Q2 2020 Facebook Inc Earnings Call
Okay.
Yeah.
My name is like and I'll be your conference operator today at this time, we'd like to welcome everyone to the Facebook second quarter 2020 earnings Conference call.
All lines have been placed them to prevent any background noise.
After the speaker's remarks, there'll be a question answer session.
If you'd like to ask your question during that time. Please press Star then the number one on your telephone keypad. This call will be recorded thanks, very much used ever Crawford Facebook Sleaze President of Investor Relations you may begin.
Thank you good afternoon, and welcome to Facebook second quarter 2020 earnings Conference call. Joining me today to discuss our results remarks, Echopark CEO, Sheryl Sandberg COO and gave way in our CFO before we get started I would like to take this opportunity to remind you that our remarks today will include forward looking statements acts.
Actual results may differ materially from this 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 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 a result of new information or future events.
During this call we may present, both GAAP and non-GAAP financial measure.
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 web site at Investor Dot F.B. Dot com and now I'd like to turn the call over to Mark.
Thanks, and thanks, everyone for joining us today, I Hope girl doing okay, and staying healthy this was a strong quarter for us, especially compared to what we expected at the start.
There were no more than 3.1 billion people using our services every month to stay connected.
And more than 180 million businesses, who use our tool.
To connect with customers.
We'll sort of more than 9 million active advertisers across our services as many shifted their business online.
That said yesterday, the tech industry as an American success story products, we build have changed the world for the better and improve People's lives. Our industry is one of the ways that America shares values with world and one of the greatest economic and cultural exports or country.
Facebook as part of the story.
Started with an idea to give people the power to share and connect and rebuild services the billions of people find useful.
I'm proud that we've given a platform to make.
For people to make their voices heard and given small businesses access to tool that only the largest players used.
Since koeppen emerged people have used or services to stay in touch with friends and family. They can't be was in person and to keep their businesses running online even when physical stores or closed in many ways amidst this very difficult period for people around the world. Our services are more important now than ever before.
It's worth reflecting on this for a moment because theres strong fundamental difference between how the vast majority of people actually experience our services and the expressed and the impression your debt. That's you're just read much of the commentary about Facebook.
And that is going through this pandemic two decades ago when the Internet was nascent Facebook didn't even exist sheltering in places incredibly disruptive now.
But until recently would have meant almost no connection with your friends in the broader economy. Most of the small businesses through storefronts. That's a close would have gone under and there wouldn't have been another infrastructure like the internet that they can move quickly to in order to stay afloat.
People sharing their day to day experiences with friends communicating in groups with people share interests and watching entertaining content buying and selling things. This is how the vast majority of people use our services.
Some seemed wrong, we assume that most of the content on our services is about politics news.
This information or heat and let me be clear it's not.
These make up a small part of the content on our services, although they were all things.
The people generally tell us they'd like to see even less so.
We do not profit from misinformation or eight we do not want this content on our platforms.
People come to our services to connect with the people. They care about that's why people are using our services at record levels, now and enabling more of those meaningful social interactions. This how we succeed.
And we have a plan to further reduce the amount of harmful content.
Hi systems already proactively identify about 90% of the eight speech that we removed before anyone even reports it no. Other internet service does anything remotely as sophisticated as this and we were committed to continuing to improve.
We are having an independent audit done of our community standards enforcement report, which is our transparency report on how effectively we're removing harmful content.
We're also opening ourselves up to an audit firm the media rating council to look at.
Our content monetization policies and brand safety controls and we're going to work with a global alliance for responsible media to provide greater transparency into our measurement of his speech numbers.
Now some also seem to wrong, we assume that our business is dependent on a few large advertisers.
Now, while we value every single one of the businesses that use our platforms. The biggest part of our businesses serving small businesses.
Our advertising is one of the most effective tools that small businesses have to fund customers to grow their businesses and to create jobs.
And that's why I'm often troubled by the calls to go after internet advertising, especially during a time of such economic turmoil like we face today with code, it's true that making it more difficult to target adds would affect the revenue accompanies like Facebook, but a much bigger cost of such a move would be to reduce the effectiveness.
Of the ads and opportunities for small businesses to grow.
This would reduce opportunities for small businesses so much.
It would probably be felt that a macroeconomic level.
And it was that really what policymakers want in the middle of a pandemic in recession.
The right path I believe is regulation that keeps people data safe, while allowing the benefits of this kind of personalized and relevant advertising.
Looking forward I expect the rest of this year to continue to be unpredictable from a health perspective with cobot growing quickly in the U.S.
There's currently no end in sight for when our teams here, we'll be able to return to our offices.
It is incredibly disappointing because it seems like the U.S. could have avoided this current surge.
In cases, if our government had handle this better.
For Facebooks part, but we're continuing to show our corporate information center to share authoritative health information to date, we have directed more than 2 billion people to see it.
In order to see important health messages, including interviews with Dr. Sochi and recently.
Information about why wearing a mask is so important.
During this time, we found that most Facebook employees, Ken productively work remotely even before code that we had a long term goal of enabling more remote work since the ability to fill present, even when your remote as a core aspect of our own product work on video presence and workplace and virtual and augmented reality.
We are using this moment to accelerate these plans.
Expect that up to 50% of our employees will be removed.
Long term within the next five to 10 years.
This will enable us to attract and retain broader pools of talent, regardless of where they live.
Economically.
The initial cares that stimulus ending here in the U.S., it's unclear what the economic outlook will be during this next period.
I continue to believe that getting the virus under control as the most important steps, we can take towards economic recovery.
For our part we are accelerating our work to help small businesses sell online through our services.
We launched Facebook shops to let businesses that have a storefront and sell.
Across our apps and that is scaling quickly we're going to have more to share their soon.
What's up business now has 50 million people using it and is growing quickly.
We've also granted approval. We've also critic rent programs help small businesses. During this period, including a 100 million dollar program to support small businesses globally and another $100 million program, specifically the support black go into businesses Black creators and nonprofits that serve the black community.
Here in the U.S.
Politically.
This is added.
Heightened level of uncertainty to this year's elections.
Because of the virus many people may not want to go to the polls in person. So voting by mail will be more important than ever and since many people haven't voted by mail before.
It's critical that we get official voting information in front of people and help people registered to vote.
We've built a voting information center and our goal is to help 4 million Americans registered to vote in the selection.
This will be the largest voting information drive in American history, and doubled the number of people that we helped register in 2016 in 2018.
We've already started a touching links to official voting information to any post from political candidates discussing voting.
Our goal is to help people registered to vote, regardless of what.
These candidates are posts are saying.
We're also continuing to focus on stopping election interference, including removing voter suppression, we've already broadened our policies here and adopted new policies to partner with local election officials to remove false information about voting in the period, leading up to the elections.
We are currently considering additional steps that we might take.
With all of us going on.
I've been impressed by how much progress our team has been able to make on our proactive product priorities and.
Around building, a private messaging platform, enabling small businesses and commerce and building the future computing platforms around virtual and augmented reality.
We announced messenger rooms in April and people around the world can now joined a room from any of our apps.
Or even if you don't have an account with us at all.
We extended messenger kids this quarter to 143, new countries and territories, helping a lot of parents they look for ways to safely preserve their children's friendships remotely.
And our AR and VR and hardware products keep getting better we saw an increase in portal sales across the whole product line this quarter and quest, which we launched last may already has more usage than any other device in our ecosystem.
As I told Congress yesterday, I am proud of the services, we've built and how they improve people's lives I am thankful to everyone at Facebook, who is doing this important work and to all of our partners and everyone else who is on this journey with us and now I'll hand, it over to Cheryl.
Thanks Mark.
Hi, everyone.
I want to start by building on that Mark said about his speech.
Please stand firmly against paid.
Being a platform where everyone can make their voice heard this quarter, our mission, but that does not mean, it's acceptable for people to spread hey, it's not.
We don't Bennett from it benefit from it and we never have are you just don't want to see it and our advertisers don't want to be associated with it.
For years, we spent billions of dollars from teams and technology to find in review take full complement and you protect the integrity of our platform generally and we've become a pioneer and using artificial intelligence to remove hey, Paul content at scale.
We've made real progress and in many ways, we've led our industry being more transparent and more proactive enforcement.
How do you kind of European Commission shows that these investments are paying off and that Facebook acts faster and remains a greater percentage of the hate speech and our services and other major internet platform.
We've made real progress, but this work is never finished.
Earlier this month, we met with the organizers at the ads boycott in other civil rights leaders to listen to listen to their concerns and we published our civil rights on it.
We were the first social media company to undertake an audit at this time and independent to your revenue on the civil rights impact of our products and practices.
Clear, we have a lot more to do and we are working every day to meet this challenge not because of pressure from advertisers because it is the right thing to do.
We're also working everyday to support people in businesses through this difficult period.
Pandemic is not just the public health crisis, but an economic crisis edited businesses around the world hard.
I want to talk about what we're seeing in Iran business and how we are supporting small businesses as they transition online in order to weather the storm.
After seeing flat year over year revenue growth and growth in the first few weeks in April we talk considerable recovery in May and June or total AD revenue for Q2 with $18.3 billion, which is a 10% year over year increase.
Tenants right not only our resilience as a company, but a wider trend that has been underway for some time people are spending more and more time online have businesses need to be online tail.
This is true long before the pandemic, but it is especially true now that people can't always get together and person.
And the United States before the crisis, one in three companies still to not have a website now.
Now more and more business has realized they have to be online.
This month in partnership with the World Bank and always seeking.
We published our first global state of small business report based on a survey of more than 30000 small business leaders across more than 50 countries.
The data paints a sobering picture of the struggle businesses are facing but it also points to the scale of the digital transformation we are witnessing.
And the majority of countries at least one third of Smbs reported earning a minimum of 25% of their sales from digital channels in the previous 30 days.
Over the years, we've invested in free and paid tools to help businesses and this increasingly digital first economy.
Anyone can set up a digital storefront on Facebook Instagram for free and just minutes.
That is why now more than 180 million businesses. He is our tools every month.
Along with our free tools personalize advertising is a lifeline for businesses, especially small businesses, who can't afford brought campaign aimed at mass audience as well.
Just a few dollars now more than 9 million advertisers use our platforms to reach audience is interested in their products and we enable that's in a way to protect people's privacy and produces measurable results.
In today's economy, when businesses are struggling and customers aren't physically walking into their stores or restaurants. This is more important than ever.
You just social distant take restrictions Italian coffee strat shop owner, Niccolo, Toronto had to get creative and re imagine what a virtual coffee experience could look like.
But to help the Facebook Instagram and what's happening promoted online sales and free home delivery to people interested in coffee within 10 to 12 miles of in store and he saw 20 times return on outspend.
And it's not just small businesses that have used personalize adds to help them have it.
At the onset of the pandemic Kirkland's home furnishing retailer in the U.S. shifted its focus on line and use Facebook ads targeted at adults within 10 to 15 miles of their stores.
<unk> sales with curbside pickup.
This is the type of customer acquisition that is only possible with personalize ads and as a result, they thought ttwenty four times return on AD spend and a three times increase in these sales directly attributable to Facebook.
As Mark discussed regulatory and pop from challenges threaten the pipeline for businesses, but we remain committed to doing everything we can to help them adapt to they can survive and thrive in the online economy.
We recently launched the business nearby tool to help people find businesses and their neighborhoods and we continue to develop shop make selling online quick and easy.
We now making tools available if not enough. We also need to ensure business owners have the digital skills to use these tools effectively.
In March we launched our business resource have to share free training and resources and since then over 20 million people have visited.
We then launched our summer of support program in June to share, even more advice for businesses, whether or not they use our services.
Since launch more than 15 million people have tuned in to hear practical pets for rebuilding and strengthening their business.
In addition to tools and training businesses have told us they need direct financial help.
In mid March we announced 100 million dollar grant program to help small businesses around the world and since we opened applications for the program. We've seen a huge amount of interest from black on businesses and we know they're facing enormous challenges.
Businesses have faced systemic barriers for generations and I have also been hit hardest by the economic impact to the pandemic.
Last month, we announced an additional hundred million dollar investment in black on small businesses black creators and nonprofits that serve the black community in the U.S.
Our grant program is on top of local we sat previously to spend at least $1 billion with diverse suppliers next year and every year thereafter.
As part of this will spend at least $100 million annually with black on suppliers from facilities to construction to marketing agencies and more.
The credit crisis as lasting longer than anyone hoped unexpected we're acutely aware of the responsibility we have to keep people connected during this turbulent time and to help businesses weather the storm and transition to the digital economy.
I want to close by saying, how grateful I am to our partners around the world, who continue to give us valuable feedback and hold us accountable and to our incredible teams, who are deeply committed to making progress on the issues that matter, most and launching new products that continue to make a real difference in people's lives.
Now here's Dave.
Thanks, Sheryl and good afternoon, everyone. We continue to operate in an uncertain and challenging environment around the world at same time, we're seeing accelerated participation in the digital economy, and Facebook is helping alleviate the economic challenges associated with Kevin 19.
We are pleased to support people in businesses through these very trying times, turning now to our results our Q seeds, our Q2 growth and engagement metrics reflected increased engagement due to the impacted the pandemic.
However, as expected we are seeing signs of normalization as shelter in place measures have used around the world.
Provide more detail in the outlook.
In June we estimate that approximately 2.5 billion people used at least one of our services on a daily basis and that approximately 3.1 billion people use at least one of our services on a monthly basis.
Note that these Q2 family metrics reflect new data from a recent user survey and certain methodology improvements. Further details are included in the earnings slides on our IR website.
Facebook itself continued to grow with daily active users, reaching 1.79 billion up 12% compared to last year.
Hey use represented approximately 66 presented the 2.7 billion monthly active users in Jan and they use grew by 287 million were 12% compared to last year.
Turning now to the financials due to total revenue was $18.7 billion up 11% or 12% on a constant currency basis had foreign exchange rates remain constant with Q2 of last year total revenue would have been $297 million higher due to AD revenue was $18.3 billion up 10% or 12.
On a constant currency basis.
As Cheryl mentioned AD revenue growth in the quarter was stronger in May and June relative to April in terms of verticals. We saw particular strengths from both new and existing online commerce in service advertisers, who primarily leverage our direct response ad formats.
Facebook has got a lifeline of economic activity during a time when offline activity has been curtail our growth was primarily driven by small and medium sized businesses around the world to leverage our advertising platforms to connect with customers.
As a result, we continue to see increased diversification among our advertiser base.
In Q2, our top 100 advertisers represented 16% of our AD revenue, which is a lower percentage than a year ago.
On a user regional basis AD revenue growth was strongest in U.S. in Canada Asia Pacific in Europe, which grew 14%, 11% and 9% respectively.
Rest of World declined, 6% and was impacted by challenging macroeconomic conditions as well as foreign currency headwinds.
Turning now to our price and volume metrics in Q2, the total number of AD impression served across our services increased 40% and the average price per AD decreased 21% similar to last quarter. The growth in impressions was primarily driven by Facebook mobile news feed due to product changes and increased engagement compared to last year.
The decline in average price Brad was largely attributable to the economic impact of the pandemic, although we saw year over year pricing trends improve in the latter half the quarter.
Other revenue was $366 million, 40%, driven primarily by sales of Oculus and portal products.
Turning now to expenses due to total expenses were $12.7 billion up 4% on a reported basis. Excluding the 2 billion dollar expense that we recorded in Q2 of last year related to our settlement with the FTC total expenses were up 24% year over year, and 11 percentage point deceleration compared to Q1.
The biggest factor in the deceleration of expense growth from the first quarter was a decline in people related costs like travel events and amenities as our employees worked almost entirely from hall.
By line item the trends were as follows cost of revenue increased 16% driven primarily by depreciation related to our datacenter spend.
R&D grew 35% driven primarily by investments in core products as well as our innovation efforts, notably in a AR VR.
Marketing and sales grew 18% driven primarily by consumer and growth marketing and finally, excluding the FTC extends from Q2 2019, Gionee expenses grew 30% driven primarily by higher higher legal expenses.
As Mark mentioned, we continue to invest throughout the economic downturn in order to build products and services for the future we had our strongest hiring quarter ever in Q2, adding over a 4200 net new hires primarily in technical functions. We ended the quarter with over 52500 full time employees up 32% year over year, we're pleased with our.
Our ability to recruit onboard and retain talent in this environment.
Operating income of $6 billion, representing a 32% operating margin our tax rate was 16% net income was $5.2 billion or $1.80 per share.
Capital expenditures were $3.4 billion driven by investments in Datacenters servers office buildings and network infrastructure note that this is a declined 11% compared to last year, primarily due to a pause in the datacenter construction to roughly half the quarter due to the shelter in place measures. We have since resumed our datacenter construction efforts with proper safety precautions and.
Place.
In Q2, we announced a new data center in Illinois, which will be supported by 100% renewable energy, we remain committed to minimizing our environmental impact in earlier. This month, we published our inaugural sustainability report, which is available on Facebook sustainability web site.
Free cash flow was $514 million and as a reminder, this is net of the 5 billion dollar FTC settlement that was paid in Q2, but as previously noted was expense in 2019.
We purchased $1.4 billion of our class a common stock and ended the quarter with $58.2 billion in cash and investments.
In July we closed our investment in Geo platforms limited in paid approximately $5.8 billion in cash.
Turning now to the outlook.
As I mentioned earlier, we are seeing signs of normalization and user growth and engagement shelter in place measures at east around the world, particularly in developed markets, where facebooks penetration is higher.
Looking forward and shelter in place restrictions continue to ease we expect a number of Facebook da use in any use to be flat or slightly down in most regions in Q3 compared to Q2.
In the first three weeks of July our year over year AD revenue growth rate was approximately in line with our Q2 AD revenue growth rate of 10%.
We expect our full quarter Q3 year over year AD revenue growth rate to be roughly similar to this July performance.
There are several factors contributing to this first continued macroeconomic uncertainty, including the pace of recovery and the prospects for additional economic stimulus.
Second the expectation that some of the recent surgeon community engagement will normalize as reach regions reopened.
Third the impact from certain advertisers pausing spend on our platforms related to the current boycott which is reflected in our July trends.
And lastly headwinds related to AD targeting and measurement, including the impact of regulations, such as the California consumer Privacy Act as well as headwinds from expected changes mobile operating platforms, which we anticipate will be increasingly significant as the year progresses.
Turning now to expenses, we expect total expenses in 2020 to be in the range of $50 billion to $55 billion narrowed slightly from our prior range of 52 to 56 billion.
We expect capital expenditures to be approximately $16 billion at the high end of our prior previous $15 billion to $16 billion range as we have resumed datacenter construction efforts earlier than expected.
However, a great deal of uncertainty remains in our outlook and our full year capital expenditures will depend on how the pandemic impacts our ability to construct data centers refresh equipment.
Turning now to tax we expect our full year 2020 tax rate to be in the mid teens, although we may see fluctuations in our quarterly rate depending on our financial results.
We are proud that the role Facebook is played and keeping people connected during the current crisis and the role that we have played in helping businesses reach consumers online during these challenging times.
With that Mike, Let's open up the call for questions.
We open the lines for a question answer session to ask a question Chris Star followed by the number one on your Touchtone phone.
Please pick up your handset before asking your question to ensure clarity.
If you are assuming today's call. Please meet your computer speakers.
Your first question comes from the line with their journey from CBS.
Thank you so much for taking my question and thanks for all the color in the commentary maybe two if I can.
So what you want to accomplish on E commerce platform broadly over the medium to long term what are the key investments and sort of launch initiatives, we should be looking for from the outside in that are still part of the building blocks to accomplish sort of the announcement around Facebook shops, all the excitement about bringing more and more merchants and sellers on the platform globally, just one of them.
Stems from the pathway forward, both in terms of either the initiatives or maybe the numbers and then maybe one quick one on the advertising side how much the headwind is the current brand advertising environment. We continue to hear about direct response advertising trends improving quickly maybe even in some verticals back to existing pre cobot levels.
How should we think about the recovery and brand advertising what headwind that might be for the platform as you look out to the second thanks so much.
Sure I can take the second the first part and then Sheryl Ken can probably take the second one in terms of the big.
Milestones for small businesses and commerce were mostly focused on on two types of products. The first is shops, which we started rolling out a lot more broadly.
This year.
And would that basically allows any small business.
To put in a catalog.
And then have a shop across Instagram and Facebook to start a.
Eventually across all of the ops, you'll be able to bring up shop, and you'll be able to.
Transact a across all of them and.
We are going up Facebook pay to make it to that you buy something in one place your credit card to start easier to do follow on transactions than any of the ops. It will be a better consumer experience and sales will convert better there'll also be a natural.
Value for small businesses of being able to connect the advertising that they're doing across their services with their shops to be able to go from a inspiring someone at the top of funnel all the way down.
Through through driving sales.
So that's going to continue scaling and a lot more to share their on metrics and.
Soon.
Another area that I'm quite excited about is messaging commerce and what we're seeing there is it's particularly important especially in developing countries, but we're seeing a lot of small businesses just conduct a.
A significant portion of their business over messenger or whatnot.
And in the.
Medium term I think the way that we're probably going to build a business around that.
You know, we already offered the business say pie and that will be meaningful, but they're also these clicks and messaging ads.
Which have been.
More successful than I think we'd even hoped that basically allow people.
Two.
Get customers attention in especially Facebook and Instagram and direct them to a thread where they can do commerce and messaging messenger to start and we're really working on wrapping that up and what south as well, but as payments grow across messenger and whatsapp and as we're able to roll that out in more places I've got that will only grow.
It was a trend so there's the two areas that we're really focused on commerce, it's worth noting like I said in my opening remarks. This really is primarily focused on small businesses individual entrepreneurs.
Small businesses are the biggest part of our business I'm not the large businesses of course, we want them to be using our platform to how we want it we want to serve everyone, but if if you as investors or analysts or anyone or thinking about our business.
Really the accurate way to think about what we do is that we are in the business of serving small businesses and all these different things that we're doing are going to be geared towards.
Enabling those folks to grow reach customers and create jobs around the world.
I can talk about the trends in brand advertising I think what we've seen not just this quarter, but for many years is that advertisers large and small are really interested in measurable results I think that's the best thing we offer and that's what people come to US I think sometimes think of brand advertisers is a large out.
Hi, users and certainly large advertisers often do brand campaigns, but both large and small advertisers we see on our platform are increasingly interested and measurable her as a result, we also believe that we provide a better advertising experience for both the market or in terms of ROI and the end user in terms of.
Seeing something that they're more interested in when the ads are more personalized and the more they're driving to a measurable results.
The more they tend to be targeted to a specific audience and I think the better they work until we're definitely seeing a trend towards what you said in his question is direct response, but it's not just direct response anymore.
Any kinda measurable result, and we offer a lot of different actions you might want someone to take and that is definitely and much more important than brands and driving our business has been for awhile and that 10 continued trend to continue.
Your next question comes from the line, Brian <unk> from Morgan Stanley.
Thanks for taking my question I've I've two one for one for Mark one for Dave marked the first went on India. You made a series of investments last couple of years, there maybe talk to us about sort of your your vision for the product offering and the the consumer in the SMB pain points. Your most focused on solving and the investments you need to.
Really make their to create that into a real business for Facebook and then secondly, Dave It seems like you're you're talking about more than 50% of the employee base potentially working remote next five to 10 years I understand you're not going to give us sort of mass or quantify but maybe just talk to us about some of the puts and takes in areas, where you could see long term efficient.
See internally for more people working remote as well as potential higher costs from a larger remote workforce. Thanks.
Sure I can take the India question.
It's very connected to what I was just talking about around messaging commerce.
A lot of people use whatsapp, especially in India, Theres, a huge opportunity to enable small businesses and individuals and India to buy and sell things through what.
We want to enable that that starts with enabling payments.
Big part of the partnership that we have with Joe will be to a wire up and get a.
Thousands of Chirano has small businesses across India onboarded onto onto what's up.
To do commerce there.
And we're really excited about the opportunity there.
And once we prove that out with Joe in India, We're planning on expanding it to more folks in India and two other countries as well, but theres no doubt that India is a huge opportunity but is the largest country.
By the size of our community that we're serving already and it should be one of the faster growing business opportunities.
As well to help businesses grow there and we're very excited about that before I hand, it over to Dave to talk about.
The remote work I'll just add that on principle. The reason why we're shifting to more remote work I'm just that we think that culturally will allow us to attract more talented people. We're not doing this primarily as a cost saving measure obsolete. So Dave can talk a bit about as analysis, there, but I I.
I don't think we really have a clear picture of how that might play out but I can tell you that thats not the primary goal of how we're approaching us.
Yes, Mark that's consistent with what I was going to what I was going to say to Brian. The main thing we're trying to do with access a greater talent pool, which ultimately might give us more opportunity to grow head count. So so I think it there's there's an effect there that's I think.
In addition to cost in the sense that we would have greater pool of people that we can recruit from.
I think thats a that's that's one thing to think about and then yes, there might be some savings on office and amenities and alike, but that's potentially offset by more travel to do to be able to bring people into offices and for all sites and other things to be able to collaborate effectively. So we don't we don't know exactly where the puts and takes are going to come out on that.
Your next question comes from Justin Post from Bank of America.
Great and maybe I could ask why shorter term and one longer term you know you've got 8% to 10% in July and entered the quarter about the same for AD revenues.
Could you talk about some of them potential headwinds in the second half a little more detail, especially any any apple idea, thank changes or how that could impact your business and then on the longer term Mark I believe for five years ago, you talked about messaging and you're aware the Asia comps do you feel like that business is.
Really starting to gel and materialize you, obviously had some positive comments and cannot be something they start to contribute in two or three years. Thank you.
Okay I'll take the first one there Justin so I mean, there's going to be a few factors that are obviously important in the second half.
One of the things that we called out what is the macro side of things, which we don't know precisely you know how the overall economic climate is going to develop that we we do know that some stimulus is probably playing to some extent through to our business and.
The current cares that for instance, expiring at the end of July and we don't know what the subsequent economic stimulus will look like and to the extent that stimulus decreases in the future in recession lingers that could impact.
Consumer purchasing power for advertisers in areas like ecommerce so that will have to see how that plays out.
In addition.
We did specifically call out.
Changes on mobile operating platforms and that as you correctly identified we specifically with the.
Apple latest announcement regarding iOS 14 in mind.
So.
This is one of the factors that has that is included in our outlook for Q3, but it really will have more of a pronounced impact in Q4 and beyond given the given the rollout begins late in Q3, and we're still trying to understand what these changes will look like and how does impact us in the rest of the industry.
But the very least it's going to make it harder for app developers and others to grow using ads on Facebook and elsewhere.
So advertising clients are asking has had you know how to maintain their performance and we're working on it but.
Our view is that Facebook in targeted ads or a lifeline for small businesses, especially in a time coated and we are concerned that aggressive platform policies will cut it that lifeline at a time when it is so essential for small business growth and recovery.
Your next question comes from Rob Salmon from Barclays.
Okay, I guess I can talk about the messaging business it's.
Yeah.
Overall here, it's it's basically the levers that I've talked about so far on this call.
I I think it's taken us a little longer than I would've hoped for payments tend to get released on what's out in a number of countries. That's certainly a building block.
What's that business App is growing incredibly quickly, though in terms of number of businesses, who are signed up for that so that part of the ecosystem I think is going quite well.
<unk> adoption is growing reasonably well as well for businesses the quick to messaging ads.
Our.
Valuable for businesses.
But we're seeing them more use.
That shows up more and kind of the revenue and the ads there, we're seeing on Facebook and Instagram side than.
Then register has direct commerce, that's happening inside the.
The messaging apps, but it's useful nonetheless, I mean, I think what we're pretty open to to where the revenue comes to us but were pretty focus just on making sure that we can help small businesses grow and find customers and connect and helping people.
Interact with all of the individual says it all the friends that they want and then all the businesses that they interact with increasing that I think that there's.
That's.
That's becoming part of one broader platform I certainly think that's happening in messaging continued to be very excited about that.
Your next question comes from Ross Taylor from Barclays.
Great just a follow up on the SMB commentary. So Dave you mentioned that that was the primary driver of growth and we appreciate the the top 100 mix.
Down to 16 versus I think 20% four years ago seems like thats been coming down steadily.
I guess, the SMB side, it's a little counterintuitive with so many business the failures going on with Covance. So can you guys. Just talk about is it the penetration of the 60 million SMB is already on Facebook.
In terms of the buyer ad buyers.
Penetration, that's going up or what's driving that that resurgence in gross.
MBS than the current environment any color there will be helpful.
Yeah, I think it they're both yeah. It's when you think about SMB is you're certainly right that a lot of businesses are struggling but at the same time businesses have to pivot online and so on this call. We updated our overall numbers, we now have over 180 million businesses using our free tools.
We now have over 9 million advertisers to what we're seeing is that increasingly businesses of all sizes, but including small businesses have to find their customers online people aren't walking into stores as much have to find new ways to deliver products like curbside pickup like shipping you know so they are increasingly moving online and you.
See a lot of businesses around the world, but even in very developed markets like the United States.
Where that's not even having a website of any.
So we become a place you can set up a website set up a digital storefront.
Free it just takes minutes you know how to do it because you've already used Facebook or Instagram as a consumer so we're just seeing more and more businesses migrate online.
And we're seeing more and more businesses become advertisers you know this acceleration of E commerce, you're seeing it not just tough and but if you look at all the vertical is out there saying is that can be done online are obviously doing better in this time, then things that rely completely and.
On things that are offline and but it really is just an acceleration of a trend. We've all seen for very long time to kinda virus crisis is making this happen.
Happen more quickly, but the migration online the migration to using very personal lines adds to find people who are interested in your product. It's something that you know weve I think helped drive and are continuing to help drive and we're proud of the roll the role we play on this it's really important for job growth around the world and for the how for small businesses.
And your next question comes from the line of Doug any from JP Morgan.
Thanks for taking the questions I just wanted to dig a little deeper on some of the ecommerce topics.
Cheryl I know, it's still early obviously with Facebook shops, let's hope, hoping you could.
Help us understand the feedback and traction you're seeing there and then just when you think about monetization overtime did you expect more of that through incremental advertising dollars or through commission fees of sellers use checkout and then second mark.
Can you comment on your efforts with what's that pay in India, and Brazil, and I know you've met some resistance there how does that get resolved in those markets. Thanks.
So we launch shops in May as you know and shops give a really immersive full screen store front seven enables businesses to build their brand and drive product discovery. If you think about what we've done for very long time, we exist in many ways at the top of funnel and we have.
Drives people down, but we are a great place on Facebook and Instagram for discovery, and then increasingly we're able to drive people down the funnel all the way through the purchase so shops help do that on the advertisers type, but they also help small businesses with free online tools, we're very committed to this but in terms of outstanding its.
Very early we are seeing nice results from businesses and the people who are using these shops. Our focus is getting the Ics product experience right and as we gave are going to make it available to more and more businesses.
If you look into that foreseeable future though.
Several years future advertising is such a high margin business that obviously it contributes much more to the bottom line than any other fees, we might charge and I think we see this has really focused on increasing the experience people can have going all the way to the funnel purchase on Facebook and the experience businesses.
Can have on closing that loop and selling online and migrating on line.
That's more important than the actual incremental dollars you would get from any fees charged by de services.
Your next question I'm, having a lot or not Youssef Squali, we're working on trust.
Sorry, the second part of Markwest, Okay, Yes, there wasn't much of an update here and I was just saying that we're working with regulators in those countries and are optimistic that won't be able to move forward, although it's taking longer than than we would ideally like.
Okay and go to the next question is your next.
Your next question comes from Youssef Squali from Suntrust.
Great. Thank you switching topics a little bit Mark one area, where we're saying just incredible growth engagement is online gaming and streaming in particular you you guys recently got mixer from Microsoft It looks like Facebook has no firmly in third place about market what is your value proposition to gamers relative to the.
Hey, competitors, basically twitch and and you too how do you monetize it overtime is it a sheryl just talked about I'm on a different topic, mostly advertising and is it conceivable that game in may become kind of the.
Third leg of that stool, your third largest revenue source overtime after a Facebook and Instagram. Thanks.
So the value proposition is community and that's true for all kinds of creators who are posting content and video.
Like what we're doing and watch.
As well.
Our channels or are ones, where you're not just distributing content for your building up a community and able to communicate with people in a number of ways, which is something that is just a lot harder to do on a you tube or a twitch or other products like that even though those are also great products for for streaming.
So we're seeing that on on gaming a lot of people. Appreciate that we're also able to distribute the video and get into a lot of people. So that part is working well to I agree with you overall the gaming is gonna be increasingly important in the future. The other area of course, where we have a very large investment in gaming is the area around.
Virtual and augmented reality, where that to a big part of the use there and we're seeing exciting work both from from independent developers and a large AAA developers and I'm increasingly some of the in House studios that we've that we've acquired as well so we're going to come.
And you focusing on gaming I agree that that's a big area.
And I would just add you sit that gaming continues to be a top five vertical for us in in terms of advertising and was we saw strong growth in the second quarter, especially in the beginning of the quarter when when prices were lower in the auction we saw.
A lot of demand from our gaming advertisers and so was it I think a good example of where the auction is very effective at filling in so we continue to be important top of the funnel discovery for game developers around the world.
And your next question comes from the line of had their billing from Goldman Sachs.
Great. Thank you so much for taking my question I'm most of the might have been answered, but just a couple of quick ones. Dave I was wondering if you could just you gave us some great commentary could think about Q3. So thank you for that I'm. Just wondering if you can share with us kind of pricing trends at the ended the quarter and into July and also you know just given.
The the uncertainty on the second half of the year for all the reasons you mentioned any comments you want to share with US on you know kind of how to think about even qualitatively seasonality Q4.
Hey, Heather Yeah, I mean, I think you get the second part of your question I think it's going to be really hard in it to look into Q4 with any certainty here given we just don't know what the macroeconomic situation is going to look like it's hard to predict.
I guess in September much less looking at far into the future and I think thats going to be.
A big.
Thank you think about I think clearly E. Commerce will continue to be really important as we go into Q4, given that big macro theme for us in the whole industry has been the strength of E commerce through the second quarter. So I would expect that will play into the fourth quarter as well to some extent is as with the holiday season.
In terms of pricing trends.
We did see pricing improved through the quarter. So early in the quarter demand was much weaker so we saw pricing a depressed throughout the throughout the world and we saw as I mentioned just before do you said, we saw backfill with some advertisers coming in and taking advantage of low prices.
For like games ecommerce providers as well and then you know as prices improve throughout the quarter. You know we saw some some of those advertisers.
Pullback as others came into the auction and began winning more but you know continues to be as noted from the price volume metrics in the script. It continues to be a depressed environment.
And and so we're you know we're obviously.
Just run macroeconomic perspective concerned about that as we get further into the year as well I would I do want to point out we've got.
We've got targeting advertising targeting and measurement headwinds that will affect pricing as well that will be we believe more pronounced in Q4 given.
Some of the for instance, the Apple idea, hey, changes, which I think could could prove to be a challenging headwinds.
Your next question comes from the line of Mcqueen from RBC.
[noise] [noise]. Thanks, I wanted to ask about the addressing the boycott issues and Mark I, particularly want to ask whether you think theres a reasonable.
Fission solution in here I know, how you come out and you've been pretty clear about your thoughts on you know try not to moderate too much content try not to be in that role, but are there the solutions that you've talked about and introduce things like labeling is that not addressing the issues. The concern. So some of the some of the boycott participants how hard to do you think it will be to address.
Their concerns and then I could stick on this with.
Local advertising I know you've said in the past you didn't think it was that material, but the numbers are relatively sizable we're talking about a couple of billion that should be online and I think as far as I can tell Facebook offers just about the best way to do political AD targeting a you know in different a different districts et cetera, why wouldn't you see a reasonable boost to.
AD revenue and will in the back part of the here from a political AD campaigns. Thanks a lot.
I can talk about the ads boycott.
So it's an interesting situation, we find ourselves and because I think oftentimes when companies are boycotted it's because they don't agree with what the boycott or something that's actually all here. We completely agree that we don't want hate on our platforms and we stand firmly against it you know we don't benefit from hate speech, we never had users don't want to see it adds.
Kaiser's don't want to be associated with it and we've been working for a really long time to get better at that's to finding yet and as I said in my remarks, I think in many ways, we lead our industry and transparency in execution.
We're going to keep working really hard at this not for financial reasons or advertiser pressure because it's the right thing to do in terms of how we resolve it we work across the board. We have worked with and continue to talk to the civil rights organizations that are boycotting us we had a meeting with them and Mark a few weeks ago, we continue to work really closely.
With other civil rights organizations as well as our civil rights Auditor on the many improvements we're trying to make but we're also working with industry great that I think can be really helpful. Garner and MRC, particularly garments working with us to partner on brand safety standards to help us come to definitions and independent oversight.
For the industry and we're optimistic that we'll be able to work with them to address advertiser concerns were also working with the media rating Council. The MRC, an undertaking an independent brand safety on it and we'll be able to share the skipped the that by the end of Q3.
And Mark just it's Dave on on on political AD and you have anything to the fact is we just have such a large and diversified advertising business and when it will add.
Or just a small part of the overall advertising landscape even in election years.
So we factored in.
The 2020 political advertising spend as part of our Q3 commentary.
And again I would just point to the backdrop factors that I outlined in my comments in terms of.
Things out there, including macroeconomic headwinds.
Normalization of engagement trends and code restriction fees, the boycott and then headwinds on targeting and measurement.
Operator, we have time for one last question.
Your last question comes from the line of marks from Bernstein.
Yeah, Hi, Thanks for taking my question. So the first I know, we've talked about that a little bit, but you know what's the what's that business growing that 50 million users and I think last number there was 5 million that's a pretty astounding growth any color you can share on what drove that growth.
Then secondly, as you.
We just think about the the growth kind of quarter to date in July I know you called out the rest of the world was the one that declined due to structural headwind any incremental color you can share of some of that's been resolved or what that looks like thank you.
I can take the second part I guess first on the rest of world. So I think you know what you've got going on in terms of rest of world weakness.
Theres probably.
Yes few factors on first you've just got a foreign currency headwinds.
Particularly in places like Brazil, and to that played a role in the year over year decline in rest of World. Secondly, you know rest of world has a lower exposure to what I'd call sort of online verticals things like ecommerce and gain and it's more exposed to.
You know things like traditional retail in brand and with coated the online verticals performed well in those dependent ultimately like on any person conversions and interactions left so so I think that impacted rest of world as well and then finally, if not clear whether stimulus in the developed world also played into it.
It gave more strengthened in those markets as opposed to rest of world that that could also be part of the relative strength in one of the developed world rather than the developing world.
And on what's driving the growth and what that business.
I mean, I really just think it's a it's a good simple product execution.
And there's a ton of organic demand for people to interactive businesses and I think for.
Small business owners in particular to have some separation between their personal what top accounts and and their business account and some of the additional features and tools that you get through through whats out business to be able to.
To connect with people and managed out a bit better. So I think that that will continue growing quite well.
We have a long road map ahead to build up all the different commerce features that we.
Talked about on this call, but also have been talking about for a while now and I can but that's one of the exciting opportunities ahead of us that we're going to be focused on building for for the next few years, but which we think is pretty fundamental for serving people and a neighbor.
Doing small businesses and entrepreneurs around the world, we're excited to get out it.
Right. Thank you for joining us today, we appreciate your time and we look forward to speaking with you again.
Ladies and gentlemen, this concludes todays conference call. Thank you for joining you may now disconnect your lines.
This is Mike you are now clear of the main conference.