymorebrand-focused,
butwe'veexpandedtheproductofferingsonthedirectresponsefront.Andwe're
continuingtobringmoreadproductstoInstagram.
SherylSandberg: We'reprettyexcitedaboutwhat'shappeningintheInstagramadspacebecause
FacebookandInstagramarethetwomostimportantmobileadplatforms.And
there'saspecialpropertywithInstagram,whichisthattheincreasingvisualization
ofadsandthecreativecanvasitofferswiththesciencebehindtheFacebook
targetingandmeasurementsystemsisreallyaprettyunusualcombination.
We'realsoseeingverybroadadoptionincludingsmallcustomers.We'repretty
excitedtohave1millionadvertisersand8millionInstagrambusinessprofilesonthe
platform.Toshareoneexample,anonlinestoreinBrazilcalled(LojaNama),they
selldecorativeitemsandaccessories.Theirbusinessowner,Joanna,tookphotosof
herproductsonherphoneandthencreatedadswithourShopNowbutton.
ShetargetedyoungaudiencesinBrazilwhoareinterestedinfashion,decoration,
moviesandarchitecture.Andduringtheperiodofhercampaign,Instagram
accountedfor78--79%ofhersales.Ithinkwhatthatshowsisthepowerofthe
verysophisticatedtargetingweofferacrossourplatforms,alongwithreallythe
abilitytouseverysimpletoolslikeaphonetocreateverysophisticatedbutvisually
compellingads.
Operator: YournextquestioncomesfromthelineofDouglasAnmuthofJPMorgan.
DouglasAnmuth: OneforMarkandthenperhapsoneforSherylorDave.Mark,first,justonthevideo
strategy,washopingyoucouldtalkalittlebitabouthowthat'sevolvingintermsof
thetypeofcontentthatyou'relicensingandfeaturingwithintheFacebookvideo
tab.Andthenifyouhaveanymoreclarityjustonhowtheeconomicsaregoingto
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worktherearoundrevenueshareandgrossmargins.Andthenonadrevenue,the
U.S.andCanadawasverystrongat47%growth,butatthesametime,italsodid
decelalittlebitmorethanwe'veseeninrecentquarters.Wasjustwonderingif
there'sanythingelsetocalloutthere.Thankyou.
DavidWehner: Yes,Doug,whydon'tItakethedecelquestionontheU.S.andCanada?Idon'tthink
therewasanythingparticularlysurprisingaboutthedecelerationinthegrowthin
U.S.andCanada.We'vebeentalkingaboutexpectingadecelerationinadrevenue
growth,andwesawthatplayoutU.S.,Canadamodestly.Obviously,we're
particularlypleasedthattherewasreallystrongdemandthatbenefitedregionslike
APACandRestofWorldsoreallybroad-basedstrengthinAPAC.AndthenRestof
World,wesawareboundinLatinAmerica.Soespecially,Brazilsowe'reseeing
someparticularstrengththere.SoIthinkthat'ssortof--Ithinkwasabighighlight.
Onthecontentfront,we'relookingatinvestinginkickstartinganecosystemfor
longer-formcontentonFacebook.Andthatinvolvesusworkingwithcontent
providerstodevelopthatcontent.Inthelongrun,weexpectittobearevenue
sharemodelontheplatform.Andobviously,we'regoingtobe--we'regoingtobe
inanareawherewe'resharingrevenuewithcontentproviderssoit'sgoingtohave
adifferentmarginprofilethancoreFacebookNewsFeedfromanexpenseprofile
perspective.
MarkZuckerberg: Ithinkyouprettymuchgotthat.
DavidWehner: OK.
Operator: YournextquestioncomesfromthelineofBrianNowakfromMorganStanley.
BrianNowak: IhaveoneforMarkonMessengermonetization.Canyoujusttalkaboutsomeof
thebiggesttrendsyou'remonitoringandwhatyou'remostexcitedaboutasyou
thinkaboutwaystomonetizeMessengeroverthenext2or3years?Andthenon
engagement,youcontinuetogrowInstagramandMessengeruserbasesreally
helpfully.Iguess,I'dbecurioustohear,doyoustillcontinuetoseerisingtimespent
peruseracrossall3ofthoseplatformsevenastheDAUsbasegetsbigger?
MarkZuckerberg: Youwanttostartwiththestats,Wehner?
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DavidWehner: Yes,Icanstartwiththestats.Soon--yes,Mark,ontheengagementfront,we're
seeingtimespentgrowthperDAUacrosstheFacebookfamilyofappsandthat
includesFacebookitself.Instagramhasbeenstrong,especiallywithfeedranking
andStories.We'renotbreakingoutspecifictimespentstatsonaquarterlybasison
those.AndthenontheMessengermonetizationfront.
MarkZuckerberg: Icantalkaboutthestrategy.Yes,sothefirstthingthatweneedtodoonMessenger
andWhatsAppisgetalotofbusinessesusingitorganicallyandbuildthebehavior
forpeoplethattheyreachouttobusinessesfordifferentthings,likecustomer
supportorforgettingnewscontent,thingsthatmaynoteventuallybethebig
businessusecasesbutestablishthebehaviorofpeopleinteractingnotonlywith
theirclosefriendsbutalsowithbusinesses.Intermsofmakingmoneyonthat,once
wehavethatbehavior,Ithinktherearegoingtobeanumberofwaystoamplify
that.
We'realreadyexperimentingwithacouple.OneisadsthatactuallydisplayinNews
Feed,notinMessengerorWhatsAppbutthatlinkedtotheabilitytocommunicate
withabusinessdirectlyinMessengeroreventuallyWhatsApp.Andthat'sgreat.I
mean,itconvertsbetterforthebusinesses.Theycanhaveabetterdialoguewith
theperson–apersistentrelationship.Sothat'sonewaythatisvaluable.
Theotherwayis,ofcourse,eventuallyshowingpaidcontentinMessengerwhether
that'sintheinboxorinrelevantwaysthroughouttheproduct.Butthetoppriority
rightnowisjustbuildingupthebaseoforganicinteractionbetweenpeopleand
businessesthattheywanttointeractwith.Andoncewegetthattoabigbase,I
thinktherearegoingtobealotofopportunitiestobuildthebusiness.Andthe
businesswillbeproportionaltotheamountofthatactivitythatpeoplewanttodo
organically.
Operator: YournextquestioncomesfromthelineofJustinPostfromBankofAmericaMerrill
Lynch.
JustinPost: Acoupleofthingsonadvertisingandmodeling.WhenwethinkaboutQ1,canyou
helpusatalltothinkabouthowmuchtheadloadgrowthiscontributing?Andwhat
drovetheimprovementinpricinginthequarter?AndthenDave,whenyoulookout
tothethirdquarterandyoukindoflaptheadblockingondesktop,aretheremore
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adblockingsyoucandotohelpmaintainthatgrowth?Orarethereotherdriversfor
desktopthatwecouldthinkabout?Thankyou.
DavidWehner: Sure,Justin.Notbreakingoutspecificdriversonthesupplyside,supplygrowthwas
healthyandwehadcontributionsfromuserstimespentandadloadinthequarter.
Intermsofwhatdrovetheimprovementinthepricing,it'sstrongdemand;that's
playingthroughinthefaceofalittlebitslowersupplygrowth.Andsoyou'reseeing,
ofcourse,theauctiondrivepricingandtheirinterplaybetweenthesupplygrowth
andthepricinggrowth,andwe'reseeingstrongdemandplaythroughonthepricing
side.
Whenwegettolappingoureffortsondesktop,Idothinkyou'regoingto--you
haveaseculartrendawayfromdesktop,sothat'sgoingtobeanoverallfactorin
desktop--ourabilitytogrowandmaintainthedesktopbusiness,soIthinkthat'san
underlyingfactor.We'realwaysgoingtobeinabackandforthwithadblockerson
thedesktopsidesoIthinkthat'sgoingtoconstantlybeathingthatplaysintothe
desktoprevenue.
Operator: YournextquestioncomesfromthelineofColinSebastianfromBaird.
ColinSebastian: Great,thanks.Firstoff,Iguess,asafollow-upontheearliervideoquestionfrom
Doug.Couldyouaddsomeperspectiveonengagementtrendswithvideocontent
andvideoadssuchasaverageviewingtime?Andwhetherthosemixiswhatis
impactingimpressiongrowth?Andthenmorebroadly,ifyoucanoffersome
perspectiveonhowmuchofthevideoadspendingonFacebookapplicationsare
incrementaltotelevisionbudgetsorifthere'sanyevidenceyou'reseeingofashare
shift?Thankyou.
DavidWehner: Sure,Colin.I'lltakethatfirstone.Soyes,impressiongrowthwas32%inQ1asI
noted.Andthatwasabitslowerthaninpreviousquarters.Thoseofyouwhohave
beenfollowingusforawhileknowthatperiodically,wemakechangestothe
productthatisgoingtoimpactsomeofthemetrics.OneofthethingsthatIwould
calloutinQ1asacontributingfactorontheimpressiongrowthsidewasour
decisiontoranklonger-formvideohigherinNewsFeed.Thatmeansmoretimein
video.AndthatdoescomeattheexpenseofsomeimpressiongrowthinNewsFeed.
SoIthinkyoudoseesomeinterplaythereontheimpressiongrowthsideduetoour
focusonvideo.AndthenSherylisgoingtofollow-uponvideoadspending.
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SherylSandberg: OnTV,wearedefinitelyseeingpeoplecontinuetoadvertiseonTVanduseusasa
complement.Overtime,webelievethatthedollarsshiftwitheyeballs,andwewant
toearnitfromourclientstobethebestdollarandthebestminutetheyspendand
helpthemmeasureacrosschannels.Ithinkincreasingly,thequestionisnotyoucan
dowithoutTVbutifyoucandowithoutmobile.Andwe'reworkinghardtohelp
advertisersdevelopthevideocreativethatreallyworksformobilebecausethat
makesthereallybigdifference.
Andwethinkthecombinationofthecreativeworkingformobilebutalsothe
measurementandtargetingwecandoisaverypowerfuloffer.Toshareoneofmy
favoritenewexamples,Subwayworkingwiththeiragentthrough360i,developed
videoadsandimagesforFacebookandInstagramtopromotethelimited-timeoffer
Reubensandwich.AndtheyusedAudienceInsights,targetingpeopleaged18to49
whopurchasemeatandcheese.Andthat'sjustprettyincredibletargeting.
NowhereelseIdon'tthinkyoucanactuallytargetthatwayandpeopleinterestedin
fastfoodandencouragethemtovisitSubways.TheythenusedNielsenBrand
Effectsandwe'reabletomeasurea16-pointliftinadrecallanda5-pointliftin
intenttovisitSubway.Soit'sareallyuniquecombinationofthepowerofcreative
thatwasdesignedforvideoformobilewithveryspecifictargetingandveryspecific
measurement.
Operator: YournextquestioncomesfromthelineofJohnBlackledgefromCowen.
JohnBlackledge: Twoquestions.Mark,youmentionedadding3,000reviewersofcontentat
Facebook.Couldartificialintelligencebeusedovertimetohelpsolvesomeofthe
monitoring?Andthenjustmorebroadly,howisAIbeingemployedinprocessesat
thecompanynowversusacoupleofyearsago?
Andthenseconditemwouldbecouldneweradunitslikemid-rollvideohelp
mitigatethedecelfromtheloweradloadgrowthcontributioninsecondhalf'17?
MarkZuckerberg: I'lltalktothecontentandAIquestionandthensomeoneelsecantalkaboutthead
piece.Theshortanswerisyes.AItools,overtime,willbeabletodoabetterjobof
flaggingthingsforthesetofpeoplewhoareinthecommunityopsteamsthatwe
14
canprioritizewhatwelookat.Alotofwhatwe'retryingtodohere,it'snotjust
aboutgettingcontentoffFacebook.
Lastweek,thereisthiscasewheresomeonewasusingFacebookLivetobroadcast,
orwasthinkingaboutsuicide,andwesawthatvideoandactuallydidn'ttakeit
downandhelpedtogetintouchwithlawenforcementtousethatLiveVideoto
communicatewiththatpersonandhelpsavetheirlife.Soalotofwhatwe'retrying
todoisnotjustabouttakingthecontentdownbutalsoabouthelpingpeoplewhen
they'reinneedontheplatform,andwetakethatvery,veryseriously.
Overtime,theAItoolswillgetbetter.Rightnow,therearecertainthingsthatAIcan
dointermsofunderstandingtextandunderstandingwhat'sinaphotoandwhat's
inavideo.Thatwillgetbetterovertime.Thatwilltakeaperiodofyearsthoughto
reallyreachthequalitylevelthatwewant.Soforawhileourstrategyhasbeento
continuebuildingasgoodoftoolsaswecan.Becausenomatterhowmanypeople
wehaveontheteam,we'renevergoingtobeabletolookateverything,right?So
that'sgoingtobeabigchallenge.
Butgiventheimportanceofthis,howquicklyLiveVideoisgrowing,wewantedto
makesurethatwedoubledownonthisandmakesurethatweprovideassafeofan
experienceforthecommunityaswecanwhichiswhywe'realmostdoublingthe
sizeofthecommunityopsteamtofocusonsomeoftheseissuesaroundsafetyon
LiveVideo.Butovertimeforsure,moreAIwilldothisbutthisisoveraperiodof
years.
DavidWehner: John,Ithinkyourquestionthenwasonadbreaksandthemid-rolltypeofformats.I
thinkthere,we'retestingtheabilityandareputtingshortadbreaksintolonger-
formliveandon-demandvideos.Testsaregoingwellbutit'sreallyearlydaystotalk
aboutthatbeingasignificantcontributor.Sowe'reworkingtocontinuetomake
thoseproductsbetterandcontinuingthosetests.Butit'searly.Weare--onthat
front--we'refocusedonbuildingoutthebestvideoexperiencesforourcommunity
andgrowinglonger-formcontentasapriority.Andadbreakisgoingtoallowusto
haveamonetizationstrategywiththatlonger-formcontent.SolikeIsaid,it'searly.
Operator: YournextquestioncomesfromthelineofHeatherBellinifromGoldmanSachs.
15
HeatherBellini: IguessIhadaquestionjustrelatedtoInstagramandFacebookstories.Imean,
we'vetalkedalotaboutadloadgrowthoverthelastyear,andDave'sbeentalking
aboutthependingslowdown,whichIthinkwe'reallexpecting.Buthowdowethink
aboutthesenewapplicationsornewwaystoengagewiththeappsatthetopofthe
--atthetopofyourphonewhereyou'restartingtoseeadinsertionshowupas
well?Isthatthoughtofasdifferentthanthegeneraladloadcommentthat,Dave,
you'remaking?
AndI'msorrytosplithairsherebutI'mjusttryingtogetasenseofhowtothink
aboutwhenthey'restartingtoshowupinnewplaces.Andthen,Iguess,Ijusthada
follow-upforSheryl.Andonequestioninparticularwasifthere'sanymeasurement
metricsthatadvertisersareaskingfornowthatifyoucouldhelpthemwith,it
wouldmakethemevenmoreeagertoshifttheirbudgetsoverfromTVandfollow
theireyeballs?
DavidWehner: Soyes,Heather,onthe--onStories,again,it'saprettysimilaranswer,Ithink,the
adbreaksinthesensethatit'searlyintermsofusing--putting--usingthead
formatinstories.Wecertainlyrolledthoseout.Theyarenotintheadload
calculationperse.Soitisdifferentasyousaid,fromtheadloadcommentarythat
I'vegiven.Butobviously,it'sveryearlyonthoseproducts.AndthenSheryl,youhad
thequestionaboutmeasurementmetrics?
SherylSandberg: Yes,weknowthatmeasurementissocritical.Andwereallywanttomeasurecore
businessresultsandfocusonbecomingthenumberonegrowthdriverforour
clients.Wearecontinuingtoconstantlyreviewourmetricssowhenwefindbugsor
errors,we'rereportingthemtoourclientsandaddressingtheissueandcontinuing
withthatanalysisasweworkthroughallofourmetrics.We'realsoveryfocusedon
expandingmeasurementpartnershipsandthird-partyverification.
Thislastquarter,weextendedviewabilitymeasurementtotheAudienceNetwork,
addanotherverificationpartner,DoubleVerify,forvideoanddisplaymeasurement
andintroducedourMMMportal,sothatwecanhelppeoplemeasureacrossallof
thedifferentplatformsandcomparetheeffectivenessoftheiradspendnomatter
whattheirendgoalis.
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Operator: YournextquestioncomesfromthelineofAnthonyDiClementefromNomura
Instinet.
AnthonyDiClemente:IhaveoneforMarkandoneforSheryl.Mark,atF8andinyourcommentstoday,
youtalkedaboutmakingthecameracentraltotheappinthecamera,thefirst
augmentedrealityplatform.Iknowit'searlybutcanyoumaybesharewithusyour
thoughtsaboutthepotentialcommercialapplicationofaugmentedrealityasyou
seeittoday?
AndthenSheryl,there'sbeenmorelatelyabouttheuseandeffectivenessof
influencermarketingonbothFacebookandInstagram.HowisFacebookthinking
aboutsharingintheeconomicsofwhenbrandsusecelebritiesorinfluencersto
markettheirproductsusingtheirFacebookposts?Isitbybringingmore
transactionsontotheplatform,buildingontheshoppingexperienceonFacebook
andhowisFacebookgoingtoshareinthoseeconomics?Thankyou.
MarkZuckerberg: Allright.Well,Icanstartbytalkingaboutaugmentedreality.Thebigstepforward
thatweannouncedatF8isthattherearelotsofdifferentappsthathavecamerasin
themright?Orthatindependentdevelopersjustbuildanappthathasasingle
cameraeffect.Butwhatwe'rebasicallyseeingisthatthere'ssomuchinnovation
andsomanydifferenttypesofeffectsthatpeoplearecreatingthatwedidn'twant
developerstohavetobuildtheirownseparateappandgettoahugescaleinorder
tobuildsomenewkindofvisualtool.
Sowebuiltthat--we'remakingthecamerasinsidethewholefamilyofappsinto
thefirstaugmentedrealityplatform--intoanopenplatform,whichisdifferent
fromwhatanyotherappsthathasacamerahasdonebefore.It'sgoingtoopenup
amuchgreaterdiversityofusecases,notonlymakingitsothatusecaseslike
Facemasksorstyletransfersthatwealreadyhave,you'renowgoingtohave
thousandsofoptionsinsteadofjust10or20atatime.Buttherearealsogoingto
beallofthosekindsofthingswe'renotevenbuildingtodaythatdeveloperswillbe
abletoexperimentwith.
OneoftheexamplesIshowedatF8wasaroundusingobjectrecognitionand
computervisiontobeabletopointyourcameraatsomethingandthentaponit
andgetacardofinformationmaybeevenaBuybutton,right?Sotherearelotsof
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differentwaysthat,overtime,thiskindofcontentisgoingtobothaugmentexisting
real-worldobjectsandeventuallyreplacethem,whichIthinkisgoingtobean
interestingopportunity,maybenotonaugmentedrealityonthephonebuton
glasseseventuallywhenyouhavethat--Ithinkweregoingtogettoapointwhere
thingslikeTVyou’llnolongerneedaphysicalTV,you'llget$1appthatyoucan
watchascreenonanditwilljustinterestingexercisetoseehowmanyofthethings
thatwehavethatarephysicalthingsdon'tactuallyneedtobephysicalinthat
world.
Andhowmuchinnovationthatopensupindependentdevelopersallaroundthe
worldandalotofpeopledon'thaveafactory.SotheycanbuildaTVbutthink
abouthowmanykidsindifferentdevelopersaroundtheworld,kidsindormrooms
andallthesedifferentplacesgoingtobeabletocreatethingsthattodaythey
couldn't.SoIthinkthisisgoingtocreateaprettyinterestingeconomy,soalotof
thatstuffisprettyfarout,5,10years.Butwewanttobepushingthisforward.And
we--Ithinkwe'realittlebitlatetothetrendinitiallyaroundmakingcamerasthe
centerofhowsharingworks.ButIdothinkatthispoint,we'reprettymuchaheadin
termsofthetechnologythatwe'rebuildingandmakingitanopenplatform,Ithink,
isabigstepforward.Alotofpeopleareusingtheseproductsacrossourfamilyof
apps,andIwouldexpectustocontinueleadingthewayforwardonthisfromthis
pointon.
SherylSandberg: Whenyouthinkaboutinfluencermarketing,wedefinitelyseepublishersinterested
init,brandsinterestedinit.Andsowe'veworkedonbrandedcontent,theabilityto
tagasponsorandshareapostoraninsight,andthefinancialarrangementremains
betweenasponsorandapublisher.It'searlybutwe'reseeingsomepositiveresults
withpublishersofmanydifferenttypesbringingbrandedcontenttoFacebook.In
Q1,weopenedthisuptounverifiedPages,sowecouldenablemorepeopletotake
advantageofthiskindoftargeting.
Weseethisinthebroadercontextofbettertargeting.Whenyouthinkaboutwhat
reallydrivesgreatperformanceforbothpeoplewhoareusingFacebookbutfor
marketers,it'swell-targetedads.Andsoinfluencermarketingisonewaytoget
therebutwe'refocusedonaveryfullrangeofabilitytotargetwell.We'vebeen
reallypleasedwiththeadoptionofourtargetingproductsfromCustomAudiences
tolook-alikestoDynamicAds.Andwethinkallofthesecanimprovetherelevance
18
oftheadbymakingadsmoretargetedbecausewhenthey'remoretargeted,they
havehigherreturnsformarketersandthey'remoreenjoyableandrelevantfor
people.
Operator: YournextquestioncomesfromthelineofMarkMahaneyfromRBC.
MarkMaheney: Great,thanks.Firstthing,it'sagreatmovetogoallinGAAPintermsofreporting.
Second,David,whenyoutalkedaboutthead,youradloadcommentary,Icouldn't
telliftherewasasubtleshifttherewhenyou'resayingthattheadloadpressure
wouldoccuraftertheendoftheyearratherthaninthesecondhalfoftheyear.And
thenthird,thisisforSherylandMark,therecentstoriesaboutgenderbiasamongst
theengineersatFacebookandIknowyouquicklyrespondedtothatandsaidif
anythingtheremaybearankbias.But,inmymind,kindofcreatestheopportunity
potentiallyforFacebooktobettertapintowhatisprobablyunderappreciated
femaleengineeringtalentintheValleyandacrosstechnology.Howdoyouthink
aboutthatasanopportunityforthecompany?Thankyou.
DavidWehner: AndI'lljustrealquicklyaddresstheadloadissue,Mark.Sorryifitwasn'tclear.
Reallynochangeinoutlookthere.Wecontinuetoexpectthatwe'llseedeceleration
inadrevenuegrowth.Andthat'sgoingtobeparticularlypronouncedaswegetinto
thesecondhalfof2017becauseadloadwillbealesssignificantfactordriving
growthstartinginthesecondhalf.
SherylSandberg: OntheissueyouraisedoftheFacebookfemaleengineers,I'mreallygladtohavea
chancetoaddressthisbecausethisisanissueItakeveryseriously.Onthespecific
reportonthisstudy,thestudywasconductedbyaformeremployeewithvery
incompletedata.Whenthatstudywassharedwithpeopleinternallyandwehave
thatculturewherepeopledostudiesandsharethings,andwe'rereallyglad
becausethathelpssurfaceissues,weimmediatelyconductedourownresearch
usingthefulldata.
Andwhatwefoundisthatthemainreasoncodewassentbackatdifferentrates
wasnotcorrelatedwithgender.Itwascorrelatedwithlevels,andthefactthatwe
havemoremaleseniorengineerswasexplainingit.Ifyoucomparednowand
femaleengineersatthesamelevel,therewasnotthisdiscrepancy.
19
Wellthenthatleadstotheobviousquestionis,areyoupromotingmenandwomen
atthesamerate?Andthebroaderquestionofareyoupayingmenandwomen
fairly.Andwedoacomprehensivelookatthateverysinglepromotionandpayand
performancecyclewehave,whichis6months.Andweknowthatwe'repromoting
menandwomenatthesamerateasmen.Nowthatsaid,ourindustrystillhas
issuesandwestillhaveissues.Wedon'thaveenoughseniorfemaleengineers.We
don'thaveenoughwomengoingintocomputerscience.
Andwetakethisveryseriouslyfromtheworkwe'vedonewithLinkedIntogetCS
andevenLeanInCirclesallovercollegecampusestoencouragemorewomenand
underrepresentedminoritiestocomeintoourfield.We’vehadareallynice
programinextrainternshipwherewe'retakingpeoplewhoarenotyetmajoringin
computerscience,butwethinkhavetheabilityandteachingthemforasummer
andseeingthemreturntotheworkwe’redoingwithourfemaleengineerstomake
surethatallformsofbiasaresurfacedandeliminated,andwecancontinuetouse
thefulltalentofthepopulation.Nothingismoreimportanttous.
Operator: OurnextquestioncomesfromthelineofRossSandlerfromBarclays.
RossSandler: Justhad2questionsonvideo.Weknowit'skindofearly,butwhatkindoftraction
doyouseewiththevideotabthat'sinbeta?Anddoyouthinklongerterm,the
videoconsumptionisgoingtobeinthatdedicatedtaborwillitstayintheNews
Feedbasedonwhatyou'reseeingrightnow?AndthenDave,justafollow-upon
oneofyourpreviousanswers.Soonthecostrelatedtovideoadrevshareor
licensingofvideocontent,isthatbakedintoyourOpExguidancefor'17?Oristhat
somethingthatwillstepupafterthisyear?Thankyou.
MarkZuckerberg: Idon'tknowifwehaveanypublicstatsonthevideotab,probablynot.Butinterms
ofthestrategy,Icantalkaboutthatquickly.Thereare2basicusecasesforchecking
inwithFacebookandseeingwhat'sgoingonintheworld.Whatpeopledowith
NewsFeedalotofthetimeistheyhaveafewfreeminutesoryouwanttositdown
formaybealongersession,seeeverythingthat'sgoingonintheworld,youdon't
haveaspecificintentiontowatchaspecifictypeofcontent.Youkindofjustwantto
checkinandseewhat'sgoingonintheworld.
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There'sthiswholeotherusecasearoundcontent,whichisgoingbecause--goingto
theapporsittingdownatTVbecausethere'ssomecontentthatyouwanttowatch
andyouwanttogodirectlytoit.Andthat'swhatwe'retryingtodowiththevideo
tabtomakeitsothatallthedifferentfolkswhetherthey’repagesthatyoufollowor
creatorsthatyoulike,whoyouwanttosubscribetoandkindofgettheupdatesto
whatthey'redoingthatyouhaveaplacethatyoucangotowithmoreintentto
consumethatcontent.
Thereasonwhyitneedstobeadifferenttaboratleastadifferentservicefrom
NewsFeedisbecausepeoplecometoitwithadifferentintent.Ithinkyou'regoing
tostartinthefuturegettingpeoplecomingtoFacebookfortheNewsFeeduse-case
ofcheckinginandpeoplecomingwithanintenttogotothevideotabtowatch
specificvideos.Sothat'swhatwe'redoingthere,that’sthestrategy,andIguess
we'llupdateonstatswhenwehavethem.
DavidWehner: AndRoss,onthecostsrelatedtothevideoadrevshare,yes,ourguidanceontotal
costsisallinclusive,soitincludesalltheR&Dinvestmentswe'remaking.Itincludes
thecontent.Itincludesthingslikethecommunityoperationsinvestmentsthatwe
talkedabouttodayintheannouncement.ButIwouldsaythatthenatureofthe
typesofvideocontentdealsthatwe'redoingwillmakethemmorelikelytoshowup
after2017sothere'llbesomecontentexpensein2017butIthinkit'llbesomething
youwillseestepupafter2017.
Operator: YournextquestioncomesfromthelineofMarkMahaneyfromCiti.
MarkMay: Thankyou.Mark,inyourpreparedremarks,youtalkedaboutdoingmoretofoster
localcommunitiesandgroupsanditwouldseemlikeoneofthemoreinteresting
testcasesherealreadyisinlocalmarketplaces.Justwonderingifyoucouldtalkto
usalittlebitaboutthekindofadoptionandengagementthatyou'veseenwithlocal
marketplacesandmaybeanythingthatyou'velearnedthatyoucanapplytosome
ofthenewerinitiativesthatyou'relookingat.
Andthensecondly,probablyforSheryl,foradbreakstoscale,itappearsthat
contentcreatorsneedtoadapttheirprogrammingforthis.Andofcourse,users
needtoengagewiththeads.Iguess,thequestionishowarekindofcompletion
ratesforadbreaks?Iknowit'searlybutkindofwhat'syour--whatareyouseeing
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sofar?Andhowwouldyoucharacterizethewillingnessofcontentcreatorsto
adopt?
MarkZuckerberg: Icantalkaboutmarketplaceandgroupsfirst.SoIthinkyourbasicpointisrightthat
thereasonwhywestartedworkingonmarketplaceandthetabaroundthatis
becausewhenwewereexploringwhatthebiggestusecaseswereofGroups,we
uncoveredthataverylargenumberofpeople,hundredsofmillions,usedGroupsto
buyandselldifferentthings.Andsothesewholecommunitiesthathaveformed,
whichwassomewhatsurprisingtoushonestlybecausewehadn'tdevelopedthe
productspecificallyforbuyingandselling.Itwasforgroupcommunicationand
that'swhatpeopleareusingitfor.
Sowedecided,'Hey,we'regoingtoputtogetherateamthat'sgoingtoinvestin
makingthisactuallygoodforbuyingandsellingandseehowmuchwecangrow
thateconomy.'SoIdon'tknowthathaveanypublicstatsonthatyet,butthat'san
areathatI'mcertainlyveryexcitedabout.
Andthenintermsoflocalcommunities,oneofthebigtrendsintheworldthat
we'veseenisjustthatparticipationinallkindsofdifferentphysicalcommunities,
whetherthey'resportsteamsorsomereligiousgroupsordifferentkindsofdifferent
things,havebeendecliningalotoverthepastseveraldecades.Andthat,Ithink,isa
bigsocialissuethatiserodingthesocialfabricofthewholesociety,notjustour
country,butaroundtheworld.
Andthat'sonewhereIlookatthatandIwonderifFacebookcanplayarolein
helpingtostrengthenthat.Andwelookat--therearemorethan1billionpeople
everymonthwhouseourGroupsproduct.Butifyouthinkaboutyourownuseof
theGroupsproduct,youprobablyareamemberofabunchofdifferentgroupsthat
youmaybecheckingonveryinfrequently.Sothat'sverydifferentfromthere'sa
handfulofpeople,around100millionorabitmore,whoareamemberofwhatwe
callaverymeaningfulgroup.
Soit's--thatcouldbeaparentinggrouporyou'rediagnosedwithararedisease,
andyoucannowconnecttopeopleallaroundtheworldtosharestoriesaround
that.Thesearegroupsthatuponjoiningmaybecomeoneofthethingstheyspend
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themosttimewithonFacebook,oneofthemostimportantpartsofyour
experienceandareallyfundamentalpartofyourreal-worldsupportstructure.
Sowelookedatthatandweaskedthequestionof,'Hey,if100millionpeoplearein
thoseverymeaningfulgroupstoday,canwegetthattobe1billionpeopleoverthe
nextseveralyears?'Andifso,thenthatcanhelpreversesomeofthedeclinein
communitymembershipsandhelpstrengthenthesocialfabricnotonlyinour
countrybutaroundtheworld.Sothat'sabigpartofwhatwe'refocusedonacrossa
numberofdifferentinitiatives.
SherylSandberg: AndI'lltalkalittlebitabouttheadbreak,whatwe'reseeing.It'sreallyearlybothin
termsoftestingtheadsandgettinganyfeedbackfromuserssopeoplewhouse
Facebook,sowedon'thavethatdatatoshare.Butwe'repleasedthatthetestis
active,we'repleasedthatit'sgoingwellandthatwecandobothliveanduploaded
videos.
Wethinkovertimethatmarketerswillfollowwherepeoplearespendingtheirtime.
Andiftheadscanbewelltargeted,wethinkwe'llbeabletoseeengagementand
wealreadyseethat.Whenadsarereallywelltargetedandtakingfulladvantageof
thekindoftargetingweoffer,thatyou'reshowingpeoplesomethingtheywantto
see,weseeengagementthatwethinkisreallycritical.
It'salsoworthnotingthatthemetricsthatreallymatterattheendaredrivingsales.
Andsoanyoftheengagementwithadmetrics,whetherit'srememberinganad
goingbacktopeoplehavebeenmeasuringthatforalongtimetohowlongavideo
adisviewed,ouronlyproxymetrics--whatmattersistheimpactonsales.Andso
wethinkthebetterwecandoatgettingthemeasurementtowhatactuallymatters,
whichistheendbehaviormarketersaretryingtodrive,themorepeoplewillshift
theirfocustobusinessmetrics,thebetteritwillbeforthereturntheygetand
ultimately,ourbusiness.
Operator: YournextquestioncomesfromthelineofMichaelNathansonfrom
MoffettNathanson.
23
MichaelNathanson:Thanks.Ihave3philosophicalquestionsonvideoforyouguysand,thefirstoneis
it'sinterestingtoseetheNFLgamesgofromTwitterandAmazon.AndIwondered,
dotheNFLgames,thevideostrategy,whyorwhynot?That'sone.
TwoisIknowthemodelisrevenuesharebutalotofmoretraditionalcompanies
wouldlikealicensefeeortheabilitytoselltheirowninventoryonyourplatform.Is
thatsomethingthatyouconsider?
Andlastbutnotleast,thequestionaboutmonetization,whyismid-rolloptimalto
pre-rollandcanyoushareanythingaboutthetestingofthatconcept?
MarkZuckerberg: Icantalkaboutsports.Sointermsofexperimentingwithdifferentcontent,Ithink
we'lltryanumberofdifferentthingshere.Intermsofworkingwithfolkstoproduce
allkindsofcontent,sportsisprobablysomethingthatwe'llwanttotryatsome
point.Butagain,likeDavesaidbefore,thegoalisgoingtobecreatingsomeanchor
contentinitiallythathelpspeoplelearnthatgoingtothevideotab,thatthey--that
that'sagreatdestinationwheretheycanexploreandcometoFacebookwiththe
intenttowatchthevideothattheywant.Andthenthelong-termgoalisactuallynot
tobepayingforspecificcontentlikethatbutdoingarevenuesharemodeloncethe
wholeeconomyaroundvideoonFacebookisbuiltup.Butwe'reworkingonthat.
AndIthinkwe'llprobablylookatdifferentpiecesofcontentlikethisaroundthe
world,butatthispointdon'tfeellikeanyspecificoneofthemisamust-haveforus.
DavidWehner: AndIthinkMarktouchedonthequestionofabusinessmodelhere,andourfocus
reallyisonrevenueshare,willbeinvestingtokickstarttheecosystemwithcontent,
sode-riskingitforsomeofourcontentpartnerstostartoffwithbutthefocusis
reallytobuildarevsharemodelovertimethat'ssustainable.That'sthefocusas
opposedtoothermodels.
Intermsofwhymid-rollispreferabletopre-roll,Facebookiswell-suitedforshorter
formcontent.We'rerankingthingstobelonger-formaswellsowe'rerankinglong-
formvideobutthat'sstillrelativelyshortvideoviews.Andforthatreason,wethink
mid-rollisagood--isabetteruserexperience.
DeborahCrawford:Operator,Ithinkwehavetimeforonelastquestion.
24
Operator: YourlastquestioncomesfromthelineofPeterStablerfromWellsFargo.
PeterStabler: Thanksverymuch.OneforSheryl.Sheryl,you'vetalkedalotaboutthetargeting
advantageofFacebook.Andyouhaveanumberofdatasignalsandsources
informingthat.Wonderingifyoucouldtalkabouttherelativeimportanceof
collectingsignalsontheplatformversusofftheplatform,forinstance,thebehavior
ofFacebookusersinteractingwiththird-partywebsites.Isthisthedepth–the
depthofyouroff-platformcollection,isthisasignificantcompetitiveadvantagefor
you?Thankyouverymuch.
SherylSandberg: Wethinkthattargetingandmeasurementaresignificantcompetitiveadvantages
forus.We'reveryfocusedontheprivacyofwhatpeopledo,wherevertheydoit
andusingtheinformationwehaveinaveryresponsibleway.Webelievethat
becausepeoplearesharinginterestsbecausepeoplearethemselvestheirreal
identityontheFacebookplatform,wehaveasignificantadvantage.Justinbasic
targetingitself,justageandgender,we're38%moreaccuratethanbroad-based
targetingaccordingtoNielsenintheU.S.Andthat'sjustageandgender.
AndthenifyouthinkaboutsomeofthecasestudiesIshared,targetingpeoplewho
purchaseacertainitem,targetingpeoplewhoareinterestedinacertainitem,we
thinkthat'sverysubstantial.Wealsothinkthatthere'sarealcompetitiveadvantage
infocusingonbusinessresultsaswehave.We'rereallyworkingonshiftingpeople
tounderstandingwhattheirrealobjectivesaresothattheycanfocusondriving
businesses.Attheendoftheday,whenyoushowanad,youwanttomovea
productoffalot,offashelf,intoashoppingcart,whetherit'sonlineoroff-line.And
that'swhereourfocusisandwillcontinuetobe.
DeborahCrawford:Thankyouagain,everybodyforjoiningustoday.Weappreciateyourtime,andwe
lookforwardtospeakingwithyouagain.
Operator: Ladiesandgentlemen,thisconcludestoday'sconferencecall.Thankyouforjoining
us.Youmaynowdisconnectyourlines.
