Meta Platforms Inc - Class A (META) — Q3 2018 Earnings Call Transcript

Thank you. Good afternoon, and welcome to Facebook's third quarter 2018 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 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 thank you all for joining us today. We had a solid quarter, and our community and business continue to grow quickly. 2.3 billion people now use Facebook every month, and 1.5 billion every day. Revenue grew 33% year over year to $13.7 billion. Last quarter, for the first time, we also shared the number of people who use at least one of our apps each month. We believe this is a better way to measure our community over time because so many people use more than one of our apps. There are now more than 2.6 billion people using Facebook, WhatsApp, Instagram or Messenger each month, up from around 2.5 billion last quarter. But now, on average, more than 2 billion people use at least one of our services every day. Today, I want to talk about our strategy overall as we navigate challenges and opportunities on several fronts. For one, we're seeing the way people connect shifting to private messaging and stories. We have great products here that people love, but it will take some time for our business to catch up to our community growth. Two, we're seeing video grow dramatically across the ecosystem. And while Watch is now growing very quickly, we're well behind YouTube and still working to make this a unique people-centric experience. Three, we continue to face increased safety and security threats. We've significantly improved our systems here, but we have more to do. So let's start with messaging and stories. Public sharing will always be very important, but people increasingly want to share privately too, and that includes both smaller audiences with messaging and ephemerally with stories. People feel more comfortable being themselves when they know their content will only be seen by a smaller group and when their content won't stick around forever. Messaging and stories make up the vast majority of growth in the sharing that we're seeing. On messaging specifically, we think we've built the best messaging apps in the world. People now send around 100 billion messages each day using our services. Even our second most popular service, Messenger, has a higher daily message volume than SMS had globally at its peak. This isn't just text. People share more photos, videos and links on WhatsApp and Messenger than they do on social networks. We are leading in most countries, but our biggest competitor by far is iMessage. In important countries like the U.S., where the iPhone is strong, Apple bundled iMessage as a default texting app and it's still ahead. In countries where there's more competition between iOS and Android, like much of Europe, people tend to prefer our services. Now, it's worth noting that one of the main reasons people prefer our services, especially WhatsApp, is because of its stronger record on privacy. WhatsApp is completely end-to-end encrypted, does not store your messages and doesn't store the keys to your messages in China or anywhere else. This is important because if our systems can't see your messages, then that means that governments and bad actors won't be able to access them through us either. Our roadmap focuses on continuing to make WhatsApp and Messenger even simpler, faster and adding basic utility features like payments. We found that every time we make our services faster and simpler, people communicate more. We'll also keep pushing our messaging services to be more private and secure, and we believe this will continue to be a competitive advantage for us. On the business side of messaging, our first step has been to enable people to connect with businesses organically in ways they find useful, and then the second step is to give businesses additional paid tools to increase those interactions. We're well into step one at this point, with more than 3 million accounts on WhatsApp Business. We'll begin step two with a couple of products, paid messaging and ads in Stories. By making businesses pay to send messages, we believe it will make them more selective with what they send. Payments will make each of these services more useful for people and businesses, even though we don't plan to profit from it directly. I'll update with more progress on each of these efforts in the next few quarters. On Stories, we are even better-positioned. People now share more than 1 billion stories every day. We lead in almost every country. There are a couple of reasons we've focused on building Stories in all of our apps. First, I just think that this is the future. People want to share in ways that don't stick around permanently, and I want to make sure that we fully embrace this. Second, Stories is a medium that can feel very different in various contexts. Just like most major social apps have feeds, but you wouldn't say that those services do the same things, I think many will have Stories in the future too, serving different functions. While this effort is going well, we're also working through a couple of challenges here. One is that while WhatsApp Status and Instagram Stories immediately took off and have been huge successes, Facebook Stories started off slower. It's growing quickly and I think we'll be in a better position soon, but our effort to shift Facebook from News Feed first to Stories first hasn't been as smooth as I had hoped. This shift is important for the Facebook community in the long term. Another challenge is that we're earlier in developing our ads products for Stories, so we don't make as much money from them yet compared to feed ads. We're following our normal playbook of building out the best consumer products first and focusing on succeeding there before ramping up ads. I'm optimistic that we'll get ads in Stories to perform as well as feed over time, and that the opportunity will be even bigger because it looks like Stories will be a larger medium than feed has been. But I want to be upfront that transitioning from a feed-only world to a feed plus Stories world will take some time, and our revenue growth may be slower during that period, similar to the transition of our products to mobile. This raises the question of the future of our feed product and the Facebook app overall. On feed specifically, people continue to use them heavily and we don't expect that to decrease. From a business perspective, feeds will drive the majority of our growth over the next couple of years, at least until Stories become an even bigger driver. The Facebook app overall is stable, although we may be close to saturation in developed countries while continuing to grow quickly in developing countries. For a few years, we saw a trend where people's time was increasing primarily due to the consumption of more video and public content, even as they interacted with friends and family less. However, people were telling us they wanted to interact with others more. We didn't think that this trend was sustainable. We've made changes this year to focus on meaningful social interactions, and those seem to be working. The trends in interactions have improved, despite us reducing time spent on lower-quality viral videos and news. While there's much work to do to improve News Feed, our roadmap for the Facebook app is focused on a few priorities: Stories, which we've discussed; video, which I'll mention next; and a much bigger focus on communities and groups. If the last 10 years were about friends and family, then the next 10 years will be about communities too. When we say communities, we mean both helping people connect with others who share their interests, which is a major need in many people's lives, and also building services to bring people closer, like helping you find someone to date, a job, or buy and sell things, or grow your small business, or create an event, or start fundraisers, or bring together groups to volunteer. Many of these services are growing quickly. Hundreds of millions belong to meaningful communities that are crucial to their social support structure. Marketplace is used by 800 million and is emerging as one of the most popular places to buy vehicles online. Our new job tool has helped people find over 1 million jobs. In the last year, we've helped people raise over $300 million for charities on their birthdays alone. I look forward to rolling out dating globally soon too. These services benefit from having everyone you know connected on a single platform. While people may not spend as much time on some of these tools as they do in News Feed, these are high-value activities for our community. We're seeing a similar dynamic in Instagram, where there's still much to improve in feed, but we're increasingly focused on exploring interests. This will include IGTV and new shopping experiences that build out Explore. These areas have huge potential for serving our community and businesses. Explore is already about 20% of the time people spend on Instagram. However, we haven't built any ads experience for Explore yet, so that's an opportunity. Now, I want to discuss what we're seeing with video specifically, since it's a crucial area. Our efforts have grown, but we've faced challenges reconciling passive video consumption with what people want from us: meaningful social interaction. Video has grown a lot on our services, but as I mentioned, it can displace social interactions. To mitigate this, we are building separate video experiences outside of feeds with Watch on Facebook and IGTV on Instagram. We've found that when people seek video experiences intentionally, they don't displace social interactions as much, and the experience quality is generally higher. We can also build experiences that help creators build communities around their content, matching our mission to encourage meaningful interactions. Watch has grown incredibly quickly, about 3x in the last few months in the U.S. alone. IGTV is still in its early stages, but I think we understand how to make it effective. To clarify, these services are still behind YouTube, our primary competitor in this space, but they are growing quickly. Beyond the mission challenges of video displacing social interactions, there is also a business challenge: video monetizes significantly less than people interacting in feeds. So, even though we've made video more community-oriented to minimize the displacement of social interactions, it will still affect other services where we might earn more. Nevertheless, we believe this is the right direction. Video is critical to the future. It’s what our community wants, as long as we make it social, and will likely be a large part of our business too. Now, regarding safety and security, we had a serious security issue last month. Our teams quickly found and closed the vulnerability, but we have a long road ahead to prevent future attacks. Over the last couple of years, we've made significant progress, but we still need at least a year to reach the systems level we desire. However, each day we are improving, both technologically and with our people. Our systems for proactively identifying harmful content are getting better. Our ability to detect election interference is much more mature now. The upcoming elections will test our protections. With a community of over 2 billion, we witness the good and bad of humanity. We will never be perfect, but I’m proud of our efforts. We've reduced incentives to spread misinformation and are partnering closely with governments and experts to enhance security, including in the U.S. This quarter, we've dismantled foreign influence campaigns from Russia, Iran, and other parts of the world. We still have much work ahead. News Feed remains crucial. We are building the best messaging, Stories, and community tools globally. Our video services are improving and growing quickly, but we still have significant safety challenges. We are investing heavily in AR, VR, and hardware to bring people closer together, like Portal for video presence and Oculus Quest, which delivers Rift-like quality wirelessly. Looking to 2019, I expect substantial investments. Dave will elaborate more in a moment, but I want to emphasize that over the long term, we must better match our costs and revenue; that is a priority for me. Overall, this year has been significant. It's been tough, but we’ve built products we are proud of and made considerable progress on our most challenging issues. I appreciate your support and thank you for being part of this journey with us. And now, here is Sheryl.

Hi, everyone. It was another good quarter for our business, with ad revenue up 33% year-over-year. Our growth was broad-based across regions, marketer segments, and verticals. Mobile ad revenue grew 40% to $12.5 billion, making up approximately 92% of our total ad revenue. Since Facebook launched its first ad products, we've been in the business of growing our clients' businesses, from the largest brands to the entrepreneur in her living room. Over 90 million businesses rely on Facebook pages to reach potential customers for free. In a global survey, half of small businesses with a presence on Facebook said they are hiring because of the growth they're able to achieve through our platform. More than 6 million advertisers are active across Facebook, Instagram, and our other services. With more than 2 billion people using at least one of our services daily, we're the ideal place for these advertisers to display ads that work. We know that our growth depends on maintaining the trust of our users and earning our clients' business each day in a competitive environment. Whenever I meet with clients, I express our goal of being the best minute and the best dollar, euro, or peso they spend. Looking ahead to 2019, we're focused on continuing to build our clients' businesses as well as our own by helping advertisers reach consumers where they are and enhancing ads. First, helping advertisers connect with people where they are. Consumers often adopt new technologies before businesses do. Our competitive advantage lies in helping advertisers close that gap. We've done this with desktop, mobile, and News Feed. In the early days, we aided businesses in delivering personalized marketing at scale on desktop. With the shift to mobile, we've helped companies, large and small, build their mobile presence. Now, we're doing it again with Stories, messaging, Marketplace, and Watch. The primary way advertisers act on our services is through Facebook and Instagram Feed. Feed ads represent the majority of our revenue growth and opportunities for marketers to generate ROI. We constantly improve feed ads to help advertisers launch new products, find customers, build awareness, and increase sales efficiently. We're working to enable more marketers to achieve their goals through mobile feed, seeing continued opportunity ahead. Simultaneously, as Mark mentioned, consumers increasingly use Stories and private messaging along with their time in News Feed and Instagram Feed. All our services share a common platform, allowing advertisers to use the same tools across all our ad services. Building on the strength of ads and Instagram Stories, we rolled out ads in Facebook Stories in Q3 and announced plans to introduce ads in WhatsApp Status next year. Creating new formats is not enough; we must also simplify how advertisers optimize their campaigns. In Q3, we enhanced how ads in News Feed appear in Stories, benefiting advertisers like Pandora, which used Facebook and Instagram to reach potential listeners. Their campaigns, using automatic placements to convert horizontal videos into a native vertical Instagram Stories format, resulted in a 10% lower cost per view. On messaging, we see an opportunity to help people and businesses connect in valuable ways. Over 10 billion messages are exchanged between individuals and businesses on Messenger monthly. It's still early, but we're exploring how we can reach people through sponsored messages and inbox ads. For WhatsApp, we're developing our business ecosystem starting with the WhatsApp Business model app on Android. In August, we launched the WhatsApp Business API to assist larger companies in sending useful information like boarding passes or delivery confirmations. This paid messaging model encourages companies to be selective about the content they send, aiding to maintain a simple private user experience. This holds true for Marketplace and Watch as well. Last year, we began allowing advertisers to extend News Feed ads to Marketplace, aiding businesses in connecting with shoppers. In Q3, we expanded Marketplace ads to nearly 70 marketers. While it's early days, advertisers are delivering solid results. With Facebook Watch, we collaborate with advertisers to align their planning and buying process for video. In Q3, we introduced a method for advertisers to purchase video placements alongside engaging publishers and choose specific content categories for their ads, paying only for ads watched to completion. It's early, but we're pleased with advertiser interest and results thus far. We have a significant opportunity to help our large, growing advertiser base expand to new platforms and formats for reaching potential customers. Our service enables every business to share the same tools as the largest brands. We start by making it simple for small businesses to transition from our consumer apps to using our business tools, evolving into more sophisticated campaigns. This has been evident throughout our journey from online to mobile and now for messaging and stories. In the future, this includes opportunities with emerging VR/AR platforms. We're committed to enhancing ads. One notable thing people tell us about our ads is their relevance. We create value by displaying ads people may find useful, yielding results for advertisers. Our business model connects people with relevant marketing messages without sharing personal data. Privacy protection is vital; users and businesses only use our services if they feel Facebook can be trusted and safe for sharing. Thus, we’re making significant investments to protect privacy and security. In Q3, we completed the shutdown of partner categories and tightened standards for Custom Audiences. These adjustments enhance privacy and provide advertisers oversight over their advertising data. We're investing heavily in technology and personnel to quickly remove harmful content while giving advertisers more control over ad placements. This quarter, we added tools for advertisers to see ad placements in Audience Network, Instant Articles, and instream formats like Watch. They can block placements with certain publishers or content categories and fully review placements post-campaign. Improving ads also entails increasing efficiency for advertisers. In Q3, we rolled out campaign budget optimization enabling advertisers of all scales to set a single budget, with our system identifying the best opportunities across segments. Changes like these help businesses maximize product value over time, especially critical for smaller businesses without strong advertising expertise or budgets. As we conclude the year, I want to thank our clients for their partnership and ongoing feedback that drives our enhancement. I also express gratitude to our teams at Facebook for enabling businesses to reach their customers and grow. And now, here is Dave.

Thanks, Sheryl, and good afternoon, everyone. Let's start with our community metrics. Daily active users on Facebook reached 1.49 billion, up 9% compared to last year, with growth led by India, Indonesia, and the Philippines. This number represents approximately 66% of the 2.27 billion monthly active users in Q3. MAUs were up 199 million, or 10% compared to last year. Note that our Q3 2018 community metrics reflect an update to our calculation methodology, resulting in the removal of a small percentage of accounts, approximately 15 million DAU and 9 million MAU worldwide. This change will slightly affect our year-over-year user growth rates until we surpass it next year. Further details are included in the earnings slides on our IR website. Regarding financials, all comparisons are year-over-year unless stated otherwise. Q3 revenue was $13.7 billion, up 33% or 34% on a constant currency basis. If foreign exchange rates remained constant against last year, Q3 total revenue would have been $159 million higher. Q3 total ad revenue was $13.5 billion, an increase of 33% or 35% on a constant currency basis. In terms of regional ad growth, Asia Pacific was strongest at 38%, followed by Europe and North America at 34% and 33%, respectively. Rest of world ad growth trailed at 26% due to currency weakness and economic challenges in Latin America. Mobile ad revenue was $12.5 billion, up 40%, representing approximately 92% of total ad revenue. In Q3, the average price per ad increased 7%, and the number of ad impressions served across our services grew by 25%, primarily driven by feed ads on Instagram and Facebook. Our impression growth came mainly from product surfaces and geographies that monetize at relatively lower rates. For instance, ads in Instagram Stories contributed to our impression growth but monetize at lower rates compared to feed ads. Payments and other fees revenue was $188 million, up 1%. Moving to expenses, total expenses were $7.9 billion, up 53%. We ended Q3 with approximately 33,600 full-time employees, up 45%. Most new hires in the past year have been in technical positions. Operating income was $5.8 billion, yielding a 42% operating margin. Our Q3 tax rate was 13%, lower than anticipated due to the Ninth Circuit Court withdrawing its decision in the Altera case. Net income was $5.1 billion or $1.76 per share. Capital expenditures were $3.3 billion, driven by investments in data centers, servers, network infrastructure, and office facilities. In Q3, we generated $4.2 billion in free cash flow and ended the quarter with approximately $41.2 billion in cash and investments. In the third quarter, we bought back approximately $4.3 billion of our Class A common stock. For the revenue outlook, we expect Q4 total revenue growth rate to decelerate by a mid to high single-digit percentage compared to our Q3 growth rate. Several factors contribute to this deceleration. First, we expect more of our impression growth to come from product services and geographies that monetize at lower rates. Second, we are seeing impacts from data privacy initiatives on pricing growth. Third, focusing more on Stories may displace some ad impression opportunities. For expense outlook, we expect our full-year 2018 total expenses will rise about 50% to 55%, versus our prior range of 50% to 60%. We anticipate full-year 2018 capital expenditures to be approximately $14 billion to $14.5 billion, compared to our previous estimate of $15 billion. Concerning the tax rate, at current stock prices, we expect our Q4 tax rate to be in the mid-teens. Fluctuations in stock prices will affect our tax rate. I'll share our initial outlook on 2019 operating expenses and CapEx. As Mark mentioned, we plan to invest aggressively across the business, with full-year 2019 total expenses expected to grow 40% to 50% compared to 2018. We anticipate that full-year 2019 capital expenditures will be around $18 billion to $20 billion, driven by our data center build strategy to ensure adequate capacity ahead of our needs. We expect a full-year 2019 tax rate in the mid-teens. Q3 marked a period of solid revenue growth and heavy investment, supporting our mission to bring the world closer together. We are confident in our ability to enhance our beloved products and provide innovative experiences in the near and long term. Now, Mike, let’s open the call for questions.

Thanks for taking the questions. I just wanted to ask two. First for Mark, I was hoping you could talk a little bit more about some of the challenges that you see for Stories within Facebook relative to their stronger adoption in Instagram and WhatsApp Status. And then also, what if Stories don't gain traction on Facebook over time? How do you think about that for the platform as well? And then, secondly, for Dave, just on OpEx for 2019, the 40% to 50% growth, should we think about that as still the same buckets of spend that you've been talking about over the last year or so, and does their prioritization change at all for next year? Thanks.

Sure, I can take the first part. I think a lot of this is really basic. When I say that we started slower on Facebook, that starts with rolling out on Facebook a number of months after we had rolled out on either WhatsApp or Instagram. The initial version we shipped wasn’t as high-quality. It had bugs and was not as fast. We’ve been working on refining that. I’m less worried now about it not working because we're starting to see it really take off. Different groups of people may prefer sharing on Instagram, WhatsApp, or Facebook, but across all three platforms, it's growing. As I said in my opening remarks, I think we'll be in a much better position with Stories on Facebook in the next year.

Hey, Doug. It's Dave. Just on the 2019 expense growth guide, a lot of that is consistent with what we've been discussing as our major investment areas. Our headcount growth in the past year was up 45%. This compensation expense base is significantly influencing the overall growth guidance for total expenses. Additionally, we've been investing heavily in capital expenditures, and those investments are beginning to reflect in the P&L via depreciation. I’d also point out significant investment areas like AR/VR, the video content ecosystem, and ongoing safety and security investments.

Thank you so much. Maybe one for Sheryl. When you think about some of the friction points you're trying to solve for on either the creative side or the selling-through side with respect to video and Stories, maybe you could comment on some of the conversations you're having with advertisers and how you see Facebook addressing those friction points looking out to 2019 and beyond. Thanks.

Thanks for the question. We have a large and growing advertiser base, giving us a solid position to drive adoption of new formats. Several factors really matter here. The format of an ad must match the consumer experience. The right ad in News Feed differs from the right ad in an Instagram or Facebook Story, or in Watch, which is video-only. Crafting these new ad formats is often challenging and costly for advertisers. We are working diligently on tools to facilitate the process. It’s beneficial that our targeting and measurement systems apply across all platforms. Our objective is to display relevant ads to the right audience while respecting privacy.

Thanks for taking my questions. I have two. Last quarter, Dave, you mentioned a multiyear margin outlook, and I appreciate the comments this quarter about engagement in the feed, etc. When you think about that margin outlook, what do you see as the key drivers of News Feed monetization going forward, especially as you expect overall engagement to be flat? Also, Mark, could you discuss the key steps necessary to increase Watch and video engagement to catch up with competitors? Thanks.

Hey, Brian. It's Dave. We see good revenue growth opportunities across both Facebook and Instagram, including feed and Stories. In terms of impression growth, there will likely be more opportunities in Stories, and Instagram will present good revenue growth as well. Beyond that, I don't have a specific update on our revenue outlook.

Regarding video, the core factor is ensuring the video experience is people-centric. We need to help creators build communities and facilitate interaction among people. The nature of our relationship with video has evolved; people desire to consume video but we’ve had to manage its growth so it doesn't displace social interactions. We’re learning how video can grow while ensuring interaction remains a priority. Therefore, we see a promising opportunity to enhance Watch, which is experiencing significant growth recently.

Thank you. Mark, first, regarding Facebook engagement, are you seeing it stable? I believe you mentioned that earlier. Does that include changes made to video earlier this year? Secondly, while some usage may be shifting to Instagram, how do you feel about the overall trend for Facebook plus Instagram?

Overall, all of this engagement is growing quickly, and we're glad about how people are sharing. The majority of our sharing growth is from private messaging and story sharing. The basic trend within the Facebook app shows that over several years, time spent in the app was increasing primarily due to consuming more public content. But this was reducing interactions with friends and family. Users communicated that they wanted more engagement; we considered this trend unsustainable. This year, we've shifted focus to promote meaningful social interactions, which has improved interaction trends. Despite deliberately reducing time spent on lower-quality viral videos, the results have been positive.

Great. Two questions. Dave, you mentioned Q4 revenue would see a mid to high-single digit deceleration. That's a bit better than what you stated 90 days ago. Has anything improved? Also, what can we initially expect regarding deceleration in 2019, particularly around WhatsApp ads? For Sheryl, how do you compare the overall commercial intent on Instagram versus Facebook? What does this imply for long-term monetization potential for both platforms?

Ross, I'll start off. The outlook for Q4 deceleration is consistent with what I indicated last quarter, benefiting from a little more visibility. I just want to reiterate the points I mentioned regarding this deceleration’s drivers. Regarding 2019, we're not providing a specific revenue outlook, but we're confident in growth opportunities across Facebook and Instagram, including both feed and Stories.

Looking at the Instagram Shopping experience, we're witnessing impressive growth. We have 90 million people tapping to reveal product tags in posts monthly. We're investing significantly in this area. In Q3, we globalized Shopping in Stories and started testing the Shopping Channel in Explore. The potential opportunities are considerable. Commercial intent on Facebook versus Instagram shows much activity on both platforms, with Instagram's interest-based model providing a strong chance for commercialization.

Thank you. Two questions if I may. First, Mark, your remarks on Stories having potential to be a larger medium than News Feed imply engagement can be a net positive with overall time spent. Is that the right interpretation? Second, Dave, you guided to long-term operating margins in the mid-30s range. The guidance on OpEx for next year suggests we may already be there. Is that correct, and can we expect stability beyond that?

On Stories, we haven't released metrics on time spent, but all trends indicate users will soon share more via Stories. The overall market for Stories will surpass that of feeds, and this shift has happened relatively quickly. However, I want to clarify that our community growth is ahead of our advancements in ad development for Stories, which should converge over time. I believe we’re well-positioned for long-term growth in this area.

Regarding margins, as I mentioned, 2019 will involve substantial investments. We expect significant changes in our margin structure in 2019, with moderation thereafter. It's difficult to be specific about 2020 and beyond, but we anticipate the most significant changes will occur in 2019.

Thanks. Regarding Europe, there seems to be a more pronounced deceleration. How do you perceive stabilization there going forward in your model and can you provide insights into the pricing?

Hey, Brent. It's Dave. Generally, the DAU and MAU figures are stable for Facebook in Europe. The accounting methodology adjustment did impact how Europe's sequential growth rate was reported, but it's broadly stable. We've experienced GDPR impact over the last two quarters, yet revenue growth remains healthy. We're still seeing good growth in Europe, with similar dynamics seen in the rest of the world, particularly with impression growth opportunities in areas like Instagram and Stories.

Thank you for taking my questions. You appear confident that Stories will ultimately be a more effective medium for both users and businesses. However, you mentioned transitional challenges. What specifically are these challenges? Additionally, given Instagram's advance with Stories, are there insights on monetization that suggest parity will be achieved across both platforms? Lastly, as private messaging also represents a growth area, how optimistic are you about building a meaningful business around it?

I can address those. Transitioning from feed to Stories has several differences. The ad format needs to align with consumer experiences. For instance, a video ad on Facebook differs significantly from a video ad on Instagram or Stories. So crafting these new formats is challenging for advertisers, and we are helping facilitate this process. Regarding long-term monetization opportunities, the number of ads we can incorporate into a consumer experience depends on how long users engage with it. Therefore, we need to find a balance between engagement length and effective ad insertion. Messaging is at an earlier stage of its monetization journey, and we're focused on ensuring businesses can create valuable connections.

Mark, to answer about line of sight on Stories monetization: it’s difficult to say because both formats are dynamic, taking into account market demands. The impression growth opportunity on Stories is considerable, while pricing will take time to balance supply and demand. Approaching parity with feed in terms of pricing will take years, not months.

Thank you for taking my question, Mark. There's curiosity about Facebook's ongoing security investments. Will these be temporary or a continual expense? And as you observe 2019's investments aimed at privacy and security, do you foresee potential efficiencies compared to others in the industry?

This is a crucial inquiry. We are up against sophisticated adversaries who will continue to evolve their strategies. There is an ongoing aspect to this, akin to an arms race. We can't resolve security issues entirely; they require ongoing management. We started a three-year roadmap, and I believe we have confidence in that timeline, aiming for our systems to reach the desired level by the end of 2019. We define success by how proactively we can identify harmful content. We're making excellent progress in reducing harmful content overall. We are still early in assessing how we’ll fare in upcoming elections and have taken measures to improve overall security for our users. Although we’ve made significant strides in the last couple of years, I believe we'll continue seeing increased investment in security, particularly through 2019.

Thank you. I have two questions. Regarding CapEx growth for next year, how far ahead should we anticipate your capacity building? Additionally, could you discuss the ongoing trend given your previous assurance about improved security by the end of 2019? Lastly, concerning Stories, how effective has Facebook been in assisting advertisers with creative to drive adoption thus far?

We are investing ahead of user growth given the long lead time in deploying data centers and network capacity. We are building capacity to support the core business growth as well. There's considerable computation supporting feed and ad ranking. We're investing substantially in that area as well. Additionally, we are experiencing significant growth in markets like Asia, which impacts our capital intensity due to lower ARPU. Even though we will see continued CapEx growth in 2019, it will be at a slower pace than in 2018.

To address Stories, I have an example that underscores our efforts. When advertisers utilize new opportunities our platform provides, results often improve. For example, Furbo Dog Camera ran a campaign targeting dog owners with a video ad on Facebook and Instagram Stories, leading to 20% more leads compared to prior campaigns. Hence, while adoption is still early, our initial feedback indicates positive results. We aim to increase awareness and usage of Stories and expect improved returns as more users engage with them.

Operator, we are going to take one last question.

Good afternoon. Shifting focus to feed, could you share insights on improvement opportunities concerning both users and advertisers? Additionally, how can feed sustain its strong growth long-term?

When considering feed, we see virtually limitless opportunities for users to share. We've made vital enhancements to Facebook focused on meaningful social interactions, which combined with our strong history of consumer product development, inspires confidence in our capacity to adapt as users' preferences evolve. We can help them share relevant information in a positive manner while enhancing advertisers' opportunities with more engagement.

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