Q4 2019 Earnings Call

Good afternoon, My name is Mike and I will be your conference operator today.

This time I would like to welcome everyone to the Facebook fourth quarter 2019 earnings Conference call.

All lines have been placed on mute to prevent any background noise.

After the speaker's remarks, I'll be a question and answer session if you'd like to ask a question during that time. Please press Star then the number one on your telephone keypad. This call will be recorded. Thank you very much ms., Deborah Crawford Facebooks, Vice President of Investor Relations you may begin.

Thank you good afternoon, and welcome to Facebook fourth quarter and full year 2019 earnings conference call joining.

Joining me today to discuss our results are Mark Zuckerberg, CEO , Sheryl Sandberg, COO and Dave Weiner CFO before we get started I would like to take this opportunity to remind you that our remarks today will include forward looking statement.

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.

Our quarterly report on Form 10-Q filed with the FCC.

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 result of new information or future events.

During this call we may present, both GAAP and non-GAAP financial measure 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 Dot has to be dot com and now I'd like to turn the call over to Mark all right. Thanks, everyone for joining us today.

Okay.

This was a good quarter for community and our business and a strong into the year.

There were no around 2.9 billion people using Facebook, Instagram Whatsapp and messenger each month.

Around 2.3 billion people using it at least one of our services daily.

Now more than 140 million small businesses that use our services to grow and the vast majority of which is our services for free.

Last year I shared our four company priorities and their store priorities in 2020, making progress on the major social issues building qualitatively new product experiences continuing to grow our business and getting out there in communicating more transparently.

Today, I'm going to focus mostly on the new product experiences we're building.

But before I get to that this is going to be another critical year for making progress on social issues. We're very focused on election integrity and this is an area where I'm proud of the progress that we've made preventing foreign interference.

We were behind in 2016, but after working to protect elections and countries across the world from that you.

In the EU to India, Mexico to the U.S. mid terms for the past few years.

With regards systems are now more advanced than any other companies and we're often alerting law enforcement and intelligence about threats that we identify.

We're still going to be debate about what kinds of political speed should be allowed especially as the 2020 elections heat up.

But by any objective measure our efforts on election integrity have made a lot of progress.

This is also going to be a big year, four or greater focus on privacy as well as part of our FTC settlement, we committed to building privacy controls and auditing that will set a new standard for our industry going beyond anything that's required by law today.

We currently have more than a thousand engineers working on privacy related projects and helping to build out of this program.

Related to this just yesterday, we announced that we're rolling out of privacy checkup tool to nearly 2 billion people reminding them of the controls they have in making sure that they're set the way. They want them. We also introduced a new tool that notifies you anytime you're account signs into a new service.

Got to take time, but over the next decade, I want us to build a reputation on privacy.

As strong as our reputation or in building good stable services.

When it comes to these important social issues.

I don't think the private companies should be making so many important decisions by themselves.

I don't think that each service should have to individually decide what content or advertising is allowed during elections or what content is harmful overall.

There should be more democratic process for determining views rules and regulations.

For these issues.

Got enough for us to just make principal decisions.

We also need to be seeing is legitimate and reflecting what the community wants and that's why I have called for clearer regulation for our industry and until we get clear rules or establish other mechanisms of governance I expect that we and our whole industry will continue to face a very high level of scrutiny.

So during this our job is to keep doing what we think is right on the social issues and to stay focused on continuing to deliver product improvements and better experiences for our community.

The product areas most focused on for the next chapter of our company are building out the private social platform and more intimate communities, enabling more commerce and payments and delivering the next computing platform.

When I look at the Internet today, we all have this ability to connect with people and content and opportunities.

Coming from all around the world.

And we'll use that were.

Unimaginable.

Just a generation ago.

I grew up in the town of 10000 people and making long distance calls anywhere outside of area of is very expensive today, we will have access to billions of people and that's made it easier to find people or into the same things that you are.

There's a lot more to do here.

While the Facebooking Instagram apps have developed with lots of different ways to interact with the people you care about our private communication apps are still pretty much just about testing.

So we spent the last year building infrastructure to turn our private messaging apps, what's out and messenger.

Into richer private social platforms, or you can hang out and be present with friends.

Groups with your interest engage with businesses more naturally.

So some of these are bigger projects like full end to end encryption in dropper ability across the apps or rewriting are apps for performance and they're going to take a long time to see through but we should start seeing more new experiences later this year and this will all be built on a very strong privacy Foundation.

Kommersant payments is another area that will be important for the private social platform, but but also across all of our apps, including Facebooking Instagram.

Our goal here is to make sure that every individual a small business entrepreneur out there has the same opportunity and access to the the same type of sophisticated tools that historically only the big companies have access to that's what we stand for putting power in individuals' hand.

One example that we've been working on is what's out payment or.

You're going to be able to send money as quickly and easily sending a photo we got approval to test this with a million people in India back and 2018.

When so many of the people kept using a week after week, we knew it was going to be big when we get to launch I'm really excited about this and I expect this to start rolling out in a number of countries and for us to make a lot of progress here in the next six months.

And what's up payments, we're working on several other efforts to help facilitate more commerce from Ah Facebook marketplace to Instagram shopping to our work on Facebook pay or our our work on Libra. This is such a big space and it's important for empowering people. So we're taking a number of different approach.

Ranging from people buying and selling to each other directly to businesses setting up storefronts to people engaging with businesses directly through messaging and a number of things on payments ranging from existing using existing national systems like India's U.P.I. to creating new global systems.

Having small businesses succeed is not only key to creating broad economic growth, where everyone can support themselves.

Also important to maintaining healthy communities since small businesses are often where people come together.

We see on our services all the time have small businesses that use our tools are often at the heart of their local communities. So this is the top priority for us on both fronts for the the social mission and the business.

We've also been focusing on delivering the next computing platform with augmented and virtual reality.

The defining characteristic of they are and V.R. is that they deliver the sense of presence like you're right. There was another person or in another place and this is the Holy Grail of social experiences and it's gonna, let us build things that we've only dreamed of for the last 15 years like letting people interact as if they're in person together no matter, where they are or.

Letting people live wherever they want and hologram into work they can access opportunities anywhere and don't have to move to a a city more another country to find a job.

So while full augmented reality is still a number of years away.

Real milestone for virtual reality with quest.

Sales are stronger than we expected and and people are buying and engaging with more content and we'd expected to on Christmas day people bought almost $5 million worth of content and the oculist store and that's an outlier day, but still this is real volume by any measure and it shows the progress.

Ecosystem is making.

The experience also just keeps on getting better last quarter, we shipped hand tracking which almost no one thought was going to be possible with the quest hardware.

We shipped oculist links and now you can run all of your wrist content from your P.C. on quest.

On the A.R. side, well, we're working on the longterm hardware in operating system. It's worth noting that are spark or platform is the most widely used our platform in the world with hundreds of millions of people interacting with affects every month artists are using this to create new face filters and other tools that are going viral across Instagram and Facebook were.

Position to your overall and we're going to keep developing this platform.

So those are some of the bigger product initiatives that I'm excited about and aside from these we're also focused on communicating more clearly what we stand for.

One critique of our approach for much of the last decade was that because we wanted to be liked we didn't always communicate our views.

As clearly because we were worried about offending people. So this led to some positive, but shallow sentiment towards us and and towards the company and my goal for this next to decade isn't to be liked but to be understood.

Because in order to be trusted people need to know what you stand for so we're going to focus more on communicating our principles, whether that's standing up for giving people a voice against those who would censor people who don't agree with them.

Standing up for letting people build their own communities against those who say that new types of communities, forming on social media dividing us standing up for encryption against those who say the privacy, mostly helps bad people standing up giving small businesses more opportunity and sophisticated tools against those who say that.

And it advertising is a problem.

Or standing up for serving every person in the world against those who say that you have to pay a premium in order to really be served.

These positions aren't always going to be popular but I think it's important for us to take these debates had on I know that there are a lot of people who agree with these principles and there were a whole lot more who are open to them and want to see these arguments get made so expect more of that this year.

This is going to be another important year, it's going to be an intense year with the elections. Some of our longterm technology Beth are going to start coming to fruition, we have strong business momentum and we have to get out there and show what we stand for as always I'm grateful to all of you for your support and for being on this journey with us and now I'm going to hand, it over to show.

Barrel to talk about our business.

Thanks, marking hi, everyone.

We didn't get clear across the board strong into the air.

For AD revenue with 20 point, having billion increasing 25% here every year.

Full year add rather than you could 27% compared to 2018.

We're focused on creating value over the long term for our community tried 140 million around the world.

Use our platform to connect with customers in ground.

The majority use our feet tall, but there are also more than 8 million business you advertise for that.

It is because we helped create them although pregnant increase pal.

Right relationships with customers can hire people.

We will continue to focus on helping businesses use our friend paid tool.

Matter than that.

That the holiday season people use that you take advantage of the back and chop kind of perfect gap.

We have particular, strengthening e. commerce and online retailers.

<unk> for measurable objectives like website visitors Pal.

<unk> and jewelry company based in San Diego ran ads on Facebook Indians, Japan for 50% off yeah.

And nine days, they sold more than 300000 place.

Supporting more than eight 800 artisans around the world.

People often it got new technologies before businesses and we try to make it as easy as possible for businesses to catch up stories integrate example.

We we can be announced for a million advertisers are using story up from 2 million. This time last year.

Bomb by how can a parent company Instagram stories to show people wearing their socks, while ice skating and gift wrapping as a result.

60% increase in purchases from people under 30 pounds.

In addition to helping businesses chips to new formats, we're also making it easier for people to shop directly on rap.

We launched check out I'm Instagram with a small close data into 120 19.

Slowly been building the experience now hundreds of businesses in the U.S.R. experimenting the checkout.

Taking it time to get this right and growing slowly have people on advertising can benefit over the long term.

Weekend smiling grinning like <unk>, the same tools that previously only the biggest fans could access.

Large companies can by national T.V. spots in large Billboard but no small businesses can't.

That's like small businesses benefit the most from targeted AD.

We help them reach more focused audience at the right message and we do it while protecting people's privacy.

It's really matters, because if mark sad when businesses of all sizes succeed they hire people I'm going back in their communities.

Sneak we released a report the Copenhagen economic according to 7000 companies surveyed across 15, you country are apt help.

Contribute about 200 billion your <expletive> to European economy, just last year.

Economists say this translate to more than 3 million new job last year alone.

I now these findings in London last week, where I had the chance to meet with me on me Robert.

They only started flare audio with her husband to improve the sound quality in everything from earplugs loudspeakers.

Within 75% of their sales come from Facebook Instagram.

This has enabled them to export to more than 180 countries.

Business from two employees to 22.

Joys like me on these are why we remain committed to helping small businesses reach customers in graph, but we know it's not enough. We also have to keep people safe and give them control over their experience on our out.

And we are.

This month, we announced a number of improvements to our industry meeting add transparency tools, including a new feature that gives people the option to see fewer political ads. We also updated our ads library to make it more transparent and easier to navigate.

These updates how people understand who is trying to reach them and we leave this transparency is critical to empowering people and keeping them safe.

We also want everyone to be in control of their privacy on Facebook as Mark said, we are rolling out are updated privacy checkout checkout tool to nearly 2 billion people around the world with a few taps people can control, who sees that they share and how to keep their accounts to care.

I want to close by saying, how great plan to our partners around the world.

Everyday they gave us valuable feedback on how to improve our products. So he can help them turn great ideas into revenue jobs and economic empowerment.

I also want to think our teams around the world for working to solve tough challenges, while sale building great products that businesses used to grow compete in higher.

Thanks to your continue dedication we are better prepared to serve the billions of people who counts on.

Now here's Dave.

Thanks Shell and good afternoon, everyone. You for was a strong quarter and ended a good year for our business full year 2019 revenue grew 27% to $71 billion and we generated over $18 billion in net income.

Let's begin with our community metrics in terms of family metrics, we estimate that approximately 2.3 billion people used at least one of our services on a daily basis in December and that approximately 2.9 billion people were active on a monthly basis.

As a reminder, the family metrics, our best estimate of the D. duplicated audience across Facebook, Instagram messenger and what's that.

We believe these numbers better reflect the size of our community and the fact that many people use more than one of our services.

Getting this quarter, we're including family metrics and related information in R.S.C.C. filings and the slide presentation on our Investor website.

Any now to Facebook, we are pleased with the growth of that Facebook community in all regions. This quarter daily active users reached 1.7 billion up 9% compared to last year led by growth in India, Indonesia, and the Philippines.

Yeah use represented approximately 66% of the 2.5 billion monthly active users in December .

Grew 178 million or 8% compared to last year, we plan to continue to disclose Facebook only community metrics through late 2020.

Turning out to the financials all comparisons are on a year over year basis, unless otherwise noted.

Two four total revenue was $21.1 billion up 25% or 26% on a constant currency basis.

Had foreign exchange rates remain constant with Q4 of last year total revenue would've been approximately $295 million higher.

Q for total AD revenue was $20.7 billion up 25% or 26% on a constant currency basis.

On a regional basis AD revenue growth rates were strongest in Asia Pacific and rest of world, which grew 33% and 28% respectively.

Europe and U.S. in Canada grew more slowly at 24% and 22% respectively.

in Q4 the total number of AD impressions served across our services increase 31% and the average price per AD decreased 5%.

Similar to last quarter impression growth was driven primarily by Facebook news feed Instagram stories and Instagram feet.

Facebook news feed impression grid benefited largely from community growth an engagement trends on the Facebook out.

The year over year decline in average price per AD was primarily driven by the ongoing mix shift towards ads on stories and in geography is which monetizes lower rates.

Other revenue was $346 million up 26%. Your your growth was driven by sales <unk> quest.

Turning out to expenses.

Total expenses were $12.2 billion in Q4 up 34%.

Cost of revenue increase 25% and the growth was driven primarily by depreciation related to our infrastructure spend.

Or in de Groot, 36% and was driven primarily by increased investments in core product as well as our innovation efforts, particularly in air V.R.

Marketing and sales grew 23% and was driven primarily by consumer and growth marketing.

Finally, G.N.A. grew 87% largely driven by higher legal fees and settlement.

This includes charges related to a 550 million dollar settlement in principle, we reach this month in connection with the Illinois Biometric information Privacy Act litigation.

We had over 9300 net new hires and 2019, primarily in technical functions. We ended the year with approximately 45000 fulltime employees up 26 compared to last 26% compared to last year.

Operating income was $8.9 billion, representing a 42% operating margin our tax rate was 20%.

Net income was $7.3 billion or $2.56 per share.

Full year capital expenditures were $15.7 billion up 12% driven by investments in data centres servers office buildings and network infrastructure.

2019, we opened data centres in Nebraska, New Mexico in Denmark. These new data centers are supported by 100% renewable energy.

We are committed to doing our part to help tackled the challenge of climate change. That's why we're working to minimize r. energy emission at emissions and water impact across the entire company. We are on track to meet our 2020 goal of supporting our global operations with 100 per cent renewable energy and lowering our operational carbon emissions by 75% from 2017 levels.

We ended the year with $54.9 billion of cash in investments I would note that though we booked the expense in 2019, we have not paid the 5 billion dollar F.T.C. fine announced earlier this year as the agreement is still pending court approval.

In the quarter, we repurchased approximate repurchased $1.3 billion of our class a common stock and had $4.9 billion remaining of our prior authorization as of December 31st.

<unk>, we announced a 10 billion dollar increase in our stock read purchase.

Grandma authorization.

Turning out to the revenue outlook.

We expect are your every year total reported revenue growth rate in Q1, two decelerate by low to mid single digit percentage point as compared to our queue for growth rate.

Factors driving this deceleration include the maturity of our business as well as the increasing impact from global privacy regulations and other AD targeting related headwinds.

Well, we've experienced some modest impact from these headwinds to date the majority of the impact lies in front of us.

Turning out to expenses. We anticipate are 2020 total expenses will be in the range of $54 billion to $59 billion unchanged from our prior outlook.

Or 2020 capital expenditures outlook is also unchanged at $17 billion to $19 billion driven by investments in data centres servers office facilities and our network infrastructure.

Lastly, we expect our 2020 effective tax rate to be in the high teams.

In summary queue for was a strong finished at 2019, we are pleased with the growth of our community and business as we continue to focus on our mission and without operator, let's open up the call for questions.

We will now open the lines for a question and answer session to ask a question press star followed by the number one on your Touchtone phone.

Please take up your handset before asking your question to ensure clarity. If you are streaming today's call. Please me your computer speakers.

Your first question comes from the line of Brian from Morgan Stanley .

Things using my question I have I have to just the the first one on Instagram checkout Instagram Commerce scares you hear about sort of early learnings of what you've learned from the the hundreds of adopters sort of what you think or the the one or two key points of friction you really have to get over to build that business into a larger contributor over the next couple of years.

And then Dave I guess to go back to your quite your comment about the the majority of the impact lies ahead, when you're thinking about AD targeting and privacy regulations three more detail you can give us a sort of types of data or types of sort of breakage that you. She has potential risk to the the targeting and the efficacy of the ads going forward. Thanks.

So I'll take the first part of the question. So when you think about the shopping experience had to check on experience on <unk>. These are still very early days and we're working hard to improve the product and expand to more businesses. You know these require full integration. So our focus is making sure we get the right partners onboard and <unk>.

Tumors have a great experience all the way through.

We expanded shopping to all shopping adds to all advertisers globally Q4, and we began testing check out in shopping ads and what you're going to see from US is very small steps to get more people in and make this and make this deeper across across the experience people have like you are right that we are moving.

Very slowly and very very very carefully because we want to make sure. The entire the entire experiences is right across the board before we get a deeper and go broader.

Yeah. Thanks, Brian Yeah. We are you know we are seeing headwinds in terms of targeting a measurement, but but as I noted that you know the majority of that impact lies in front of US just as a reminder, we utilize signals from user activity on third party website and services in order to deliver relevant and in fact effective adds to our users and.

In that regard there are sort of three overlying factors that I'd point too and I spoke to these on on prior calls as well you know first the recent regulatory initiatives like GDPR and now C.C.P.A. of impact have impacted and we expect they'll continue to impact our ability to use such signals.

Secondly, mobile operating systems in browser providers, such as Apple and Google have announced product changes.

And future plans that will limit our ability to use those signals and then finally, we've made our own product changes that gives users the ability to limit our use of such data signals to improve adds another experienced experiences and their I'd point to something like the roll out of off Facebook activity controls in that set 100% today.

So each of these factors limits, our ability to target and measure the effectiveness of ads on our platform and that can negatively impact our advertising revenue growth.

<unk>, marking cheryl talked about the importance of AD targeting for small businesses and I think it's important to know the regulatory and platform changes will have a disproportionate impact on the ability of small businesses to use adds to grow and thrive.

Your next question comes from Ross Sandler from Barclays.

Great Dave can we talk about the.

<unk> in the fourth quarter, particularly in the U.S. was there anything that surprised you guys are any particular cohort of advertisers that that slowed down.

If we look at your growth route from three to to force you in the U.S. I think it was the lowest since 2012 and a fourth quarter. So if any color on what happened in the fourth quarter was is in line with with your plan. Thank you.

Yeah. Thanks, Thanks, Ross no real surprises there you know we're pleased with our queue for results, we had a strong holiday season, despite it being abbreviated in terms of in terms of the North American numbers were seeing slower growth in our more mature markets. That's consistent with the outlook that we had going into the quarter. It's true in North America and are more.

Developed markets within Europe , but I I wouldn't say, there's any you know any any real surprises there.

Your next question comes from the line of Heather Bellini from Goldman Sachs.

Great. Thank you I just wanted to follow up on the check out on Instagram an end, obviously, you guys mentioned that you're rolling it out very slowly, which which is understandable I I'm. Just wondering how much of this is due to the integration you need to have with with the businesses inventory system and how are you going.

<unk> the integration work that needs to be done to make the experience seamless where you can kind of match inventory levels with what people are actually buying and I guess the follow up would be you know is there a benefit you envision businesses getting from using this format versus one if you're more traditional shopping at thank you.

So the integration you spoke of are the right ones. We want you want to be deeply integrated out a product level. It has to go all the way through for this to work from discovery all the way through a pretty seamless at checkout flow and that's what we're working on that and that really takes time, you're also right that we are very focused on.

Commerce ads on faith thick that you know the great great. Great majority activity is commerce ads on Facebook meet a very strong holiday season, we continue to see growth of cross Facebook a crime instigation in people, who are discovering products their interests and they're interested in m., we're continuing to make a lot of investments.

<unk>.

Your next question comes from the line of just imposed from Bank of America Merrill Lynch.

Great. Thank you a couple of questions first on the privacy commentary, Dave has anything changed <unk> third quarter. When we were looking at less deceleration. This year has has there been incremental changes. Since then and then secondly on the expense outlet and noticed headcount goes around 26% as far as getting into your head Count Guide I mean cheering.

<unk> guide you expect that growth to accelerate and are there other kind of expense initiatives you'd call out for 2020. Thank you.

Yeah. Thanks, Justin So you know I don't think anything has changed since Q3 in terms of our outlook on the headwinds that we have around add the signals I think that's very consistent with what we've been talking about over the last several quarters. So I think will you know we continue to to face those had when.

And you know they will be more impactful as we as we move forward in terms of the expense guide in 2020, you know I would I would say that you know obviously, we plan to you know a large factor of our expense growth is driven off of head count.

And you know, we're continuing to invest across the board in terms of our core R. and D. and innovation efforts in terms of headcount growth. There you know in addition growth and infrastructure spend is are you know large increase in cap x. over the last several years flows through the income statement is another driver of our expense growth as well and there's other you know.

Non headcount related expenses that we expect to grow in including including marketing and content investments.

Your next question comes from the line of Doug enemies from J.P. Morgan.

Thanks for taking the question <unk> you have multiple payment initiatives across the family talks about what's out payments Facebook pay potentially more of our time around Libra and Cobra can just talk about the importance of payments cost of the family and how do you tie. These together as you work toward interoperability. Thank you.

Yeah. So we're doing a lot around commerce and payments because there are lots of different segments for what what people are trying to do.

In terms of buying and selling things a lotta people want to buy and sell used goods.

We are faced with marketplace for that a lot of small businesses want us to set up short a store fronts.

Or enabling that through and through having Facebook and then increasingly.

Through messaging as well.

On the payments side, you know, what's up payments will be a part of Facebook pay.

Program.

Last year.

That basically will make it so if you pay for something in any of our apps you only need to enter your credit card. Once and then you can use that to have a a more frictionless checkout experience across the other ops.

So those two things tying together, but we are taking multiple approaches on payments were you know things like what we're doing with payments and what's up or Facebook pay overall are built on top of traditional payment infrastructure, whereas the longer term work that we that we proposed around Libra, that's now being handled by the independent.

<unk> Foundation, we're working on it a wallet that that will work with Libra that is more proposal to make it so that some of the payment infrastructure around the world can be more efficient, especially for things like transferring money across borders I and if you think about it a lot of the companies that do payments and such today are kind of national on or or.

In in one country and there aren't that many folks who have an incentive to make this work well across different places around the world. So that's someplace, where we thought that we could add.

But overall.

Aware.

A big focus for us is making sure that individuals and small businesses have access to the same kind of tools that historically only larger companies have access to you know bigger companies are going to find ways to sell their things and measure the effectiveness of their ads and all that a lot of the work that we end up doing.

Goes towards making it easier for small businesses to be able to without a big technology shop.

To use the same tools get access to payments you know set up storefronts easily being able to measure the effectiveness of AD and that's a lot of what we're focused on <unk> you've heard winter talk about this a bit you know a lot of the concerns that we have with some of the you know the the potential changes to the ecosystem, we think will disproportionately hurts.

Small businesses ability to compete with with with larger companies.

Your next question comes from the line of Eric Sheridan from U.B.S.

Thanks for taking the question maybe too if I can monkey would talk previously about trying to more tightly normal great. The applications in the family undo what Facebook umbrella wanting to get an update on the way you're thinking about branding the applications to the consumer as well as integrating them on the back then you should look out over the next couple of.

And then following up on the tumbled messaging one of the update on the way. The team is thinking about the messaging component on a monetizations font I'm thinking about some a more interesting product she might use monetizeable message of applications. Both things looked much your m. workshop or you look out of the next couple of years.

So much.

Sure so on integration.

Overall, here's how I think about it we're going to keep the Browns right for from all the apps of course right. I mean, these are large communities that people love and and strongly associated with a specific up so so that that that's clearly going to stay in terms of integration.

All the ops are already very integrated today, we all run off of common infrastructure. You know we've tried to run the company in a way where you know we we have we set up the infrastructure and we set up the the business models that way you know an engineer improving the efficiency of one system makes all of the apps better and that that's everything is.

Already very tightly integrated kind of below the surface <unk> in a way that that that people using these apps may not feel.

But I think the the push for the next few years is we think that you you know when running a company I want to make it. So it's not just the back end engineers when they when they improve something it improves every second we want to make it so that features that get bill across.

Instagram or Facebook or or what's at.

And and when people engage on those that it can also make your experience better across the other apps and the family too. So that's that's kind of the the philosophy behind why we're doing a number of things you know some of it is just we we built up multiple technical stacks and some places that didn't need to exist you know that the voice calling stock on what.

Zapping messenger, there's not a real reason why those needs to be different but we didn't standardized that that layer historically and that means that now we have to put twice as much work into making that good if we got that to be integrated than the same engineering effort can just make it better across everything at a faster rate, there's going to be more work like that I think some of it will start to be more visible across the <unk>.

Always continue to have their their own identity and brown, though because they people use them for it for somewhat different things and and that's you know that's really important.

Message to your next question comes from the line of Yusef's quality from Centrust.

Okay, great. Thank you very much actually just have one question. It can you guys provide us any update around a Facebook dating that is not one products that mark you talked about any steps that you can share with us any plans to push into other G.O.'s and would you bring it to a a instagram as well. Thank you.

Tip before we answer that I'm you go back and answer the messaging Monetizations second half. The last question. If that's okay and then we'll take this one.

I'm messaging you know we are still really focused on this and we think in many ways were better position than anyone else in the industry to participate.

Kennedy that should be there over the long run for businesses and consumers to connect on messages on message in terms of direct.

And messaging, we're taking that very slowly were very slow roll out and messenger. We don't have that rolled out in watts hat, where we are seeing a lot of growth and really exciting metrics right. Now are click to messaging had he's or one of the fastest growing AD formats in our family, especially with S.N.B. is in markets like a pack, but really across the board.

And what happens is that from Facebook or Instagram seed or from Facebook Instagram or messenger stories, you can click the message of business on messenger or what is that it's a really good way to drive engagement. It also really take people further down the final from seeing an AD to having a direct connection with businesses, which consumers like and businesses like we also.

I think the our lives very high here. So I'll share. An example, manulife from Vietnam as an insurance company. They used click to messaging adds to generate quietened qualify leads and compared to Facebook lead AD, which were already performing while those ads had 2.4 times more qualified leads and a four times increasing Sal until we.

The combination of the discovery ads, we can do clicking through to messenger right. Now are he shows the potential of how important messaging can be for businesses.

Yeah, I can talk a little bit about about the the dating experience.

It's it's going well I don't think we have any specific.

That's to share on this but but it's it's going well and you know we were already one of the top dating services and we expect I'm continue growing in terms of where we launched it you know, we we launch and a number of countries before bring it to the U.S. in our our product development approaches that we.

We've on something and then you know we get feedback.

You know, we try to test things before we launch them, but but then there's something that you can't learn until you have it out and then we will kind of keep on it or rating on it until it in a number of countries people, who use it really like it and keep using it and then we rolled it out to more country. So we did that over the last year will continue doing that and more places, but the U.S. a was certainly.

One of the the the biggest places that we were focused on launching it.

Overall, I mean, the way the dating fits into the strategy here is.

Within the Facebook up.

We think that news feed is really central and not as one of the only things that we think everyone who uses the off is really going to use on a daily basis, but there were different social utilities that you know, even if not everyone wants to use them hundreds of millions of people might find value in so whether that's a marketplace for for buying.

And selling things you know groups and community is we think is increasingly ubiquitous but the the tab there isn't gonna be used by everyone. It's gonna be used by hundreds of millions of people things like watch or or the news tab that we have started rolling out or not things that we expect everyone to use but even if you know tens or hundreds.

Millions of people use them, then we're adding unique value that that other folks might not be able to build and we're making the out more valuable so I kind of expect.

When a year or to the world that we're going to be in his people use Facebook, they're going to use news for you to them, they're probably each going to have two or three other reviews, social utilities that that they find valuable that as we start building those I think that that's some part of the story that you're seeing on why to Facebook engagement has been strong recently is is especially as we build more of these things.

That certainly is showing up and how people use the lab.

Your next question comes from the line of Mark Mahaney from RBC.

Oh, Okay. Thanks, two things one can grad suddenly a carbon reduction goal love that I posted about a mark you'd be happy to know that but I'd love to see more companies do that the real question I have to do I have has to do with the security of the platform in this election year and so can you just talk about the confidence you have and I know, there's a lot of things you you can't control.

But I am sure that there's going to be a lot of controversy around the elections or I assume that's going to be the case, there may well be bad actor interference is there was four years ago. The extent you think that Facebook in its platforms are ready to handle that better prepared is there anything you could do to talk more about that quantified whatever just how how're you are trying to hedge that risk, which I think it's going to be material.

This year. Thank you.

Yeah. This is certainly something that were extremely focused on and and I do think that there's going to be a lot that we need to be watching out for this year you know since in 2016.

I I think it's.

Fair to say that we were behind where we needed to be as was a lot of the the rest of the industry and government as well and expecting the kind of information operations that we now I have seen.

The good news is that since then it's not like this is the first presidential election that we've had to play a part in in defending the integrity of there have been major elections across the world and each time, we're able to see the tactics of of the foreign adversaries evolve because we and others weren't really focused on that.

And 2016 as much you know we've been able to improve it quite a fast rate. There were also good partnerships in place now across the industry across law enforcement intelligence community is not just in the U.S., but but across other countries to so I I think the systems are much more robust and you can look at the results in other elections.

Around the world.

Where for example of it you you elections last year, where a lot of people were very worried that there would be just kind of foreign interference you know, it's I I actually had gone to the U. Parliament and testified about what we were going to do and then I think the you Parliament President after released a statement, saying that we'd met our commitments and did the things that that we said we were going.

To do and and it was a relatively clean election. So we're going to continue seeing the adversaries.

Get more advanced Yeah, I think certainly because this got a lot of attention. It's it's a it's not just Russia at this point, we've seen a similar types of attempts from Iran. China in some places others as well so there's there's more to to to kind of look out for their but but overall I I do.

Feel confident about about where we are you know one of the things I think we we need to look out for the intelligence community was warned US about is you know some of the goal of of some of these nation state actors.

Is is not necessarily to interfere directly but to just so doubt about the legitimacy of an election. So even to the extent that we may not even see specific attacks, but if if there's a big medium that there was widespread interference that has the same effect in terms of kind of sewing doubt about.

So we're very focused on this and making sure that people know what we're doing so they can have confidence and this is just this is really a top priority for us.

Your next question comes from the line of calling Sebastian from Beard.

Oh, great. Thanks to for me as well following up on the shopping Commerce question that I Wonder if the focus your includes expanding marketplaces across multiple services or worth it seems like better as a distinct application and then separately curious and some of the newer visual.

Such as threads and less so what are you seeing here in terms of usage were engagements and are these features that fit within existing jobs or or also it might be distinct from from the current surfaces. Thank you.

I didn't talk about marketplace marketplaces growing nicely. It's now used by hundreds of millions of people every month.

Also world out ads in marketplace, which are available in 94 markets, which means advertisers can extend their needs seat adds to marketplace.

Seeing a lot of interesting, especially the retail an auto advertisers very early but we're seeing a good results. So we believe this is a good opportunity where any continue to invest but for the foreseeable future even within mess ads remains the great. Okay.

Yeah, I think you mentioned threads and reels and a couple of the the apps that we've launched within within Instagram.

You know, it's it's still early I think there's some promising signs were figuring out the extent to which those should grow to be a big independent apps overtime or should be integrated into the core of Instagram service or other messaging apso will figure that over time, but those are certainly both important spaces to be in visual messaging.

And kind of interest based you know.

Helen.

Showing stories type type type functionality.

Mm.

Your next question comes from Kim the line of Kevin revenue from <unk>.

Hi, Thanks for taking the question Mark. This is really one for you you describe the new experiences that could be rolling out in the back half of the year.

Maybe provide a little more color on that and kind of what you're envisioning that'd be great. Thank you.

Yeah.

You know I've been talking a lot about.

How we're trying to build.

Out our private messaging apps into richer private social platforms and now the idea there is that people want interact and lots of different ways and and Facebooking. Instagram you can interact with a lot of people you know or are interested in in connecting with in in a number of different ways.

But our texting after today are primarily still testing so a lot of what we've been trying to do is make it so that we build up the infrastructure, so what's up and messenger and Instagram direct can evolve.

That way rather than being you know just places where you you message folks that can be places, where you you can hang out and feel more present with people, where you can connect to different groups in different ways interactive businesses, and do payments and commerce and when we kicked off this.

This big initiative.

A lot of this stuff.

Long-term infrastructure that we needed to get started building. So we have now been we're now a year or so into starting to build out a lot of that so I guess, what I'm, saying is I just expect some of this to land in in this year not all at some of this stuff is is is longer term. For example, you know the work that we're doing on full intended encryption you know that's just that's.

Long-term project, we want to make sure we get the safety implications of that right. That's already fully rolled out around what software really committed to making sure that we nail the safety parts of that before fully rolling it out across messenger and and and Instagram as well. So some some parts of this will not land this year, but I expect a lot of this will start to land this year around this vision.

Of of of building this private social platform.

Your next question comes from the line of Floyd Wamsley from Deutsche Bank.

Thanks. So this is the second quarter in a row, where you guys have called out core Facebook as the key driver of impression grow. So wondering if you can just elaborate a bid on what's driving that strength in core blue engagement. Whether this is something you guys expect to continue and I guess kind of as a follow up related to that there's been.

<unk> you plan, a superbowl AD specific to the Facebook groups product. So you know any updates on engagement around groups or how the strength. There is impacting the AD business any color you could share would be great. Thanks.

Yeah, Okay. So I'll I'll take that like yeah. I mean, we have we are pleased with the engagements that we're seeing on that Facebook out broadly and as you mentioned this has been a pretty consistent story over the last several quarters. So I I don't think it's particularly a news story, but you know we're we're seeing that you know across.

The globe in in in in all all regions and I'd say the character of the engagement growth is a little bit different by region in the U.S. in Canada on Facebook, we're seeing strength in in sort of non video feed engagement in other regions, we're seeing a good strength in video.

And then I'd say you know across all of our apps. We're we're seeing strong adoption of stories and in on what that status <unk> products around the world and you know that continues to provide another way for people to to connect and share, but you know specific core Facebook I think those are some of the drivers that I'd call out.

Your next question comes from the line of John Black College from Cohen.

[noise] Oh, great. Thanks, two questions how should we think about the video strategy Encore Facebook in any update on watch users engagement and then on Instagram, there's been some discussion within the advertising community that explore isn't isn't area for AD inventory expansion just any color on <unk>.

Ends on on the explore tab. Thank you.

Yeah, the the video strategy.

And it was his has been pretty consistent.

<unk>.

And it's consistent with the rest of what we're trying to do on creating these other tabs and social utilities as well.

You know people watch a lot of video as part of news feed but we also found was that just straight consuming a lot of video and news feed was displacing some of the social interactions and connecting with people that was the the real core of what people came to our services for so.

So basically in order for to fully meet the the needs that people have for video we started creating the separate tab watch.

It's been growing quickly as well.

You can think about the content acquisition that we do their as.

More along the lines of either a marketing or bringing new people into the experience. It's <unk>, we're not building out a subscription service or anything like that around this so that's more just you know some good examples of content and anchor content to help create the community and and and get people into that experience.

And.

I ensure a little bit about the explorer opportunity so more than 50% of accounts on Instagram are using explore every month and as of Q3 ads were available to 100% of advertisers. We think it's a great opportunity to reach customers who are already in a discovery mindset and the way. It works is after you click on a posting explore grant you enter F.P. like.

Experience, where the AD <unk>.

Your next question comes from the line of Michael Natanson from Moffettnathanson.

Thanks, I have two one for day, but when tomorrow. So maybe produce if you look at your slide deck page for.

She is just this amazing or who grows in the U.S. and use the size of the U.S.

Or who there's so much larger than all these other <unk> in Europe I Wonder when you look at the opportunity to try to drive market dry pricing other markets were those getting such as what what are you looking forward to orange, we look for to move pricing to be closer to where I guess orbit close to where the U.S. numbers or or heading.

And then for more work on payments what are your initial market to trying to target and what impact you. All expected if you get payments right well impact on that have on your other parts of the advertising business.

Sure Mike all take the first one so this has been you know pretty consistent question, that's come up over the years and and I think the answer you know largely is the same as I'd given in in on previous calls which is.

The U.S. in Canada segment is really a pure play you know developed market with just U.S. in Canada as the two countries in that segment Europe is a broader mix of countries. So you've got eastern Europe , and you've got a Turkey in there. So you've got just lower AD market per capita countries that are included in in that segment. It's it's a much closer.

Number of your to look just pure play it at Western Europe , and then there's obviously different engagement levels of maturity of Instagram in those markets that also you know plays into it I guess not for that Facebook only stats, but but I think you you you just get different different dynamics based on on that really characteristics of those countries.

That's that's really what's <unk> driven the difference in in in our <unk> and you're also getting faster growth in general in the lower our poor countries, both within within Europe and within a pack. So that that tends to also have a mitigating impact on on our <unk> because of the the mix towards those lower our <unk>.

Trees as the users <unk> there are more quickly.

Sure and on payments.

You know we're focused in different places with different products for things like Instagram and even a lot of what we're doing on Facebook, it's a lot more developed countries.

For.

What's up it's the the biggest countries on what's up so that you know countries like India, and Mexico in Brazil, and Indonesia, which will make up a a large part of of the community on what's up.

The the way that we expect that this will work out is.

Basically for for people. It's just this is an important feature to be able to move your money around pay friends and individuals as well as small businesses from a small business perspective being able to close the loop on ads and transactions. We think is just going to make it so that it's more valuable to have a presence on our services.

And and buying ads is going to be more valuable so quick to messaging ads, which you know the ads run in Facebook and Instagram, but then links you to what's up or messenger, there's a product that's growing well as you can complete more payments and what's happened messenger you expect it'd be worth more for businesses to bid more there which.

<unk> why we're so far focused on making it said the payments can be free or really as cheap as possible because we think that from a business perspective, we will get some of the valued just by having the services be more valuable for businesses in the AD prices that they'll bit in the auction.

Okay. Operator, we have time for one last question.

Your last question comes from the line of Brian Fitzgerald from Wells Fargo.

Thanks, guys and then the last few weeks you brought several gaming streamers on board disguised codes Green zero and in December you acquired play gig. So we we wanted to hear a little more about Facebook gaming in the opportunity there in the in maybe the strategic overlap with occupied.

Thanks.

Yeah, I mean, there there were a couple of different things here over the long term there surely will be in in a connection between the work that we're doing in in the Facebook up and oculist or there will be opportunities for that but right. Now we're we're developing them somewhat independently I I think within the Facebook up.

Think about this as a connection <unk> is an extension of the social utility strategy, where we've talked about dating on the call we've talked about watch.

We've talked about groups news tab certainly the the the Facebook gaming effort for the people who are engaged in that I mean, there are a lot of communities that can get that that people, who really care about gaming. It has connections to the the the video and kind of live content.

Services that were building out so.

This is going to be and one of the increasing focuses for us or just at the different ways that people want to interact and build communities. We're not just trying to build things that that everyone is going to want to use we think something like gaming you know hundreds of millions of people are going to want to use it and that's great.

Great. Thank you for joining us today, we appreciate your time and we look forward to speaking with you again.

Ladies and gentlemen. This concludes today's conference call. Thank you for joining US you may know disconnect your lines.