Meta Platforms Inc - Class A (META) — Q3 2015 Earnings Call Transcript

Thank you. Good afternoon and welcome to Facebook's third quarter earnings conference call. Joining me today to talk about our results are Mark Zuckerberg, CEO; Sheryl Sandberg, COO; and Dave Wehner, CFO. Before we get started, I would like to take this opportunity to remind you that our remarks today will include forward-looking statements and actual results may differ materially from those contemplated by these forward-looking statements. Factors that could cause these results to differ materially are set forth in today's press release and in our quarterly report on Form 10-Q filed with the SEC. Any forward-looking statements that we make on this call are based on assumptions as of today, and we undertake no obligation to update these statements as a result of new information or future events. During this call, we may present both GAAP and non-GAAP financial measures. A reconciliation of GAAP to non-GAAP measures is included in today's earnings press release. The press release and an accompanying investor presentation are available on our website at investor.fb.com. And now, I'd like to turn the call over to Mark.

Thanks, Deborah, and thanks, everyone, for joining us today. This was another good quarter, and we continue to grow the size and engagement of our community. 1.55 billion people now use Facebook every month and more than 1 billion people use Facebook every day. On mobile, we continue to have a lot of momentum. 1.39 billion people now use Facebook on mobile devices, including more than 1 billion on Android. 50 million people also use Facebook Lite, our app for people on low bandwidth connections and one of our fastest-growing interfaces. This is a great sign for how our mobile strategy continues to make progress across markets, devices, and platforms. When it comes to our business, we're also pleased with our results. This quarter, total revenue reached $4.5 billion and advertising revenue grew by 45% from a year ago. We've already accomplished a lot this year, and these results show how we're getting stronger as a community and as a business. But we want to serve the entire global community, not just the people who are on Facebook today. Connecting everyone is one of the fundamental challenges of our time and to achieve this, we need to continue innovating faster and investing for the long-term. That means continuing to invest in our core products and services as well as technologies and strategies that allow us to achieve a truly global reach over time. Let's talk about how we're doing this, and let's start with how we're improving our core products to better serve our existing communities and businesses. This quarter, we introduced some big updates on Facebook to give people more options for expressing themselves. We began rolling out an improved mobile profile design, including the ability to add a profile video instead of just a photo. We also started testing Reactions, a new version of the Like button that provides more ways for expressing love, awe, and sympathy. We think this is going to provide a much more engaging experience. Another way we're working to improve people's experiences on Facebook is by helping them to share many different types of content with different groups of people they care about. One example is our progress with Groups on Facebook. More than 925 million people now use Groups each month. In some countries, more than half of the population is participating. From a youth organization in Chicago to aid workers dealing with the refugee crisis in Europe, we've seen many inspiring examples of people using Groups to collaborate. Video is another area where we continue to make progress. On average, there are now more than 8 billion daily video views on Facebook and more than 500 million people who are watching daily. To offer even more engaging video experiences, we've added live video to our Mentions app for public figures, and we now support interactive 360 videos in News Feed. We've also rolled out new video tools for pages and begun testing a dedicated video section on Facebook. Over the next few years, video is going to be some of the most engaging content online, and by continuing to innovate here, we have a chance to build the best place to watch and share videos. When it comes to serving businesses, we continue to create a lot of value. We now have more than 2.5 million active advertisers on Facebook and more than 45 million small and medium-sized businesses actively using Facebook pages. This quarter, we continued to focus on helping marketers achieve results while using our ad product, including video and carousel ads as well as on Instagram, and as usual, Sheryl is going to talk more about this in a moment. Now, let's talk about how we're working to develop our next generation of apps and services. For Instagram, this was a busy quarter. The community celebrated its five-year anniversary and reached a new milestone of 400 million monthly actives. More than 80 million photos are now shared on Instagram every day, and the pace of adoption among public figures, organizations, and people around the world continues to grow really well. When President Obama visited Alaska in September, he used Instagram to document his trip, and this is a great example of how Instagram is changing the way that people see the world. With our efforts in messaging, we're also making progress at building WhatsApp and Messenger both into great platforms of global scale. Last quarter, WhatsApp reached 900 million monthly actives and continues to be on a path to reach 1 billion people and beyond. Messenger has over 700 million monthly actives, and we continue to focus on improving the core messaging experience. A good sign of our progress is the more than 9.5 billion photos now sent monthly on Messenger. We're also building many different tools that can offer useful experiences to people beyond just traditional messaging. One example is M, a digital assistant we introduced this quarter that over time will use AI to help people complete tasks. Finally, let's talk about some of our longer-term efforts in innovation to help connect the world. With Internet.org, we have a lot of momentum. We've now rolled out free basic Internet services to people in 29 countries, and overall brought more than 15 million people online. As we rolled out the program, we've made a number of improvements based on feedback from communities and partners, including opening up our platform for free basic services to all developers who want to build. Meanwhile, our work on new technologies to connect people in the most remote regions continues to make progress. This quarter we revealed Aquila, our first aircraft designed to beam the Internet into communities from the sky. And we also announced a partnership to bring the internet to large parts of sub-Saharan Africa using a satellite, which is launching next year. With Oculus, we're in a great position to begin delivering a new generation of shared immersive experiences, and we plan to ship the Rift headset early next year. Gear VR, our mobile product with Samsung, is going to have its first consumer release this holiday season retailing for $99. We also announced new partnerships with Minecraft, Netflix, Twitch, and many other content partners. Virtual reality has the potential to be the next computing platform that changes all of our lives. It's important for us to recognize that this is going to grow slowly, like computers and mobile phones when they first arrived. So we're committed to Oculus and virtual reality for the long-term. So that's how we've continued to make progress on our strategy this quarter. The results we've achieved show that our investments are creating a lot of value for our community and the world. I just want to thank the entire Facebook community, our employees, our partners, and our shareholders for helping us to continue moving forward. We've done a lot, but there's always more to do. And now I'm going to hand it off to Sheryl.

Thanks, Mark. And hi, everyone. We had an excellent third quarter. Results were strong across the board. Ad revenue grew 45% year-over-year, or 57% on a constant currency basis. Mobile ad revenue was $3.4 billion and grew 73% year-over-year. Mobile now makes up 78% of our total advertising revenue. Our business grew across all regions and marketer segments. Like last quarter, we saw especially strong growth in our North America and Asia-Pacific regions. Overall, we're really pleased with marketer adoption of our ad products around the world. Our results show that we continue to make progress on our three priorities: capitalizing on the shift to mobile, growing the number of marketers using our ad products, and making our ads more relevant and effective. First, capitalizing on the shift to mobile. People have already shifted to mobile, and this shift is driving engagement on Facebook. The average American adult spends 25% of their media time on mobile, and Facebook and Instagram together continue to account for over one minute in five minutes on mobile in the U.S. Businesses are lagging behind consumers in making this shift to mobile, and we believe we're well-positioned to help them catch up. Facebook Pages are already the mobile solution for millions of businesses. Pages now offer better messaging capabilities, call-to-action buttons, and news sections that enable businesses to highlight important information. We're also capitalizing on the shift to mobile by expanding ads on Instagram. This quarter on Instagram, we introduced new ad formats and objectives, opened up our API and launched self-serve ad capabilities. Instagram ads are now available in all countries where we offer Facebook ads, and marketers can manage campaigns across both platforms with the same targeting. We're really pleased with the marketer demand for Instagram ads. Our second priority is growing the number of marketers using our ad products. In September at Adweek, we announced that we have over 2.5 million active advertisers on Facebook. With more than 45 million active SMB Pages on Facebook, we think there's a lot of opportunity to turn even more of these businesses into marketers. Marketers come to Facebook and Instagram because we have the best-performing mobile ad products, and video is making them even better. Marketers have always loved using video to tell stories. As Mark discussed, video is a natural and growing part of our mobile News Feed experience. Video on Facebook gives marketers not just mass reach but better cross-device targeting and measurement than we believe is available on any other platform. We're especially pleased with the breadth of marketers using video on Facebook, from brands to direct response to SMBs. Over 1.5 million small businesses posted video, which includes organic video posts and video ads on Facebook in the month of September alone. Video ads complement TV ads. According to a recent study with Nielsen Research, marketers using Facebook ads with TV ads saw higher reach, ad recall, brand linkage, and likeability. To share one example, GMC used video and other ads on Facebook to extend the reach of their TV brand campaign highlighting their premium trucks and SUVs. The Facebook campaign drove a 13-point lift in ad recall and a 6-point lift in brand favorability. We recently introduced target rating point, TRP, buying so that marketers can plan, buy, and measure video ads on Facebook the same way they do on TV. We're pleased with the feedback we're receiving on this from marketers and agencies. Our third priority is making our ads more relevant and effective. We know relevant ads are more engaging for people and, therefore, drive better results for businesses. Products like carousel ads and dynamic product ads help improve effectiveness for marketers. Carousel ads show multiple images and now videos and drive 30% to 50% lower cost per conversion than single image link ads. Dynamic product ads, which allow marketers to upload their product catalog, are driving ROI comparable to Search. For example, Marriott uses DPA to re-target travelers based on their travel search habits and they are now scaling globally across their portfolio of brands. LatAm e-commerce company, MercadoLibre, uses DPA to remarket over 38 million products in over 13 countries. Both are seeing high ROI and continuing to invest. On the measurement side, Conversion Lift is helping clients see the real business results from their campaigns. Boost Mobile, a Sprint brand, showed ads to people eligible for device upgrades. Using Conversion Lift, they were able to attribute a 4% lift in in-store sales to their Facebook campaign. Finally, we're continuing to invest in ad tech across Atlas, LiveRail, and the Audience Network. This quarter, we expanded the ad formats publishers in the Audience Network can add to their mobile apps. On LiveRail, this quarter we began testing age and gender targeting. LiveRail can now deliver over 90% accuracy on age and gender segments across desktop, mobile web, and mobile apps versus a non-target rate of only 31% to 55% when not using LiveRail technology. I want to take a moment to thank our clients around the world for their continued partnership and congratulate our global Facebook teams on great execution. Looking forward, we're going to stay focused on our priorities to continue to build a solid foundation for our long-term business.

Thanks, Sheryl. And good afternoon, everyone. Echoing Mark and Sheryl's comments, Q3 was another strong quarter for Facebook. We generated $4.5 billion in revenue and over $1.4 billion in free cash flow. Growth and engagement of our community again provided a great platform for our strong financial performance this quarter. In September, we reached a new milestone with over 1 billion people using Facebook on an average day, an increase of 17% compared to last year. This daily number represents 65% of the 1.55 billion people who used Facebook during the month of September. Mobile continued to drive our growth. In September, approximately 1.39 billion people accessed Facebook on mobile devices, up 23% from last year. Additionally, our next generation of services continued to grow, with Instagram, Messenger, and WhatsApp now exceeding 400 million, 700 million, and 900 million monthly actives respectively. Now turning to the financials. All of our comparisons are on a year-over-year basis unless otherwise noted. Additionally, our non-GAAP measures exclude stock-based compensation and the amortization of intangibles. Total revenue was $4.5 billion, up 41%, or 51% on a constant currency basis. Ad revenue was $4.3 billion, up 45%, or 57% on a constant currency basis. The strengthening of the U.S. dollar continued to have an unfavorable impact on our revenue in Q3. Had foreign exchange rates remained constant with Q3 2014 levels, our total revenue would have been approximately $340 million higher. Regionally, U.S. and Canada and Asia-Pacific were our strongest markets, producing ad revenue growth of 56% and 48% respectively. Europe and Rest of World grew more slowly at 33% and 29% respectively, impacted by our currency exposure in both of those regions. As Sheryl mentioned, mobile continued to drive our revenue growth. Mobile ad revenue was $3.4 billion, up 73% from last year representing 78% of our advertising revenue. Revenue from ads served on personal computers was down approximately 8%. We have been very pleased with the sustained high growth of mobile advertising revenue. There are a number of important factors contributing to that growth both from the supply and demand side. The drivers of year-over-year mobile revenue growth fell into three main categories. First, as Sheryl covered, we have continued to have success driving strong advertiser demand. Second, we've grown both the number of people using Facebook and the time that they spend with us. And third, the growth in advertiser demand and ad quality has enabled us to increase ad load over time. As we have grown mobile advertising, we have remained very pleased with overall engagement levels, user satisfaction with News Feed and the overall quality of the ads themselves. Turning now to our overall price/volume metrics. In Q3, the average price per ad increased 61% while total ad impressions declined 10% on a year-over-year basis. As I've indicated on prior calls, the changes in our reported price-volume metrics have been driven recently by the change in the number of right-hand column ads and the shift to mobile. These factors will have a less significant impact on the reported price-volume metrics going forward now that a full year has elapsed since the redesign of right-hand column ads, and now that mobile impressions have grown to become the majority of impressions. In fact, the quarter-over-quarter trends already point to that. In Q3, total ad impressions increased 7% sequentially and average price per ad increased 5%. Total payments and other fees revenue was $202 million, down 18% compared to last year. The decline was expected and was driven by a reduction in payments revenue related to games played on personal computers. Turning now to expenses. Our Q3 total GAAP expenses were $3 billion, up 68%, and non-GAAP expenses were $2.1 billion, up 51%. Similar to last quarter, stock-based compensation and amortization expenses related to the WhatsApp acquisition contributed significantly to the year-over-year growth in GAAP expenses. Non-GAAP expenses were driven by increases in headcount-related costs, cost of revenue, and marketing expenses. We ended Q3 with nearly 12,000 employees, up 44% compared to last year. We added over 1,000 employees to Facebook in the quarter, and we are pleased with the continued strength in our recruiting efforts. Our Q3 GAAP operating income was approximately $1.5 billion, representing a 32% operating margin. Our non-GAAP operating income was $2.4 billion, representing a 54% margin. Our Q3 GAAP and non-GAAP tax rates were 37% and 32% respectively. Our Q3 GAAP net income was $896 million or $0.31 per share, and our non-GAAP net income was $1.6 billion or $0.57 per share. In Q3, capital expenditures were $780 million as we continued to invest in servers, network infrastructure, and the build-out of data centers and other facilities to support the rapid growth of the business. We generated $1.4 billion of free cash flow and ended the quarter with over $15.8 billion in cash and investments. Turning now to the revenue outlook. We remain focused on growing the number of people who use our services, increasing advertiser demand, and improving the quality and relevance of our ads. Across these dimensions, we continue to see healthy growth opportunities ahead for Facebook and Instagram. Given the strengthening of the U.S. dollar over the past year, we will continue to face currency headwinds next quarter, particularly in Europe and Latin America. In addition, we expect our total payments and other fees revenues to decline sequentially from Q3 to Q4, similar to the trend that we have experienced over the last couple quarters. Now, turning to the expense outlook. We expect the year-over-year growth rate for total full-year 2015 GAAP expenses to be approximately 55%, and for total full-year non-GAAP expenses to be approximately 50%. We anticipate our 2015 capital expenditures will be in the range of $2.5 billion to $2.7 billion. We continue to expect our 2015 stock-based compensation to be in the range of $3 billion to $3.2 billion, approximately half of which is related to our prior acquisitions, most notably WhatsApp. We expect amortization expenses for the full year 2015 to be approximately $700 million to $800 million. Lastly, we anticipate our Q4 and full-year 2015 GAAP and non-GAAP tax rates to be several percentage points above the respective Q3 rates. In summary, Q3 was another strong quarter for Facebook. We are pleased with the growth and engagement of our community and the momentum in our business, which together support our ability to continue investing to build our next generation of services and execute on our mission of connecting the world. With that, operator, let's open up the call for questions.

Thanks for taking the questions. Mark, maybe one for you and one for Sheryl. For Mark, on virtual reality and Oculus, how do you see the development of the entertainment and content ecosystem around virtual reality playing out in 2016 and beyond? And what's the role Facebook's going to have to play in maybe seeding some of the content and entertainment side of VR. And then for Sheryl, any color you can give us on Instagram? We've obviously seen a ramp-up now in advertising on the property. How is the company thinking about ad load monetization, some of the opportunities, and how those will be balanced against engagement? Thank you.

I can start off talking about Oculus and virtual reality. The first thing that I want to stress here is that these kind of new platforms take a long time to develop. So we've said often that we think that virtual reality and augmented reality could be the next big computing platform. Just to put that in perspective and compare it to the development of previous computing platforms like phones and computers, I think the first smartphones came out in 2003, and in the first year, I think BlackBerry and Palm Treo were the initial smartphones that came out. They each sold in the hundreds of thousands of units. So just to give a sense of the timeframe that we're thinking about this and how we expect this to develop, that's how we're thinking about that. In terms of the actual content, first, we think gaming is going to be the most obvious market. There are around, I think, more than 200 million, almost 250 million people who have either an Xbox, a PlayStation, or a Wii, and we think that that audience is going to be very excited about the type of experiences that initially you can have with virtual reality. The advantage of that is also that some of those can be single-player experiences. They don't require a big network effect or a lot of people having the technology or a large installed base. Once we start getting a bit further along with that, then the next thing that we think is going to be huge is video and immersive experiences, both things that people can create, like the social content that they share on Facebook today, and more professional and premium content both short-form and longer-form. But we'll start to see some experimentation with that. There is already some very good content. But until there are millions of units out in the market, I don't expect that to be a big industry for folks to be investing a huge amount in 2016. When they start to get more units, just like every other major computing platform before that, we expect that a large portion of what people will do in it will be communication and social behavior. That's where Facebook really has the DNA and experience to build the best experiences. We're investing in trying to figure out what that's going to look like, and that's ultimately a lot of what we're extremely excited about for a number of years down the road.

On Instagram, we think that with Facebook and Instagram, we now have the two most important mobile platforms out there. What we bring to this is a common ad infrastructure. Instagram ads, now that we've rolled out as we have this past quarter and gotten to a really good product offering, combined the creative format of Instagram which is very visually compelling and has a lot of engagement from people with the back-end infrastructure and marketer base that Facebook has. So now, we have self-service ads rolled out. We've rolled out in all countries where we offer Facebook ads. We have new ad formats for Instagram. We're able to do more business objectives, all of which can use the same targeting as we have on Facebook and all of which are increasingly tapping into our measurement capabilities. On ad load, we have a lot of experience rolling out ads into feed-based products, and we monitor it very carefully. We're going to continue to monitor really carefully. We're also excited about how they work together. Just to share one example, American Express working with Digitas rolled out carousel ads on Instagram that targeted travel-related interest groups for people who are 18 years and older. They then retargeted those same people on Facebook. What they created was a really visual journey using the format that is Instagram and the format that is Facebook, combining the two platforms that they're targeting. We think we're at the very beginning of what's possible when we combine these two.

Great. Thank you. I had two quick questions as well. One, Sheryl, just to follow up on what you mentioned about Instagram, obviously, it's a very visual experience. I'm just wondering, when you're talking to advertisers, are they viewing this as a separate channel? There have been some questions about the incremental nature of Instagram. It would seem like it could be extremely incremental, given these are the two top platforms in mobile. So I was wondering if you could talk a little bit about what the advertisers say about blending the experiences. And also, a question for Mark. I was just wondering if you could share with us how we might see your content strategy evolve over time, and particularly just wondering what your view is on longer-form content on the video side. Thank you.

To the Instagram question, what we see in the short run is that some of the spend on Instagram is incremental to Facebook and some isn't. Some clients are comfortable with Instagram and bringing a new budget to bear. Some clients are shifting some of their Facebook budget. For us in the medium to long run, we believe that we're not competing between Facebook and Instagram. We're competing with other forms of media. If you want the most eyeballs and we think the highest ROI, we think it will benefit Facebook and Instagram. What we really want is people to experiment and learn and experience Instagram as they have on Facebook so that we can make the case that we can improve their ROI and then believe that if you look at the consumer metrics of where people are spending their time, we will be able to gain share compared to almost anything else you can buy out there.

To your question about long-form content, the more natural starting point for us is shorter-form content which can either be social content or premium short-form content. The vast majority of the content that's consumed on Facebook, just talking about video right now, is people browsing through feed. They discover something interesting that they weren't necessarily looking for previously. That's very powerful because that's a behavior that there isn't really anywhere else to do at scale on the Internet today in a great way. Then people watch it or bookmark it to watch later. If you're talking about watching inline and feed, that's not the place where you're necessarily going to see a TV show and then watch an hour-long clip right there. A lot of the best or at least from my perspective, TV shows like Jimmy Fallon are breaking up their show into clips that can now be shared to be consumed over social media and on the Internet in three-minute to five-minute or seven-minute segments which appeal to what people want when browsing through News Feed. Over time, we will get to different types of content, and we'll build products that serve that. The current market of trying to help people share and experience all these shorter-form clips is massive. We are nowhere near serving that as well as we want to.

Thank you for taking the question. One for Mark and then one for Dave. Mark, you recently spent time in China and India. I was hoping to get some of your key takeaways both in terms of Internet.org and also about Facebook's potential in China. Then secondly, Dave, I was hoping to get some early thoughts on OpEx for 2016, at least perhaps qualitatively, if you could walk us through some of the puts and takes for next year, Oculus in particular. Thanks.

Sure, I can start off with the India and China question. They are very different situations. India is a unique country where there are 1.25 billion people, more than 1 billion of them are not on the Internet. It is the country in the world that benefits the most from connectivity. A lot of research shows that when you connect a place like India, it makes a very big difference socially and for the economy there. A lot of us here think about the internet as entertainment and basic communication, but if you don't have access to a good school, then getting basic Internet access could be your best educational information. If you don't have access to a good doctor, that could be the only way that you can learn about how to avoid certain diseases. For every 10 people who get connected to the Internet, right around one person gets lifted out of poverty, and one new job gets created. We're focused on this. It's a huge priority for the Indian government. In Internet.org in India now, there are more than 1 million people who now have access to the Internet who didn't otherwise because of our efforts. On China, that is a more complex situation. Obviously, you can't have a mission of wanting to connect everyone in the world and leave out the biggest country. So over the long-term, that is a situation that we will need to figure out a way forward. For now, the thing that I would leave you with is that people think that Facebook isn't in China at all. That's not true. Our consumer service isn't active there, but it is one of the biggest advertising markets we have. Big and important Chinese companies sell a lot of products to people outside of China, and they use Facebook as one of their primary tools to spread information about what they're doing and grow their customer base. We're happy to help develop the economies in both of those countries. They're long-term efforts for us.

Doug, on your question on 2016, we're not going to give specific guidance at this time; that will be coming with our Q4 call. We're focused on continuing to invest heavily in the business across our near, mid, and long-term opportunities. We see a bunch of great opportunities to invest there. So in the near term, we're focused on growing the community and executing on our existing business. In the medium-term, our focus is on those next generation of services, Instagram, Messenger, and WhatsApp. In the long-term, the investments in artificial intelligence, VR, and obviously the Internet.org efforts that Mark just spoke about. Specifically with regards to Oculus and how that could impact the plan for next year, as Mark said, we're very bullish about the long-term opportunity for VR and excited about the launch for the Rift next year. But VR is still very much in the development stage.

Thanks for taking my questions. I have two, one for Mark and one for Sheryl. Mark, can you talk a little about what factors and metrics you consider when you're thinking about a multi-app strategy versus rolling out more products and offerings on Facebook? There's a difference in Facebook Paper, Messenger, the video viewer on the platform. Just be curious how you think about multi-app versus adding more functionality to the mothership. And then for Sheryl, it sounds like there's still a lot of SMBs on the platform that are not yet paying advertisers. Can you talk about some of the biggest hurdles you need to overcome to get more SMBs paying and initiatives you have in place?

Sure. I can talk to the multi-app question first. We view the social space almost as a two-dimensional grid, where one axis is the richness of the content that people want to share. The other is the size of the audience, or intimacy of how people want to share. On the first axis, you get everything from text to links, photos, videos, onto immersive 360 videos and the like. On the other axis, you get everything ranging from one-to-one messaging to small group communication, to communicating with all your friends at once, to big interest groups, to completely public. We believe you can intersect at any point, and there will be something interesting to build. What we've tried to do is figure out the areas that we think are open and not currently served by the products built by the industry and offer those. For some products, it makes sense to naturally have them inside the Facebook app because you're using the same set of friends and network and connections. Some make more sense to be separate, like Messenger, where we can make sure everyone has their push notifications turned on, extremely important for a messaging app. But there are endless possibilities in terms of how people want to share and communicate.

On SMBs, it's one of the most compelling opportunities we have for Facebook because we solve a really big problem for SMBs: how are they going to reach customers. In the U.S., 35% of small businesses have no web presence at all. Building a mobile presence is even harder because most people don't use the mobile web, and mobile apps are expensive to build. That's why there are 45 million SMB pages on Facebook. We have 2.5 million advertisers, and over 80% of them started on Pages and with simplified ad products. We've made it as easy for them to use as profiles. We've seen 1.5 million SMBs post videos in one month alone. We can give them opportunities to do things they otherwise couldn't do. So our goal is to continue to grow our business with them.

First, Mark, could you talk a little bit about how much activity you see around Events on Facebook and maybe your views on whether Facebook could benefit from political activity or advertising? And then, Sheryl, could you talk a little bit about where ad loads are today? Is there still room there? Also, what feedback are you getting on advertiser ROIs? Is there still more room there? Thank you.

Yeah, sure. I'll start with the user growth point. We're pleased with the growth across the globe in DAUs. The three largest countries were India, the U.S., and Brazil. We made a lot of initiatives to improve and invest in the Facebook experience in emerging markets and that helped drive some of the acceleration in growth. We have made a number of investments with Facebook. In terms of engagement, we are focused across a number of different dimensions to drive engagement. Video has had a big contribution.

On ads, engagement is growing quickly on Facebook. We don't break out by product, but we are pleased with the growth. Advertising growth related to elections is positive. We're excited about elections because we think we give politicians and people a compelling way to interact. Between January 1 and October 7 of this year, over 68 million people on Facebook in the U.S. made over 1 billion interactions about the campaign alone, and every candidate and Congress member is now on Facebook too. In terms of revenue impact, we have a very large and diversified business and think we're offering something compelling. You can target ads by district, by interest, which is unique.

Thank you very much. Mark, on the subject of media content on Facebook, it seems like a big opportunity is for Facebook to be the portal to access the short-form video content you mentioned earlier. How do you think you could best partner with the media providers and convince them of the merits of bringing their valuable, in some cases, expensive content into the Facebook world? And then for Sheryl, could you just touch on the relative growth of branded advertising versus direct response ads? Do you think TRP buying and video will shift your ad mix more towards branded over time? Thanks.

I can talk about video and the business model around that. You're right that there's a certain class of content that is only going to come onto Facebook if there's a good compensation model for the content owners. We've recently rolled out a business model for premium content where we’ll give a revenue share on a portion of the views to content owners. We're gathering good feedback, working with a small set of partners to start and will roll it out more broadly as we see how it trends. Keep in mind, there are a few different reasons why people share content on Facebook, and that's just one of the use cases.

On our marketer segments, we don't break out by segment, but all of our marketer segments are growing. We're seeing strong growth in brand, and we believe that's because we’re delivering on the promise of personalized marketing at scale. We've worked hard on things that help brand purchasers feel comfortable on the platform and measure ROI. We've worked on brand awareness optimization, mobile polling to measure effectiveness. We're working with our clients. Our other segments are growing as well.

Great. Thank you. Two questions. With the explosive video consumption growth and growth in public content being consumed in the News Feed, could engagement perhaps materially increase from current levels over the next couple of years? And then on WhatsApp, as it heads towards 1 billion MAUs or greater, could you give us a sense of how you're thinking about the monetization of that platform and perhaps timing of the monetization? Thank you.

On engagement, I think we're focused across a number of dimensions to drive engagement. Video has a big contribution for that. There is a lot we are working on regarding engagement levels and continue to show positive growth in time spent on the platform.

On WhatsApp, I don't think there's a magic number with 1 billion users. The focus for our messaging products is to keep driving user growth and building great products that are fast, useful, engaging, and fun. Both Messenger and WhatsApp are doing great. The business side is not the main focus right now, but we believe there will be opportunities to further scale those properties.

Great. Thanks. Two questions. One, big picture, Mark, there's a lot of debates around what content is appropriate for Facebook to block and not block. I'm wondering if you could talk about how you decide what to censor and what not to censor. And then secondly, given it's a big retail quarter, are you increasing testing around direct retail on the platform?

The guiding principle for us is that we want to give the most voice to the most people. There are different barriers that any person has to share and express. We have community standards for how we think people should communicate to be safe. Even if you have all the internet connectivity, if you don't feel safe sharing, you probably will not share. Therefore, we have to limit hate speech and create an environment that will not silence others so that we enable the most people to speak and express.

On commerce going into the holiday season, it's a really important vertical for us. We're working hard to make our ads more effective. We're very happy with what's happening with our ad products. The holiday season is one of the key times when our offerings come into play and connect people with the products they're going to buy this holiday.

Hi. Thanks for taking the question. When you look at ad quality, I think when Facebook started, Sheryl, you were keen on making sure that you were serving the highest quality ads to the right person. How do you work to make sure that Instagram maintains high-quality standards? How do you monitor this?

The quality is really important to us. Your experience on Facebook or Instagram is about what you see, both from organic posts from friends or public figures and the ads as well. We monitor it carefully. We ramp slowly, we monitor engagement, sentiment, and quality of ads. We receive feedback directly from users who can X out the ads, giving us insight into improving quality while also ensuring that ads remain targeted and effective.

Thanks. I had two if I could. We noticed a very impressive acceleration in user MAU growth and focus in the quarter. What can you attribute that to? Also, how are you thinking about video discovery from a push-based model to something more like a pull-based model?

On the user growth point, we’re pleased with the growth we're seeing across the globe. The initiatives made to improve the Facebook experience have enhanced the growth rates significantly. Specific market investments are helping drive that acceleration. When it comes to video discovery, we believe we will be rolling out several new dimensions to significantly improve video experiences on Facebook, as we're really early in this right now.

Great. I just had one for Sheryl. You mentioned that Marriott and MercadoLibre are both using DPA and seeing comparable ROI to paid search. So what kind of lift in ROI do you see as e-commerce or travel marketers migrate to DPA? Are the yields from DPA ads higher than other formats like video and app downloads?

Our goal is to give marketers the highest return they can. Over time, we want to progress equivalent budgets that match the media time we capture, which is currently not there. Consumers shifted to mobile and Facebook/Instagram has become a more significant part of their time spent. Depending on the products, the goals may vary—whether to tell a brand story or directly sell products. We're aiming for clarity in helping marketers optimize for their objectives.

Operator, we have time for one last question.

Okay. Let me try going back to future use cases. Mark, can you talk about whether you're seeing greater attempts to do search and how that could change over the next three to five years? Can you comment on news and what you're seeing in terms of regular users using Facebook as a method to get news?

On search, we already have a big use case for people using our search engine to check out pages, people on Facebook. The next big use case we've been working on is helping people find content on Facebook. In term of trends, it's the slowest part of the experience. Loading video is quick; loading links can take longer. Our initiative with Instant Articles helps speed things up and create a more immersive news reading experience, which we are excited about.

Great. Thank you for joining us today. We appreciate your time and look forward to speaking with you again.