Q2 2021 Facebook Inc Earnings Call
[music].
Good afternoon, My name is France, and I will be your conference operator today at this time I would like to welcome everyone to the Facebook second 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.
And if you would like to ask a question during that time. Please press the 1 and then the 4 on your telephone keypad. This call will be recorded we thank you very much.
Ms. Deborah Crawford Facebooks, Vice President of Investor Relations you may begin.
Thank you good afternoon and welcome to.
Book Second quarter earnings Conference call joining me today to discuss our results are Mark Zuckerberg, CEO, Sheryl Sandberg, COO and Dave Wehner CFO before we get started I would like to take this opportunity to remind you that our remarks. Today will include forward looking statements actual results may differ materially from those contemplate.
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 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.
Plated and or future events.
During this call we may present, both GAAP and non-GAAP financial measures a reconciliation of GAAP to non-GAAP measures is included in today's earnings press release, the press release and and accompanying Investor presentation are available on our website at Investor Dot FB Dot com and now I'd like to turn the call over to.
Hi, everyone. Thanks for joining us today.
This was a good quarter for our product and business.
And there are now more than $3.5 billion and people, who actively use 1 or more of our services and I'm excited about our product Roadmaps ahead.
I want to start today by discussing some of the themes that we're seeing in.
Mark and our major efforts around creators commerce and the next computing platform.
Each of these areas is important and it's going to unlock a lot of value on its own.
But they're also building blocks for the future of the Internet and the future vision for our company and I will discuss that as well.
So first let's talk about creators.
And we want our platforms to be the best place for millions of creators to earn a living and if we can do this with and our services will also have the best content across many different types of media from text and photos to audio gaming and video.
Video in particular is becoming the primary way.
That people use our products and express themselves and I know this us as a theme that we've been talking about for a few years now, but we've been executing on this for a while and video has steadily become more important and our product and video now.
Now accounts for almost half of all time spent on Facebook.
And real.
<unk> is already the largest contributor to engagement growth on Instagram.
Across all forms of video short form video like real is growing especially quickly.
And we're very focused on making it easy for anyone to create video and then for those video has to be viewed across all of our different services, starting with Facebook and Instagram first.
And people like to watch video as recommended by our personalized algorithms. So this gives creators a good way to reach new people, who don't follow them yet and this is also a good complement to our social feeds and it's an area, where our progress and AI is going to make the experience a lot better in the coming months and years.
On demand video like.
And Facebook watch is also growing quickly and is now growing faster than and other types of video or content and newsfeed.
Building, a number of new video monetization tools for creators they can get compensated for making great content.
So for example last year people sent more than $50 million of stars to games.
<unk> Street, and creators going live on Facebook alone and now we're extending stars depends can send them to any creator during an on demand video as well.
And I also want to call Us live video for a moment.
This is a smaller percent of our overall video and our services, but it's some of the most unique content and gives creator.
<unk> and way to build community and engage with their followers.
And we're also focused on developing monetization tools like live breaks from mid roll ads and live shopping so creators can make a living and engage their communities more deeply and commerce with their content.
There is a lot more to do here and.
And.
As it becomes the majority of engagement across our services and the coming years, we're going to we're going to continue to focus on.
We're also focused on other types of creators beyond video and some of the most interesting emergent behavior that we're seeing is creators using a lot of different types of content to engage their communities. So we.
And we launched live audio rooms, this quarter as well a podcast, we also launched Bolton, our publishing and subscription service for writers and.
And with features help them find and grow their audiences.
<unk> integrations with groups Facebook live and live audio room.
To help grow the creator economy overall organic.
Keep our creator tools free to us through 2023, and we recently announced that we are investing a $1 billion and creators across Facebook and Instagram.
Im optimistic that creators will get more opportunities to do the work that they want and thats going to lead to people hearing lots of new voices across our different services.
The second area that I want to talk about today is commerce.
Our goal here is to create better experiences for people interacting with businesses and to help businesses grow even more on our platform and will.
Our approach is to work our way down the stack and build World class services at every layer of commerce starting from from discovery.
But at the top of the stack all the way down to payments.
And just like we want to be the best place for millions of creators to make a living we also want to be the best place for businesses to grow as well.
We started hereby by building World class AD tools to help businesses reach potential customers and help people discover new products and services that they might like.
But what we found.
Is that when these ads link offside, you often land and a webpage that that's not personalized are not optimized.
Or where you have to reenter your payments information and Thats not a good experience for people and it doesn't lead to the best results for businesses either so our next phase here is focused on building out shops.
<unk> marketplace and business messaging and Whatsapp and messenger to.
And to create more native commerce experiences across our apps.
There's a lot of work here to do to support all of the business tools natively that already exist for the web, but as we bring more of us online and enable more of this it's.
Going to create a superior consumer.
Mark and it's going to convert better for businesses. This is going to lead to more businesses investing and building out their presences across our services and.
And that will lead to even more diversity of products for people to discover and.
And interact with the long term.
Strategy, it's going to take a while before it's meaningful.
Given the scale of our ads business already.
But I'm confident that it's the right long term bet and product direction and.
And as we work our way down the stack.
From discovery and adds to native Commerce storefront, we're also making progress on payments at the same time, the whatsapp payments.
Are now available to everyone and Brazil as well as.
And lots of people are using this as a simple and secure way to send money to friends and.
We're adding new payments features and messenger and the U S like QR codes.
And also just announced that we're making Facebook pay available outside of our apps for the first time, which means that you're going to start seeing it as a checkout option on the web and especially and web view us.
And you see within our App after clicking on ads or other business content.
And the commerce experiences.
Now accessible across most of our services and we have a full roadmap a deeper integrations that I'm excited about it and the months ahead.
The third area I want to talk about is building the next computing platform.
We're continuing to invest very heavily and building technology and products to deliver a full sense of presence.
And this is going to be critical for unlocking the next generation of social Internet services.
Quest to in particular continues doing well and it keeps getting better monthly as we released regular software updates, including most recently.
Our pass through Apis to developers can start building mixed reality experiences on quest.
The range of content and experiences that we're seeing keeps broadening as well to the point, where there are a lot of popular virtual reality experiences beyond games at this point the most popular apps on quest, our social which fits our.
Our original thesis here that virtual reality will be a social platform and that's why while we're so focused on building it.
But we're also seeing compelling use cases and other forms of entertainment as well.
As well as work creativity and fitness.
Looking ahead here the next product release will.
We will be the launch.
Our first smart glasses from Ray ban and partnership with Essilor Luxottica.
The glasses have their iconic form factor and they let you do some pretty neat things. So I'm excited to get these into people's hands and to continue to make progress.
On the journey towards full augmented reality glasses and the future.
The areas that I've discussed today creators commerce and the next computing platform, they're each important priorities for us and that the reach and unlock a lot of value on their own but together.
These efforts are also part of a much larger goal to.
And to help build the <unk> and.
And I'll be sharing a lot more about this and months ahead.
And so I wanted to discuss US now as you can you can see the future that we're working towards and how our major initiatives across the company youre going to map to that.
So what is the met averse.
And it's a virtual environment, where we can be present with people and digital spaces and.
You can kind of think about this is and embodied internet.
So youre inside of rather than just looking at and we believe that this is going to be the successor to the mobile internet.
Youre going to be able to access the diverse from all different devices and different levels of fidelity from from apps on phones, and Pcs to immersive virtual and augmented reality devices within the <unk>.
You can build to hang out play games with friends work create and more youre basically going to able to do everything that you can on the internet today.
As well as some things that don't make sense on the internet today like dancing.
And of the defining quality of the meta versus presence, which is this feeling that youre really there with another person or.
Place.
<unk> avatars and digital objects are going to be central to how we express ourselves and this is going to lead to entirely new experiences and economic opportunities.
I think that overall this is 1 of the most exciting projects that we're going to get to work on and our lifetime.
But it's going to take a lot.
A work and and no 1 company is going to be able to build this all by themselves.
Part of what I've learned over the last 5 years is that we can't just focus on building great experiences. We also need to make sure that we're helping to build ecosystems to millions of other people can participate and the upside and opportunity of what we're all creating.
And theyre going to need.
And in other protocols and standard devices, new shifts new software from us from rendering engines payment systems and everything in between and.
And in order for the med averse to fill its potential and we believe that it should be built and a way that is open for everyone to participate.
I expect that this is going to create a lot of value for many companies up and down.
And the stack, but it's also going to require a very significant.
<unk> investment over many years.
Our focus here as a continuation of our work to build technology that brings people together and in many ways the meta versus the ultimate expression of social technology. Some of the experiences that I've dreamed to building since world.
Before I start and Facebook are only starting to become possible now.
If you look at the investments that we've made over the years you can see this vision gradually starting to come to focus and and you can see why we're so excited about it.
No.
In addition to being the next generation of the Internet.
The meta versus also going to be the next chapter for.
As a company and in the coming years I expect people will transition from seeing us primarily as a social media company to seeing us as a <unk> company and.
And there's a lot that we need to do to get there.
And theyre going to be many exciting milestones along the way, including some which will share in the months ahead.
But in the meantime, I just want to take a moment.
Moment to thank everyone and our community all of our partners and employees and.
And everyone, who has supported us so far.
I continue to be grateful to be on this journey with all of you and now here's Sheryl.
Your line.
Thanks Mark.
I hope, you're all states and healthy.
So this is a really strong quarter for our business. Our total revenue for Q2 was $29.1 billion Colliers, which is a 56% year over year increase we've.
And we've seen strong growth and all regions and across most verticals.
Our strongest verticals are those that have performed.
Well throughout the pandemic, including e-commerce retail and CPG and.
We're also seeing continued recovery and others like travel and that were hit hard by Covid.
Our performance continues to be driven by the ongoing digital transformation.
Accelerated during the pandemic and our long term investments and tools and products to help.
And it says make the shift online.
Not long ago, it was much harder and much more expensive for businesses to create a digital presence take orders online and reach customers remotely.
Our tools and products make these things easier and more accessible.
This is and creators can set up pages profiles and chops on.
<unk> and Instagram.
And engage with customers directly and groups are through messenger and Whatsapp.
And then can tell their stories and creative ways with real stories or by going live on Facebook and Instagram.
With personalized ads, taking easily reach the people and most likely to be interested in your products or services for just a few dollars.
This has helped so many businesses, especially small businesses find success and reaching people and person has been much harder.
A great example is the pizza uptake of family and banking business and New York City.
They've been selling and pop up shop since 2018 that.
But when COVID-19 hit and pop up location shutdown and catering.
Events canceled.
So in March last year, they became and e-commerce business.
In Q3 and tested their first Facebook AD campaigns, and the New York Tri State area and by the following quarter ramped up their budget to Taylor Cross 28 States.
And since made 3 new hires and plan to start shipping nationwide this year and they've expanded production.
Production, which has also led to jobs being created at fulfillment centers, and Maryland, Florida, Arizona and California.
We're constantly working to improve the effectiveness and our AD products to help businesses like the pizza cupcake reach customers and create a great return on their investment.
Joining us through investments and machine learning and monitors.
Cash and have newer surfaces like stories and real.
And all of this we're planning for the long term.
Mark talked about some of the key elements of our strategy going forward. So also gets on the strategy for the ads business.
If you think about the journey, we've been on over the past decade, or so we started with desktop desktop ads on the right hand side.
And as it states.
And consumers shifted to mobile and we put ads in news feed.
And quarter after quarter year after year as we've created great new consumer products like stories are real and we found the right way for advertisers to reach consumers and and these products.
And we're constantly working to make our ads deliver more for businesses and be.
Peoples and for people.
To support the growth of our ads business over the next 10 years, it's going to take US similar effort, we need to build on our success by developing innovative new products and discovery experiences, while giving everyone more control over their personal information.
To build and next era of personalized experiences we're focused.
Focus on product innovations and 4 areas.
The first is discovery.
We want to keep making our app the best places to discover products and businesses Youll us.
For example, we're testing and new experience and news feed where you can tap to browse content from businesses on topics like beauty fitness or clothing.
More rallies and contacts to make smarter recommendations about which adds to Sheryl if youre watching and travel video and we can show ads for hotels and flights.
The second area of Commerce, which mark touched on a moment ago.
We're building a modern commerce system across ads community towards messaging shops and payments.
It's all about creating a personalized.
And the customer journey, where it's easier to discover our product by it and pay for it and have it delivered to your doorstep.
The third area is privacy enhancing technologies.
We know businesses are experiencing challenges because of platform changes.
And we want to make sure. They can continue getting great results through privacy safe personalized.
Adds long into the future.
So we're collaborating across the industry to develop new technologies to help minimize the amount of personal information we process.
While still allowing us to show relevant ads and measure their effectiveness.
The fourth us building tools that help businesses beyond marketing.
We want to help solve all kinds of businesses.
Assuming whether its customer relationship management business messaging tools or hirings or Facebook jobs.
We're helping people run their business across our apps easily with Facebook business suite.
We're making it easier to message customers across our apps from a single interface.
And we're expanding our messenger and API for Instagram as customers.
For us increasingly rely on messaging and set a phone call.
Digital transformation is a long term trend that isn't going away.
Guessing on innovation and these 4 areas, we will continue to help businesses of all sizes and make the shift online and reach customers with privacy safe personalized advertising.
As ever.
I am grateful to all of the businesses, who work with us and I can.
And you'd be amazed by our teams all over the world.
Throughout this period, we've been really lucky to have so many brilliant people working hard to keep people connected and help businesses survive and thrive online now.
Now over to Dave.
Thanks Sheryl.
Sheryl and good afternoon, everyone. We delivered strong results and the second quarter as our services continued to help millions of businesses reach customers around the world, let's begin with our community metrics, we estimate that approximately $2.8 billion people used at least 1 of our services on a daily basis and June and that approximately $3.5 billion people used at least 1 on.
On a monthly basis, our global community continued to grow even as we lapped elevated user growth and the second quarter of last year related to the pandemic.
Facebook daily active users reached $1.91 billion up 7% per $123 million compared to last year.
<unk> represented approximately 66% of the $2.9 billion monthly.
Active users and Jan <unk> grew by $194 million or 7% compared to last year.
Turning to the financials all comparisons are on a year over year basis, unless otherwise noted.
Q2, total revenue was $29.1 billion up 56% to 50% on a constant currency basis.
We benefited from a currency tailwind and habits foreign exchange rates remained constant with Q2 of last year total revenue would have been $982 million lower.
On a 2 year basis, Q2, total revenue growth decelerated to 72% from 74% and the first quarter.
Q2 AD revenue was $28.6 billion.
And up 56% or 51% on a constant currency basis.
The macroeconomic environment for online advertising remains very strong as Sheryl noted the growth and the advertising revenue was largely driven by verticals that it performed well during the pandemic such as online commerce and consumer packaged goods. In addition, we and we saw.
Improved growth trends and verticals that were particularly challenged during the pandemic such as travel entertainment and media.
On a user geography basis AD revenue growth accelerated and all regions as we lap the strongest quarter of last year.
This is the second quarter of last year, which was the period hardest hit by the pandemic.
Growth was strongest.
And the rest of world at 86%, Europe, Asia Pacific and the US and Canada grew 63%, 56% and 48% respectively.
Europe Asia Pacific and rest of World all benefited from currency tailwind.
In Q2, the total number of AD impressions served across our services increased 6% and the average.
Average price per AD increased 47%.
Impression growth was primarily driven by developing markets, especially in Asia Pacific while pricing growth benefited from broad based strength and advertiser demand.
Recall that in the second quarter of 2020, the effects of the pandemic contributed to elevated impressions and depressed prices, which we are now lapping.
Other revenue was $497 million up 36% other revenue growth continues to be driven by quest to sales. So the rate of growth slowed and the second quarter as we entered the seasonally slower sales period.
We also recorded a revenue adjustment for returns related to the quest to from patient interface recall.
Turning now to expenses.
Q2, total expenses were $16.7 billion up 31% compared to last year in terms of the specific line items cost of revenue increased 41% driven by consumer hardware cost payments to partners and core infrastructure investments are and.
<unk> increased 37% driven primarily by hiring to support.
Our core products and consumer hardware efforts marketing and sales increased 15%, mainly driven by hiring and marketing spend lastly, G&A expenses increased 23% driven mostly by employee related costs and legal expenses.
We added over 2700 net new hires in Q2, primarily and technical functions, we ended the quarter with over.
63004 hundred full time employees up 21% compared to last year.
Second quarter operating income was $12.4 billion, representing a 43% operating margin our tax rate was 17% net income was $10.4 billion or $3.61 per share cash.
Capital expenditures, including.
<unk> leases were $4.7 billion driven by investments in data centers servers network infrastructure and office facilities free.
Cash flow was $8.5 billion.
We repurchased $7.1 billion per class, a common stock and the second quarter and we ended the quarter was $64.1 billion and cash and marketable securities.
In terms.
<unk> capital and ability efforts, we remain focused on achieving our goal to reach net zero emissions for our entire value chain and 2030 and June we released our second annual sustainability report, which details our work towards achieving our objectives.
Turning now to the outlook.
And second quarter, we expect that advertising revenue growth will be primarily driven by.
Versus per year advertising price increases during the rest of 2021.
In the third and fourth quarters of 2021, we expect year over year total revenue growth rates to decelerate significantly on a sequential basis as we lap periods of increasingly strong growth when.
And when viewing growth on a 2 year basis to exclude the impacts from lapping the COVID-19 recovery.
By year, we expect year over 2 year total revenue growth rates to decelerate and modestly in the second half compared to the second.
Second quarter rate.
We continue to expect increasing AD targeting headwinds in 2021 from regulatory and platform changes, notably the recent IRS updates, which we expect to have a more significant impact and the.
<unk> quarter compared to the second quarter.
As noted in recent earnings calls, we continue to monitor developments related regarding the viability of trans Atlantic data transfers and their potential impact on our European operations.
Turning now to expenses, we expect 2021 total expenses to be and the range of 70 to 73 billion.
Third and changed from our prior outlook.
The year over year growth and expenses is driven primarily by investments and technical and product talent infrastructure and consumer hardware related costs are.
Our expenses our expense outlook reflects our commitment to invest ahead of.
The compelling long term growth opportunities, we see across our product portfolio.
Yeah.
We expect 2021 capital expenditures to be and the range of 19% to $21 billion unchanged from our prior estimate.
Capital expenditures are driven primarily by our investments and Datacenters and servers network infrastructure and office facilities.
We expect our full year 2021 tax rate to be and the high teen.
Portfolio closing, we are pleased with the strong performance of our business and remain committed to innovating on behalf of the people and businesses for us our services around the world without tramps, 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 press 1 followed by the 4 on you touched.
Income please pickup your handset before asking your question to ensure clarity. If you are streaming today's call. Please mute your computer speakers.
Our first question is from the line of Brian Nowak with Morgan Stanley. Please go ahead Sir.
Thanks for taking my questions I have 2 the first 1 on shopping and sort of all the.
From such a growing and Facebook shopping efforts and you've been you've been sort of at this for over a year now and Mark I thought your comments about it's going to take a while before it's meaningful Tonight.
A meaningful.
Talk to us about sort of what are 1 or 2 of the key execution areas, you really need to overcome to make the shopping opportunity really be larger for.
And over the next few years and then secondly on the creator economy, there's a.
A lot of different platforms with with reach and algorithm sort of attacking this creator economy, maybe just help us better understand a little bit the way you intend to really compete for creators to bring more exclusive content to your platform. Thanks.
The company I think I can probably take both of those.
On Commerce, I think the main and things that keep in mind US just the ads business is so large that it's going to take a long time before anything that we do with commerce, there's going to be particularly meaningful at scale, but I think overall.
The strategy.
It is really to work our way down the funnel from us.
And from.
Discovery and all other things that were already world class set with us to.
And making it so that those ads increasingly 0.2 shops across our different services.
In order to do.
Each layer of the funnel that we're working on and we want to be world class on its own.
Which means that basically there is this whole long tail of functionality that.
And that business has to come to expect on the web and from other tools and we need to make sure the best available for shops and business messaging and all of the tools.
And whether we do that through partnerships with other e-commerce companies or.
Or building it up ourselves so it's.
And we're seeing meaningful improvements every quarter and this in terms of how effective. These are there are already a pretty meaningful number of merchants and and people who are using shops.
And we expect us to.
And over over the coming.
Yours, but I just think in terms of the scale of the business that we're starting out.
And I just think realistically, we shouldnt expect that this is going to be a meaningful driver of.
Of our business or profitability in and.
Near term, it's just going to take a while for that compounding to.
And because.
Become meaningful numbers, but but I think the strategy is the right is the right..1 it is creating a better product experience for people.
And when you click on and add or when you engage with the business.
It just can be much better to do that natively, whether youre, and Instagram or Facebook or whatsapp or whatever you're using and then go to our website that doesn't have your payments information.
Formation and news and personalized so.
So I think we're on the right path here.
And we're focused on compounding this as quickly as we can.
I guess for the second question of the creator economy.
And yes, there are.
There are a number of different companies that are that are focused on this.
And I'd say there are.
They.
And there are a couple of things here that are.
And that are interesting properties of this 1 is that if youre, a creator and youre trying to get your content out there and you are trying to make a living you want to be and all these different platforms. So I think a lot of what we were trying to do it's not necessarily the case that.
You know that.
People are going to be on 1 platform versus another we just want to make it so that the creators have their best content here and that we can help them make.
<unk> better than other platforms, and we think that if we do we will have an advantage on content over the long term, but it's not like we fundamentally have to win creators over from another place.
Our monitors.
Jules I think are a pretty.
Pretty big advantage that we bring to the table our advertising is world class.
The ability to.
And we help creators make more money from the work that they're already doing I think is something that we should really be able to bring those set of tools to the table. We also have a lot of distribution.
<unk> net debt and ability to for people to find their communities and.
And.
Help personalized recommendations to help connect people with the people who are going to be interested and their content. So I hope that is.
That's some of what we're seeing and why a lot of creators are excited about the work that we're doing.
And over the long term I think.
And if we're able to make it to that.
<unk>.
Of creators are able to make a living across our platforms and that's just going to mean that theres going to be a long term breath.
And and healthy set of content across the systems and I think there's going to be increasingly important, especially as video becomes more important.
We are on our platforms like what we're seeing both with <unk> and <unk> now.
In France, we can go ahead and take the next question.
Our next question is from Justin Post with Bank of America. Please go ahead.
Great. Thanks for taking my question, maybe 1 for David and 1 for Mark first on the day as Youre kind of back.
And on our where in Q1 last year for Us and Europe.
How do you feel about how reopening affecting activity and penetration levels today, where can they go from here and then Mark really appreciate all the commentary on meta universe I think from companies with built in private.
The thoughts around that maybe.
Where are you or what's kind of the business model and a very high level and second what kind of disclosures could we see on expenses around AR VR. It looks like maybe up to 20% of job openings are oculus. So it looks like the investments already started and I was wondering if you might be able to how youre thinking about given us updates around that thank you.
Yeah, Thanks, Justin on the <unk>.
Front, we are seeing those trends being impacted by Covid, that's especially noticed noticeable and some of the.
And the larger markets, where we have high levels of penetration.
Like North America and Europe.
And I'd say and in North America, given our high level of penetration we do expect.
And sort of Mou and DAA levels to sort of bounce around from quarter to quarter, given kind of how how significantly penetrated we are and that market.
And then and Europe, we're seeing com.
Combination of seasonal slowness as well as COVID-19 related softness when we saw restriction ease restrictions ease and obviously with delta.
We might be other trends, it's hard to predict how that's going to play out in this cycle.
But that's kind of the best read on it I can give you at this point.
Sure and on the meta versus points.
We're primarily focused on here.
And before I get into the business model, our basic playbook as a company is build products that get to scale, especially social product. It's important that the people who want to interact with are there. So we're going to focus on having hundreds of millions of people use the.
And the meta versus and the new platforms that we're building and before we were.
Turning us into.
What I expect to be a very important and big part of the business.
But overall and I think that there is.
As we embark on this next chapter ads and Theyre going to continue being an important part of our strategy across the social media parts of what we do and and and it'll probably.
Really meaningful part of the <unk> 2 I can commerce is going to be increasingly important.
This is why we're 1 of the reasons why we're focused on this book.
Across our current ops and the current economy, but I think digital goods and creators are just going to be huge right in terms of people expressing themselves through their avatars through digital clothing.
Digital goods the opposite.
And if they bring with them and from place to place a lot of the meta versus experience is going to be around being able to teleport from 1 experience to another so being able to.
You basically have your digital goods and your inventory and bring them from place to place and Thats going to be a big investment that people that.
Through and.
And our focus for now is really on.
Helping to develop the community, helping us develop the number of people who are.
Got it and grow the number of people, who can be and these net adverse experiences and Canada experienced in the US next computing platforms like virtual and augmented reality and that's I think what you should expect us to focus.
People makes period, but over the long term I think that theres going to be a very big digital economy around this and that's what we're primarily going to be shooting for.
Our business model isn't going to primarily be around trying to sell devices at a large premium or anything like that because our mission is around serving as many people as possible. So we want to make everything that we do is affordable.
And as possible to as many people as possible can get into it and then compounds the size of the digital economy insider. So that's that's kind of at a high level how.
How I'm thinking about this and I'm happy to talk about this more as we continue to evolve the investments and David can speak about the expenses and disclosures.
And all that but I will note that.
I appreciate the ingenuity and cleverness of looking to our job descriptions to us to see where we.
We're investing this is a big big focus as I called out and.
And my comments at the beginning.
Yeah, and Justin I mean, obviously from a capital allocation perspective, our overall focus is on growth and.
We have repeatedly called out that as it relates to our investments in innovation and <unk> is a big focus area for us and a major investment driver and our expense outlook. So we have mentioned that we're investing billions of dollars annually and we expect to invest in this area for the foreseeable future as we make progress towards building. This.
Next computing platform, there's a lot of hard work that needs to be done, but it is a big focus, but we haven't provided any any more granularity on it.
Okay. France, then you can go ahead and go to the next question. Please.
Our next question is from Doug Anmuth with Jpmorgan. Please go ahead with your.
Thanks for the questions I'm going to go to for Dave just first on the mix of slower impression growth and then with price is the driver here for the year is there anything else that we should be thinking about beyond the comps from last year and how do you think about expanding surfaces to create more AD inventory going forward and.
Question and secondly, just curious if your view on Atg has changed over the past 3 months at all and if you could comment at all just early on some of your mitigation efforts and what you're seeing there. Thanks.
Yes, sure Doug in terms of impression growth.
Had called.
Called out last quarter that we would expect for the remainder of 2021 for pricing to be a bigger driver of growth. So.
And mentioned at that time, there were there were a few factors driving it the biggest factor is lapping the COVID-19 engagement that we saw that was particularly pronounced in North America, where we saw more engagement.
Weighted to the Lockdowns.
Downs and higher impression growth last year. So that is 1 of the big factors. The other factor that we are seeing issues shift towards video both for our products and other products and.
And Thats, just generally a big trend and the market and that tends to have lower impressions.
Per the amount of engagement than things like news feed so kind of both those.
Things are factors, but the Covid factor is the 1 that I would call out and when you think about how we're expanding services to create more AD inventory I would say that we've got a number of impression growth opportunities.
We've seen growing impression contributions from new surfaces like Instagram explore.
<unk> within video marketplace.
And then when we look forward I think <unk> is a really significant future opportunity. We've only just really begun to make ads available globally on <unk>. So when you kind of look at all of these different services. We think there are a lot of good growth opportunities. There are still small in absolute size compared to things like feed and stories.
But.
But big opportunities for growth.
In terms of your question on ATT.
<unk>.
The impact from the ATT changes.
Really generally been in line with our expectation, we're obviously benefiting as others are from a very strong macro environment for advertising.
But look this has been very challenging for advertisers to navigate and we're working with them to help them navigate these changes.
And we've introduced solutions to help them do that drew approaches like our aggregated events management, API, which is us aggregated data for targeting and measurement. Obviously, we're doing a lot of work on.
And machine learning and AI to help rank ads and.
And make them more valuable.
Overall, we do think there are opportunities to continue to improve.
Our capabilities through investments in areas like machine learning and AI to make us more effective and.
And if we can.
Advertisers to get the same number of conversions from fewer ads thats, great that works for them and it creates more value for the ads for us.
Okay, France, we can go to the next question.
Our next question is from Mark Mahaney with Evercore ISI. Please go ahead.
Yeah.
Okay 2 questions. Please.
Back on the meta versus investments David will used to take a swing at that question about how much of that how much expense associated with building out the net averse that investors should expect we came up with their own crude numbers, maybe $5 billion. A year are we anywhere ballpark close on that and then given the rise.
And in in pricing just address the issue I know you've done it in the past the extent to which that's had a material impact on the ROI for marketers and I know, it's an auction based system, but now as prices rise as it should is there any reason to be concerned about whether there will be some marketers that would be priced out because of that and create less optimal.
It comes free for your platform. Thanks, a lot.
Yeah, sure Mark and I can sort of hit us with with Justin's earlier question, we havent given us specific breakout on what we're investing in <unk>, It's obviously a significant investment.
Categorized it is billions and so youre numbers billions so.
And I think with us, saying billions, but beyond that we don't have any more specificity to get but it is certainly a significant investment.
And.
I would say that is inclusive obviously of all of the efforts, we're making across FRE and not just the med averse.
And then on pricing.
It is considered and ROI Sheryl you might be able to give some color on that as well.
You're muted Sheryl.
And on a second.
Sorry.
On pricing and ROI, you know the beauty of and auction is that people can see the prices, they're paying they're able to measure.
The result, and then data appropriately as people get more specific more personalized and more targeted and what theyre doing even if prices are rising are rising they can find the buys within our system that work for them and the good news is that's good pressure and the system because it makes the ads more relevant for the people who are seeing them.
<unk> and <unk> once you are really.
And incentivize within an option to find and sustain that and returning for you that's actually almost all in sustaining and is the most relevant for people who are seeing.
And I think that's been a good systems and good pressure within the system going forward.
Certainly seeing.
Which brand advertisers continued to spend and get better and using personalization and our AD formats, and we're seeing small advertisers and be able to compete very effectively doesn't mean that rising prices arent and issues, sometimes but I think overall this is where the auction system serves us well and most importantly serves consumer as well.
Okay. Thank you.
Yeah.
Great France, we can go to the next question.
Our next question is from Youssef Squali with <unk>. Please go ahead.
Great. Thank you 2 questions. Please first 1 for Mark and maybe going back to the matter versus vision how much of.
Moving blocks that you need to basically build us this future is within your control versus maybe pieces that others need to build I'm thinking, particularly around the hardware side.
And just listening to you. It seems like this is more of a communal thing that many many many people many parties, even maybe some of walled gardens would need to.
Kind of open up to embrace this just wondering how you kind of look at that and then maybe.
And Dave or maybe Sheryl was want to want to go back to the impact of iOS or <unk> 5 on target and general that maybe Dr. In particular, we heard from several marketers throughout the quarter that they had.
The bill that not just on Facebook about really across the board on the some AD formats like App install ads.
Cause of <unk> and wondering if you can maybe speak to Dr versus brand. Thank you.
I can start off with the <unk> question.
And I do think that this is going to be.
Paul.
Macro where you've overall, but a lot of companies are going to be able to ride and.
And.
<unk> from so whether that companies like Nvidia that are building a lot of the graphics chips that are going to be really important for a lot of the content that I think is going to be increasingly graphically intense.
And.
And that's certainly building those kind of of <unk>.
Graphics chips is not a thing that we're that we're intending to get into where certain accounting on on companies like that and the industry to kind of.
Continue improving and compounding overall, but on the hardware side.
I would say that we have a pretty big program on building virtual.
Fuel and augmented reality.
<unk> devices and.
And.
And we ensure a lot of people are still going to be using phones, and and and computers for a long time, but but I think when it gets to what are the devices that are going to deliver the deepest sense of presence and that are going to be increasingly.
And the important over the next decade.
Certainly investing and that because we want to make sure that those develop.
And a way that is in line with.
With the vision of of these platforms, helping people too and <unk>.
Direct with each other and and socialize then.
That means prioritizing.
Sizing certain feature development or certain sensors and the devices that we want to make sure that we can help.
Pushed out and a direction that will that will help lead the us to become.
A.
Various social platform so.
So overall I do think this is going to be a big space. The point that I was making is that theyre going to be.
A lot of winners and there is and this is going to be knocking that 1 company builds alone, but I think it is going to be and.
The whole ecosystem that needs to develop.
But we're certainly making a lot of the key investments that we need to make and the foundational technology to be able to deliver the parts that we want to.
Why don't you.
Why don't I start off on it and then as Sheryl wants to add any colors, you can jump in and add that so.
So in terms of Facebook ads are performing well and boots.
Correct response and brand this quarter, we continued to see solid growth across both direct response and brand and direct response continues.
And use to be the bulk of our business and the primary driver of growth.
But we did see a nice rebound consistent with others and the market of brand spend back on platform and brand obviously took a big hit on a year ago basis really saw a bigger pullback and brand and so brand came back more strongly than Dr. But Dr. Dr.
And quite well, we're seeing a lot of other categories that led during the pandemic continue to do well and those are all highly Dr centric.
Verticals like like Commerce, so continuing to see good performance there.
The only thing I'll add is that increasingly the brand Dr distinction.
Still do less and less traditional large brand advertisers that have done brand advertising for a very long time are increasingly learning to do direct response ads and us are different format and us are different measurement tools.
So even the categories that people are used to thinking about I think it's more of the buy and the advertiser.
And as our largest brand advertisers I think many of them are becoming increasingly proficient and effective and what would traditionally be considered Dr advertising.
Perhaps you can go ahead and go to the next question. Please.
Our next question is from Ross Sandler with Barclays.
Please go ahead.
Hey, just 1 question for Mark or Dan if I could just follow up on the <unk>.
Creator economy topic so.
Youtube page 50 on every dollar to create are about $15 billion or so this year. So I guess, Dave what's the view on.
And the financial model and how that might change as you guys lean in this area I know that Influencers, and we're getting paid and maybe not directly by Facebook today, but.
And other folks to postings on Facebook and so I guess and the new World are we looking at lower margins and other things that might offset like higher engagement.
And then.
And creator content going to be on <unk>.
These new surfaces like reels or is that likely to proliferate everywhere, including like the news feeds on blue and Instagram. Thanks, a lot.
Yeah.
Yeah, Ross and I can I can take that.
And you know I think it's a it's a question of definition as well I mean, we already like Youtube pay a lot out too.
And the creative industry more broadly as opposed to specific individual creators so.
For instance, we paid too on the music licensing front, we do a fair amount of that.
Significant payments, we make there above and beyond what we're talking about with $1 billion commitment.
And to creators that mark outlined.
This is obviously something that is.
And part of the cost structure, but it's something that we've long had in our outlook. So I don't think its.
Meaningful change and the business model our outlook, but it is something that we're committed to helping people continue to build vibrant.
Vibrant commute.
Communities and businesses on our platform just like we have with advertising.
Yes.
And so France you can go ahead and go to the next question place and they.
Our next question is from March Malik with Alliance Bernstein. Please go ahead.
Yes, thanks for taking my questions a couple for Sheryl Dave.
Unreal that let us talk around and kind of the the upgrade cycle to video and <unk>.
Any color.
Sure and the engagement traction or effectiveness of video ads and that type of a platform and.
And secondly, what 1 point and 2 million stores now on shop, specifically those selling on Facebook and are there any learnings or noticeable differences and the effectiveness of the ads of their advertising or conversion rates. Thank you.
Yeah.
And can start by talking about we have ads.
Our process is Dan as I talked about the rollout consumer products and then we find the right AD formats set of businesses.
And those opportunities as well.
And I think that's what we're seeing we now have real has available to advertisers and almost all markets where we.
And all design, it's a pretty similar format to stories and stall screen and and between real videos up to 30 seconds.
We think it's a pretty natural fit in real and it's a really great.
Discovery surface and.
And we're seeing engagement and effectiveness parallel some of our other products and we're really we're really pleased.
With that it's still early but we think this has a lot of potential.
And <unk> want me to take the second question.
Neither either way Sharla and you go ahead and even if you.
Pleased our advertising partners. So part of what we're doing there and Mark talked about this in the Q1 call is making sure that the AD units optimize for whichever experiences is converting the best so if you've got a store.
Shop on Facebook or Instagram is that converting better or is your own web store converting better.
For and then that allows us to also just get better and making our shops and more effective and so.
So we want to do what's best for the Advertiser and and also.
<unk> to make our.
Online and our own shops more effective so.
No no specific numbers to share there, but we're continuing to work.
Our shops convert better.
And France, we can go ahead and go to the next question. Please.
Our next question is from Brent Thill with Jefferies. Please go ahead.
Okay.
Thanks, David just the modest deceleration and to Europe's 2 year stack.
And there are a lot of investor questions.
Do you mean, more 2 or 3 points or T cell or is it more of a 5 to 7 and any more granularity you can add to what that moms T cell <unk>.
Looks like would be extremely helpful. Thank you.
Thanks, Brent and we didn't we didn't provide specific guidance on it we obviously saw decelerate.
Celebration from from from Q1 to Q2.
And from 74% to 72% and we expect modest deceleration.
In the second half of the year, but we haven't put a specific number on that.
And.
You can go ahead and get and next question.
Our next question is from John Blackledge with Cowen. Please go ahead.
Great. Thanks, 2 questions on the iOS changes any color on the opt in rates for Facebook and Instagram are they kind of in line better or worse than your expectations at this.
And frankly, and then on the Opex at the midpoint of the guide plus 39% growth and second half versus 28% and first half just any color on key drivers of the accelerating opex growth and the back half of the year. Thank you.
Yeah.
Yeah, Yeah. Thanks, John.
On the I S iOS changes.
Really.
Point.
Very much in line with expectations on things like opt in rates. So I would say overall the impact has been.
In line with our expectations.
So not not a huge surprise there.
We're not fully rolled out with those changes but.
Q3 will have.
It really had the impact more or less with us being fully rolled out and.
And then in terms of the Opex guide.
Yes, we do expect accelerating expense growth in the back half of 2021, and we're going to see that in areas like consumer marketing and so some of the non head count related spend we expect.
Right and the back half of the year.
So that's that's the that's the expectation on that front.
And perhaps we can go to the next question. Please.
Our next question is from Colin Sebastian with Baird. Please go ahead.
Great. Thanks, good afternoon, everyone.
Maybe a couple of higher level questions really coming out of <unk> refresh.
First off can you talk about the integration of messaging across the family of apps and how the opening of messaging API is us, adding functionality to apps and that business.
We're getting incrementally more business activity.
Through.
Messaging and then.
And with advanced AI and machine learning now seemingly table Stakes for most platform of companies Mark I'm, just kind of curious if this is still a significant competitive advantage for you and your view and.
And based on what you heard at Feight I Wonder how important our products like pie torches and in terms of moving faster and.
Nope.
Product development and things like that and thank you.
Okay.
Sure I can take both of those so in terms of messaging and <unk>.
We're working on cross dock communication between them and business messaging API and a lot of us is very much.
And the business messaging I think there's going to be and important part of commerce.
And helping people interact with businesses and a way that is it is natural to them. The cross up communication in terms of helping people reach people wherever they are it kind.
Kind of fits into this vision that we have for the future of people being able to easily.
Teleport between experiences that I think it's going to be increasingly important.
As we move towards the net of <unk> people are going to need messaging services, that's going to continue to be a core way that people communicate.
People are going to want to reach the people that care about no matter what service their own and be able to move between these and so when I talk about kind of interoperability and.
And moving more of their and the future were trying to get.
Our core.
And today aligned with that as well.
Tad and messaging.
Is that the connect the business today is that.
Click to messaging ads.
Or 1 of the parts of the AD business that is growing quickly and doing and doing quite.
Well and part of that us because even if we're not charging a lot directly for for the messaging API is for businesses that.
That is.
If the interactions between people and businesses end up helping busy.
Businesses convert better and drive more sales and businesses.
It's really going to want to.
Pay to have their ad point towards that rather than other surfaces.
That we made not controller that maybe a worst experience so.
That's on the messaging side on the AI side.
I think this is a really good question, it's probably something that doesn't come up.
And as much on these.
<unk> earnings calls as it probably should for how important of a driver of the progress and AI is for our overall results.
And 1 other things that I've observed.
And just running the business over the last couple of years and Theres a lot of focus on.
And on kind of different headwinds that we may face whether its from other platforms or.
Regulation or different things, but 1 of the areas that I think is routinely outperformed our expectations is progress on AI and and.
We don't have a single product, which is like and AI product.
And that's.
And that's sort of the embodiment of all the AI work, that's not something that we've done yet but.
We basically.
We have a very large investment and AI and we build out this platform, but then all of our products to us. So when we make foundational improvements and makes ranking better and newsfeed and and real and and adds and it makes our spam detection and our integrity.
Systems more effective and identifying steps everything just gets better.
And this has really been 1 of the big.
And <unk> or way of us that that we've been writing and.
From what I can see technologically on the horizon. It really doesn't seem like this is going to be slowing down anytime soon and I don't think that this is a Facebook specific thing I think that this is probably across the whole industry or maybe even across the.
Whole economy, more broadly, but I do think that the progress that's being made at the.
The fundamental levels with AI is is driving a lot of progress.
And as 1 of the important macro effects that we're seeing for <unk>, specifically I mean it.
Certainly helps that the framework that we used to.
And to develop our AI work.
<unk> is 1 that is embraced by the community. So a lot of times when we go to spin up a new project.
<unk>.
And that there will already have been some team that contributed and open source library to it and.
And that makes it easy so I think that there is certainly our dividends that we get from having.
Developed where helped develop high towards to become and increasing standard, especially among researchers and it's certainly an area that we're going to focus on investing more and I think that the core AI platform is just an important part of the progress that we're seeing overall.
And France, I think we have time for 1 last question.
Very good then.
Our last question will be from the line of Michael Nathanson with Moffett Nathanson. Please go ahead.
Great. Thanks, 1 for Sheryl and 1 for Dave your.
Sheryl and the path to ask this question, but now we're seeing and so post pandemic, there's been a real weakness and TV impressions and those television dollars that go into it looks like to Avon and Youtube.
So can you talk a bit about your vision for video and how that may simply be opportunity, maybe grab some of those ti dollars and would you.
And the definition of creators to include premium video content or sports and then for you Dave following up on Doug's question can you talk a bit I know, it's early about the learnings from your aggregated event net.
Measure.
And what has been the impact on things like signal loss ROI or spending from those who have used it in the early days.
Yes.
And I can talk about video and so we're seeing very strong growth and video monetization across watch feed real and we think we're continually.
Measure and better at monetizing video.
So monetizing at lower rates versus feed stories, but we have we have a lot here. We have 2 billion people watching in stream and eligible videos per months mobile first video is increasing meaning even brand advertisers are getting better at doing mobile first video.
And getting US certainly we think advertisers are looking for the best place to reach audiences and we compare very favorably across the board I'll share a really I think cool.
Cool recent example.
Walmart very large larger advertiser engaged redrum and who's the pioneer woman cooking show host to host.
It's their first alive shopping event and.
And the event was to launch her Walmart exclusive line of home and fashion products and.
And they use the mix of our personal ads to drive awareness to alive shopping events and then reengage viewers after the purchase and they had really great results across the board.
And part of that lives as video ads and resulted and thousands of engagements a lot of of operates a lot of engagement with people and sales and so I think that's a good example of our products like live combined with the use of video on our platform combined with people, taking and opportunity for video ads.
And putting it all together in ways I think we'll compete very favorably with other formats like television.
And Michael I'll take the second question and I don't have specific data to share, but I mean, just contextually. The work that we're doing with the aggregated events management API as part of the broader work that we're doing to rebuild and meaningful.
David with of our AD Tech.
Tech so that our fits and can continue to perform while having access to less data and the future and it really dovetails into some other work that Mark was talking about machine learning and AI, because that's going to be and important part of being able to make.
Better use of less data and so.
LMI, having access to the ml and AI capabilities that we have with us with Facebook is going to be so important to the future and maintaining and growing the efficacy of ads.
So I think.
And broadly we're pleased with the progress we're making on this.
It is disruptive for advertisers to have to dose.
Go through the process of.
And also learning how to retool, so I don't want to lessen the impact us is having on our advertisers I think it is a challenging period for them and we're trying to help them work through it as effective and effectively as we can.
So with that I think.
We are done so thank you.
For everybody for joining us on the call today and.
Hope everybody stays safe.
Yeah.
And this concludes today's conference call. Thank you for joining US you may now disconnect your lines.