Q4 2024 Meta Platforms Inc Earnings Call
[music].
Good afternoon. My name is Christa and I will be your conference operator today at this time I would like to welcome everyone to the Manhattan fourth quarter and full year 'twenty 'twenty four earnings conference call.
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After the Speakers' remarks, there will be a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad. She was try your question I got and press Star one and we ask that you limit yourself to one question and this call will be recorded.
Kenneth Doral: You're very much Kenneth Doral, Meddits director of Investor Relations you may begin.
Speaker Change: Thank you good afternoon, and welcome to meta platforms fourth quarter and full year 2024 earnings conference call.
Speaker Change: And me today to discuss our results are Mark Zuckerberg, CEO and Susan Li CFO.
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.
Speaker Change: Actual results may differ materially from those contemplated by these forward looking statements.
Speaker Change: Factors that could cause these results to differ materially are set forth in todays 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.
Speaker Change: During this call we will present, both GAAP and certain non-GAAP financial measures.
Speaker Change: 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 Dot at meta Dot com and now I'd like to turn the call over to Mark Alright.
Mark: Alright, Thanks, Ken Thanks, everyone for joining today.
Mark: We entered 2024 on a strong note with now more than 3.3 billion people using at least one of our apps each day.
Mark: This is gonna be a really big year.
Mark: I know it always feels like every year is a big year, but more than usual it feels like the trajectory for most of our long term initiatives is gonna be a lot clearer by the end of this year. So I keep telling our teams are that this is gonna be intense because.
Mark: Because we have about 48 weeks to get on the trajectory that we want to be on.
Mark: And AI.
Mark: I expect that this is gonna be the year, when a highly intelligent and personalized AI assistant.
Mark: Reaches more than 1 billion people and I expect meta AI to be that leading AI assistant.
Mark: Meta AI is already used by more people than any other assistant and once a service reaches that kind of scale. It usually develops a durable long term advantage we.
Mark: We have a really exciting road map for this year with a unique vision are focused on personalization. We believe that people don't I'll want to use the same AI people want their AI to be personalized to their contacts their interests their personality their culture and how they think about the world.
Mark: I don't think that there's just going to be one big AI that everyone uses that does the same thing people are going to get to choose how their AI works and what it looks like for them.
Mark: I continue to think that this is going to be one of the most transformative products.
Mark: We've made and we have some fun surprises that I think people are going to like this year.
Speaker Change: I think this will very well be the year when Lamar and open source become the most advanced and widely used AI models as well Lama for is making great progress in training Lama for many is done with breach training them at our reasoning models and larger model are looking good.
Mark: Two.
Mark: Our goal with Lama three was to make open sources competitive with closed models and our goal for Lama for us to lead.
Mark: How long before we'll be natively multimodal, its an omni model and it will have agenda capabilities.
Mark: So it's going to be novel and it is going to unlock.
Mark: A lot of new use cases, and I'm looking forward to sharing more of our plan for the year on that over the next couple of months.
Mark: I also expect that 2025.
It will be the year when it becomes possible to build an AI engineering agent a.
Mark: That.
Mark: Has coding and problem solving abilities of around a good mid level engineer.
Mark: And this is gonna be a profound milestone.
Mark: And potentially one of the most important innovations.
Mark: And history I like it.
Mark: As well as you know over time potentially a very large market whichever company builds. This first I think it's going to have a meaningful advantage in deploying it to advance their AI research and shape. The field. So that's another reason why I think that this year is going to set the course for the future.
Mark: Our rebound in meta eyeglasses.
Mark: Our real hit and this will be the year, when we understand the trajectory for AI glasses as a category.
Mark: Many breakout products and a history of consumer electronics have sold five to 10 million units in their third generation. This will be a defining year that determines if we're on a path.
Mark: Towards many hundreds of millions and eventually billions of AI glasses.
Mark: And glasses being the next computing platform like we've been talking about for some time or if this is just going to be a longer grind.
Mark: But it's great overall to see people recognizing that these glasses are the perfect form factor for AI.
Mark: Well, it's just great stylus classes.
Mark: These are all big investments.
Mark: Especially the hundreds of billions of dollars that we will invest.
Mark: Invest in AI infrastructure over the long term.
Mark: My announced last week that we expect to bring online almost a gigawatt of capacity this year and we're building a a two gigawatt and potentially bigger AI data center that is so big that it will cover a significant part of Manhattan. If it were placed there where.
Mark: We're planning to fund all of this by at the same time investing aggressively in initiatives that use these AI advances to increase revenue growth and we've put together a plan a that will hopefully accelerate the pace of these initiatives over the next few years.
Mark: That's what a lot of our new head count growth is going towards <unk>.
Mark: And how well we execute on this will also determine our financial trajectory over the next few years.
Mark: There are a number of other important product trends related to our family of apps are that I think we're going to know more about this year as well, we're going to learn what's going to happen with tic Toc and regardless of that I expect reals on Instagram and Facebook to continue growing I expect threads.
Mark: To continue on its trajectory to become the leading discussion platform and eventually reach a billion people over the next.
Mark: Several years.
Mark: Threads now has more than a 320 million monthly actives and has been adding more than 1 million sign ups per day.
Speaker Change: I expect whatsapp.
Speaker Change: To continue gaining share and making progress towards becoming the leading messaging platform in the U S. Like it is in a lot of the rest of the world.
Speaker Change: <unk> now has more than 100 million monthly actives in the U S.
Speaker Change: Hum.
Speaker Change: Facebook is used by more than $3 billion a month.
Monthly actives and we're focused on growing its cultural influence and I'm excited this year to get back to some OGA Facebook.
Speaker Change: Alright. So this is also going to be a pivotal year for the meta versus the number of people using quest and horizon has been steadily growing.
Speaker Change: And this is a year when a number of the long term investments that we've been working on that will make the meta versus more visually stunning and inspiring I will really start to land. So I think we're going to know a lot more about horizon's trajectory by the end of this year.
Speaker Change: This is also going to be a big year for redefining our relationship with governments.
Speaker Change: We now have a U S administration that is proud of our leading companies Prioritizes American technology, winning and we'll defend our values and interests abroad, and I am optimistic about the progress and innovation that this can unlock.
Speaker Change: So this is going to be a big year I think that this is the most exciting and dynamic that I have ever seen our industry.
Speaker Change: Between AI glasses, a massive infrastructure projects doing a bunch of work to try to accelerate our business and in building the future of social media, we have a lot to do.
Speaker Change: And I think we're going to build some awesome things that.
Speaker Change: Shape, the future of human connection as always I am grateful for everyone Who's on this journey with us.
Susan: Thank you Susan.
Susan: Thanks, Mark and good afternoon, everyone.
Susan: Let's begin with our consolidated results all comparisons are on a year over year basis, unless otherwise noted.
Susan: Q4, total revenue was $48 $4 billion up 21% on both a reported and constant currency basis.
Susan: Q4, total expenses were $25 billion up 5% compared to last year.
Susan: Before I cover the specific cost lines I would note that our fourth quarter expense growth rate reflects a 13 percentage point favorable impact from legal accrual reductions in Q4.
Susan: And lower year over year restructuring costs.
Susan: In terms of the specific line items cost of revenue increased 15% driven mostly by higher infrastructure costs.
Susan: R&D increased 16%, primarily driven by higher employee compensation and infrastructure costs, which were partially offset by lower restructuring costs.
Susan: Marketing and sales were approximately flat year over year.
Susan: G&A decreased 67% driven mostly by lower legal related expenses due to a 1.55 billion dollar reduction in legal accruals related to certain legal proceedings.
Susan: We ended the year with over 74000 employees up 10% year over year with growth, primarily driven by hiring in priority areas of monetization infrastructure generative AI reality labs hospitals regulation and compliance.
Susan: Fourth quarter operating income was $23 4 billion, representing a 48% operating margin.
Susan: Our tax rate for the quarter was 12%.
Susan: Net income was $28 billion or $8 <unk> per share.
Susan: Capital expenditures, including principal payments on finance leases were $14 $8 billion.
Susan: Driven by investments in servers data centers and network infrastructure.
Free cash flow was $13 $2 billion, we paid $1 $3 billion in dividends to shareholders ending the year with $77 $8 billion in cash and marketable securities and $28 $8 billion.
Susan: Moving now to our segment results.
Susan: I'll begin with our family of apps segment, our community across the family of apps continues to grow and we estimate more than $3 3 billion people used at least one of our family of apps on a daily basis in December.
Susan: Q4 total family of apps revenue was $47 $3 billion up 21% year over year.
Susan: In Q4, our family of apps AD revenue was $46 8 billion up 21% on both a reported and constant currency basis.
Susan: We then add revenue the online commerce vertical was the largest contributor to year over year growth.
Susan: On a user geography basis.
Susan: Revenue growth was strongest in rest of world at 27%, followed by Asia Pacific and Europe at 23% and 22% respectively.
Susan: North America grew 18%.
Susan: In Q4, the total number of AD impressions served across our services increased 6% and the average price per AD increased 14 person.
Susan: Impression growth was mainly driven by Asia Pacific price.
Susan: Pricing growth benefited from increased advertiser demand in part driven by improved AD performance.
Susan: This was partially offset by impression growth, particularly from lower monetizing regions and surfaces.
Susan: Family of apps other revenue was $519 million.
Susan: At 55% driven primarily by business messaging revenue growth from our Whatsapp business platform.
Susan: We continue to direct the majority of our investments toward the development and operation of our family of apps in Q4 family of apps expenses were $19 billion, representing 76% of our overall expenses.
Susan: Family of apps expenses were up 5%.
Susan: Primarily due to growth in infrastructure costs, and employee compensation, which were partially offset by lower legal related expenses.
Susan: Family of apps operating income was $28 $3 billion, representing a 60% operating margin.
Susan: Within our reality lab segment Q4 revenue was $1.1 billion driven by hardware sales up 1% year over year.
Susan: We all the labs expenses were $6 billion up 6% year over year, driven primarily by higher infrastructure costs and employee compensation parse.
Susan: Partially offset by lower restructuring costs.
Susan: We already large operating loss was $5 billion.
Susan: 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 non engagement over time.
Susan: On the first daily Actives continued to grow across Facebook, Instagram and whatsapp year over year, both globally and in the United States.
Susan: In Q4, a global video time grew at double digit percentages year over year on Instagram and we're seeing particular strength in the U S. On Facebook where video time spent was also up double digit rates year over year.
Susan: We see continued opportunities to drive video growth in 2025 through ongoing optimizations to our ranking systems.
Susan: We're also making several product bets that are focused on setting up our platforms for longer term success.
Susan: Creators are one of our central focus on Instagram, we continue to prioritize original posts and recommendations to help smaller creators get discovered.
Susan: We also want to ensure our creators have any place to experiment with their content. So we introduced a new feature in Q4 that allows creators to first share a real with people who don't follow them.
Susan: This allows them to test content and see what performs best before deciding to share it with their followers and also helps introduce them to entirely new audiences.
Speaker Change: If tools is another area we're investing in.
Speaker Change: In the coming weeks, we will launch a new standalone app called edits that provides a full suite of creative tools to make it easier for creators to make great wheels on their phone.
Speaker Change: Another focus is making it easier for people to connect over content.
Speaker Change: <unk> are already re shared over $4 5 billion times, a day and we've been introducing more features that bring together, the social and entertainment aspects of Instagram in.
Speaker Change: In the U S. We recently launched a new destination in meals that consists of content. Your friends have left a note on our linked.
Speaker Change: We're seeing very positive early results and we will look to expand this globally in the coming months.
Speaker Change: On threads, we made tremendous progress in 2024, and our focus this year is establishing <unk> as the place people come to keep up with what they care about.
Speaker Change: We're making a number of updates to our recommendation systems to prioritize more recent posts surface content from top creators and ensure people see more of the content from accounts they follow.
Speaker Change: We will also continue improving customer feed so people can build personalized feeds on topics. They are interested in.
Speaker Change: Finally, many AI usage continues to scale with more than 700 million monthly actives. We're now introducing updates that will enable them to deliver more personalized and relevant responses by remembering certain details from people's prior queries and considering what they engage with on Facebook and Instagram to develop better <unk>.
Speaker Change: Tuition for their interests and preferences.
Speaker Change: Now to the second driver of our revenue performance increasing monetization efficiency.
Speaker Change: The first part of this work is optimizing the level of ads with an organic engagement.
Speaker Change: We continue to grow supply on lower monetizing surfaces like video well optimizing AD supply on each of our services to deliver ads at the time in place they will be most relevant to people.
Speaker Change: For example, we are continuing to better personalize when ads show up including the optimal locations and the depth of someone's feed to introduce add supply when its most optimal for the user and revenue.
Speaker Change: This is enabling efficient supply growth.
Speaker Change: Longer term, we also see impression growth opportunities and monetize surfaces like threats.
Speaker Change: Which we are beginning to test ads on this quarter, we expect the introduction of ads on threads will be gradual and don't anticipate it being a meaningful driver of overall impression or revenue growth in 2025.
Speaker Change: The second part of the increasing monetization efficiency is improving marketing performance.
Speaker Change: Ongoing enhancements to our ads ranking systems are an important driver of this work.
Speaker Change: In the second half of 2024, we introduced an innovative new machine learning system in partnership with Nvidia called Andromeda.
Speaker Change: This more efficient system enabled a 10000 times increase in the complexity of models, we use for ads retrieval, which is the part of the ranking process, where we narrow down a pool of tens of millions of adds to the few thousand be consider showing someone.
Speaker Change: The increase in model complexity is enabling us to run far more sophisticated prediction models to better personalize, which ads we show somewhat.
Speaker Change: This is driven an 8% increase in the quality of ads that people see unobjectionable we've tested.
Speaker Change: And dramatize ability to efficiently process larger volumes of that also positions us well for the future as advertisers use our generative AI tools to create and test more ads.
Speaker Change: Another way, we are delivering value for advertisers is through increased automation of their AD campaigns with advantaged plus adopt.
Speaker Change: Adoption of advantage plus shopping campaigns continues to scale with revenue, surpassing a $20 billion annual run rate and growing 70% year over year in Q4.
Speaker Change: Given the strong performance and interest we're seeing in advantaged post shopping in our other end to end solutions. We're testing a new streamlined campaign creation flow, so advertisers no longer need to choose between running a manual or advantage plus sales or App campaign.
Speaker Change: In this new setup all campaigns optimizing for sales app or lead objectives will have advantage plus turned on from the beginning.
Speaker Change: This will allow more advertisers to take advantage of the performance advantage plus offers while still having.
Speaker Change: The ability to further customize aspects of their campaigns when they need it.
Speaker Change: We plan to expand to more advertisers in the coming months before fully rolling it out later in the year.
Speaker Change: The vintage plus creative is another area, where we're seeing momentum more than 4 million advertisers are now using at least one of our generative AI AD creative tools up from 1 million six months ago.
Speaker Change: There has been significant early adoption of our first video generation tool that we rolled out in October image animation with hundreds of thousands of advertisers already using it monthly.
Speaker Change: Next I would like to discuss our approach to capital allocation. Our primary focus remains investing capital back into the business.
Speaker Change: With infrastructure and talent being our top priority.
Speaker Change: On the first we expect compute will be central to many of the opportunities. We're pursuing as we advance the capabilities of Lana drive increased usage of generative AI products and features across our platform and fuel core ads and organic engagement initiatives.
Speaker Change: We're working to meet the growing capacity needs for these surfaces by both scaling our infrastructure footprint and increasing the efficiency of our workloads.
Speaker Change: Another way, we're pursuing efficiencies by extending the useful lives of our servers and associated networking equipment.
Speaker Change: Our expectation going forward is that we'll be able to use both our non AI and AI servers for a longer period of time before replacing them.
Speaker Change: Which we estimate will be approximately five and a half years.
Speaker Change: This will deliver savings in annual Capex, and resulting depreciation expense, which is already included in our guidance.
Speaker Change: Finally, we're pursuing cost efficiencies by deploying our custom M. T I a silicon in areas, where we can achieve a lower cost of compute by optimizing the trip to our unique workloads in 'twenty 'twenty four we started deploying MTI a to a ranking and recommendation inference workloads for ads and organic content.
Speaker Change: We expect to further ramp adoption of M. T. I a for these use cases throughout 2025 before extending our custom silicon efforts to training workloads for ranking and recommendations next year.
Speaker Change: From a hiring standpoint.
Speaker Change: Our focus continues to be on adding technical talent to support our strategic priorities.
Speaker Change: In the fourth quarter, nearly 90% of our year over year head count growth was within the R&D function.
Speaker Change: The remaining growth was primarily in cost of revenue as we added infrastructure head count to support our data center operations.
Speaker Change: In 2025, we expect head count growth will continue to be primarily driven by technical roles across our priority initiatives within infrastructure monetization reality labs generative AI as well as regulation and compliance.
Speaker Change: We anticipate head count growth in our business functions will remain relatively limited.
Speaker Change: To achieve our ambitions in these areas, we will need to continue executing at a rapid pace.
Speaker Change: We're supporting this by building tools to help our engineering base to be more productive as part of our efficiency focus over the past two years, we've made significant improvements in our internal processes and developer tools and introduced new tools like our AI powered coding assistant which is helping our engineers rate could more quickly.
Speaker Change: Looking forward, we expect that the continuous advancements in llamas coding capabilities will provide even greater leverage to our engineers and we are focused on expanding its capabilities to not only assist our engineers in writing and reviewing our code.
Speaker Change: But to also begin generating code changes to automate tool updates and improve the quality of our code base.
Speaker Change: Finally, we expect our strong financial position will enable us to support these investments while continuing to return capital to shareholders through share repurchases and dividends.
Speaker Change: Yeah.
Speaker Change: Moving to our financial outlook, we expect first quarter total revenue to be in the range of 39.5 to $41 $8 billion.
This reflects a 15% year over year growth or 11% to 18% growth on a constant currency basis as our guidance assumes foreign currency is an approximately 3% headwind to year over year total revenue growth based on current exchange rates.
Speaker Change: This also reflects the effect of lapping leap day in the first quarter of 2024.
Speaker Change: While we are not providing a full year 2025 revenue outlook.
Speaker Change: We expect the investments, we're making in our core business. This year will give us an opportunity to continue delivering strong revenue growth throughout 2025.
Speaker Change: Turning now to the expense outlook, we expect full year 2025 total expenses to be in the range of $114 billion to $119 billion.
Speaker Change: We expect the single largest driver of expense growth in 2025 to be infrastructure costs, driven by higher operating expenses and depreciation.
Speaker Change: We expect employee compensation to be the second largest factor as we add technical talent in the priority areas that I referenced earlier.
Speaker Change: Turning now to the Capex outlook.
Speaker Change: We expect our full year 2025 capital expenses will be in the range of $60 billion to $65 billion.
Speaker Change: We expect Capex growth in 2025 will be driven by increased investment to support both our generative AI efforts and our core business.
Speaker Change: The majority of our Capex in 2025, we will continue to be directed towards our core business.
Speaker Change: Onto tax absent any changes to our tax landscape, we expect our full year 2025 tax rate to be in the range of 12% to 15%.
Speaker Change: In addition, we continue to monitor and active regulatory landscape, including legal and regulatory headwinds in the EU and the U S that could significantly impact our business and our financial results.
Speaker Change: In closing this was a good year for our company with investments across our priority areas delivering strong business performance and innovative new products for our community.
Speaker Change: We have a compelling set of opportunities to invest in this year, which we expect will help us drive continued strong growth and develop transformative technologies that shape, the future of our company and of the industry.
Christa: But that Christa, let's open up the call for questions.
Christa: Thank you we will now open the lines for a question and answer session to ask a question. Please press star one on your Touchtone phone to withdraw your question Press Star One please limit yourself to one question. Please.
Christa: Please pick up your handset before asking your question to ensure clarity.
Christa: Our streaming today's call. Please mute your computer speakers.
Speaker Change: And our first question comes from the line of Brian Nowak with Morgan Stanley. Please go ahead.
Speaker Change: Thanks for taking my questions Marc.
Speaker Change: <unk>.
Speaker Change: All the excitement about about this year and all the innovation to come I know, there's a lot of announcements over the course of the year, but wondering if you could just share a few sort of high level. Examples of your vision on new potential use cases and offerings that could drive utility for your users and value for your advertisers that you sort of think about what a four in med.
Speaker Change: Hey, I changing throughout 2025.
Speaker Change: And then the second one on custom Silicon maybe a question for either of you just any learnings on the difference between your custom Silicon and third party chips and your ranking models and results and how should we think about the main gating factors as to how quickly you'll be able to move a higher percentage of your engagement to your custom silicon.
Speaker Change: Hum.
Speaker Change: The first one of them.
Speaker Change: I tried to lay this out in my opening comments a bit I mean, we're we're very focused on.
Speaker Change: Meta AI as a highly intelligent and personalized assistance.
Speaker Change: You can access them across our apps you Theres a website or you can access it outside of our apps to.
Speaker Change: I think that.
Speaker Change: The quality of this is just it's going to keep on improving it improved a lot over the last year. We're also finding more ways that it's useful to to integrate it into our services to help more people discover it I think that that's undoubtedly why so many hundreds of millions of people are using it today, obviously, because it's it's kind of easy to.
Speaker Change: To to discover what we're doing and then keep using it.
Speaker Change: I don't know I I want to I want to keep some surprises and fun for the stuff that we're gonna released this year I gave a bit of detail on what we're planning to do with long before that but I'm sure technical people will enjoy because we haven't talked about that before it but I'm I'm going to refrain from adding a whole lot more on what we're launching this.
Speaker Change: Here, but it's it's the different things that I talked about it it's met AI I do expect long before it would be a very exciting set of really says it's not just one thing there just like with Llama story, there where they were kind of a few different models at different dates I think we'll see that was long before too.
Speaker Change: And then.
Speaker Change: The <unk> engineered.
Speaker Change: Engineered piece I'm really excited about it but I don't know that that's going to be an external product anytime soon but I think for what we're working on you know our goal is to advance AI research and advance our own development internally and I think it's just going to be a very profound things I mean, that's something that I think will show up through making our products better over time.
Speaker Change: But yeah, and then as that works there will potentially be a market opportunity down the road, but I've been for now and this year. We're really I think this is.
Speaker Change: I don't think youre going to see this year second AI engineer that is.
Speaker Change: Extremely widely deployed changing all of development I think this is going to be the year, where that really starts to become possible and lays the groundwork for a much more dramatic change in 'twenty six and beyond.
Speaker Change: I don't know that that's that's kind of that's kind of it Brian I'm happy to take your second question about custom silicon. So first of all we we expect that we are continuing to purchase third party silicon from leading providers in the industry.
Speaker Change: And we are certainly committed to those long standing partnerships, but you know we're also very invested in developing our own custom silicon for unique workloads or off the shelf silicon isn't necessarily optimal and specifically because we're able to optimize the full stack to achieve greater compute efficiency and performance per cost and power because.
Speaker Change: Our workloads might require a different mix in memory versus network bandwidth versus compute and so we can optimize that relate to the specific needs of our different types of workloads.
Speaker Change: Right now the in House MTI, a program is focused on supporting our core ranking and recommendation inference workloads, we started adopting MTI a in the first half of 2024 for core ranking and recommendations in France will continue ramping adoption for those workloads over the course of 2025 as we use it for both Inc.
Speaker Change: Mental capacity and to replace some GPU based servers when they reached the end of their useful lives.
Speaker Change: Next year, we're hoping to expand MTI aimed to support some of our core AI training workloads and over time some of our journey I use cases.
Speaker Change: Your next question comes from the line of Eric Sheridan with Goldman Sachs. Please go ahead.
Speaker Change: Thank you so much for taking the question maybe I can go back to your comments on open source can you help us understand how your views continue to evolve with respect to the competitive dynamic around your approach with the open source versus others in the industry and how you approach to open source could possibly bend the cost curve and improve return on capital for <unk>.
Speaker Change: Over the medium to long term thanks, so much.
Speaker Change: Yeah, I mean on an open source I think the best analogy for US is what we did with open compute where we we weren't first to building. The system. So then by the time that we got around to building. It it wasn't really a big advantage to have it be proprietary through shared it and then a lot of the industry.
Speaker Change: Adopted what we were doing contributed innovation back to it.
Speaker Change: By standardizing it on it that meant that a bunch of supply chain standardized on building it which made prices more efficient for everyone. I think what we see here.
Is.
Speaker Change: Llama becomes more used you know it's more likely for example that silicon providers and others.
Speaker Change: Other API is in developer platforms will optimize their work more for that.
Speaker Change: And basically drive down the costs of using it in and drive drive improvements that we can.
Speaker Change: In some cases used to so I think that our strategy will continue to be effective.
Speaker Change:
Speaker Change: And.
Speaker Change: Yeah, I mean, I continue to be to be optimistic about this I think it's it's kind of it's I think it's working.
Speaker Change: I also.
Speaker Change: I just think you know in light of.
Speaker Change: And if some of the recent news.
Speaker Change: The new competitor deep seek from from China I think it's it also just puts you know it's one of the things that we're talking about is theres going to be an open source standard globally.
Speaker Change: And I think for our kind of a national advantage. It's important that it's an American standard. So we take that seriously and we want to build the AI system that people around the world are are using and I think that if anything some of the recent news has.
Speaker Change: Only strengthened our conviction that this is the right thing for us to be focused on.
Speaker Change: Your next question comes from the line of Mark Shmulik with Bernstein. Please go ahead.
Mark Shmulik: Yes. Thank you for taking my questions Mark I. Appreciate I appreciate we may get an answer this year, but looking out.
Speaker Change: You can kind of track the progress of our smart glasses.
Speaker Change: Ryan and so forth do you view that as a better form factor to get the most out of the met AI assistance you highlighted in your opening remarks or is it more complementary to kind of the in App experience and the way you have seen people use it today.
Speaker Change: And then the last few quarters, we've kind of seen pricing growth as the dominant driver of AD revenue growth.
Speaker Change: Given the efforts we've highlighted around driving deeper more commercial engagement and better Advertiser ROI. How do we just think about the contribution or the formula for AD revenue growth going forward. Thank you.
Speaker Change: Yeah.
Speaker Change: Yeah, I mean, I can talk about glasses.
Speaker Change: Yeah, I mean, I've said for a while but I think that glasses.
Speaker Change: Are the ideal form factor for an AI device because.
Speaker Change: You can let an AI assistant on your classes see what you see and hear what you hear which gives it the context to be able to understand everything that's going on in your life that you would want to talk to it about and get get context on so.
Speaker Change: But look I mean.
Speaker Change: I think the classes are going to be a very important computing platform in the future when phones became the primary computing platform, it's not like computers went away.
Speaker Change: I think we'll have phones for some time, but there are a lot of people a lot of people in the world who have glasses, it's kind of hard for me to imagine that a decade or more from now all the glasses aren't going to basically be a eyeglasses.
Speaker Change: As well as a lot of people, who don't wear glasses. Today are you finding that to be a useful thing so.
Speaker Change: I'm I'm incredibly optimistic about this and like I shared last year I think one of the big surprises last year.
Speaker Change: As I previously thought.
Speaker Change: That glasses weren't going to become a major form factor until we got these the full kind of holographic displays that we started showing in the prototype for Orion, but now I think it's pretty clear that AI is actually going to drive at least as much of the value as the holographic a R and so that's oh.
Speaker Change: Cause to be excited but look.
Speaker Change: The Arabian matters were hit we still don't know what the long term trajectory for this is going to be.
Speaker Change: And I think we're going to learn a lot. This year. So I think that this is a really important year for that.
Speaker Change: And I can take the second question on pricing right. So first of all what I would say is over the long term you know we think we have continued opportunity to drive revenue growth.
Speaker Change: Cross both pricing and our impression growth so both sort of supply and demand dimensions. When we look at pricing our reported growth can be influenced by different factors such as supply because of the auction dynamics by the mix shift of the different types of surfaces, where ads show up for example services like video or <unk>.
Speaker Change: Lower our monetization efficiency relatively speaking and then of course, a broader macro factors, but we generally expect that you know we are going to be able to deliver ongoing outperformance improvements through a lot of the ongoing work that we're doing across our monetization roadmap.
Speaker Change: And that will have the sort of an effect of benefiting pricing overall.
Speaker Change: And part of you know what I think is is kind of important to think about here. When we think about price growth is.
Speaker Change: We really the average price per AD as we reported is really blending you know, it's an output metric. It's blending a lot of things that are happening, including what our advertisers bidding for what are their bids for those things you know what is the average cost of their actions. So given that there are so many different objectives that advertisers can optimize for that have different values. It's a.
Speaker Change: Complex metric that tries to distill that into one thing overall, we are seeing healthy cost per action trends for advertisers for whatever is the action that they are that they are optimizing for and.
Speaker Change: We believe we will continue to get better at driving conversions for advertisers and when we do that will have the effect of continuing to lift C. P. EMS over time, because we're delivering more conversions per impressions served resulting in higher value impressions.
Justin Post: Your next question comes from the line of Justin Post with Bank of America. Please go ahead.
Justin Post: Great. Thanks, maybe one for Mark and one for Susan you.
Justin Post: You mentioned political changes in the U S and better positioning maybe for U S companies abroad, but how do you think about it in the U S as far as usage and advertiser adoption.
Justin Post: You got rid of fact checking so do you think the content could change could it appeal to more users will will that impact advertising at all and then Susan unmet AI I know people are pretty excited about the use case, but but also thinking about the revenue case.
Justin Post: Do you think about monetizing that you know could it be CPC ads or how are you thinking about that thank you.
Okay.
Speaker Change: Oh. The question was about fact checking in our in our content policies.
Speaker Change: I mean look I think we're.
Speaker Change: We're trying to build a service that we think is the best for people I believed and free expression for for quite a while.
Speaker Change:
Speaker Change: People don't want to see misinformation, but you need to build an effective system that gives people more context and I think what we found over time is that the community notes system. I think is just going to be more effective than the system that we had before and I'm not.
Speaker Change: Afraid to admit when someone does something that's better than us I think it's sort of our job to to to go in and just do the best work and implement the best system. So I think that theres been a lot of people who who've read. This announcement is if we somehow don't care about adding context to things.
Speaker Change: Is that are on our platform that are misinformation, that's not right I actually think that the community notes system like what <unk> had for a while is actually just more effective than what we were doing before and I think our product is going to get better because of it.
Speaker Change:
Speaker Change: I would add to that just to say, we also haven't seen any noticeable impact from our content.
Speaker Change: Content policy changes on advertiser spend so we're continuing to see strong advertiser demand again, particularly for our AI powered tools that are helping you know businesses maximize the value of their AD spend so our commitment to brand safety is unchanged and we expect that we will invest in our suite of tools to meet the needs of advertisers.
On your second question in terms of monetizing meta AI. Our initial focus for meta AI is really about building a great consumer experience and that's frankly, where all of our energies are our kind of directed to right. Now there will I think be you know pretty clear monetization.
Speaker Change: Opportunities should over time.
Speaker Change: Including paid recommendations and including a premium offering, but that's really not where we are focused in terms of the development of meta AI today.
Speaker Change: Your next question comes from the line of Douglas Anmuth with J P. Morgan. Please go ahead.
Douglas Anmuth: Thanks for taking the questions one for Mark one for Susan Mark just following up on open source as keep seeking other models potentially leverage lama or others to train faster and cheaper how does this impact meta in your view and what could have been for the trajectory of investment required over a multiyear period and then.
Speaker Change: Susan just as we think about the 60 to 65 billion in Capex. This year does the composition changed much from last year. When he talks about servers is the largest part followed by data centers.
Douglas Anmuth: Working equipment.
Speaker Change: Should we think about that mix between like training and inference just following up on John's post this week. Thanks.
Speaker Change: I can start on the on the deep seek question.
Speaker Change: You know I think that there is a.
Speaker Change: There's a number of novel things that that they did that I think we're still.
Speaker Change: Digesting and.
Speaker Change: There are a number of things that they have advances that we will hope to implement in our systems.
Speaker Change: And that's part of the nature of how this works, whether it's a Chinese competitor or not I kind of expect that every new company that Hudson advance. It's that that has a launch is going to have some new advances that the rest of the field learns from and and that's sort of how has the technology industry.
Speaker Change: Jos.
Speaker Change:
Speaker Change: I don't know.
Speaker Change: It's probably too early to really have a strong opinion on what this means for the trajectory around infrastructure and Capex and things like that you know there were a bunch of trends that are happening here all at once.
Speaker Change: There's already sort of a debate around how much of the compute infrastructure that we're using is going to go towards pre training versus as you get more of these reasoning time models or reasoning models, where where you get more of the intelligence by putting more of the compute into inference.
Speaker Change: Whether it will mix shift how we.
Speaker Change: Use our our compute infrastructure towards that that was already something that I think a lot of the.
Speaker Change: The other labs in ourselves, where we're starting to think more about.
Speaker Change: And already seem to be pretty likely even before this that that like of.
Speaker Change: Of all the computer we're using that.
Speaker Change: Largest pieces arent necessarily going to go towards pre training, but that doesn't mean that you need less compute.
Speaker Change: Because one of the new properties, that's emerged as the ability to apply more compute at inference time in order to.
Speaker Change: <unk> generated a higher level of intelligence and a higher quality of service.
Speaker Change: Which means that as a company that.
Speaker Change: That.
Speaker Change: It has a strong business model to support this I think that's generally an advantage that we're now going to be able to provide a higher quality of service than others, who don't necessarily have the business model to support it on a sustainable basis.
Speaker Change: The other thing is just that you know when we're building things like meta AI, but also how we're implementing AI into all the feeds and add products and things like that.
Speaker Change: Serving billions of people, which is different from okay. You you.
Speaker Change: Start to pre trend of model N.
Speaker Change: That model is sort of agnostic to how many people are using it like at some level, it's going to be expensive for us to serve all of these people because we are serving a lot of people.
Speaker Change: And.
Speaker Change: So I'm not sure what the net effect of all of this is the field continues to move quickly.
Speaker Change: There's a lot to learn.
Speaker Change: [noise] releases from basically everyone, who does something interesting not just this not just a.
Speaker Change: Yeah.
Speaker Change: The ones over the last month.
Speaker Change: We will continue to kind of incorporate that into what we do as well as making notable contributions to the field ourselves.
Speaker Change: And I continue to think that investing very heavily in capex and infra is going to be a strategic advantage over time, it's possible that we'll learn otherwise at some point, but but I just think it's way too early to call that and at this point I would bet that the ability to build out that kind of infrastructure is going to be a major advantage for both the quality of the service.
Speaker Change: And being able to serve the scale that we want to.
Speaker Change: I'm happy to add a little more color about our 2025 Capex plans to your second question.
Speaker Change: So we certainly expect that 2025 capex is going to grow across all three of those components. You described servers will be the biggest growth driver that remains the largest portion of our overall capex budget, we expect both growth in AI capacity as we support our jetting I efforts and continue to invest meaningfully in Korea.
Speaker Change: But we are also expecting growth in non AI capacity as we invest in the core business, including to support a higher base of engagement and to refresh our existing servers on the data center side, we're anticipating higher data center spend in 2025 to be driven by build outs of our large training clusters.
Speaker Change: And our higher power density data centers that are entering the core construction phase.
Speaker Change: <unk> to use that capacity, primarily for core AI and Donnie I use cases on the networking side, we expect networking spend to grow in 'twenty five as we build higher capacity networks to accommodate the growth in non AI and core AI related traffic along with our large Jenny I training clusters. We're also investing in fiber to handle future cross.
Speaker Change: <unk> region training traffic.
Speaker Change: And then in terms of the breakdown.
Speaker Change: For core versus just getting I use cases.
Speaker Change: We're expecting total infrastructure spend within each of Jennie O 90, I and Corey I to increase from 25 with the majority of our Capex directed to our core business with some caveat that that is not that's not easy to measure them perfectly as the data centers. We're building can support AI or non AI workloads in the G. P. G P.
Mark: They servers, we procure for Jenny I can be repurposed for Korea use cases, and so on and so forth, but overall you know I would reiterate what Mark said, we are committed to building meeting foundation models and applications.
Mark: And we expect that we're going to make big investments to support our training and inference objectives, and we don't know exactly where we are in the cycle of that of that of that yes.
Speaker Change: Your next question comes from the line of Ron Josey with Citigroup. Please go ahead.
Great. Thanks for taking the question Mark I want to get back to your comment on getting back to the <unk> Facebook and want to understand a little bit more on the use cases and how that could extend video is clearly a benefit local marketplace groups have all been positive so any insights on the EOG Facebook and then.
Speaker Change: Back to meta AI given the adoption, we're seeing on the 600, plus and they use intelligent user experience evolved here what are people doing with AI. Thank you.
Speaker Change: Okay.
Speaker Change: Yeah.
Speaker Change: Yeah.
Speaker Change:
Speaker Change: Okay. So for for Facebook.
Speaker Change: A lot of people use Facebook every day and it's an important part of their lives and I think that there are a lot of opportunities to make it way more culturally influential than it is today and I think that that's sort of.
Speaker Change: A fun and interesting goal that will take our product development and then in some interesting directions that we.
Speaker Change: Maybe haven't haven't focused on as much over the last several years. So I don't know that I have anything much more specific on this other than that this is gonna be a one of my focus areas for this year.
Speaker Change: I think it's.
Speaker Change: It's an investment area and.
Speaker Change: And something I'm going to spend some time on it you know it might mean that in the near term we are.
Speaker Change: We make some some tradeoffs to to kind of focus on some product areas of what we're doing.
Speaker Change:
Speaker Change: Ahead of just kind of maximizing business results in the near term on it but but overall I'm really excited about.
Speaker Change: About doing some some exciting stuff here and.
Speaker Change: I'm not going to get into many specifics now but.
Speaker Change: Hi.
Speaker Change: But we'll get we'll follow up on this over the over the next.
Speaker Change: I don't know call it half of your year as we start rolling stuff out and I think some of this will kind of get back to how Facebook was originally used back in the day, So I think it'll be fun.
Speaker Change: I'm happy to share a little bit more about meta AI and what people are doing with it you know we are in a phase where we're really learning a lot from the way that people engage.
Speaker Change: With meta AI so.
Speaker Change: You know from an App perspective, Whatsapp continues to see the strongest meta AI usage across our family of apps people. There are using it most frequently for information seeking an educational queries along with emotional support use cases.
Speaker Change: Of the Whatsapp engagement and then one on one threads, though we see some usage and group messaging and on Facebook, which is.
Speaker Change: The second largest driver of met of engagement, we're seeing strong engagement from our feed deep dives integration that lets people ask that question about the content.
Speaker Change: That is recommended to them so across I would say all core types. We continue to see signs that meta AI is helping people leverage our apps for new use cases.
Speaker Change: We talked about information gathering and social interaction and communication.
Speaker Change: Lots of people use it for humor in casual conversation they use it for writing and editing research recommendations and as we look forward to 2025, and our meta AI roadmap. We are really focused on doing more to make make it feel more personalized so that I would say some of them.
Speaker Change: Most are exciting features we're working on including.
Speaker Change: Moving to the memory dimension of the meta experience well be able to remember certain details that people share and one of them on chats I'm for example, and use those details to personalize its responses and then really increasing its ability to deliver great content recommendations and.
Speaker Change: Enhanced really what makes Facebook and Instagram so valuable for people for people today.
Speaker Change: Your next question comes from the line of Ken <unk> with Wells Fargo. Please go ahead.
Speaker Change: Thank you very much two for me. Please first could you talk a little bit I know you you talked a little bit on the capital intensity side and the recent developments and it's hard to see it.
Hard to tell yet where things are going but maybe you could just talk a little bit more near term 25. The capex budget you you laid out or the Capex forecast could you talk a little bit about the constraints youre seeing or where you're seeing constraints, either internally resources planning or externally and any anyone.
Speaker Change: Any parts of the ecosystem.
Speaker Change: And then on the on the second the second one I'm curious.
Speaker Change: As you think about that.
Speaker Change: As you think about that.
Speaker Change: Your needs for hiring and we just think about when you gave the Opex guide for this year, but as we think about future needs for hiring could.
Speaker Change: Could you just give us a sense of how we should think about that you announced.
Speaker Change: The performance related.
Speaker Change: <unk> earlier this for early this year could you just talk about how we should be thinking about that 26 27 and beyond. Thank you sure I'm happy to take both of those so on your first question on just where do we see constraints in our ability to execute against our Capex plans.
Speaker Change: Obviously, you know we are staying on top of supply availability that is certainly one of the factors that will influence our capex spend in 2025, but we don't really have any updates to share them on supply availability right. Now we are planning to significantly ramp up deployment of Gpus in 2025, and we will continue to engage with our vendors and.
Speaker Change: Invest in our own silicon to meet those needs.
Speaker Change: You know and you asked how to think about capital intensity.
Speaker Change: We're not really you know I as both Mark and I alluded to in our prior comment I think it is really too early to determine what long run capital intensity is going to look like.
Speaker Change: There are so many different factors the pace of advancement and underlying models, how efficient can they be what is the adoption and use case of our journey I products what performance gains come from next generation hardware innovations out on our own and third party and then ultimately what monitors.
Speaker Change: Nation or other efficiency gains our AI investments on Mark. So again I think we are we were sort of early in the journey here and we don't have I would say, we don't have kind of a anything to share about long run capital intensity yet.
Speaker Change: Your second question was about thinking about hiring needs them.
Speaker Change: It's a good segue after infrastructure employee compensation is the next largest driver of expense growth in 2025, and here you know growth in employee comp and head count more broadly is primarily driven by those areas that I mentioned, you know infrastructure monetization generative AI reality labs and <unk>.
Speaker Change: Regulation and compliance and those generally are more technical organization that means that it has a higher cost base relative to business functions, where we are also expecting to keep them I'd count growth constrained and you know.
Speaker Change: I would say we are.
Speaker Change: You know we're focused on running the company efficiently, but at the same time. It is we feel like we're in a critical period in terms of making sure that we are investing to win and we want to make sure that we stopped those priority areas in a way that really positions us to best do that.
Speaker Change: Krista, we have time for one last question.
Speaker Change: And that question comes from the line of Ross Sandler with Barclays. Please go ahead.
Speaker Change: One for Mark on agents. So we also open AI as operator demo last week, so mark as the industry moves from <unk> to.
Speaker Change: <unk> behavior.
Speaker Change: More commercial and tenant moves into these AI products I guess, how are you thinking about monetization potential for meta AI and then.
Mike Lovell: Mike Lovell for reasoning.
Mike Lovell: It helped drive some of these new HMT experiences.
Mike Lovell: Thank you.
Mike Lovell: Yeah. So I guess, a couple of things that I'd say on this.
Mike Lovell: One is when you're thinking about.
Mike Lovell: Agents and reasoning a lot of this is about being able to perform multi step tasks. So right now the way that a lot of these systems work as you you you kind of say something and then it responds and it's almost chat like Ah but.
Mike Lovell: I think that's the direction that its going is youre going to be able to give it an intent or a task and it's going to go off and use sort of an arbitrary amount of compute as much as you want to use on it ought to be able to.
Mike Lovell: Do a task some of the tasks might be pretty simple for people go go by a specific things some of them might be really hard like go write an app or optimize this code and like really make it as good as possible.
Mike Lovell:
Mike Lovell: And.
Mike Lovell: That type of thing I think is just going to start becoming more and more prevalent over the next.
Year or two so I think its very exciting its sort of will feel.
Mike Lovell: In some ways like the current products or just getting smarter and others it'll feel like sort of a new form factor because it won't be as much like chat.
Mike Lovell: But.
Mike Lovell: But it's sort of another generation of these products. So I think it's it's just in general there's a lot to build and be excited about.
Mike Lovell: I guess my note of of caution or are just my my kind of periodic reminder, on our product development process. If you will is we build these products. We tried to scale them to reach you usually 1 billion people or more and it's at that point once are there.
Mike Lovell: The scale that we really start focusing on monetization. So sometimes we'll we'll experiment with with monetization.
Mike Lovell: Before.
Mike Lovell: We're running some experiments with threads now for example, but we typically don't really ramp these things up or see them is meaningfully contributing to the business.
Mike Lovell: Until we reached quite a big scale. So the thing that I think is is going to be meaningful. This year is the kind of getting of the AI product to scale last year sort of the introduction and starting to get it to be used this year.
Mike Lovell: My kind of expectation and hope is that we will be at a sufficient scale and have.
Mike Lovell: Sufficient kind of flywheel, if people are using it and an improvement from that.
Mike Lovell: But this will have a durable advantage, but that doesn't mean that it's going to be a major contributor to the business. This year. This year the improvements to the business, they're going to be taking the AI methods and applying them to advertising and recommendations and feeds and things like that so the actual business opportunity.
Mike Lovell: For met AI, and AI studio and business agents and people interacting with you say eyes remains outside of <unk> 25 for the most part and I think that that's an important thing for for us to communicate and for people to internalize as you're thinking about our prospects here, but but nonetheless, we've run.
Mike Lovell: A process like this many times and we build a product we make it good we scaled to be large we built out the business around it.
Mike Lovell: That's what we do very optimistic.
Mike Lovell: But it's going to take some time.
Great.
Mike Lovell: Thank you everyone for joining us today appreciate your time and we look forward to speaking with you again soon.
Mike Lovell: This.
Mike Lovell: Today's conference call. Thank you for your participation and you may now disconnect.