Q2 2024 Meta Platforms Inc Earnings Call

Operator: 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 Second Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise.

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 Second Quarter Earnings Conference Call.

Operator: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. To withdraw your question, again press star 1.

Krista: All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session.

Krista: If you would like to ask a question, please press star 1 on your telephone keypad. To withdraw your question, again press star 1. We ask that you limit yourself to one question. This call will be recorded. Thank you very much.

Operator: We ask that you limit yourself to one question. This call will be recorded. Thank you very much.

Kenneth Dorell: Kenneth Dorell, Metas' Director of Investor Relations. You may begin. Thank you.

Krista: Kenneth Dorell, MEDIS Director of Investor Relations. You may begin.

Kenneth Dorell: Good afternoon, and welcome to Meta Platform's second 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, the results of which may differ materially from those contemplated by these forward-looking statements.

Speaker Change: Thank you. Good afternoon and welcome to Meta Platform's second quarter 2024 earnings conference call. Joining me today to discuss our results are Mark Zuckerberg, CEO , and Susan Li, CFO .

Kenneth Dorell: Factors that could cause these results to differ materially are set forth in today's earnings press release and in our quarterly report on Form 10-Q filed with the SEC. Any forward-looking statements that we make on this call are based on assumptions as of today, and we undertake no obligation to update these statements as a result of new information or future events. During this call, we will present both GAAP and certain non-GAAP financial measures.

Speaker Change: 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.

Speaker Change: The factors that could cause these results to differ materially are set forth in today's earnings press release and in our quarterly report on Form 10-Q filed with the SEC.

Speaker Change: 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.

Kenneth Dorell: 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. Now, I'd like to turn the call over to Mark. All right.

Speaker Change: 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.

Speaker Change: 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.

Mark Elliot Zuckerberg: Thanks, Ken. And hey, everyone. Thanks for joining us today. This was a strong quarter for our community and business. We estimate that there are now more than 3.2 billion people using at least one of our apps each day. The growth we're seeing here in the U.S. has especially been a bright spot. WhatsApp now serves more than 100 million monthly active users in the U.S., and we're seeing good year-over-year growth across Facebook, Instagram, and threads as well, both in the U.S. and globally. I'm particularly pleased with the progress that we're making with young adults on Facebook. The numbers we're seeing, especially in the U.S., really go against the public narrative around who's using the app.

Mark: All right. Thanks, Ken. And hey, everyone. Thanks for joining today. This was a strong quarter for our community and business. We estimate that there are now more than 3.2 billion people using at least one of our apps each day.

Speaker Change: The growth we're seeing here in the U.S. has especially been a bright spot. WhatsApp now serves more than 100 million monthly actives in the U.S., and we're seeing good year-over-year growth across Facebook, Instagram, and threads as well, both in the U.S. and globally.

Speaker Change: I'm particularly pleased...

Speaker Change: with the progress that we're making with young adults on Facebook.

Speaker Change: The numbers we're seeing, especially in the US, really go against the public narrative around who's using the app. A couple of years ago, we started focusing our apps more on 18- to 29-year-olds, and it's good to see that those efforts are driving good results.

Mark Elliot Zuckerberg: A couple of years ago, we started focusing our apps more on 18- to 29-year-olds, and it's good to see that those efforts are driving good results. Another bright spot is Threads, which is about to hit 200 million monthly active users. We're making steady progress towards building what looks like it's going to be another major social app. And We're seeing deeper engagement, and I'm quite pleased with the trajectory here. The big theme right now is, of course, AI.

Speaker Change: Another bright spot is Threads, which is about to hit 200 million monthly actives. We're making steady progress towards building what looks like it's going to be another major social app. And we're seeing deeper engagement, and I'm quite pleased with the trajectory here.

Mark Elliot Zuckerberg: And I'll focus my comments today on three areas: what AI means for our family of apps and core business, what new AI experiences and opportunities we see, and how AI is shaping our metaverse work. So, let's start. Across Facebook and Instagram, advances in AI continue to improve the quality of recommendations and drive engagement. And we keep finding that as we develop more general recommendation models, content recommendations get better. In this quarter, we rolled out our full-screen video player and unified video recommendation service across Facebook, bringing Reels, longer videos, and live into a single experience.

Speaker Change: The big theme right now is, of course, AI, and I'll focus my comments today on three areas. What AI means for our family of apps and core business, what new AI experiences and opportunities we see, and how AI is shaping our metaverse work.

Mark Elliot Zuckerberg: And this has allowed us to extend our unified AI systems, which have already increased engagement on Facebook Reels more than our initial move from CPUs to GPUs did. Over time, I'd like to see us move towards a single unified recommendation system that powers all of the content, including things like people you may know, across all of our services. But we're not there yet.

Speaker Change: So, let's start. Across Facebook and Instagram.

Speaker Change: Advances in AI continue to improve the quality of recommendations and drive engagement.

Speaker Change: And we keep finding that as we develop more general recommendation models, content recommendations get better. In this quarter, we rolled out our full-screen video player and unified video recommendation service across Facebook, bringing Reels, longer videos, and live into a single experience.

Speaker Change: And this has allowed us to extend our unified AI systems, which had already increased engagement on Facebook Reels more than our initial move from CPUs to GPUs did.

Speaker Change: Over time, I'd like to see us move towards a single, unified recommendation system that powers all of the content, including things like people you may know, across all of our surfaces. We're not there yet.

Mark Elliot Zuckerberg: They're still upside, and we're making good progress here. AI is also going to significantly evolve our services for advertisers in some exciting ways. It used to be that advertisers came to us with a specific audience they wanted to reach, like a certain age group, geography, or interests. Eventually, we got to the point where our ad systems could better predict who would be interested than the advertisers could themselves. But today, advertisers still need to develop creative themselves.

Speaker Change: So they're still upside and we're making good progress here.

Speaker Change: AI is also going to significantly evolve our services for advertisers in some exciting ways. It used to be that advertisers came to us with a specific audience they wanted to reach, like a certain age group, geography, or interests.

Speaker Change: Eventually, we got to the point where our ad systems could better predict who would be interested than the advertisers could themselves. But today, advertisers still need to develop creative themselves. And in the coming years, AI will be able to generate creative for advertisers as well, and will also be able to personalize it as people see it.

Mark Elliot Zuckerberg: And in the coming years, AI will be able to generate creative for advertisers as well, and we'll also be able to personalize it as people see it. Over the long term, advertisers will basically just be able to tell us a business objective and a budget, and we're going to do the rest for them. We're going to get there incrementally over time, but I think this is going to be a very big deal. Moving on to some of the brand new experiences that AI enables. Last quarter, we started broadly rolling out our assistant, Meta.

Speaker Change: Over the long term, advertisers will basically just be able to tell us a business objective and a budget, and we're going to go do the rest for them. We're going to get there incrementally over time, but I think this is going to be a very big deal.

Speaker Change: Moving on to some of the brand new experiences that AI enables.

Mark Elliot Zuckerberg: AI, and it is on track to achieve our goal of becoming the most used AI assistant by the end of the year. We have an exciting roadmap ahead of things that we want to add, but the bottom line here is that Meta. AI feels like it is on track to be an important service, and it's improving quickly both in intelligence and features. Some of the use cases are utilitarian, like searching for information or role-playing difficult conversations before you have them with another person, and other uses are more creative, like the new "imagine yourself" feature that lets you create images of yourself doing whatever you want in whatever style you want.

Speaker Change: Last quarter, we started broadly rolling out our assistant, Meta AI, and it is on track to achieve our goal of becoming the most used AI assistant.

Speaker Change: By the end of the year, we have an exciting road map ahead of things that we want to add. But the bottom line here is that Meta AI feels like it is on track to be an important service, and it's improving quickly, both in intelligence and features.

Speaker Change: Some of the use cases are utilitarian, like searching for information or role-playing difficult conversations before you have them with another person.

Speaker Change: And other uses are more creative, like the new Imagine Yourself feature that lets you create images of yourself doing whatever you want in whatever style you want.

Mark Elliot Zuckerberg: And part of the beauty of AI is that it's general, so we're still uncovering the wide range of use cases for which it is valuable. An important part of our vision is that we're not just creating a single AI but enabling lots of people to create their own AIs. And this week, we launched AI Studio, which lets anyone create AIs to interact with across our apps. I think that creators are especially going to find this quite valuable.

Speaker Change: And part of the beauty of AI is that it's general, so we're still uncovering the wide range of use cases that it's valuable for.

Speaker Change: An important part of our vision is that we're not just creating a single AI, but enabling lots of people to create their own AIs.

Speaker Change: And this week we launched AI Studio, which lets anyone create AIs to interact with across our apps.

Mark Elliot Zuckerberg: There are millions of creators across our apps, and these are people who want to engage more with their communities, and their communities want to engage more with them, but there are only so many hours in the day. So now, they're going to be able to use AI Studio to create AI agents that can help them chat with their communities, answer people's questions, create content, and more. So I'm quite excited about this. But this goes beyond creators, too.

Speaker Change: I think that creators are especially going to find this quite valuable. There are millions of creators across our apps, and these are people who want to engage more with their communities, and their communities want to engage more with them, but there are only so many hours in the day.

Speaker Change: So now, they're going to be able to use AI Studio to create AI agents.

Speaker Change: that can channel them to chat with their community, answer people's questions, create content, and more. So I'm quite excited about this. But this goes beyond creators, too. Anyone is going to be able to build their own AIs based on their interests or different topics that they are going to be able to engage with or share with their friends.

Mark Elliot Zuckerberg: Everyone is going to be able to build their own AI based on their interests or different topics that they are going to be able to engage with or share with their friends. Business AIs are the other big piece here. We're still in alpha testing with more and more businesses, and the feedback we're getting is positive so far. Over time, I think that just like every business has a website, a social media presence, and an email address, in the future, I think that every business is also going to have an AI agent with whom its customers can interact.

Speaker Change: Business AIs are the other big piece here. We're still in alpha testing with more and more businesses. The feedback we're getting is positive so far.

Speaker Change: Over time, I think that just like every business has a website, a social media presence, and an email address, in the future, I think that every business is also going to have an AI agent that their customers can interact with.

Mark Elliot Zuckerberg: And our goal is to make it easy for every small business, and eventually every business, to pull all of their content and catalog into an AI agent that drives sales and saves them money. You know, when this is working at scale, I think that this is going to dramatically accelerate our business messaging revenue. There are a lot of other new opportunities here that I'm excited about, too, but I'll save those for another day when we're ready to roll them out.

Speaker Change: And our goal is to make it easy for every small business.

Speaker Change: and eventually every business to pull all of their content and catalog into an AI agent that drives sales and saves them money. When this is working at scale, I think that this is going to dramatically accelerate our business messaging revenue.

Speaker Change: There are a lot of other new opportunities here that I'm excited about too, but I'll save those for another day when we're ready to roll them out.

Mark Elliot Zuckerberg: The engine that powers all these new experiences is the LLaMA family of foundation models. And this quarter, we released LLaMA 3.1, which includes the first frontier-level open-source model, as well as new and industry-leading small and medium-sized models.

Speaker Change: The engine that powers all these new experiences is the LLaMA family of foundation models. And this quarter, we released LLaMA 3.1, which includes the first frontier-level open-source model, as well as new and industry-leading small and medium-sized models.

Mark Elliot Zuckerberg: The $405 billion model has better cost performance relative to the lead-in-close models, and because it's open, it is immediately the best choice for fine-tuning and distilling your own custom models of whatever size you need. I think we're going to look back at LLaMA 3.1 as an inflection point in the industry, where open-source AI started to become the industry standard, just like Linux. I often get asked why I'm so bullish on open source.

Speaker Change: The $405 billion model

Speaker Change: has better cost performance relative to the lead enclosed models and because it's open, it is immediately the best choice for fine-tuning and distilling your own custom models of whatever size you need.

Speaker Change: I think we're going to look back at LLaMA 3.1 as an inflection point in the industry where open source AI started to become the industry standard, just like Linux is.

Mark Elliot Zuckerberg: I wrote a letter along with the LLaMA 3.1 release explaining why I believe that open source is better for developers, for meta, and for the world more broadly. My view is that open source will be safer, will enable innovation that improves all of our lives faster, and will also create more shared prosperity. For Meta's own interests, you know, we're in the business of building the best consumer and advertiser experiences, and to do that, we need to have access to the leading technology infrastructure and not get constrained by what competitors will let us do. These models are ecosystems.

Speaker Change: I often get asked why I'm so bullish on open source.

Speaker Change: I wrote a letter, along with the LLaMA 3.1 release, explaining why I believe that open source is better for developers, for meta, and for the world more broadly. My view is that open source will be safer, will enable innovation that improves all of our lives faster, and will also create more shared prosperity.

Speaker Change: For Meta's own interests, we're in the business of building the best consumer and advertiser experiences. And to do that, we need to have access to the leading technology infrastructure and not get constrained by what competitors will let us do.

Mark Elliot Zuckerberg: They're not just kind of isolated pieces of software that we can develop by ourselves. So if we want the most robust ecosystem of tools, efficiency improvements, silicon optimizations, and other integrations to develop around our models, then we need them to be widely used by developers across the industry. And once we know that we're gonna have access to the leading models, then I'm confident that we're going to be able to build the best social and advertising experience.

Speaker Change: But.

Speaker Change: These models are ecosystems. They're not just kind of isolated pieces of software that we can develop by ourselves.

Speaker Change: So, if we want the most robust ecosystem of tools,

Speaker Change: efficiency improvements, silicon optimizations, and other integrations to develop around our models, then we need them to be widely used by developers across the industry. And once we know that we're going to have access to the leading models, then I'm confident that we're going to be able to build the best social and advertising experiences.

Mark Elliot Zuckerberg: Part of why I'm so optimistic about this is that we have a long track record of success with open source. We've saved billions of dollars with the Open Compute Project by having supply chains standardized on our infra designs. Open sourcing tools like PyTorch and React has led to real benefits for us from all the industry's contributions. This approach has consistently worked for us, and I expect it will work here, too.

Speaker Change: Part of why I'm so optimistic about this is that we have a long track record of success with open source. We've saved billions of dollars with Open Compute Project by having supply chains standardized on our infra designs.

Speaker Change: Open sourcing tools like PyTorch and React has led to real benefits for us from all the industry's contributions.

Speaker Change: This approach has consistently worked for us, and I expect it will work here too.

Mark Elliot Zuckerberg: Another major area of focus is figuring out the right level of infrastructure to support training more and more advanced models. LLaMA 3 is already competitive with the most advanced models, and we're already starting to work on LLaMA 4, which we're aiming to be the most advanced in the industry next year. We are planning for the compute clusters and data we'll need for the next several years. The amount of data needed to train LLaMA 4 will likely be almost 10 times more than what we used to train LLaMA 3, and future models will continue to grow beyond that.

Speaker Change: Another major area of focus is figuring out the right level of infracapacity to support training more and more advanced models.

Speaker Change: LLaMA 3 is already competitive with the most advanced models and we're already starting to work on LLaMA 4, which we're aiming to be the most advanced in the industry next year. We are planning for the compute clusters and data we'll need for the next several years.

Speaker Change: The amount of compute needed to train LLaMA4 will likely be almost 10 times more than what we used to train LLaMA3, and future models will continue to grow beyond that.

Mark Elliot Zuckerberg: It's hard to predict how this trend... how this will trend multiple generations out into the future, but at this point, I'd rather risk building capacity before it is needed rather than too late given the long lead times for spinning up new infrastructure projects. And as we scale these investments, we're, of course, going to remain committed to operational efficiency across the company. The last area that I want to discuss is how AI is shaping our Metaverse work, which continues to be our other long-term focus.

Speaker Change: It's hard to predict how this will trend multiple generations out into the future, but at this point, I'd rather risk building capacity before it is needed, rather than too late, given the long lead times for spinning up new infrastructure projects.

Speaker Change: And, as we scale these investments, we're of course going to remain committed to operational efficiency across the company.

Speaker Change: The last area that I want to discuss is how AI is shaping our metaverse work.

Mark Elliot Zuckerberg: Last quarter, I discussed how advances in AI have pushed back the timelines for some of our products. A few years ago, I would have predicted that holographic AR would be possible before smart AI, but now it looks like those technologies will actually be ready in the opposite order. We're well-positioned for that because of the Reality Labs investments that we've already made. Ray-Ban Meta Glasses continue to be a bigger hit sooner than we expected, thanks in part to AI.

Speaker Change: which continues to be our other long-term focus.

Speaker Change: Last quarter, I discussed how advances in AI have pulled in the timelines for some of our products. A few years ago, I would have predicted that holographic AR would be possible before smart AI, but now it looks like those technologies will

Speaker Change: We'll actually be ready in the opposite order. We're well-positioned for that because of the Reality Lab's investments that we've already made. Ray-Ban Metaglasses.

Speaker Change: continue to be a bigger hit sooner than we expected thanks in part to AI. Demand is still outpacing our ability to build them but I'm hopeful that we'll be able to meet that demand soon.

Mark Elliot Zuckerberg: Demand is still outpacing our ability to build them, but I'm hopeful that we'll be able to meet that demand soon. Essilor Luxottica has been a great partner to work with on this, and we are excited to team up with them to build future generations of AI glasses as we continue to build our long-term partnership. Quest 3 sales are also outpacing our expectations, and I think that's because it is not just the best MR headset for the price, but it's the best headset on the market, period.

Speaker Change: Essilor Luxottica has been a great partner to work with on this, and we are excited to team up with them to build future generations of AI glasses as we continue to build our long-term partnership.

Speaker Change: Quest 3 sales are also outpacing our expectations, and I think that's because it is not just the best MR headset for the price, but it's the best headset on the market, period.

Mark Elliot Zuckerberg: In addition to gaming, people are increasingly taking advantage of Quest's capabilities as a general computing platform, spending time watching videos, browsing websites, extending their PC via a virtual desktop, and more. Horizon also continues to grow across VR, mobile, and desktop, and I expect that it will become an increasingly important part of that ecosystem as well. We're hosting our annual Connect Conference on September 25th, and we will have lots of exciting updates around all of our AI and Metaverse work, so I encourage you to tune in to that.

Speaker Change: In addition to gaming, people are increasingly taking advantage of Quest's capabilities as a general computing platform, spending time watching videos, browsing websites, extending their PC via virtual desktop, and more.

Speaker Change: Horizon also continues to grow across VR, mobile, and desktop, and I expect that it will become an increasingly important part of that ecosystem as well.

Mark Elliot Zuckerberg: At the end of the day, we are in a fortunate position where the strong results that we're seeing in our core products and business give us the opportunity to make deep investments for the future. And I plan to fully seize that opportunity to build some amazing things that will pay off for our community and our investors for decades to come. The progress we're making on both the foundational technology and product experiences suggests that we're on the right track.

Speaker Change: At the end of the day, we are in the fortunate position.

Speaker Change: The progress we're making on both the foundational technology and product experiences suggests that we're on the right track.

Mark Elliot Zuckerberg: I'm proud of what our team has accomplished so far, and I'm optimistic about our ability to execute on the opportunities ahead. As always, thank you to our teams who are pushing all of this important work forward, and thanks to all of you for being on this journey with us. Thanks, Mark, and good afternoon, everyone. Let's begin with our consolidated results. All comparisons are on a year-over-year basis unless otherwise noted.

Susan J. S. Li: Q2 total revenue was $39.1 billion, up 22% or 23% on a constant currency basis. Q2 total expenses were $24.2 billion, up 7% compared to last year. In terms of the specific line items, cost of revenue increased 23%, driven primarily by higher infrastructure and Reality Lab's inventory costs. R&D increased 13%, primarily driven by higher headcount-related expenses and infrastructure costs, which were partially offset by lower restructuring costs. Marketing and sales decreased 14% due mainly to lower restructuring and headcount related costs.

Speaker Change: Q2 total revenue was $39.1 billion, up 22% or 23% on a constant currency basis.

Speaker Change: In terms of the specific line items, cost of revenue increased 23%, driven primarily by higher infrastructure and Reality Lab's inventory costs.

Speaker Change: Marketing and sales decreased 14% due mainly to lower restructuring and headcount related costs.

Susan J. S. Li: GNA decreased 12%, mostly due to lower legal-related expenses. We ended the first quarter with almost 70,800 employees, up 2% from Q1. Second quarter operating income was $14.8 billion, representing a 38% operating margin. Our tax rate for the quarter was 11%.

Speaker Change: G&A decreased 12% mostly due to lower legal-related expenses.

Speaker Change: We ended the first quarter with almost 70,800 employees, up 2% from Q1.

Speaker Change: Second quarter operating income was $14.8 billion, representing a 38% operating margin.

Susan J. S. Li: Net income was $13.5 billion, or $5.16 per share; capital expenditures, including principal payments on finance, were $8.5 billion driven by investments in servers, data centers, and network infrastructure; and free cash flow was $10.9 billion. We repurchased $6.3 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 debt.

Speaker Change: Our tax rate for the quarter was 11%.

Speaker Change: Net income was $13.5 billion or $5.16 per share.

Speaker Change: Capital expenditures, including principal payments on finance leases, were $8.5 billion, driven by investments in servers, data centers, and network infrastructure.

Speaker Change: Free Cash Flow with $10.9 Billion

Speaker Change: We repurchased $6.3 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 debt.

Susan J. S. 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 3.27 billion people using at least one of our family of apps on a daily basis in June. Q2 total revenue for the family of apps was $38.7 billion, up 22% year-over-year. Q2 Family of Apps ad revenue was $38.3 billion, up 22% or 23% 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, on a user geography basis. Ad revenue growth was strongest in the rest of the world and Europe at 33% and 26% respectively. Asia-Pacific grew 20% and North America grew 17%, on an advertiser geography basis.

Susan J. S. Li: Total revenue growth continued to be strongest in Asia-Pacific at 28%, though growth was below the first quarter rate of 41% as we lapped a period of stronger demand from China-based advertisers. In Q2, the total number of ad impressions served across our services and the average price per ad both increased 10%. Impression growth was mainly driven by Asia-Pacific and the rest of the world. Pricing growth was driven by increased advertiser demand, in part due to improved ad performance. This was partially offset by impression growth, particularly from lower-monetizing regions and surfaces.

Speaker Change: Moving now to our segment results.

Speaker Change: I'll begin with our Family of Apps segment. Our community across the Family of Apps continues to grow, with approximately 3.27 billion people using at least one of our Family of Apps on a daily basis in June .

Susan J. S. Li: Family of Apps Other revenue was $389 million, up 73%, driven primarily 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 Q2, Family of Apps expenses were $19.4 billion, representing approximately 80% of our overall expenses. Family of Ops expenses were up 4%, mostly due to higher infrastructure and headcount-related expenses, which were partially offset by lower restructuring costs.

Speaker Change: Q2 total family of apps revenue was $38.7 billion, up 22% year-over-year.

Speaker Change: Q2 Family of Apps ads revenue was $38.3 billion, up 22% or 23% on a constant currency basis.

Speaker Change: 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: on a user geography basis.

Speaker Change: ad revenue growth was strongest in rest of world and Europe at 33% and 26% respectively

Speaker Change: Asia Pacific grew 20% and North America grew 17%.

Speaker Change: On an advertiser geography basis, total revenue growth continued to be strongest in Asia Pacific at 28%, though growth was below the first quarter rate of 41% as we lapped a period of stronger demand from China-based advertisers.

Speaker Change: In Q2, the total number of ad impressions served across our services and the average price per ad both increased 10%.

Speaker Change: Impression growth was mainly driven by Asia Pacific and rest of world. Pricing growth was driven by increased advertiser demand, in part due to improved ad performance. This was partially offset by impression growth, particularly from lower monetizing regions and surfaces.

Speaker Change: Family of Apps' other revenue was $389 million, up 73%, driven primarily by 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.

Speaker Change: In Q2, Family of Apps expenses were $19.4 billion, representing approximately 80% of our overall expenses.

Speaker Change: Family of Apps expenses were up 4%, mostly due to higher infrastructure and headcount-related expenses, which were partially offset by lower restructuring costs.

Susan J. S. Li: Family of Apps operating income was $19.3 billion, representing a 50% operating margin. Within our Reality Lab segment, Q2 was $353 million, up 28% driven primarily by Quest headset sales. Reality Lab's expenses were $4.8 billion, up 21% year-over-year, driven mainly by higher headcount-related expenses and inventory costs. Reality Lab's operating loss was $4.5 billion.

Speaker Change: Family of Apps operating income was $19.3 billion, representing a 50% operating margin.

Speaker Change: Within our Reality Lab segment, Q2 was $353 million.

Speaker Change: Up 28% driven primarily by Quest headset sales.

Speaker Change: Reality Lab's expenses were $4.8 billion, up 21% year-over-year, driven mainly by higher headcount-related expenses and Reality Lab's inventory costs.

Speaker Change: Reality Lab's operating loss was $4.5 billion.

Susan J. S. 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. To deliver engaging experiences, we remain focused on executing our priorities, including video and in-feed recommendations. On Instagram, Reels engagement continues to grow as we make ongoing enhancements to our recommendations. Part of this work has been focused on increasing the share of original posts within recommendations so people can discover the best of Instagram, including content from emerging creators.

Speaker Change: Turning now to the Business Outlook.

Speaker Change: There are two primary factors that drive our revenue performance.

Speaker Change: Our ability to deliver engaging experiences for our community and our effectiveness at monetizing that engagement over time.

Speaker Change: To deliver engaging experiences, we remain focused on executing our priorities, including video and in-feed recommendations.

Speaker Change: On Instagram, Reels engagement continues to grow as we make ongoing enhancements to our recommendation systems.

Speaker Change: Part of this work has been focused on increasing the share of original posts within recommendations so people can discover the best of Instagram, including content from emerging creators.

Susan J. S. Li: Now, more than half of recommendations in the U.S. come from original posts. On Facebook, we're seeing encouraging early results from the global rollout of our unified video player and ranking systems. This initiative allows us to bring all video types on Facebook into one viewing experience, which we expect will unlock additional growth opportunities for short-form video as we increasingly mix shorter videos into the overall base of Facebook video engagement.

Speaker Change: Now, more than half of recommendations in the U.S. come from original posts.

Speaker Change: On Facebook, we're seeing encouraging early results from the global rollout of our unified video player and ranking systems in June .

Speaker Change: This initiative allows us to bring all video types on Facebook into one viewing experience, which we expect will unlock additional growth opportunities for short-form video as we increasingly mix shorter videos into the overall base of Facebook video engagement.

Susan J. S. Li: We expect the relevance of video recommendations will continue to increase as we benefit from unifying video ranking across Facebook and integrating our next-generation recommendation system, which has already shown promising gains since we began using the new systems to support Facebook Reels recommendations last year. We expect to expand these new systems to support more services beyond Facebook Video over the course of this year and next year. We're also seeing good momentum with our longer-term engagement priorities, including generative AI and threat. People have used MetaAI for billions of queries since we first introduced it.

Speaker Change: We expect the relevance of video recommendations will continue to increase as we benefit from unifying video ranking across Facebook and integrating our next generation recommendation systems.

Speaker Change: These have already shown promising gains since we began using the new systems to support Facebook Reels recommendations last year.

Speaker Change: We expect to expand these new systems to support more services beyond Facebook Video over the course of this year and next year.

Speaker Change: We're also seeing good momentum with our longer-term engagement priorities, including generative AI and threats.

Speaker Change: People have used MetaAI for billions of queries since we first introduced it.

Susan J. S. Li: We're seeing particularly promising signs on WhatsApp in terms of retention and engagement, which has coincided with India becoming our largest market for meta-AI usage. You can now use meta-AI in over 20 countries and eight languages. And in the US, we're rolling out new features like Imagine Edit, which allows people to edit images they generate with meta-AI. Beyond generative AI, the Threads community also continues to grow and deepen its engagement as we ship new features and enhance our content recommendations. Now to the second driver of our revenue performance, increasing monetization efficiency. There are two parts to this.

Speaker Change: We're seeing particularly promising signs on WhatsApp in terms of retention and engagement.

Speaker Change: which has coincided with India becoming our largest market for Meta-AI usage.

Speaker Change: You can now use Meta.AI in over 20 countries and 8 languages. And in the U.S., we're rolling out new features like Imagine.Edit, which allows people to edit images they generate with Meta.AI.

Speaker Change: Beyond generative AI, the Threads community also continues to grow and deepen their engagement as we ship new features and enhance our content recommendation systems.

Susan J. S. Li: The first is optimizing the level of ads within organic engagement. We continue to see opportunities to grow ad supply on lower monetizing surfaces like video, including within Facebook, as the mix of overall video engagement shifts more to shorter videos over time, which creates more ad insertion opportunities. More broadly, we are continuing to get better at determining the best ads to show and when to show them during a person's session across both Facebook and. This is enabling us to drive revenue growth and conversions without increasing the number of ads, or in some cases, even reducing them. The second part of improving monetization efficiency is enhancing marketing performance.

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. We continue to see opportunities to grow ad supply on lower monetizing surfaces like video.

Speaker Change: including within Facebook as the mix of overall video engagement shifts more to shorter videos over time which creates more ad insertion opportunities.

Speaker Change: More broadly, we are continuing to get better at determining the best ads to show and when to show them during a person's session across both Facebook and Instagram.

Speaker Change: This is enabling us to drive revenue growth and conversions without increasing the number of ads, or in some cases, even reducing ad load.

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

Susan J. S. Li: We continue to be pleased with our progress here, with AI playing an increasingly central role. We're improving ad delivery by adopting more sophisticated modeling techniques made possible by AI advances, including our meta-lattice ad ranking architecture, which continued to provide ad performance and efficiency gains in the second quarter. We're also making it easier for advertisers to maximize ad performance and automate more of their campaign setup with our Advantage Plus suite of solutions.

Speaker Change: We continue to be pleased with our progress here, with AI playing an increasingly central role.

Speaker Change: We're improving ad delivery by adopting more sophisticated modeling techniques made possible by AI advancements, including our meta-lattice ad ranking architecture, which continued to provide ad performance and efficiency gains in the second quarter.

Speaker Change: We're also making it easier for advertisers to maximize ad performance and automate more of their campaign setup with our Advantage Plus suite of solutions.

Susan J. S. Li: We're seeing these tools continue to unlock performance gains, with a study conducted this year demonstrating 22% higher return on ad spend for U.S. advertisers after they adopted Advantage Plus shopping campaign. AdWords has your adoption of these tools continues to expand, and we're adding new capabilities to make them even more useful. For example, this quarter, we introduced Flexible Format to Advantage Plus Shopping, which allows advertisers to upload multiple images and videos in a single ad that we can select from and automatically determine which format to serve in order to yield the best performance.

Speaker Change: We're seeing these tools continue to unlock performance gains, with a study conducted this year demonstrating 22% higher return on ad spend for U.S. advertisers after they adopted Advantage Plus shopping campaigns.

Speaker Change: AdWords has your adoption of these tools continues to expand and we're adding new capabilities to make them even more useful.

Speaker Change: For example, this quarter we introduced Flexible Format to Advantage Plus Shopping, which allows advertisers to upload multiple images and videos in a single ad that we can select from and automatically determine which format to serve in order to yield the best performance.

Susan J. S. Li: We have also now expanded the list of conversions that businesses can optimize for using Advantage Plus Shopping to include an additional 10 conversion types, including objectives like add to cart. Looking forward, we believe generative AI will play a growing role in how businesses market and engage with customers at scale. We expect this technology will continue to make it easier for businesses to develop customized and diverse ad creatives. We've seen promising early results since introducing our first generative AI ad features, image expansion, background generation, and text generation, with more than 1 million advertisers using at least one of these solutions in the past month. In May, we began rolling out full image generation capabilities into Advantage Plus Creative, and we're already seeing improved performance from advertisers using the tool.

Speaker Change: We have also now expanded the list of conversions that businesses can optimize for using Advantage Plus Shopping to include an additional 10 conversion types, including objectives like Add to Cart.

Speaker Change: Looking forward, we believe generative AI will play a growing role in how businesses market and engage with customers at scale.

Speaker Change: We expect this technology will continue to make it easier for businesses to develop customized and diverse ad creatives.

Speaker Change: We've seen promising early results since introducing our first generative AI ad features, image expansion, background generation, and text generation, with more than 1 million advertisers using at least one of these solutions in the past month.

Speaker Change: In May, we began rolling out full image generation capabilities into Advantage Plus Creative, and we're already seeing improved performance from advertisers using the tool.

Susan J. S. Li: Finally, we expect AI will help businesses communicate with customers more efficiently through messaging. We're starting by testing the ability for businesses to use AI in their chats with customers to help sell their goods and services and generate leads. While we are in the early stages, we continue to expand the number of advertisers we're testing with and have seen good advances in the quality of responses since we began using LLaMA 3. Next, I would like to discuss our approach to capital allocation, which remains unchanged.

Speaker Change: Finally, we expect AI will help businesses communicate with customers more efficiently through messaging. We're starting by testing the ability for businesses to use AI in their chats with customers to help sell their goods and services and to generate leads.

Speaker Change: While we are in the early stages, we continue to expand the number of advertisers we're testing with, and have seen good advances in the quality of responses since we began using LLaMA 3.

Speaker Change: Next, I would like to discuss our approach to capital allocation, which remains unchanged. We continue to invest both in enhancing our core experiences in the near term and developing technologies that we believe will transform how people engage with our services in the years ahead.

Susan J. S. Li: We continue to invest both in enhancing our core experiences in the near term and developing technologies that we believe will transform how people engage with our services in the years ahead. We expect that having sufficient compute capacity will be central to many of these opportunities, so we are investing meaningfully in infrastructure to support our core AI work in content ranking and ads, as well as our generative AI and advanced research efforts.

Speaker Change: We expect that having sufficient compute capacity will be central to many of these opportunities. So we are investing meaningfully in infrastructure to support our core AI work in content ranking and ads, as well as our generative AI and advanced research efforts.

Susan J. S. Li: Our ongoing investment in core AI capacity is informed by the strong returns we've seen and expect to deliver in the future as we improve the relevance of recommended content and ads on our platform. While we expect the returns from generative AI to come in over a longer period of time, we are mapping these investments against the significant monetization opportunities that we expect to be unlocked across customized ad creative, business messaging, a leading AI assistant, and organic content generation.

Speaker Change: Our ongoing investment in core AI capacity is informed by the strong returns we've seen and expect to deliver in the future as we advance the relevance of recommended content and ads on our platform.

Speaker Change: Well, we expect the returns from generative AI to come in over a longer period of time.

Speaker Change: We are mapping these investments against the significant monetization opportunities that we expect to be unlocked across customized ad creative, business messaging, a leading AI assistant, and organic content generation.

Susan J. S. Li: As we scale generative AI training capacity to advance our foundation models, we will continue to build our infrastructure in a way that provides us with flexibility in how we use it over time. This will allow us to direct training capacity to Gen-AI inference or to our core ranking and recommendation work when we expect that doing so would be more valuable. We will also continue our focus on improving the cost efficiency of our workloads over time.

Speaker Change: As we scale generative AI training capacity to advance our foundation models, we will continue to build our infrastructure in a way that provides us with flexibility in how we use it over time.

Speaker Change: This will allow us to direct training capacity to GenAI inference or to our core ranking and recommendation work when we expect that doing so would be more valuable.

Speaker Change: We will also continue our focus on improving the cost efficiency of our workloads over time.

Susan J. S. Li: Reality Labs remains our other long-term initiative that we continue to invest meaningfully in. Quest 3 is selling well, and Ray-Ban Meta's smart glasses are showing very promising traction, but the early signals that we are seeing across demand, usage, and retention are increasing our confidence and the long-run potential of AR glasses.

Speaker Change: Reality Labs remains our other long-term initiative that we continue to invest meaningfully in.

Speaker Change: Quest 3 is selling well, and Ray-Ban Meta's smart glasses are showing very promising traction. But the early signals that we are seeing across demand, usage, and retention, increasing our confidence.

Susan J. S. Li: Finally, as we pursue these investments across near and long-term priorities, we will remain focused on operating the business efficiently. Turning now to the Revenue Outlook, we expect third quarter 2024 total revenue to be in the range of $38.5 to $41 billion. Our guidance assumes foreign currency is a 2% headwind to year-over-year total revenue growth based on current exchange rates.

Speaker Change: and the long-run potential of AR glasses.

Speaker Change: Finally, as we pursue these investments across near and long-term priorities, we will remain focused on operating the business efficiently.

Susan J. S. Li: Turning now to the Expense Outlook, we expect full year 2024 total expenses to be in the range of $96,000 due to our expanded infrastructure footprint. Turning now to the CapEx outlook, we anticipate our full-year 2024 capital expenditures will be in the range of $37 to $40 billion, updated from our prior range of $35 to $40 billion. While we continue to refine our plans for next year, we currently expect significant CapEx growth in 2025 as we invest to support our AI research and our product development efforts. On to tax. Absent any changes to our tax landscape, we expect our full-year 2024 tax rate to be in the mid-teens.

Speaker Change: Turning now to the Revenue Outlook.

Speaker Change: We expect third quarter 2024 total revenue to be in the range of $38.5 to $41 billion. Our guidance assumes foreign currency is a 2% headwind to year-over-year total revenue growth based on current exchange rates.

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.

Speaker Change: with our expanded infrastructure footprint.

Speaker Change: Turning now to the CapEx outlook, we anticipate our full year 2024 capital expenditures will be in the range of 37 to 40 billion dollars, updated from our prior range of 35 to 40 billion dollars.

Speaker Change: While we continue to refine our plans for next year, we currently expect significant CapEx growth in 2025 as we invest to support our AI research and our product development efforts.

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

Speaker Change: In addition, we continue to monitor an 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.

Operator: 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 returns. In closing, Q2 was another good quarter. We continue to execute well across our business priorities and have exciting opportunities in front of us to deliver more value to the people and businesses using our products around the world. With that, Krista, let's open up the call to questions.

Speaker Change: In closing, Q2 is another good quarter. We continue to execute well across our business priorities and have exciting opportunities in front of us to deliver more value to the people and businesses using our products around the world. With that, Krista, let's open up the call for questions.

Operator: Thank you. We will now open the lines for a question and answer session. To ask a question, please press star one on your touch-tone phone. To withdraw your question, again, press star one. And 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.

Krista: Thank you.

Krista: 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. And please limit yourself to one question.

Speaker Change: 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 Brian Nowak from Morgan Stanley . Please go ahead.

Operator: And your first question comes from the line of Brian Nowak from Morgan Stanley. Please go ahead. Great, thanks for taking my questions. I have two: one for Mark and one for Susan.

Brian Thomas Nowak: Great, thanks for taking my questions. I have two, one for Mark, one for Susan. Mark, I wanted to sort of go back to some of the new Karen of AI enabled use cases for users and advertisers. You talked about MetAI, Studio, Chatbots, Diffusion Models.

Mark Elliot Zuckerberg: Mark, I wanted to sort of go back to some of the new Karen of AI-enabled use cases for users and advertisers. You talked about Meta AI, Studio, Chatbots, and Diffusion Models. If you could just sort of hone in on one or two of those that you're most excited about, where you're seeing good signals that could be a real driver for the business in 25, 26, just so we sort of know, you know, where you're most focused on all those opportunities and be helpful.

Speaker Change: If you could just sort of hone in on one or two of those that you're most excited about, you're seeing good signal that could be a real driver for the business in 25, 26, just so we sort of know, you know, where are you most focused on all those opportunities and be helpful.

Mark Elliot Zuckerberg: And the second one, Susan, you have a lot of CapEx priorities from building new infrastructure for next-generation models and compute capacity. Just walk us through the CapEx philosophy and any guardrails you have around ensuring you generate a healthy return on invested capital for investors from all the CapEx. I can take the first one.

Susan: And the second one, Susan, you have a lot of CapEx priorities from building new infrastructure for next-generation models, compute capacity. Just walk us through again on the CapEx philosophy and any guardrails you have around ensuring you generate a healthy return on invested capital for investors from all the CapEx things.

Mark Elliot Zuckerberg: So I think the things that will drive the most results in 2025 and 2026 are actually the first category of things that I talked about in my comments, which are the ways that AI is shaping existing products. So the ways that it's improving recommendations and helping people find better content, as well as making advertising experiences more effective. I think there's a lot of upside there.

Speaker Change: I can take the first one.

Speaker Change: So I think the things that will drive the most results in 25 and 26 are actually the first category of things that I talked about in my comments, which are...

Speaker Change: The ways that AI is shaping the existing products, so the ways that it's improving recommendations and helping people...

Speaker Change: Find better content as well as making the advertising experiences more effective. I think there's a lot of upside there Those are already products that are at scale the AI work that we're doing is going to It's going to improve that it'll improve the experience and the business results

Mark Elliot Zuckerberg: Those are already products that are at scale. The AI work that we're doing is going to improve that. It'll improve the experience and the business results. The other areas that we're working on, I mean, I think you all know this from following our business for a while, but We have a relatively long business cycle of starting a new product, scaling it to something that reaches a billion people or more, and only then really focusing on monetizing its scale. So, you know, realistically, for things like meta AI or AI studio.

Speaker Change: The other areas that we're working on, and I think you all know this from

Speaker Change: following our business for a while but

Speaker Change: We have a relatively long business cycle of starting a new product, scaling it to something that reaches a billion people or more, and only then really focusing on monetizing at scale. So, you know, realistically, for things like meta-AI,

Mark Elliot Zuckerberg: I mean, these are things that I think will increase engagement in our products and have other benefits that will improve business and engagement in the near term. But before we're really talking about monetization of any of those things by themselves, I don't think that anyone should be surprised. I would expect that it will be years, right? I think that it's like what we've seen with Reels.

Speaker Change: AI Studio. I mean these are things that I think will increase engagement in our products and have other benefits that will improve the the business and engagement in the near term.

Speaker Change: But before we're really talking about monetization of any of those things by themselves, I mean, I don't think that anyone should be surprised that I would expect that that will be years, right? I think that that's like what we've seen with Reels, it's what we saw with all these things. But I think, you know, for those who have followed our business for a long time,

Mark Elliot Zuckerberg: It's what we saw with all these things. But I think for those who have followed our business for a long time, you can also get a pretty good sense of when things are going to work years in advance. And I think that the people who bet on those early indicators tend to do pretty well, which is why I want to share in my comments the early indicator that we had on Meta AI, which is, I mean, look, it's early last quarter. I think it just started rolling it out a week or two before our earnings call.

Speaker Change: You can also get a pretty good sense of when things are going to work.

Speaker Change: Years in advance and I think that the people who bet on those early indicators tend to do pretty well

Speaker Change: which is why I want to share in my comments the...

Speaker Change: early indicator that we had on Meta-AI.

Speaker Change: which is...

Mark Elliot Zuckerberg: This time, we're a few months later, and what we can say is, I think we are on track to achieve our goal of being the most used AI assistant by the end of this year. And I think that's pretty big deal. But is that the only thing we want to do? No.

Speaker Change: I mean, look, it's early last quarter. We, I think, had just started rolling it out a week or two before our earnings call.

Speaker Change: We hope you have a good day. We'll see you next time.

Speaker Change: This time, you know, we're a few months later, and what we can say is I think we are on track to achieve our goal of being the most used AI assistant.

Mark Elliot Zuckerberg: I mean, we obviously want to kind of grow that and grow the engagement on that to be a lot deeper, and then we'll focus on monetizing it over time. But the early signals on this are good.

Speaker Change: by the end of this year, and I think that's a pretty big deal.

Speaker Change: is that the only thing we want to do? No. I mean, we obviously want to kind of grow that and grow the engagement on that to be a lot deeper, and then we'll focus on monetizing it over time, but the early signals on this are good, and I think that that's kind of all that we could reasonably have insight into at this point. But I do think that...

Mark Elliot Zuckerberg: And I think that that's sort of all that we could reasonably have insight into at this point. But I do think that part of what's so fundamental about AI is that it's going to end up affecting almost every product that we have in some way. It will improve the existing ones and will make a whole lot of new ones possible. So that's why there are all the jokes about how all the tech CEOs get on these earnings calls and just talk about AI the whole time. It's because it's actually super exciting and it's going to change all these different things over multiple time horizons. And Brian, I can take the second question.

Speaker Change: Part of what's so fundamental about AI is it's going to end up affecting

Speaker Change: almost every product that we have in some way. It will improve the existing ones and will make a whole lot of new ones possible. So it's, you know, it's why, you know, there are all the jokes about how all the tech CEOs get on these earnings calls and just talk about AI the whole time. It's because it's actually super exciting, and it's going to change all these different things over multiple time horizons.

Susan J. S. Li: You know, on the ROI part of your question, I would broadly characterize our AI investments into two buckets, Core AI and Gen AI, and the two are really at different stages as it relates to driving revenue for our businesses and our ability to measure returns. For our Core AI work, you know, we continue to take a very ROI-based approach to our investment here. We're still seeing strong returns as improvements in both engagement and ad performance have translated into revenue gains. Gen AI is where we're much earlier, as Mark just mentioned in his comments. We don't expect our Gen AI products to be a meaningful driver of revenue in 24.

Speaker Change: And Brian , I can take the second question.

Brian Thomas Nowak: You know, on the ROI part of your question, I would broadly characterize our AI investments into two buckets.

Brian Thomas Nowak: Core AI, and Gen AI.

Brian Thomas Nowak: and the two are really at different stages as it relates to driving revenue for our businesses and our ability to measure returns. On our core AI work, you know, we continue to take a very ROI-based approach to our investment here. We're still seeing strong returns as improvements to both engagement and ad performance have translated into revenue gains, and it makes sense for us to continue investing here.

Brian Thomas Nowak: Gen AI is where we're much earlier, as Mark just mentioned in his comments. We don't expect our Gen AI products to be a meaningful driver of revenue in 24.

Susan J. S. Li: But we do expect that they're going to open up new revenue opportunities over time that will enable us to generate a solid return on our investment while we're also open-sourcing subsequent generations of LLaMA. And we've talked about the four primary areas that we're focused here on the Gen-AI opportunities to enhance the core ads business, to help us grow in business messaging, you know, the opportunities around Meta-AI, and the opportunities to grow core engagement over time.

Mark: But we do expect that they're going to open up new revenue opportunities over time that will enable us to generate a solid return off of our investment.

Mark: while we're also open sourcing subsequent generations of LLaMA. And we've talked about the four primary areas that we're focused here on the Gen AI opportunities to enhance the core ads business, to help us grow in business messaging, you know, the opportunities around Meta-AI, and the opportunities to grow core engagement over time.

Susan J. S. Li: The other thing I would say is that we're continuing to build our AI infrastructure with fungibility in mind so that we can flex capacity where we think it will be put to best use. For example, the infrastructure that we build for GenAI training can also be used for GenAI reference inference.

Mark: The other thing I would say is...

Mark: We're continuing to build our AI infrastructure with fungibility in mind so that we can flex capacity where we think it will be put to best use.

Mark: The infrastructure that we build for Gen AI training can also be used for Gen AI inference. We can also use it for ranking and recommendations by, you know, making certain modifications like adding general compute and storage.

Susan J. S. Li: We can also use it for ranking and recommendations by making certain modifications like adding general compute and storage. And we're also employing a strategy of staging our data center sites at various phases of development, which allows us to flex up to meet more demand and less lead time if needed, while limiting how much spend we're committing to in the coming years. So, you know, while we do expect that we are, you know, going to grow CapEx significantly in 2025, we feel like we have a good framework in place in terms of thinking about where the opportunities are and making sure that we have the flexibility to deploy it as it makes the most. Your next question comes from the line of Mark Shmulik with Bernstein. Please go ahead.

Mark: And we're also employing a strategy of staging our data center sites at various phases of development, which allows us to flex up to meet more demand and less lead time if needed, while limiting how much spend we're committing to in the outer years.

Mark: So, you know, while we do expect that we are going to grow CapEx significantly in 2025, we feel like we have a good framework in place in terms of thinking about where the opportunities are and making sure that we have the flexibility to deploy it as makes the most sense.

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

Susan J. S. Li: Yes, hi, thanks for taking the question. Just as we look at the revenue guidance and the outlooks, Susan, any color you can share on the state of the overall digital ad market? And, you know, you've highlighted some areas where you're seeing strength versus kind of some of the idiosyncratic efforts you've made to kind of improve the efficacy of the ad product. Thank you. Hi Mark.

Mark Elliott Shmulik: Yes, hi, thanks for taking the question. Just as we look at the revenue guidance and the outlooks, Susan, any color you can share just kind of the state of the overall digital ad market, and you've highlighted some areas where you're seeing strength, versus kind of some of the idiosyncratic efforts you've made to kind of improve the efficacy of the ad product. Thank you.

Susan J. S. Li: You know, we're continuing to see healthy global advertising demand, and we're also delivering, you know, ongoing ad performance improvements related to all of the investments that we've continued to make over time and improving these sorts of ads, targeting, ranking, delivery, all of the fundamental infrastructure there. And we expect that all of that will continue to benefit ad spend in Q3. We do expect, you know, year-over-year growth to slow in Q3, as we are lapping up, you know, strong growth from China-based advertisers, as well as strong Reels impression growth from a year ago.

Mark: Hi Mark.

Susan: You know, we're continuing to feed healthy global advertising demand, and we're also delivering, you know, ongoing ad performance improvements.

Speaker Change: Just related to all of the investments that we've continued to make over time in improving these sort of ads, targeting, ranking, delivery, all of the fundamental infrastructure there. And we expect that all of that

Mark: will continue to benefit ad spend in Q3. We do expect, you know, year-over-year growth to slow in Q3 as we are lapping, you know, strong growth from China-based advertisers.

Mark: as well as strong Reels impression growth from a year ago. And we also expect modestly larger FX headwinds in Q3 based on current rates.

Susan J. S. Li: And we also expect modestly larger FX headwinds in Q3, based on current rates. Your next question comes from the line of Eric Sheridan with Goldman Sachs. Please go ahead.

Speaker Change: Your next question comes from the line of Eric Sheridan with Goldman Sachs. Please go ahead.

Mark Elliot Zuckerberg: Thank you so much for taking the question. I'll just ask one. You called out building community size in WhatsApp in the United States, as well as threads. How are you thinking about those newer, faster-growing elements of either messaging or threads as a platform, and the mix between the potential for engagement growth and overall monetization longer term of either the messaging layer or threads, and what you're most excited about there to build to sort of capitalize on scale? But bring it back to monetization. Thank you. I can start, and Susan can jump in if she has anything else that she wants to add.

Eric James Sheridan: Thank you so much for taking the question. I'll just ask one. You called out building community size in WhatsApp in the United States as well as Threads. How are you thinking about those newer, faster-growing elements of either messaging or Threads as a platform?

Eric James Sheridan: and the mix between the potential for engagement growth and overall monetization longer-term of either the messaging layer or threads and what you're most excited about there to build to sort of capitalize on scale but bring it back towards monetization. Thank you.

Speaker Change: I can start and Susan can jump in if she has anything else that she wants to add.

Mark Elliot Zuckerberg: So the WhatsApp stat, I think, is really important as a business trend just because the United States punches above its weight in terms of, you know, it's such a large percent of our revenue. So, you know, before WhatsApp was sort of the leading messaging app in many countries around the world, but not in the U.S. And I think now that we're starting to make inroads into leading in the U.S., as more and more people use the product and realize that, hey, this is a really good experience, it's the best experience for cross-platform communication and groups and all these different things, I think that that's So I think that's one reason why it's really relevant.

Susan: So the WhatsApp stat, I think, is...

Speaker Change: It's really important as a business trend, just because...

Speaker Change: The United States punches above its weight in terms of

Susan: You know, it's such a large percent of our revenue.

Susan: So, before, WhatsApp was sort of the leading messaging app in many countries around the world.

Mark: But not in the U.S. And I think now that we're starting to make inroads into leading in the U.S. as more and more people use the product and realize that, hey, this is a really good experience. It's the best experience for cross-platform communication and groups and on all these different things.

Mark: I think that's going to just mean that all of the work that we're doing to grow the business opportunity there over time is just going to have a big tailwind if the U.S. ends up being a big market. So I think that's one reason why it's really relevant.

Mark Elliot Zuckerberg: It's obviously also personally somewhat gratifying to see all the people around us starting to use WhatsApp. That's pretty fun, but maybe somewhat less relevant from a business perspective. Threads, I think...

Mark: It's obviously also personally somewhat gratifying to see, you know, all the people around us starting to use WhatsApp. That's pretty fun, but maybe somewhat less relevant from a business perspective. Threads, I think...

Mark Elliot Zuckerberg: It's another example of something that got off to about as good a start as any app that I can think of. I think it was the fastest growing app among 100 million people. And it's a good reminder that even when you have that start, the path from there to a billion people using an app is still multiple years. And that's our product cycle. And I think that that's something that is a little bit different about Meta and the way we build consumer products and businesses around them than a lot of other companies that ship something and start selling it and making revenue from it immediately.

Speaker Change: It's another example of something that, you know, it got off to about as good of a start as any app that I can think of. I think it was the fastest growing app to 100 million people.

Speaker Change: It's a good reminder that even when you have that start, the path from there to a billion people using an app is still multiple years. And that's our product cycle. And I think that that's something that is a little bit different about Meta and the way we build consumer products and business around them than a lot of other companies that ship something and start selling it and making revenue from it immediately. So I think that's something that our investors and folks thinking about analyzing the business have needed to always grapple with is, you know, all these new products, we ship them, and then there's a multi-year time horizon between scaling them and then scaling them into not just consumer experiences, but very large businesses.

Mark Elliot Zuckerberg: So I think that's something that our investors and folks thinking about analyzing the business always need to grapple with are, you know, all these new products. We ship them, and then there's a multi-year time horizon between scaling them and then scaling them into not just consumer experiences but very large businesses. But, the thing that I think is just super exciting about Threads is that, you know, we've been building this company for 20 years, and there just aren't that many opportunities that come around to grow a billion-person app. I mean, there are, I don't know, maybe a dozen of them in the world or something, right?

Mark: But...

Mark: The thing that I think is just super exciting about Threads is that...

Mark Elliot Zuckerberg: You know, we've been building this company for 20 years, and there just are not that many opportunities that come around to grow a billion-person app. I mean, there are, I don't know, maybe a dozen of them in the world or something, right? I mean, there are certainly more of them outside the company than inside the company, but we do pretty well. And being able to add another one to the portfolio, if we execute really well on this, you know, I think it's going to be a huge success. So thank you very much.

Susan J. S. Li: I mean, there are certainly more of them outside the company than inside the company, but, you know, we do pretty well, and being able to add another one to the portfolio, if we execute really well on this, is just really exciting to have that potential. Now, obviously, there's a ton of work between now and then, and we're, you know, we're almost at $200 million, so it's a really good milestone, and I'm excited about that. There is a lot of work between this and it being a large part of the business, but I do think that these kinds of opportunities are pretty rare, and that's something that we're just really excited about.

Mark: is just really exciting to have that potential. Now, obviously, there's a ton of work between now and there. And we're almost at 200 million. So it's a really good milestone. I'm excited about that. A lot of work between this and it being a large part of the business.

Mark: But I do think that these kind of opportunities are pretty rare, and that's something that we're just really excited about. I think the team is doing great work on it.

Susan J. S. Li: I think the team is doing great work on it. You know, Eric, I would just add to that, in terms of nearer-term sources of impression growth, we really expect that video is going to remain a source of impression growth for us in the second half. On Instagram, we expect Reels to continue to drive growth, while on Facebook, we expect to grow overall video time while increasing the mix of short-form video, which creates more impression growth opportunities.

Mark: You know, Eric, I would just add to that in terms of nearer-term sources of impression growth, you know, we really expect that video is going to remain a source of impression growth for us in the second half.

Eric James Sheridan: On Instagram, we expect Reels to continue to drive growth, while on Facebook, we expect to grow overall video time while increasing the mix of short-form video, which creates more impression growth opportunities. And generally, we expect continued community growth across our apps.

Susan J. S. Li: And generally, we expect continued community growth across our apps. Your next question comes from Doug Anmuth with JPMorgan. Please go ahead. Great, thanks for taking the questions. One for Mark, one for Susan.

Mark Elliot Zuckerberg: Mark, just in terms of infrastructure and CapEx, you've talked about building out not just for LLaMA 3 and 4, but really out to 7 perhaps, and then LLaMA 4, 10x the compute required versus LLaMA 3. Just given how much you're building ahead, how does that influence the shape of the CapEx curve over a multi-year period? And then Susan, if you could talk a little bit more about that 3Q outlook. I know you're talking about software comps, but at the same time, it really suggests only a point of FX-neutral D-cell at the high end. So just curious if there's anything else you can point to more specifically that's driving the expected strength here. Thanks. Thanks, Doug.

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

Speaker Change: Alright, thanks for taking the questions. One for Mark, one for Susan.

Douglas Till Anmuth: Mark, just in terms of infrastructure and CapEx, you've talked about currently building out not just for LLaMA 3 and 4, but really out to 7 perhaps, and then LLaMA 4, 10x the compute required versus LLaMA 3. Just given how much you're building ahead, how does that influence the shape of the CapEx curve over a multi-year period?

Speaker Change: And then, Susan, if you could talk a little bit more about that 3Q outlook. I know you're talking about tougher comps, but at the same time, it really suggests only a point of FX-neutral decel at the high end. So just curious if there's anything else you can point to more specifically that's driving the expected strength here. Thanks.

Susan J. S. Li: I can go ahead and talk about both of those. So your first question was sort of about the longer-term CapEx outlook. We haven't really, you know, you know, we haven't really... Sheridan Outlook sort of on the longer-term CapEx trajectory. In part, you know, infrastructure is an extraordinarily dynamic planning area for us right now. We're continuing to work through what the scope of the Gen-AI roadmaps will look like over that time.

Speaker Change: and many more.

Speaker Change: Thanks Doug. I can go ahead and talk about both of those. So your first question was sort of about the longer term CapEx outlook. We haven't really, you know, we haven't really

Speaker Change: [inaudible]

Sheridan: Sheridan Outlook sort of on the longer-term CapEx trajectory.

Speaker Change: In part, you know, infrastructure is an extraordinarily dynamic planning area for us right now. We're continuing to work through, you know, what the scope of the Gen AI roadmaps, you know, will look like over that time.

Susan J. S. Li: Our expectation, obviously, again, is that we are going to significantly increase our investments in AI infrastructure next year, and, you know, we'll give further guidance, as appropriate. But we are building all of that CapEx, again, with the factors in mind that I talked about previously, thinking about, you know, both how to build it flexibly so we can deploy it to core AI and Gen AI use cases as needed. And, you know, making sure that we both feel good about the returns that we're seeing on the core AI investments, which we're able to measure more immediately, and that we feel good about the opportunities in the Gen AI effort. Your second question was about the Q3 revenue outlook.

Speaker Change: Our expectation, obviously, again, is that we are going to significantly increase our investments in AI infrastructure next year, and we'll give further guidance.

Speaker Change: as appropriate.

Speaker Change: But we are building, you know, all of that CapEx again with the factors in mind that I talked about previously, thinking about, you know, both how to build it flexibly so we can deploy to core AI and Gen AI use cases as needed.

Speaker Change: and you know making sure that we both feel good about the returns that we're seeing on the core AI investments which we're able to measure more immediately and that we feel good about the opportunities in the Gen AI efforts.

Speaker Change: Your second question was about the Q3 revenue outlook. Again, I mentioned this earlier, we have seen healthy global advertising demand on our platform.

Susan J. S. Li: You know, again, I mentioned this earlier, we have seen healthy global advertising demand on our platform. We're delivering, you know, ongoing ad performance improvements, which, again, we feel like is the result of many, many quarters of effort that have accrued and will continue to accrue value to our platform. We saw basically in Q2, where revenue grew 22%, that there was broad-based strength across regions and verticals, including particular strength among smaller advertisers, and we expect that, you know, generally to continue into Q3. Your next question comes from the line of Justin Post with Bank of America. Please go ahead.

Speaker Change: We're delivering, you know, ongoing ad performance improvements, which, again, we feel like is the result of many, many quarters of effort, you know, that have accrued and will continue to accrue value to our platform.

Speaker Change: You know, we saw basically in Q2, you know, where revenue grew 22% that there was broad-based strength across regions and verticals, including particular strength among smaller advertisers, and we expect that, you know, generally to continue into Q3.

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

Mark Elliot Zuckerberg: Great. Thank you. I just want to get back to the comment on U.S. young adult user growth, especially on Facebook and Instagram. I know you made a big change with Reels a couple of years ago, but what are those users doing on Facebook and Instagram?

Justin Post: Great, thank you. I just want to get back to the comment on U.S. young adult user growth.

Justin Post: especially maybe on Facebook and Instagram. I know you made a big change with Reels a couple of years ago, but what are those users doing on Facebook and Instagram, and can you give us any quantification of the usage growth? Thank you.

Mark Elliot Zuckerberg: And can you give us any quantification of the usage growth? Thank you. Thanks, Justin.

Mark Elliot Zuckerberg: So building products with young adults in mind has been a core priority area for the Facebook team in recent years, and we've been very encouraged to see these efforts translate into engagement growth with this cohort. We've seen healthy growth in young adult app usage in the US and Canada for the past several quarters, and we've seen that products like Groups and Marketplace have seen particular traction with young adults. Posting to Groups in the US and Canada has been growing, and that's been boosted mainly by young adults.

Justin Post: Thanks, Justin.

Speaker Change: So building products with, you know, young adults in mind has been a core priority area for the Facebook team in recent years, and we've been very encouraged to see these efforts translate into engagement growth, you know, with this cohort. We've seen healthy growth in young adult app usage in the U.S. and Canada for the past several quarters.

Speaker Change: And we've seen that products like Groups and Marketplace have seen particular traction with young adults. Posting to Groups in the U.S. and Canada has been growing. That's been boosted mainly by young adults. And we also see that they are active users of Marketplace, which has benefited from product improvements and strong demand for secondhand products in the U.S.

Mark Elliot Zuckerberg: And we also see that they are active users of Marketplace, which has benefited from product improvements and strong demand for secondhand products in the US. Your next question comes from Mark Mahoney with Evercore ISI. Please go ahead.

Speaker Change: Your next question comes from the line of Mark Mahoney with Evercore ISI. Please go ahead.

Susan J. S. Li: I was going to ask about Marketplace, so that's a nice segue. It's a great, you know, somewhat under-monetized or arguably a very under-monetized asset. I know you indirectly monetize it, but it's a very large marketplace. It may be bigger than eBay.

Mark Mahoney: I was going to ask about Marketplace. So that's a nice segue. It's a great, somewhat under-monetized or arguably very under-monetized asset. I know you indirectly monetize it, but it's a very large marketplace. It may even be bigger than eBay. Your thoughts on what you may want to do in the future in terms of monetizing it, in part, maybe even improve the quality of the marketplace? And then secondly, I just want to ask you about headcount. It's down about 1% year over year. You're pretty much back at par with where the employee headcount was prior to significant reduction.

Susan J. S. Li: What are your thoughts on what you may want to do in the future in terms of monetizing it, in part, maybe even improving the quality of the marketplace? And then, secondly, I just want to ask you about headcount. It's down about 1% year over year.

Susan J. S. Li: You're pretty much back at par with where the employee headcount was prior to the significant reduction. How should we think about headcount growth going forward? You talk about a significant growth in CapEx. Should we expect a moderate growth in headcount, or a significant one? Any thoughts on that would be helpful. Thank you. Thanks, Mark.

Speaker Change: How should we think about headcount growth going forward? You talk about a significant growth in CapEx. Should we expect a moderate growth in headcount? Significant? Any thoughts on that would be helpful. Thank you.

Susan J. S. Li: On your first question, you know, about Marketplace, again, we're, you know, obviously excited that it's been one of the drivers of strength in young adults. But I would probably just say that, more generally, Marketplace is one prong in a broader commerce strategy that we have, which continues to be focused on basically creating the best shopping experience on our platform. The Marketplace is obviously consumer-oriented. But the broader part of the commerce strategy is about making it easier for businesses to advertise their products, for buyers to find and purchase relevant items on our platform, you know, and to that end, I would say that, you know, we feel quite happy with the investments we've been making in Shops Ads. Shops Ads revenue is growing at a strong year-over-year pace.

Speaker Change: Thanks, Mark. On your first question, you know, about Marketplace, again, we're, you know, we're, you know, obviously excited that it's been one of the drivers of strength in young adults. You know, I would probably

Speaker Change: Just say that more generally, you know...

Speaker Change: Marketplace is one prong in a broader commerce strategy that we have which continues to be focused on basically creating the best shopping experience on our platform. Marketplace is obviously consumer oriented, you know, the broader part of the commerce strategy is about making it easier for businesses to advertise their products for buyers to find and purchase relevant items on our platform.

Speaker Change: And to that end, I would say that...

Speaker Change: We feel quite happy with also the investments we've been making in ShopsAds. ShopsAds revenue is growing at a strong year-over-year pace. We're seeing ShopsAds drive incremental performance for advertisers, and it's also working well in combination with some of our other products, like Advantage+, Shopping.

Susan J. S. Li: We're seeing Shops Ads drive incremental performance for advertisers, and it's also working well in combination with some of our other products like Advantage+, and Shopping. Um, your second question was about headcount. You know, we continue to be disciplined about where we're allocating new headcount to ensure that it's really focused on our core company priorities, but we're also working down a prior hiring underrun. And as we further close that hiring underrun over the course of this year, I do expect that we will end 2024 with an in-seat reported headcount that is meaningfully higher than where we ended 2023.

Speaker Change: Your second question was about headcount. You know, we continue to be disciplined about where we're allocating new headcount to ensure that it's really focused on our core company priorities.

Speaker Change: But we're also working down a prior hiring underrun, and as we further close that hiring underrun over the course of this year, I do expect that we will end 2024 with in-seat reported headcount that is meaningfully higher than where we ended 2023.

Susan J. S. Li: We aren't providing sort of 2025 headcount growth expectations yet, as we haven't started our budgeting process yet. But again, I expect that we will primarily target our hiring to focus on priority areas, and we will be, you know, running a very disciplined headcount process. Your next question comes from the line of Youssef Squali with Truist Securities. Please go ahead.

Speaker Change: We are providing sort of...

Speaker Change: 2025 Headcount Growth Expectations yet as we haven't started our budgeting process yet, but again, I expect that we will primarily target our hiring to focus on priority areas and we will be, you know, running a very, very disciplined headcount process.

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

Mark Elliot Zuckerberg: Great, thank you very much. So the AI system using LLAMA 3.1 has been incorporated in different variations and looks really impressive and seems to be getting closer to becoming a full search engine for virtually everything except for commercial queries so far. So are there any plans to open it up to the broader web, kind of like what maybe open AI is in the testing phase, maybe link it to third-party marketplaces for commercial search, etc.? And then, on Ray-Bans, can you maybe talk a little bit more about the opportunity to deepen your relationship with Exeler Luxottica? What would that look like?

Youssef Houssaini Squali: Great, thank you very much. So the AI system using LLAMA 3.1 has been

Speaker Change: Incorporated and the different variations and looks really impressive and seems to be getting closer to becoming a full search engine.

Speaker Change: for virtually everything except for commercial queries so far. So, are there any plans to open it up to the broader web?

Speaker Change: Kind of like what maybe open AI is off the testing, maybe link it to third-party marketplaces for commercial search, etc. And then on ArrayBand, can you maybe talk a little bit...

Speaker Change: A bit more about the opportunity to deepen your relationship with Excella Luxottica, what would that look like? What kind of areas are the most exciting to you, Mark, in that relationship? Thank you.

Mark Elliot Zuckerberg: What kind of areas are the most exciting to you, Mark, in that relationship? Thank you. Yes, so I'm very excited with how LLaMA 3.1 landed. I think the team there is doing really great work. You know, going from the first version of LLaMA to LLaMA 2 last year, there was a generation behind the frontier to now LLaMA 3.1, which is basically competitive and in some ways leading the others. Top Closed Models.

Mark: Yes, I'm very excited with how LLaMA 3.1 landed. I think the team there is doing really great work, you know, going from

Mark: The first version of LLaMA to LLaMA 2 last year, there was a generation behind the frontier to now LLaMA 3.1, which is basically competitive and in some ways leading the other

Mark Elliot Zuckerberg: Meta AI uses a version of LLaMA 3.1, as well as a bunch of other services that we've built to kind of build a cohesive product. And when I was talking before, we had the initial usage trends around Meta AI. But there's a lot more that we want to add. Things like commerce, and you can just go vertical by vertical and build out specific functionality to make it useful in all these different areas. Eventually, I think, what we're going to need to do to make this just as... to fulfill the potential around just being the ideal AI assistant for people.

Youssef Houssaini Squali: you know, top closed models.

Youssef Houssaini Squali: Meta AI uses a version of LLaMA 3.1 as well as a bunch of other services that we've built to kind of build a cohesive product and when I was talking before about we have the initial usage trends around Meta AI

Youssef Houssaini Squali: But there's a lot more that we want to add. Things like commerce, and you can just go vertical by vertical and build out specific functionality to make it useful in all these different areas, are eventually, I think, what we're going to need to do to make this just as...

Youssef Houssaini Squali: to fulfill the potential around just being the ideal AI assistant for people. So, it's a long roadmap. I don't think that this stuff is going to get...

Mark Elliot Zuckerberg: So, it's a long roadmap. I don't think that this stuff is going to get, you know, finished in the next couple of quarters or anything like that, but this is part of what's going to happen over the next few years as we build something that will, you know, I think just be a very widely used service. So, I'm quite excited about that, and we're going to continue working on LLaMA, too. So, I mean, you mentioned LLaMA, and I think the question was a little more about Meta-AI, but they're both, I mean, they're related.

Youssef Houssaini Squali: finished in the next couple of quarters or anything like that. But this is part of what's going to happen over the next few years as we build something that will, I think, just be a very widely used service. So I'm quite excited about that.

Youssef Houssaini Squali: And we're going to continue working on LLaMA, too. So, I mean, you mentioned LLaMA, and I think the question was a little more about Meta AI, but they're both, I mean, they're related. LLaMA is sort of like the engine that powers the product, and it's open source, and I'm just excited about the progress that we're making on both of those.

Mark Elliot Zuckerberg: LLaMA is sort of like the engine that powers the product, and it's open source. And I'm just excited about the progress that we're making on both of those. On the smartglasses... Essilor Luxottica is a great partner. We are now in the second generation of the Ray-Ban Metaglasses.

Speaker Change: Thank you.

Speaker Change: On the smart glasses,

Speaker Change: Essilor Luxottica is a great partner. We are now in the second generation of the Ray-Ban Meta Glasses.

Mark Elliot Zuckerberg: They're doing well, you know, better than I think we had expected. We expected them to grow meaningfully from the first generation, so that's been a very positive surprise. And I think part of that is that it's just well-positioned to dovetail well with the AI revolution that we're seeing and offer all kinds of new functionality there. So, that was great.

Speaker Change: They're doing well, you know, better than I think we had expected, and we expected them to grow meaningfully from the first generation. So that's been a very positive surprise and

Speaker Change: I think part of that is that it's just well positioned to dovetail well with the AI revolution that we're seeing and offering all kinds of new functionality there.

Mark Elliot Zuckerberg: But, you know, Essilor Luxottica is a great company that has a lot of different products that we hope to be able to partner with to just continue building new generations of the glasses and deepen the AI products and make them better and better. I think there's a lot more to go from here. Compared to what we thought at this point, it's doing quite well compared to, I think, what it needs to be to be a really leading piece of consumer electronics. I think we're still early, but all the signs are good. Your next question comes from the line of Ron Josey with Citi. Please go ahead.

Speaker Change: That was great. But, you know, Essilor Luxottica is a great company that has...

Speaker Change: Your next question comes from the line of Ron Josey with Citi. Please go ahead.

Mark Elliot Zuckerberg: Great, thanks for taking the question. I want to get back, Mark, to the comments around open source and LLaMA 3. And I totally understand that Meta is not offering a public cloud. And so what I wanted to hear from you is maybe a little bit more on the product vision of products that come out of LLaMA 3, meaning potentially offering some of these products to other companies, call it customer service or call center offerings or other verticals. And so any insights on just how you envision maybe the open source and LLaMA 3.1 can sort of offer a greater enterprise service for others to benefit from? Thank you.

Mark Elliot Zuckerberg: So LLaMA is the foundation model that people can shape into all kinds of different products. So whether it's meta AI for ourselves, or the AI studio, or the business agents, or like the assistant that's in the Ray-Ban glasses, like all these different things are basically products that have been built with LLaMA. And similarly, any developer out there is going to be able to take it and build a whole greater diversity of different things as well.

Speaker Change: So LLaMA is the foundation model that people can shape into all kinds of different products.

Speaker Change: So whether it's, you know, meta AI for ourselves, or the AI studio, or the business agents, or like the assistant that's in the Ray-Ban glasses, like all these different things are basically

Speaker Change: And similarly, any developer out there is going to be able to take it and build a whole greater diversity of different things as well. You know, like I talked about, I think...

Mark Elliot Zuckerberg: You know, like I talked about, I think the reason why open sourcing this is so valuable for us is that we wanna make sure that we have the leading infrastructure to power the consumer and business experiences that we're building. But the infrastructure is not just a piece of software that we can build in isolation. It really is an ecosystem with a lot of different capabilities that other developers and people are adding to the mix, whether that's new tools to distill the models into the size that you want for a custom model or ways to fine-tune things better or make inference more efficient or all different other kinds of methods that we haven't even thought of yet, the silicon optimizations that the silicon companies are doing, all the stuff. It's an ecosystem. So we can't do all that ourselves.

Speaker Change: The reason why open sourcing this is so valuable for us

Youssef Houssaini Squali: is that we want to make sure that we have the leading infrastructure to power the consumer and business experiences that we're building. But the infrastructure, it's not just a piece of software that we can build in isolation. It really is an ecosystem with a lot of different capabilities that other developers and people are adding to the mix, whether that's

Youssef Houssaini Squali: New tools to distill the models into the size that you want for a custom model, or ways to fine-tune things better, or make inference more efficient, or all different other kinds of methods that we haven't even thought of yet, the silicon optimizations that the silicon companies are doing, all this stuff, it's an ecosystem.

Mark Elliot Zuckerberg: And if we built LLaMA and just kind of kept it within our walls, then it wouldn't actually be as valuable for us to build all the products that we're building as it is going to end up being. So that's the business strategy around that. And that's why we don't feel like we need to necessarily build a cloud and sell it directly in order for it to be a really positive business strategy for us.

Youssef Houssaini Squali: We can't do all that ourselves. And if we built LLaMA and just kind of kept it within our walls, then it wouldn't actually be as valuable for us to build all the products that we're building as it's going to end up being. So that's the business strategy around that. And that's why

Youssef Houssaini Squali: I feel like we need to necessarily build a cloud and sell it directly in order for it to be a really...

Mark Elliot Zuckerberg: And, you know, part of what we're doing is working closely with AWS, which I think especially did great work for this release, other other companies like Databricks, NVIDIA, and, of course, other big players like Microsoft with Azure and Google Cloud, they're all supporting this. And we want developers to be able to get it anywhere. That's one of the advantages of an open source model like LLaMA, is that it's not like you're locked into one cloud that offers that model, whether it's Microsoft with OpenAI or Google with Gemini or whatever it is. You can take this and use it everywhere, and we want to encourage that.

Youssef Houssaini Squali: Positive Business Strategy for us, and part of what we're doing is working closely with AWS, I think especially did great work for this release.

Speaker Change: other companies like Databricks, NVIDIA.

Youssef Houssaini Squali: Of course, other big players like Microsoft with Azure and Google Cloud, they're all supporting this. And we want developers to be able to get it anywhere. I think that's one of the advantages of an open-source model like LLaMA.

Youssef Houssaini Squali: It's not like you're locked into one cloud that offers that model, whether it's Microsoft with OpenAI or Google with Gemini or whatever it is. You can take this and use it everywhere, and we want to encourage that.

Mark Elliot Zuckerberg: I'm quite excited about that. The enterprise and business applications that we're going to be most focused on, though, in addition to just optimizing the advertiser experience, like I talked about in my comments earlier, it is the business agent piece. I just think that there's huge potential. Like I said earlier, I think pretty much every business today has an email address, they have a website, and they have social media accounts.

Speaker Change: I'm quite excited about that. The enterprise and business applications that we're going to be most focused on, though, in addition to just optimizing the advertiser experience, like I talked about in my comments,

Speaker Change: Earlier, it is the business agent piece.

Speaker Change: I just think that there's a huge potential.

Speaker Change: Like I said earlier, I think.

Mark Elliot Zuckerberg: I think in the future, they're going to have at least one, if not multiple, business agents that can do the whole range of things from interacting to help people buy things to helping support the sales that they've made, if they have issues with the products, or if they need to get in touch with you for something. And we already see people interacting with businesses over messaging working quite well in countries that have a low cost of labor.

Speaker Change: You know, pretty much every business today has an email address, they have a website, they have social media accounts, I think in the future.

Speaker Change: They're going to have at least one, if not multiple business agents that can do the whole range of things from interacting to help people buy things to helping support the sales that they've done, if they have issues with the products, if they need to get in touch with you for something.

Speaker Change: and we already see...

Speaker Change: People interacting with businesses over messaging

Mark Elliot Zuckerberg: But the thing is, is that in order to have someone answering everyone's questions is quite expensive in a lot of countries. And I think that this is something that AI, I think, is just going to be very well suited to doing. And when we can make that easy for the hundreds of millions of businesses that use our platforms to pull in all their information and their catalogs and the history and all the content that they've shared and really just quickly stand up an agent, I think that's going to be awesome.

Speaker Change: Working quite well in countries that have low cost of labor.

Speaker Change: But the thing is, is that in order to have someone answering everyone's questions is quite expensive in a lot of countries. And I think that this is like a thing that AI, I think, is just going to be very well suited towards doing. And when we can make that easy for the...

Speaker Change: You know, hundreds of millions of businesses that use our platforms to pull in all their information, and their catalogs, and their history, and all the content that they've shared, and really just quickly stand up an agent.

Mark Elliot Zuckerberg: So we can combine LLaMA with a lot of custom work that we're doing on our business teams and couple that with all the other investment that the rest of the ecosystem is doing to make LLaMA great. And I think that's going to be huge, but that's just one area. I mean, this really goes across all of the different products that we're building, both consumer and business. So it's a lot of exciting stuff. Krista, we have time for one last question. Thank you. That question will come from the line of Ross Sandler with Barclays. Please go ahead.

Speaker Change: I think that's going to be awesome. So, you know, we can combine LLaMA with a lot of custom work that we're doing on our business teams, and couple that with all the other investment that the rest of the ecosystem is doing to make LLaMA good. And I think that's going to be huge. But that's just one area. I mean, this really goes across all of the different, you know, I mean,

Speaker Change: products that we're building, both consumer and business, so it's a lot of exciting stuff.

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

Krista: Thank you. That question will come from the line of Ross Sandler with Barclays. Please go ahead.

Mark Elliot Zuckerberg: Great. Mark, so on Monday in your interview with Jensen, you said something along the lines of if scaling ended up stopping, one day, you'd have five years of product work to do and ahead of you. So outside of agents or AI assistants, what other areas in AI are you thinking about or looking at in that five-year roadmap? And then the second question is maybe one more stab at the capacity question. You guys said that LLaMA 3.1 was trained on 16,000 H100s.

Ross Adam Sandler: Great. Mark, so on Monday in your interview with Johnson, you said...

Ross Adam Sandler: Something along the lines of if scaling ended up stopping, one day you'd have five years of product work to do and ahead of you. So outside of agents or AI assistants,

Speaker Change: What other areas in AI are you thinking about or looking at in that five-year roadmap? And then the second question is, maybe one more stab at the capacity question. You guys said that LLaMA 3.1 was trained on?

Susan J. S. Li: You've also said that you're going to have 600,000 available by year-end. So even if we kind of go up to 160,000 GPUs for LLaMA 4, we have plenty of extra capacity for inference and future products. I guess, how are you guys modeling out this entire kind of CapEx roadmap between training, inference, and future things? That's all. Thanks a lot.

Speaker Change: 16,000 H100s. You've also said that you're going to have...

Speaker Change: $600,000 available by year-end.

Speaker Change: So even if we kind of go up to 160,000 GPUs for LLaMA 4, we have plenty of extra capacity for inference and future products. I guess, how are you guys modeling out?

Speaker Change: This entire, kind of, CapEx roadmap between...

Speaker Change: Training, Inference, and Future Things. That's all. Thanks a lot.

Mark Elliot Zuckerberg: I can start with the first one, and then I'll let Susan answer the second one. You know, it's an interesting question. It's a little hypothetical, but I do think it's true that if, let's say there were no future foundation models, I think there would just be a huge amount of product innovation that the industry would bring to bear. And that just takes time. But then, at the same time, there are going to be future foundation models, and they're going to be awesome and unlock new capabilities.

Speaker Change: I can start with the first one and then I'll let Susan answer the second one.

Susan: It's an interesting question. It's a little hypothetical because I do think it's true that if, let's say, there were no future foundation models, I think there would just be a huge amount of product innovation that the industry would bring to bear.

Susan: And that just takes time.

Susan: But then at the same time, there are going to be future foundation models and...

Mark Elliot Zuckerberg: And we're planning our products around those. So I'm not really planning our product roadmap, assuming that there isn't future innovation. To the contrary, you know, we are planning, you know, what's going to be in LLaMA 4 and LLaMA 5, and beyond based on what capabilities we think are going to be most important for the roadmap that I just laid out, you know, for having the breadth of utility that you're going to need in something like Meta AI, making it so that businesses and creators and individuals can stand up any kind of AI agents that they want, that you're going to have these kind of real-time multimodal glasses with you all the time that will just be increasingly useful for all the things that you're doing, and that I guess this kind of dovetails with what I expect Susan to talk about next.

Speaker Change: They're going to be awesome and unlock new capabilities and we're planning our products around those. So I I'm not really planning our product roadmap assuming that there isn't future innovation. To the contrary, I you know, we are planning, you know, what's going to be in LLaMA 4 and LLaMA 5.

Susan: and beyond based on what capabilities we think are going to be most important for the roadmap that I just laid out, you know, for having the breadth of

Susan: utility that you're going to need in something like Meta AI, making it so that businesses and creators and individuals can stand up any kind of AI agents that they want.

Susan: that you're going to have these kind of real-time multimodal glasses with you all the time that will just be increasingly useful for all the things that you're doing.

Mark Elliot Zuckerberg: We do have this huge set of use cases already about people wanting to discover content and interact with their friends, and businesses reaching people, and all that stuff is getting better with this too. But there's, I guess my point there was, there's some lag between a technology becoming available and a product becoming kind of fully explored in the space. And I just think that that was kind of my way of saying that I think that this is just a very exciting area where there's just going to be a lot of innovation for a long time to come. I'll let Susan take a stab at the numbers around the GPUs and all that. Thank you.

Susan: And that, I guess, this kind of dovetails with what I'd expect Susan to talk about next. And we do have this huge set of use cases already about people wanting to discover content and interact with their friends, and businesses reaching people, and all that stuff is getting better with this, too.

Susan: there's I guess my point there was it's just

Susan: There's some lag between a technology becoming available and the product becoming kind of fully explored in the space and I just think that that was kind of my way of saying that I think that this is just a very exciting area where there's just going to be a lot of innovation for a long time to come.

Susan: I'll let Susan take a stab at the numbers around the GPUs and all that. Thank you.

Susan J. S. Li: You know, we are clearly, you know, in the process of building out a lot of capacity, and Mark, you know, has alluded to that in his comments about, you know, what we have needed to train prior generations and the next generation of LLaMA. And, you know, we are, and that's driving sort of what we've talked about in terms of the significant growth in CapEx in 2025. And we aren't really, you know, in the position now to share a longer-term outlook.

Susan: We are clearly, you know, in the process of building out a lot of capacity and Mark, you know, has alluded to that in his comments about, you know, what we have needed to train prior generations and the next generation of LLaMA.

Speaker Change: And, you know, we are, and that's driving sort of what we've talked about in terms of the significant growth in CapEx in 2025, and we aren't really, you know, in the position now to share a longer-term outlook. When we think about...

Susan J. S. Li: When we think about any given new data center project that we're constructing, you know, we think about how we will use it over the life of the data center. You know, we think about the amount of capacity we would use in terms of training whatever the subsequent generations of LLaMA are, you know, and it's architected around that. But then we also look at how, you know, we might use it several years into its lifetime towards other use cases across our core business, across what we think might be future needs for inference for generative AI-based products.

Speaker Change: sort of any given new data center project that we're constructing, you know, we think about how we will use it over the life of the data center. You know, we think about the amount of capacity we would use in terms of training whatever the subsequent generations of LLaMA are, you know, and, you know, it's architected around that. But then we also look at how, you know, we might use it, you know, several years into its lifetime towards other use cases across our core business, across what we think might be future needs for inference for generative AI-based products. So there's sort of a whole host of use cases for the life of any individual data center, you know, ranging from gen-AI training at its outset.

Susan J. S. Li: So there's sort of a whole host of use cases for the life of any individual data center, ranging from Gen AI training at its outset to potentially supporting Gen AI inference to being, you know, used for core ads and content ranking and recommendation, and also thinking through the implications, too, of what kinds of servers we might use to support those different types of use cases. So, you know, we are really mapping across a wide range of potential use cases when we undertake any given project.

Susan: to potentially supporting Gen AI inference, to being used for core ads and content ranking and recommendation, and also thinking through the implications, too, of what kinds of servers we might use to support those different types of use cases. So we are really...

Susan J. S. Li: And, you know, we're really doing that with both a long time horizon in mind, again, because of the long lead times in spinning up data centers, but also recognizing that there are multiple decision points in the lifetime of each data center in terms of thinking through when to order servers and, you know, what servers to order and, you know, what you'll put them towards. And that gives us flexibility to make the sort of best decisions based on the information we have in the future.

Susan: Mapping across a wide range of potential use cases when we undertake any given project and you know we're really doing that with both a long time horizon in mind again because of the long lead times in spinning up data centers

Susan: but also recognizing that there are multiple decision points in the lifetime of each data center in terms of thinking through when to order servers and, you know, what servers to order and, you know, what you'll put them towards, and that gives us

Susan: flexibility to make the sort of best, the best decisions based on the information we have in the future.

Operator: Great. Thank you all for joining us today. We appreciate your time, and we look forward to speaking with you again soon. This concludes today's conference call. Thank you for your participation, and you may now disconnect.

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

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