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spk_0: good afternoon my name is france and i will be your conference operator today at this time i would like to welcome everyone to the met his second quarter earnings conference call or lines have been placed on you to prevent any background noise after the speakers remarks of there will be a question and answer session if you would like to ask a question please press the one and and the number four on your telephone keypad just call will be recorded thank you very much miss deborah crawford's amount of space president of investor relations you may begin
spk_1: thank you good afternoon and welcome to met a platform second quarter twenty twenty two earnings conference call joining me today to discuss our results are mark zuckerberg ceo sheryl sandberg c o out and gave way sea or foam before we get started i would like to take this opportunity to remind you that are remarks today will include forward looking state an 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 ten que filed with the fcc any for looking statements that we make on this color based on assumptions as of today and we undertow make no obligation to update these statements as a result of new information or future events during this call we may present both gap and non gaap financial measures a reconciliation of captain on get measures is included in today's earnings press release the press release and an accompanying investor presentation are available on our website at investor dot fb dot com and now i like to join the call over to mark
spk_2: hi everyone thanks for joining today or family wraps continues to grow even as we navigate your challenging macro environment are we know reach more than three point six billion people on fleas across or services number other people using facebook daily continues to grow including in the us although we don't expect to decline in month reactive is due to internet blocks are related to the war in ukraine it returns on facebook has generally been stronger than we anticipated and strong rules growth is continuing to drive engagement across facebook or instagram that said oh we seem to have entered a and economic downturn that will have a broader impact on the digital advertising business and it's always hard to predict how deep or how long these cycles will be but i'd say that the situation seems worse than it did a quarter ago in this environment we're focused on making the long term investments that position of to be stronger coming out of this downturn i'm including our work on our discovery and rules are new routes infrastructure and ah the metaverse the were also focused on being rigorous about measuring returns and sizing these investment
spk_3: correctly
spk_2: the on or last call i discussed that based on the revenue growth we were seen in twenty twenty one now we kicked off a number of multi your projects to accelerate our business and i still believe that these projects are important but given the more recent revenue trajectory that we're saying we're slowing the pieces of these investments and pushing some expenses that would come in the next year to off to at a somewhat longer timeline
spk_4: i've given the continued trends
spk_2: this is even more of a focus now than it was our last quarter or plan is to steadily reduce headcount growth over the next year or many teams are going to shrink that route and shipped energy to to other areas and such a company and i want to give our leaders the ability to decide within their teams were to double down where where to backfill attrition and i were to restructure teams while minimizing thrash to add the long term initiative the the fact that we hired a lotta people earlier this year means that are reported you're over your head count growth will still be substantial for the next few quarters but should continue to decline over time this is a period or that demands more intensity and i expect us to get more done with fewer resources are currently going through the process of increasing the goals for many of our efforts are previously challenging periods have been transformational for a company and and help us develop our next generate in of leaders and i expect this period to be no different i expect to we're going to find a way to keep investing in our top priority areas and i think we're going to come through this period as a stronger and more disciplined organization the next i won't discuss how we're doing in our our high priority areas to understand where we're going to it's important to keep in mind that there are two major technological wave is that were riding in our business the first wave driving our business today is a eyes and in the second longer term wave is the emergence of of the metaverse it one of the mean transformations in our business right now is that social fields are going for being driven primarily by the people and accounts you follow to increasingly also being driven by a i recommend and content the you'll find interesting are from across facebook or instagram i'm even if you don't follow those creators social content for people you know i'm going to remain an important part of experience and some verbose differentiated content but increasingly will also be able to supplement that with other interesting content from across our networks are real is one part of this trend that focuses on the growth of short form video as content format to put this overall a i trend is much broader and covers all types of content including text images links group content and more on building a recommendation system across all these types of content on to something that we're unique we focused on
spk_5: right now
spk_2: about fifteen percent of content that a person facebook feed and and a little more than that of their instagram feed on is recommended by or ai from people groups or accounts that you don't follow that we expect these numbers to more than double by the end of next year as or a i find that digital content that people find interesting that increases engagement and the quality of of our fees and since we're already efficient and monetizing most of these formats on this should increase our business opportunity over that period as well reels engagement is is also growing quickly that shared last quarter that reels already made up twenty percent of the time that people spend on instagram or this quarter we saw a more than thirty percent increase in the time that people spending gauging with real across facebook and instagram ai advances are driving a lot of these improvements and your one example is that after launching a new large a i model for recommendations that we saw fifteen percent increase in our watch time in the real video player on facebook alone i think that there are many improvements like this that we're going to be able to to continue to make as we are building out our discovery engine though i want to be clear that we are still ultimately a social company focused on helping people connect on one social trends of the we're seeing is that instead of people just interacting in comments and in in their fields most people find interesting content in their feeds them a message then in in in the message that content to friends and interact there and in this creates this flywheel of of discovery and then social connection and that inspiring those people to create more content themselves on instagram for example and we see the reels makes up more than half of content we shared into messages so our strategy is it about public and versus social content and interaction it's really about enabling a flywheel that compounded both
spk_6: part next on to ads
spk_2: we face a number of challenges here in the near term but the investments the were making our should give us a comparative advantage over the longer term the one year term challenges the growth of short from video really doesn't yet monetize at the same rate as feet or stories so in the near term the faster that real grows be more revenue that actually displeases from a higher monetizing surfaces now in theory we could mitigate the short term headwind by pushing less hard and growing reels but i would be worse for products and business longer term since we're confident that real will grow engagement overall on and quality and will eventually monetize closer to feed our work on on as monetization efficiency for reals is is actually become faster progress than we'd expect it or we've now crossed a one billion dollars annual revenue run rate for reals ads and reels also has a higher revenue run rate and story did at identical times post launch so to the bottom line is i think we're on track here and we just need to push through this one the second challenge that we face years the signal loss from apple's ios changes and as discussed before our approach years to grow first party understanding of people's interests by making it easier for people to engage with businesses in our own apps with or that's your business messaging shops or new ad products for example quick to messaging as part of our business messaging strategy that are growing quickly with your forty percent of our advertisers already using this format pub be a i wave that we are riding as a tailwind for all of these solutions advances in a i enable us to deliver better personalized dad's while using was data so it it powers automated messaging and creation tools the let businesses run better performing campaigns this is particularly important for small businesses that don't have big marketing departments and that have been hit hard by apple's policy changes that will roll there's there's a lot of work to do here and i'm a lot of the investment is is an ai compute callbacks but i'm i'm confident that if we invest in building the new infrastructure that we need we're going to come out of this downturn with even more superior add products and a meaningful technology advantage over other industry players of course the the third challenge that we're facing here's the macro economy and we can't control the timing of when things will bounce back but i'll note that periods like this when marketers reevaluate their budgets and are even more focused on finding the highest performing advertising and in the last recession we invested in our ads business through the down term are dern than and came out stronger on the other side and and i'm i'm focused on on making sure that we do the same today no for ai is a major technological wave that were riding today than the last priority that want to discuss is about the metaverse technological wave that is currently building and that the metaverse is a massive opportunity for a number of reasons most importantly is it enabled deeper social experiences where you feel a realistic sense of presence or with other people no matter where they are in whether you're playing games or are working for for hours at a time or if you're just jumping in for for just a minute at a time to say hi to a friend or collaborate on a project quickly your by helping to develop these platforms i'm we're gonna have the freedom to build these experiences the way that we and the overall industry believe will be best a rather than being limited by the constraints that competitors place on us and are on our community and on small businesses and you're given some of the product and business constraints that we face now i feel even more strongly now that developing these platforms will unlock hundreds of billions of dollars if not trillions overtime could this is obviously a very expensive undertaking over the next several years but as the metaverse becomes more important in in every part of how we live off from our social platforms and entertainment to work and education commerce i'm confident that we're going to be glad that we played an important role in in buildings the next milestone to look out for here or the continued expansion of horizon or social metaverse platform on and the continued improvement of our avatars platform and how you express yourself and interact and the metaverse as was the commerce around that you know the these are some areas that were most focused on the worry be launching a web version of horizon that will be accessible on all platforms later this year which dramatically increase the number of people can use horizon and we also just launched your avatar store with digital clothes from leading fashion houses and we're going to continue expanding that selection and the fidelity of our avatar system overall on the hardware front or later this year more release project cambria and the extrudes here's is is doing pretty awesome it'll be a high and device focused on professional users and work with high resolution color mixed reality tom i'm i'm really looking forward to getting this one out of this is just one milestone in the long term pass but but i think people are can be pretty blunt blown away by this or so i'm so busy areas that are most focused on right now when and that that i think are going to have the greatest impact on our products and business over the next two years and much longer periods like this can be tough but but i i i really think that the additional focus and discipline of are going to make us stronger overtime now in addition to our business this is also a period of transition for leadership team and before headed over to cheryl for what will be her last earnings call yeah i want to thank her for everything that you've done for mehta for our community and for so many small businesses around the world it is it's it's really hard to to overstate how big of an impact that cheryl it's had on so many different parts of what we do and on me personally at the same time hobby and marty are talented leaders who i've worked with closely for many years does the type of people whom i've kept getting more and more responsibility to and they just keep crushing it so are the expanded roles are well deserved to and i think that they're going to do a great job carrying our business forward on and expanding it in in are some exciting new ways and we also shared the news this afternoon the dave winner will be transitioning into a new role as our chief strategy officer overseeing our strategy and corporate development teams i'm dave has done great work or see a foe and and i'm i'm really looking forward to continuing to work with him and this new role and as part of this we're we're we're also promoting susan lead to be met his new chief financial officer starting later this year susan is an incredibly talented executive and i think she'll be an excellent see a foe qt runs our financial planning process and plays an important role on our leadership team and i and this transition is something that we've been working on for years all right
spk_7: with that i'm going to handed over to cheryl thank you mark for those kind words and for being a great leader in friends to the last fourteen years it has been an enormous privilege to work for you to help build this remarkable company i'd like to focus on to to before making some wider observations about the business a total revenue into to with twenty eight point eight billion a decrease of one percent year over year foreign exchange trans had a significant impact into to in particular the depreciation of the euro relative to the dollar on a constant currency basis we would have seen three percent revenue growth you ever year similar to last quarter with a solid growth and a pack in other parts of the world outside of north america and europe where it's been a more challenging environment these continue to be turbulent times for the global economy
spk_1: many of the macro factors having an impact on our revenue or continuation of things we've seen in previous quarters such as a continued impact of the war in ukraine and the normalization of ecommerce after the pandemic peak peak but there are also new challenges that rising inflation and uncertainty around a looming recession
spk_7: we know that recessions put pressure on marketers to make sure they're add budgets are spent in the smartest way possible more focused on helping them run efficient marketing campaigns that get the best possible return on investment including helping them says add strategies on our platform in line with user trends and our own evolving add solutions i want to pick up on some of the themes marked as touched on that show how we're doing this wales monetization of all the your ad system and ai machine learning first real monetization we launched as meals late last sorry we launched as emails last year it's growing quickly and we see it as an area where there is significant potential for growth in the future it's going to take time but we have a playbook from our experience with stories are focus right now with wheels is ramping up bad mode improving performance and making sure the ads are easy for advertisers to create were also using a i to better understand the content being published in wales so users can connect to the content that is most relevant to them and marketers can also share more relevant ads a good example of a brand seeing results that real dad's is wild alaskan company a sustainable seafood delivery business that has consistently adopting and testing our latest and tools
spk_0: when they tested adding wheels to their campaign they saw thirty six percent increase in return on and and a similar a new subscribers and twenty six percent lower cost for new subscriber
spk_7: second adapting are add system to do more with last year in short and medium term are working to improve and evolve or add solutions for helping advertisers improve the performance of their ads by drilling on cepeda conversions with products like lead ads which make it easier for businesses to generate leads and with business messaging products like click to message ads were you click on an ad and your facebook or instagram feed and it opens a chat with the business and messenger instagram or what's that business messaging is an area where we see big potential we estimate that one billion users or messaging with a business each week across what's up messenger and instagram click to message is already a multibillion dollar business for us and we continue to see strong double digit year over year growth these are proving particularly popular with as sundays in emerging markets like brazil and mexico many of him or new advertisers to matter who come to us to advertise solely in this format
spk_0: we're making it easier to create these ads directly from the what's up business app which will help small businesses looking to find customers and grow and big brands are incorporating business messaging into their campaigns like paramount studios he is quick to messenger to promote their blockbuster movie top gun maverick and drive ticket sales as more brands turn to messaging paid messaging provides new ways to sell support and market right on the chat thread
spk_7: where also that thing and privacy safe ways to improve targeting and measurement for example are continuing to invest improving our conversions a pr which creates a direct reliable and privacy safe connection between advertisers marketing data and mehta and over the longer term were developing privacy enhancing technologies to help minimize the personal information we process while still allowing us to share relevant ads and measure performance one example is private left which we're currently beta testing with a large number of large advertisers this is a measurements solution which helps advertisers understand how their campaigns are performing while adding extra layers of privacy to limit the information that can be learned by the advertiser or matter while we developed these solutions were also collaborating across our industry on technologies and other standards that will support privacy safe personalize advertising over the long term third on ai in machine learning i want to emphasize marks point that this is a really important part of how we improve or ads ranking and measurement capabilities a driven products like advantage detail targeting and advantage lookalikes help to increase the audience for an ad campaign if it's likely to improve performance ai is also important part of how we continue to grow video mom decision a moment ago i touched on how we're using it in real
spk_1: we've also launched a i base tools to make it simpler to create video ads for instagram stories and we're continuing to test ways for advertisers to transform static images with music in motion so they appear more like video
spk_7: turning to the business more broadly there's no doubt that we're going through a transition period and doing so at a time of global economic uncertainty but despite the current challenges i'm very confident for the long term we're facing a cyclical downturn but over the long run the digital ad market will continue to grow advertisers will go where they get the highest return on investment and ability to drive their business we believe we will continue to show up very favorably compared to other advertising options matt it is a company that has shown extraordinary resilience we've demonstrated time and time again that we are prepared to move quickly enough scale to respond to changes in consumer behavior the macro economic landscape and the needs of our advertising partners and we have demonstrated time and time again that when we build products they scale globally we've made big transitions like the ship from desktop the mobile or from feed the stories we innovate relentlessly and are always laser focused on execution delivering tools and products that helped advertisers drives business results the investments for making and real or discovery engine business messaging retooling are out system and especially in helping to build the metaverse represent enormous opportunities for a business and our partners i want to thank the teams that have help us achieve remarkable success for our business and the millions of other businesses who have grown using our tools and products i want to thank our partners large and small who we learn from everyday and i want to thank our investor community your support has helped us to be the innovative and resilient business that we are i look forward to continuing to serve on meadows board or i'll have a front row seat to met a success and the years ahead
spk_2: and now here's my amazing college days thanks cheryl and good afternoon everyone let's begin with are consolidated results all comparisons are in a year over year basis unless otherwise noted to to total revenue was twenty eight point eight billion dollars down one percent were up three percent on a constant currency basis had foreign exchange rates remain constant with to to of last year total revenue would have been up rocks minutely one point three billion dollars higher due to total expenses were twenty point five billion dollars up twenty two percent compared to last year
spk_8: in terms of the specific line items cost of revenue decrease four percent as growth and core infrastructure investments and content related costs are off more than offset by a reduction and route reality labs loss reserves as a result of the announced price increase of quest to already increased forty three percent mainly driven by hiring to support family of apps and reality labs marketing and sales increased ten percent mainly driven by hiring and marketing spend lastly dna increase fifty three percent mainly driven by legal related and employee related costs we added over fifty seven hundred net new hires and que to the majority in technical functions we ended the quarter with over eighty three thousand five hundred full time employees up thirty two percent compared to last year or second quarter growth rate reflects are hiring progress earlier this year how are we anticipate headcount growth will slow throughout the rest of the year due to is a reduction in are hiring plans
spk_2: second quarter operating income with a point four billion dollars representing a twenty nine percent operating margin or tax rate was eighteen percent we recorded a loss of one hundred and seventy two million dollars under interest and other expenses driven mainly by unrealized losses and equity investments
spk_8: net income a six point seven billion dollars or two dollars and forty six cents per share
spk_2: capital expenditures including principal payments on finance leases were seven point seven billion dollars driven by investments and servers data centers and network infrastructure
spk_8: the big step up and cap exploit year over year and sequentially related server spend including for ai infrastructure sustainability remains a key focus of our infrastructure efforts and in june we published our third annual sustainability report the report demonstrates continued progress on or sustainability initiatives free cash flow was four point five billion dollars we repurchased five point one billion dollars of our class a common stock in the second quarter and we ended the quarter with forty point five billion dollars in cash and marketable securities
spk_2: moving now to our segment results i'll begin with the family that segment to to total family of apps revenue was twenty eight point four billion dollars down one percent to to family of apps revenue was twenty eight point two billion dollars down one percent or up three percent on a constant currency basis advertising revenue growth slowed throughout the second quarter as advertiser demand softened the deceleration have been broadbased across verticals and we believe businesses are lowering their advertising spend in response to the increased economic uncertainty foreign currency headwinds also increase throughout the second quarter well it wasn't a factor contributing to the deceleration and que to are also continuing to save targeting and measurement headwind such as apple's i was changes which we believe are contributing to the growth challenges across the digital advertising industry
spk_8: on a user geography basis your your ad revenue growth with strongest in asia pacific and rest of world at thirteen percent and eleven percent respectively with both regions benefiting meaningfully from strong growth and click the messaging as
spk_2: north america and europe decline four percent and twelve percent respectively foreign currency was a headwind and all international regions with europe and asia pacific experiencing the largest impacts
spk_8: in to the total number of ad impressions served across our services increased fifteen percent and the average price brad decrease fourteen percent impression growth was driven by asia pacific and rest of world the euro per year decline in pricing was driven by reduction and advertiser demand the next shift in ad impressions towards lower monetizing surfaces and regions and foreign currency depreciate action family of apps other revenue was two hundred and eighteen million dollars up fourteen percent driven by the what's up business a pr
spk_2: family it up the expenses were seventeen point two billion dollars up twenty three percent driven mainly by employee related expenses legal costs and infrastructure costs family of apps operating income was eleven point two billion dollars representing a thirty nine percent operating margin
spk_8: we estimate that approximately two point nine billion people used at least one of our family of apps on a daily basis in june and that approximately three point six billion people used at least one on a monthly basis facebook daily active users were one point nine seven billion up three percent or six sixty million compared to last year the i use represented approximately sixty seven percent of the two point nine three billion monthly active users and june and i use grew by thirty nine million or one percent compared to last year europe dear years and am a huge decline sequentially and more negatively impact vital the impacted by the loss of users in russia and ukraine within our reality lab segment to to revenue was four hundred and fifty two million dollars up forty eight percent driven primarily by quest to sales reality labs expenses were three point three billion dollars up nineteen percent do to growth an employee related costs and already operating expenses that were partially offset by the previously rematch met previously mentioned reduction in los reserves reality labs operating loss was two point eight billion dollars in the second quarter turning out to the outlook we expect third quarter twenty twenty two total revenue to be in the range of twenty six to twenty eight point five billion dollars this outlook reflects the continuation of the week advertising demand environment we experience throughout the second quarter which we believe is being driven by broader macro economic uncertainty we also anticipate third quarter reality labs revenue to be lower than second quarter revenue our guidance assumes foreign currency will be in approximately six percent had when to your be your total revenue growth in the third quarter based on truck current exchange rates
spk_2: in addition as notice noted on previous calls we continue to monitor developments regarding the viability of transatlantic data transfers and their potential impact on our european operations
spk_8: turning out to the expense outlook we expect twenty twenty two total expenses to be in the range of eighty five eighty eight billion dollars lowered from our prior outlook of eighty seven to ninety two billion dollars we've reduced are hiring the overall expense growth plan this year to account for the more challenging operating environment while continuing to direct resources towards our company priorities we expect twenty twenty two capital expenditures including principal payments on finance leases to be in the range of thirty to thirty four billion dollars narrowed from our prior range of twenty nine to thirty four billion dollars absent any changes to us tax law we expect our four year twenty twenty two tax rate to be above the queue to rate and in the high teens in closing or in the midst of an economic cycle that is having a broad impact on the digital advertising business were being disciplined on spending while still investing in those areas that will position to drive growth as economic environment improves before opening up the call for questions i want to say how pleased i am that seasonally we will serve as our next cfl when i set step into my new role in november
spk_0: susan and i have worked side by side the last ten years and she is an outstanding leader for the team with that france let's open up the call for questions
spk_9: thank you we will now open the lines of for question and answer session to ask a question press the one followed by the for on your touchstone phone please pick up your hands said before asking your question to ensure clarity if you are streaming today's call to meet your computer speakers our first question is from the line of brian know whack with morgan stanley please go ahead with your question the first one around engagement and overall times but among users you guys are making all changes around ai and real that there is it's encouraging to hear the stats about thirty percent increase in time spent with real the a on instagram as you're studying those users that are you more real
spk_8: rules are you seeing total time among those users grow you said another way the all these changes brewing to be incremental that's that's the first one and the second one on headcount growth your understanding worst idea of slowing of had gone the back half but marked gonna go your point about out some point the headcount decline should we think about twenty three as being a year in which headcount declines for the for the company thanks yeah brian i can take up voted as and and more can add any color if he would like you know reels his attitude to time spent but obviously it does how the you know a cannibalistic impact as well but the net impact is positive there is some our engagement that we think is coming out of out of services like feet and stories and and we're getting that engagement on reels i'm in that's in part of our explicit strategy to get reels in front of more users but overall it is incremental incrementally benefit beneficial to time span and then on headcount growth we're not you know we're not putting any markers yet out for twenty twenty three but we're as marx said we're reducing our headcount growth rates and where we plan to be more you know more focused on
spk_0: you know maintaining a lot of discipline on headcount growth as we as we go into twenty twenty three so as we get closer to that and the setting of the budget will be getting more explicit guidance on that brand
spk_10: branson the next question i next question is film just and post with bank of america please go ahead
spk_7: right thanks for taking my questions of in in the headwinds you you didn't mention tick tock are you seen any dollars or advertisers pulled that could be moving over there for maybe lower cpm it any thoughts on competitive headwinds and then second just as a quick question is or contemplated pressure on quarter revenue in three kill versus to you because of the real usage increases thank you
spk_11: the first question
spk_2: we exist is really competitive advertising market where advertisers have broad opportunities to advertise both offline and online in our honest and with options so we know we have to earn our share and continue to deliver great are aligned be able to measure results and that's why we're focused on the continual product improvements that we talk about in these cause
spk_8: of quarter over quarter and will continue to do going forward and just and let me make sure i i got that question united you're asking about a que three and and just pressure on to three because of reels usage you know mark mention that we're really excited that to run rate on real crossed the billion dollars but it is overall because engagement a
spk_2: shifting to reels it is an overall headwind on the business we haven't specifically quantified that but there is a headwind on the business israel's as reels growth in the long run we of course believe that this will be a tailwind on revenue but that's not happening in twenty twenty two were optimistic that it can be in the long run
spk_0: but in general the pressure that we're seeing on que three is overwhelmingly a macro one where we're seeing sort of broad based
spk_12: weakness across most of the verticals our next question is from eric the certain with goldman sachs please go ahead thanks so much for taking the questions to if i could one in terms of holding the focus on investments inside the company and and we re examining the core side house we think about the mix between reality labs and family of apps and and with the impact my be on relative loss or margin structure of the to
spk_8: segments as you home or the costs are so the company and think about that i'm destined cycle in both areas of the business that would be number one number two maybe just following up on on justin's question in broadening out a little bit is only way to unpack some of the impact of macro which is clearly out running some of the easier com should be facing and que three
spk_2: because we're lapping idea of a from a year ago there was an easy or camp on top of just idea say and yet the implied is that the rate of growth continues to sort of weekend into three vs que tous or maybe unpacking a little bit some of the head winter's tale wins and que three the keep to would be helpful thank you yeah eric i can i can take those and again if anybody else color they can add on the investment circus i would say you know
spk_8: broad broad base were really focusing on the investments that accompanies making on the key priorities now one of those key priorities is clearly the effort that we have behind the metaverse in reality lab so it remains a an area in which we are going to be increasing investment but we do plan to have discipline across the entire operating posture of the company when looking at the two three comps i think you're making an important point as we headed into the back half of this year we do get the benefit in our year over year growth rates from lapping the apple i o s roll out which happened you know was was largely complete by by que three to four of last
spk_2: year so we we're getting the benefit of of a more favorable comps on the signals headwinds but that has been offset by the macro environment and the challenges were seeing their now you know of course there are you know some hard to unpack you know factors that is at the first order but of course we're seeing just generally challenging environment
spk_8: digital advertising and there's you know there's several compounding factors of course there's just the overall economic uncertainty
spk_0: that's reflected in the markets there is the fact that we're wrapping periods in which there was still a benefit from covered in some of the sectors that are important to us like ecommerce and then finally get just the signals headwinds and the challenges that advertisers are facing on a second order basis may be affecting some spend so
spk_10: but it at least some you know on the first order we think it's largely a macro environment that is offsetting the benefit that we would otherwise be getting from lapping the i was fourteen roll out last year
spk_13: our next question is from mark a small liquid bernstein please go ahead yes i you've got to the by me is the first remarked back to the to the discovery ends in pivot in oh certainly a big change for that for the platform and and certainly understand in a user's hesitancy and kind of any changes but it'll be on the flywheel effect of sharing your anymore color you can share instead of what would differentiate the discovery platform here and on facebook and instagram versus some other platforms would be much appreciated
spk_2: and secondly of under buyback and
spk_8: you know is there any right way to think about that i know that by that kind of went down a little bit he added this quarter am in own and about the noted that kind of think the trend along with free cash flow generation is is that the right way to think about that the by back strategy going forward thank you don't take by back from react different questions yeah you wanna go first your i can do buybacks first
spk_4: thanks mark
spk_2: you know obviously we look at a lot of factors when it comes to our buyback program yeah we are we so we still have a substantial amount remaining in the buyback program and we expect to continue to have buybacks is part of our capital allocation strategy i'm going forward so no real change an impostor to announce their vote will continue to be looking at them you know capital return opportunities overtime great get out on the discovery engine thing is dirt there are few different piece of context that i think are important here one is your social content for the people you know it's going to continue being very important and obviously following people as is an important signal if you go back ten years ago the ai to basically figure out what types of things you are interested in other than having a signal of what you directly follow didn't really exist it wasn't good enough so you for you followed her fewer friends with with the sort of amazing signal on it was it is it is more unique and away or now increasingly a is able to identify things that you're interested in that might be from from accounts that you're not following or might even be ample topics that you're not fooling anyone in in in our topic and that just unlocks a bigger corpus of content the you're going to be i'm interested and so the social parts of what we do will always remain i think that that will be a very kind of differentiated an important part of what we're doing on the on the discovery and in pisa i do for that we're singing a different approach down on some competitors and that we have a lot of different types of content on so i talked about this a little bit up front and in i'm in my opening remarks but your the ai that were there were building here it doesn't just apply to videos when it's certainly not just short form video you know it also works of text and links and photos and i'm content in groups and discussions on comments and all these different things and it actually one of the really fascinating a eye problems as to produce just like basically a very large model know the the ai researchers called embedding that's basically trying to unpack he basically like meaning or semantic sir are kind of what what a what a post as about into this very high dimensional mathematical space on but that can work across all different content type than their be able to do that well i think we'll end up producing a different experience on facebook and instagram compared to some or other competitors that are just focused on one content format and i think in that sense what we're doing is it can be pretty unique and is going to create a lot of value i don't think people are going to want to be constrained to just one format and and i certainly think that people are going always continue caring about what's going on with their friends and family and people i know as well as is all going to be kind of a a growing thing that that makes sense said there's more interesting content available and arm and and and basically it makes the service more
spk_0: it is better for people to engage with and than other thanks in part of a business challenges just in a need to make sure we can monetize real well as like i said my opening remarks that's sort of on track but less than the rest of feared
spk_14: today but we're optimistic that will get it there so that way as on as the sense of increasing the overall engagement on the platform and also up being a tell one for the business too
spk_13: i next question is funded or mister j p morgan seems to have
spk_15: thanks for taking questions on for heroin and one
spk_10: it sells for me to just talk about what inning you think you're in in building out in implementing the at them to do more with less data for advertising and you expected over time you'll ever be a return to the levels of targeting measurements from before the platform changes days it's macro slows down more
spk_7: you're into perhaps next year anything beyond or your revenue growth flattens even for other reasons or are you prepared down overall expense growth to a similar level for preserve margins and profitability thanks i can take the first so i don't know as i'm you now a baseball a i know i can do i can't you an exact inning and i'm kind of helping any is baseball is that right some a not yeah yeah it is there are nine of them but i don't know exactly which one we are but i will see that were that were really we say i think we're pretty early on this i think in many ways and we use data very effectively and in a very privacy safeway all along to build up very measurable results and very measurable personally it's targeting for advertisers and i think we let their an hour we're a new era where we have to do that same form of targeting that same form of measurement using less data and i think it's pretty early days and our ability to do that were going to do it by investing on our own investing in ai investing in machine learning we're going to do it in rolling out products like we have recently
spk_16: that help us and advertisers measure we're we're sharing less data between as i talked about in my remarks but we're also going to do it with our industry because it's worth noting that this is not a challenge we face alone this is a challenge that anyone that's running on the apple iowa platform has and the industry has is working together
spk_8: or i think pretty collaboratively and not every player but in a lot of players many ways to get solutions it's just wanted it you know first kind of hit the premise of the question which is you know if we continue to see macro economic challenges are you know it's it's just historically macro economic challenges are often linked it to to to some sort of cyclical effects and and we'd we'd you know there's been lots of things going on in the broader economy that point in that direction including rate hikes and the like so you know we do thing there is a cyclical component of this we know that advertising can be especially are subject to these cyclical pressures we do think that long term digital with an advertising continues to have a very you know positive future and we think that we are positioned to continue to grow engagement nicely and build the best products and digital the you know in the market so we're we're we're quite confident that as the mark
spk_0: conditions improved will continue to be able to return to nice levels of growth but we also i think have demonstrated that were willing to take into account the market environment as we plan our overall expense and capital
spk_14: a base so i will continue to monitor that as we go on to future a budget and planning cycles
spk_17: i next question is from michael nathan son with the mustard natanson please go ahead
spk_15: thanks i have too many want to cheryl and mark
spk_17: cheryl i'm using him in the juxtaposition that on wheels grew faster than stories did used to billion dollars yet the same time you're saying that is your heart of these instruments mountains so so what was wrong why thing to do jobs from was faster and then turns the sticking points when you talk to advertisers where do you think they need to solve your to move move fast your meals
spk_7: as a marketing going to on the only questions about your badges and they send you the previous most people would argue was use the social graph of these people families and friends you think what you're building now with a i and for from the was or the content is even of is a better mood is a better business and the one had before was was a pretty high diary entries come social a statue of the never dealt with
spk_0: questions
spk_7: celtic the real one on wheels we have a playbook where we i think to a very good job building products that consumers love to years and then building ad formats which match those products so they can integrate nicely into the consumer experience so we learned from stories how to do that and i think part of the foster adoption of real that is that we are getting better at this we know we need to make it really easy for advertisers to create that content we now we need to create the
spk_2: ad formats we know we need to give them measurable tools and we've gotten better at selling the next product and i think will continue to get better at that going forward but as you do say there are still some challenges video is harder and then some photos and static sodas small businesses are better at static photos that they aren't videos to this is a new format that we have to help them is i think we have a number of tools that are working have a number of tools in development but the idea is to help businesses really easily create those real the wheels and really easily pass them that so they can enter eight and keep improving as you do this so i think it's very promising but we've got some hard work out of us in in terms of building sustainable competitive advantages are you not act in terms of a social graph right which which excited from before your people have been able to get that from phones for more than a decade now writes i don't really think that that that's been that that thing for us i think it's in we were were a serious technology company we invest a lot and building infrastructure and culturally we focus on moving in learning faster than everyone else and i think those are sustainable advantages and it the certainly i think that the ai technology infrastructure that we're building you not to get from compound and be better than than than others in the industry and and that will be an advantage and make the products better over time but i think of the end of a day without really comes down to is just you know i try to push the company to be one that learns faster and just keeps it a rating and moving faster than than than armed your than we did in the past and and than others in the industry do when i think if we can do that well then we'll we'll continue to succeed but i think the moment that we stopped doing that then i'm that will basically fall behind it's a it's a very competitive field and and we detect to keep on pushing had but i think the reason why we have have succeeded in and seem so good results with facebook and instagram the other social apps as because we we basically focus pretty relentlessly on
spk_0: or just pushing to constantly improve them and we're going to do that with a i to and i feel pretty good about the internal results that we've gotten on this is that irritate it's a big effort at this point we have multiyear road maps and place it's not like you know back when i was in a dorm room and into the shipping code every every week and cities are in a were touching billions of people's lives and and building really deep techno
spk_18: algae or long term things but like the same principles basically still apply for how you wanna you wanna build a company and and and stay ahead and on i think that's going to be the sustainable advantage but yeah i do for think i if we can do this better in terms of recommendation systems that can make facebook better it's like instagram better it's gonna make the ads better for is why my opening remarks i talked about an ai is one of the big technology waves that were riding i think it's it's certainly am i anger that's the truth it's it's a it's a kind of a big underlying factor for business but we need to execute on that well and i think we're starting to see a bunch of good results on that my next question is from use that squali with to with securities please go ahead
spk_19: great thank you very much to i guess a follow up on on wheels and thank you for the billion dollar a commentary but just kind of stuff about how far behind his money is no frills person maybe instagram stories right now i think you mentioned earlier that is already tried him ahead
spk_8: versus are scrambling to see her in scrapped stories were launched just try to get a sense of how long before we get to parodies it matter of several quarters are several years and maybe how quickly these stories get to parity with news feed back and twenty eighteen and mark how important is emanate you completion your vision of the metaverse and i ask because one of the the regulatory agencies just today and they also lawsuits bought your acquisition of within a seemingly pretty small the vr fitness app thank you
spk_2: yeah you usable out i'll take i'll take that as i'm so
spk_8: in terms of reels monitors asian and stories journey that we went on i'm getting stories really started rolling out in earnest in yeah i think it was twenty eighteen it really wasn't until ah you know this year that we at least in the developed markets got to parody on a monitor station basis ah on a on a time spent basis with feeds it was a multi year journey you know i think we're still very early and that multiyear journey with with real so the we're proud of where we've gotten on a run rate basis were still very early in the trajectory of monetization and dumb you don't will have to see were able to to do a great job of closing that gap with stories i think there's always unique features in each different formats is that that make you know a inexact analogy imperfect but you know we're optimistic on our ability to at least you know get a good ways on that journey towards closing the gap
spk_0: you know in in terms of you know emanate there's get although the ebenezer is is definitely a component of our strategy
spk_20: and will continue to eat a will continue to look at acquisitions going forward
spk_10: you know in terms of the specific announcement
spk_8: about the ftc looking to block the within acquisition you know i would refer you to our statement in the newsroom but you know we believe that the acquisition of within would be good for competition and expand the be our ecosystem and would attract new users to be our and make it a more productive space for new and existing developer so you know we'd we definitely take odds with the with the ftc his position on that our next question is some brentsville with jeffries please go ahead they said it did just me think about this downturn the you're in now and into tearing to pass downturns you know many are asking you feel the showers and more is in your longer duration of this is your journey since you have and in how you think about the duration of of what we're all seem right now thanks brent
spk_2: and you get the price for asking just one question on the the i think it's really there's there's a lot of unique factors in the place we are in right now one is that were also kompak against these very strong periods for online advertising during during the pandemic
spk_0: that make the the downturn sort of coincide with some reversion to offline behavior
spk_21: did exacerbates the impact of i think what is a you know a cyclical sort of finance driven down turn with some the reversion to sort of more offline behavior so and you've got some a unique things going on in the online ecosystem that do serve exacerbate some of the cyclical effects because of that tough comps and we've seen you know obviously not just us but others kind of experience that i think it terms of prognosticating on you know the is the you know the cycle itself and and the duration i'll leave that for better better economists than i to understand how that how that may play out but but obviously the continued difficult environment is factored into our que three guidance
spk_8: our next question is from raw sandler with barclays pizza his great isis is calm something others have already athens call them every could flush it out a little bit better but you talk about medium term gain in competitive advantage in gaining back market share on the revenue side arm but i think some folks on this color or doubting that looking at the to two numbers which obviously have like idea of a real than there are the three to guide
spk_2: i compared to the likes of google amazon tick tock and and the numbers they're putting up and of you will get pretty his time for you've gained competitive advantage you also had a big data advantages seemingly you mean of enjoy post idea say and more versus those other companies so can you may be for so
spk_8: either you know the specific products that that you are working on that your pumped up about i could drive that competitive advantage on the revenue side and and when that might happen is this a twenty twenty three event or is is more kind of like long term that we think will quarterback thank you yeah thanks thanks rasa think there's a lot in there so why don't i at least just take that components of it that i think that we can kind of address you know i think cheryl and mark both outlined some of the areas that were really focused on honor revenue side the reels is obviously right now i'd i'd at the tailwind revenue but we're excited about continuing to grow engagement on rails and then grow monetization on that over time so we think that's a very interesting
spk_22: a venue for our clients to explore and advertise on and and that's gonna create some real opportunities for them and us over time i were also investing in a i to make our ads products better and we're excited about what we can do their child talked about some of the different products
spk_23: ah products their i'm so we we think that that will though those are a couple examples of things that will position as well you know as as it relates to kind of competitive dynamics i think there's a lot of different
spk_0: different things going on in the industry different companies are affected differently or not at all or not it's significantly by things like the headwinds related to the i s changes there's also just different mixes a vertical businesses that effect
spk_24: the you know affect how different companies are affected by
spk_25: the by the current the current economic climate and the covered lockdown so you've got a lot going on but we're we're confident in our ability to continue to build the best products are for users to be engaged as well as building great advertising products for for businesses who want to reach those consumers
spk_9: or a matter of pastime for last question
spk_2: the kids i last question will be some mark mahaney with evercore i say peace the have a couple things and david shout just still wanted to wish you best elected going forwards and cheryl particular want to congratulate you i think five two hundred and twenty billion over fourteen years has pretty damn impressive so congratulations which you all the best going forward to two or two questions out one on a i mark talked about of the benches of ai any update on how our a eyes done in terms of attack tackling content moderation the issues you feel like you've made some breakthroughs there and then cherry talked about this click the message marketing opportunity you mentioned a couple times i've last couple of calls it's a couple of billion in revenues but particularly strong a i think in in latin america and arrest a world any thoughts on the opportunity for that
spk_7: as a business within north american western europe is just culturally different door there's certain things that can be done to make it just as good strong and these and those markets as it isn't the others thank you yeah i can take the first question on a i am yeah on on content moderation own of most of this is done through a i today and in it's every quarter we we really say i'm community standards and forefront of report were basically the main metric is what percent of their harmful content or systems identifying and taken in action on our before someone
spk_11: that report it does and arm those metrics are generally you know moving in the right direction injured different things going on in the world make them in sometimes fluctuate on but but in in in general we made a lot of progress their of the last few years and i'm i'm quite proud of that we we first a lot of ai efforts there on and
spk_7: your this point a lot of the newer ai efforts that we have and were up second to continue that work as well but a lot of the new efforts are focused on recommendations of our van of content and in need large sparse models that can do better content and ads recommendations on with a much larger model with some with thought i even even sparse data so yeah pretty optimistic about a about that overall cheryl mark thank you for those kind words and also think you for this question because this will be the last when i taken it exactly the new i'd like to add and i'm because it's a part of our business where so excited about click the messaging as is one of our fastest growing ad formats it's already a multibillion dollar business for us growing at double digits and that speak
spk_11: as again i think it follows the playbook we've had of building a consumer engagement that businesses can be part as having that consumer behavior happen first and then being able to work with businesses so messaging is hugely started growing huge we quickly everywhere in the world and we have particularly in game
spk_1: bride very well used messaging platforms and many of them so when you think about consumers using it we already know what we already know that's happening and then businesses are increasingly using it and you're right that we've seen a lot of that behavior start in other parts of the world but we are seeing that behavior in north america and europe as well and i think we're deep believe
spk_0: verse got that that behavior will continue to grow all over the world
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