Meta Platforms Inc - Class A (META) — Q4 2019 Earnings Call Transcript

Thank you. Good afternoon and welcome to Facebook's Fourth Quarter and Full Year 2019 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.

Thank you all for joining us today. This was a strong quarter for our community and our business, marking a solid end to the year. Currently, about 2.9 billion people use Facebook, Instagram, WhatsApp, or Messenger each month, and around 2.3 billion use at least one of our services daily. More than 140 million small businesses utilize our services to grow, with most using them at no cost. Last year, I outlined our four company priorities, which remain unchanged for 2020: addressing major social issues, creating new product experiences, enhancing our business growth, and promoting transparent communication. Today, I'll mainly discuss the new product experiences we're developing, but it's important to highlight that this year will be crucial for progress on social issues. We are committed to election integrity and take pride in our advancements in preventing foreign interference. After being behind in 2016, we've improved our systems for various elections globally and now believe we're more advanced than our competitors. We’re actively alerting law enforcement and intelligence agencies about detected threats. While debates around political speech will continue, our efforts have significantly improved election integrity. This year will also see a heightened focus on privacy. As part of our FTC settlement, we committed to establishing privacy controls and auditing that set new industry standards beyond current legal requirements. Over 1,000 engineers are currently engaged in privacy-related projects. Just yesterday, we introduced a Privacy Checkup tool for nearly 2 billion people to remind them of their privacy controls and ensure they are configured to their preferences. Additionally, we're rolling out notifications for sign-ins to new services. While it will take time, my vision for the next decade is to build a reputation for privacy that matches our strong track record of providing reliable services. I believe private companies should not make critical decisions alone, particularly regarding content or advertising regulations during elections and harmful content. A more democratic approach to establishing rules and regulations is necessary. Our decisions need to be legitimate and reflect community values, which is why I advocate for clearer industry regulations. Until clearer rules or governance mechanisms are entrenched, I expect our industry to remain under significant scrutiny. Therefore, our responsibility is to act rightly concerning social issues while continuing to enhance our product offerings and user experiences. The product areas I’m prioritizing include the development of private social platforms and more personal communities, advancing commerce and payments, and delivering the next computing platform. The internet allows us to connect with people, content, and opportunities globally, unlike anything we could have imagined just a generation ago. In a world where we all have access to billions of people, there’s an increasing desire for personal connection and privacy. That's where our focus lies. The biggest growth in communication is coming from private messaging, small groups, and temporary stories where data isn't permanent. We have made significant developments in private messaging apps, aiming to transform WhatsApp and Messenger into richer, more private social platforms where users can connect meaningfully with friends, find groups of interest, and engage with businesses. These transformations, including features like full end-to-end encryption and interoperability, will take time to implement but we expect to introduce new experiences later this year built on a solid privacy foundation. Commerce and payments are vital for our private social platform and across all our applications. We aim to give individuals and small business entrepreneurs access to sophisticated tools typically reserved for larger companies. One initiative is WhatsApp Payments, which will allow users to send money as effortlessly as sending a photo. After positive feedback from a test with a million users in India, we anticipate a successful launch soon across various countries. We're also enhancing opportunities for commerce through platforms like Facebook Marketplace, Instagram Shopping, Facebook Pay, and Libra. Supporting small businesses is essential for economic growth and community health, as they often act as a gathering point. We consistently see how small businesses using our tools become integral parts of their communities. Therefore, this remains a key focus for us, both socially and commercially. We're also striving to deliver the next computing platform through augmented and virtual reality, which aims to create a sense of presence as if you're with someone in person, enabling interactions regardless of physical location. While full augmented reality may be years away, we recently reached a significant milestone with virtual reality through Quest. Sales have exceeded expectations, demonstrating strong user engagement. On Christmas Day alone, the Oculus store saw nearly $5 million in sales, indicating solid momentum in this ecosystem. Despite some skepticism around our capabilities, we successfully introduced hand tracking and the ability to link Oculus with PC capabilities. On the augmented reality side, our Spark AR platform stands as the largest AR platform globally, engaging hundreds of millions of users with new effects. We will continue to develop this platform. In addition to these product initiatives, we recognize the importance of clearly communicating what we stand for. Historically, our desire for likability sometimes hindered clear communication of our values. Moving forward, we aim for clarity over popularity because trust stems from understanding our principles. We’ll emphasize our positions on various issues, whether it involves advocating for free speech, supporting innovative community building, defending encryption and privacy, empowering small businesses, or ensuring accessibility for everyone globally. While not every stance will be popular, addressing these debates is crucial. I believe many people agree with these principles, and there's a vast audience ready to engage with these topics. Expect more transparency this year. It will be a significant year, especially with the election approaching. Our long-term technological investments will start bearing fruit, and we have strong business momentum. We need to publicly affirm our values. I appreciate your support and commitment to this journey. Now, I’ll turn the call over to Sheryl to discuss our business.

Thanks, Mark, and hi, everyone. We had a good quarter across the board and a strong end to the year. Q4 ad revenue was $20.7 billion, increasing 25% year-over-year. Full-year ad revenue grew 27% compared to 2018. We're focused on creating value over the long term for our community and for the 140 million businesses around the world who use our platform to connect with customers and grow. The majority use our free tools, but there are also more than 8 million businesses who advertise with us. This is because we help businesses create a mobile presence, increase sales, build the right relationships with customers and hire people. We will continue to focus on helping businesses use our free and paid tools to reach the people who matter the most. Throughout the holiday season, people used our apps to take advantage of the best deals and shop for the perfect gifts. We saw particular strength with e-commerce and online retailers who optimized for measurable objectives like website visits or sales. Pura Vida, a jewelry company based in San Diego, ran ads on Facebook and Instagram for a 50% off sale. In 9 days, they sold more than 300,000 bracelets, supporting more than 800 artisans around the world. People often adopt new technologies before businesses, and we try to make it as easy as possible for businesses to catch up. Stories is a great example. We recently announced 4 million advertisers are using Stories, up from 2 million this time last year. Bombas, a sock and apparel company, used Instagram Stories to show people wearing their socks while ice-skating and gift wrapping. As a result, they saw a 60% increase in purchases from people under 35. In addition to helping businesses shift to new formats, we're also making it easier for people to shop directly on our apps. We launched Checkout on Instagram with a small closed beta in Q1 2019. We've fully been building the experience, and now hundreds of businesses in the U.S. are experimenting with Checkout. We're taking the time to get this right and growing fully so people and advertisers can benefit over the long term. We give small and growing businesses like Pura Vida and Bombas the same tools that previously only the biggest firms could access. Large companies can buy national TV spots and large billboards, but most small businesses can't. That's why small businesses benefit the most from targeted ads. We help them reach a more focused audience with the right message, and we do it while protecting people's privacy. This really matters because as Mark said, when businesses of all sizes succeed, they hire people and invest in their communities. Last week, we released a report with Copenhagen Economics. According to 7,000 companies surveyed across 15 EU countries, our apps helped businesses contribute about EUR 200 billion to the European economy just last year. Economists say this translates to more than 3 million new jobs last year alone. I announced these findings in London last week where I had the chance to meet with Naomi Roberts. Naomi started Flare Audio with her husband to improve the sound quality in everything from earplugs to loudspeakers. More than 75% of their sales come from Facebook and Instagram. This has enabled them to export to more than 180 countries and grow their business from 2 employees to 22. Stories like Naomi's are why we remain committed to helping small businesses reach customers and grow, but we know it's not enough. We also have to keep people safe and give them control over their experience on our apps, and we are. This month, we announced a number of improvements to our industry-leading ad transparency tools, including a new feature that gives people the option to see fewer political ads. We also updated our ads library to make it more transparent and easier to navigate. These updates help people understand who is trying to reach them, and we believe that this transparency is critical to empowering people and keeping them safe. We also want everyone to be in control of their privacy on Facebook. As Mark said, we are rolling out our updated Privacy Checkup tool to nearly 2 billion people around the world. With a few taps, people can control who sees what they share and how to keep their accounts secure. I want to close by saying how grateful I am to our partners around the world. Every day, they give us valuable feedback on how to improve our products so we can help them turn great ideas into revenue, jobs, and economic empowerment. I also want to thank our teams around the world for working to solve tough challenges while still building great products that businesses use to grow, compete, and hire. Thanks to your continued dedication, we are better prepared to serve the billions of people who count on us. Now here's Dave.

Thanks, Sheryl, and good afternoon, everyone. Q4 was a strong quarter and ended a good year for our business. Full-year 2019 revenue grew 27% to $71 billion, and we generated over $18 billion in net income. Let's begin with our community metrics. In terms of family metrics, we estimate that approximately 2.3 billion people used at least one of our services on a daily basis in December and that approximately 2.9 billion people were active on a monthly basis. As a reminder, the family metrics are our best estimate of the deduplicated audience across Facebook, Instagram, Messenger, and WhatsApp. We believe these numbers better reflect the size of our community and the fact that many people use more than one of our services. Beginning this quarter, we are including family metrics and related information in our SEC filings and the slide presentation on our investor website. Turning now to Facebook. We are pleased with the growth of the Facebook community in all regions this quarter. Daily active users reached 1.7 billion, up 9% compared to last year, led by growth in India, Indonesia, and the Philippines. DAUs represented approximately 66% of the 2.5 billion monthly active users in December. MAUs grew 178 million or 8% compared to last year. We plan to continue to disclose Facebook-only community metrics through late 2020. Turning now to the financials. All comparisons are on a year-over-year basis unless otherwise noted. Q4 total revenue was $21.1 billion, up 25% or 26% on a constant currency basis. Had foreign exchange rates remained constant with Q4 of last year, total revenue would have been approximately $295 million higher. Q4 total ad revenue was $20.7 billion, up 25% or 26% on a constant currency basis. On a regional basis, ad revenue growth rates were strongest in Asia Pacific and Rest of World, which grew 33% and 28%, respectively. Europe and U.S. and Canada grew more slowly at 24% and 22%, respectively. In Q4, the total number of ad impressions served across our services increased 31%, and the average price per ad decreased 5%. Similar to last quarter, impression growth was driven primarily by Facebook News Feed, Instagram Stories, and Instagram Feed. Facebook News Feed impression growth benefited largely from community growth and engagement trends on the Facebook app. The year-over-year decline in average price per ad was primarily driven by the ongoing mix shift towards ads on Stories and in geographies which monetized at lower rates. Other revenue was $346 million, up 26%. Year-over-year growth was driven by sales of Oculus Quest. Turning now to expenses. Total expenses were $12.2 billion in Q4, up 34%. Cost of revenue increased 25%, and the growth was driven primarily by depreciation related to our infrastructure spend. R&D grew 36% and was driven primarily by increased investments in core product as well as our innovation efforts particularly in AR/VR. Marketing and sales grew 23% and was driven primarily by consumer and growth marketing. Finally, G&A grew 87% largely driven by higher legal fees and settlements. This includes charges related to a $550 million settlement in principle we reached this month in connection with the Illinois Biometric Information Privacy Act litigation. We had over 9,300 net new hires in 2019 primarily in technical functions. We ended the year with approximately 45,000 full-time employees, up 26% compared to last year. Operating income was $8.9 billion, representing a 42% operating margin. Our tax rate was 20%. Net income was $7.3 billion or $2.56 per share. Full-year capital expenditures were $15.7 billion, up 12%, driven by investments in data centers, servers, office buildings, and network infrastructure. In 2019, we opened data centers in Nebraska, New Mexico, and Denmark. These new data centers are supported by 100% renewable energy. We are committed to doing our part to help tackle the challenge of climate change. That's why we're working to minimize our energy emissions and water impact. Across the entire company, we are on track to meet our 2020 goal of supporting our global operations with 100% renewable energy and lowering our operational carbon emissions by 75% from 2017 levels. We ended the year with $54.9 billion of cash and investments. I would note that though we booked the expense in 2019, we have not paid the $5 billion FTC fine announced earlier this year as the agreement is still pending court approval. In the quarter, we repurchased approximately $1.3 billion of our Class A common stock and had $4.9 billion remaining of our prior authorization as of December 31. Today, we announced a $10 billion increase in our stock repurchase program authorization. Turning now to the revenue outlook. We expect our year-over-year total reported revenue growth rate in Q1 to decelerate by a low to mid-single-digit percentage point as compared to our Q4 growth rate. Factors driving this deceleration include the maturity of our business as well as the increasing impact from global privacy regulation and other ad targeting-related headwinds. While we have experienced some modest impact from these headwinds to date, the majority of the impact lies in front of us. Turning now to expenses. We anticipate our 2020 total expenses will be in the range of $54 billion to $59 billion, unchanged from our prior outlook. Our 2020 capital expenditures outlook is also unchanged at $17 billion to $19 billion, driven by investments in data centers, servers, office facilities, and our network infrastructure. Lastly, we expect our 2020 effective tax rate to be in the high teens. In summary, Q4 was a strong finish to 2019. We are pleased with the growth of our community and business as we continue to focus on our mission.

I have two. Just the first one on Instagram Checkout, Instagram Commerce. I'm curious to hear about sort of early learnings of what you've learned from the hundreds of adopters and sort of what you think are the 1 or 2 key points of friction you really have to get over to build that business into a larger contributor over the next couple of years. And then, Dave, I guess to go back to your comment about the majority of the impact that lies ahead when you're thinking about ad targeting and privacy regulation, is there any more detail you can give us as sort of types of data or types of sort of breakage that you see as potential risk to the targeting and the efficacy of the ads going forward?

I'll address the first part of your question. When considering the shopping or checkout experience on Instagram, we are still in the early stages and are diligently working to enhance the product and extend our reach to more businesses. This demands complete integration. Our main goal is to ensure we collaborate with the right partners, providing a seamless experience for consumers throughout. In the fourth quarter, we expanded shopping ads to all advertisers worldwide and started testing checkout and shopping ads. You will notice that our approach involves small, incremental steps to engage more users and deepen the experience. However, it is important to acknowledge that we are progressing cautiously and methodically, as we want to ensure the entire experience is properly aligned before we expand further.

Yes. Thanks, Brian. Yes, we are seeing headwinds in terms of targeting and measurement. But as I noted, the majority of that impact lies in front of us. Just as a reminder, we utilize signals from user activity on third-party websites and services in order to deliver relevant and effective ads to our users. And in that regard, there are sort of three overriding factors that I'd point to, and I spoke to these on prior calls as well. First, the recent regulatory initiatives like GDPR and now CCPA have impacted, and we expect they'll continue to impact our ability to use such signals. Secondly, mobile operating systems and browser providers such as Apple and Google have announced product changes and future plans that will limit our ability to use those signals. And then finally, we've made our own product changes that give users the ability to limit our use of such data signals to improve ads and other experiences. And there I'd point to something like the rollout of off-Facebook activity controls, and that's at 100% today. So, each of these factors limits our ability to target and measure the effectiveness of ads on our platform, and that can negatively impact our advertising revenue growth. Both Mark and Sheryl talked about the importance of ad targeting for small businesses. And I think it's important to note that the regulatory and platform changes will have a disproportionate impact on the ability of small businesses to use ads to grow and thrive.

Great. Dave, can we talk about the growth rate in the fourth quarter, particularly in the U.S.? Was there anything that surprised you guys or any particular cohort of advertisers that slowed down? If we look at your growth rate from 3Q to 4Q in the U.S., I think it was the lowest since 2012 in the fourth quarter. So any color on what happened in the fourth quarter, or was this in line with your plan?

Yes, thanks. Thanks, Ross. No real surprises there. We are pleased with our Q4 results. We had a strong holiday season despite it being abbreviated. In terms of the North American numbers, we're seeing slower growth in our more mature markets. That's consistent with the outlook that we had going into the quarter. It's true in North America and our more developed markets within Europe, but I wouldn't say there's any real surprises there.

I just wanted to follow up on the Checkout on Instagram. And obviously, you guys mentioned that you're rolling it out very slowly, which is understandable. I'm just wondering how much of this is due to the integration you need to have with the businesses' inventory system. And how are you going about the integration work that needs to be done to make the experience seamless, where you could kind of match inventory levels with what people are actually buying? And I guess the follow-up would be, is there a benefit that you envision businesses getting from using this format versus one of your more traditional shopping ads?

So, the integration you spoke of are the right ones we want. You want to be deeply integrated at a product level. It has to go all the way through for this to work from discovery, all the way through a pretty seamless checkout flow. And that's what we're working on, and that really takes time. You're also right that we are very focused on commerce ads on Facebook, that the great, great, great majority of activity is commerce ads on Facebook. We had a very strong holiday season. We continue to see growth across Facebook, across Instagram in people who are discovering products they're interested in, and we're continuing to make a lot of investments there.

I have a couple of questions. First, regarding the privacy commentary, Dave, has anything changed since the third quarter when we noticed less deceleration this year? Have there been any incremental changes since then? Secondly, about the expense outlook, I observed that headcount growth was around 26%. As you look towards your expense guidance, do you expect that growth to accelerate? Are there any other expense initiatives you would highlight for 2020?

Yes, thank you, Justin. I don’t believe anything has changed since the third quarter regarding our outlook on the challenges we face with ad signals. This remains consistent with what we have discussed over the past few quarters. We continue to encounter these challenges, and they are likely to have a greater impact moving forward. Regarding our expense guidance for 2020, it’s clear that a significant portion of our expense growth is due to headcount. We are still investing broadly in our core R&D and innovation efforts, contributing to headcount growth. Additionally, the increase in our infrastructure spending has driven up our capital expenditures over the past few years, which also impacts our income statement as a source of expense growth. There are also other expenses not related to headcount that we anticipate will increase, particularly in marketing and content investments.

Mark, you have multiple payment initiatives across the family. You talked about WhatsApp Payments, Facebook Pay, potentially more over time around Libra and Calibra. Can you just talk about the importance of payments across the family? And how do you tie these together as you work towards interoperability?

We are focusing heavily on commerce and payments because there are various needs within these areas. Many people are interested in buying and selling used items, which we facilitate through Facebook Marketplace. Small businesses are looking to establish their online stores, and we're supporting that through Instagram, Facebook, and increasingly through messaging platforms. On the payments side, WhatsApp Payments will be integrated into Facebook Pay. We announced last year that when you make a payment across our apps, you only have to enter your credit card information once, allowing for a smoother checkout experience across all our services. These initiatives are interconnected. We are also exploring different approaches to payments. Our current efforts with Payments in WhatsApp and Facebook Pay utilize traditional payment systems, while our long-term objectives related to Libra, now managed by the independent Libra Foundation, focus on developing a wallet compatible with Libra. This aims to enhance global payment efficiency, particularly for international money transfers. Currently, most payment providers operate nationally or within a single country, and few have the motivation to optimize cross-border transactions, which is where we see an opportunity for improvement. Our main goal is to ensure that individuals and small businesses have access to the same tools that larger companies have historically used. Larger companies will always find ways to promote their products and assess the impact of their advertising. Much of our effort is dedicated to simplifying access for small businesses, enabling them to use essential tools, handle payments, create storefronts, and evaluate ad effectiveness. This focus is crucial, especially given our concerns that certain changes to the ecosystem could disproportionately hinder small businesses' competitiveness against larger companies.

Maybe two, if I can. Mark, you had talked previously about trying to more tightly integrate the applications in the family under the Facebook umbrella. I wonder if we could get an update on the way you're thinking about branding the applications to the consumer as well as integrating them on the tech back end as you look out over the next couple of years. And then following up on the comment on messaging, I wondered if we can get an update on the way the team is thinking about the messaging component on a monetization front and thinking about some of the more interesting products you might use to monetize the messaging applications, both Facebook Messenger and WhatsApp as you look out over the next couple of years.

Sure. Regarding integration, I believe we will retain the individual brands from all the apps since they represent large communities that people love and strongly associate with. Each app is already well integrated, operating on a shared infrastructure. We structured the company to ensure that improvements made by an engineer in one system enhance all the apps. Although much of this integration happens below the surface, our aim for the next few years is to ensure that advancements made in features across Instagram, Facebook, or WhatsApp can also enhance user experiences in the other apps. This philosophy drives our initiatives, especially since we discovered we built multiple technical stacks that weren't necessary. For example, the voice calling stack on WhatsApp and Messenger should not be different. We didn’t standardize that part in the past, which has doubled our workload in improving it. If we achieve better integration, then our engineering efforts can lead to enhancements across all platforms more efficiently. Expect to see more of this work becoming visible in our apps. Nonetheless, each app will maintain its distinct identity and brand, as users utilize them for different purposes, which is significant.

Okay. Great. I actually just have one question. Could you guys provide us any update around Facebook Dating? That is not one product that, Mark, you talked about. Any stats that you can share with us? Any plans to push into other geos? And would you bring it to Instagram as well?

So before we answer that, I'm going to go back and answer the messaging monetization, second half of the last question, if that's okay, and then we'll take this one. On messaging, we are really focused on this. And we think, in many ways, we're better positioned than anyone else in the industry to participate in the opportunity that should be there over the long run for businesses and consumers to connect on message. In terms of direct ads in messaging, we're taking that very slowly. We have a very slow rollout in Messenger. We don't have that rolled out in WhatsApp. Where we are seeing a lot of growth and really exciting metrics right now are click-to-messaging ads. These are one of the fastest-growing ad formats in our family, especially with SMBs in markets like APAC, but really across the board. And what happens is that from Facebook or Instagram Feed or from Facebook, Instagram or Messenger Stories, you can click-to-message a business on Messenger or WhatsApp. It's a really good way to drive engagement. It also really takes people further down the funnel from seeing an ad to having a direct connection with businesses, which consumers like and businesses like. We also think the ROI is very high here. So I'll share an example. Manulife from Vietnam is an insurance company. They use click-to-messaging ads to generate qualified leads. And compared to Facebook lead ads, which were already performing well, those ads had 2.4x more qualified leads and a 4x increase in sales. And so we think the combination of the discovery ads that we can do, clicking through the Messenger right now already shows the potential of how important messaging can be for businesses.

The Dating experience is progressing well. While I don't have specific statistics to share, we believe we are already among the leading dating services and anticipate continued growth. We launched in several countries before the U.S. Our approach to product development is to launch, gather feedback, and test, but some insights only emerge after a launch. We iterate based on user experiences, and if users in various countries enjoy it and keep using it, we expand our rollout. We have focused significantly on launching in the U.S. The Dating feature fits into our broader strategy; we see News Feed as central to the Facebook app, a core feature everyone uses daily. Various social utilities might not appeal to everyone but could provide value to hundreds of millions. For instance, Marketplace and Groups serve users with specific interests. New features like Watch or the News tab may not attract everyone but still contribute unique value. We envision a future where Facebook users access News Feed daily and engage with two or three other social utilities they find valuable. This growth in user engagement contributes to the recent strong performance of the Facebook app, especially as we continue to develop these utilities.

Congratulations on the carbon reduction goal, I really appreciate that and shared it. Mark, I think you would be pleased to hear that. I would also like to see more companies follow suit. My main question relates to the security of the platform during this election year. Could you share your level of confidence about this? I understand there are many factors beyond your control, but it seems likely that there will be significant controversy surrounding the elections. There might be interference from malicious actors, as we experienced four years ago. How prepared do you think Facebook and its platforms are to handle these challenges? Is there anything you can share regarding your strategies to mitigate this risk, which I believe will be significant this year?

Yes, we are very focused on this issue, and I believe there are many factors to monitor this year. In 2016, we, along with much of the industry and governments, were not adequately prepared for the information operations we now face. The positive development is that since then, we've participated in multiple significant elections, allowing us to observe how the tactics of foreign adversaries have evolved. Due to our lack of focus in 2016, we've made considerable improvements. We also have established strong partnerships across the industry, law enforcement, and intelligence communities, not only in the U.S. but globally. This has resulted in more robust systems. For example, in last year's EU elections, there were concerns about foreign interference. I had the opportunity to testify before the EU Parliament about our plans, and the Parliament President later confirmed that we fulfilled our commitments, leading to a relatively clean election. We will continue to see adversaries advance their tactics, and the threat is not limited to Russia; we've observed similar actions from Iran, China, and others. It's crucial to remain vigilant. The intelligence community has cautioned that some nation-state actors may aim to cast doubt on election legitimacy without direct interference. Even without specific attacks, widespread narratives suggesting significant interference can have the same effect of undermining confidence. We are very committed to addressing these concerns and ensuring transparency about our actions so people can feel confident in the electoral process. This remains a top priority for us.

Great. Two for me as well. Following up on the shopping commerce question, I wonder if the focus here includes expanding Marketplace across multiple services or if that seems like better as a distinct application. And then separately, curious on some of the newer visual apps such as Threads and Lasso, what are you seeing here in terms of usage or engagement? And are these features that ultimately fit within existing apps or also might be distinct from the current services?

I can talk about Marketplace. Marketplace is growing nicely. It's now used by hundreds of millions of people every month. We also rolled out ads in Marketplace, which are available in 94 markets, which means advertisers can extend their News Feed ads to Marketplace. We're seeing a lot of interest, especially with retail and auto advertisers. It's very early, but we're seeing good results, so we believe this is a good opportunity we're going to continue to invest. But for the foreseeable future, even within this, ads remain the great focus.

Yes. And I think you mentioned Threads and Reels and a couple of the apps that we've launched within Instagram. It's still early. I think there are some promising signs. We're figuring out the extent to which those should grow to be big, independent apps over time, or should be integrated into the core of the Instagram service or our other messaging apps. So we'll figure that over time, but those are certainly both important spaces to be in, visual messaging and kind of interest-based talent showing Stories-type functionality.

Mark, this is really one for you. You described the new experiences that could be rolling out in the back half of the year. Could you just maybe provide a little more color on that and kind of what you're envisioning? It would be great to hear.

Yes. I've been discussing our efforts to enhance our private messaging applications into more advanced private social platforms. The goal is to enable users to interact in various ways. On Facebook and Instagram, individuals can engage with many people they know or are interested in connecting with through different methods. However, our current messaging apps mainly focus on text. A significant part of our strategy involves building the infrastructure necessary for WhatsApp, Messenger, and Instagram Direct to evolve beyond simple messaging. We want these platforms to be places where users can socialize and connect with different groups, interact with businesses, and engage in payments and commerce. When we initiated this comprehensive project, much of it required long-term infrastructure development, and we are now about a year into this process. I expect some of these features will begin to roll out this year, though not all of them, as some aspects are still long-term projects. For instance, our work on full end-to-end encryption is a long-term endeavor; we are focused on ensuring the safety measures are properly in place. While WhatsApp has fully implemented this, we are committed to perfecting the safety aspects before introducing it across Messenger and Instagram. Therefore, while some elements may not be launched this year, I anticipate a significant portion will align with our vision for building the private social platform.

So this is the second quarter in a row where you guys have called out core Facebook as the key driver of impression growth. So wondering if you can just elaborate a bit on what's driving that strength in core blue engagement, whether this is something you guys expect to continue. And I guess kind of as a follow-up related to that, there's been some press you plan a Super Bowl ad specific to the Facebook Groups product. So any updates on engagement around Groups or how the strength there is impacting the ad business? Any color you could share would be great.

Yes, I'll address that, Lloyd. We are pleased with the overall engagement we're observing on the Facebook app. This has been a consistent trend over the last few quarters, and we're seeing this globally across all regions. The nature of engagement growth varies by region. In the U.S. and Canada, we are experiencing strong engagement in non-video feed areas. In other regions, the video engagement is robust. Additionally, across all our apps, there's a strong adoption of Stories and WhatsApp Status, which continue to offer new ways for people to connect and share. Specifically for core Facebook, these are some of the key factors driving growth.

Two questions. How should we think about the video strategy on core Facebook? And any update on Watch users and engagement? And then on Instagram, there's been some discussion within the advertising community that Explore is an area for ad inventory expansion. Just any color on ad trends on the Explore tab.

Yes. The video strategy has remained consistent and aligns with our broader goals of developing other features and social utilities. Many users engage with video through the News Feed, but we've noticed that consuming too much video in that space can reduce social interactions, which is a fundamental reason people use our services. To better address the demand for video, we created a separate tab called Watch, which has been growing rapidly. The content we acquire for this tab primarily serves to market our offerings and attract new users, rather than building a subscription service. This approach provides valuable content and foundational material to foster community and encourage user participation in that experience.

I can share a little bit about the Explore opportunity. So more than 50% of accounts on Instagram are using Explore every month. And as of Q3, ads were available to 100% of advertisers. We think it's a great opportunity to reach customers who are already in a discovery mindset. And the way it works is after you click on a post in the Explore grid, you enter a Feed-like experience where the ads show up.

I have two questions, one for Dave and one for Mark. First, Dave, looking at your slide deck on Page 4, the ARPU growth in the U.S. is impressive, and the U.S. ARPU is significantly higher than in other markets, including Europe. What factors do you see that could affect the ability to increase pricing in other markets? What indicators should we watch for that would signal a shift in pricing to align more closely with U.S. ARPU? Now for Mark, regarding payments, what initial markets are you targeting, and what impact do you anticipate? If you successfully implement payments, how would that influence other areas of your advertising business?

Sure, Michael. I'll take the first one. So this has been a pretty consistent question that's come up over the years. And I think the answer largely is the same as I've given on previous calls, which is the U.S. and Canada segment is really a pure-play developed market, which is U.S. and Canada is the 2 countries in that segment. Europe is a broader mix of countries. So you've got Eastern Europe, and you've got Turkey in there. So you've got just lower ad market per capita countries that are included in that segment. It's a much closer number if you were to look just pure-play at Western Europe. And then there's obviously different engagement levels, maturity of Instagram in those markets that also plays into it. I guess not for the Facebook-only stats, but I think you just get different dynamics based on the, really, characteristics of those countries. So that's really what's driven the difference in ARPUs, and you're also getting faster growth in general in the lower-ARPU countries both within Europe and within APAC. So that tends to also have a mitigating impact on ARPU because of the mix towards those lower-ARPU countries as the users grow there more quickly.

Sure. On payments, we are targeting different areas with various products. For platforms like Instagram and much of Facebook, our focus is on more developed countries. In contrast, for WhatsApp, we are concentrating on the largest markets such as India, Mexico, Brazil, and Indonesia, which constitute a significant portion of the WhatsApp community. We believe that enabling users to transfer money and pay friends, individuals, and small businesses is a crucial feature. From the perspective of small businesses, being able to connect ads with transactions will enhance the value of being present on our platforms, making advertising more worthwhile. The click-to-messaging ads, which run on Facebook and Instagram and direct users to WhatsApp or Messenger, are showing good growth. As people complete more payments on WhatsApp and Messenger, it’s anticipated that businesses will find it more valuable to increase their bids in ads. This is why our primary focus is on making payments as cheap as possible or even free. From a business viewpoint, we believe we can derive value by enhancing the usefulness of our services for businesses and by increasing their ad bidding in the auction.

Within the last few weeks, you brought several gaming streamers on board, the Disguised Toast, Corinna Kopf, ZeRo, and in December, you acquired Play Giga. So we want to hear a little bit more about Facebook Gaming and the opportunities there and maybe the strategic overlap with Oculus.

Yes, there are several aspects to consider. In the long run, there will definitely be a link between the work we are doing in the Facebook app and Oculus, or there will be chances for that. However, for now, we are developing them somewhat separately. You can view this within the Facebook app as a connection to our social utility strategy, which includes features like Dating, Watch, Groups, and the News tab. Additionally, the Facebook Gaming initiative caters to those who are engaged in gaming. There are many communities that can benefit from this, especially those passionate about gaming. This is related to the video and live content services we are expanding. Therefore, this will increasingly be one of our focuses, exploring different ways people wish to interact and build communities. We are not just aiming to create features for everyone; we believe that something like gaming will attract hundreds of millions of users, which is fantastic.

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