Facebook, Inc. (FB) Third Quarter 2017 Results Conference Call...Facebook, Inc. (FB) Third Quarter...

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Facebook,Inc.(FB)ThirdQuarter2017ResultsConferenceCallNovember1st,2017OperatorGoodafternoon.MynameisMikeandIwillbeyourconferenceoperatortoday.AtthistimeIwouldliketowelcomeeveryonetotheFacebookthirdquarter2017EarningsCall.Alllineshavebeenplacedonmutetopreventanybackgroundnoise.Afterthespeakers'remarks,therewillbeaquestionandanswersession.Ifyouwouldliketoaskaquestionduringthattime,pleasepressstarthenthenumber1onyourtelephonekeypad.Thiscallwillberecorded.Thankyouverymuch.Ms.DeborahCrawford,Facebook’sVicePresidentofInvestorRelations,youmaybegin.DeborahCrawford,VPInvestorRelationsThankyou.GoodafternoonandwelcometoFacebook’sthirdquarter2017earningsconferencecall.JoiningmetodaytodiscussourresultsareMarkZuckerberg,CEO;SherylSandberg,COO;andDaveWehner,CFO.Beforewegetstarted,Iwouldliketotakethisopportunitytoremindyouthatourremarkstodaywillincludeforward-lookingstatements.Actualresultsmaydiffermateriallyfromthosecontemplatedbytheseforward-lookingstatements.Factorsthatcouldcausetheseresultstodiffermateriallyaresetforthintoday’spressrelease,andinourquarterlyreportonform10-QfiledwiththeSEC.Anyforward-lookingstatementsthatwemakeonthiscallarebasedonassumptionsasoftodayandweundertakenoobligationtoupdatethesestatementsasaresultofnewinformationorfutureevents.DuringthiscallwemaypresentbothGAAPandnon-GAAPfinancialmeasures.AreconciliationofGAAPtonon-GAAPmeasuresisincludedintoday’searningspressrelease.Thepressreleaseandanaccompanyinginvestorpresentationareavailableonourwebsiteatinvestor.fb.com.Andnow,I’dliketoturnthecallovertoMark.MarkZuckerberg,CEOThanksDeborah,andthankseveryoneforjoiningustoday.Ourcommunitycontinuestogrow,nowwithnearly2.1billionpeopleusingFacebookeverymonth,andnearly1.4billionpeopleusingitdaily.Instagramalsohitabigmilestonethisquarter,nowwith500milliondailyactives.Andwesawgoodresultsinthebusiness,wheretotalrevenuegrew47%year-over-yearandwehadourfirstquarterwithmorethan$10billioninrevenue.Butnoneofthatmattersifourservicesareusedinawaythatdon'tbringpeopleclosertogether--orifthefoundationofoursocietyisunderminedbyforeigninterference.

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I'veexpressedhowupsetIamthattheRussianstriedtouseourtoolstosowmistrust.Webuildthesetoolstohelppeopleconnectandbringusclosertogether.Andtheyusedthemtotrytoundermineourvalues.Whattheydidiswrongandwe'renotgoingtostandforit.Now,forthosewhohavefollowedFacebook,youknowthatwhenwesetourmindstosomething,we'regoingtodoit.Itmaybeharderthanwerealizeupfront,itmaytakelonger,andwewon'tbeperfect,butwewillgetitdone.We'rebringingthesameintensitytothesesecurityissuesthatwe'vebroughttoanyadversaryorchallengethatwe'vefaced.ThefirststepisdoingeverythingwecantohelptheUSgovernmentgetacompletepictureofwhathappened.We'vetestifiedincongressoverthepastcoupleofdaysabouttheactivitywefoundinlastyear'selection.We'reworkingwithcongressonlegislationtomakeadvertisingmoretransparent.Ithinkthiswouldbeverygoodifit’sdonewell.Andevenwithoutlegislation,we'realreadymovingonourowntobringadvertisingonFacebooktoanevenhigherstandardoftransparencythanadsonTVorothermedia.That'sbecauseintraditionalmedia,there'snowaytoseeallofthemessagesanadvertiserisshowingtodifferentaudiences.We'reabouttostartrollingoutatoolthatletsyouseealloftheadsapageisrunning,andalsoanarchiveofadspoliticaladvertisershaveruninthepast.We'realsoworkingwithothertechcompaniestohelpidentifyandrespondtonewthreats,becauseaswe'venowseen,ifthere'sanationalsecuritythreatinvolvingtheinternet,itwillaffectmanyofthemajortechcompanies.Andwe'veannouncedanumberofstepstohelpkeepthiskindofinterferenceoffourplatform.Thisispartofamuchbiggerfocusonprotectingthesecurityandintegrityofourplatformandthesafetyofourcommunity.Itgoesbeyondelectionsanditmeansstrengtheningallofoursystemstopreventabuseandharmfulcontent.We'redoingalotherewithinvestmentsbothinpeopleandtechnology.Someofthisisfocusedonfindingbadactorsandbadbehavior.Someisfocusedonremovingfalsenews,hatespeech,bullying,andotherproblematiccontentthatwedon'twantinourcommunity.Wealreadyhaveabout10,000peopleworkingonsafetyandsecurity,andwe'replanningtodoublethatto20,000inthenextyeartobetterenforceourCommunityStandardsandreviewads.Inmanyplaces,we'redoublingormoreourengineeringeffortsfocusedonsecurity.Andwe'realsobuildingnewAItodetectbadcontentandbadactors--justlikewe'vedonewithterroristpropaganda.I'mdeadseriousaboutthis,andthereasonI'mtalkingaboutthisonourearningscallisthatI'vedirectedourteamstoinvestsomuchinsecurity--ontopoftheotherinvestmentswe'remaking--thatitwillsignificantlyimpactourprofitabilitygoingforward,andIwantedourinvestorstohearthatdirectlyfromme.Ibelievethiswillmakeoursocietystrongerandindoingsowillbegoodforallofusoverthelongterm.ButIwanttobeclearaboutwhatourpriorityis:protectingourcommunityismoreimportantthanmaximizingourprofits.Sosecurityandtheintegrityofourserviceswillbeamajorfocus.Beyondthis,ourfocusisonbuildingcommunity.Italkedaboutthislastquarterwhenwechangedourmissiontofocusonbuildingcommunitytobringtheworldclosertogether,andthat'smoreimportantnowthanever.Andthisgetsintoourroadmapforthenext3,5and10years.

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Overthenextthreeyears,thebiggesttrendinourproductswillbethegrowthofvideo.Thisgoesbothforsharing,wherewe'veseenStoriesinInstagramandStatusinWhatsAppgrowveryquickly,eachwithmorethan300milliondailyactives,andalsoforconsumingvideocontent.WerecentlylaunchedtheWatchtab,whereyoucandiscovershows,followcreators,connectwithpeoplewatchinganepisode,andjoingroupswithpeoplewithsimilarintereststobuildthecommunity.Butasvideogrows,it'simportanttorememberthatFacebookisaboutbringingpeopleclosertogetherandenablingmeaningfulsocialinteractions;it'snotprimarilyaboutconsumingcontentpassively.Researchshowsthatinteractingwithfriendsandfamilyonsocialmediatendstobemoremeaningfulandcanbegoodforourwell-being,andthat'stimewellspent.Butwhenwejustpassivelyconsumecontent,thatmaybelesstrue.Whendonewell,videobringsusclosertogether.We'vefoundthatcommunitiesformedaroundvideolikeTVshowsorsportscreateagreatersenseofbelongingthanmanyotherkindsofcommunities.We'vefoundthatLivevideosgenerate10xthenumberofinteractionsandcommentsasothervideos.Buttoooftenrightnow,watchingvideoisjustapassiveconsumptionexperience.Timespentisnotagoalbyitself.WewantthetimepeoplespendonFacebooktoencouragemeaningfulsocialinteractions.Sowe'regoingtofocusourproductsonallthewaystobuildcommunityaroundthevideothatpeopleshareandwatch.That'ssomethingFacebookcanuniquelydo.Movingalong,overthenextfiveyears,Iexpectustomakesomegoodprogressonseveralnewerinitiatives.Inmessaging,todayalreadymorethan20millionbusinessesarecommunicatingwithcustomersthroughMessenger.Nowwe'restartingtotestbusinessfeaturesthatmakeiteasierforpeopletomakethesamekindsofconnectionswithbusinessesthroughWhatsApp.WerolledoutMarketplacetoCanadaand17countriesacrossEurope,givingpeopletheabilitytodiscover,buy,andsellthingsintheirlocalcommunities.Todaymorethan550millionpeopleareusingMarketplaceandBuy-and-SellgroupsonFacebooktoconnectwithotherpeoplefortransactions.We'realsoseeinggoodprogresswithWorkplace,helpingcompaniesconnecttheirownteamsinternallythroughtheirownversionsofFacebook.It'sbeenlessthanayearsincewelaunchedWorkplace,andtodaymorethan30,000companiesareusingit.Thisquarter,wewelcomedonWalmart,thelargestemployerintheUS.Overthenext10years,we'reworkingonthefoundationaltechnologiesneededtobringtheworldclosertogether.I'mproudoftheworkwe'redoingwithAI.We'renowusingmachinelearninginmostofourintegrityworktokeepourcommunitysafe.WhenHurricaneMariahitPuertoRico,weusedAItolookatsatelliteimageryandidentifywherepeoplemightliveandneedconnectivityandotherresources.ProgressinAIcanunlockalotofopportunities,sothisquarterweopenedanewAIresearchlabinMontrealandwe'rebuildinganotherlabinParisaswell.ThisquarterweheldOculusConnect,andweannouncedOculusGo--ourfirsteverall-in-oneheadsetthat'sgreatforfeelinglikeyou'representwithsomeonewhenyoucan'tphysicallybetogetherin

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person.It'sgreatforplayinggames,watchingmovies,orhangingoutwithfriends.At$199,wethinkit'sgoingtohelpusbringgreatvirtualrealityexperiencestomorepeople.Itshipsnextyear.AtConnect,IalsoshowedoffournewSantaCruzprototype--whichisthefirsttimeanycompanyhasshownthefullexperienceofpositionaltrackinginastandaloneheadsetandcontrollers.It'samajortechnicalachievement,andI'mlookingforwardtogettingthisintodevelopers'handsnextyear.Inordertosupportourcommunity'sgrowth,weneedtokeepinvestinginourinfrastructure.Thisquarter,webrokegroundonournewAlbanydatacenter,andweannouncedthatwe'llbuildour11thmajordatacenterinHenricoCounty,Virginia.Asalways,allournewdatacentersarepoweredby100%renewableenergy.Theselongterminvestmentsareimportantforourcommunity'sfuture.Wecandoalottohelppeopleconnectthroughphonesandcomputers,butsomuchmorewillbepossibleinaworldwhereeveryonehasinternetaccess,whereAIimprovesallourservices,andwherewecanbasicallyteleportanywhereorbewithanyoneanytimewewant.Withalltheissuesweface,itwouldbealottojustinvestinaddressingthose.Butweknowwealsohavearesponsibilitytodeliverthesefundamentaltechnicalandscientificadvancestofulfillthepromiseofbringingpeopleclosertogether,sowe'regoingtokeepmakingsignificantinvestmentslookingaheadtowardsthefuturetoo.We'vemadesomerealprogressthisyear.Acrosstheboard,wehavealotofworktodeliveronourmissionofbringingtheworldclosertogether,butwe'recommittedtorisingtothechallengeanddoingwhatweneedtoforourcommunity.Thankstoallofyouforbeingpartofthisjourney,andI'mlookingforwardtotheroadahead.Andnow,here'sSheryltodiscussourbusiness.SherylSandberg,COOThanksMarkandhieveryone.Wehadastrongthirdquarterwithgrowthacrossallregions,marketersegmentsandverticals.Adrevenuegrew49%yearoveryear.Mobileadrevenuewas$8.9billion—a57%yearoveryearincrease—makingupapproximately88%oftotaladrevenue.We’recontinuingtobuildourbusinessbyfocusingonoursamethreepriorities:helpingbusinessesleveragethepowerofmobile,developingnewadproducts,andmakingouradsmorerelevantandeffective.Todaywe’reannouncingthatFacebookhasover6millionactiveadvertisers,andwerecentlyannouncedthatInstagramhasover2millionadvertisers.Thevastmajorityofthesearesmallandmediumsizedbusinesses,whichareamajorsourceofinnovationandcreatemorethanhalfofallnewjobsglobally.Thesebusinessesoftenhavesmalladbudgets,sotheabilitytoreachpeoplemoreeffectivelyisreallyvaluabletothem.AgreatexampleisLovebook,asmallbusinessinMichiganwhichletsyoumake

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personalizedbooksforthepeopleyoulove.Duringarecentcampaign,theyusedFacebookadstoreachpeoplegettingreadytocelebratetheirfirstanniversary.They’vegrownsomuchfrommarketingonFacebookthatthey’vebeenabletohire10newemployeesthisyearalone.WeareproudoftheroleweareplayinginenablingbusinesseslikeLovebooktoreachpeopleonmobile,togrow,andtocreatejobs.OneofourstrongestareasthisquarterwasSMBsinEurope,withrevenuegrowingmorethan60%year-over-year.WhenIwasinGermanytwomonthsago,IhadachancetomeetVictor,oneoftheco-foundersofBrooklynSoapCompany,whichdespiteitsnameisbasedinHamburg.VictorandhisfriendscameupwiththeideafortheirbusinesswhilestayinginahostelinBrooklyn.Nowtheyselltheirgroomingproductsin38countriesusingmobilevideoadsonFacebookandInstagram.Asaresult,theirsalesincreased62%overthelastyear.They’reoneofmanysmallbusinessesusingmobiletofindnewcustomersandgrowacrossborders.Oursecondpriorityisdevelopinginnovativeadproducts.Videoisexploding,andmobilevideoadvertisingisabigopportunity.Untilrecently,adswereonlyeligibleforAdBreaksiftheyalsoraninNewsFeed.InQ3,wegaveadvertiserstheoptiontorunadsinvideosalone.We’reseeinggoodearlyresults,with>70%ofadbreaksupto15secondsinlengthonFacebookandAudienceNetworkviewedtocompletion,mostwiththesoundon.AsMarksaid,InstagramStoriesaregrowingwell,too.PeopleandbusinessesarefindingcreativenewwaystousefullscreenverticalvideoinStories.Thisquarterwegaveadvertisersevenmoreflexibilityinthecontent,formatandreachoftheiradsinStories.We’realsoseeinghowimmersivevideoandimagescanhelppeoplediscovernewproductsonFacebook.WeaddedanewcreativetemplatetoCollectionAds,whichhelpsretailersbringtheircatalogsonline.WestElm,ahomedécorcompany,recentlyusedthistemplatetopromoteitsfurnitureandhomeaccessories.Theytargetedpeoplewhoalreadygettheirphysicalcatalogandsawa5.5%liftinpurchasesinstores. Ourthirdpriorityismakingouradsmorerelevantandeffective.InQ3weintroducednewtoolspoweredbymachine-learningandautomationtohelpbusinessesreachpeoplemorelikelytospendwiththem.Wealsosimplifiedthetoolsforcreatingads,makingiteasierforbusinessesofallsizestoadvertisewithus.It’simportantforallbusinessestoreachtherightaudience—butit’sespeciallyimportantforsmallbusinessesthathavelimitedbudgets.Targetingallowsthemtoshowadsonlytothepeopletheywanttoreach.NeonRetroArcadeinLAisagreatexample.Theyadvertisetopeoplewithin10milesoftheirlocationwhoareinterestedinvideogamesandcomicbooks.Lastyear,theymovedtheirentireadbudgettoFacebookandInstagram,andtheirrevenueisup25%.Relevanceandeffectivenessarealsoaboutgivingbusinessesmorecontroloverwheretheiradsrun.InQ3weclarifiedwhichpublishersandcreatorscanincludeadsnexttotheircontent.Thisisgoodfor

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creators,whowantguidanceonhowtoearnmoneyfromtheircontentonFacebook–andit’sgoodforadvertisers,whowanttransparencyandcontroltomaketherightdecisionsfortheirbrands.We’realsoworkingtogiveadvertisersmoreclarityonwheretheiradswereshown,sotheycanmakemoreinformedchoicesaboutwheretoruntheminthefuture.Iwanttoclosebytalkingaboutwhatwe’redoingtoprotectourplatformandhelpensurethattheadsandcontentpeopleseeonFacebookandInstagramarelegitimateandauthentic.WhenIwasinWashingtonafewweeksago,Imadeclearthatwearedeterminedtodoeverythingwecandotominimizeabusegoingforward.AsMarksaid,we’reinvestingheavilyinnewtechnologyandpeopletoreviewadsandposts.Thiswillenableustolookmorecloselyatthecontentoftheads,targeting,andtheadvertiserwhosubmitsthem–aswellastightenouradspolicies,particularlyforadsdirectedatsocialandpoliticalissues.Webelievethatadsareimportanttofreeexpressionandwewillcontinuetoacceptadsonissues--butwewillalsodoourparttoelevatethequalityofthatdiscourse.Transparencyhelpseveryonekeepadvertisersaccountablefortheirmessages.We’reworkingwithCongressonnewrequirementsforonlinepoliticaladvertising,butwe’renotwaitingforlegislation.We’rebuildingatoolnowthatwillallowanyonetoseetheadsaPageisrunning,evenifthoseadsarenottargetedtothem.WewilltestitsooninCanadaandthenintheUSinthecomingmonths.ForadsrelatedtoUSfederalelections,we'llstartsharingevenmoreinformation,includinganarchiveofpastads,totalamountspent,anddemographicsaboutthepeopletheadsreached.We’realsogoingtorequiremorethoroughdocumentationfromtheseadvertisers—andwe'lllabeltheiradssoit’sclearwhopaidforthem.Webelievetheseactionswillsetanewstandardfortransparencyinonlineads.Becausetheinterferenceonourplatformwentbeyondads,we’realsoincreasingtransparencyaroundorganiccontentfromPages.We’relookingatwaystoprovidemoreinformationaboutwhoisbehindapoliticalorissue-basedFacebookPage.WebelievethiswillmakeitharderfordeceptivePagestogainlargefollowingsandmakeiteasierforustoidentifymaliciousactivity.Weareallcommittedtogettingthisright,andtoinvestinginstrengtheningourplatformsowecanbetterserveourcommunity.Wearealsocommittedtocontinuingtohelpbusinessesallovertheworldattractcustomers,selltheirproducts,andcreatejobs.Asalways,IamgratefultoallofourclientsfortheirpartnershipandtoourglobalFacebookteamsfortheirhardwork.Thanks,andnowhere’sDave.

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DavidWehner,CFOThanksSheryl,andgoodafternooneveryone.Q3wasanothergreatquarterforFacebook.Wesawcontinuedgrowthandengagementinourcommunityaswellasstrongperformanceinouradsbusiness.Let’sbeginwithourcommunitymetrics.DailyactiveusersinQ3reached1.37billion,up16%comparedtolastyear.Thisnumberrepresents66%ofour2.07billionmonthlyactiveusersinQ3.MAUswereup284millionyear-over-yearor16%.Ourcommunitygrowthwasagaindrivenbyproductimprovements,promotionaldataplans,andInternet.org.NotethatinQ3webegantolaptheintroductionofpromotionaldataplansfrommobileoperatorsinmarketslikeIndia.Beforegoingtothefinancials,letmetouchbrieflyonourongoingeffortstoimproveouruserestimates.Thisquarter,weimplementedanewmethodologytohelpidentifyduplicateaccounts.Asaresult,weincreasedourestimatesforduplicateaccountstoapproximately10%ofworldwideMAUsfromourpreviouslydisclosedestimateof6%.DuplicateaccountsarethosethatwebelieveareusedbythesamepersonandrepresentrealactivityandengagementonFacebook.Wehavealsoincreasedourestimateforinauthenticaccountstoapproximately2-3%ofworldwideMAUs.Inauthenticaccountsarelargelythosethatareusedforspamandotherpolicy-violatingreasons.Wecontinuouslymonitorandaggressivelytakedownthoseaccounts.TheseaccountstendtobelessactiveandthuswebelieveimpactDAUlessthanMAU.Nowturningnowtothefinancials.Allcomparisonsareonayear-over-yearbasisunlessotherwisenoted.Q3totalrevenuewas$10.3billion,up47%or45%onaconstantcurrencybasis.Foreignexchangetailwindscontributed$128millionofrevenueinQ3.Q3totaladrevenuewas$10.1billion,up49%.Onaconstantcurrencybasis,ouradrevenuegrowthratewas47%,down2percentagepointscomparedtothegrowthinQ2.Adrevenuegrowthwasstrongglobally,ledbyEuropeandAPACwith56%and54%growthrespectively.Mobileadrevenuewas$8.9billion,up57%.

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InQ3,theaveragepriceperadincreased35%andthenumberofadimpressionsservedincreased10%,drivenprimarilybyfeedadsonFacebookandInstagram.Iwouldnotethat,comparedtoayearago,priceisamuchmoreimportantdriverofouradsrevenuegrowth.Payments&OtherFeesrevenuewas$186million,down5%.Totalexpenseswere$5.2billion,up34%.Q3wasourbiggesthiringquarterever.Weaddedover2,500peopleandendedthequarterwithover23,000employees,up47%comparedtolastyear.Operatingincomewas$5.1billion,representinga50%operatingmargin.Ourtaxrateinthethirdquarterwas10%.Excesstaxbenefitsrecognizedfromshare-basedcompensationdecreasedoureffectivetaxrateby6percentagepoints,alevelthatwasdrivenbyappreciationinourstockprice.Netincomewas$4.7billionoronedollarandfifty-ninecentspershare.Year-to-datecapitalexpenditureswereapproximately$4.5billion,drivenbyinvestmentsinservers,datacenters,officefacilitiesandnetworkinfrastructure.InQ3,wegeneratedover$4.3billioninfreecashflowandendedthequarterwithover$38billionincashandinvestments.Year-to-date,wehaveboughtbackover$1billionofourClassAcommonstock.Turningnowtotherevenueoutlook.Ouradsbusinessremainsstrong.Butit’sworthnotingthatinQ3,ouryear-over-yearadrevenuegrowthratesdeceleratedforthefifthconsecutivequarteronaconstantcurrencybasis,andweexpectthistrendtocontinuefortheforeseeablefuture.Goingforward,wealsoexpectthegrowthinadvertisingrevenuewillincreasinglybedrivenbyprice.Thisisashiftfromprioryearswhengrowthwasprimarilydrivenbyincreasesinsupply.Turningnowtoexpenses.Weanticipatethatourfull-year2017totalexpenseswillgrowapproximately35-40%versusourpriorrangeof40-45%.Weanticipatethatfull-year2017capitalexpenditureswillbeapproximately$7billion.

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Asmentionedpreviously,ourtaxratewillvarybasedonourstockprice.Atthecurrentstockprice,wewouldexpectthattheQ4ratewillbeinthelowteens.Ialsowantedtoprovidesomecommentson2018expensesandcapitalexpenditures.Pleaserecognizethatthesearepreliminaryestimatesaswehavenotyetfinalizedour2018budget.Thatsaid,itisshapinguptobeasignificantinvestmentyear,andIwantedtoprovideinitialguidancetoaligninvestorswithourmostcurrentthinking.Weexpectfull-year2018totalexpenseswillgrowapproximately45-60%comparedtofull-year2017.Wecontinuetoinvestaggressivelyacrossthebusiness,buttherearethreeimportantfactorsdrivinganaccelerationinourexpensegrowthratesfrom2017levels.First,asMarkoutlinedinhisearliercomments,wearemakingsizeablesecurityinvestmentsinpeopleandtechnologytostrengthenoursystemsandpreventabuse.Secondly,weareinvestingaggressivelyinvideocontenttosupporttheWatchtab.Finally,wecontinuetoinvestinourlong-terminitiativesaroundaugmentedandvirtualreality,AI,andconnectivity.Givenourexpectationofcontinueddecelerationinrevenuegrowthrates,weexpectthesesignificantinvestmentswillbenetnegativeonouroperatingmargins.Inaddition,weexpecttomakesubstantialinvestmentsinourinfrastructuretosupportgrowthandimproveourproducts.Assuch,weexpectfull-year2018capitalexpenditureswillroughlydoublefrom2017levels.Wewouldalsoanticipatethatthefull-year2018taxratewillbeinthemid-teens.Insummary,Q3wasanotherstrongquarterforFacebookacrosstheboard.Weareexcitedabouttheopportunitiesweseeaheadandwewillcontinuetomakesignificantinvestmentstosupportourgrowthandourmission.Withthat,Mike,let’sopenupthecallforquestions.Operator Thankyou.Wewillnowopenthelinesforaquestionandanswersession.Toaskaquestion,press“star”followedbythenumber“one”onyourtouch-tonephone.Pleasepickupyourhandsetbeforeaskingyourquestiontoensureclarity.Ifyouarestreamingtoday’scallpleasemuteyourcomputerspeakers.YourfirstquestioncomesfromthelineofEricSheridan,UBS.

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EricSheridan: Thanksfortakingthequestion.MayberevisitingMark'scommentsatthebeginning

ofthecall.I'dlovetogetabettersenseorgranularityaboutwhatsortofvideo

contentyou'dliketoseeontheplatformthatcoulddriveamoreactiveor

interactiveexperiencethanpassive?

Andthenthesecondquestionwillbewhatdoesthatmeanintermsofthebusiness

model?Wouldtherebelicensingcontent,fundingcontentthatyoutodotobuild

thesortofbusinessyou'reaimingforoverthemediumtolongterm?Thankyou.

MarkZuckerberg: Thestrategyherearoundhelpingpeopleconnectreflectsmoreonwhatwedo

aroundthevideosthansomeofthecontentitself,right?Sohopefully,the

experienceonFacebookwillnotjustbethatyoucomeandwatchavideoandyou

getinformed,youfeelentertainedandthat'sit;wethinkthatthemostvaluable

thingthatpeopledoarehelpbuildrelationshipswithotherpeopleontheplatform.

Totheextentthatthe--thatvideocanserveasatouchstoneforbuilding

communityandhelpingfacilitateinteraction,thenthat'sathingthatwefeellikewe

canuniquelydo.Sowe'regoingtocontinueinvestingheavilyinvideocontentfor

Watch.Thatiscenteredonpeople,thatiscenteredaroundthingsthatpeoplewant

totalkandconnectaround,thatgivepeoplesenseofprideandbringpeople

together.We'regoingtoinvestasmuchinjustmakingsurethatwebuildoutthe

communityfeaturesaroundthat.Andthat,Ithink,isgoingtobethethingthat

differentiatesthisovertime.

Operator: YournextquestioncomesfromBrianNowak,MorganStanley.

BrianNowak: Thanksfortakingmyquestions;Ihavetwo.

JustMark,togobackonyourfocusoncommunityandvideo,Iwaswonderingifyou

couldshowusorkindofhelpusunderstandwhatyou'reseeinginengagement

trendsoryourtimespentperuseronthecoreFacebookplatformasyou'vehadso

manyeffortsfocusedoncommunityandvideo.

AndthensecondlyforSheryl,youmadesuchgoodprogressgrowingtheadvertising

businessacrossSMBandalotofverticals.Iwonderifyoucouldstepback,couldyou

talktoanyareasoranyverticalswhereyoureallyseethepotentialformaterial

improvementsorverticalsyou'rehavingahardtimecrackingintothatyouthinkit

reallybebiggerdriversofadrevenuegrowthgoingforward?

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DavidWehner: SoBrian,justonengagementmetrics,Imean,wecontinuetoseegoodgrowthin

DAU,asyousaw,inthe16percentgrowththatwepostedthisquarter.Inaddition,

wedocontinuetoseetimespentgrowthperDAUontheFacebookfamilyandon

Facebook.

SherylSandberg: Formypart,whenIthinkaboutourmarketersegments--wehaveSMBs,wehave

brand,directresponseanddevelopers--we'reseeingstronggrowthacross.Ithink

ifyouthinkaboutwherethegrowthremains,itreallyisinincreasingtherelevance

oftheads.

Becausetheads,Ithink,aregettingbetterintermsofreachingtherightpeopleat

therighttime,butIthinkthere'sstillalotmorewecando.Andaspeoplereallyuse

ourCustomAudiences,ourtargetingtools,thequalityoftheadsimprovesandthe

returnsimproveandthemore--thebetterwegetatmeasuringthosereturns,the

bettertheadsget.AndsoI'llsharejustoneexamplebutoneIreallylove,whichis

theAlamedaCountyFair,whichisalocalfairgroundinPleasanton,California.

Ihappenedtomeetthiswoman,Angel,who'srunningtheirmarketingthisyear.And

theyusedFacebooktotargetpeoplewithin25milesoftheirfairgroundsaged20to

51whohadspecificinterestinconcerts,music,festivalsandthemeparks.Andwhat

theysawforseasonpassticketsalesfor2017wasa50percentincreasecompared

to2016,andtheyattributethattoFacebook.Andthat'sreallyaboutfindingthe

peoplethatareinterested.

Andifyoulookatthepercentageofouradsbusinesswherepeopleareusingour

mostsophisticatedapproachestofindingtherightaudience,Ithinkwestillhavea

lotofopportunityforgrowththere.Andthatwillimproveboththequalityofthe

adspeopleseebutalsothereturnstomarketers.AndIthinkthatwillhitallofthe

verticalsandallofthesegments.

Operator: YournextquestioncomesfromMarkMay,Citi.

MarkMay: Thankyou.Ihad2relatedquestionsonvideo.FirstontheOpExguidance.Oneof

therealconsistenciesofthebusinessisOpExgrowth;you'vebeengrowingthatat

$4to$5billionincrementalinspendperyear,butthemidpointofyourguidanceis

lookinglikea$14billionincreasenextyear.Isthedifferentialthere--theadditional

$6-7billion--shouldwebethinkingofthatas--ofyourvideocontentspendthat

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you'resettingasidepossiblytospendnextyear?Justtryingtounderstandwhere

thesignificantincreasewouldbecomingfrom.

Andthenrelated,the35percentincreaseinadprices.Wouldyousaythat,that's

predominantlybeingdriven,theaccelerationthere,bythemixtowardsvideoad

breaksandotherlonger-formvideoads?Thanks.

DavidWehner: Sure,Mark.Ontheaccelerationofthegrowthrateinexpensesfrom2017to2018,I

wouldreallylookatthesortof--thegrowthratethatwegrewatin2017,apply

thattothetotalexpensefacedandlookatthatgrowthin2018.AndthenIwould

saytheadditionalexpensethatleadstotheaccelerationisdrivenby3factors,not

just1factor.Andthose3factorsaretheonesthatIoutlinedinmycommentary--

numberone,thesubstantialinvestmentsthatMarkhighlightedthatwe'remaking

tojustimprovethesecurityonourplatform;two,thevideocontentinvestments

we'remakingforWatchTab;andthen3,additionalinvestmentswe'remakinginthe

long-terminitiativeslikeAR/VR,AIandconnectivity.Andeachofthoseare

significantsoit'sreallythecombinationofthose3factorsthat'sdrivingtheexpense

growthacceleration.

Andthenonthe35percentincreasesinadprices,thisisreallybeingdrivenoffofa

coupleofthings.Oneisjusttheauctiondynamic,whichhas--assupplygrowthhas

slowed,thenthere'smorecompetition,andyou'reseeingpricesincreaseas

demandcontinuestogrow.ButIthinkwhatisimportanthereiswe'vebeengetting

betterandbetterattargetingasweoptimizeforrealbusinessresultsfor

advertisers,andwe'rebetteratconvertingthesignalsthatwegetfromthose

advertisersintofindingtherightadspotsforthem.AndIthinkthat'sreallywhat's

allowingustoimproveyieldandeffectivelydrivinghighereffectiveCPMsforus

whilestilldeliveringbusinessoutcomestothematattractiveROIs.

That'sreallywhat'sdrivingit;notashifttoadifferentformatlikevideo.It'sreally

aboutusgettingbetterattargetingandworkingwiththose--especiallypeople

wherewegetthosedownstreamsignalslikedirectresponseadvertisers.

Operator: YournextquestioncomesfromthelineofDouglasAnmuth,JPMorgan.

DouglasAnmuth: Thanksfortakingthequestion.Iwanttohiton2topics.Firstjustonthesecurity

comments,youtalkedaboutheadcountincreasingfrom10,000to20,000.Was

hopingyoucouldjusthelpusunderstand,isthat10,000fullyinthe23,000

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headcountthatyouhavetodayoristhereapartofitthat'snotincludedinthere

perhapsbecauseit'snotfull-time?

Andthenjustsecondly,justgoingbacktotheadpricingchanges.Dave,justto

clarifyonthat,Imean,itsoundslikewhatyou'resayingisit'snotthatadvertisers

acrosstheboardareseeingthatsubstantialofanincreaseinpricingbutthat'smore

anoutputinyoureCPM;isthattherightwaytothinkaboutit?Thanks.

DavidWehner: Right,Doug.Onthefirstone,yes,the10,000number,thatencompassesboth

employeesatFacebookandalsoemployeesatpartnerssoit'snotallFacebook

employees.That'safullyloadednumber;that'salsointheOpExguidanceaswell.

Butyes,youcan’tcomparethe10,000tothe23,000directly.

Ontheadpricing,whatyou'reseeingisthatmostoftheadvertisingthatwegetisn't

necessarilybidonanimpressionbasis;you'regettingpeoplebiddingforother

actionsandoptimizingagainstotheractionslikeaclicktoawebsiteora

downstreame-commercetransactionandappinstall,andourabilitytooptimizethe

inventorythatwehaveagainstthosedownstreamactivitiesallowsustodeliver

thoseatstillgoodpriceswhileseeingeffectiveCPMsgoup.

Youdohaveobviouslypeoplewhoarebiddingonimpressionsifthey'relookingfor

likeabrandcampaignorreachcampaign,butthosearen'tnecessarilypartofthe

businessthat'sdrivingupprices.It'smorearoundjustusdoingabetterjobatbeing

abletooptimizecampaignsforpeoplewhohavedownstreamactivitiesthatwecan

dothatfor.

Operator: YournextquestioncomesfromthelineofHeatherBellini,GoldmanSachs.

HeatherBellini: Great,thankyou.Iwantedtojustaskaquestionaboutyourcontentstrategy.AndI

waswondering,howdoyouthinkaboutFacebookWatchintermsofFacebook

producedcontentversusthelicensingofcontentthatyoumightengagein?

AndIwaswonderingifthere'sacertaintypeofcontentthatyouthinkwillbebest

suitedtooptimizetheWatchexperience.Thankyou.

MarkZuckerberg: Ithinkitmightbeusefultotakeastepbackandfirsttalkaboutwhywe'refunding

LighthousecontentandWatchoverall.Videoisgrowingincrediblyquicklyon

Facebook.Andtoday,mostofthatisinNewsFeed.Butmostpeoplewhocometo

NewsFeedandwhocometoFacebooktoday,ingeneral,aretryingtofigureout--

they'retryingtoseewhat'sgoingonwiththeirfriends,seewhat'shappeninginthe

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world;they'renotcomingnecessarilytoengageinaspecifictypeofvideoorspecific

communityaroundvideo.

TheWatchTabismainly--it'sawaytogivepeopleatooltodothat.Whenthey

wanttospecificallycomeandengagearoundvideoorcommunitiesaroundthat,

theycangototheWatchTab;theintentthereisdifferent.Nowinordertobuild

thatup,wethinkitmakessensetofirstinvestinabunchofLighthousecontent--

somethatwemayproduceorsomethatwemaylicense.Togettoyourquestion,

we'reprettyagnosticonhowthatgoes.Wejustwanttostarttheflywheelgoingso

thatwaythere’scontentandcommunitiesthataretherethatsupportthisusecase

ofpeoplecomingtoFacebookspecificallytoengageinthat.

Longterm,ourhopeisthatthebusinessherewillprimarilybethroughrevenue

sharesofvideosthatnormalcreatorsandbusinessesputintothesystemrather

thanonesthatweproactivelygooutandlicenseourselves.That'salookatthe

wherewe'retryingtogetonthisbutfirst,weneedtobuildthisbehaviorwhere

peoplewanttocomeintentionallytoengagewiththiscontent.

Operator: YournextquestioncomesfromthelineofKenSena,WellsFargoSecurities.

KenSena: Thankyou.Justgoingbackmaybetotheinvestmentandsecuritycomments.Maybe

canyouprovidealittlemoredetailjustonwhatthatinvestmentcouldlooklikeand

howwecouldthinkaboutthatshowingupinR&D,costofrevs,G&Aormaybea

combination?

AndmaybeanyearlythoughtsonGDPRandpotentialimpactthereandmaybe

someindustrytransparencyefforts,iftheycouldhaveapossiblebenefit?Thank

you.

DavidWehner: Yes.Onthefirstpart,Ken,you'regoingtoseethatshowupinavarietyofdifferent

lineitems;wedon'thaveitspecificallybrokenout.We'remakingsubstantial

productandengineeringinvestments.SoaspartoftheoverallhiringonR&D

headcount,that--there'sgoingtobeaprettysignificantallocationofthattosome

oftheproduct-relatedsecurityinitiativesthatwe'redoing.That'sgoingtoshowup

inR&D.

You'regoingtohavesomeoftheadsworkthatwe'redoing--theadsqualityat

workshowingupinthesalesandmarketinglinesoyou'regoingtoseesomethere.

Andthenyou'regoingtoalsojusthaveoverallimpactonG&Aaswellforthingslike

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policy-relatedexpensesandthelike.Ithinkyou'regoingtoseeitkindofimpacting

acrossthespectrumofourlines,butoverall,oneofthesignificantfactorsdriving

theaccelerationingrowthrates.

SherylSandberg: OnGDPR,theFacebookfamilyofappsalreadyappliesthecoreprinciplesinthe

frameworkbecausewebuiltourservicesaroundtransparencyandcontrol,and

we'rebuildingonthistoensurethatwecomplyinMayofnextyear.It'stoosoonto

tellwhetherthiswillimpacttheextenttowhichEUusersoptoutofcertainservices,

butwe'regoingtocontinuetogivepeoplepersonalizedexperienceandbeclear

abouthowwe'reusingthedata.Webelievethatwe'llbeabletoobtainconsentfor

usesofthedataacrossEuropeandthatpeoplestillexpectthecontentandtheirads

toberelevant.Weexpectagoodresulthereandwe'regoingtodoitverycarefully

andveryseriouslyaswealwaysdo.

Operator: YournextquestioncomesfromthelineofJustinPost,BankofAmericaMerrill

Lynch.

JustinPost: Great.Ihave2things.First,asyou'veintegratedmorevideocontentintoFacebook,

areyouseeingbettertimespentperuser?Isthatreallyshowingupinmore

engagementonthesite?

Andthensecondly,itlookslikeyou'rerunningaround$80ayearperusernowin

theU.S.,quitegoodimprovementoverthelastcoupleofyears.Justthinkabout

benchmarkingthatversusothermediacategoriesorotherthingsintraditional

media,doyoustillthinkyouhavealotofroomaheadtogrowthat$80overtime?

Thankyou.

MarkZuckerberg: I'lltalkaboutvideoengagementandthenDavecanjumpinonsomeofthestats.

OneoftheimportantpointsherethatItriedtocommunicateinmycomments

upfrontisthatconnectingwithfriendsandfamilyandhavingthosemeaningful

interactionsismoreimportantthanjustconsumingcontent,right?Videois

growingincrediblyquickly,andthatgoesacrossbothsocialcontentandkindof

morepassivepublicconsumptionofcontent.Andtheycreatedifferentdynamicsin

thesystemandIthinkthat'sanimportantthingtounderstand.

Whenyourfriendpostssomethingandyougettoengagewithit,itmightinform

youandentertainyou,butyoualso--ifyouinteractwithityou'rebuildinga

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relationshipwiththatperson,right?Youfeelclosertothatperson.Andthatisa

reallyimportantpartofwhatsocialnetworkingissupposedtodo.

Whereaswhenyouengagewithpubliccontent,youmightgetinformedorbe

entertained,butit'snotnecessarilyincreasingsocialcapitalinthesamewayor

buildingrelationshipsbetweenpeople.Wereallydifferentiatewhatthecorething

isthatwe'retryingtodo--whichishelppeopleconnectwitheachotherandbuild

meaningfulrelationships--andthat'swhyonalotofthesecalls,Iemphasize

productslikeInstagramStoriesorWhatsAppStatus,whichareveryvideo-based

productsbutthey'reimprovingsocialinteractions.

Andwe'regoingtofocusalotmoreonhelpingpeoplesharevideosoftheirmoment

intheirlivesbecauseinalotofways,Ithinkifyoutakeavideoofyourselfandyour

familyoutTrickorTreating,that'smoreengagingthanaphotoandabetter

representationofthatthanwritingitoutintext.

Butoverall,Iwouldsaynotalltimespentiscreatedequal.That'swhyItriedto

stressupfrontthattimespentisnotagoalbyitselfhere;whatwereallywanttogo

foristimewellspent.Andwhattheresearchthatwefoundshowsisthatwhen

you'reactuallyengagingwithpeopleandhavingmeaningfulconnections,that's

timewellspentandthat'sthethingthatwewanttofocuson.Outofthisbigvideo

thingthat'sgrowingveryquickly,Ithinkthatistherealopportunityandproduct

areathatweshouldbefocusedonmore.Andtotheextentthatthereisgoingtobe

alotofpubliccontent--whichtherewillbe--abigpartofthefocusisgoingtobe

aroundbuildingcommunityandinteractionsaroundthatcontent.

DavidWehner: Justin,onyourquestiononARPUintheU.S.,wedothinkthatthereare

opportunitiestocontinuetogrowthebusinessintheU.S.onalotofdifferent

fronts.WecancontinuetogrowengagementoncoreFacebookaswellasthere's

opportunitieswithInstagramandtheotherservicesthatwehavethatarenot

monetizingsignificantlytoday.There'sopportunitiesthere.

Butmostimportantly,kindofIwouldgobacktothefactthatwe'regettingbetterat

--ontheadproductside--ofbeingabletooptimizeourinventoryforthe

advertisersinawaythatwillwethink,drivegoodpricinginthesystemforusand

getoutcomesfortheadvertisers.Wedothinkthat,thatwillleadtothepotential

foradditionalrevenuegrowthintheU.S.

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Operator: YournextquestioncomesfromthelineofRossSandler,Barclays.

RossSandler: Great.Ihad2questionsforMark.One,Mark,asyoulooktomakechangesaround

safetyandsecurityandkindof(impressionsIthinkasanissue)doyouthinkthiswill

haveanyadverseimpactonengagementorisitjusttoosmalltoevenbematerial?

Andthenafollow-uponthevideoconsumptioncommenthappeningmostlyinthe

feed.Isthedecelerationyouguysareseeingaroundimpressiongrowthrightnowa

functionofpromotingvideointhefeedversuswhatelse--otherthingsthatmight

beinthere?AndIguessaskedadifferentway,shouldweseeimpressiongrowth

kindofrevertbacktogrowthatsomepoint?Andisthatlikelynextyearoristhat

furtheroffinthefuture?Thankyou.

DavidWehner: SoIcantakethesecondone,whichisthequestionaboutimpressiongrowth.

There'sacoupleoffactorsthere.Certainlythisquarter,wesawthatadloadas

predicted--hadamuchlesssignificantimpactonimpressiongrowth.Overall,that

storyhasplayedoutsortofaswethought,andthat'soneofthereasonsyou're

seeingtheimpressiongrowthcomedown.

Andthenyes,Idothinkthattherearelessimpressionswhenpeopleareconsuming

video,sothatalsoisafactorasmoretimeisspentonvideo.Ithinkyouhaveboth

ofthosefactorscomingintoplay.Intermsofhowthoseplayoutgoingforward,

hardtosay.Wejustkindofpointtoouroverallcommentsonjustcontinued

revenuegrowthdeceleration.

AndIbelievethefirstquestionwaswhetherthesecurityinvestmentswouldhavean

adverseimpactonengagement…

MarkZuckerberg: …yes,andIcanspeaktothat.

Letmebeclearonthisthatpeopledonotwantfalsenewsorhatespeechor

bullyingoranyofthebadcontentthatwe'retalkingabout.Totheextentthatwe

caneradicatethatfromtheplatformthatwillcreateabetterproduct,whichwill

alsocreateastronger,long-termcommunityandbetterbusinessaswell.

Thereasonwhywehaven'tbeenabletogetthesethingstothelevelthatwewant

todayisnotbecausewesomehowwantthemontheplatform;it'sthatit'sareally

hardproblem.Andwe'regoingtoinvestbothinpeopleandtechnologybecausewe

thinkthatbotharereallyimportantpartsofthesolutionheretogoafterall

differentpartsoftheseproblems.AndthatwaswhatItriedtostressearlieron.

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We'regoingfrom10,000peopleworkingonsafetyandsecuritytomorethan

doublingthatto20,000.We'rebuilding--we'redoubling,insomecases,moreour

engineeringteamsfocusedonsecurity.We'rebuildingAItogoaftermoredifferent

areasofharmfulcontentandfindingfakeaccountsandotherbadactorsinthe

system.

AndIexpectthatallofthesethingswillmakeourproductbetteroverthelongterm,

butwewillincurtheexpensesalotsooneraswerampuptheseefforts.AndIalso

justthinkthatgoingforward,we'regoingtoinvestigatethesethingsatamuch

higherlevelbecausewerealizethatit'sanimportant--notonlyforourcommunity

andthiscompany--butit'spartofourresponsibilitytosocietyoverall.

Operator: YournextquestioncomesfromthelineofRichGreenfield,BTIG.

RichGreenfield: Hi.Thanksfortakingmyquestion.Acoupleofthings.Youtalkedaboutcreators,I

think,Markcreatingfortheplatformontheirownwithoutyouhavingtoinvest.But

justtryingtoframeitinthesenseofHollywood--likeIlookatwhatAppleisdoing

nowandgoing--hiringacoupleofSonyexecutivesanddoinga$5millionan

episodebuyofaStevenSpielbergshow-andIguess,whatI'mtryingtounderstand

orIthinkalotofinvestorstryingtounderstandiswhattypeofcontentdoyou

ultimatelywant?

BecauseIdon'tthinklikesomeonelikeSpielbergisgoingtoworkforanadrevenue

sharenomatterhowgoodthatadvertisingislike.Howdoyoubalancewhattype

ofcontentbusinessyouultimatelywanttobuild?Andthenwhenyoulookatsports,

whichIalsothinkaboutasbeingkindofreallyrelevantcontentthathasahuge

communityaroundit--somethingliketheNFLmobilerights,Ithink,comeupnext

year--wonderinghowimportantarethosetypesof--orhowimportantisthattype

ofcontent?Iknowyouwerebiddingoncricketrightsoverseasbuthowimportantis

sportsinthismix?

MarkZuckerberg: Well,Ithinkthattheanswertothatiswedon'tknowalltheanswersaroundwhat

kindsofcontentaregoingtoworkandarenot.Wewillprobablyexperimentwitha

numberofdifferentthings.

Idothinkyourpointisrightthatnotallkindsofcontentcanbesupportedbyadsno

matterhoweffectivewemakethat.Thatsaid,thecurrentmodelthatwehaveforat

leastgettingsomeoftheLighthousecontentontotheplatformistopayupfront.

Andwhatwewouldliketotransitionthatmoretoovertimeandwantanincreasing

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amountofthecontentis,isrevenuesharesforadsshowninthevideo.Andaswe

dobetterandbetteronthemonetizationthere,thatwillsupportpeoplewithhigher

productioncostsanddoingmorepremiumproductionandbringingtheircontentto

theplatform.

Andwe'vecertainlyfoundontheInternetandYouTubeandinotherplacesthat

therearewholeindustriesaroundcreatorswithdifferentcoststructuresthan

traditionalHollywoodfolkswhocanproduceveryinformativeandengagingcontent

thatalotofpeoplelike,enjoyandthatbuildscommunitiesandhelpspeople

connecttogetherinawaythatdefinitelycanbesupportedbythisadmodel.Ithink

theansweriswe'regoingtotryabunchofthings.That'sabunchofwhatthe

budgetis.I'mveryoptimisticthatalotofthestuffwillbeabletobesupportedlong

term,butyou'recertainlyrightthatnotallofitwillbeabletobesupportedbyad

modelsalone.

Operator: YournextquestioncomesfromthelineofBrentThillofJefferies.

BrentHill: Thanks.Onvideo,there'sbeenalotofquestionsabouttheultimateprofitabilityof

thisgoingforward.Iwasjustcuriousifyoucouldshareyourview--Iknowit'searly

--butwhatyourthoughtsarethere?

DavidWehner: Yes,Imean,Ithinklook,today,we'retalkingabouttheadditionalinvestmentswe're

makingintermsoftheLighthousecontentontheWatchTab.Weareputtinga

substantialinvestmentbehindthat.Thatclearlyisgoingtohaveimplicationsfor

marginsalongwiththeotherbiginvestmentsthatwe’remakingnextyear.Andthen

evenafterthe--afterweestablishaflywheelhereandcangetcontentbeing

producedforadrevenueshare,that'sgoingtohaveadifferentmarginstructure

thancoreNewsFeed.

Evengoingforward,there'sgoingtoberevenuesharebackto–backtothecontent

creatorssoit'sgoingtohaveadifferentmarginstructurethanthecorebusiness.

SherylSandberg: Ithinkit'sworthaddingthattheadinventoryitselfisreallyvaluableformarketers

andourclientsandalsoworksverywellwithourotheradproducts.I'llsharea

recentone.Visa,withSocialCodeandBBDO,created10-secondvideoswithtext

overlaysshowingpeoplemakingdigitalpaymentsandtheytargetedmillennialsand

earlytechadopters.

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Andtheyranads--onegroupforFacebookNewsFeed-only,onegroupforad

breaksonlyandonegroupforNewsFeedandadbreakscombined--andthebest

resultscombined,theadbreaksandtheNewsFeed,theyhada7xlowercostper

videoviewcomparedtoNewsFeedalone.Andsooneoftheopportunitieswehave

hereisincreasinginventory.Andit'sparticularlygoodinventoryformarketers

becausewe'reseeingniceadoptionofvideoviewsandreallyniceimpactfromthose

sales.

Andit'salsothecasethatouradproductsworktogether.Theabilitytoshow

somethinginNewsFeedandthenshowavideoandwatchitandshowsomething

onInstagramandmeasureresultsacrossthefullfunnel,wethink,areveryworthy

investmentsforthelong-termhealthofthebusiness.

Operator: YournextquestioncomesfromthelineofMarkMahaney,RBCCapitalMarkets.

MarkMahaney,yourlineisopen.

MarkMahaney: Sorryaboutthat.

Acommentand2questions.Ithinkthere'sincrementalspendorthismaterially

increasedspendonsecurityishighlyunfortunate,butIthinkitmakeseminent

sense.Ithinkmostlong-terminvestorsrealizethecommunitymaximization,

includingsecuritywouldleadtolong-termprofitmaximization,soIthinkmake

eminentsense.

Twoquickquestions.TheWatchTab,isthereanyevidenceoranydatapointsyou

cangiveustowhatkindoftractionyou'reseeingwiththatsofar?Iwassurprisedby

howmanypeopleareonMarketplace.AnyrelevantdatalikethatforWatchTab?

Andthensecondly,ofalltheregions,Europereallystruckouttous–stuckouttous

asonethatshowedsurprisingacceleration.AndIknowyoutalkedalittlebitabout

that,Sheryl,abouttheSMBpickupandtractionthere.Anyothercolorforwhy

Europewouldhaveacceleratedsomuchintermsofitsrevenuegrowth?Thankyou.

DavidWehner: Sure,letme,Iguess,hitbothofthoseandthenSherylcanaddanycolorshe'dlike.

OntheWatchTab,Ithinkit'sjustearly.AndsoIthinkit'stooearlytobetalking

aboutanystatsthere.

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IntermsofEurope,onethingtonoteisthatwedidpickupcurrencyadvantages

there.Soitwas56percentonareportedbasisbut51percentonaconstant

currencybasis;stillhealthygrowthrate.Ithinkit'sastrongeconomythere.Ithink

theteamisexecutingwelltheresoIthinkyou'vegotavarietyoffactors.Andthen

asSherylcommentedinherpreparedremarks,SMBhasbeenparticularlystrongin

Europe.AndsoIthinkthat'soneofthekeydriversandoneofthethingswe're

reallyhappywith.

MarkZuckerberg: Oneclarificationonyourquestion,too,isthatthe550millionpeopleisacrossboth

Marketplaceandbuyandsellgroups;notjusttheMarketplacetab.That'sthetotal

amountofactivitythatwe'reseeingthereacrossbothofthose.

Operator: YournextquestioncomesfromthelineofColinSebastian,Baird.

ColinSebastian: Thanksfortakingmyquestion.First,aquickfollow-uponsafetyandsecurity.I

guess,I'mwonderingwhymoreoftheAIandmachinelearningthatyou'vebuiltfor

productandtheadplatformcan'tbeutilizedorcross-utilizedtohelpmitigatesome

ofthecostsofaddingpeopleandtechnologytohandlethoseissues.

Andthensecondly,relatedtohowmuchtimeyoungerpeoplearespendingornot

spendingontheFacebookapps,Iwonderifyou'velookedatoverthecourseoftime

thetrendinusesasyoungerpeoplehitdifferentmilestonesinlifesuchas

graduatingfromcollegeorgettingajobandhowtheirusageoftheappchanges

overthattimeframe?Forexample,ifyou'reseeingasteadystreamoftheusers

comingtoFacebookoncetheyhitthosemilestones.Anycoloraroundthatwould

beinteresting.Thankyou.

MarkZuckerberg: Sure.I'llspeaktothesafetyandsecurityinvestmentandthenDavecanspeaktothe

otherquestion.

Weneedbothtechnologyandpeopleforthis.AndthebestarticulationofthisthatI

canmakeisthattoday,AIhasdifferentstrengththanpeopledo,right?TheAItools

thatwe'vebuiltcanenableasystemtolookatmillionsofpiecesofcontentand

makeroughassessmentsonthemandfigureoutwhattoflagforpeople.But

ultimately,ifyouwanttogetthosehigh-qualityjudgmentstodayonsensitive

contentandyouwanttodowithquicklywhenthestakesareprettyhighintermsof

takingdowncontentorleavingthingsup,Imean,wetakethatextremelyseriously,

youwantpeopletobelookingatthat.

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Earlierintheyear,whenwewereworkingonproblemslikeseeingissueswhen

peopleweregoinglive,right?Therewasthisreallyseriousissuearoundpeoplewith

self-harmand,insomecases,suicideonLive.AndwemadeaninvestmentinAI

toolsandindramaticallyincreasingthestaffingoftheteamthatwasworkingon

thatandbroughttheamountoftimetoreviewthoselivevideosdownthrougha

combinationofthosethingstoIthinkit'sunder10minutesnow.Thatmightstillbe

aconservativeestimate.Andwe'recontinuingtoworkonthat.

Nowwhatwe'retryingtodoisjustincreasetheSLAsthatwehaveacrossallof

thesedifferenttypesofcontentandsecuritythreatsthatwemightseesothatway,

throughacombinationoftheAItoolingthatwebuildandhavingpeopletolookat

thesethings,wecangetitrightfasterformoreofthetypesofcontent.

Andyou'redefinitelyrightthatalotoftheAIresearchthatwedoisapplicableto

multipleareas,butwestillneedtobuildthosetools.Ittakesalotofengineering

investmentandwewillbeprioritizingthat,insomecases,byaddingpeopleto

teamsandinothercases,bytradingoffanddoingmoresecurityworkinsteadof

otherproductworkthatwemighthavedone.Butthisisreallyimportantandthisis

ourpriority.

DavidWehner: Yes,Ithinkonsortofhowpeopleuseourproductsinlifestages,Iwouldjustsortof

--Iwouldsay,generally,whatwe'retryingtodoisbuildavarietyofdifferenttypes

ofsocialproductsthatcanhelpinavarietyofdifferentusecasessoitcouldbeone-

on-onemessagingwithWhatsAppandMessenger.ItcouldbesharingtoGroups

withtheFacebook.ItcouldbethefriendsthatyouhaveonInstagram.

It's--we'retryingtokindofmakesurethatwefleshoutthefullrangeofsharing

experiences,andwethinkthat,thathasapplicabilityacrossallthedifferentlife

stages.Anddependingontheagespeopleusetheproductsdifferentlybutwould

notsharinganyspecificbreakoutsonthat.

DeborahCrawford: Operatorwehavetimeforonelastquestion.

Operator: YourlastquestioncomesfromthelineofYoussefSquali,SunTrust.

YoussefSquali: Thankyouverymuch.Justonequestion.Youguysunbundledthevideobuy;can

youspeaktopricing--relativetothat35percentaverageincreaseinadpricing--

canyoumaybejusthelpusunderstandthedisparitythatexiststodaybetween

pricingonthenewvideoplatformandthelegacyvideoplatform?Thankyou.

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DavidWehner: I'mnottotallyclearonwhatyoumeanbythenewvideoplatformandthelegacy

videoplatform,butIwouldjustsaythatthisisprimarilydrivenbyNewsFeed

pricing,andthenyouhaveright-handcolumnpricingaswellsoyouhave

impressionsonFacebookNewsFeed,InstagramfeedaswellasFacebookright-hand

column.

Adbreaksarereallyarelativelysmall--averysmallfactortoday.Thepricingis

reallyaboutwhatisthepricingthatyou'reseeingintheoverallsystem,primarily

givenonthefeed-basedproducts.That'sreallywhatthedriverisandagainthere,I

wouldpointtothecommentsthatImadeaboutgettingbetterattargetingand

drivingtowardsgoodoutcomesforouradvertisersasbeingkindofthereasonthat

we'vebeenabletosupporthigherprices.

DeborahCrawford: Great.Thankyouforjoiningustoday.Weappreciateyourtime,andwelook

forwardtospeakingwithyouagain.

Operator: Ladiesandgentlemen,thisconcludestoday'sconferencecall.Thankyouforjoining

us.Youmaynowdisconnectyourlines.