Q1 2024 Meta Platforms Inc Earnings Call

Krista: Good afternoon. My name is Krista, and I will be your conference operator today. At this time, I would like to welcome everyone to the META first quarter earnings conference call. All lines have been placed on mute to prevent any background noise.

Good afternoon. My name is Christa and I will be your conference operator today at this time I would like to welcome everyone to the meta first quarter earnings conference call. All lines have been placed on mute to prevent any background noise.

Krista: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. To withdraw your question, again, press star one. We ask that you limit yourself to one question. This call will be recorded. Thank you very much. Ken Dorell, Metas Director of Investor Relations. You may begin.

After the speakers remarks, there will be a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad to withdraw your question Press Star One we ask that you limit yourself to one question. This call will be recorded thank you very much Ken.

Doral met as director of Investor Relations you may begin.

Kenneth Dorell: Thank you. Good afternoon, and welcome to Meta Platform's first quarter 2024 earnings conference call. Joining me today to discuss our results are Mark Zuckerberg, CEO, and Susan Li, CFO. Before we get started, I would like to take this opportunity to remind you that our remarks today will include forward-looking statements. Actual results may differ materially from those contemplated by these forward-looking statements. Factors that could cause these results to differ materially are set forth in today's earnings press release and in our annual report on Form 10-K filed with the SEC.

Ken: Thank you good afternoon, and welcome to meta platforms first quarter 2024 earnings Conference call. Joining me today to discuss our results are Mark Zuckerberg, CEO and Susan Li CFO.

Ken: Before we get started I would like to take this opportunity to remind you that our remarks. Today will include forward looking statements actual results may differ materially from those contemplated by these forward looking statements factor.

Ken: Factors that could cause these results to differ materially are set forth in todays earnings press release and in our annual report on Form 10-K filed with the SEC.

Kenneth Dorell: 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 will present both GAAP and certain non-GAAP financial measures. A reconciliation of GAAP to non-GAAP measures is included in today's earnings press release. The earnings press release and an accompanying investor presentation are available on our website at investor.fb.com. And now, I'd like to turn the call over to Mark.

Ken: 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.

Ken: During this call we will present, both GAAP and certain non-GAAP financial measures.

A reconciliation of GAAP to non-GAAP measures is included in today's earnings press release.

Ken: The earnings press release, and an accompanying investor presentation are available on our website at Investor Dot <unk> Dot com and now I'd like to turn the call over to Mark Alright, Thanks, Ken and everyone. Thanks for joining.

Mark Elliot Zuckerberg: All right, thanks, Ken. And hey, everyone, thanks for joining us. It's been a good start to the year, both in terms of product momentum and business performance. We estimate that more than 3.2 billion people use at least one of our apps each day, and we're seeing healthy growth in the U.S., and I want to call it WhatsApp specifically, where the number of daily active users and message sends in the U.S. keep gaining momentum, and I think we're on a good path there.

Been a good start to the year, both in terms of product momentum and business performance, we estimate that more than $3 2 billion people used at least one of our apps each day and we're seeing healthy growth.

Mark Elliot Zuckerberg: In the U S and I want to call. It Whatsapp, specifically, where the number of daily actives and message sends in the U S keeps gaining momentum and I think we're on a good path there.

Mark Elliot Zuckerberg: We've also made good progress on our AI and metaverse efforts, and that's where I'm going to focus most of my comments today. So let's start with AI. We were building a number of different AI services, from Meta AI, our AI assistant that you can ask any question across our apps and glasses, to creator AIs that help creators engage their communities and that fans can interact with, to business AIs that we think every business, eventually, on our platform will use to help customers buy things and get customer support, to internal coding and development AIs, to hardware like glasses for people to interact with AIs and a lot more Last week, we had the major release of our new version of Meta AI that is now powered by our latest model, LLaMA 3.

We've also made good progress on our AI and meta versus efforts and that's we're going to focus most of my comments today, So let's start with AI.

Mark Elliot Zuckerberg: We are building a number of different AI services.

Mark Elliot Zuckerberg: Meta AI are our AI assistant that you can ask any question across our apps and glasses to.

Mark Elliot Zuckerberg: <unk> creator a is that help creators engage their communities and advance can interact with that business say is that we think every.

Mark Elliot Zuckerberg: Business eventually on our platform will use to help customers buy things and get customer support.

Mark Elliot Zuckerberg: What's your internal coding and development AI is to hardware like glasses for people to interact with their eyes and a lot more.

Mark Elliot Zuckerberg: Last week, we had the major release of our new version of meta AI that is now powered by our latest model Wamus III and our goal with meta AI is to build the world's leading.

Mark Elliot Zuckerberg: And our goal with Meta AI is to build the world's leading AI service, both in quality and usage. The initial rollout of Meta AI is going well. Tens of millions of people have already tried it.

Mark Elliot Zuckerberg: AI service, both in quality and usage.

Mark Elliot Zuckerberg: The initial rollout of meta AI is going well tens of millions of people have already tried it. The feedback is very positive and you know when I when I first checked in with our teams. The majority of feedback we were getting with people asking us to release meta AI for them wherever they are.

Mark Elliot Zuckerberg: The feedback is very positive, and when I first checked in with our teams, the majority of feedback we were getting was people asking us to release Meta AI for them, wherever they were. We've started launching MetAI in some English-speaking countries, and we'll roll it out in more languages and countries over the coming months.

Mark Elliot Zuckerberg: No.

Mark Elliot Zuckerberg: We started launching met AI in some English speaking countries and will roll out in more languages in countries over the coming months.

Mark Elliot Zuckerberg: You all know our product development playbook by this point. We release an early version of a product to a limited audience to gather feedback and start improving it. And then once we think it's ready, we make it available to more people. That early release was last fall.

Mark Elliot Zuckerberg: You all know our product development playbook by this point.

Mark Elliot Zuckerberg: We released an early version of a product to a limited audience to gather feedback and start improving it and then once we think it's ready then we make it available to more people that early release with last fall and with this release, we are now moving to that next growth phase of our playbook.

Mark Elliot Zuckerberg: And with this release, we are now moving to the next growth phase of our playbook. We believe that Meta AI with LLaMA 3 is now the most intelligent AI assistant that you can freely use. And now that we have a superior quality product, we are making it easier for lots of people to use it within WhatsApp, Messenger, Instagram, and Facebook. Now, in addition to answering more complex queries, and a few other notable and unique features from this release, Meta AI now creates animations from still images and now generates high-quality images so fast that it can create and update them as you are typing, which is pretty awesome. I've seen a lot of people commenting about that experience online and how they've never seen or experienced anything like it before.

Mark Elliot Zuckerberg: We believe that meta AI with Lama three is now the most intelligent AI assistant that you can freely use.

Mark Elliot Zuckerberg: And now that we have the superior quality product, we're making it easier for lots of people to use it within Whatsapp messenger Instagram and Facebook.

Mark Elliot Zuckerberg: Now in addition to answering more complex queries.

Mark Elliot Zuckerberg: A few other notable and unique features from from this release.

Mark Elliot Zuckerberg: May I now creates animations from still images and now generates high quality images so fast.

Mark Elliot Zuckerberg: That it can create and update them as you're typing, which is pretty awesome.

Mark Elliot Zuckerberg: I've seen a lot of people are commenting about that experience online and how they've never seen or experienced anything like it before.

Mark Elliot Zuckerberg: In terms of the core AI model and intelligence that's powering meta-AI, I'm very pleased with how LLaMA 3 has come together so far. The 8 billion and 70 billion parameter models that we released are best-in-class for their scale. The 400-plus billion parameter model that we're still training seems on track to be industry-leading on several benchmarks, and I expect that our models are just going to improve further from open source contributions. Overall, I view the results our teams have achieved here as another key milestone in showing that we have the talent, data, and ability to scale infrastructure to build the world's leading AI models and services.

Mark Elliot Zuckerberg: In terms of the core AI model and intelligence that powering meta AI I'm very pleased with how Lama III has come together so far the.

Mark Elliot Zuckerberg: <unk> 8 billion and 70 billion parameter models that we released our best in class for their scale.

Mark Elliot Zuckerberg: The 400 plus billion parameter model that were still training seems on track to be industry, leading on several benchmarks.

Mark Elliot Zuckerberg: And I expect that our models are just going to improve further from from open source contributions.

Mark Elliot Zuckerberg: Overall.

Mark Elliot Zuckerberg: I view the results our teams have achieved here as another key milestone in showing that we have the talent data and ability to scale infrastructure to build the world's leading AI models and services and this leads me to believe that we should invest significantly more over the coming years to build even more advanced model.

Mark Elliot Zuckerberg: And this leads me to believe that we should invest significantly more over the coming years to build even more advanced models and the largest-scale AI services in the world. As we're scaling CapEx and energy expenses for AI, we'll continue focusing on operating the rest of our company efficiently, but realistically, even with shifting many of our existing resources to focus on AI, we'll still grow our investment envelope meaningfully before we make much revenue from some of these new products.

Mark Elliot Zuckerberg: And the largest scale AI services in the world.

Mark Elliot Zuckerberg: As we're scaling capex and energy expenses for AI.

Mark Elliot Zuckerberg: We will continue focusing on operating the rest of our company efficiently.

Mark Elliot Zuckerberg: But realistically even with shifting many of our existing resources to focus on AI.

Mark Elliot Zuckerberg: We will still grow our investment envelope meaningfully before.

Mark Elliot Zuckerberg: We make much revenue from some of these new products.

Mark Elliot Zuckerberg: I think it's worth calling that out, that we've historically seen a lot of volatility in our stock during this phase of our product playbook, where we're investing in scaling a new product but aren't yet monetizing it. We saw this with Reels, Stories, as News Feed transitioned to mobile, and more.

Mark Elliot Zuckerberg: I think it's worth calling that out that.

Mark Elliot Zuckerberg: We have historically seen a lot of volatility in our stock during this phase of our product playbook, where we're investing and scaling of new products, but arent yet monetizing. It we saw this with Reals stories.

Mark Elliot Zuckerberg: As news feed transition to mobile and more and I also expect to see a multi year investment cycle.

Mark Elliot Zuckerberg: And I also expect to see a multi-year investment cycle before we fully scale Meta-AI, business AIs, and more into the profitable services I expect as well. Historically, investing in building these new scaled experiences in our apps has been a very good long-term investment for us and for investors who have stuck with us, and the initial signs are quite positive here too, but building the leading AI will also be a larger undertaking than the other experiences we've added to our apps, and this is likely going to take several years.

Mark Elliot Zuckerberg: Four we fully scaled meta AI business AI is in.

Mark Elliot Zuckerberg: More into the profitable services I expect as well.

Mark Elliot Zuckerberg: Historically.

Mark Elliot Zuckerberg: Investing to build these new scaled experiences in our apps has been a very good long term investment for us and for investors, who have stuck with us and.

Mark Elliot Zuckerberg: And the initial signs are quite positive here too but.

Mark Elliot Zuckerberg: But building the leading AI will also be a a larger undertaking than than the other experiences we've added to our apps and this is likely going to take several years on.

Mark Elliot Zuckerberg: On the upside, once our new AI services reach scale, we have a strong track record of monetizing them effectively. There are several ways to build a massive business here, including scaling business messaging, introducing ads or paid content into AI interactions, and enabling people to pay to use bigger AI models and access more compute. And on top of that, AI is already helping us improve app engagement, which naturally leads to seeing more ads.

Mark Elliot Zuckerberg: On the upside.

Once our new AI services reached scale, we have a strong track record of monetizing them effectively.

Mark Elliot Zuckerberg: There are several ways to build a massive business here, including scaling business messaging introducing ads are paid content into AI interactions and.

Mark Elliot Zuckerberg: And enabling people to pay to use bigger AI models and access more compute and on top of those.

Mark Elliot Zuckerberg: He is already helping us improve app engagement, which naturally leads to seeing more ads.

Mark Elliot Zuckerberg: And improving ads directly to deliver more value. So if the technology and products evolve in the way that we hope, each of those, um, will unlock massive amounts of value for people and business for us over time. We're seeing good progress on some of these efforts already. Right now, about 30% of the posts on Facebook's feed are delivered by our AI recommendation system. That's up 2x over the last couple of years.

Mark Elliot Zuckerberg: And improving ads directly to deliver more value.

Mark Elliot Zuckerberg: So if the technology and products evolve in the way that we hope.

Each of those.

Mark Elliot Zuckerberg: We'll unlock massive amounts of value for people and business for us over time.

Mark Elliot Zuckerberg: We're seeing good progress on some of these efforts already right now about 30% of the posts on Facebook feed or delivered by our AI recommendation system.

Mark Elliot Zuckerberg: It's up <unk> over the last couple of years and for the first time ever more than 50% of the content that people see on Instagram is now a I recommended.

Mark Elliot Zuckerberg: And for the first time ever, more than 50% of the content that people see on Instagram is now AI-recommended. AI has also been a huge part of how we create value for advertisers by showing people more relevant ads. And if you look at our two end-to-end AI-powered tools, Advantage Plus Shopping and Advantage Plus App Campaigns, revenue flowing through those has more than doubled since last year. We're also going to continue to be very focused on efficiency as we scale meta AI and other AI services.

Mark Elliot Zuckerberg: AI has also been a huge part of how we create value for advertisers by showing people more relevant ads.

Mark Elliot Zuckerberg: And if you look at our two end to end AI.

Mark Elliot Zuckerberg: AI powered tools advantage, plus shopping and advantage plus app campaigns revenue flowing through those has more than doubled since last year.

We're also going to continue to be very focused on efficiency.

Mark Elliot Zuckerberg: As we scale meta AI and other AI services.

Mark Elliot Zuckerberg: Some of this will come from improving how we train and run models. Some improvements will come from the open source community, and improving cost efficiency is one of the main areas that I expect that open sourcing will help us improve, similar to what we saw with Open Compute. We'll also keep making progress on building more of our own silicon. Our meta-training and inference accelerator chip has successfully enabled us to run some of our recommendation-related workloads on this less expensive stack.

Mark Elliot Zuckerberg: Some of this will come from improving how we train and run models.

Mark Elliot Zuckerberg: Some improvements will come from the open source community and we're improving cost efficiency is one of the main areas that I expect that open sourcing will help us improve similar to what we saw with open compute I will also keep making progress on building more of our own silicon or meta training and inference accelerator chip has successfully enabled us to run some of our recommendations related work.

Mark Elliot Zuckerberg: Loads on this less expensive stack.

Mark Elliot Zuckerberg: And as this program matures over the coming years, we plan to expand this to more of our workloads as well. And, of course, as we ramp these investments, we will also continue to carefully manage headcount and other expense growth throughout the company. Now, in addition to our work on AI, our other long-term focus is the metaverse. It's been interesting to see how these two themes have come together. This is clearest when you look at glass.

Mark Elliot Zuckerberg: And as this program matures over the coming years, we plan to expand this to more of our workloads as well.

Mark Elliot Zuckerberg: And of course, as we ramp these investments.

Mark Elliot Zuckerberg: We'll also continue to carefully manage head count and other expense growth throughout the company now.

Mark Elliot Zuckerberg: Now in addition to our work on AI.

Mark Elliot Zuckerberg: Our other long term focus is the meta versus.

Mark Elliot Zuckerberg: It's been interesting to see how these two themes have come together. This is clearest when you look at glasses.

Mark Elliot Zuckerberg: I used to think that AR glasses wouldn't really be a mainstream product until we had full holographic displays, and I still think that that's going to be awesome, and it's the long-term mature state for the product, but now it seems pretty clear that there's also a meaningful market for fashionable AI glasses without a display. Glasses are the ideal device for an AI assistant because you can let them see what you see and hear what you Our launch this week of Meta AI with Vision on the glasses is a good example where you can now ask questions about things that you're looking at.

Mark Elliot Zuckerberg: I used to think that our glasses wouldn't really be a mainstream product until we had full holographic displays and I still think that that's going to be awesome and as the long term mature state for the product.

Mark Elliot Zuckerberg: But now it seems pretty clear that there is also a meaningful market for fashionable AI glasses without a display.

Mark Elliot Zuckerberg: Glasses are the ideal device for an AI assistant because now you can let them see what you see and hear what you hear so they're full context on what's going on around you.

Mark Elliot Zuckerberg: As they help you with whatever you're trying to do.

Mark Elliot Zuckerberg: Our launch this week of meta AI with vision on the glasses is a good example.

Mark Elliot Zuckerberg: You can now ask questions about things that Youre looking at one strategy dynamic that ive been reflecting on is that an increasing amount of our reality labs work is going towards serving our AI efforts.

Mark Elliot Zuckerberg: Now, one strategy dynamic that I've been reflecting on is that an increasing amount of our reality labs work is going towards serving our AI efforts. We currently report on our financials as if our family of apps and reality labs were two completely separate businesses.

Mark Elliot Zuckerberg: We currently report on our financials as our family of apps and reality labs were two <unk>.

Mark Elliot Zuckerberg: <unk> separate businesses, but strategically I think of them as fundamentally the same business with the vision of reality labs to build the next generation of computing platforms and large parts that we can build the best apps and experiences on top of them.

Mark Elliot Zuckerberg: But strategically, I think of them as fundamentally the same business, with the vision of reality labs to build the next generation of computing platforms, in large part so that we can build the best apps and experiences on top of them. Over time, we'll need to find better ways to articulate the value that's generated here across both segments, so it doesn't just seem like our hardware costs increase as our glasses ecosystem scales, but all the value flows to a different segment.

Mark Elliot Zuckerberg: Overtime.

Mark Elliot Zuckerberg: We will need to find better ways to articulate the value that's generated here across both segments of it doesn't just seem like our hardware costs increase as our glasses ecosystem scales.

Mark Elliot Zuckerberg: But all the value flows through a different segment.

Mark Elliot Zuckerberg: The Ray-Ban Metaglasses that we built with SLR Luxottica continue to do well and are sold out in many styles and colors, so we're working to make more and release additional styles as quickly as we can. We just released the new Cat Eye Skylar design yesterday, which is more feminine.

Mark Elliot Zuckerberg: The rhythm and medical offices that we built with Essilor Luxottica continue to do well and are sold out in many styles and colors. So.

Mark Elliot Zuckerberg: So we're working to make more and release additional styles as quickly as we can.

We just released the new Cat is Skyler design yesterday, which is.

Mark Elliot Zuckerberg: And in general, I'm optimistic about our approach of starting with the classics and expanding with an increasing diversity of options over time. If we want everyone to be able to use wearable AI, I think eyewear is a bit different from phones or watches in that people are going to want very different designs. So I think our approach of partnering with the leading eyewear brands will help us serve more of the market.

Mark Elliot Zuckerberg: Feminine and in general I am optimistic about our approach of starting with the classics and expanding with an increasing diversity of options over time.

Mark Elliot Zuckerberg: If we want everyone to be able to use wearable AI I think I was a bit different from phones or watches and that people are going to want very different designs. So I think our approach of partnering with the leading eyewear brands will help us serve more of the market.

Mark Elliot Zuckerberg: I think a similar open ecosystem approach will help us expand the virtual and mixed reality headset market over time as well. We announced that we're opening up MetaHorizon OS, the operating system we've built for PowerQuest. As the ecosystem grows, I think there will be sufficient diversity in how people use mixed reality that there will be demand for more designs than we'll be able to build. For example, a work-focused headset may be slightly less designed for motion but may want to be lighter by connecting to your laptop.

Mark Elliot Zuckerberg: I think a similar open ecosystem approach will help us expand the virtual and mixed reality headset market over time as well, we announced that we're opening up meta horizon O S. The operating system, we built to power request.

Mark Elliot Zuckerberg: The ecosystem grows I think there will be sufficient diversity in how people use mixed reality that there will be demand for more designs. Then we'll be able to build for example of work focused headset maybe slightly.

Mark Elliot Zuckerberg: Less designed for motion, but may want to be lighter by connecting to your laptop.

Mark Elliot Zuckerberg: Fitness focused headset, maybe lighter with sweat wicking materials and entertainment focused headset may prioritize the highest resolution display is over everything else.

Mark Elliot Zuckerberg: A fitness-focused headset may be lighter and use sweat-wicking materials. An entertainment-focused headset may prioritize the highest resolution displays over everything else. A gaming-focused headset may prioritize peripherals and haptics, or a device that comes with Xbox controllers and a Game Pass subscription out of the box.

Mark Elliot Zuckerberg: <unk> focused headset may prioritize peripherals, and haptics or device that comes with Xbox controllers, and a game pass subscription out of the box and that it would be to be clear.

I think that our first party quest devices and will continue to be the most popular headsets now as we see today and we will continue focusing on advancing the state of the art TACAN and making it accessible to everyone but.

Mark Elliot Zuckerberg: Now, to be clear... I think that our first-party Quest devices will continue to be the most popular headphones, as we see today, and we'll continue focusing on advancing this state-of-the-art tech and making it accessible to everyone. But I also think that opening our ecosystem and opening our operating system will help the overall mixed-reality ecosystem grow even faster. Now, in addition to AI and the metaverse, we're seeing good improvements across our apps.

Mark Elliot Zuckerberg: I also think that opening our ecosystem and in opening our operating system will help the overall mixed reality ecosystem grow even faster.

Now in addition to AI in the meta versus we're seeing good improvements across our apps I touched on some of the most important trends already with whatsapp growth in the U S and AI powered recommendations and our feeds in Reals already.

Mark Elliot Zuckerberg: But I do want to mention that video continues to be a bright spot.

Mark Elliot Zuckerberg: This month, we launched an updated full screen video player on Facebook that brings together reals longer videos and live content into a single experience with a unified recommendation system.

Mark Elliot Zuckerberg: I touched on some of the most important trends already with WhatsApp growth in the U.S. and AI-powered recommendations in our feeds and Reels, but I do want to mention that video continues to be a bright spot. This month, we launched an updated full-screen video player on Facebook that brings together Reels, longer videos, and live content into a single experience with a unified recommendation system.

Mark Elliot Zuckerberg: On Instagram.

Mark Elliot Zuckerberg: <unk> and video continue to drive engagement with Reals alone now making up.

Mark Elliot Zuckerberg: 50% of the time, that's spent within the App.

Mark Elliot Zuckerberg: <unk> is growing well too.

Mark Elliot Zuckerberg: There are now more than 150 million monthly actives.

Mark Elliot Zuckerberg: And it continues to generally be on the trajectory that I hope to see.

Mark Elliot Zuckerberg: On Instagram, Reels and videos continue to drive engagement, with Reels alone now making up 50% of the time that's spent within the app. Threads is growing well, too. They have more than 150 million monthly active users, and it continues to generally be on the trajectory that I hope to see. And, of course, my daughters would want me to mention that Taylor Swift is now on Threads. That one was a big deal in my house.

Speaker Change: And of course, my daughters would want me to mention that Taylor Swift is now on threads.

Speaker Change: That one was a big deal in my House Alright.

Speaker Change: That is what I wanted to cover today I am proud of the progress we've made so far this year.

Speaker Change: We've got a lot more execution ahead to fulfill the opportunities ahead of us.

Speaker Change: Big Thank you to all of our teams who are driving all of these advances and to all of you for being on this journey with us and now here is Susan.

Thanks, Mark and good afternoon, everyone.

Susan Li: Let's begin with our consolidated results.

Susan Li: Comparisons are on a year over year basis, unless otherwise noted.

Mark Elliot Zuckerberg: All right. That is what I wanted to cover today. I am proud of the progress we've made so far this year. We've got a lot more execution ahead to fulfill the opportunities ahead of us. A big thank you to all of our teams who are driving all these advances and to all of you for being on this journey with us. Now, Susan.

Susan Li: Q1, total revenue was $36 $5 billion at 27% on both a reported and constant currency basis.

Q1, total expenses were $22 $6 billion up 6% compared to last year.

Susan Li: In terms of the specific line items cost of revenue increased 9% as higher infrastructure related costs were partially offset by lapping reality labs inventory related valuation adjustments.

Susan Li: Thanks, Mark, and good afternoon, everyone. Let's begin with our consolidated, All comparisons are on a year-over-year basis unless otherwise noted. Q1 total revenue was $36.5 billion, up 27% on both a reported and constant currency basis. Q1 total expenses were $22.6 billion, up 6% compared to last year. In terms of the specific line items, cost of revenue increased 9% as higher infrastructure-related costs were partially offset by lapping Reality Lab's inventory-related valuation adjustments. R&D increased 6%, driven mostly by higher headcount-related expenses and infrastructure costs, which were partially offset by lower restructuring costs. Marketing and sales decreased 16% due mainly to lower restructuring costs, professional services, and marketing spend.

Susan Li: R&D increased 6% driven mostly by higher head count related expenses and infrastructure costs, which were partially offset by lower restructuring costs.

Susan Li: Marketing and sales decreased 16% due mainly to lower restructuring costs professional services and marketing spend.

Susan Li: G&A increased 20% as higher legal related expenses were partially offset by lower restructuring costs.

Susan Li: We ended the first quarter with over 69300 employees up 3% from Q4.

Susan Li: First quarter operating income was $13 $8 billion, representing a 38% operating margin.

Susan Li: Our tax rate for the quarter was 13%.

Susan Li: Net income was $12 4 billion or $4 71 per share.

Susan Li: Capital expenditures, including principal payments on finance leases were $6 7 billion driven by investments in servers data centers and network infrastructure.

Susan Li: GNA increased 20% as higher legal-related expenses were partially offset by lower restructuring costs. We ended the first quarter with over 69,300 employees, up 3% from Q4. First quarter operating income was $13.8 billion, representing a 38% operating margin. Our tax rate for the quarter was 13%.

Susan Li: Free cash flow was $12 $5 billion.

We repurchased $14 6 billion of our class a common stock and paid $1 3 billion in dividends to shareholders.

Susan Li: Net income was $12.4 billion, or $4.71 per share. Capital expenditures, including principal payments on finance leases, were $6.7 billion driven by investments in servers, data centers, and network infrastructure. Free cash flow was $12.5 billion. We repurchased $14.6 billion of our Class A common stock and paid $1.3 billion in dividends to shareholders, ending the quarter with $58.1 billion in cash and marketable securities and $18.4 billion in dividends.

Susan Li: Ending the quarter with $58 $1 billion in cash and marketable securities and $18 $4 billion in debt.

Speaker Change: Moving now to our segment results.

Speaker Change: I'll begin with our family of apps segment.

Speaker Change: Our community across the family of apps continues to grow with approximately $3 2 billion people using at least one of our family of apps on a daily basis in March.

Speaker Change: Q1 total family of apps revenue was $36 billion up 27% year over year.

Speaker Change: Q1 family of apps AD revenue was $35 6 billion up 27% or 26% on a constant currency basis.

Susan Li: Moving now to our segment results. I'll begin with our Family of Apps segment. Our community across the family of apps continues to grow, with approximately 3.2 billion people using at least one of our family of apps on a daily basis in March. Q1 total revenue for the Family of Apps was $36 billion, up 27% year-over-year. Q1 Family of Apps ad revenue was $35.6 billion, up 27%, or 26% on a constant currency basis. Within ad revenue, the online commerce vertical was the largest contributor to year-over-year growth, followed by gaming and entertainment, and media.

Speaker Change: Within AD revenue.

Online commerce vertical it was the largest contributor to year over year growth, followed by gaming and entertainment and media.

Speaker Change: On a user geography basis AD revenue growth was strongest in rest of world and Europe at 40% and 33% respectively.

Asia Pacific grew 25% in North America grew 22%.

Speaker Change: In Q1, the total number of AD impressions served across our services increased 20% and the average price per AD increased 6%.

Speaker Change: Impression growth was mainly driven by Asia Pacific and rest of world.

Speaker Change: <unk> growth was driven by advertiser demand, which was partially offset by strong impression growth, particularly from lower monetizing regions and surfaces.

Susan Li: On a user geography basis, ad revenue growth was strongest in the rest of the world and Europe at 40% and 33% respectively. Asia Pacific grew 25%, and North America grew 22%. In Q1, the total number of ad impressions served across our services increased 20%, and the average price per ad increased 6%. Impressions growth was mainly driven by Asia-Pacific and the rest of the world.

Speaker Change: Family of apps other revenue was $380 million in Q1 up eight 5% driven by.

Speaker Change: Business messaging revenue growth from our Whatsapp business platform.

Speaker Change: We continue to direct the majority of our investments toward the development and operation of our family of apps in Q1 family of apps expenses were $18 $4 billion.

Susan Li: Pricing growth was driven by advertiser demand, which was partially offset by strong impression growth, particularly from lower monetizing regions and services. Family of Apps' other revenue was $380 million in Q1, up 85%. Although driven by business messaging revenue growth from our WhatsApp business platform, we continue to direct the majority of our investments toward the development and operation of our family of apps. In Q1, Family of Apps expenses were $18.4 billion, representing approximately 81% of our overall expenses. Family of Apps expenses were up 7% due mainly to higher legal and infrastructure costs that were partially offset by lower restructuring costs.

Speaker Change: Representing approximately 81% of our overall expenses.

Speaker Change: <unk> expenses were up 7% due mainly to higher legal and infrastructure costs that were partially offset by lower restructuring costs.

Speaker Change: Yeah.

Family of apps operating income was $17 7 billion.

Speaker Change: Representing a 49% operating margin.

Speaker Change: Within our reality Labs segment Q1 revenue was $440 million up 30% driven by quest headset sales.

Speaker Change: Reality labs expenses were $4 3 billion down 1% year over year as higher head count related expenses were more than offset by lapping inventory related valuation adjustments and restructuring costs.

Speaker Change: Reality labs operating loss was $3 8 billion.

Susan Li: Family of Apps operating income was $17.7 billion, representing a 49% operating margin. Within our Reality Lab segment, Q1 revenue was $440 million, up 30% driven by Quest headset sales. Reality Lab's expenses were $4.3 billion, down 1% year-over-year, as higher headcount-related expenses were more than offset by lapping inventory-related valuation adjustments and restructuring costs. Reality Lab's operating loss was $3.8 billion.

Turning now to the business outlook. There are two primary factors that drive our revenue performance, our ability to deliver engaging experiences for our community and our effectiveness at monetizing that engagement over time.

Speaker Change: On the first we remain pleased with engagement trends and have strong momentum across our product priorities.

Our investments in developing increasingly advanced recommendation systems continue to drive incremental engagement on our platforms demonstrating that people are finding added value by discovering content from accounts, they're not connected to.

Susan Li: Turning now to the Business Outlook, there are two primary factors that drive our revenue performance: our ability to deliver engaging experiences for our community and our effectiveness at monetizing that engagement over time. On the first front, we remain pleased with engagement trends and have strong momentum across our product priorities. Our investments in developing increasingly advanced recommendation systems continue to drive incremental engagement on our platforms, demonstrating that people are finding added value by discovering content from accounts they're not connected to.

Speaker Change: The level of recommended content in our apps has scaled as we've improved the systems and we see further opportunity to increase the relevance and personalization recommendations as we advance our models.

Video also continues to grow across our platform and it now represents more than 60% of time on both Facebook and Instagram.

Speaker Change: <unk> remains the primary driver of that growth and we're progressing on our work to bring together reals longer form video and live video into one experience on Facebook.

Speaker Change: In April we rolled out this unified video experience in the U S and Canada, which is increasingly powered by our next generation ranking architecture that we expect will help deliver more relevant video recommendations over time.

Susan Li: The level of recommended content in our apps has scaled as we've improved these systems, and we see further opportunity to increase the relevance and personalization of recommendations as we advance our model. Video also continues to grow across our platform, and it now represents more than 60% of time on both Facebook and Instagram. Reels remains the primary driver of that growth, and we're progressing on our work to bring together Reels, longer-form video, and live video into one experience on Facebook.

Speaker Change: We're also introducing deeper integrations of generative AI into our apps in the U S and more than a dozen other countries.

Speaker Change: Along with using that AI within our chat surfaces people will now be able to use meta AI and search within our apps as well as feed in groups on Facebook. We expect these integrations will complement our social discovery strategy as our recommendation systems help people to discover and explore their interests while meta AI.

Susan Li: In April, we rolled out this unified video experience in the U.S. and Canada, which is increasingly powered by our next-generation ranking architecture that we expect will help deliver more relevant video recommendations over time. We're also introducing deeper integrations of generative AI into our apps in the U.S. and more than a dozen other countries. Along with using Meta AI within our chat surfaces, people will now be able to use Meta AI in search within our apps, as well as in feeds in groups on Facebook.

Speaker Change: <unk> them to dive deeper on topics they are interested in.

Speaker Change: Spreads also continues to see good traction as we continue to ship valuable features and scale of the community.

Speaker Change: Now to the second driver of our revenue performance increasing monetization efficiency.

Speaker Change: There are two parts to this work.

Speaker Change: The first is optimizing the level of ads within organic engagement.

Susan Li: We expect these integrations will complement our social discovery strategy, as our recommendation systems help people to discover and explore their interests, while meta-AI enables them to dive deeper on topics they're interested in. Threads also continues to see good traction as we continue to ship valuable features and scale the community. Now to the second driver of our revenue performance, increasing monetization efficiency. There are two parts to this.

Here, we continue to advance our understanding of users' preferences for viewing adds to more effectively optimize the right time place in person to show an AD to you.

Speaker Change: For example, we are getting better at adjusting the policeman and number of ads in real time based on our perception of a user's interest and add content and to minimize disruption from ads as well as innovating on new and creative ad formats.

Speaker Change: We expect to continue that work going forward, while surfaces with relatively lower levels of monetization like video and messaging will serve as additional growth opportunities.

Susan Li: The first is optimizing the level of ads within organic engagement. Here, we continue to advance our understanding of users' preferences for viewing ads to more effectively optimize the right time, place, and person to show an ad. For example, we are getting better at adjusting the placement and number of ads in real time based on our perception of a user's interest in ad content and to minimize disruption from ads as well as innovating on new and creative ad formats. We expect to continue that work going forward, while surfaces with relatively lower levels of monetization, like video and messaging, will serve as additional growth opportunities. The second part of improving monetization efficiency is enhancing marketing performance.

Speaker Change: The second part of improving monetization efficiency is enhancing marketing performance.

Speaker Change: Similar to our work with organic recommendations AI is playing an increasing role in these efforts.

Speaker Change: First we are making ongoing adds modeling improvements that are delivering better performance for advertisers.

Speaker Change: One example is our new ads ranking architecture metal lettuce, which we began rolling out more broadly last year.

Speaker Change: This new architecture allows us to run significantly larger models that generalized learnings across objectives and surfaces in place of numerous smaller AD models that have historically been optimized for individual objectives and surfaces.

This is not only leading to increased efficiency as we operate fewer models, but also improving ad performance.

Susan Li: Similar to our work with organic recommendations, AI is playing an increasing role in these efforts. First, we are making ongoing ad modeling improvements that are delivering better performance for advertisers. One example is our new ad ranking architecture, MetaLattice, which we began rolling out more broadly last year. This new architecture allows us to run significantly larger models that generalize learnings across objectives and surfaces in place of numerous smaller ad models that have historically been optimized for individual objectives and surfaces.

Speaker Change: Another way, we're leveraging AI is to provide increased automation for advertisers through our advantaged plus portfolio advertisers can automate one step of the campaign set up process, such as selecting which AD creative to show.

Our automate their campaign completely using our end to end automation tools advantage, plus shopping and advantage plus app ads.

Speaker Change: We're seeing growing use of these solutions and we expect to drive further adoption over the course of the year, while applying what we learned to our broader adds investments.

Speaker Change: Next I'd like to discuss our approach to capital allocation.

Susan Li: This is not only leading to increased efficiency as we operate fewer models but also improving ad performance. Another way we're leveraging AI is to provide increased automation for advertisers. Through our Advantage Plus portfolio, advertisers can automate one step of the campaign setup process, such as selecting which ad creative to show, or completely automate their campaign completely using our end-to-end automation tools, Advantage Plus Shopping and Advantage Plus App Ads.

Speaker Change: We continue to see compelling investment opportunities to both improve our core business in the near term.

Speaker Change: And capture significant longer term opportunities in generative AI and reality labs.

Speaker Change: As we develop more advanced and compute intensive recommendation models and scale capacity for generative AI training and inference needs, we expect that having sufficient infrastructure capacity will be critical to realizing many of these opportunities.

Speaker Change: As a result, we expect that we will invest significantly more in infrastructure over the coming years.

Susan Li: We're seeing growing use of these solutions, and we expect to drive further adoption over the course of the year while applying what we learn to our broader advertising investments. Next, I'd like to discuss our approach to capital allocation. We continue to see compelling investment opportunities to both improve our core business in the near term and capture significant longer-term opportunities in generative AI and reality labs. As we develop more advanced and compute-intensive recommendation models and scale capacity for our generative AI training and inference needs, we expect that having sufficient infrastructure capacity will be critical to realizing many of these opportunities.

Our other long term initiatives that we're continuing to make significant investments in his reality labs. We are also starting to see our AI initiatives increasingly overlap with our reality labs work for.

Speaker Change: For example, with Ray ban meta smart glasses people in the U S and Canada can now use our multimodal meta AI assistant for daily tasks without pulling out their phone.

Speaker Change: Longer term, we expect generative AI to play an increasing role in our mixed reality products, making it easier to develop immersive experiences.

Accelerating our AI efforts will help ensure we can provide the best version of our services as we transition to the next computing platform.

Susan Li: As a result, we expect that we will invest significantly more in infrastructure over the coming years. Our other long-term initiative that we're continuing to make significant investments in is Reality Lab. We are also starting to see our AI initiatives increasingly overlap with our reality labs. For example, with Ray-Ban Meta Smart Glasses, people in the US and Canada can now use our multimodal meta AI assistant for daily tasks without pulling out their phone.

Speaker Change: We expect to pursue these opportunities while maintaining a focus on operating discipline and we believe our strong financial position will allow us to support these investments while also returning capital to shareholders through share repurchases and dividends.

In addition, we continue to monitor and active regulatory landscape, including the increasing legal and regulatory headwinds in the EU and the U S that could significantly impact our business and our financial results.

Susan Li: Longer term, we expect generative AI to play an increasing role in our mixed reality products, making it easier to develop immersive experiences. Accelerating our AI efforts will help ensure we can provide the best version of our services as we transition to the next computing platform. We expect to pursue these opportunities while maintaining a focus on operating discipline, and we believe our strong financial position will allow us to support these investments while also returning capital to shareholders through share repurchases and dividends.

We also have a jury trials scheduled for June in a suit brought by the state of Texas regarding our use of facial recognition technology, which could ultimately result in a material loss.

Turning now to the revenue outlook.

Speaker Change: We expect second quarter 2020 for total revenue to be in the range of $36 $5 billion to $39 billion.

Speaker Change: Our guidance assumes foreign currency has a 1% headwind to year over year total revenue growth based on current exchange rates.

Susan Li: In addition, we continue to monitor an active regulatory landscape, including increasing legal and regulatory headwinds in the EU and the U.S. that could significantly impact our business and our financial results. We also have a jury trial scheduled for June in a suit brought by the state of Texas regarding our use of facial recognition technology, which could ultimately result in a material loss.

Speaker Change: Turning now to the expense outlook.

Speaker Change: We expect full year 2024 total expenses to be in the range of $96 billion to $99 billion updated from our prior outlook of 94 to 99 billion.

Speaker Change: Due to higher infrastructure and legal costs.

Speaker Change: For reality labs, we continue to expect operating losses to increase meaningfully year over year due to our ongoing product development efforts and our investments to further scale our ecosystem.

Susan Li: Turning now to the Revenue Outlook. We expect second quarter 2024 total revenue to be in the range of $36.5 to $39 billion. Our guidance assumes foreign currency is a 1% headwind to year-over-year total revenue growth based on current exchange rates.

Speaker Change: Turning now to the Capex outlook, we anticipate our full year 2020 for capital expenditures will be in the range of $35 to $40 billion increased from our prior range of 30% to $37 billion as we continue to accelerate our infrastructure investments to support our AI roadmap.

Susan Li: Turning now to The Expense Outlook. We expect full-year 2024 total expenses to be in the range of $96 to $99 billion, updated from our prior outlook of $94 to $99 billion due to higher infrastructure and legal costs. For Reality Labs, we continue to expect operating losses to increase meaningfully year over year due to our ongoing product development efforts and our investments to further scale our ecosystem. Turning now to the CapEx Outlook.

Speaker Change: While we are not providing guidance for years beyond 2024, we expect Capex will continue to increase next year as we invest aggressively to support our ambitious AI research and product development efforts.

Speaker Change: On to tax.

Speaker Change: Absent any changes to our tax landscape, we expect our full year 2024 tax rate to be in the mid teens.

Speaker Change: In closing Q1 was a good start to the year, we're seeing strong momentum within our family of apps and are making important progress on our longer term AI in reality labs initiatives that have the potential to transform the way people interact with our services over the coming years.

Susan Li: We anticipate our full-year 2024 capital expenditures will be in the range of $35-40 billion, increased from our prior range of $30-37 billion as we continue to accelerate our infrastructure investments to support our AI roadmaps. While we are not providing guidance for years beyond 2024, we expect CapEx will continue to increase next year as we invest aggressively to support our ambitious AI research and product development efforts. On2Tech. Absent any changes to our tax landscape, we expect our full-year 2024 tax rate to be in the mid- In closing, Q1 was a good start to the year.

Speaker Change: With that Krista, let's open up the call for questions.

Krista: Thank you we will now open the lines for a question and answer session to ask a question. Please press star one on your Touchtone phone to withdraw your question again press Star one please.

Krista: Please limit yourself to one question please.

Krista: Please pickup your handset before asking your question to ensure clarity if you wish to remain todays call. Please mute your computer speakers.

Krista: And your first question comes from the line of Eric Sheridan from Goldman Sachs. Please go ahead.

Eric Sheridan: Thank you so much for taking the questions maybe I'll ask a two parter Mark do you use the analogy of other investment cycles <unk> been through around products like stories and wheels, I know youre, not giving long term guidance today, but using those analogies how should investors think about the length and depth of this investment cycle with respect.

Susan Li: We're seeing strong momentum within our family of apps and are making important progress on our longer-term AI and Reality Labs initiatives that have the potential to transform the way people interact with our services over the coming years. With that, Krista, let's open up the call.

Krista: To either <unk>.

Krista: The reality labs, more broadly and mixed reality and you both talked about the impact it's having on the advertising ecosystem. What are you watching for in terms of adoption or utility on the consumer side to note that AI adoption is tracking along with the investments cycle. Thank you.

Krista: Thank you. We will now open the lines for a question and answer session. To ask a question, please press star 1 on your touch-tone phone. To withdraw your question, again press star 1. Please limit yourself to one question. Please pick up your handset before asking your question to ensure clarity. If you are streaming today's call, please mute your computer speakers. And your first question comes from the line of Eric Sheridan from Goldman Sachs. Please go ahead. Thank you.

Krista: Yeah in terms of the timing I think it's somewhat difficult to extrapolate from previous cycles, but.

Krista: I guess like.

Krista: The main thing that we see is that we will usually take I don't know.

Krista: A couple of years.

Krista: Or it could be a little more could be less.

Krista: To focus on building out and scaling the products and we typically don't focus that much on monetization of the new areas until they reached significant scale because it's so much higher leverage for us just to improve monetization on other things before these new products are at scale. So.

Eric Sheridan: Thank you so much for taking the questions. Maybe I'll ask a two-parter later. Mark, you use the analogy of other investment cycles you've been through around products like Stories and Reels. I know you're not giving long-term guidance today, but using those analogies, how should investors think about the length and depth of this investment cycle with respect to either AI or reality labs more broadly and mixed reality? And you both talked about the impact AI is having on the advertising ecosystem. What are you watching for in terms of adoption or utility on the consumer side to know that AI adoption is tracking along with the investment cycle?

Krista: You enter this period, where.

Krista: Where I think kind of smart investors see that the product is scaling and that there's a clear monetize able opportunity there.

Krista: Even before the revenue materializes and I think I think we've seen that.

Krista: With <unk> and with stories and with the shift to mobile and all these things were basically we build up the inventory first for a period of time and then then then we monetize it.

Mark Elliot Zuckerberg: Thank you.

Mark Elliot Zuckerberg: Yeah, in terms of the timing, I think it's somewhat difficult to extrapolate from previous cycles. But I guess the main thing that we see is that we will usually take, I don't know, a couple of years, it could be a little more, it could be less, to focus on building out and scaling the products. And we typically don't focus that much on monetization of the new areas until they reach significant scale because it's so much higher leverage for us just to improve monetization on other things before these new products are at scale.

Krista: And during that time when it is scaling it.

Krista: Sometimes it's not just the case that that we're not making money from that saying it can often actually be the case that it displaces other revenue.

Krista: Some other things so like you saw with Reals it.

Krista: We we've it's scaled and and there was a period, where it was not profitable for us as it was scaling before it became profitable. So I don't know if that's more of the analogy that I'm that I'm, making on this but I think it's.

Krista: What that suggests is that what we should all be focused on for the next period is.

Krista: As the consumer product scale.

Mark Elliot Zuckerberg: So, you enter this period where, I think, kind of smart investors see that the product is scaling and that there's a clear monetizable opportunity there even before the revenue materializes. And I think we've seen that with Reels and with Stories and with the shift to mobile and all these things where basically we build out the inventory first for a period of time, and then we monetize it. And during that time when it's scaling, sometimes it's not just the case that we're not making money from that thing.

Krista: I really just launched in a meaningful way. So we don't have any any kind of <unk>.

Krista: Hard stats to share on that but I'd say, that's the main thing that I'm focused on for this year and probably a lot of next year is growing that.

Krista: That product and the other AI products and the engagement around them.

Krista: And I think we should all have quite a bit of confidence that if those are on a good track to scale, then they're going to end up being very large businesses.

Krista: So that's the main point that I was trying to make there.

Krista: Your next question comes from the line of Brian Nowak from Morgan Stanley. Please go ahead.

Brian Nowak: Great. Thanks for taking my questions I have two the first one is on sort of the the recommendation engine improvements and even Susan when you talked about further opportunities to increase the relevance of the models can you can you just unpack that a little bit for US can you give us examples of where you are you're still running the models in a suboptimal basis.

Mark Elliot Zuckerberg: It can often actually be the case that it displaces other revenue from other things. So, like you saw with Reels, it scaled, and there was a period where it was not profitable for us as it scaled before it became profitable. So I think that that's more the analogy that I'm making on this. But I think it's... What that suggests is that what we should all be focused on for the next period is, at the consumer product scale, Meta AI really just launched in a meaningful way, so we don't have, you know, any kind of hard stats to share on that.

Brian Nowak: This or opportunities for improved signal capture use or data youre, not using where sort of the areas of improvement you see from here and then the second one when you talk about driving incremental adoption of AI tools for advertisers what are sort of some of the main gating factor as <unk> been counter to get advertisers to test these tools.

Mark Elliot Zuckerberg: But I'd say that's the main thing that I'm focused on for this year and probably a lot of next year, growing that product and the other AI products and the engagement around them. And I think we should all have quite a bit of confidence that if those are on a good track to scale, then they're going to end up being very large businesses. So that's the main point that I was trying to make there.

Brian Nowak: And how do you think about sort of addressing that throughout 'twenty, four and 'twenty five.

Speaker Change: Thanks, Brian So to your first question, you know where are there more opportunities for us to leverage and improve our recommendations models to drive engagement.

Speaker Change: One of the things I would say is historically each of our recommendation products, including wheels in feed recommendations et cetera has had their own AI model and recently, we've been developing a new model architecture with the aim for it to power a multiple recommendations products. We started partially validating this model last year by using it to power Facebook.

Brian Nowak: Your next question comes from the line of Brian Nowak from Morgan Stanley. Please go ahead. Great, thanks for taking my questions.

Susan Li: Can you just unpack that a little bit for us? Can you give us examples of where you're still running the models on a suboptimal basis or opportunities for improved signal capture use or data you're not using? Where are sort of the areas of improvement you see from here? And then, the second one, when you talk about driving incremental adoption of AI tools for advertisers, what are sort of some of the main gating factors you've encountered to get advertisers to test these tools? And how do you think about sort of addressing that throughout 24 and 25? Thanks.

Speaker Change: Wheels, and we saw meaningful performance gains on 8% to 10% increases in March time.

Speaker Change: You know as a result of deploying this.

Speaker Change: Yeah.

Speaker Change: This year, we're actually planning to extend the singular model architecture to recommend content across <unk>.

Speaker Change: Not just Facebook wheels, but also facebooks video tab as well so while it is still too early to share specific results. We're optimistic that the new model architecture will unlock increasingly relevant video recommendations over time and if it's successful we'll explore using it to power other recommendations.

Susan Li: Brian. So to your first question, you know, where are there more opportunities for us to leverage and improve our recommendation models to drive engagement? You know, one of the things I would say is, historically, each of our recommendation products, you know, including Reels, in-feed recommendations, etc., has had its own AI model. And recently, we've been developing a new model architecture with the aim of it to power multiple recommendation products. We started partially validating this model last year by using it to power Facebook Reels. And we saw meaningful performance gains, 8 to 10% increases in watch time, as a result of deploying this.

Speaker Change: An.

Speaker Change: In analog exists I would say on the AD side, you know, we've talked a little bit about the new model architecture at metal lattice that we deployed last year that consolidates smaller and more specialized models into larger models that can better learn what characteristics improve AD performance across multiple surfaces like feed in reals and multiple types of ads and objectives.

Speaker Change: The same time, and that's driven improved AD performance over the course of 2023 as we deployed it across Facebook and Instagram to support multiple objectives.

Speaker Change: Over the course of 2024, and we expect to further enhance model on performance and include support.

Susan Li: And this year, we're actually planning to extend the singular model architecture to recommend content across not just Facebook Reels but also Facebook's video tab as well. So while it's still too early to share specific results, we're optimistic that the new model architecture will unlock increasingly relevant video recommendations over time. And if it's successful, we'll explore using it to power other recommendations. An analog exists, I would say, on the advertising side. We've talked a little bit about the new model architecture at MetaLattice that we deployed last year that consolidates smaller and more specialized models into larger models that can better learn what characteristics improve ad performance across multiple surfaces, like feed and reels, and multiple types of ads and objectives at the same time.

For.

Speaker Change: Even more objectives like web and App and rollout so.

Speaker Change: There's a lot of work that we're investing in and the underlying model architecture for both organic engagement and adds that we expect is going to continue to deliver increasing ads performance overtime.

Speaker Change: The second question you asked was around getting advertisers to test and adopt a gen AI tools.

Speaker Change: You know there are there are two flavors of this the more near term version is around the Gen. II AD creative features that we have put into our.

Speaker Change: Our ads creation tools and it's early but we're seeing adoption of these features across verticals and different advertiser sizes. In particular, we've seen outsized adoption of image expansion with small businesses and this will remain a big area of focus for us in 2024, and I expect that improvements to our underlying foundation models will enhance.

Susan Li: And that's driven improved ad performance over the course of 2023, as we deployed it across Facebook and Instagram to support multiple objectives for even more objectives like web and app and ROAS. There's a lot of work that we're investing in in the underlying model architecture for both organic engagement and ads that we expect is going to continue to deliver increasing ad performance over time. The second question you asked was around getting advertisers to test and adopt Gen-AI tools. You know, there are two flavors of this.

Speaker Change: The quality of the outputs that are generated and support new features on the roadmap, but right. Now you know we have features supporting text variations image expansion and background generation and we're continuing to work to make those more performance for advertisers to create more personalized ads at scale.

Speaker Change: The longer term the longer term piece here is around.

Speaker Change: Business as you know we have been testing the ability for businesses to set up.

Susan Li: The more near-term version is around the Gen-AI ad creative features that we have put into our ad creation tools. And it's early, but we're seeing adoption of these features across verticals and different advertiser sizes. In particular, we've seen outsized adoption of image expansion with small businesses, and this will remain a big area of focus for us in 2024. And I expect that improvements to our underlying foundation models will enhance the quality of the outputs that are generated and support new features on the roadmap.

Speaker Change: As for business messaging that represent them in chats with customers I'm starting.

Speaker Change: Starting by supporting shopping use cases, such as responding to people asking for more information on our product or its availability. So this is very very early we've been testing this with a handful of businesses on.

Speaker Change: Messenger and Whatsapp and we're hearing good feedback with businesses, saying that the eyes have save them significant time bulk customer consumers noted more timely response times and we're also learning a lot from these tests to make these AI is more performance over time as well. So we will be expanding these tests over the coming months and we will continue to take our time here.

Susan Li: But right now, we have features supporting text variations, image expansion, and background generation, and we're continuing to work to make those more performant for advertisers to create more personalized ads at scale. The longer-term piece here is around business AIs. We have been testing the ability for businesses to set up AIs for business messaging that represent them in chats with customers, starting by supporting shopping use cases, such as responding to people asking for more information on a product or its availability.

Speaker Change: To get it right before we make it more broadly available.

Speaker Change: Your next question comes from the line of Mark Shmulik from Bernstein Research. Please go ahead.

Mark Elliott Shmulik: Yes, hi, thanks for taking the question.

Mark Elliott Shmulik: I guess back to that product playbook that we talked about a few times with kind of real now such a large share of kind of time spent on Instagram and Facebook how do we think about the next leg of kind of monetization growth from here in particular, as we kind of get back to kind of shopping on platform or other ways to monetize and any color there.

Susan Li: So this is very, very early. We've been testing this with a handful of businesses on Messenger and WhatsApp, and we're hearing good feedback with businesses saying that the AIs have saved them significant time, while consumers noted more timely response times. And we're also learning a lot from these tests to make these AIs more performant over time as well. So we'll be expanding these tests over the coming months, and we'll continue to take our time here to get it right before we make it more broadly available.

The roadmap.

Mark Elliott Shmulik: Beyond AD insertion from here and then.

Mark Elliott Shmulik: And then just on the AD market in particular previously we've heard a lot about kind of Chinese based advertiser contribution any color you can share there on kind of how.

Mark Elliott Shmulik: That spend is trending thank you.

Speaker Change: Sure. Thanks, Mark so.

Speaker Change: So really revenue continued to grow across Instagram and Facebook in Q1, and that's driven both by higher engagement and increased monetization efficiency through our ads ranking and delivery improvements.

Speaker Change: And we we as we mentioned we've mentioned before we don't plan on quantifying the impact from <unk> going forward, but it remains a positive contributor to overall revenue and we expect that they're going to be opportunities for us to continue improving performance and growing supply. So on the performance improvements you know we are.

Mark Elliott Shmulik: Your next question comes from the line of Mark Shmulik from Bernstein Research. Please go ahead.

Susan Li: And then, Susan, just on the ad market in particular, previously, we've heard a lot about kind of Chinese-based advertiser contribution; any color you could share on kind of how that spend is trending? Thank you.

Speaker Change: <unk>, an ongoing ranking improvements and we're continuing to make ads easier and more intuitive to interact with through work like optimizing called the actions in post click experiences, which are especially important for Dr performance and we're also optimizing ads to feel more native to Reals in Q1, we rolled out our journey I image expansion tools.

Susan Li: Thanks, Mark. So Reels revenue continued to grow across Instagram and Facebook in Q1, and that's driven both by higher engagement and increased monetization efficiency through our ads ranking and delivery improvements. Um, you know, and we, as we mentioned, uh, we've mentioned before, we don't plan on quantifying the impact from Reels going forward, but it remains a positive contributor to overall revenue. And we expect that there are going to be opportunities for us to continue improving performance and growing supply.

Across Facebook and Instagram reels after having introduced it to Instagram feed in Q4, and we're seeing again outsized adoption with small businesses. So we're excited about the opportunities to continue making these adds more performance and even though ads.

Speaker Change: The real as AD load sorry has increased over the last year. It remains lower on a per ton basis in both feed and stories. So we're going to continue to look for opportunities to thoughtfully grow it in the future and invest in creative ways to address the structural supply constraints of the reals format being more video heavy including <unk>.

Susan Li: So on the performance improvements, you know, we are investing in ongoing ranking improvements. We're continuing to make ads easier and more intuitive to interact with through work like optimizing call-to-actions and post-click experiences, which are especially important for DR performance. And we're also optimizing ads to feel more native to Reels. In Q1, we rolled out our GenAI image expansion tools across Facebook and Instagram Reels after having introduced them to Instagram Feed in Q4.

Speaker Change: Your density experiences and formats and increasingly personalizing AD loads, which we think will make sure that we're really putting ads in front of people. When they are most likely to be interested and engaged with them.

Speaker Change: The second question you asked was around China.

Speaker Change: Growth in spend from China advertisers remained strong in Q1. This was driven by online commerce in gaming and it's reflected in our Asia Pacific Advertiser segment, which remains the fastest growing region at 41% year over year in Q1, now we did see strength across other geographies as well, including a six point.

Susan Li: And we're seeing, again, outsized adoption by small businesses. So we're excited about the opportunities to continue making these ads more performant. And even though ads, the Reels ad load, sorry, has increased over the last year, it remains lower on a per-time basis than both Feed and Stories. So we're gonna continue to look for opportunities to thoughtfully grow it in the future and invest in creative ways to address the structural supply constraints of the Reels format being more video heavy, including higher density experiences and formats and increasingly personalizing ad loads, which we think will make sure that we're really putting ads in front of people when they're most likely to be interested and engage with them.

Speaker Change: The acceleration in total revenue growth from North America advertisers, so I would say that.

Speaker Change: We aren't quantifying the Q1 contribution from China, and we don't have forward looking expectations to share on quarterly China based AD revenue, but I will say that you know we are lapping periods of increasingly strong demand over the course of 2024, given the recovery of Chinese.

Susan Li: The second question you asked was around China. Growth and spend from Chinese advertisers remained strong in Q1. This was driven by online commerce and gaming, and it's reflected in our Asia-Pacific advertiser segment, which remained the fastest growing region at 41% year-over-year in Q1. However, we did see strength across other geographies as well, including a six-point acceleration in total revenue growth from North American advertisers. So, you know, I would say that, you know, we aren't quantifying the Q1 contribution from China, and we don't have forward-looking expectations to share on quarterly China-based ad revenue.

Speaker Change: China based advertisers in 2023 from their prior pandemic driven headwinds.

Speaker Change: Your next question comes from the line of Doug Anmuth from Jpmorgan. Please go ahead.

Douglas Anmuth: Thanks for taking the questions can you just talk about what's changed most in your view in the business and the opportunity now versus three months ago and is there anything youre more cautious fell in revenue in the AD market and as the AI opportunity, just even bigger and therefore, requiring more investment than expected.

Douglas Anmuth: And then Susan can you also just comment on how youre thinking about that ability to sustain growth rates over the next few quarters. As you. Please tougher comps off a big base of AD dollars. Thanks.

Yeah, I can speak to the first one I think we've gotten more optimistic.

Susan Li: But I will say that, you know, we are lapping periods of increasingly strong demand over the course of 2024, given the recovery of China-based advertisers in 2023 from their prior pandemic-driven headlines. Your next question comes from Doug Anmuth from JPMorgan. Please go ahead. Thanks for taking the questions. Can you just talk about what's changed most in your view about the business and the opportunity?

Susan Li: Vicious on AI.

Susan Li: <unk>.

Susan Li: Previously I think that our <unk>.

Susan Li: Work on this I mean, when Youre looking at last year, we were really slama too.

Susan Li: We were very excited about the model and thought that that was going to be the basis to be able to build a number of things that were valuable that integrated into our social products.

Susan Li:

Susan Li: But now I think we're in a pretty different place so with with the latest models, we're not just building.

Susan Li: Yep.

Susan Li: Good AI models that are that are going be capable of building some new good social and commerce products.

Douglas Anmuth: Your next question comes from the line of Doug Anmuth from JPMorgan. Please go ahead.

Susan Li: I actually think we're in a place where we've shown that we can build leading models and be the leading AI company in the world and that opens up a lot of additional opportunities beyond just ones that that are the most obvious ones for us so.

Mark Elliot Zuckerberg: Yeah, I can speak to the first one. I think we've gotten more optimistic and ambitious about AI. So previously, I think that our work in this. I mean, when you were looking at last year when we released LLaMA 2, we were very excited about the model and thought that that was going to be the basis to be able to build a number of things that were valuable that were integrated into our social products. But now, I think we're in a pretty different place.

Susan Li: That's.

Susan Li: This is what I was trying to refer to in my in my opening remarks, where I just view the success that we've seen with the the way that Lama three in meta AI have come together as a real validation technically that we have the talent the data and the ability to scale infrastructure to do leading work.

Mark Elliot Zuckerberg: So with the latest models, we're not just building, you know, good AI models that are going to be capable of building some new good social and commerce products. I actually think we're in a place where we've shown that we can build leading models and be the leading AI company in the world, and that opens up a lot of additional opportunities beyond just ones that are the most obvious ones for us.

Susan Li: Here and with meta AI I think that.

Susan Li: We are on our path to having that AIP, the most used and best.

Susan Li: AI assistant in the World, which I think is going to be in.

Susan Li: Normally valuable so.

Susan Li: All of that basically it.

Susan Li: Encourages me to make sure that we're investing to stay at the leading edge of this.

Mark Elliot Zuckerberg: This is what I was trying to refer to in my opening remarks, where I just view the success that we've seen with the way that LLaMA 3 and Meta AI have come together as a real validation, technically, that we have the talent, the data, and the ability to scale infrastructure to do leading work here. And with Meta AI, I think that we are on our path to having Meta AI be the most used and best AI assistant in the world, which I think is going to be enormously valuable.

And we're doing that.

Susan Li: At the time when we're also scaling the product before it is making money so.

Susan Li: That's the analogy that I was making before which is we've gone through some of those cycles before.

Susan Li: But fundamentally I think if you look at the facts of of what our team is able to produce.

Susan Li: I think it just our optimism and ambition have have just grown quite a bit and I think that this is just going to end up being a quite an important.

Set of products for us it was already going to be now I think it's it has the potential to be even more important.

Mark Elliot Zuckerberg: So, all of that basically encourages me to make sure that we're investing to stay at the leading edge of this, and we're doing that at the time when we're also scaling the product before it makes money. So that's the analogy that I was making before, which is, you know, we've gone through some of those cycles before. But fundamentally, I think if you look at the facts of what our team is able to produce, I think our optimism and ambition have just grown quite a bit.

Speaker Change: And I can take that second question Doug.

Douglas Anmuth: So you know.

Speaker Change: We arent, giving full year 2020 for guidance and obviously our revenue for the full year will be influenced by many factors, including macro conditions and things that are harder predict to predict the further out you go and of course over the course of 2024, we will also be lapping periods of increasingly strong demand.

Speaker Change: With that said, we expect to see good opportunities to continue growing engagement.

Speaker Change: Across our products driven by the investments we made in AI based content recommendations are ongoing video work and we also expect there where we will continue to drive adds performance gains and continue to to make our ads sort of more effective and and and deliver increasing value.

Mark Elliot Zuckerberg: And I think that this is just going to end up being quite an important set of products for us. It was already going to be, but now I think it has the potential to be even more important.

Susan Li: You can take that second question, Doug. So, you know, we aren't giving full year 2024 guidance, and obviously, our revenue for the full year will be influenced by, you know, many factors, including macro conditions and things that are harder to predict the further out you go. And of course, over the course of 2024, we will also be lapping periods of increasingly strong demand. So I feel like there's a lot of opportunity for us, both with our organic engagement growth and with continuing to make the ads better and to continue driving more results for advertisers.

Speaker Change: Advertisers one thing I'd I'd share for example is that we actually grew conversions at a faster rate than we grew impressions over the course of this quarter. So we are.

Speaker Change: We're expecting to them.

Speaker Change: Which basically suggest that our conversion greatest grubbing in as a as a one of the ways in which our ads are becoming more performance. So I feel like there's a lot of opportunity for us both with our organic engagement growth and with them and with continuing to to make the ads better and to continue driving more results for advertisers.

Justin Post: Your next question comes from the line of Justin Post from Bank of America. Please go ahead. Great, thank you.

Speaker Change: Your next question comes from the line of Justin Post from Bank of America. Please go ahead.

Justin Post: Great. Thank you first on the Capex, mostly you're kind of talking about an investment cycle. Here is there any way you could kind of use some of the <unk> spend over into AI are they converging and kind of.

Justin Post: Great, thank you. First, on CapEx, mostly, you're kind of talking about an investment cycle here. Is there any way you could kind of use some of the metaverse spend over into AI? Are they converging?

Susan Li: And kind of, you know, use some of the money from the other areas to kind of fund the AI? And then second, longer-term investors are very focused on returns on capital, obviously great returns on CapEx in the past with your margins today. How do we think about the returns on the capital you're spending? How are you thinking about it, I guess, going forward, you know, two, three years out? Thank you.

To use some of the money from the other areas to kind of fund the AI and then second longer term investors are very focused on returns on capital obviously, great returns on Capex in the past with your margins today.

Justin Post: How do we think about the returns on the capital Youre spending how are you thinking about it I guess.

Justin Post: Going forward two three years out thank you.

Susan Li: So, you know, on the, you know, I would say. Well, I can start with the second part and then I'll defer to Mark on the first one.

Justin Post: So you know on the.

Justin Post: I would say.

Speaker Change: Well I can start with the second part and then I'll defer to Mark on the first one.

Susan Li: You know, in terms of measuring the ROI on our CapEx investments, we've broadly categorized our AI investments into two buckets. You know, I think of them as sort of core AI work and then strategic bets, which would include Gen AI and the advanced research efforts to support that. And those are just really at different stages as it relates to being able to measure the return and drive revenue for our business.

Mark: Terms of measuring the ROI on our Capex investments.

Speaker Change: We've broadly categorized our AI investments into them.

Mark: Two buckets I think of them as sort of core AI work and and then strategic bets, which would include Gen. AI in the advanced research efforts to support that and those are just really a different stages as it relates to being able to measure the return and drive revenue for our business.

Susan Li: So with our core AI work, you know, we continue to have a very ROI-driven approach to investment, and we're still seeing strong returns as improvements in both engagement and ad performance have translated into revenue gains. Now, the second area, you know, strategic bets is where we are much earlier. Mark has talked about the potential, you know, that we believe we have to create significant value for our business in a number of areas, including, you know, opportunities to build businesses that don't exist for us today.

Mark: So with our core I work you know we continue to have a very ROI driven approach to investment and we're still seeing strong returns as improvements to.

Mark: Both engagement and AD performance have translated into revenue gains now the second area you know strategic bets as where we are much earlier Mark has talked about the potential that we believe we have to create significant value for our business in a number of areas, including you know opportunities to build businesses that don't exist on us today.

Mark: But we will need to invest ahead of that opportunity to develop more advanced models and to grow the usage of our products before they drive meaningful meaningful revenue. So while there is tremendous long term potential. We're just much earlier on the return curve.

Susan Li: But we'll need to invest ahead of that opportunity to develop more advanced models and to grow the usage of our products before they drive meaningful revenue. So, while there is tremendous long-term potential, we're just much earlier on the return curve. None of this has to do with our core AI work. What I'll say, though, is we're also building our systems in a way that gives us fungibility in how we use our capacity so we can flex it across different use cases as we identify what are the best opportunities to put that infrastructure toward.

Mark: And then with our core AI work, what I'll say, though is we're also building our systems in a way that gives us fungibility and how we use our capacity. So we can flex it across different use cases.

Mark: As we identify you know what are the best opportunities to put to put that infrastructure toward.

Speaker Change: Sure and then on the question of shifting resources from other parts of the company.

Speaker Change: I would say broadly we actually are doing that in a lot of places in terms of shifting resources from from.

Mark Elliot Zuckerberg: And then on the question of shifting resources from other parts of the company, I would say broadly, we actually are doing that in a lot of places in terms of shifting resources from other areas, whether it's compute resources or different things in order to advance the AI efforts. For Reality Labs specifically, I'm still really optimistic about building these new computing platforms long term. You know, I mentioned in my remarks up front that one of the bigger areas that we're investing in in Reality Labs is Glass.

Other areas, whether it's compute resources are different things in order to.

Speaker Change: Advance the AI efforts for reality labs, specifically, I mean, I'm still really optimistic about building these new computing platforms long term.

Speaker Change: Mentioned in my in my remarks upfront.

Speaker Change: One of the bigger areas that we're investing in in reality labs is his glasses.

Speaker Change: No thats going to be a really important platform for the future.

Speaker Change: Our outlook for that I think has improved quite a bit because previously we thought that that would need to wait until we had this full holographic display has to be a large market.

Mark Elliot Zuckerberg: We think that that's going to be a really important platform for the future. Our outlook for that, I think, has improved quite a bit because previously we thought that that would need to wait until we had these full holographic displays to be a large market. And now we're a lot more focused on the glasses that we're delivering in partnership with Ray-Ban, which I think are going really well. And so that, I think, has the ability to be a pretty meaningful and growing platform sooner than I would have expected.

Speaker Change: And now.

Speaker Change: We're a lot more focused on on the glasses that we're delivering and in partnership with Ray ban, which.

Speaker Change: I think are going really well and so.

Speaker Change: So that I think has the ability to be a pretty meaningful and growing platform sooner than than I would've expected. So so it is true that more of a reality labs work like I said is is.

Speaker Change: Is sort of focused on the AI goals as well, but I still think that we should focus on building. These long term platforms too.

Mark Elliot Zuckerberg: So it is true that more of the Reality Labs work, like I said, is sort of focused on the AI goals as well. But I still think that we should focus on building these long-term platforms too.

Your next question comes from the line of Youssef Squali from Truest Securities. Please go ahead.

Youssef Squali: Great. Thank you very much.

Youssef Squali: Your next question comes from the line of Youssef Squali from Truist Securities. Please go ahead. Great, thank you very much. Mark, with the upcoming ban or sale of TikToks in Ottawa earlier.

Youssef Squali: Mark would be upcoming Bam or sale of Clarkson Tor earlier today, how do you think that will impact.

Youssef Squali: Lugar landscape and that in particular, and what do you say to people who believe that this is potentially a slippery slope in terms of the dollar is picking up.

Youssef Squali: Your next question comes from the line of Youssef Squali from Truist Securities. Please go ahead. Great.

Youssef Squali: When there are some losers and.

Youssef Squali: Susan how big is advantaged glass in terms of the spend on the platform and just in terms of its impact on overall CPM stabilizing. Thank you very much.

Susan Li: Thanks, Youssef. We've obviously been following the events related to TikTok closely. But at this stage, it is just too early, I think, to assess its impact or what it would mean for our business. To your second question on Advantage+, you know, we're continuing to see good traction across our Advantage+ portfolio, including both with solutions, as I mentioned, that automate individual steps of the campaign creation setup, as well as ones that automate, you know, the full end-to-end process.

Youssef Squali: Thank you says we've obviously been following the events are related to tick tock closely but at this stage. It is just too early I think to assess its impact or what it would mean for.

Youssef Squali: For our business.

Speaker Change: To your second question on advantage plus you know, we're continuing to see good traction across our advantage plus portfolio.

Speaker Change: Including both with solutions you know I had mentioned this that automate individual steps of a campaign creation set up.

Speaker Change: And as well as ones that automate the full end to end process. So on the single step automation advantage plus audience. For example has seen significant growth in adoption since we made the default audience creation experience for most advertisers in Q4 and that enables advertisers to increase campaign performance by just using audience inputs as a suggestion rather than.

Susan Li: So, on single step automation, Advantage+, audience, for example, has seen significant growth and adoption since we made it the default audience creation experience for most advertisers in Q4. And that enables advertisers to increase campaign performance by just using audience inputs as a suggestion rather than a hard constraint.

Speaker Change: Hard constraint and based on tests that we ran.

Susan Li: And based on tests that we've run, campaigns using Advantage+ audience targeting saw, you know, on average, a 28% decrease in cost per click or per objective compared to using our regular targeting. On end-to-end automation, products like Advantage Plus Shopping and Advantage Plus App Campaigns, we're also seeing very strong growth. Mark mentioned that the combined revenue flowing through those two has more than doubled since last year.

Speaker Change: Campaigns using advantage plus audience targeting side.

Speaker Change: On average a 28% decrease in cost per click or per objective compared to using our regular targeting on.

Speaker Change: On the end to end automation project.

Speaker Change: Products like advantage, plus shopping and advantage plus app campaigns. We're also seeing very strong growth.

Speaker Change: Mark mentioned, the combined revenue flowing through those two has more than doubled since last year and we think there's still significant runway to broaden adoption. So we're trying to unable to enable more conversion types for advantage plus shopping in Q1, we began expanding the list of conversions that businesses could optimize for so previously it only supported purchase events in now.

Susan Li: And we think there's still significant runway to broaden adoption. So we're trying to enable more conversion types for Advantage Plus Shopping. In Q1, we began expanding the list of conversions that businesses could optimize for. Previously, it only supported purchase events, and now we've added 10 additional conversion types. And we're continuing to see

Speaker Change: We've added 10 additional conversion types and we're continuing continuing to see.

Speaker Change: Strong adoption now across our verticals.

Speaker Change: So generally I would say we are building a lot more functionality into the advantage plus tools over time, it's also where a lot of our journey I adds creative features.

Speaker Change: Have been introduced and where advertisers have the opportunity to experiment with those and we'll keep looking to apply what we learned from these products more broadly to our ads investments over the course of the year.

Susan Li: Strong adoption now across verticals. So, generally, I would say we are building a lot more functionality into the Advantage Plus tools over time. It's also where a lot of our Gen AI ads creative features have been introduced, and where advertisers have the opportunity to experiment with those. And we'll keep looking to apply what we learn from these products more broadly to our ad investments over the course of the year. Your next question comes from the line of Ken Grolewski from Wells Fargo. Please go ahead. Thank you very much. As you look out through the coming period of product

Your next question comes from the line of Ken <unk> from Wells Fargo. Please go ahead.

Ken: Thank you very much.

Ken: As you look out through the coming period of product investment how should we think about the relationship between family of apps revenue and cost growth is there any insight you can give us there.

Ken: And then maybe just one that's a little bit more specific to the G&A growth in <unk> you called out legal expenses I just wanted to see if there was any anything onetime in there that would cause the elevated growth. Once you. Thank you.

Kenneth Dorell: Your next question comes from the line of Ken Grolewski from Wells Fargo. Please go ahead.

Susan Li: Yeah, on the second part of your question, first, so on the GNA side, that was really driven, you know, by legal expenses; we recognize some accruals in Q1 related to ongoing legal matters, and you'll see more detail on that in the 10-Q. On the first part of your question, which is really about sort of the kind of long-term, you know, margin profile of Family of Apps. We aren't giving guidance on that per se.

Speaker Change: Yeah on the second part of your question first so on the G&A side.

Speaker Change: That was really driven by.

Speaker Change: Legal expenses, we recognized some accruals in Q1 related to ongoing legal matters and you'll see more detail on that in a in the 10-Q.

Speaker Change: On the first part of your question, which is really about sort of.

Speaker Change: The kind of long term.

Speaker Change: The margin profile of family of apps, we arent, we arent, giving guidance on that per se.

Susan Li: But one of the things that, you know, we really have been very disciplined about, you know, over the course of 2023 and continuing, is really operating the business in a very efficiency-oriented way. So we're being very disciplined with the allocation of new resources. You know, this is a muscle that we really built in 2023 that we believe is important for us to keep carrying forward. And I think you'll see us continue to emphasize that, especially with, you know, the Family of Apps business being at the scale that it is.

Speaker Change: But one of the things that you know we really have been very disciplined about you know over the course of 2023 and continuing is really operating the.

Speaker Change: The.

The business in a very efficiency oriented way, so we're being very disciplined with allocation of new resources and you know.

Speaker Change: This is a muscle that we really built over 2023 that.

We believe is important for us to keep carrying forward and I think youll see us continue to emphasize that especially with the the family of apps business being at the scale that it is.

Ross Sandler: Your next question comes from the line of Ross Sandler from Barclays. Please go ahead.

Speaker Change: Your next question comes from the line of Ross Sandler from Barclays. Please go ahead.

Mark Elliot Zuckerberg: Great. Mark, you partnered with Google and Bing for Meta AI organic search citations. So I guess stepping back, do you think that Meta AI, longer term, could bring in search advertising dollars at some point? Or do you view this as what others are doing, where you kind of attach a premium subscription tier once people kind of, you know, get going on it? And then the second question is, you mentioned that you guys are working on building AI tools for businesses and creators.

Speaker Change: Great.

Ross Sandler: You partnered with Google and Bing for AI.

Ross Sandler: Organic search citations.

Ross Sandler: I guess stepping back do you think that meta AI.

Ross Sandler: Longer term could bring in search advertising dollars at some point or do you view. This as what others are doing where you're kind of attach a premium subscription tier.

Once people kind of.

Ross Sandler: Going on it and then the second question is you mentioned that you guys are working on building AI tools for businesses and creators.

Mark Elliot Zuckerberg: So, I guess, how do you see the business model evolving when we all get to this stage of interacting with something like Taylor Swift's custom AI for merchandise or tickets or something like that? How is that going to play out? Thank you.

Ross Sandler: I guess, how do you see the business evolving when we all get to the stage of interacting with something like Taylor Swift custom AI.

Ross Sandler: Merchandiser tickets or something like that how is that going to play out. Thank you.

Mark Elliot Zuckerberg: All right, so yeah, on the Google and Microsoft partnerships, yeah, I mean, we work with them to have real-time information in Meta. AI. It's useful.

Ross Sandler: Alright, so yeah on the on the Google and Microsoft partnerships, Yes, I mean, we work with them to have real time information and and met AI. It's useful I think it's pretty different from search we're not we're not working on search ads or anything like that I think this wound up being a pretty different business as you can get there.

Mark Elliot Zuckerberg: I think it's pretty different from search. We're not working on search ads or anything like that. I think this will end up being a pretty different business. I do think that there will be an ability to have ads and paid content on Meta. AI interactions over time, as well as people being able to pay for it, whether it's bigger models or more compute or some of the premium features and things like that. But that's all very early in the process of fleshing out.

Ross Sandler: There will be an ability to have ads and paid content in.

Ross Sandler: Meta AI interactions over time.

Ross Sandler: As well as people being able to pay for whether it's bigger models are more compute or some of the premium features and things like that but that's all very early and flushing out the.

Mark Elliot Zuckerberg: The thing that I actually think is probably the biggest clear opportunity is all the work around business messaging. That's in addition to the stuff that we're already doing. Just generate, so, you know, increase the engagement and add quality to the apps. But the business messaging thing, I mean, whether it's a creator or, you know, one of the. 100 plus million businesses on our platform. We basically want to make it very easy for all of these folks to set up an AI to engage with their community for a business that's going to be able to do sales, commerce, and customer support.

Ross Sandler: The thing that I actually think there's probably.

Ross Sandler: The biggest clear opportunity is all the work around business messaging.

Ross Sandler: In addition to the stuff that we're already doing just just generated till you don't increase engagement and and ads quality and the ops, but the business messaging thing I mean, whether it's a creator or one of the.

The 100 plus million businesses on our platform.

Ross Sandler: We basically want to make it very easy for all of these folks to setup and AI to engage with their community for a business that's going to be to be able to do.

Ross Sandler: Sales in commerce and customer support and.

Mark Elliot Zuckerberg: I think it'll be similar for creators, although there will be more of a kind of just fun and engaging part there, but a lot of creators are on the platform because they see this as a business, too, whether they're trying to sell concert tickets or products or whatever it is that their business goal is. A lot of these folks either aren't advertising as much as they could, or in business, the business messaging parts, I think are still relatively under-monetized compared to where they will be.

Ross Sandler: I think it'll be similar for creators, although there will be more of a kind of just fun engaging part there, but a lot of creators on the platform because they see this as a business to whether they're trying to sell concert tickets or products or whatever it is that their business goal is and.

Ross Sandler: A lot of these folks either arent advertising as much as they could or.

Ross Sandler: In business the business messaging parts.

Ross Sandler: I think it's still relatively under monetized compared to where they will be.

Mark Elliot Zuckerberg: I think a lot of that is because the cost of engaging with people in messaging is still very high, but AI should bring that down dramatically for businesses and creators, and I think that that has the potential. That's probably the, Krista, beyond just increasing engagement and increasing the quality of the ads, I think that Meta-AI, Krista, we have time for one last question. And that question comes from the line of Ron Josey from Citi. Please go ahead. Great, thanks for taking the question. You know, Mark, I want to follow up on a prior question that you mentioned. Optimism has grown in terms of

Ross Sandler: <unk>.

Ross Sandler: I think a lot of that is because the cost of engaging with people and messaging is still very high but.

Ross Sandler: I should bring that down just dramatically for businesses and creators and I think that that has the potential that's probably the the.

Ross Sandler: You know beyond just increasing engagement and increasing the quality of the ads.

Ross Sandler: It's probably one of the nearer term.

Ross Sandler: Opportunities, even though that that will double its not like.

Ross Sandler: And the next quarter to quarter after that scaling thing, but it's but it's but that's not like a five year opportunity either so I think that that is one that I think there's going to be pretty exciting to look at but yeah. I mean, as Matt AI scales too I think that that will have its own opportunities to to monetize and we'll build that out over time, but like I tried to emphasize where.

Ronald Victor Josey: And that question comes from the line of Ron Josey from Citi. Please go ahead. Great, thanks for taking the question. You know, Mark, I want to follow up on something.

Ross Sandler: In the face of this where the main goal is.

Ross Sandler: Getting many hundreds of millions or billions of people to use that AI is as a as a core part of what they do that's the kind of next school building something that is Super valuable. We think this has the potential to be a very large scale and that's that's sort of the next step on the journey.

Ronald Victor Josey: Yeah, I mean, I think that the next phase for a lot of these things is handling more complex tasks and becoming more like agents rather than just chatbots, right? So when I say chatbot, what I mean is, if you send it a message, and it replies to your message, right? So it's almost like a almost a one-to-one correspondence, whereas

Speaker Change: Krista, we have time for one last question.

Speaker Change: And that question comes from the line of Ron Josey from Citi. Please go ahead.

Ronald Victor Josey: Great. Thanks for taking the question Mark I wanted to follow up on a prior question that you mentioned optimism has grown internally quite a bit just with all the improvements and investments in innovations youre, making and we're seeing that in the experienced this with a few days and that AI. So can you just talk to us maybe how that $400 per engine model just might evolve.

Mark Elliot Zuckerberg: What an agent is going to do is you give it an intent or a goal, and it goes off and probably actually performs many queries on its own in the background in order to help accomplish your goal, whether that goal is researching something online or eventually finding the right thing that you're looking to buy. You know, there's a lot of complexity and sort of different things that I think people don't even realize that they will be able to ask computers to do for them.

Mark: All of the experience on that or how you think things might change over the next call it months years.

Speaker Change: Et cetera is maybe messaging becomes a greater focus and things along those lines. So just some vision longer term. Thank you.

Speaker Change: Yeah.

Speaker Change: Think that the next phase for a lot of these things are handling more complex tasks and becoming more like agents rather than just chat bot right. So when I say chatbot, what I mean is if you send a message and it applies to your message right. So it's almost like a almost a one to one correspondence whereas.

Mark Elliot Zuckerberg: And I think basically the larger models and then the more advanced future versions that will be smaller as well are just going to enable much more interesting interactions like that. So, I mean, if you think about this, you know, even some of the business use cases that we talked about. You don't really just want a sales or customer support chatbot that can just respond to what you say. If you're a business, you have a goal, right?

Speaker Change: When the agent is going to do is you give it.

Speaker Change: Intent or a goal.

Speaker Change: Then it goes off and probably actually performs many queries on its own in the background in order to help accomplish your goal whether that goal is researching something online or.

Speaker Change: Eventually if you are finding the right thing that youre looking to buy.

Speaker Change:

Speaker Change: Yes.

Speaker Change: Theres a lot of complexity and sort of different things that I think people don't even realize that they will be able to ask computers to do for them.

Speaker Change: And I think basically the larger models and then the more advanced future versions that will be smaller as well.

Speaker Change: I was just gonna enable much more interesting.

Speaker Change: Our actions like that so I mean, if you think about this I mean, even some of the business use cases that we talked about.

Mark Elliot Zuckerberg: You're trying to support your customers well, and you're trying to position your products in a certain way and encourage people to buy certain things that map to their interests and what they'd... What they'd be interested in. That's more of like a multi-turn interaction, right? So the type of business agent that you're going to be able to enable with just a chatbot is going to be very naive compared to what we'll have in, you know, a year even.

Speaker Change: You don't really just want.

Speaker Change: Like sales or customer support chatbot that can just respond to what you say if you're a business you have a goal right. Your theyre trying to support your customers well and Youre trying to.

Speaker Change: Position your products in a certain way and encourage people to to buy certain things that maps to their interests and and what they would.

Speaker Change: Would they be interested in that.

Speaker Change: That's more of like a multi turn interaction right. So the type of a business agent that youre going to be able to enable with just a chatbot is going to be very naive compared to what we're going to have.

Speaker Change: You know a year, even but it's beyond that too is just the reasoning.

Mark Elliot Zuckerberg: But beyond that, too, is just the reasoning and planning abilities of these things grow to be able to just help guide people through the business process of engaging with, you know, whatever their goals are as a creator or a business. So I think that that's going to be extremely powerful. And I think the opportunity is really big. So, on top of that, I think what we've shown now is that we have the ability to build leading models in our company.

Speaker Change: And planning ability is if these things grow.

Speaker Change: To be able to just help guide people through.

Speaker Change: The business process of engaging with whatever your goals or is it greater or a business. So I think that that's going to be extremely powerful.

Speaker Change: Hmm.

And I think the opportunity is really big so.

Speaker Change: And on top of that I think what we've shown now is that we have the ability to build leading models in our company. So.

Mark Elliot Zuckerberg: So, So, I think it makes sense to go for it, and we will, and I think it's going to be a really good long-term investment, but I did just want to spell out on this call today the extent to which we're focusing on this and investing in this for the long term, because that's what we do.

Speaker Change: So I think it makes sense to go for it and we're going to and I think it's going to be a really good long term investment, but but I did just want to spell out on this call today.

Speaker Change: The extent to which where we're focusing on this and investing in this for the long term because that's what we do.

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

Krista: This concludes today's conference call. Thank you for your participation, and you may now disconnect.

Speaker Change: This concludes today's conference call. Thank you for your participation and you may now disconnect.

Speaker Change: Yeah.

Speaker Change: Yeah.

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: Yes.

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: [music].

Speaker Change: Yeah.