Meta Platforms Inc - Class A (META) — Q4 2015 Earnings Call Transcript

Thank you. Good afternoon and welcome to Facebook’s fourth quarter and full-year 2015 earnings conference call. Joining me today to discuss 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. 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, our annual report on Form 10-K and our most recent 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 would like to turn the call over to Mark.

Thank you, Deborah, and thank you everyone for being here today. Overall, Q4 was a strong quarter and a great way to wrap up the year. Over 1.59 billion people use Facebook each month, with 1.04 billion using it daily, marking a growth of nearly 200 million monthly and 148 million daily this year. Additionally, more than 1.44 billion people access Facebook via mobile devices. We are also pleased with our business growth; total revenue increased by 52% year-over-year to exceed $5.8 billion, while advertising revenue rose by 57% to more than $5.6 billion. It's crucial to look at not only our business performance but also how we are positively impacting lives and communities globally. Next week, Facebook celebrates its 12th birthday, and reflecting on our progress, I recall the varied global moments we were part of in 2015. Over 950 million people were notified that a friend or loved one was safe during crises. Countless individuals supported the victims of the Nepal earthquake and the attacks in France. More than 8 million people utilized 35,000 groups and pages to help refugees. Furthermore, people worldwide connected over events from Star Wars to the U.S. presidential election and the Cricket World Cup. Witnessing our global community connect in these various ways highlights both the opportunities and challenges that lie ahead as we work to unite the world. While the world moves towards greater openness, many communities exhibit increased apprehension about what connectivity and technological advancements mean for them. Addressing these concerns is vital for our mission. We are committed to amplifying voices and enhancing the benefits of connectivity to bring people together. In 2016 and beyond, we will focus on serving our community, working to extend connectivity to billions who are currently unconnected, and developing new technologies for people to express themselves. Now, let's discuss our ongoing work in enhancing our products and services. Our strategy involves providing more engaging experiences for our community and better tools for sharing diverse content with the groups that matter to them. Video continues to be a key component of Facebook, and our investment in this area is essential for facilitating the sharing and consumption of engaging content. We’ve made significant strides, with 100 million hours of video viewed daily on Facebook. We've also been testing new features like suggested videos to help people discover more content they might enjoy. Additionally, we are exploring the introduction of a dedicated space for video viewing on Facebook. In improving other core functionalities, we have focused on enhancing the performance and quality of our products to serve different Facebook communities better. These initiatives are yielding results, evidenced by the growth in engagement across various products, reaching impressive levels. More than 500 million people use events each month, and over 123 million events were created on Facebook in 2015. For the first time, over 1 billion users engaged with groups in a single month on Facebook. It's inspiring to witness the vast diversity in groups, from small family and classroom groups to larger ones like the running challenge group I started recently, which has grown to about 100,000 members. To cater to our entire global community, we are optimizing our services for individuals in developing countries. We've enhanced Facebook Lite to provide a better experience in low-bandwidth settings, improving load times and adding features like video. As of December, over 80 million people are using Facebook Lite. In terms of supporting businesses, we remain focused on developing better advertisements and tools for our more than 2.5 million active advertisers. More than 50 million small businesses are now utilizing pages on Facebook, with over 2.5 billion comments being posted monthly on these pages. This reflects how the strength and engagement of our community are enhancing Facebook's value for businesses every day. Sheryl will discuss this further shortly. Now, let's delve into the innovations we’re pursuing for the next generation of services. With Instagram, we’ve advanced the shift toward visual content online. The community continues to grow, with a recent milestone of 400 million monthly active users announced in September. As the community expands, we have concentrated on creating engaging new experiences, such as refining search and introducing Trending Content. We also rolled out new features to provide users with diverse options for creating and sharing content. For example, we launched the layout app for combining images and introduced Boomerang for looping videos, which became the top app in over 70 countries. We also created a video channel on Instagram for users to view highlights from significant events. With Messenger and WhatsApp, we are making strides in evolving these platforms into valuable communication tools for everyone globally. Messenger now has over 800 million monthly users, growing by almost a quarter of a billion in 2015 while also increasing engagement. We continue to introduce new communication methods, such as video calling and customization options for conversations. We enhanced Messenger by adding payment capabilities for business interactions and testing M, an AI-powered digital assistant. Recently, we started testing a transportation feature that allows users to request an Uber ride through Messenger, with more services on the way, including airlines. WhatsApp concluded the year with nearly 1 billion monthly active users. As WhatsApp expands, we prioritize speed, simplicity, and reliability, and many communities have adopted it as their main communication platform. This month, we announced that WhatsApp will now be free for everyone, eliminating the subscription fees that were previously charged after the first year. This step enhances product accessibility without compromising our plans for growing WhatsApp's role in business. Later this year, we’ll be trialing new ways for users to communicate with businesses and organizations they wish to engage with. Finally, let's discuss our efforts on breakthrough technologies that can connect more individuals to the internet and generate transformative experiences. In 2015, we achieved substantial milestones in connecting more people online. We initiated the first trials of Express WiFi, aimed at helping entrepreneurs connect their communities. We introduced Free Basics in 33 more countries, successfully connecting 19 million people so far. We expect to conduct the first test flight of Aquila this year, our solar-powered aircraft designed to deliver internet connectivity from the sky. We're also making advancements in laser technology to transfer large data amounts more quickly and efficiently than current methods. In the field of AI, we are progressing toward the next generation of computers with image and language comprehension abilities. Throughout the past year, we've shared numerous research papers, showcasing significant work in image recognition and language understanding. To help advance the AI community, we've open-sourced software and new AI hardware. Achieving scientific breakthroughs to create impactful AI will take time, but we are already identifying opportunities to serve our community. We recently built a prototype AI system capable of combining language and vision comprehension, allowing it to answer questions about unfamiliar images. We've also employed AI to aid blind individuals in experiencing their friends' photos and news feeds by providing descriptions of the scenes. Regarding virtual reality, we reached a significant milestone when the Samsung Gear VR was shipped over the holidays with our Oculus software, and we've been pleased with the initial response. Pre-orders for Oculus headsets opened this month, setting the stage for an exceptional VR experience that we anticipate shipping to over 20 countries by the end of March. More than 100 VR games and experiences will be available on Oculus this year, and later this year, we will also be releasing the Oculus Touch controllers, enhancing user interaction in virtual reality through intuitive hand gestures. This Oculus launch is shaping up to be monumental for the gaming sector, and in the long term, VR has the potential to revolutionize how we live, work, and communicate. This launch signifies an important step towards that future, and we eagerly await seeing how users embrace it. That summarizes how we’ve continued to advance our strategy. We had a robust quarter and concluded 2015 on a strong footing as we move into 2016. Our strategy is effective, and many opportunities are ahead. We will persist in investing to achieve outstanding results for the long haul. On a personal note, the recent new addition to my family has led me to reflect on the legacy we aim to pass on to the next generation. I'm enthusiastic about our progress and the prospect of creating something remarkable for the future. If we dedicate ourselves to addressing the fundamental challenges the world faces while bringing people closer, we can foster a better environment for the next generation. That's my daily focus as we continue to build Facebook, and I want to extend my gratitude to everyone in our community, our employees, shareholders, and partners for being part of this journey. Thank you, and now here’s Sheryl.

Thanks, Mark, and hi everyone. We had a terrific fourth quarter capping off a great 2015. Q4 ad revenue grew 57% or 66% on a constant currency basis. Mobile ad revenue reached $4.5 billion, up 81% year-over-year and is now 80% of total ad revenue. Facebook and Instagram drive business results for our partners, helping their products off shelves online and off. As a result, we’re growing spend from our current clients and attracting new marketers to our platform. We saw strong growth across all verticals, marketer segments and regions. We’re also pleased with the growth we’re seeing in emerging markets and countries like China where businesses are advertising on Facebook and Instagram to reach people internationally. 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. Heading into 2016, it is clear that consumers have shifted to mobile and businesses know they need to catch up. Marketers now realize that if they want to reach their customers where they are, mobile is essential. Our conversations with clients have shifted from if they should market on mobile to how. With over 1.44 billion people using Facebook on mobile monthly and over 400 million monthly actives on Instagram, Facebook and Instagram have become the two most important mobile advertising platforms. We provide creative canvas powered by technology, a unique combination of art and science that marketers can use to deliver great creative with the highest quality targeting at unparalleled scale. The 2015 holiday season was a defining moment for mobile marketing and demonstrated the power of our mobile platform. According to comScore, total U.S. consumer spending on mobile in November and December was up 59% year-over-year. This holiday season, marketers turned to mobile more than ever before. To reach a large global audience for the launch of Halo 5, Microsoft Xbox used optimized for Facebook and Instagram. Working with our agencies and power media team from Dentsu Aegis Network, Eisenberg Group and twofifteenmccann, they understood that people watch video differently in mobile newsfeed than on TV. So they created videos to capture audience attention in the first three seconds even without sound. They drove over 380 million impressions and 49 million video views in key markets and increased purchases by 10 points in the U.S. Our second priority is growing a number of marketers using our ad products. Last quarter we announced that we had over 2.5 million active advertisers and since then our growth has remained strong. This represents a small fraction of the over 50 million small businesses now actively using pages. So we see a big opportunity to continue to grow the number of Facebook advertisers going forward. We’re also very pleased with the growth in advertiser adoption of Instagram and the positive results advertisers are seeing from their investments. 98 of the top 100 advertisers on Facebook also advertised on Instagram in Q4. Our third priority is improving the relevance and effectiveness of our ads. We shipped a lot of new ad products this past year. These products help deliver personalized marketing at scale and drive business for our clients. Leading up to Black Friday, Shop Direct, the UK’s second largest online retailer teased upcoming sales with a cinemagraph video to build awareness. They then retargeted people who saw the video with one day only deals. On Black Friday, they used our carousel and DPA ads to promote products people had shown interest in. They saw 20 times return on ad spend from this campaign, helping them achieve their biggest Black Friday and their most successful sales day ever. To share just a few other product examples, in emerging markets we launched Slideshow, a video-like ad experience that works with lower connection speeds and feature phones. We introduced local awareness ads globally to help brick-and-mortar businesses reach people near their stores and started testing Canvas ads to help marketers showcase their products in a more immersive way. We continue to invest in ad tech and are especially pleased with the growth of our audience network. Measurement also remains a critical area of focus. Our measurement tools like Conversion Lift and the Facebook pixel prove to marketers that we’re driving business results and help make our ads more relevant. This year we saw more advertisers shift from proxy metrics like clicks to business results like digital and in-store sales. Our results show that the investments we’ve made over the past few years are paying off and we see a lot of exciting opportunities ahead. We know we still have a lot of hard work to do and heading into the New Year, we will remain very focused on our top three priorities. I want to take this opportunity to thank our clients around the world for their partnership. Your investment and feedback is critical to making our products better. I also really want to thank the global Facebook teams for your extraordinary dedication to our partner success. Your hard work and execution is critical to helping us fulfill our mission. Thanks everyone and now here is Dave.

Thanks Sheryl and good afternoon everyone. Q4 was a strong quarter and wrapped up a phenomenal year for Facebook. Full year 2015 revenue was $17.9 billion, up 44% year-over-year or 53% on a constant currency basis. In 2015, we generated over $6 billion in free cash flow including $2.1 billion in Q4 while continuing to fund important investments for the future growth of the business. The strong growth and engagement of our community with consistent theme throughout 2015, and that continued in the fourth quarter. In December, 1.04 billion people used Facebook on an average day, an increase of 17% compared to last year. This daily number represented 65% of the 1.59 billion people who visited Facebook during the month of December. Mobile continued to drive the growth of our community. In December, 1.44 billion people accessed Facebook on mobile devices, an increase of 21% compared to last year and 90% of the people who have used Facebook on both a monthly and daily basis accessed us via mobile devices. 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. In Q4, total revenue was $5.8 billion, up 52% or 60% on a constant currency basis. Q4 ad revenue was $5.6 billion, up over $2 billion from last year, year-over-year growth was 57% or 66% on a constant currency basis. The strengthening of the U.S. dollar continued to have an unfavorable impact on our revenue in the fourth quarter. Had exchange rates remained constant with Q4 2014 levels, our total revenue would have been approximately $320 million higher. U.S. and Canada and Asia Pacific continued to be our two strongest regions with ad revenue growth of 64% and 57% respectively. Our rest of world and Europe regions grew at 53% and 45% respectively, as they were more heavily impacted by currency headwinds. Mobile ad revenue was $4.5 billion, up 81% from last year and represented 80% of our advertising revenue. For perspective, three years ago the mobile percentage was just over 20%. Q4 capped off a remarkably successful year for our mobile advertising business where we were able to combine strong growth in ad inventory supply with strong growth in advertiser demand. On the supply side, we grew the number of people using Facebook on mobile, time spent, and ad load. Our ongoing focus on ad quality and relevance enabled us to deliver a better overall mobile ads experience for our users while increasing the number of ads they see. In Q4, we also benefited to a lesser extent from increases in ad inventory from Instagram and the Audience Network. On the demand side, we believe our efforts on targeting and measurement solutions enabled marketers to achieve better business results at better values. This helped us drive strong growth from a broad array of advertisers including direct response in brand advertisers, large companies and SMBs and both existing and new advertisers. Turning now to the overall price volume metrics, in Q4 the average price per ad increased 21% while total ad impressions increased 29% on a year-over-year basis. It’s worth noting that this was the first quarter since Q3 2013 that total ad impressions increased on a year-over-year basis. This was driven by an increase in mobile ad impressions and was partially offset by a decline in ad impressions that were heard on personal computers, consistent with the ongoing declines in PC usage. The reported increase in price is being driven by the continued mix shift towards mobile which contains higher price newsfeed ads rather than the mix we have on PCs of both newsfeed ads and lower price right-hand column ads. Total payments and other fees revenue was $204 million, down 21% compared to last year. The decline was driven by reduction in payments revenue related to games played on personal computers. Turning now to expenses, Q4 total GAAP expenses were $3.3 billion, up 21%, and non-GAAP expenses were $2.3 billion, up 42%. Our year-over-year GAAP expense growth rate slowed this quarter as we lap the introduction of stock-based compensation charges associated with the WhatsApp transaction. Non-GAAP expenses were driven by increases in head count related costs, cost of revenue and marketing expenses. We ended the year with nearly 12,700 employees, up 38% compared to last year. Our GAAP operating income was approximately $2.6 billion, representing a 44% operating margin. Our non-GAAP operating income was $3.5 billion, representing a 60% operating margin. Our Q4 GAAP and non-GAAP tax rates were 39% and 36% respectively. Our Q4 GAAP net income was approximately $1.6 billion or $0.54 per share, and our non-GAAP net income was $2.3 billion or $0.79 per share. In the full year 2015, capital expenditures were $2.5 billion as we continued to invest in servers, data centers, network infrastructure, and office facilities to support the rapid growth of the business. We ended the year with over $18.4 billion in cash and investments. Turning now to the outlook, first some color on revenue. We expect the factors that drove the strong growth of our advertising business in 2015 will continue into 2016. However, we expect to continue to face foreign exchange headwinds especially early in the year as we will be lapping periods where the dollar was relatively weaker than it is today. More broadly, the overall macro-environment introduces a level of uncertainty around global growth and exchange rates that could impact our business in 2016. And we do expect to face tougher comparables as the year progresses, given the remarkably strong advertising performance in 2015. Turning now to expense guidance, 2016 will be another significant investment year for Facebook. In 2015, we continued investing heavily in the core. At the same time, we doubled our investment levels in our next generation services which includes WhatsApp, Instagram and Messenger and we tripled our investment levels in our long-term areas of focus which includes our connectivity efforts, Oculus and our AI investments. We will continue investing significantly in all of these areas in 2016. We expect the year-over-year growth rate for full year 2016 total GAAP expenses to be approximately 30% to 40%, and for full year 2016 total non-GAAP expenses to be approximately 45% to 55%. Note these ranges represent total operating expenses, including the cost of revenue. These ranges also include the cost of revenue impact of the expected shipments of Oculus Rift, so we expect that impact to be immaterial to our overall total expenses for the year. We anticipate our 2016 capital expenditures will be in the range of $4 billion to $4.5 billion. We recently announced that we will begin building a new data center in Clonee, Ireland and that project is on top of the new data center being built in Fort Worth Texas. We expect our 2016 stock-based compensation to be in the range of $3.1 billion to $3.3 billion, approximately half of which is related to our prior acquisitions, most notably WhatsApp. We expect 2016 amortization expenses to be approximately $700 million to $800 million. And lastly, we anticipate that our Q1 and full year 2016 GAAP and non-GAAP tax rates to be in the low 30s on a percentage basis, down from our 2015 range. We expect our tax rates will decline further over time and resemble those for our global peers over the next several years. In addition in 2016, we expect for the first time to pay a significant amount of U.S. income tax on a cash basis. To conclude, 2015 was an outstanding year for Facebook. Our performance reflects the strong growth and engagement of our community, the momentum we’re seeing in our ads business, and significant progress we’re making on our mission to connect the world. With that Chris, we would like to open up the call for questions.

Thanks for taking my question. Two things I wanted to ask. First Mark, just on Messenger and WhatsApp, can you just talk more about the takeaway on the Messenger platform now that it’s been open for nearly a year to developers and how that’s informed your view on what you’re going to do with WhatsApp going forward? And then secondly Dave perhaps or Sheryl on the ad load, a few years ago you talked about ad load at mid-single-digit levels and then more recently is up significantly since then. Do you still feel like there is still significant room to increase ad load here and how do you think about the theoretical ceiling there? Thanks.

I can start with the ad load question, Doug. So, ad load is definitely up significantly from where we were a couple of years ago. And as I mentioned, it’s one of the factors driving an increasing inventory. Really one thing to kind of think about here is that improving the quality and relevance of the ads has enabled us to show more of them and without harming the experience, and our focus really remains on the experience. So, we’ll continue to monitor engagement and sentiment very carefully. I mentioned that we expect the factors that drove the performance in 2015 to continue to drive the performance in 2016. So, I think that’s the color I can give on ad loads.

On Messenger, the platform efforts in 2015 focused on two things. One was expanding the different types of content that people could share in Messenger. And that diversity is going really well. And we see continued increase in video sharing and photos and stickers, a lot of stuff that you would just call fun but that people really enjoy as different ways to express themselves. But in terms of the business, the more important piece is how people can interact with businesses through Messenger. And we started some early small tests around f8 last year where with some ecommerce services made it so that people who were buying things could follow up with the business and get customer support and buy more things. And we went through this process of integrating that and making sure that it’s integrated with all these systems well. And I think everyone is really happy with that so far. So we started off pretty slowly, but that’s going to be some of the basis for how we look to make Messenger a business going forward. And we’re happy with the initial results. There is obviously a lot more there that we need to do and we’ll have more to talk about this year and beyond.

So, it was a phenomenal quarter and year for Facebook. And given we’re about a month into 2016, there is a lot of discussion around the global macro headwind. Just wondering how the business is trending thus far in the quarter or maybe by market U.S., Europe Asia-Pacific and Rest of World; and generally, just how Facebook is positioned if the global macro environment softens a bit? Thank you.

Yes, John, it’s Dave. Just on that question, we’re not commenting specifically on Q1. We didn’t see anything in Q4 that indicated broad-based macro weakness beyond of course the impact that FX was having, which was pretty significant. I mean we saw the impact in places like Brazil, where you’ve gotten a currency headwind of over 30%. So, you’re certainly seeing that impacted. And obviously those sort of global macroeconomic and currency factors will continue to impact us. We’re obviously benefiting from a strong secular shift to usage of mobile and we feel we’re very well positioned in that. We’re seeing more and more advertisers move to mobile; they realize that it’s no longer question of whether they need to be on mobile, but it’s really how they’re going to be on mobile, and we think we’ve got the best solution for that and we’re investing to make it even better. So, I think from a secular trend point of view, we’re very well-positioned, but obviously we’ll continue to monitor the macro conditions and currency.

Thanks for taking the question. Maybe just asking for more color on Instagram; it’s obviously still very early days on Instagram. But what are you seeing in terms of user engagement as you continue to move ad load up on the product? What advertiser adoption of the product is? I know you gave us a little bit of color during the prepared comments. And also pricing in the environment inside the platform, as you continue to rollout deeper with the advertising products? Thank you so much.

When we introduce ads into feed and continue to increase the ad load, we monitor really carefully. We’re looking at user engagement on the platform, and we also look at the quality of ads. And our basic belief is that if we have high-quality ads, those create a good consumer experience and we can look at what consumers are doing because we can understand how actively engaged they are on the platform. For Instagram, we don’t break out revenue. Instagram, and we’re pleased with the growth on Instagram. And as I mentioned, 98 of our top 100 advertisers on Facebook are now advertising on Instagram. It’s also the case that Facebook had remarkably strong growth as well. So, we’re seeing strong growth across those platforms. I think what’s exciting about those platforms is that they combine the art and the science of both a creative canvas that marketers are excited about and targeting. So to share another example from a holiday, Shutterfly did a Facebook and Instagram, both the brand and direct response holiday campaign on mobile. And what they did was just beautiful pictures but also targeting very specifically to women with specific interests, such as things like weddings and babies, and they saw a 6.4 times return on ad spend. We think that’s what’s possible when you combine the creative canvas we have using the technology and using the platform that we’ve created.

I have two quick questions. First, Sheryl, I wanted to follow up on your comments about Facebook and Instagram and the overlap with advertisers. Could you share your thoughts on how those advertisers perceive the platforms? Do they see it as an incremental opportunity, or is there concern that some might shift their spending entirely to Instagram? I'm curious if you anticipate any additional spending as a result of utilizing both platforms. The second question is for Mark. You mentioned Oculus and the preorders. Could you share your thoughts on the initial launch of Oculus preorders? Additionally, while we recognize the significant impact on gaming, from your perspective, which other industries do you believe could experience the most disruption outside of gaming? Thank you.

I will take the Oculus one first. Yes, I am happy. I don’t show much joy, but I am happy. It’s going to be gaming for the beginning. There are about 250 million people who have Xboxes, PlayStation, or Wiis. That’s the initial market, folks who we think will be most interested from the early VR experiences, especially at some of the higher price points. But overall, the reason why we’re interested in this as a social company is that we believe this will be a new way for people to interact. If you tried out the Toybox demo with the hands, Oculus Touch, you see that when you’re in virtual reality with another person, you can interact with the environment and use your hands. It’s not just about where you are and the fact that you can instantaneously teleport to another place; you can interact with people in all these different ways that would be very difficult in the real world. So, we’re very excited about that. That’s going to be a big area of investment for us, and I think it will ultimately change how we communicate, live, work, and play games. But I think we’re off to a good start.

On the Instagram question, certainly in the short run, some of the spend is incremental and some of it isn’t. Some of our clients approached us where they have a social budget or Facebook budget and some of that moves to Instagram and some people, it’s incremental spend. In the medium to long run however, we believe that we’re really well-positioned to take share from other platforms out there. We believe both Facebook and Instagram have this combination of an ability to do great creative with the best targeting in a most sophisticated measurement which shows businesses how we help them move products off shelves. And we want and we tell our clients we want to be the best dollar, the best euro, the best pound and the best minute you spend. And we really encourage them to measure their ROI and compare us to other platforms. We think that comparison bodes very well for our growth. We also think that continued consumer shift to mobile devices bodes well for our growth as well. That said, we have to continue to execute. We know this won’t be easy. We have to continue to build the right products. We have to continue to measure all the way through from seeing an ad impression to sell. And so it’s up to us to stay focused in the coming year and years.

You’ve had a lot of success with standalone apps, so should we expect to see you launching more such apps and could a standalone video app would be a part of that particularly for people who just want to watch a video? And then secondly on the virtual reality, another question. Can you just discuss the supply constraints in terms of how many units you can ship per month? And should we expect those shipments to accelerate into the holiday? And then also related to that, how are you going to work with retailers to show consumers the power of Oculus in store and in person? Thanks.

So, on the apps question, the ones that have done the best are things that augment core Facebook functionality for large subsets of the community. So, for example, we have this Pages Manager App. There are 50 million businesses that have pages on Facebook. And while that is not a huge number compared to the size of the overall community of people, it’s a very large number of people and businesses. And giving a focused experience for the person who wants to run their business through Facebook and be communicating with their customers all day long, that’s just proven to be an incredibly engaging experience that drives content into the system and is good overall. We have introduced a number of things like that for public figures, for groups; Messenger has probably been the most successful; it’s something that’s connected to the Facebook experience that now has more than 800 million people using it. So, I do think that there are additional opportunities for this and we’ll continue looking at them.

Ben following up on VR and supply constraints, we have two products: Gear VR and Rift. Samsung is managing the hardware for Gear VR, and they are well prepared. Regarding Rift, it's still early in the VR evolution to discuss large volumes. Therefore, I don't think we're providing much detail about the supply chain at this stage, as it won’t significantly impact our financials this year.

I have two, the first one is to go back to some of the core Facebook advertising success. I wonder if you could talk about some of the Facebook video, ad learning and kind of positives you have encountered and hurdles that you still encounter that could be holding back advertisers from moving further, video budgets out of the platform. And then the second one, we always see this gap between Asia and rest of world monetization versus North America and Europe. I was wondering if you just kind of talk through some strategies and qualitative drivers you see over the next couple of years that are going to increase the overall Asia and rest of world monetization even further?

I believe our strategy for enhancing monetization globally remains consistent. We must create engaging ad products with innovative formats that inspire creativity and effectiveness among marketers. For instance, in an emerging market, we introduced the Slideshow product, which offers a video-like experience even on lower connection speeds and feature phones by using a sequence of photos. Coca-Cola implemented this in Kenya and Nigeria by uploading screenshots from a video ad they had produced for other regions, along with text, and successfully reached 2 million people with a significant increase in ad awareness. To boost sales globally, we need to understand different markets, roll out features like click-to-missed-call ads in India, and ensure our products align with local advertising and business metrics. Video ads are crucial on our platform, and consumer engagement with video is rising, with 500 million people watching video daily. This high level of video consumption provides an opportunity for our ad business to prosper, as we aim for the formats to be complementary. Marketers appreciate video as an effective way to connect with audiences, contributing to our growth. It's noteworthy that not only large brand advertisers are utilizing video; all segments of our market are engaging, including direct response and small businesses, which have uploaded 1.5 million videos recently, encompassing both organic and paid formats, as well as developers. However, video ad spending isn't entirely incremental, since placing a video ad in the news feed replaces an ad of another type. One of the key insights we’ve gained is that video formats on Facebook work differently. While some users watch the entire 30-second video with sound, others prefer shorter formats or view them without sound. A challenge we face is persuading marketers and agencies to diversify their video formats. The positive aspect is we are achieving impressive results, like the example I provided with Halo 5, where experimentation leads to effective outcomes. This platform allows for various formats, including short clips with sound off, longer ones with sound on, and everything in between. Our ability to encourage marketers to experiment will be critical in determining our success in this area.

I’ll ask couple of longer term questions. First, I know a year ago you gave us usage update and time spent, wondering if video or any other products are having a big impact on usage and if you can give us any metrics there. And then maybe one for Sheryl, we have you have at 8% of all media time spent. I’m just wondering if you think Facebook could monetize better than other forms of media based on time spent or maybe a little bit below. And then maybe one for Dave, 60% margins last quarter, obviously very strong. And just wondering what you think about the long-term, any comments on long-term margins?

In terms of monetizing time spent, it’s certainly the case that consumers have shifted to mobile and businesses need to catch up. The exact percentage we can monetize that we’ll see, but we certainly think that we will continue to benefit from the consumer shift to mobile, because businesses are behind. If you ask even our largest clients, our largest clients, if they drew a pie chart of where their consumer spent their time and money and whether they spend their time, we’re still under-indexed. That said I’ll say it again, we’ve a lot of hard work to do. We really need to prove to clients particularly as they scale and we become a bigger part of their spend that we’re driving results. Other platforms, other forms of advertising like TV and other have very established metrics that people have believed for a very long time. We think our targeting can be better than any other platform. We also believe our ability to measure results can be deeper, but it’s up to us to prove and to prove that client-to-client. It’s also worth noting that we work really well with TV. It’s not always the choice of TV or Facebook, but often we can be a complement. We’ve done a bunch of work with Nielsen to measure what happens when marketers do big TV campaigns and do campaigns that are broadly, broadly targeted on Facebook. And we are able to increase the reach and increase brand favorability. So for the most part when people are doing big campaigns, they’re doing them across multiple platforms, and we think that will continue.

Justin, in terms of time spent, there's no doubt that video is enhancing our engagement levels. We don’t have specific statistics beyond the daily hours that Mark mentioned regarding video. So, there are no further updates on those stats. Regarding our long-term margins, we are not aiming for a specific margin target in any given year. We believe we are still in the early stages of investing in the business and are focusing on new areas that present long-term revenue growth opportunities. However, we do see considerable margin potential in this business due to our emphasis on advertising, but we don’t have a target at this moment.

Thank you for the questions and good afternoon. I would like to ask Mark or Sheryl about your strategy for professional video content moving forward. You mentioned the importance of video in bringing professional media content to Facebook and accelerating video engagement adoption. Additionally, for Dave, regarding the last quarter, while you don’t separate Instagram revenue or financials, can you clarify if the acceleration during the quarter was primarily due to improvements in Instagram from the opening of the API and the increased ad load, or was there a similar acceleration in Facebook's core revenue? Thank you.

In terms of video content, newsfeed is as interesting as the quality of the content in it. What we’re seeing is that users are generating a lot of really high quality content, often pretty short form that people are really happy to consume. And we believe that trend will continue because we’re at the very beginning with people really understanding the power of the smartphones and a lot of people are walking around with particularly in developed markets. We are working with publishers to try to make the content experience better inside of newsfeed. The best example of that is probably news with Instant Articles where we figured out that, it was the slowest upload experience you could have in newsfeed to link off to an outside article. So, we worked with publishers to upload more news articles natively to Facebook and we’re seeing great engagement from that. Similarly, we’ve had conversations with makers of Premium Content; I think they’re excited by the work they already do with us to use Facebook to distribute their content and we’re interested in doing more. It’s probably worth noting that much of the engagement and consumption we have is short form, not long form.

Yes, Anthony, it’s Dave. Instagram, we’re certainly very pleased with the performance of Instagram and it certainly made a contribution this quarter. But make no mistake, Facebook, core Facebook is really driving the top-line. And we’re very pleased with the strong performance that we had with Facebook itself in the quarter.

I have two quick questions. I'm curious about the plans to allow users to do more than just like content. I believe this feature is referred to as Reactions, and I see it as a way to add more words to the Facebook graph. Can you discuss the rollout of this feature and whether it will be available only on Facebook.com or if it will also be widely implemented across the web and other sites, similar to the like button? Additionally, can you elaborate on the role of different Facebook platforms in payments? I suspect you may not pursue this because you lack or do not wish to acquire certain assets. What limitations do you foresee regarding your involvement with payments? Thank you.

Sure. So Reactions is going to rollout on every platform. We’re testing it in a handful of countries to start just to make sure that we have the UI and interaction simple enough that people could express more of what they wanted without getting in their way, it is adding a little bit of complexity to something that is very simple, say just a one tap like button. But the philosophy behind it is that when you only have a like button, if you share a sad piece of content or something that makes you angry, people may not have the tool to react to it. And therefore over time the community feels less comfortable sharing that kind of content on Facebook. And we want people to be able to share all of the things that are meaningful to them not just the things that are happy and that people are going to like when they see it. And we think that that’s just really important to the mission of the company and we’ll be increasing engagement and sharing and openness, and all of the things that we care about. And so far I think there are a few tweaks that we needed to make to Reactions since initially testing it. But it’s going well and I think we plan to roll it out everywhere pretty soon, so that’s the game plan there. On payments, the basic strategy that we have is to make it especially in products like Messenger that where the business interaction may be a bit more transactional, to take all the friction out of making the transactions that you need. So, we don’t view ourselves as a payments business, that’s not the type of company that we are. We’ll partner with everyone who does payment. We look at the stuff that Apple is doing with Apple Pay for example as a really neat innovation in the space that takes a lot of friction out of transactions as well. And our view is that the less friction, the better the user experience, the more people can easily interact with businesses that they care about. And ultimately for our business that will drive up the amount that businesses are willing to pay to advertise to send people into those interactions because they perform well. So it’s good for everyone but that’s how we think about that.

Following on Mark’s answer to the question about payments, I wonder Sheryl if you look at the fourth quarter, as you said as defining moment for marketers and with the friction of transactions again easier. Was there any type of shift in the marketers or verticals that move money to Facebook in the quarter? Do you see more retail let’s say or anything different in terms of the competition of who is buying in fourth quarter?

The fourth quarter is traditionally a holiday period, which means our leading sectors were ecommerce, consumer packaged goods, and retail. Our growth has been quite widespread, highlighting the significance of effective targeting. Over the past year, we have dedicated ourselves to enhancing vertical-specific targeting, and we intend to invest even more in this area going forward. For instance, in the telecom sector, we can target existing consumers whose voice or data plans are nearing expiration, as well as new customers. In the auto industry, a key area for our growth, we help identify current and potential customers and locate audience segments that share similar interests, backgrounds, and demographics as those customers. This allows us to deliver the right advertisements to the appropriate audiences. The targeting and measurement capabilities we possess can be applied across various industries, but they must be tailored to be specific to each industry and vertical, and we are putting considerable effort into that.

Sheryl, could you discuss political advertising and your perspective on Facebook as a platform for political campaigns? Mark, back in 2012, at the start of the year, you recognized the significant shift towards mobile devices and challenged your engineers to aim for $1 billion in revenue from mobile. Have you had a similar discussion regarding the two messaging platforms that have substantial user bases, especially considering the global shift in interest towards messaging? Do you feel the need to have that $1 billion conversation with your engineers about these messaging platforms? Thanks.

In terms of the election, it’s important to note that we’re large and diversified, so no one vertical drives our business. Yes, the 2016 election is a big deal in terms of ad spend but so is the World Cup, so Super Bowl every year, so are events like the Olympics. We are excited about the targeting we’re able to offer for our ad platform. We believe we have position that doesn’t exist on any other platforms. So for example, using Facebook and Instagram ads you can target by congressional district, you can target by interest, you can target by demographics or any combination of those. And we’re seeing politicians at all levels really take advantage of that targeting. It’s also probably worth saying that we’re pretty excited about what’s happening with the elections organically on Facebook. Facebook is really the new town hall. And connecting the people who are running for office, both at the national and the local level with people directly has been really important. Every member of Congress in the United States is now on Facebook. We’re seeing some of them post every vote and explain why they’re doing votes. We’re seeing a bunch of that candidates for president get on Facebook themselves and interact taking questions from their potential voters directly. And we think that kind of direct engagement where people can hold their elected officials accountable and elected officials can speak directly to constituents is a really important part of our mission and we’re excited about the 2016 election and what’s happening there.

Well, I’ll answer the other one. In terms of the story that you said, I think you have it wrong. I don’t know where you got that story from, I’ve never had a conversation with the team where we were behind on mobile and then I said we need to do this to make money. That’s not really how we operate. What happened is we realized that mobile was growing faster than desktop and that people were shifting their usage and that it was the more important thing for people’s consumer experience. And that’s when we made the shift, not in our business first but in how we develop products. And I told all of our product team and when they come in reviews really just coming with mobile. If you come in and you try to show me a desktop product, then I am going to kick you out; you have to come in and show me a mobile product. And that I think was just as a crude leadership tactic, somewhat effective and helping to motivate the organization to shift its energy towards focusing on mobile. But if you remember, we actually went through a pretty tough period because we went through this period where our mobile experience was not as good as we wanted it to be and we had no ads on mobile. And we actually prioritized making the mobile experience good before putting ads there. So there was a long time where people thought that our business might not be as good because we had no ads on mobile, and that was because we always prioritized the experience for people above, even if it’s going to be a painful thing for the company. So that’s how I think about messaging. We know that messaging is going to be increasingly important, that’s why we went out and hired David Marcus who is one of the best product leaders in the field to Messenger and why we bought WhatsApp, which is the leading messaging product worldwide. And we have a formula for how we build these businesses. First, you build a great consumer experience that helps people share in a new way that’s really important. Then after that you can start to introduce organic ways that people can interact with businesses, so that in Facebook is pages, the businesses that people want to interact with, the public figures, the politicians, not necessarily ads but organic interactions around not necessarily just your friends and family but more public figures and businesses. And then only once you have that ramped up to a good scale, can you really start dialing up advertising having that feel good and be a good part of your experience with good content because all those public figures and businesses are already participating in the platform at scale. So, you could expect to see that playbook in Instagram, we’re pretty far along in terms of having quite a mature public content. Ecosystem and ads are ramping well with good high-quality ads because a lot of public figures and businesses are already investing in creating that kind of good content that goes in Instagram. And you’re going to see the same playbook in Messenger and WhatsApp. In terms of making it so there are organic businesses and public figures, there is a bit more of that on WhatsApp already in terms of businesses using it, and our Messenger we are catching on Messenger; we’ll do that on both. And once we have those ecosystems built out, we will build businesses around them. And that’s how we think about stuff and we’ll do that in all of our products and the different things that we do going forward.

Operator, it looks like we have time for one last question.

Great, thanks. Just two questions, one on the Facebook Sports Stadium, I’m just wondering how you think about that in terms of how is going to be different from other offerings, what’s the big differentiating factor and how do you get folks to participate in that? And the second, so just on the margin side again. Do your revenue and cost line out geographically, so there is obviously a translation impact to the numbers, but is there any operating mismatch between revenue and cost that would either benefit or margins?

On the Sports Stadium, this is an early test, but we’re pretty excited about it. We are the largest community of sports fans in the world; we have 650 million sports fans on our platform. And people are already using Facebook to share during real-time events. It’s an increasingly important use case for us. So this gives people to share, a place to share that one event and participate in it. I think what you will see from us is always a focus on driving users and driving engagement. This is one way to do it. We’ll see how it works; we’re pretty open to experimentation. So, we feel pretty confident that real-time sharing is an increasingly important part of the platform and one we’ll continue to invest in.

And Paul, it’s Dave. I think that question is really about foreign exchange and how it affects our revenue compared to our costs. In that regard, a substantial majority of our expenses are based in U.S. dollars. Therefore, we do experience an impact on our margins from foreign exchange headwinds. This is simply the reality of having most of our development resources located in the U.S. Additionally, we don't provide geographic cost breakdowns and allocations, as that's not how we operate our business. However, from the perspective of foreign exchange, these headwinds do have a dampening effect on our margins.

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