Facebook, Inc. (FB) First Quarter 2017 Results …17...Facebook, Inc. (FB) First Quarter 2017...

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Facebook,Inc.(FB)FirstQuarter2017ResultsConferenceCallMay3rd,2017OperatorGoodafternoon.MynameisMikeandIwillbeyourconferenceoperatortoday.AtthistimeIwouldliketowelcomeeveryonetotheFacebookfirstQuarter2017EarningsCall.Alllineshavebeenplacedonmutetopreventanybackgroundnoise.Afterthespeakers'remarks,therewillbeaquestionandanswersession.Ifyouwouldliketoaskaquestionduringthattime,pleasepressstarthenthenumber1onyourtelephonekeypad.Thiscallwillberecorded.Thankyouverymuch.Ms.DeborahCrawford,Facebook’sVicePresidentofInvestorRelations,youmaybegin.DeborahCrawford,VPInvestorRelationsThankyou.GoodafternoonandwelcometoFacebook’sfirstquarter2017earningsconferencecall.JoiningmetodaytodiscussourresultsareMarkZuckerberg,CEO;SherylSandberg,COO;andDaveWehner,CFO.Beforewegetstarted,Iwouldliketotakethisopportunitytoremindyouthatourremarkstodaywillincludeforward-lookingstatements.Actualresultsmaydiffermateriallyfromthosecontemplatedbytheseforward-lookingstatements.Factorsthatcouldcausetheseresultstodiffermateriallyaresetforthintoday’spressrelease,andinourannualreportonform10-KfiledwiththeSEC.Anyforward-lookingstatementsthatwemakeonthiscallarebasedonassumptionsasoftodayandweundertakenoobligationtoupdatethesestatementsasaresultofnewinformationorfutureevents.DuringthiscallwemaypresentbothGAAPandnon-GAAPfinancialmeasures.AreconciliationofGAAPtonon-GAAPmeasuresisincludedintoday’searningspressrelease.Thepressreleaseandanaccompanyinginvestorpresentationareavailableonourwebsiteatinvestor.fb.com.Andnow,I’dliketoturnthecallovertoMark.MarkZuckerberg,CEOThanks,Deborah.Andthankseveryoneforjoiningtoday.Westartedtheyearoffwithagoodquarter.Ourcommunitycontinuestogrowwithmorethan1.9billionpeoplenowusingFacebookeverymonthandalmost1.3billionusingiteveryday.Ouradsbusinessisdoingwell,too.Totalrevenuegrewby49%year-over-yearto$8.0billion,andadvertisingrevenuewasup51%to$7.9billion.InmylettertoourcommunitybackinFebruary,Italkedabouthow,forthepastdecade,Facebookhasfocusedonconnectingfriendsandfamilies.Now,withthatfoundation,ournextfocuswillbebuildingcommunity.

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There'salottodohere.Buildingglobalcommunityisbiggerthananyoneorganization,butwecanhelpbydevelopingsocialinfrastructureforcommunity--forsupportingus,forkeepingussafe,forinformingus,forcivicengagement,andforincludingeveryone.

Buildingaglobalcommunitythatworksforeveryonestartswithbuildingmillionsofsmaller,supportivecommunities.Thisisespeciallyimportantsincemembershipinmanyphysicalcommunitiesisdeclining.Werecentlyfoundthatmorethan100millionpeopleonFacebookaremembersofwhatwecall"verymeaningful"groups,likeparentingorrarediseasesupportgroupsthatareanimportantpartoftheirsupportstructure.Myhopeistohelpmorethanabillionpeoplejoinmeaningfulgroupstostrengthenoursocialfabricoverthenextfewyears.Tohelpbuildasafecommunity,welaunchedCommunityHelp,atoolthatallowspeopletogiveandgetthingslikefood,shelterortransportationinthewakeofanaturaldisaster.Wealsolaunchedanewfundraisingtoolthatallowspeopletoraisemoneyforthemselves,afriendoracausethatisn'talreadyonFacebook.

Butit'sclearwehavemoreworktodo.We'regoingtocontinuebuildingnewtoolstokeeppeoplesafeonourplatform.Overthenextyear,we'llbeadding3,000peopletoourcommunityoperationsteamaroundtheworld--ontopofthe4,500wealreadyhavetoday--toreviewthemillionsofreportswegeteveryweek,andtoimprovetheprocessfordoingitquickly.Tohelpbuildamoreinformedcommunity,wemadechangestoourNewsFeedrankingtoreducethefinancialmotivationtospreadhoaxes.We'reworkingwithindependentfactcheckerstogivepeoplemoreinformationaboutwhetheranarticlehasbeendisputed.WelaunchedaneducationaltoolatthetopofNewsFeedin14countriestohelppeoplespotfalsenews.Andwe'rebeginningtotestRelatedArticlesthatappearbeforeyoureadanarticletogiveyoueasieraccesstomoreperspectivesandinformation.

We'realsohelpingbuildmorecivically-engagedcommunities.InMarch,welaunchedTownHalltohelppeoplefindandconnectwiththeirgovernmentrepresentativesonalocal,stateandfederallevelintheU.S..Injustthefirstmonth,wecreatedmorethan1millionnewconnectionsbetweenpeopleandtheirrepresentatives.WealsorolledoutatoolinFranceaheadoftheirelectionthatallowscandidatestosharestatementsaboutwheretheystandondifferentpolicyissues.Thesearesomeofthechangeswe'vemadetohelppeoplebuildstrongercommunities.NextIwanttogiveaquickupdateonwhatwe'rebuildingoverthreetimehorizons:howwe'remakingourcoreservicesmoreusefulandengagingrightnow;howwe'rebuildingecosystemsaroundproductsthatalotofpeoplealreadyuseoverthenextfiveyears;andhowwe'reinvestinginthetechnologiesthatwillgivemorepeopleavoiceandmakesharingmoreimmersiveoverthenext10years.Thisquarterwelaunchedasetofnewcameras.Photosandvideoarebecomingmorecommonthantext,sothecameraisbecomingmorecentralthanthetextboxinallourapps.IntheFacebookapp,youcannowswiperightfromNewsFeedtoaccessournewcamerawithmasks,framesandfilters.We'vedevelopednewcomputervisiontoolsthatcanapplythestyleofapaintingtoa

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photoorvideo—andwecandoitinreal-timeonyourphoneforthefirsttime.Thisispartofmakingthecamerathefirstaugmentedrealityplatform.WewanttogivedevelopersthepowertobuildallkindsofARtoolsintothecamerasomorepeoplecanexperienceaugmentedrealityontheirphones.Creatingthefirstopencameraplatformisahugestepforward,andwe'reexcitedtokeeppushingaugmentedrealityforward.WealsoexpandedtheStoriesformattogivepeoplemorenewwaystoshare.InstagramStoriesnowhasmorethan200milliondailyactivepeopleusingit.Andjustacouplemonthsafterwelaunchedit,WhatsAppStatushasmorethan175milliondailyactivepeopleusingit.Morerecently,wealsorolledoutMessengerDayandFacebookStories,andwe'regoingtokeepputtingvideoatthecenterofallourservices.Overthenextfiveyears,we'regoingtobuildecosystemsaroundourproductsthatalotofpeoplearealreadyusing.IputLivevideointhiscategory.Lastmonth,weannouncedthatoneineveryfiveFacebookvideosisalivebroadcast--andoverthepastyear,dailywatchtimeforFacebookLivebroadcastshasgrownbymorethan4x.ThisyearwealsogavepeopletheabilitytogoLivein360.Messengerisinthiscategory,too.Andwejustannouncedthat1.2billionpeopleuseMessengereverymonth.AtF8,welaunchedthesecondgenerationofourMessengerplatformandintroducedaDiscovertabtomakeiteasiertofindthebestexperiencesquickly.Finallyoverthenext10years,we'redevelopingconsumerusecasesaroundtechnologiesthatareabigpartofourfuture,butwon'tbeabigpartofthebusinessforawhile.Ontheconnectivityside,inAprilwesuccessfullysimultaneouslybeamed16gigabitsofdataineachdirectionbetweenalocationonthegroundandaCessnaaircraftcirclingmorethan7kmaway.Eventually,we'regoingtousethistechnologyalongwithAquila,oursolar-poweredplanewe'rebuilding,tobeaminternettopartsoftheworldthatcurrentlydon'thaveaccess.InVR,welaunchedFacebookSpaces,thefirstsocialvirtualrealityplatformthatletsyoucreateyourownavatarandhangoutwithyourfriends.AndwealsoreleasedtheFacebook360appforGearVRthatmakesiteasiertodiscoverandexperience360photosandvideos.AndwecontinuetoshipRiftandTouchtopeopleeverywhereanddeliverastrongcontentecosystemacrossbothRiftandGearVR.Aspeoplesharemorevideo,asweexploremorethingslikeaugmentedreality,andaswebuildmoretoolstokeepourcommunitysafe,we'regoingtokeepinvestingaggressivelyintheinfrastructureweneedtogrowandserveourcommunity.That'swhyweannouncedthatournexttwonewdatacenterswillbebuiltinOdense,DenmarkandPapillion,Nebraska.We'vemadesomegoodprogress,butwehavealotmoretodotohelpbuildcommunityandconnecttheworld.Iwanttothankourcommunity,ourteams,ourpartners,andallofyouforbeingapartofthis

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journeywithus.

Now,here'sSheryl.SherylSandberg,COOThanksMarkandhieveryone.Wehadastrongfirstquarterandagreatstarttotheyear.Q1adrevenuegrew51%yearoveryear.Mobileadrevenuewas$6.7billion,up58%year-over-year,andwasapproximately85%oftotaladrevenue.Growthagainthisquarterwasbroad-basedacrossregions,marketersegments,andverticals.Ourgoalistobuildmeaningfulconnectionsbetweenbusinessesandpeople.We’redoingthisbyfocusingon3keypriorities:helpingbusinessesleveragethepowerofmobile,developinginnovativeadproducts,andmakingouradsmorerelevantandeffective.Ourfirstpriorityishelpingbusinessesleveragethepowerofmobile.Morebusinessesaroundtheworldareshiftingtomarketingonmobile.Over70millionbusinessesarenowusingFacebookPagesaroundtheworldonamonthlybasis,andmoreandmoreofthemarebecomingadvertisers.Wealsorecentlyannouncedthatover5millionbusinessesareactivelyadvertisingonFacebook,includingmorethan1millioninemergingmarkets.MostoftheseadvertisersstartbyusingourfreePagesproductbecauseit’seasytouse.Peopleareincreasinglyrecognizingthatthesmallscreenisbig.OurCreativeHubisprovidingtoolsthatmakeiteasiertocreateadsoptimizedformobile–whatwetalkaboutas“thumb-stoppingcreative”.MarketerscanseepreviewsoftheiradsacrossFacebookandInstagrambeforerollingthemoutandgettipstohelpdrivebusinessresults.Oursecondpriorityisdevelopinginnovativeadproductsthathelpbusinessesmakethemostoutoftheircampaigns.WecontinuetoimproveDynamicAdswhichenableadvertiserstopromotetheirfullrangeofproductsacrossalldevices.AdvertiserscannowtargetDynamicAdstobroadaudiencesandareseeinggreatresults.Lastweek,IvisitedhomeretailerWayfairinBoston.TheyusedDynamicAdstoreachalargeaudiencewithpersonalizedrecommendationsfromtheircatalogofover8millionitems.Byfindinghigherrevenuecustomersatalowercost,thecampaignbeatWayfair’sreturnonadspendgoalbymorethan20%.

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We’realsohelpingmarketersusevideotocaptureshoppers’attention.PeoplearewatchingmorevideoonFacebookthaneverbeforeandit’schanginghowtheyconnectwithbusinesses.InarecentstudyFacebookcommissionedwithKantar,30%ofmobileshopperssaidvideoisthebestwaytodiscovernewproducts.Thisquarter,weintroducedanewadformatcalledCollection.Collectionhelpsmarketerstellstoriesonmobilebycombiningcreativevideosorphotoswithproductimages.Clickingontheproductsleadstoanimmersiveshoppingexperience,drivingpurchaseconsiderationandultimatelysales.Forexample,AdidaswhichishowyoupronouncethemattheirheadquartersanditsagencyiProspectcreatedavideohighlightingtheinnovativefeaturesofitsZNERoadTripHoodie.UsingourCollectionadformat,Adidasfeatured4moreitemsfromtheirproductcatalogbelowthevideo.Theysawa5.3timesreturnonadspendanda1.8timesdecreaseincostperconversion.It’sstillearlyforthisnewformat,butit’sagreatexampleofhowwecandeliverinnovativemobileexperiencesthatworkforadvertisersandworkforpeople.Thisquarterwealsolaunchedfullscreen,sound-onadsinInstagramStories.Advertiserscannowreachover200milliondailyactivesonStoriestodoeverythingfrombuildingbrandstosellingproducts.Ourthirdpriorityismakingouradsmorerelevantandeffective.Measurementiscritical.Werecentlyintroducednewandexpandedverificationpartnerships,andcommittedtoauditswiththeMediaRatingCouncil.Whethermarketersaretryingtogetpeopletobuysomethingontheirwebsiteorintheirstore,wenowhavesystemsinplacetohelpthemmeasureresultsandthird-partypartnershipstoverifythoseresults.Theseareimportantstepsaswecontinuetobuildtheadvertisertrust.BudLight’sNFLcampaignisagreatexample.Topromotethedesignsoftheirnewteam-specificcans,BudLighttookanationalandregionalapproach.Theyranvideoadsfeaturingthenewcanstopeopleages21-49intheUS.Thentheyalsoranmoretargetedadsineachregion,featuringthe2cansoftheteamsplayingeachother.UsingFacebookpollingandOracledatacloud,theysawa24-pointliftinadrecallanda4.4timesreturnonadsales.Weknowmarketerswanttocompareresultsacrossplatformsandplacements.Historicallywe’veenabledlargermarketerstodothis.InQ1,westartedtestingasetofadvancedmeasurementtoolsthatmakeiteasierformarketersofallsizestocomparetheeffectivenessofFacebook,InstagramandAudienceNetworkalongsideotherpublishers.Weareofftoastrongstartin2017.Wearehelpingmarketersleveragethepowerofmobile,developinginnovativeadproducts,anddeliveringprovenandmeasurableresults.Weareexcitedaboutthegrowingadoptionofourplatformsandwearegoingtocontinuetoinvestinhelpingbusinessesandpeopleconnect.

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Thanksandnowhere’sDave.DavidWehner,CFOThanksSherylandgoodafternooneveryone.Q1wasastrongquarterforFacebook.Wecontinuedtoseehealthygrowthandengagementtrendsacrossourcommunityaswellasbroadbasedgrowthinouradsbusiness.Let’sstartwithourcommunitymetrics.InMarch,1.28billionpeoplevisitedFacebookonanaverageday,up18%comparedtolastyear.Thisdailynumberrepresented66%ofthe1.94billionpeoplethatvisitedFacebookduringthemonthofMarch,whichwasup282millionor17%comparedtolastyear.OurcommunitygrowthinQ1wasdrivenbyproductimprovements,Internet.org,andongoingthirdpartypromotionaldataplansinmarketslikeIndia.Notethatwedonotcontrolthetimingortermsofthesepromotions.Beforedivingintothefinancials,Iwanttohighlightthatwearenolongerreportingnon-GAAPexpenses,income,taxrateorEPS.Giventhatstockisanimportantpartofourcompensationstructure,webelievethatinvestorsshouldfocusonourfinancialperformancewithstock-basedcompensationincluded.Turningnowtothefinancials.Allofourcomparisonsareonayear-over-yearbasisunlessotherwisenoted.Q1totalrevenuewas$8.0billion,up49%.Adrevenuewas$7.9billion,up51%.Exchangeratesdidnotaffectouroverallgrowthratethisquarterasheadwindsincertaincurrencieswereoffsetbytailwindsinothers.Intermsofregionaladvertisinggrowth,RestofWorldandAsiaPacificwereourstrongestgrowersinpercentagetermsat66%and60%respectively.Bothregionsbenefittedfromparticularlystrongadvertiserdemand.EuropeandNorthAmericabothgrewat47%.Mobileadrevenuewas$6.7billion,up58%andrepresentedapproximately85%ofadrevenue.Desktopadrevenuegrew22%,despiteadeclineindesktopusage,andwasaidedbyourrecenteffortstolimittheimpactofadblockingtechnologies,whichwebeganinQ3oflastyear.Ourmobileadsbusinesscontinuedtobedrivenbyhealthysupplyanddemanddynamics.InQ1,theaveragepriceperadincreased14%andthetotalnumberofadimpressionsservedincreased32%,primarilydrivenbymobilefeedads.

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PaymentsandOtherFeesrevenuewas$175million,down3%.Q1totalexpenseswere$4.7billion,up40%.In2017,wehavecontinuedtoaccelerateourhiringefforts.Weaddedover1,700employeesinQ1–predominantlyintechnicalandrecruitingfunctions–andendedthequarterwithapproximately18,800employees,up38%comparedtolastyear.Thismarkedanaccelerationfromthe34%growthrateinQ4.Q1operatingincomewas$3.3billion,representinga41%margin.Ourtaxratewas10%,whichreflectstheadoptionofASU2016-09inthefourthquarter.Excludingthisadoption,ourtaxratewouldhavebeenapproximately9percentagepointshigher.Notethatthenewaccountingguidancedoesnotimpactthecashtaxeswepay,butmerelyhowthetaxprovisionispresentedunderGAAP,wherebynowexcesstaxbenefitsareflowingthroughtheP&LandinthisquarterpositivelyimpactedEPS.Netincomewas$3.1billion,or$1.04pershare.Q1capitalexpenditureswereapproximately$1.3billion,drivenbyinvestmentsindatacenters,servers,officefacilitiesandnetworkinfrastructure.InQ1,wealsobrokegroundonourninthdatacenterinNebraska.Wegeneratedapproximately$3.8billioninfreecashflow.Inthefirstquarter,werepurchased$228millionofourClassAcommonstockandused$771millionincashfortaxespaidrelatedtothenetsharesettlementofequityawards.Weendedthequarterwith$32.3billionincashandinvestments.Turningnowtotheoutlook.Withregardstorevenue,wecontinuetoexpectthatouradrevenuegrowthrateswillcomedownmeaningfullyoverthecourseof2017.Weexpectthatadloadwillplayalesssignificantfactorindrivingrevenuegrowthaftermid-2017.Wealsoexpectdesktopadrevenuegrowthratestoslowinthethirdquarterwhenwebegintolapoureffortstolimittheimpactofadblockers.Wecontinuetoexpectthatourfull-year2017Payments&OtherFeesrevenuewilldeclinecomparedtofull-year2016.Asareminder,Payments&OtherFeesrevenueisprimarilygeneratedfrompaymentsrelatedtogamesplayedonpersonalcomputers.

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Turningtotheexpenseoutlook,wecontinuetoexpectthatfull-year2017GAAPexpenseswillgrow40-50%comparedtofull-year2016.Iwouldnotethataswelookinto2017andbeyondtherearegoingtobeanumberofinitiativeswebelievearevaluabletothecommunityandtothecompanyinthelongtermbutaregoingtobenetnegativeonouroperatingmargins.Weareembarkingonasignificantrampupininfrastructuresupportingglobalgrowth,andwecontinuetoexpectthatfull-year2017capitalexpenditureswillbeintherangeof$7-$7.5billiondollarswhichisupover50%comparedtolastyear.Turningnowtotax.Aswenotedinthelastcall,underthenewaccountingguidanceourtaxratewillvarybasedonourstockprice.Atcurrentstockprices,weexpectthatourQ2andfull-year2017taxrateswillbothbeinthemid-teens,soupfromthefirstquarterrate.Insummary,Q1wasastrongquarterandagreatstarttotheyear.GrowthintheFacebookcommunityremainsstrong.Engagementacrossourfamilyofappsishealthyandgrowing.Andadvertiserdemandfromourgrowingbaseofmarketersisrobust.Importantly,wecontinuetoinvestaggressivelytobuildourbusinessanddrivevalueforourcommunityoverthelongterm.Withthat,operator,let’sopenupthecallforquestions.

Operator: Wewillnowopenthelineforaquestionandanswersession.Toaskaquestion,

pressstarfollowedbythenumberoneonyourtouch-tonephone.Pleasepickup

yourhandsetbeforeaskingyourquestiontoensureclarity.Ifyou’restreaming

today’scall,pleasemuteyourcomputerspeakers.

YourfirstquestioncomesfromthelineofEricSheridanfromUBS.

EricSheridan: MaybeonethematicquestiononInstagramforMarkandSheryl.Wantedto

understandwhatyou'reseeingintermsofthedevelopmentofthecommunityon

theusergrowthside,theengagementsideaswellasonthemonetizationsidewith

respecttobreadthofadvertisersandadproductevolution,whatthatmeansfor

Instagram'sfutureandhowitcomparestomaybewhatyou'velearnedgrowingthe

businessontheFacebooksideoverthelastcoupleofyears?

DavidWehner: Eric,whydon'tItakethebeginningofthatandthenSherylcanaugmentwithsome

additionalcolor.SowhenyouthinkaboutInstagram,we'reseeinggreatgrowth

therewiththecommunity.Sothispastquarter,weannounced700milliondaily--

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sorry,monthlyactivessothatwasabigannouncement.Andthat'sbroad-based

growthacrosstheglobesowe'repleasedwiththat.Intermsofthedevelopmenton

theadvertisingside,we'renotspecificallybreakingoutInstagramrevenue,asyou

know,becausethat'ssoldthroughthesameFacebookadinterfaces.

Butwe'reseeingreallygoodcontributionandgoodgrowththere.Andwe're

developingitacrossawidevarietyofadproductssoDR'sbecomingamore

significantpartoftheInstagramStorieswhereitwasoriginallymorebrand-focused,

butwe'veexpandedtheproductofferingsonthedirectresponsefront.Andwe're

continuingtobringmoreadproductstoInstagram.

SherylSandberg: We'reprettyexcitedaboutwhat'shappeningintheInstagramadspacebecause

FacebookandInstagramarethetwomostimportantmobileadplatforms.And

there'saspecialpropertywithInstagram,whichisthattheincreasingvisualization

ofadsandthecreativecanvasitofferswiththesciencebehindtheFacebook

targetingandmeasurementsystemsisreallyaprettyunusualcombination.

We'realsoseeingverybroadadoptionincludingsmallcustomers.We'repretty

excitedtohave1millionadvertisersand8millionInstagrambusinessprofilesonthe

platform.Toshareoneexample,anonlinestoreinBrazilcalledLojaNama,theysell

decorativeitemsandaccessories.Theirbusinessowner,Joanna,tookphotosofher

productsonherphoneandthencreatedadswithourShopNowbutton.

ShetargetedyoungaudiencesinBrazilwhoareinterestedinfashion,decoration,

moviesandarchitecture.Andduringtheperiodofhercampaign,Instagram

accountedfor78--79%ofhersales.Ithinkwhatthatshowsisthepowerofthe

verysophisticatedtargetingweofferacrossourplatforms,alongwithreallythe

abilitytouseverysimpletoolslikeaphonetocreateverysophisticatedbutvisually

compellingads.

Operator: YournextquestioncomesfromthelineofDouglasAnmuthofJPMorgan.

DouglasAnmuth: OneforMarkandthenperhapsoneforSherylorDave.Mark,first,justonthevideo

strategy,washopingyoucouldtalkalittlebitabouthowthat'sevolvingintermsof

thetypeofcontentthatyou'relicensingandfeaturingwithintheFacebookvideo

tab.Andthenifyouhaveanymoreclarityjustonhowtheeconomicsaregoingto

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worktherearoundrevenueshareandgrossmargins.Andthenonadrevenue,the

U.S.andCanadawasverystrongat47%growth,butatthesametime,italsodid

decelalittlebitmorethanwe'veseeninrecentquarters.Wasjustwonderingif

there'sanythingelsetocalloutthere.Thankyou.

DavidWehner: Yes,Doug,whydon'tItakethedecelquestionontheU.S.andCanada?Idon'tthink

therewasanythingparticularlysurprisingaboutthedecelerationinthegrowthin

U.S.andCanada.We'vebeentalkingaboutexpectingadecelerationinadrevenue

growth,andwesawthatplayoutU.S.,Canadamodestly.Obviously,we're

particularlypleasedthattherewasreallystrongdemandthatbenefitedregionslike

APACandRestofWorldsoreallybroad-basedstrengthinAPAC.AndthenRestof

World,wesawareboundinLatinAmerica.Soespecially,Brazilsowe'reseeing

someparticularstrengththere.SoIthinkthat'ssortof--Ithinkwasabighighlight.

Onthecontentfront,we'relookingatinvestinginkickstartinganecosystemfor

longer-formcontentonFacebook.Andthatinvolvesusworkingwithcontent

providerstodevelopthatcontent.Inthelongrun,weexpectittobearevenue

sharemodelontheplatform.Andobviously,we'regoingtobe--we'regoingtobe

inanareawherewe'resharingrevenuewithcontentproviderssoit'sgoingtohave

adifferentmarginprofilethancoreFacebookNewsFeedfromanexpenseprofile

perspective.

MarkZuckerberg: Ithinkyouprettymuchgotthat.

DavidWehner: OK.

Operator: YournextquestioncomesfromthelineofBrianNowakfromMorganStanley.

BrianNowak: IhaveoneforMarkonMessengermonetization.Canyoujusttalkaboutsomeof

thebiggesttrendsyou'remonitoringandwhatyou'remostexcitedaboutasyou

thinkaboutwaystomonetizeMessengeroverthenext2or3years?Andthenon

engagement,youcontinuetogrowInstagramandMessengeruserbasesreally

helpfully.Iguess,I'dbecurioustohear,doyoustillcontinuetoseerisingtimespent

peruseracrossall3ofthoseplatformsevenastheDAUsbasegetsbigger?

MarkZuckerberg: Youwanttostartwiththestats,Wehner?

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DavidWehner: Yes,Icanstartwiththestats.Soon--yes,Mark,ontheengagementfront,we're

seeingtimespentgrowthperDAUacrosstheFacebookfamilyofappsandthat

includesFacebookitself.Instagramhasbeenstrong,especiallywithfeedranking

andStories.We'renotbreakingoutspecifictimespentstatsonaquarterlybasison

those.AndthenontheMessengermonetizationfront.

MarkZuckerberg: Icantalkaboutthestrategy.Yes,sothefirstthingthatweneedtodoonMessenger

andWhatsAppisgetalotofbusinessesusingitorganicallyandbuildthebehavior

forpeoplethattheyreachouttobusinessesfordifferentthings,likecustomer

supportorforgettingnewscontent,thingsthatmaynoteventuallybethebig

businessusecasesbutestablishthebehaviorofpeopleinteractingnotonlywith

theirclosefriendsbutalsowithbusinesses.Intermsofmakingmoneyonthat,once

wehavethatbehavior,Ithinktherearegoingtobeanumberofwaystoamplify

that.

We'realreadyexperimentingwithacouple.OneisadsthatactuallydisplayinNews

Feed,notinMessengerorWhatsAppbutthatlinkedtotheabilitytocommunicate

withabusinessdirectlyinMessengeroreventuallyWhatsApp.Andthat'sgreat.I

mean,itconvertsbetterforthebusinesses.Theycanhaveabetterdialoguewith

theperson–apersistentrelationship.Sothat'sonewaythatisvaluable.

Theotherwayis,ofcourse,eventuallyshowingpaidcontentinMessengerwhether

that'sintheinboxorinrelevantwaysthroughouttheproduct.Butthetoppriority

rightnowisjustbuildingupthebaseoforganicinteractionbetweenpeopleand

businessesthattheywanttointeractwith.Andoncewegetthattoabigbase,I

thinktherearegoingtobealotofopportunitiestobuildthebusiness.Andthe

businesswillbeproportionaltotheamountofthatactivitythatpeoplewanttodo

organically.

Operator: YournextquestioncomesfromthelineofJustinPostfromBankofAmericaMerrill

Lynch.

JustinPost: Acoupleofthingsonadvertisingandmodeling.WhenwethinkaboutQ1,canyou

helpusatalltothinkabouthowmuchtheadloadgrowthiscontributing?Andwhat

drovetheimprovementinpricinginthequarter?AndthenDave,whenyoulookout

tothethirdquarterandyoukindoflaptheadblockingondesktop,aretheremore

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adblockingsyoucandotohelpmaintainthatgrowth?Orarethereotherdriversfor

desktopthatwecouldthinkabout?Thankyou.

DavidWehner: Sure,Justin.Notbreakingoutspecificdriversonthesupplyside,supplygrowthwas

healthyandwehadcontributionsfromuserstimespentandadloadinthequarter.

Intermsofwhatdrovetheimprovementinthepricing,it'sstrongdemand;that's

playingthroughinthefaceofalittlebitslowersupplygrowth.Andsoyou'reseeing,

ofcourse,theauctiondrivepricingandtheirinterplaybetweenthesupplygrowth

andthepricinggrowth,andwe'reseeingstrongdemandplaythroughonthepricing

side.

Whenwegettolappingoureffortsondesktop,Idothinkyou'regoingto--you

haveaseculartrendawayfromdesktop,sothat'sgoingtobeanoverallfactorin

desktop--ourabilitytogrowandmaintainthedesktopbusiness,soIthinkthat'san

underlyingfactor.We'realwaysgoingtobeinabackandforthwithadblockerson

thedesktopsidesoIthinkthat'sgoingtoconstantlybeathingthatplaysintothe

desktoprevenue.

Operator: YournextquestioncomesfromthelineofColinSebastianfromBaird.

ColinSebastian: Great,thanks.Firstoff,Iguess,asafollow-upontheearliervideoquestionfrom

Doug.Couldyouaddsomeperspectiveonengagementtrendswithvideocontent

andvideoadssuchasaverageviewingtime?Andwhetherthosemixiswhatis

impactingimpressiongrowth?Andthenmorebroadly,ifyoucanoffersome

perspectiveonhowmuchofthevideoadspendingonFacebookapplicationsare

incrementaltotelevisionbudgetsorifthere'sanyevidenceyou'reseeingofashare

shift?Thankyou.

DavidWehner: Sure,Colin.I'lltakethatfirstone.Soyes,impressiongrowthwas32%inQ1asI

noted.Andthatwasabitslowerthaninpreviousquarters.Thoseofyouwhohave

beenfollowingusforawhileknowthatperiodically,wemakechangestothe

productthatisgoingtoimpactsomeofthemetrics.OneofthethingsthatIwould

calloutinQ1asacontributingfactorontheimpressiongrowthsidewasour

decisiontoranklonger-formvideohigherinNewsFeed.Thatmeansmoretimein

video.AndthatdoescomeattheexpenseofsomeimpressiongrowthinNewsFeed.

SoIthinkyoudoseesomeinterplaythereontheimpressiongrowthsideduetoour

focusonvideo.AndthenSherylisgoingtofollow-uponvideoadspending.

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SherylSandberg: OnTV,wearedefinitelyseeingpeoplecontinuetoadvertiseonTVanduseusasa

complement.Overtime,webelievethatthedollarsshiftwitheyeballs,andwewant

toearnitfromourclientstobethebestdollarandthebestminutetheyspendand

helpthemmeasureacrosschannels.Ithinkincreasingly,thequestionisnotyoucan

dowithoutTVbutifyoucandowithoutmobile.Andwe'reworkinghardtohelp

advertisersdevelopthevideocreativethatreallyworksformobilebecausethat

makesthereallybigdifference.

Andwethinkthecombinationofthecreativeworkingformobilebutalsothe

measurementandtargetingwecandoisaverypowerfuloffer.Toshareoneofmy

favoritenewexamples,Subwayworkingwiththeiragentthrough360i,developed

videoadsandimagesforFacebookandInstagramtopromotethelimited-timeoffer

Reubensandwich.AndtheyusedAudienceInsights,targetingpeopleaged18to49

whopurchasemeatandcheese.Andthat'sjustprettyincredibletargeting.

NowhereelseIdon'tthinkyoucanactuallytargetthatwayandpeopleinterestedin

fastfoodandencouragethemtovisitSubways.TheythenusedNielsenBrand

Effectsandwereabletomeasurea16-pointliftinadrecallanda5-pointliftin

intenttovisitSubway.Soit'sareallyuniquecombinationofthepowerofcreative

thatwasdesignedforvideoformobilewithveryspecifictargetingandveryspecific

measurement.

Operator: YournextquestioncomesfromthelineofJohnBlackledgefromCowen.

JohnBlackledge: Twoquestions.Mark,youmentionedadding3,000reviewersofcontentat

Facebook.Couldartificialintelligencebeusedovertimetohelpsolvesomeofthe

monitoring?Andthenjustmorebroadly,howisAIbeingemployedinprocessesat

thecompanynowversusacoupleofyearsago?

Andthenseconditemwouldbecouldneweradunitslikemid-rollvideohelp

mitigatethedecelfromtheloweradloadgrowthcontributioninsecondhalf'17?

MarkZuckerberg: I'lltalktothecontentandAIquestionandthensomeoneelsecantalkaboutthead

piece.Theshortanswerisyes.AItools,overtime,willbeabletodoabetterjobof

flaggingthingsforthesetofpeoplewhoareinthecommunityopsteamsthatwe

14

canprioritizewhatwelookat.Alotofwhatwe'retryingtodohere,it'snotjust

aboutgettingcontentoffFacebook.

Lastweek,thereisthiscasewheresomeonewasusingFacebookLivetobroadcast,

orwasthinkingaboutsuicide,andwesawthatvideoandactuallydidn'ttakeit

downandhelpedtogetintouchwithlawenforcementtousethatLiveVideoto

communicatewiththatpersonandhelpsavetheirlife.Soalotofwhatwe'retrying

todoisnotjustabouttakingthecontentdownbutalsoabouthelpingpeoplewhen

they'reinneedontheplatform,andwetakethatvery,veryseriously.

Overtime,theAItoolswillgetbetter.Rightnow,therearecertainthingsthatAIcan

dointermsofunderstandingtextandunderstandingwhat'sinaphotoandwhat's

inavideo.Thatwillgetbetterovertime.Thatwilltakeaperiodofyearsthoughto

reallyreachthequalitylevelthatwewant.Soforawhileourstrategyhasbeento

continuebuildingasgoodoftoolsaswecan.Becausenomatterhowmanypeople

wehaveontheteam,we'renevergoingtobeabletolookateverything,right?So

that'sgoingtobeabigchallenge.

Butgiventheimportanceofthis,howquicklyLiveVideoisgrowing,wewantedto

makesurethatwedoubledownonthisandmakesurethatweprovideassafeofan

experienceforthecommunityaswecanwhichiswhywe'realmostdoublingthe

sizeofthecommunityopsteamtofocusonsomeoftheseissuesaroundsafetyon

LiveVideo.Butovertimeforsure,moreAIwilldothisbutthisisoveraperiodof

years.

DavidWehner: John,Ithinkyourquestionthenwasonadbreaksandthemid-rolltypeofformats.I

thinkthere,we'retestingtheabilityandareputtingshortadbreaksintolonger-

formliveandon-demandvideos.Testsaregoingwellbutit'sreallyearlydaystotalk

aboutthatbeingasignificantcontributor.Sowe'reworkingtocontinuetomake

thoseproductsbetterandcontinuingthosetests.Butit'searly.Weare--onthat

front--we'refocusedonbuildingoutthebestvideoexperiencesforourcommunity

andgrowinglonger-formcontentasapriority.Andadbreakisgoingtoallowusto

haveamonetizationstrategywiththatlonger-formcontent.SolikeIsaid,it'searly.

Operator: YournextquestioncomesfromthelineofHeatherBellinifromGoldmanSachs.

15

HeatherBellini: IguessIhadaquestionjustrelatedtoInstagramandFacebookstories.Imean,

we'vetalkedalotaboutadloadgrowthoverthelastyear,andDave'sbeentalking

aboutthependingslowdown,whichIthinkwe'reallexpecting.Buthowdowethink

aboutthesenewapplicationsornewwaystoengagewiththeappsatthetopofthe

--atthetopofyourphonewhereyou'restartingtoseeadinsertionshowupas

well?Isthatthoughtofasdifferentthanthegeneraladloadcommentthat,Dave,

you'remaking?

AndI'msorrytosplithairsherebutI'mjusttryingtogetasenseofhowtothink

aboutwhenthey'restartingtoshowupinnewplaces.Andthen,Iguess,Ijusthada

follow-upforSheryl.Andonequestioninparticularwasifthere'sanymeasurement

metricsthatadvertisersareaskingfornowthatifyoucouldhelpthemwith,it

wouldmakethemevenmoreeagertoshifttheirbudgetsoverfromTVandfollow

theireyeballs?

DavidWehner: Soyes,Heather,onthe--onStories,again,it'saprettysimilaranswer,Ithink,the

adbreaksinthesensethatit'searlyintermsofusing--putting--usingthead

formatinstories.Wecertainlyrolledthoseout.Theyarenotintheadload

calculationperse.Soitisdifferentasyousaid,fromtheadloadcommentarythat

I'vegiven.Butobviously,it'sveryearlyonthoseproducts.AndthenSheryl,youhad

thequestionaboutmeasurementmetrics?

SherylSandberg: Yes,weknowthatmeasurementissocritical.Andwereallywanttomeasurecore

businessresultsandfocusonbecomingthenumberonegrowthdriverforour

clients.Wearecontinuingtoconstantlyreviewourmetricssowhenwefindbugsor

errors,we'rereportingthemtoourclientsandaddressingtheissueandcontinuing

withthatanalysisasweworkthroughallofourmetrics.We'realsoveryfocusedon

expandingmeasurementpartnershipsandthird-partyverification.

Thislastquarter,weextendedviewabilitymeasurementtotheAudienceNetwork,

addedanotherverificationpartner,DoubleVerify,forvideoanddisplay

measurementandintroducedourMMMportal,sothatwecanhelppeople

measureacrossallofthedifferentplatformsandcomparetheeffectivenessoftheir

adspendnomatterwhattheirendgoalis.

16

Operator: YournextquestioncomesfromthelineofAnthonyDiClementefromNomura

Instinet.

AnthonyDiClemente:IhaveoneforMarkandoneforSheryl.Mark,atF8andinyourcommentstoday,

youtalkedaboutmakingthecameracentraltotheappinthecamera,thefirst

augmentedrealityplatform.Iknowit'searlybutcanyoumaybesharewithusyour

thoughtsaboutthepotentialcommercialapplicationofaugmentedrealityasyou

seeittoday?

AndthenSheryl,there'sbeenmorelatelyabouttheuseandeffectivenessof

influencermarketingonbothFacebookandInstagram.HowisFacebookthinking

aboutsharingintheeconomicsofwhenbrandsusecelebritiesorinfluencersto

markettheirproductsusingtheirFacebookposts?Isitbybringingmore

transactionsontotheplatform,buildingontheshoppingexperienceonFacebook

andhowisFacebookgoingtoshareinthoseeconomics?Thankyou.

MarkZuckerberg: Allright.Well,Icanstartbytalkingaboutaugmentedreality.Thebigstepforward

thatweannouncedatF8isthattherearelotsofdifferentappsthathavecamerasin

themright?Orthatindependentdevelopersjustbuildanappthathasasingle

cameraeffect.Butwhatwe'rebasicallyseeingisthatthere'ssomuchinnovation

andsomanydifferenttypesofeffectsthatpeoplearecreatingthatwedidn'twant

developerstohavetobuildtheirownseparateappandgettoahugescaleinorder

tobuildsomenewkindofvisualtool.

Sowebuiltthat--we'remakingthecamerasinsidethewholefamilyofappsinto

thefirstaugmentedrealityplatform--intoanopenplatform,whichisdifferent

fromwhatanyotherappsthathasacamerahasdonebefore.It'sgoingtoopenup

amuchgreaterdiversityofusecases,notonlymakingitsothatusecaseslike

Facemasksorstyletransfersthatwealreadyhave,you'renowgoingtohave

thousandsofoptionsinsteadofjust10or20atatime.Buttherearealsogoingto

beallofthosekindsofthingswe'renotevenbuildingtodaythatdeveloperswillbe

abletoexperimentwith.

OneoftheexamplesIshowedatF8wasaroundusingobjectrecognitionand

computervisiontobeabletopointyourcameraatsomethingandthentaponit

andgetacardofinformationmaybeevenaBuybutton,right?Sotherearelotsof

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differentwaysthat,overtime,thiskindofcontentisgoingtobothaugmentexisting

real-worldobjectsandeventuallyreplacethem,whichIthinkisgoingtobean

interestingopportunity,maybenotonaugmentedrealityonthephonebuton

glasseseventuallywhenyouhavethat--Ithinkweregoingtogettoapointwhere

thingslikeTVyou’llnolongerneedaphysicalTV,you'llget$1appthatyoucan

watchascreenonanditwilljustinterestingexercisetoseehowmanyofthethings

thatwehavethatarephysicalthingsdon'tactuallyneedtobephysicalinthat

world.

Andhowmuchinnovationthatopensupindependentdevelopersallaroundthe

worldandalotofpeopledon'thaveafactory.SotheycanbuildaTVbutthink

abouthowmanykidsindifferentdevelopersaroundtheworld,kidsindormrooms

andallthesedifferentplacesgoingtobeabletocreatethingsthattodaythey

couldn't.SoIthinkthisisgoingtocreateaprettyinterestingeconomy,soalotof

thatstuffisprettyfarout,5,10years.Butwewanttobepushingthisforward.And

we--Ithinkwe'realittlebitlatetothetrendinitiallyaroundmakingcamerasthe

centerofhowsharingworks.ButIdothinkatthispoint,we'reprettymuchaheadin

termsofthetechnologythatwe'rebuildingandmakingitanopenplatform,Ithink,

isabigstepforward.Alotofpeopleareusingtheseproductsacrossourfamilyof

apps,andIwouldexpectustocontinueleadingthewayforwardonthisfromthis

pointon.

SherylSandberg: Whenyouthinkaboutinfluencermarketing,wedefinitelyseepublishersinterested

init,brandsinterestedinit.Andsowe'veworkedonbrandedcontent,theabilityto

tagasponsorandshareapostoraninsight,andthefinancialarrangementremains

betweenasponsorandapublisher.It'searlybutwe'reseeingsomepositiveresults

withpublishersofmanydifferenttypesbringingbrandedcontenttoFacebook.In

Q1,weopenedthisuptounverifiedPages,sowecouldenablemorepeopletotake

advantageofthiskindoftargeting.

Weseethisinthebroadercontextofbettertargeting.Whenyouthinkaboutwhat

reallydrivesgreatperformanceforbothpeoplewhoareusingFacebookbutfor

marketers,it'swell-targetedads.Andsoinfluencermarketingisonewaytoget

therebutwe'refocusedonaveryfullrangeofabilitytotargetwell.We'vebeen

reallypleasedwiththeadoptionofourtargetingproductsfromCustomAudiences

tolook-alikestoDynamicAds.Andwethinkallofthesecanimprovetherelevance

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oftheadbymakingadsmoretargetedbecausewhenthey'remoretargeted,they

havehigherreturnsformarketersandthey'remoreenjoyableandrelevantfor

people.

Operator: YournextquestioncomesfromthelineofMarkMahaneyfromRBC.

MarkMaheney: Great,thanks.Firstthing,it'sagreatmovetogoallinGAAPintermsofreporting.

Second,David,whenyoutalkedaboutthead,youradloadcommentary,Icouldn't

telliftherewasasubtleshifttherewhenyou'resayingthattheadloadpressure

wouldoccuraftertheendoftheyearratherthaninthesecondhalfoftheyear.And

thenthird,thisisforSherylandMark,therecentstoriesaboutgenderbiasamongst

theengineersatFacebookandIknowyouquicklyrespondedtothatandsaidif

anythingtheremaybearankbias.But,inmymind,kindofcreatestheopportunity

potentiallyforFacebooktobettertapintowhatisprobablyunderappreciated

femaleengineeringtalentintheValleyandacrosstechnology.Howdoyouthink

aboutthatasanopportunityforthecompany?Thankyou.

DavidWehner: AndI'lljustrealquicklyaddresstheadloadissue,Mark.Sorryifitwasn'tclear.

Reallynochangeinoutlookthere.Wecontinuetoexpectthatwe'llseedeceleration

inadrevenuegrowth.Andthat'sgoingtobeparticularlypronouncedaswegetinto

thesecondhalfof2017becauseadloadwillbealesssignificantfactordriving

growthstartinginthesecondhalf.

SherylSandberg: OntheissueyouraisedoftheFacebookfemaleengineers,I'mreallygladtohavea

chancetoaddressthisbecausethisisanissueItakeveryseriously.Onthespecific

reportonthisstudy,thestudywasconductedbyaformeremployeewithvery

incompletedata.Whenthatstudywassharedwithpeopleinternallyandwehave

thatculturewherepeopledostudiesandsharethings,andwe'rereallyglad

becausethathelpssurfaceissues,weimmediatelyconductedourownresearch

usingthefulldata.

Andwhatwefoundisthatthemainreasoncodewassentbackatdifferentrates

wasnotcorrelatedwithgender.Itwascorrelatedwithlevels,andthefactthatwe

havemoremaleseniorengineerswasexplainingit.Ifyoucomparednowand

femaleengineersatthesamelevel,therewasnotthisdiscrepancy.

19

Wellthenthatleadstotheobviousquestionis,areyoupromotingmenandwomen

atthesamerate?Andthebroaderquestionofareyoupayingmenandwomen

fairly.Andwedoacomprehensivelookatthateverysinglepromotionandpayand

performancecyclewehave,whichis6months.Andweknowthatwe'repromoting

menandwomenatthesamerateasmen.Nowthatsaid,ourindustrystillhas

issuesandwestillhaveissues.Wedon'thaveenoughseniorfemaleengineers.We

don'thaveenoughwomengoingintocomputerscience.

Andwetakethisveryseriouslyfromtheworkwe'vedonewithLinkedIntogetCS

andevenLeanInCirclesallovercollegecampusestoencouragemorewomenand

underrepresentedminoritiestocomeintoourfield.We’vehadareallynice

programinextrainternshipwherewe'retakingpeoplewhoarenotyetmajoringin

computerscience,butwethinkhavetheabilityandteachingthemforasummer

andseeingthemreturntotheworkwe’redoingwithourfemaleengineerstomake

surethatallformsofbiasaresurfacedandeliminated,andwecancontinuetouse

thefulltalentofthepopulation.Nothingismoreimportanttous.

Operator: OurnextquestioncomesfromthelineofRossSandlerfromBarclays.

RossSandler: Justhad2questionsonvideo.Weknowit'skindofearly,butwhatkindoftraction

doyouseewiththevideotabthat'sinbeta?Anddoyouthinklongerterm,the

videoconsumptionisgoingtobeinthatdedicatedtaborwillitstayintheNews

Feedbasedonwhatyou'reseeingrightnow?AndthenDave,justafollow-upon

oneofyourpreviousanswers.Soonthecostrelatedtovideoadrevshareor

licensingofvideocontent,isthatbakedintoyourOpExguidancefor'17?Oristhat

somethingthatwillstepupafterthisyear?Thankyou.

MarkZuckerberg: Idon'tknowifwehaveanypublicstatsonthevideotab,probablynot.Butinterms

ofthestrategy,Icantalkaboutthatquickly.Thereare2basicusecasesforchecking

inwithFacebookandseeingwhat'sgoingonintheworld.Whatpeopledowith

NewsFeedalotofthetimeistheyhaveafewfreeminutesoryouwanttositdown

formaybealongersession,seeeverythingthat'sgoingonintheworld,youdon't

haveaspecificintentiontowatchaspecifictypeofcontent.Youkindofjustwantto

checkinandseewhat'sgoingonintheworld.

20

There'sthiswholeotherusecasearoundcontent,whichisgoingbecause--goingto

theapporsittingdownatTVbecausethere'ssomecontentthatyouwanttowatch

andyouwanttogodirectlytoit.Andthat'swhatwe'retryingtodowiththevideo

tabtomakeitsothatallthedifferentfolkswhetherthey’repagesthatyoufollowor

creatorsthatyoulike,whoyouwanttosubscribetoandkindofgettheupdatesto

whatthey'redoingthatyouhaveaplacethatyoucangotowithmoreintentto

consumethatcontent.

Thereasonwhyitneedstobeadifferenttaboratleastadifferentservicefrom

NewsFeedisbecausepeoplecometoitwithadifferentintent.Ithinkyou'regoing

tostartinthefuturegettingpeoplecomingtoFacebookfortheNewsFeeduse-case

ofcheckinginandpeoplecomingwithanintenttogotothevideotabtowatch

specificvideos.Sothat'swhatwe'redoingthere,that’sthestrategy,andIguess

we'llupdateonstatswhenwehavethem.

DavidWehner: AndRoss,onthecostsrelatedtothevideoadrevshare,yes,ourguidanceontotal

costsisallinclusive,soitincludesalltheR&Dinvestmentswe'remaking.Itincludes

thecontent.Itincludesthingslikethecommunityoperationsinvestmentsthatwe

talkedabouttodayintheannouncement.ButIwouldsaythatthenatureofthe

typesofvideocontentdealsthatwe'redoingwillmakethemmorelikelytoshowup

after2017sothere'llbesomecontentexpensein2017butIthinkit'llbesomething

youwillseestepupafter2017.

Operator: YournextquestioncomesfromthelineofMarkMayfromCiti.

MarkMay: Thankyou.Mark,inyourpreparedremarks,youtalkedaboutdoingmoretofoster

localcommunitiesandgroupsanditwouldseemlikeoneofthemoreinteresting

testcasesherealreadyisinlocalMarketplaces.Justwonderingifyoucouldtalkto

usalittlebitaboutthekindofadoptionandengagementthatyou'veseenwithlocal

Marketplacesandmaybeanythingthatyou'velearnedthatyoucanapplytosome

ofthenewerinitiativesthatyou'relookingat.

Andthensecondly,probablyforSheryl,foradbreakstoscale,itappearsthat

contentcreatorsneedtoadapttheirprogrammingforthis.Andofcourse,users

needtoengagewiththeads.Iguess,thequestionishowarekindofcompletion

ratesforadbreaks?Iknowit'searlybutkindofwhat'syour--whatareyouseeing

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sofar?Andhowwouldyoucharacterizethewillingnessofcontentcreatorsto

adopt?

MarkZuckerberg: IcantalkaboutMarketplaceandGroupsfirst.SoIthinkyourbasicpointisrightthat

thereasonwhywestartedworkingonmarketplaceandthetabaroundthatis

becausewhenwewereexploringwhatthebiggestusecaseswereofGroups,we

uncoveredthataverylargenumberofpeople,hundredsofmillions,usedGroupsto

buyandselldifferentthings.Andsothesewholecommunitiesthathaveformed,

whichwassomewhatsurprisingtoushonestlybecausewehadn'tdevelopedthe

productspecificallyforbuyingandselling.Itwasforgroupcommunicationand

that'swhatpeopleareusingitfor.

Sowedecided,'Hey,we'regoingtoputtogetherateamthat'sgoingtoinvestin

makingthisactuallygoodforbuyingandsellingandseehowmuchwecangrow

thateconomy.'SoIdon'tknowthathaveanypublicstatsonthatyet,butthat'san

areathatI'mcertainlyveryexcitedabout.

Andthenintermsoflocalcommunities,oneofthebigtrendsintheworldthat

we'veseenisjustthatparticipationinallkindsofdifferentphysicalcommunities,

whetherthey'resportsteamsorsomereligiousgroupsordifferentkindsofdifferent

things,havebeendecliningalotoverthepastseveraldecades.Andthat,Ithink,isa

bigsocialissuethatiserodingthesocialfabricofthewholesociety,notjustour

country,butaroundtheworld.

Andthat'sonewhereIlookatthatandIwonderifFacebookcanplayarolein

helpingtostrengthenthat.Andwelookat--therearemorethan1billionpeople

everymonthwhouseourGroupsproduct.Butifyouthinkaboutyourownuseof

theGroupsproduct,youprobablyareamemberofabunchofdifferentgroupsthat

youmaybecheckingonveryinfrequently.Sothat'sverydifferentfromthere'sa

handfulofpeople,around100millionorabitmore,whoareamemberofwhatwe

callaverymeaningfulgroup.

Soit's--thatcouldbeaparentinggrouporyou'rediagnosedwithararedisease,

andyoucannowconnecttopeopleallaroundtheworldtosharestoriesaround

that.Thesearegroupsthatuponjoiningmaybecomeoneofthethingstheyspend

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themosttimewithonFacebook,oneofthemostimportantpartsofyour

experienceandareallyfundamentalpartofyourreal-worldsupportstructure.

Sowelookedatthatandweaskedthequestionof,'Hey,if100millionpeoplearein

thoseverymeaningfulgroupstoday,canwegetthattobe1billionpeopleoverthe

nextseveralyears?'Andifso,thenthatcanhelpreversesomeofthedeclinein

communitymembershipsandhelpstrengthenthesocialfabricnotonlyinour

countrybutaroundtheworld.Sothat'sabigpartofwhatwe'refocusedonacrossa

numberofdifferentinitiatives.

SherylSandberg: AndI'lltalkalittlebitabouttheadbreak,whatwe'reseeing.It'sreallyearlybothin

termsoftestingtheadsandgettinganyfeedbackfromuserssopeoplewhouse

Facebook,sowedon'thavethatdatatoshare.Butwe'repleasedthatthetestis

active,we'repleasedthatit'sgoingwellandthatwecandobothliveanduploaded

videos.

Wethinkovertimethatmarketerswillfollowwherepeoplearespendingtheirtime.

Andiftheadscanbewelltargeted,wethinkwe'llbeabletoseeengagementand

wealreadyseethat.Whenadsarereallywelltargetedandtakingfulladvantageof

thekindoftargetingweoffer,thatyou'reshowingpeoplesomethingtheywantto

see,weseeengagementthatwethinkisreallycritical.

It'salsoworthnotingthatthemetricsthatreallymatterattheendaredrivingsales.

Andsoanyoftheengagementwithadmetrics,whetherit'srememberinganad

goingbacktopeoplehavebeenmeasuringthatforalongtimetohowlongavideo

adisviewed,ouronlyproxymetrics--whatmattersistheimpactonsales.Andso

wethinkthebetterwecandoatgettingthemeasurementtowhatactuallymatters,

whichistheendbehaviormarketersaretryingtodrive,themorepeoplewillshift

theirfocustobusinessmetrics,thebetteritwillbeforthereturntheygetand

ultimately,ourbusiness.

Operator: YournextquestioncomesfromthelineofMichaelNathansonfrom

MoffettNathanson.

23

MichaelNathanson:Thanks.Ihave3philosophicalquestionsonvideoforyouguysand,thefirstoneis

it'sinterestingtoseetheNFLgamesgofromTwitterandAmazon.AndIwondered,

dotheNFLgames,thevideostrategy,whyorwhynot?That'sone.

TwoisIknowthemodelisrevenuesharebutalotofmoretraditionalcompanies

wouldlikealicensefeeortheabilitytoselltheirowninventoryonyourplatform.Is

thatsomethingthatyouconsider?

Andlastbutnotleast,thequestionaboutmonetization,whyismid-rolloptimalto

pre-rollandcanyoushareanythingaboutthetestingofthatconcept?

MarkZuckerberg: Icantalkaboutsports.Sointermsofexperimentingwithdifferentcontent,Ithink

we'lltryanumberofdifferentthingshere.Intermsofworkingwithfolkstoproduce

allkindsofcontent,sportsisprobablysomethingthatwe'llwanttotryatsome

point.Butagain,likeDavesaidbefore,thegoalisgoingtobecreatingsomeanchor

contentinitiallythathelpspeoplelearnthatgoingtothevideotab,thatthey--that

that'sagreatdestinationwheretheycanexploreandcometoFacebookwiththe

intenttowatchthevideothattheywant.Andthenthelong-termgoalisactuallynot

tobepayingforspecificcontentlikethatbutdoingarevenuesharemodeloncethe

wholeeconomyaroundvideoonFacebookisbuiltup.Butwe'reworkingonthat.

AndIthinkwe'llprobablylookatdifferentpiecesofcontentlikethisaroundthe

world,butatthispointdon'tfeellikeanyspecificoneofthemisamust-haveforus.

DavidWehner: AndIthinkMarktouchedonthequestionofabusinessmodelhere,andourfocus

reallyisonrevenueshare,willbeinvestingtokickstarttheecosystemwithcontent,

sode-riskingitforsomeofourcontentpartnerstostartoffwithbutthefocusis

reallytobuildarevsharemodelovertimethat'ssustainable.That'sthefocusas

opposedtoothermodels.

Intermsofwhymid-rollispreferabletopre-roll,Facebookiswell-suitedforshorter

formcontent.We'rerankingthingstobelonger-formaswellsowe'rerankinglong-

formvideobutthat'sstillrelativelyshortvideoviews.Andforthatreason,wethink

mid-rollisagood--isabetteruserexperience.

DeborahCrawford:Operator,Ithinkwehavetimeforonelastquestion.

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Operator: YourlastquestioncomesfromthelineofPeterStablerfromWellsFargo.

PeterStabler: Thanksverymuch.OneforSheryl.Sheryl,you'vetalkedalotaboutthetargeting

advantageofFacebook.Andyouhaveanumberofdatasignalsandsources

informingthat.Wonderingifyoucouldtalkabouttherelativeimportanceof

collectingsignalsontheplatformversusofftheplatform,forinstance,thebehavior

ofFacebookusersinteractingwiththird-partywebsites.Isthisthedepth–the

depthofyouroff-platformcollection,isthisasignificantcompetitiveadvantagefor

you?Thankyouverymuch.

SherylSandberg: Wethinkthattargetingandmeasurementaresignificantcompetitiveadvantages

forus.We'reveryfocusedontheprivacyofwhatpeopledo,wherevertheydoit

andusingtheinformationwehaveinaveryresponsibleway.Webelievethat

becausepeoplearesharinginterestsbecausepeoplearethemselvestheirreal

identityontheFacebookplatform,wehaveasignificantadvantage.Justinbasic

targetingitself,justageandgender,we're38%moreaccuratethanbroad-based

targetingaccordingtoNielsenintheU.S.Andthat'sjustageandgender.

AndthenifyouthinkaboutsomeofthecasestudiesIshared,targetingpeoplewho

purchaseacertainitem,targetingpeoplewhoareinterestedinacertainitem,we

thinkthat'sverysubstantial.Wealsothinkthatthere'sarealcompetitiveadvantage

infocusingonbusinessresultsaswehave.We'rereallyworkingonshiftingpeople

tounderstandingwhattheirrealobjectivesaresothattheycanfocusondriving

businesses.Attheendoftheday,whenyoushowanad,youwanttomovea

productoffalot,offashelf,intoashoppingcart,whetherit'sonlineoroff-line.And

that'swhereourfocusisandwillcontinuetobe.

DeborahCrawford:Thankyouagain,everybodyforjoiningustoday.Weappreciateyourtime,andwe

lookforwardtospeakingwithyouagain.

Operator: Ladiesandgentlemen,thisconcludestoday'sconferencecall.Thankyouforjoining

us.Youmaynowdisconnectyourlines.