Q1 2021 Facebook Inc Earnings Call
[music].
Okay.
Good afternoon, My name is France, and I will be your conference operator today.
At this time I would like to welcome everyone to Facebook first quarter 2021 earnings conference call.
All lines have been placed on mute to prevent any background noise.
After the Speakers' remarks, there will be a question and answer session. If you would like to ask a question during that time. Please press one and then the number of four on your telephone keypad.
This call will be recorded thank you very much.
Deborah Crawford Facebooks, Vice President of Investor Relations you may begin.
Thank you good afternoon, and welcome to Facebook first quarter earnings Conference call. Joining me today to discuss the results are Mark Zuckerberg, CEO, Sheryl Sandberg, COO and Dave Wehner CFO before we get started I would like to take this opportunity to remind you that our remarks today will include forward looking statements.
Actual results may differ materially from the contemplated by these forward looking statements factors that could cause these results to differ materially are set forth in today's press release and in our annual report on form 10-K filed with the SEC.
Any forward looking statements that we make on this call are based on assumptions as of today and we undertake no obligation to update these statements as a result of new information or future events.
During this call we may present, both GAAP and non-GAAP financial 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 Day, FB Dot com and now I'd like to turn the call over to Mark.
Hey, everyone. Thanks for joining us today.
Before we get the started.
Wanted to take a moment to say that we are very worried about the COVID-19 situation in India and also in Brazil.
I'm, hoping that we can get this virus under control soon and in the meantime, we are focused on what we can do to help there.
Now turning to the results.
This was another strong quarter more than $2 7 billion people now use one or more of our apps each day.
And more than 200 million businesses use our tools to reach customers.
This has been an intense year.
I am proud that we continue to deliver value for people and businesses around the world.
The over the past couple of quarters, our business has been performing better than we expected.
And this has given us the confidence to increase our investments meaningfully the few key areas that of the potential to change the trajectory of the company over the long term. So on today's call I'm going to talk about the opportunities that we're pursuing and augmented and virtual reality and around commerce business messaging.
And creators.
The first let's talk about.
The building the next computing platform.
I believe that augmented and virtual reality are going to enable a deeper sense of presence and social connection than any existing platform, they're going to be an important part of how we will interact with computers in the future.
So we're going to keep investing heavily in building out the best experience. This year and this accounts for a major part of our overall R&D budget growth.
<unk> two is doing better than we expected even after the holiday season.
We continue to see good engagement and we keep shipping updates that may quest, better and better including air link, which enables wireless streaming of games and content from Pcs.
And support for 120 Hertz refresh rates.
Now of achieving quests high quality at a.
Wireless form factor has been a major breakthrough having wires wrapped around you just really breaks the sense of presence in immersion in the technology to deliver a great experience wirelessly as is very advanced and most companies aren't going to be able to deliver this but.
But we believe that it is the minimum bar for a high quality experience.
This quarter, we also shared more about our future investments, including neural interfaces for interacting with.
And we started testing of our new Avatar system, which will be a key part of how people express themselves and connect.
One interesting trend.
Is that were seeing the app ecosystem broaden out beyond games into other categories as well the most used apps, our social which fits our original theory for why we wanted to build this platform in the first place.
We're also seeing productivity and even fitness apps.
So for example, we launched the tools. So people can subscribe to services like fit XR to do boxing and dancing in VR, just like the wood for biking on peloton.
We introduced the App lab. So developers can ship early versions of their apps directly to consumers without having to go through the Oculus store.
And between the App lab and streaming from PC is we're pioneering a much more open model of the App store. The what's currently available on phones today.
The over time.
I expect augmented and virtual reality to unlock a massive amount of value both in People's lives and the economy overall, there's still a long way to go here and most of our investments to make this work are ahead of us.
But I think that the feedback that we're getting from our product is giving us more confidence that our prediction for the future of your will happen.
We're focusing on the right areas.
Now beyond day are in VR I want to call out some of the other long term opportunities that we're really focused on especially in commerce and business messaging.
Commerce has been growing and our services for a while but it has become a lot more important as the pandemic has accelerated a broader shift towards businesses moving online and the.
Last year, we've seen online storefront stay open even when physical stores closed and going forward online commerce will continue to offer an increasingly personalized and convenient experience.
Commerce ads of continue to do very well and drive a meaningful amount of our overall business.
We built marketplace into one of the world's leading the services for people to buy and sell and I am pleased to share today.
More than 1 billion people the visit marketplace each month.
And now we're investing and building for the future of Commerce. So we launched shops last year and as I recently shared there are now more than 1 million monthly active shops.
And over $250 million.
Monthly shops of the visitors were also focused on building more native commerce tools across our apps.
We recently updated whatsapp the catalogs of businesses can keep them updated from the computers.
To include what's the stock.
We launched carts on Whatsapp last year and people of use them to send orders more than 5 million times.
We're also building a broader infrastructure to support commerce everything from payments to customer service and support and Whatsapp payments is now live in India, and we have gotten approval in Brazil to launch shortly too.
We're starting to see a meaningful shift in the way the people communicate with businesses, where a lot of people online commerce is less of our websites and shops and more about messaging. The people wanted to get support and make purchases right from a chat.
All of our businesses want to show their product and take orders via messages and larger businesses want reliable and secure infrastructure to communicate with their customers.
Businesses, using the whatsapp of business API.
We're already spending more than 100 million messages per day over the last year during the height of COVID-19 poodle daily conversations between people and businesses on messenger and Instagram grew by more than 40%.
More than 3 million advertisers.
Already using click to message ads to direct people to messenger.
And since we introduced the click to Whatsapp ads.
Nearly 1 million advertisers have already started using them too.
Now the next step here is we're going to make it possible to create those cooked to whatsapp ads from directly within the Whatsapp business App.
The next step is.
Is to make it easier for businesses to adopt all of these services and to give them the tools.
That that can handle messages and customer relationships, our acquisition of customer is going through regulatory approvals and where the.
Looking forward to offering businesses, a native way to manage their customer relationships on our platforms.
Now I want to be clear that we are a long way to go to build out of full featured commerce platform across our services and this is a multiyear journey, but.
I am very committed to getting there.
This modern commerce system is going to bring together a number of areas, where we either already have strong offerings like and adds community tools and messaging.
With areas like shops in the business messaging and payments that we are focused on ramping up now.
As part of this we're also investing more in building out better customer support for our products.
For the last several years, we focused a lot on content moderation and privacy work and I view customer support is.
As the next pillar of the trust and safety work for our services.
The last area that I want to discuss today is around creators.
I think that of positive vision for the future of the economy is one where more people get to do creative work that they enjoy rather than jobs that they don't and to get there we need to build out the creative and monetization tools to support the creator economy.
People create an incredibly diverse set of content across our services from long form writing to live conversations to documentaries and augmented reality filters.
And our goal is to support the full range of human expression and to be the best platform for millions of creators to make a living.
The part of this is going to be delivering a suite of tools and products that span all of the ways that people want to create and consume content.
I believe that the intersection of every media type of every audience size. There is a compelling experience to build from.
Example, I recently discussed our audio roadmap and we already support audio calls for private audio communication, but now we're also building out live audio rooms of which we think will be especially useful for groups and communities. We are building soundbites for sharing and consuming short form audio clips broadly and we are supporting podcasts for share.
And listening to long form audio.
We're also partnering with Spotify to launch of music player in the Facebook App.
So we also need to connect these experiences with the easy options for monetization, whether thats subscriptions tipping or enabling creators to give product recommendations and enable commerce and with Instagram and Facebook, we have a unique ability to bring creators and commerce together and we will share more on that later this year.
Now together these efforts around creators commerce and the next computing platform or a few of the big areas that we were doubling down on going forward and in each of these.
A unique opportunity to help people connect and deeper ways and to support a stronger economy for everyone.
Im optimistic that our work in all of these areas will help accelerate some of the positive emerging trends that we're seeing in the world and now I'm going to hand, it over to Sheryl.
Thanks, Mark and hi, everyone, I hope, you're all safe and healthy.
This is a really strong quarter for our business. Our total revenue for Q1 was $26 2 billion, which is of 48% year over year increase we've.
We've seen good growth in all regions and we continue to see strong results from vertical kind of performed well during the pandemic.
E Commerce retail and CPG.
Our performance has been driven in large part by the continued digital transformation as more and more business of shifts online.
For years, we've invested in products and tools to support the chefs and.
And these investments have helped many business since reinvent themselves during the pandemic.
One of the best parts of my job I get to the F&B honors from here with time their minds.
Many of them tell me, how they've used phase III captain graph.
At the virtual roundtable with S&P's from Detroit ex corner.
What's kind of the Asia Thompson the Robinson.
Natural skin care company cause of our chain from Charles.
When COVID-19 hit and she had to close the store. She started the Facebook group called the Garden, which now has more than the 1000 members.
The give her product ideas and when she makes the projects day suggest she says at the sales quicker than she can keep them omni channel.
By pivoting online she's been able to replace all of the income she lost from her store.
I also spoke to either ramp to ramp the yoga studio in nearby Ann Arbor.
She started doing outdoor classes during the pandemic of needed to get the word out.
She kind of just wanted to advertise to everyone in the city not everyone of the city once cheeky yoga she uses personalized ads.
This enables her to advertise to people in the area, who are interested in yogurt and meditation.
It is also net of privacy protected Lang, we show here at today's people and we don't share of their information the par and then they sign up for her classes.
Like everyone else the business owners I talked to you want to know what will happen next.
Many of our all in online so even when things fully ramping they want to be able to do more in line the mek before.
So understandably they are asking us what we can do to help them not just now but over the long run.
Part of the answer is continuing to improve our tools and products and creating new ones to suit their needs.
And part of it is helping them navigate the headwinds that are coming down the line, whether thats, the iOS 14 changes or potential regulation.
On the first part of Silicon products were all into <unk>.
From day, one of COVID-19, we SaaS tracked our work to help people buy and sell online.
Italy, we focused on getting the experience rate for sellers as.
As Mark said, we launched shops, nearly a year ago.
We've continued to develop new features to help personalize the shopping experience and worked with partners to make transactions as seamless as possible.
And we've created new formats, like <unk> shopping, which bring to life of the unique commerce experiences our platforms can offer.
Now we are equally focused on getting the experience rate for consumers.
Rolling out the shops have in more countries and exploring new immersive formats like product tags, and drops dropped stickers and enable more people to shop with traders and brand stainless.
We're also constantly developing and improving our AD products to help businesses reach people, where they are and get the best possible return on investment.
We continue to see strong growth in stories ads and video ads, which we've invested in heavily.
We've also seen strong growth of contact and Facebook watch, which now has more than $1. Two 5 billion people visiting every month.
As the number of people watching video trends were developing more opportunities for businesses and creators to reach them.
We're extending paid online events to more countries.
We're enabling more people to run in stream ads, including in live videos.
And we are developing adds in the short form videos, where we're testing the ability for content creators to monetize their Facebook stories, which adds that looked like stickers.
On the second part headwind.
Yes, there are challenges coming to personalize advertising and we've been pretty open about that.
Or do you think of huge amount of work to prepare for.
We're working with our customers to implement apples API and our own aggregated events measurement API to mitigate the impact of the <unk> 14 changes.
The rebuilding meaningful elements of our AD tax within our system continues to perform and we have access to less data in the future.
And we are part of long term collaborations with the industry bodies like the <unk> on initiatives like privacy enhancing technologies that provide personalized experiences while limiting access to people's information.
It's also an ask to keep making the case of personalized advertising is good for people and businesses and to better explain how it works so that people realize the personalized ads of privacy protective.
Small businesses don't have to understand the alphabet soup of acronyms that will need to comply with the <unk>.
They do need to have confidence that they can still use our tools to reach the people who want to buy what they are selling in of privacy Safeway.
We're confident they can and that they can continue to get great results with digital advertising evolves.
With the rollout of vaccine Theres reason to be hopeful.
That the pandemic is still causing real heartbreaking hardship for people in many countries.
And in particular like Mark My thoughts are with our friends and colleagues in India in Brazil right now.
If the last year has taught us anything it's <unk>.
I'll make assumptions and to not expect things to get better for everyone at the same time.
Whatever happens, we'll continue to keep people connected support the public health response.
And invest in ways to support businesses now and in the long term.
I wanted to close by saying, how grateful I am to all of the business since you work with us Big and small do we learn from every day.
And to our incredible teams, who have supported millions of businesses through this turbulent time.
The amount for success now and in the future.
Now over to James.
Thanks, Sheryl and good afternoon, everyone Q1 was the strong quarter for our business driven by sustained growth from new digital economy, and our continued success in helping businesses engage with consumers across our services.
Let's begin with our community metrics, we estimate that approximately $2 7 billion people used at least one of our services on a daily basis in March and that approximately $3 4 billion people used at least one on a monthly basis.
Note that these Q1 family metrics reflect new data from recent user surveys further details on our family metrics are included in the earnings slides on our IR website.
Our global community continued to grow even as we lapped elevated user growth in the first quarter of last year related to the pandemic.
The daily active users reached 188 billion up 8% or $144 million compared to last year.
The <unk> represented approximately 66% of the $2 85 billion monthly active users in March.
<unk> grew by $250 million or 10% compared to last year.
Turning to the financials all comparisons are on a year over year basis, unless otherwise noted.
Q1, total revenue was $26 2 billion up 48% or 44% on a constant currency basis.
We benefited from a currency tailwind and had foreign exchange rates remained constant with Q1 of last year total revenue would have been $706 million lower.
Q1 AD revenue was $25 4 billion up 46% or 42% on a constant currency basis.
The growth in advertising revenue was largely driven by continued strength in product verticals such as online commerce.
Growth was broad based across all advertiser sizes with particular strength from small and medium size of advertisers.
Our year over year AD revenue growth also benefited from lapping pandemic related demand headwinds experienced during march of last year.
On a user geography basis AD revenue growth accelerated in all regions growth was strongest in Europe at 53% rest of World Asia Pacific and the U S and Canada grew 47%, 46% and 42% respectively.
Europe, and Asia Pacific benefited from currency tailwind, while rest of world continue to face currency headwinds.
In Q1, the total number of AD impressions served across our services increased 12% and the average price per AD increased 30% in.
<unk> growth was driven by both Instagram and Facebook the.
The increase in average price per AD was driven primarily by lapping depressed pricing levels from one year ago as well as strong advertiser demand.
Other revenue was $732 million up 146% driven by continued strong quest to sales we've been encouraged by the sustained strength, we are seeing with sales of quest II since its October launch.
Turning now to expenses Q1, total expenses were $14 8 billion up 25% compared to last year in terms of the specific line items cost of revenue increased 48% driven mostly by core infrastructure investments hardware costs related to quest to sales and payments to partners R&D.
Increased 29% driven mostly by hiring to support our core products and consumer hardware efforts.
The marketing and sales increased 2% with growth in hiring partially offset by lower marketing spend.
Lastly, G&A expenses increased 2% with growth in employee related costs, partially offset by lapping higher bad debt expenses related to COVID-19 in the first quarter of last year.
We added over 2000 net new hires in Q1, primarily in technical functions. We ended the quarter with over 60600 full time employees up 26% compared to last year.
First quarter operating income was $11 4 billion.
Representing a 43% operating margin our tax rate was 17% net income was $9 5 billion or $3 30 per share.
Capital expenditures, including capital leases were $4 4 billion.
Driven by investments in data center servers network infrastructure and office facilities.
Free cash flow was $7 8 billion, we repurchased $4 1 billion of our class a common stock in the first quarter and we ended the quarter was $64 2 billion in cash and marketable securities.
In terms of the sustainability I'm pleased to report the Facebook Global operations have now reached net zero emissions and are 100% supported by renewable energy. This is an important milestone for our business, but we also recognize there's more work to do in the years ahead, and we remain committed to our next goal of Decarbonising, our entire value chain in 2030.
Additional information on our ongoing efforts across environmental social and governance areas can be found in our recently filed proxy statement.
Turning now to the outlook.
We are pleased with the strength of our advertising revenue growth in the first quarter of 2021, which was driven by a 30% year over year increase in the average price per AD and the 12% increase in the number of ads delivered.
We expect the advertising revenue growth will continue to be primarily driven by price during the rest of 2021.
We expect second quarter 2021 year over year total revenue growth to remain stable or modestly accelerate relative to the growth rate in the first quarter of 2021, as we lap slower growth related to the pandemic during the second quarter of 2020.
In the third and fourth quarters of 2021, we expect year over year total revenue growth rates to significantly decelerate sequentially as we lap periods of increasingly strong growth.
We continue to expect increased AD targeting headwinds in 2021 from regulatory and platform changes, notably the recently launched iOS 14, Dot five update which we expect to begin having an impact in the second quarter.
This is factored into our outlook.
There is also continuing uncertainty around the viability of transatlantic data transfers in light of recent European regulatory developments and like companies across a wide range of industries. We are closely monitoring the potential impact on our European operations as these developments progress.
Turning now to expenses.
We expect 2021 total expenses to be in the range of 70 to 73 billion.
Updated from our prior outlook of 68 to 73 billion.
The year over year growth in expenses is driven by investments in technical and product talent infrastructure and consumer related costs.
We remain committed to investing for long term growth and our expense outlook reflects the underlying strength of our business and the compelling investment opportunities, we see across our products, including consumer hardware.
We expect 2021 capital expenditures to be in the range of 19% to 21 billion.
Down from our prior estimate estimate of 21% to 23 billion.
Our capital expenditures are driven primarily by our investments in data centers servers network infrastructure and office facilities.
Turning now to tax we continue to expect our full year 2021 tax rate to be in the high teens.
In closing the pandemic during the past year has presented some incredible challenges to our global community.
During this time, we have worked to help both businesses and consumers stay connected we remained focused on helping people and businesses navigate the transition out of the pandemic as more regions reopen.
With that France, let's open up the call for questions.
Thank you we will now open the lines for a question and answer session to ask a question. Please press one followed by the four on your Touchtone phone. Please.
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Our first question will be from the line of Brian Nowak with Morgan Stanley. Please go ahead.
Thanks for taking my question I have two the first one just curious for a little self report card of if you will around our own commerce and it made a lot of progress around the million shops to our $50 million shop visitors.
Where would you say you've made the most progress for advertisers of merchants. So far and then as you sort of look into the back half in the 20 to one of the biggest areas of innovation that you're really focused on to continue to grow that number maybe talk about non advertising monetization of optionality and the second one ahead of its around us.
It's early in the reopening but would be curious just to hear about what youre seeing from an engagement of our time spent perspective of your user base in the in the areas of the world that are little more reopen and how youre thinking about that in the back half.
I can start on the first.
So theres a lot of commerce activity on our platform already people really discover lots of products through our feed and AD stories, you are seeing in stories ads.
It's been our largest AD vertical COVID-19 really accelerated it but it's been one of the fastest growing verticals. We've had over the last five years and we believe the Facebook drive.
The billions of dollars of Offsite ecommerce GMB today through our ads business.
We've certainly made a ton of progress there and our goals going forward are we want to continue to be the very best place to advertise Brian.
The work to do that as I mentioned in my remarks that we can still use data and the privacy southway kept the right at the right person at the right time, but we think we are we are market leaders here the.
Other work of our Julian Mark talks about it in his remarks, and I did as well is to make it easier to sell on our platform.
Now the shopping experience is really well defined and other places and we are later to that and we werent to ads. So we know we have a lot of work to do we're working with partners to build some of the parts of the experience that we're not as expert in and we're integrating and we're integrating products like shops.
We have more than 1 million active shops in more than 250 million people interacting with merchandise per month. So we've made some good progress, but we recognize that getting to a really seamless the seamless transaction experience is getting take mark on our side and we're going to continue to invest there I think another area, where we do have to do more as we have.
To improve the consumer experience to how people transact on the platform.
We've done I think more work on the business side on the integration side and now we are focused on continuing to build that and continuing to balance.
The consumer experience.
For the foreseeable future ads are going to be the vast majority of our revenue in this area and that commerce vertical of sell important to us.
We don't need commerce itself or fees typically one of big part.
What happens in order to make the investment worthwhile, but we really have to focus on helping more businesses move online and have a great experience on our platform and that along with that makes us a very worthwhile investment for us.
Hey, Brian It's Dave I'll take the second question so I.
Thank.
Broadly what we're seeing is just the engagement trends that are going back to a more normalized level.
So if you if you think about the past year, it's been it's been pretty noisy.
Because of because of COVID-19.
The first quarter of 2020, we saw a significant increase in engagement as the results of the pandemic and we've seen some of those trends subside as as the year progressed, and we saw gradual phase down of of <unk>.
<unk> I don't think anything hugely dramatic, but it's certainly something that we're seeing in the engagement trends and that's one of the factors that's.
Playing into price being a bigger driver of growth on the revenue side because of the impression growth being being lower than I would say COVID-19 certainly certainly a factor in that on the revenue front I think.
And there we're seeing continued strong demand.
With products and even and then we're seeing services spend come back so.
I think that's that's that's kind of a quick landscape of what we're seeing with the with the COVID-19 impacts.
Our next question is from the line of Justin Post with Bank of America. Please go ahead.
Great. Thank you, maybe one for Mark and one for Dave.
I think theres been some questions on engagement, just because you see the strong growth of things like tick tock or maybe snap, but you've built from super platforms within Facebook with the water usage and marketplaces could you comment on what Youre seeing with overall engagement and as people use these or new platforms is it growing.
Cash spent on other factors and then the second question, maybe the day any surprises with the iOS 14 dash five update and any comments on what you're what you've seen with the users who have already opted out of tracking before this update thank you.
Hey, Justin it's Dave Yes, I can take I can take both of the so yes on the impression growth front I think we're seeing a couple of factors we talked about the.
The COVID-19 impact and the return to more normal levels and that's affecting some of the impression growth. The second factor that we're seeing and it kind of gets at some of your question, which is we're seeing really strong engagement on video, particularly internationally.
And the.
We're pleased with that I would point to a couple of examples there I'd say Facebook watch and we talked about the one to two 5 billion.
<unk> also <unk> is starting to get traction on <unk>.
Doing well on Instagram.
No video currently has relatively fewer impressions on the time spent basis. So that's playing into the engagement trends as well.
And then finally I would say we are seeing competition in news feed from of both our own video products and also other products as well so that's factoring into it.
And then your second question was regarding any surprises with iOS 14 five.
I think it's really early they just began rolling out the update so it's sort of very very low kind of penetration rates of the of.
Of the of the new OS at this point.
But a couple of things I'd say.
We continue to be concerned about the impact that this update is going to have on the ability of small businesses.
To use their advertising budgets effectively.
That said the impact on our own business, we think will be manageable. We continue to expect it will be of headwind for the remainder of the year, but we're making encouraging progress as Sheryl mentioned on our own solutions to help advertisers navigate these changes and.
That includes helping advertisers worked with the Apple API as well as our own approach to using aggregated data for targeting and measurement that we call aggregated events management.
So the goal there is really to maintain and in the long run even improved performance with lots of data.
And then I'd also add just in addition to these mitigation. We're also just seeing very strong overall AD demand, which is contributing to a more positive outlook for 2021.
And I would say just overall.
The.
The the impact of of these.
The specific iOS <unk>.
<unk> changes.
Our one elements of of.
Some of the challenges with Apple, but we think the beginning.
The impact of the Apple approach is really much bigger than this particular update around third party data and data usage Apple has the number of private Apis on hardware and software that advantage of their own products and services in ways that are challenging.
And we face that issue with the in places like our messaging products and even with the hardware products. We're launching so we.
We don't think that this close to approach is the best one for the industry from an innovation perspective.
Go ahead, France next question.
Our next question from Doug Anmuth with J P. Morgan. Please go ahead.
Thanks for taking the question one for Mark Mark you highlighted the three areas, where you're doubling down of course, a RMB, our commerce and of the creator economy, hoping you could talk about whether you view these efforts as helping Facebook control the destiny more of the platform, perhaps giving you more first party data and whether the insulet.
From other ecosystems overtime. Thanks.
Sure I can I can talk about that.
I think we mostly think about these things from the perspective of improving the the experiences that we can build.
So.
Augmented and virtual reality I of.
Thought about for a long time, because I think the sort of the.
The Holy Grail of delivering a sense of presence and the type of social experiences that you would want to build so right now alright.
Alright, and I guess for the whole history of the company, we've been constrained to a web browser right now.
And in some cases it is increasingly restrictive.
Mobile mobile App rules, but I think that the future environment, where youre going to be able to feel like youre really present with someone else.
That can be really powerful and it is going to unlock a bunch of experiences that we've wanted to build for a long time and that's what I'm really excited about the similarly, all of the commerce side.
And part of this is motivated by wanting to help out.
Small businesses and different businesses fell more across our platform and a lot of it is also just about making the consumer experience better or it's the right now and a lot of times, you'll you'll click on an AD youll see an interesting ad.
And it will take you to.
The website and.
The website won't necessarily have full context on who you are of the payment experience will be clunky and doing that in.
There's just an opportunity I think to make that all of a lot more seamless.
And when it is seamless both of the better experience for the people using it but then it also convert the better for the businesses and the performance better. So I think the way we're going to approach. This is largely from.
Starting with having built out this very robust AD system, and then just basically working our way down the experience from there so making it so so of businesses and creators can have shops and that the ads can then link into into shops and of a native shopping experience and that over time, we will also increasingly.
As our payment systems get better and better and more people of credentials on file.
I'd imagine that that going all the way through the funnel will become an increasing part of what people do and that will both be a better experience for consumers and convert better for businesses.
Similar story on the creative side.
Our main goal.
It is not necessarily that the creator economy.
<unk> is of major business by itself, but if we become the best place for <unk>.
Creators to make a living that I think that's going to mean that theres better content across the services.
And better opportunities for community building and engaging people and that's what we care about.
But of course, if there's more engagement and if all of them.
If creators are finding that there are good opportunities to monetize the mill engage more with our business products, two and there'll be some opportunity there, but so I kind of think about all of the stuff from the perspective.
Of improving the product and I think that that's going to lead to a lot of benefits for all of the stakeholders over the the next.
Several years.
Thanks, Mark France, we can go ahead and go to the next question.
Our next question is from the line of Ross Sandler with Barclays. Please go ahead.
So the question for Mark so.
The starting from the recently this week of our congressional hearings on the concept of algorithmic amplification.
Or how algorithms on Facebook or Instagram surface content to kind of maximize engagement and.
Sometimes I mean, some of the more controversial content.
His work at surface. So first off is that a fair characterization.
And the.
If you guys were forced to maybe change up the way all of these algorithms work.
What kind of impact will that have actually have one engagement and then 10 years ago. The New Street. It was kind of the whole story, but now we are.
Talking about many different areas within the App. So how much is from the algorithmic driven content versus utility style of engagement.
Going into <unk>.
Messenger or going into.
The marketplace for something Thats, just kind of from everyday behavior. Thanks a lot.
Yeah.
Sure I can start taking this winter.
Later, you can jump in if you if you want to add anything overall I think of the narrative that you are pointing to is dramatically overstated by critics we.
We do not optimize our systems to increase the amount of time spent in news feed I explicitly do not give our newsfeed team or the Instagram feed team goals around time of spend our belief is that if we build of product that is more valuable than people will engage more but you should start by trying to build some of that's more valuable not by trying to increase the <unk>.
Time that people are spending so we've done that for years and I think it's yielded good results. So from that perspective, yes, I know that what you are saying is something that.
And of that some folks like to throw around and say, but but I actually think that the more of that.
And of different regulators of other folks dig into this I actually think that our practices here are quite robust and we don't want extra.
Extreme extremist content or any of that stuff on our services. So if anything to the contrary of trying to.
The promote that.
We go out of our way to try to reduce that and I think of that.
Contrary to what a lot of these other folks say.
It is actually in our business interest to reduce it.
Because people don't like it right I mean consumers don't like it advertisers don't want to be near it so sorry.
I don't actually think that this kind of narrative about the company is accurate and.
And we've tried to of hard to spell it I don't think we've been super successful of that we will continue trying to work on that.
But just to kind of be clear about how I see things that that's the basic download.
I think news feed is still a huge part of the product.
The home feed in Instagram, but increasingly the stories is a big deal in Instagram of lot of people are using explore and IGT. The video and watch on Facebook are quite big and as you say a lot of people.
The spend.
A lot of their time and attention is in is in the messaging apps and private interfaces like that as well. So I admit there are a lot of different things that people are doing across the services.
But winter can can jump in with any more any more color on that that he wants to add.
I mean, the only thing I'd add tier markets that I think more than anyone else from the industry, we invest on the safety and security side to sort of keep bad content off the site before it gets ranked and put into what people see so we've got 35000.
Over 35000 people on the safety and security side.
We've got the most robust set of content policies out there we do of quarterly call.
The public call around our content review.
The process and procedures.
On the front before it even gets into the algorithm I think we really do more than anyone else in the industry on the on the safety and security front to prevent things like misinformation and.
The bad content going into the system in the first place.
Our next question is from the line of Youssef Squali with choice of Securities. Please go ahead.
Great. Thank you very much of a two part question.
On the VR for Mark.
Mark you have been talking about VR for a long time now every basically every quarter I was just wondering what happened. This this particular quarter of that's compelling you to one of them.
One of double down on the virtual reality, what was the realization this quarter that may be made you want to do that and I guess more importantly, Andrew.
And the related is there a need.
For Facebook to perhaps want to own the studio or maybe a series of studios to accelerate the rollout of content, which should help drive adoption because the other friction point is price and you've already lowered the unit to $2 99, which is a very compelling price.
Yes.
I can start with this and then and then winter can jump in.
On the second point, if you want to add anything.
In terms of what changed I think the the.
The big piece here is that quest to is.
Is doing quite well and I don't want to overstate it because I think compared to.
Yeah.
Platforms that are that are kind of large massive successes today, it's still.
Obviously on the on the small end, but there has been a very real inflection in terms of adoption and engagement that we're seeing with quest to it feels like there's something about the quality bar that we hit <unk>.
And the price that we hit in the fact that we're able to do that in the wireless form factor that I think is just first of all is going to be really hard for anyone else I think to to meet those different attributes.
Some other folks might try to.
The ship something that the claim is higher quality, but has a wire and I. Just don't think that consumers are going to want to go for that.
So we'll see how all of that plays out but I also just look at how the team is executing and the products that we have in the pipeline.
I want to make sure that we.
That we can really go all in and deliver this but but I do from that quest, who has been a meaningful step up from from quest one.
In terms of the progress that we're seeing and content is definitely a part of this in.
We have a team of internally that's focused on both the first party.
It's all first party second party and third party content and making the partnerships with the studios.
And that certainly is the big part of this I think.
Quest has.
I think by far the best lineup of VR content and.
And I think the roadmap of what's ahead of us even more exciting some of the stuff that's coming over the next few years.
Yes, Mark.
Didn't have much else to add other than to just say that we have repeatedly called out investments in <unk> Facebook reality labs is one of the major investment drivers in our expense outlook. So it is not the first time that we sort of.
Put a spotlight on that.
Been an ongoing investment area and the studios as Mark said in content is an important part of that.
France, we can go to the next question.
Our next question is from John Blackledge with Cohen. Please go ahead.
Oh, great. Thanks, So two questions one on the AR VR.
Mark as you are building and investing in the platform.
Kind of when do you expect <unk> to be more widely adopted.
What kind of ultimately drives the fast pace accelerating consumer adoption.
And then the second question for Dave cost growth was lower than expected. The <unk> you slightly raised.
Full year at the midpoint any anything there that you could call out thank you.
I'd like to talk about the first piece.
And then David maybe you can you can take the second piece in terms of when these platforms will be more adopted I think of lot of it is about.
The form factor and use cases of inquest too I think as we kind of hit a key points, but I think there is still further that we want to go on the form factor of that but I think the wireless part is key so I'll just say that again, so I think that there is.
Not that you can do in terms of getting.
Product set that might be.
Better graphics, or something but with the wire it really it really hurts the sense of immersion because no one of like of a wire wrapped around your neck wire, while youre doing all the stuff.
But the other big pieces of the use cases, which is why I called out in my remarks at the beginning.
The one of the promising signs that we're seeing is that it is expanding out beyond the games now it's still <unk>.
<unk> of the games, but.
When we started on this journey.
You know a lot of the reason why I said that I thought it made sense for us to invest and this is because I expect to virtual and augmented reality to be.
Some of the most social platforms that that get built and the fact that.
Number of the the most engaging experiences on the platform today, our social and a lot of the top games or social I think it is really promising but youre also seeing things in terms of productivity.
And.
Like I mentioned, it's just really promising that that youre seeing the early signs of this becoming a broader platform. So there's again I don't overstate any of this because.
It's all quite early still and all of these things need to develop out but those are very promising signs from my perspective, and as those keep on developing out the I think the platforms will be broadly applicable to more people.
And then the.
Yes.
The other thing that I'd sales that we haven't really even gotten there on AAR, yet right I think virtual reality the form factor of constraints I think are.
A little.
Less than what Youre going to have an augmented reality, where in virtual reality I think you need to get to a high quality wireless experience.
In augmented reality.
Youre going to really need a pair of glasses that looks like normal looking glasses in order for that to hit of mainstream acceptance in that I think is <unk>.
Going to be one of the hardest technical challenges of the decade is basically sitting of supercomputer in the frame of glasses.
So I'm.
Find out of very exciting problem to work on and and I think that once that's achievable.
Potential on that is going to be quite big.
And then John its Dave just on the Q1 total expenses.
Called out some of the some of the items in my comments, but I think you've got a couple of factors one was.
Marketing spend was.
Relatively lower compared to Q1 of the.
Last year, where growth was lower and then also you.
You had a bad debt expense that I think was not unique for Facebook I think you see this in some other companies as well that we took in Q1 of last year related to our expectations on collectability around COVID-19. So that's factoring into some of the the compares on the growth rates as well and then.
As you look at the remainder of the year a couple of couple of things. One is the strength of the business in general is giving us.
Confidence and we're looking for areas to invest more so we're continuing to invest in research and development of across the priorities that mark outlined in his comments and.
And then as well, we'll see a pickup in things like marketing.
In the remainder of the year. So that's what's driving the acceleration of expense growth as you.
As you look forward and then the COVID-19 compares or are a little bit there's just different expense lines. The COVID-19 impact so it's a little it's.
A little noisy from that as well.
Perhaps you can go to the next question.
Our next question from Lloyd Walmsley with the Deutsche Bank. Please go ahead.
Thanks, two questions first.
Sheryl in the past you've talked about advertising being kind of of relative ROI game. So when you think about the shift from iOS changes, perhaps going from like an operational short term headwind to potentially a tailwind as other outlets for advertising lose ROI on a relative basis.
Is that something that happens in months and quarters in the year like talk about.
How you see that essentially evolving and then second one Sheryl you also talked about starting to invest more in building out the consumer experience on the shopping side. So maybe you can just walk us through some of the things you think Facebook can uniquely bring into ecommerce it might make for newer better user experience.
Is that VR is that.
What are some of the things that could really make Facebook standout for consumers on E Commerce.
So on the first day.
The relative ROI youre exactly right.
People are kind of after tax of can advertising on TV and radio and billboards on different online platform and Theyre looking for relative ROI that means the signal goes down and it goes down everywhere, we're competing differently.
Our goal is to make sure that we can still do personal lines that we do think that our relative competitive advantage has been that our ads are more personalized and that's the.
Really important because as <unk>. Some of that example from Sharon most small businesses the yoga studio in Detroit can't afford to advertise to everyone and just shrink much lots of everyone in Michigan much less everyone in the U S.
While advertising using.
Who lives there Andrew is likely to be interested in yoga and meditation Israeli important.
We believe we will still be relatively better conditions.
Virtual phase two not all players right because we're not running the platforms like based based on many were still going to do better at that kind of lot of digital players. We're selling entities that are adopting TV radio and the when signal kind of time, we're gonna have to rebuild that capability and that's what I talked about.
And in terms of the timing you asked specifically.
Non now the iOS 14 changes are really new regulatory changes that might happen at the state level, all of our global or regional level or a national level Hasnt happened yet.
So we'll have the C and I don't I don't have a real sense of.
What the changes will be what their impact will be right now.
But we are very focused on competing for those AD dollars and doing it and doing it as well of return.
In the consumer experience on the shopping side.
Where we are right now as we launched the shop a lot of the shopping tools and we'd have broad business adoption.
That's been good.
We don't offer the full suite of tools that a lot of other places do but more and more we have shops.
Functionality that people are adopting <unk>.
We really need to work on the consumer side of the experience.
I do think we have a unique opportunity there you ask Jan like what is our.
Thank you Dan. This is my language not yours, but I think you were asking like what is our sustainable competitive advantage here.
Lot of people doing a lot of activity, we increasingly have the people looking for products, we increasingly have people finding products and how we've always been strong at the top of the funnel can we move people found the funnel. We think we can but that's going to take the option to take working accounts looking to take some time for people to get used to that but.
In terms of the long non competitive advantage, we have a lot of people looking for a lot of things sharing a lot of things and continuing.
To find 10 day really light and so I'm very optimistic about our opportunity.
Okay.
Mark.
Perhaps we can go ahead and go to the next question.
Our next question is from Colin Sebastian with Baird. Please go ahead.
Alright, thanks, good afternoon.
The first Mark maybe as another follow up on VR and AR and the connection of our synergies you see between reality labs and the other priorities you mentioned around Commerce communications and creation I'm curious if those are collaborative initiatives internally or are they still somewhat siloed as far as product plans and development is concerned.
And then secondly.
An area of connective tissue as well I think as unified payments.
And just curious how important that will be to enable the shopping and transactions on the platform and what role the DM and in other digital currencies may play in that effort. Thank you.
Yeah, they're good questions I think right now.
I think the trajectory of this is that when you are very early on in the platform.
It is helpful to centralize a bunch of that development close together in the organization, but then as things start to build out and you want to.
You'll get the full energy of the different App teams involved in building for this then you want to decentralize it more so.
So right now its still more on the centralized side.
But I would say that over the next.
Year or two we're certainly going to.
Set of rate more of that work out across the company.
And have more of the work that we do be building towards these different platforms and to your point on.
The other kinds of services that are important for commerce payments.
Both things like Facebook pay.
And eventually hopefully.
Hopefully, we'll be launching Novi and I'm sorry.
Our Dms soon.
That I think as the.
Is the is going to be of pretty.
The big thing too and Thats very important for all of the reasons that you're saying commerce.
Across all of these platforms is going to be very important and certainly in a platform that we're building like this we want to enable payments very easily to make it so that the economics all workout for developers.
Operator, I think we have time from one last question.
Dan forget our last question will be from the line of Michael Nathanson with Moffett Nathanson. Please go ahead.
Thanks, So much I have one from Mark one per day Mark.
On the comments about the creator of economy.
Im interested given how many people are focusing on different parts of your.
The creative economy, where do you see the opportunity and where do you think you can be you can add as the biggest value add for creators that's not being done today and then Dave on pricing in the auction I know that it's up because of the easy compares from last year. When you look at pricing on the two year stack, it's actually up nicely.
For the years of been telling us pricing is going down because of mix shift.
The products and geographies from human update of what actually drove pricing maybe on the two year basis can be that much better than it is Dan.
The on trend so thanks.
I can start off by talking about the greater economy piece I know there were a few important components here the creators need one or the creative tools to be able to share the <unk>.
Full range of of expression right. So from from any kind of writing to audio to video to.
All of these different mediums and then the second is connecting that work with a large audience of people and helping people find the audience and community and then the third is monetization and I'd say that.
We're probably strongest.
On the second two of those today and I think we we have creative tools and we will invest more in building those.
But when it comes to helping people reach the largest audience are finding their specific audience I think we are.
World Class of that I think we're the best of that and then in terms of monetization.
So think of that as our business the results show.
We are very efficient at that and if we can put that to work for creators to to help them make money from their work then that can help achieve this goal.
The enabling millions of people to make a living through this kind of creative work. So I think on those two pieces, especially on the monetization side and on the helping people connect with their specific community and getting as much distribution of <unk>.
Possible.
I think that we're going to do some really.
Right and unique work.
To help a lot of creators out and and then we will build out the broader suite of tools to but I think that those two places are really where we enter this from.
And Michael I'll take the second question about about pricing.
The really simple story on pricing is that demand has just been higher than we expected France.
And I think.
It's if you had to pick one vertical it would be it would be commerce that outperformed.
But it's of Brian that dovetails nicely, obviously with our commerce efforts, but it's really been of broader story than that really almost every vertical was very strong I think we're still kind of.
We're still seeing recovery in some of the.
The verticals that were weaker from COVID-19 like.
Like travel that we're starting to see I think some some signs of life there and in some other verticals that were negatively impacted by COVID-19, but the.
But really just strong.
Across the board demand per ads has been what's what's what's driven it for us I think the two year compare that you talked about.
Is the helpful compare because theres a lot of noise in our year over year revenue growth rates. When you look just at 2020 compared to 2021, and if you do sort of a two year compare I think.
And looked at the year over year growth rates by quarter.
I think we would expect a more normalized rate of deceleration of growth not.
Not just all of the bouncing around from the weak quarters that we're going to have and then I think of correspondingly stronger quarters as the year progresses from a compare basis into 2020.
But yes, the simple story advertiser demand better than we expected.
Great. Thank you again for joining us today, we appreciate your time and we look forward to speaking with you again.
This concludes today's conference call. Thank you for joining US you may now disconnect your lines.