This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk_0: good afternoon my name is martin and i will be your conference operator today at this time i would like to welcome everyone to the made a third quarter earnings conference call lines when placed on mute to prevent any background noise after the speakers who works there will be a question and answer session if you'd like to ask a question please press the one than the number for new telephone keypad this call will be recorded thank you very much mister crawford met his waist president of investor relations you may begin
spk_1: thank you good afternoon and welcome to matter platforms third quarter twenty twenty two earnings conference call joining me today to discuss our results are mark zuckerberg ceo and dave winner cfl susan vp of finance and are incoming cfl and money levine chief business officer are also on a call and will join mark and day for the q and a portion before we get started i would like to take this opportunity to remind you that are remarks it they 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 ten que filed with the fcc any forward looking statements that we make on this call 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 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'd like to turn the call over to mark
spk_2: hebron thanks for joining today or community continued to grow this quarter are we not reach more than three point seven billion people monthly across our family about and while we continue to navigate some challenging dynamic so volatile macro economy increasing competition add signal loss and grown costs from our long term investments i have to say that our product friends look better from what i see them some a commentary i've seen suggests despite a bunch of speculation about engagement on our up some or what we're seeing is more positive on on facebook specifically the number of people using the service each day is the highest it's ever been nearly two billion or an engagement trends are strong instagram has more than two billion monthly active or what's up has more than two two billion day we actors are also with the exciting trend that north america is now or fastest growing region across the family some apps maybe saturated in some countries are some demographics but overall our apps continue to grow from a large base our world pressing engagement grow especially strong growth in real and i'll share more details about that when i discussed our product party shortly in terms of our business a total revenue grew slightly this quarter on a constant currency basis that we're still behind where i think we should be a but we believe that we will return to help your revenue growth trends next year or that said it's it's not clear that the economy to stabilize the yet so we're planning our budget somewhat more conservatively and twenty twenty three we're going to focus our investments on a small number of high priority growth areas that means that some teams will grow meaningfully but most other teams will stay flat or shrink over the next year in aggregate the we expect and twenty twenty three as either know roughly the same size or even a slightly smaller organization that we are today three of the primary areas were going to focus on our our a i discovery engines that spring rolls and another recommendation experiences our ads and business messaging platforms and or future vision for the metaverse be internal indications i've seen suggest were doing reading work and are on the right track with these investments so i think that we should keep investing heavily in these areas as i've shared before our goal is to grow family of apps operating income such that even with our a i infrastructure and reality labs investments we can still meaningfully grow our overall company operating income in the long term our current surgeon callbacks is largely due to building out or a i infrastructure and would expect catholics to come down as a percent of revenue over the long term we expect reality labs expenses will increase meaningfully again and twenty twenty three with the biggest drivers of that being the launch of the next generation of our consumer quest headset and hiring that has been done and tweet way to but for which wouldn't be paying the first full year of salaries are next year more broadly beyond twenty twenty three we expect a piece reality labs investments to ensure that we can achieve our goal of growing overall company operating income or capital allocation philosophy over the long term is to allocate a portion of the profits generated from the family of apps towards these future focused areas while enabling a greater return of capital to shareholders right now i'd like to share some updates on the progress that we're seeing him in and these product areas our ai discovery engine as playing an increasingly important role across our products especially as advances in able to recommend more interesting content from across our networks and feeds the used to be primarily driven despite the people in accounts you follow this of course includes real which continues to grow quickly across our up both in production and consumption there are now more than one hundred and forty billion real players across facebook and instagram each day that's a fifty percent increase from six months ago reels is incremental to time spent on our apps the trends look good hear it and we believe that we're gaining time spent share on competitors like tick tock over time i expect a few things to set our products departure first is that our discovery engine work allows us to recommend all types of content beyond reels as well including photos text links community is short and long form videos and more second is that we can mix this content along posts from alongside posts from your family and friends which can be generated by a i alone and third is more social interactions move to messaging or were developing a flywheel between discovery and messaging that are going to make these apps stronger on instagram alone people already research reveals a one billion times a day through audience moving to monitor zeeshan discussed in the past how the growth of short form video creates near term challenges and thrills doesn't monetize at the rate of feed or stories yet that means that as real grows a weird displacing revenue from higher monetizing surfaces this is clearly the right thing to do so we really can grow with the demand that were saying on the closing the gap is is also a high priority even with the progress we've made were still choosing to take a more than five hundred million dollar quarterly revenue headwind with the shift or but we expect to get to a more neutral place over the next ten or twelve to eighteen months i mentioned last quarter that instagram reels had crossed a one billion dollar annual revenue run rate we continue selling modernization crossbows instagram and facebook and and the combined to run rate across that is now three billion dollars beyond rules messaging is another major mobilization opportunity of billions of people and millions of businesses use what's up and messenger everyday and we're confident that we can connect them in ways that that creed valuable experiences i we started with quick to messaging ads which lets businesses run ads on facebook and instagram that start a thread on messenger what's up or instagram direct so we they can communicate with customers directly this is one of our fastest growing ads products with a nine billion dollar annual run rate if this revenue is is mostly and click to messenger today since we started their first but click to what's up just passed a one point five billion dollar run rate and growing more than eighty percent year over year paid messaging i was another opportunity that we're starting to tap into and it's it continues to grow quickly but from a smaller base we're we're putting the foundation in place now to to scale this with key partnerships like salesforce which lets all businesses on their platform use what's up as the main messaging service to answer customer questions and updates and and sell directly and shot and we also wanted your mark on what's up in india and it's or first and and shopping experience that shows the potential for chat based commerce through messaging deposit between clicked to messaging and dumb and paid messaging i'm i'm confident that this is gonna be a big opportunity the last area that i wouldn't discuss today the metaverse are we just had or connect conference and and announced quest pro which we just started shipping it's our new high end vr headset that delivers high resolution mixed reality you can blend virtual objects into the physical environment around you it's pretty amazing when it when you see it and it's going to enable all kinds of new experiences and socializing gaming fitness and work and i'm really looking forward to seeing what people build with this new capability work in the metaverse eyes a big theme for quest pro there are two hundred million people who get new pc use every year i mostly for work in our goal for the quest pro line over the next several years is to enable more and more of these people to get their work done in virtual and mixed reality eventually even better than they could on on pcs the whatever a great work in productivity experience i'm excited about the partnerships that we announced our with microsoft bringing their sweet of productivity and enterprise management services to quest adobe and autodesk bringing their creative tools as zoom bringing their communication platform accenture building solutions renter
spk_3: prizes and more
spk_2: there's still a long road ahead to build the next computing platform but we're clearly doing leading work here and this is a massive undertaking and and it's often gonna take a few versions of each product before they become mainstream but i think that our work here is going to be of historic importance and create the foundation for an entirely new way that we will interact with each other and blend technology into our lives as well as the foundation for the long term of our business so between the ai discovery engine are ads and business messaging platforms and our future vision for the metaverse those are three of the areas that were that were focused on i believe that the tougher prioritization discipline and efficiency the we're driving across the organization will help us navigate the current environment and emerge and even stronger company that's always i'm i'm grateful to everyone it better for your hard work and to all of you for being on this journey with us and with that in turn it over to dave
spk_4: thanks mark and good afternoon everyone let's begin with are consolidated results all comparisons are on a year over year basis unless otherwise noted to three total revenue was twenty seven point seven billion dollars down four percent or up to percent on a constant currency basis had foreign exchange rates remain constant with two three of last tier total revenue would have been approximately one point eight billion dollars higher two three total expenses were twenty two point one billion dollars up nineteen percent compared to last year this includes a four hundred and thirteen million dollar impairment of certain operating leases as part of our ongoing work to align our office facilities put footprint with are anticipated operating needs in terms of the specific line items cost costa rather new decreased one percent as a reduction in reality labs hardware costs was offset by growth in infrastructure and content related expenses our indie increased to forty five percent mainly driven by hiring within our family of apps and reality lab segments as well as reality labs technology development costs lastly marketing and sales and dna increase six percent and fifteen percent respectively mainly driven by headcount related costs our pace of hiring slowed in the third quarter consistent with our previously stated plans we added thirty seven hundred that new hires into three down from are cute you know editions of fifty seven hundred despite que three typically being a seasonally stronger hiring period we expect hiring to slowed dramatically going forward and to hold headcount roughly flat next year the tip to current levels which i will cover in my outlook section third quarter operating income was five point seven billion dollars representing a twenty percent operating margin or tax rate was twenty one percent net income was four point four billion dollars or a dollar sixty four per share capital expenditures including principal payments on finance leases were nine point five billion dollars driven by investments and servers data centers in and network and for structure free cash flow is one hundred and seventy three million dollars we repurchase six point five billion dollars of our class a common stock in the third quarter and completed an inaugural that are offering of ten billion dollars we ended the quarter with forty one point eight billion dollars in cash and marketable securities living now to our segment results are begin with our family that segment our community across the family of apps continues to grow we estimate that approximately two point nine billion people used at least one of our family of apps on a daily basis in september and that approximately three point seven billion people used at least one on a monthly basis facebook continues to grow globally and engagement remains strong facebook daily active users were one point nine eight billion of three percent or fifty four million compared to last year yeah use rep represented approximately sixty seven percent of the two point nine six billion monthly active users in september and they use grew forty eight million or two percent compared to last year two three total family of apps revenue was twenty seven point four billion dollars down four percent to three family that's ad revenue was twenty seven point two billion dollars down four percent but up three percent on a constant currency basis consistent with our expectations the head when to year over year growth from apple's atp changes diminished into three as we left the first full full quarter post the launch of i was fourteen point five however this was offset by week advertising demand which we believe continues to be impacted by the uncertain and fault on mullet macro economic landscape as results are que three constant currency growth rate was in line with are due to rate the health care and travel verticals were the largest positive can't contributors to growth and que three however this was offset by continued softness another verticals including online commerce gaming financial services and cpj on an advertiser size basis revenue growth from large advertisers remains challenge challenged well we've seems more resilience among smaller advertisers foreign currency was a significant had went to advertising revenue growth in all international regions on a user geography basis your your ad revenue growth was strongest in asia pacific and rest of world and six percent and three percent respectively with both regions continuing to benefit meaningfully from strong growth and click messaging as north america and europe decline third three percent and sixteen percent respectively in two three the total number of ad impressions served across our services increase seventeen percent and the average price per add decreased eighteen percent impression growth was driven by asia pacific and rest of world your every year decline and pricing was primarily driven by strong impression growth especially from lower monetizing surfaces and regions
spk_2: foreign currency depreciation and lower advertiser demand
spk_4: a family of apps other revenue with hundred and ninety two million of nine percent driven by strong business messaging growth from our what's up business platform partially offset by a decline in other line items we continue to direct the majority of our investments towards the development in operation of our family about into three families apps expenses were eighteen point one billion dollars representing eighty two percent of our total roy overall expenses fo expenses grew eighteen percent driven mostly by employee related costs in for restructure related costs and the impairment of certain operating leases for office facilities that we plan to accept families apps operating income was nine point three billion dollars representing a thirty four percent operating margin within our reality lab segment to three revenue was two hundred and eighty five million down forty nine percent due to lower quest to sales reality labs expenses were four billion dollars up twenty four percent due primarily to employee related costs and technology development expenses reality out labs operating loss was three point seven billion dollars turning out to the outlook we expect fourth quarter total revenue to be in the range of thirty to thirty two point five billion dollars are guidance assumes foreign currency will be in approximately seven percent had when to your every year total revenue growth in the fourth quarter based on current exchange rates before turning to the expense outlook i wanted to provide some context on the approach we're taking towards setting or twenty twenty three budget we're making significant changes across the board to operate more efficiently we're holding some teams flat in terms of headcount shrinking others and investing headcount growth only in our highest priorities as a result we expect headcount at the end of twenty twenty three will be approximately in line with third quarter twenty twenty two levels we've increased scrutiny on all areas of operating expenses how are these moves follow a substantial investment cycle so they will take time to play out in terms of our overall expense trajectory some steps like the on go and rationalization of our office footprint will lead to incremental costs in the near term the should set us up well for future years when we expect return to higher rates of revenue growth turning out to this specific expense outlook for twenty two and twenty three we expect twenty twenty two total expenses to be in the range of eighty five eighty seven billion dollars updated from our prior outlook of eighty five eighty eight billion dollars this includes an estimated nine hundred million dollars in additional charges in queue for related to consolidating our office facilities footprints that we expect to record in the fourth quarter
spk_5: of twenty twenty two
spk_4: we anticipate are full year twenty twenty three total expenses will be in the range of ninety six to one hundred and one billion dollars this includes an estimated two billion dollars in charges related to consolidating our office facilities footprint we expect the slight majority of our twenty twenty three expensive dollar grout to be driven by operating expenses with the remaining growth coming from cost of revenue we expect the percentage growth rate of twenty twenty three operating expenses to decelerate meaningfully as week retail non headcount related expense growth and keep twenty twenty three had count roughly flat with current levels conversely or growth and cost of revenue is expected to accelerate driven by infrastructure related expenses and to a lesser extent really reality laps hardware cost driven by the launch for next generation of our consumer quest headset later next year reality like labs expenses are included in our total expense guidance we do anticipate that reality labs operating losses in twenty twenty three will grow significantly year over year beyond twenty twenty three we expect a pace reality labs investments such we can achieve our goal of growing overall company operating income in the long run before turning to our catholics outlook i'd like to provide some context on our infrastructure investment approach we are currently going through an investment cycle which has been driven which is primarily driven by two large areas of investment first we are significantly expanding our ai capacity these investments are driving substantially all of our capital expenditure growth and twenty twenty three there's some increase capital intensity that comes with moving more of our infrastructure to i it requires more expensive servers and networking equipment and we are building new data centers specifically equipped to support next generation ai hardware we expect these investments to provide us with technology advantage and unlock mean full improvements across many of our key initiatives including feed wheels and that's where carefree carefully evaluating the return we achieved from a which he from these investments which will inform the scale of our ai investment be on twenty twenty three second we're making ongoing investments in our data center footprint in recent years we have stepped up our investment in bringing more data center capacity online and network is ongoing and twenty twenty three we believe the additional data center capacity will provide us greater flexibility with the types of service we purchase and allow us to use them for longer which we expect to generate greater cost efficiencies over time i'm these them these investments along with revenue headwinds are contributing to higher capital expenditures as a percentage of revenue and twenty twenty two and twenty twenty three can we expect over the long term
spk_2: turning out to the specific catholics outlook for twenty two and twenty three
spk_4: we expect twenty twenty two capital expenditures including principal payments on finance leases to be in the range of thirty two to thirty three billion dollars updated from our prior range of thirty to thirty four billion dollars for twenty twenty three we expect capital expenditures to be in the range of thirty four to thirty nine billion dollars driven by our investments and data center servers and network infrastructure and increase in a capacity is driving substantially all of our capital expenditure growth and twenty twenty three turning to tax absent any changes to us tax law we expect our fourth quarter twenty twenty two and are full year twenty twenty three tax rate to be similar to the third quarter twenty twenty two rate in addition as noted on previous calls we continue to monitor developments regarding the viability of transatlantic data transfers and their potential impact on our european operations including we are pleased with the growth that var of the community using our family of apps and the engagement improvements we're driving with efforts such as reels and are a i powered content recommendations while we are facing near term headwinds on revenue the fundamentals are there for return to stronger topline growth we're approaching twenty twenty three with a focus on efficiency and spending discipline and i'm optimistic that these moves will set us up well to achieve our drop goal of driving operating income growth over the long term while ingesting for future growth on a personal note of be closing out a decade at matter in the next couple weeks including the last eight years the cfl in my new role i'm looking forward to continuing to help the company achieve it's long term mission and execute on it's financial plan i couldn't be happier to hand off the cfl role the susan lee who is one of the most talented executives that had a chance to work with met in my long career and fine
spk_0: anson tech and with that martin let me open up the call for questions thank you will know open lines for a question and answer session to ask a question of press one followed by the number four on you touchstone phone please pick up your headset before asking a question to ensure clarity if you were streaming today's call please me your computer speakers and your first question comes from line of for i know that way
spk_6: morgan stanley thanks to my questions are you squeeze into the first one is uncap action return on invested capital had a cap expanding for expectations are ruining citizen somewhat higher than investors expected so mark new maybe to give us some examples of what these new ai investments are going to enable you to do differently going for dinner in the past and what a reasonable period which investors expect to see material incremental engagement or revenue from these and then the second one is on engagement i thought your comments about incremental time spent from reals were interesting the maybe just to sort of a address the big topic or on time span can you give us any update on what's us time spent trends look like this the sort of give investors some incremental confidence in the durability the plan
spk_4: from your oldest market thanks i take the time spent question first a seminal headed it off the season on that complex question so on on the on time spent you know we are really pleased with what we're seeing on engagement and as mark mentioned reels is incremental time spent specifically in terms of aggregate time spent on instagram and facebook both are up year over year and in in both the us and globally so while we're not specifically optimizing for time spent
spk_7: those trends are positive and and we aren't specifically optimizing for time sense is that would tend to tilted towards longer form video and more were actually focus more on you know short form and other types of content so i'm just some some color on times that and says he wants a complex question yes thanks brian so i save mention in his script we expect twenty twenty three cat back to the in the range of thirty four to thirty nine billion with our investments and i ai driving all of that growth were very focused on evaluating the our ally of our ai investments and that will inform our level of feature then but so far we've seen continued strong impact on our recommendations products from advancing to elements in in our a i work in the queue to call we had shared that a single ai advanced than and scaling our recommendations models had led to a fifteen percent watch time gain for faith as wheels and that game has continued to grow and we accept that there will be additional watch time improvements coming from that work on the outside were also continuing to roll out more ai and ml improvements in some of the new ads offerings and were encouraged by all of the early examples that we've seen so this is something that will be watching very closely we think we're early in this journey by our level of callbacks investment will depend on the returns that we generate
spk_0: through these investments in ai and if we generate significant engagement in revenue games will continue investing here and if we don't more peace or spending accordingly
spk_8: your next question comes from line of marks movie with bernstein yes i think you're doing the question a couple of i'm a lot different one economists is in your opening remarks that you expect to get back to canada revenue growth in twenty twenty three and any pull you can share and kind of the key driver by that an amateur that it is the macro driven versus some of these initiatives that that you guys working and then secondly for susan as we think that's one of your the the operating and guidance you know into twenty twenty three and a historically you know those numbers have tended to skew a big conservative on public services the a big in their how much flexibility is there to kind of yeah
spk_4: toggle some of those expenses depending on the health club thank you mark unstable take the i'll take the first question obviously we're continuing to see you know significant you know macro headwinds in the business we do think there's a big cyclical factor here some some of it is just going to depend on us the broader economy and recovery that we see we're continuing to make progress in a number of areas in terms of growth and mark cited one of those which is click to messaging ads which has been a a solid grower it's nine billion dollar revenue run rate today we're continuing to make gum you know good progress on click the messaging as as a driver that's especially been important and some of the developing markets and you know overall we're focusing on a number of areas to you know grow revenue and as we get through this tough cycle and you know we're seeing we're seeing progress on a number of france but it's gonna depend to some extent on what the overall macro climate is like we're not going to be facing as significant headwinds next year of from the signals point of view as we are now lapping the big changes that were made on
spk_7: on the i was platform so that's gonna also not factor in as strongly in our growth rates next year
spk_1: and i'll take that second question on next year's our backs guide
spk_7: one thing i'd point out first is just next year's guide includes an estimated two billion dollars in twenty twenty three expenses that are one time charges as part of our office facilities consolidation as we continue to and to rationalize are real estate footprint we also expect a little over half of our expense dollar growth and twenty twenty three to come from our backs with the rest coming from costa revenue on the backside the growth and twenty twenty three our backs is primarily driven by had count related costs from employees that we've already hired three twenty twenty two and those hires of prey narrowly been concentrated and technical and more senior senior roles so we expect you know the slow down and payroll growth and twenty twenty three will be the result of the be slow down and headcount growth overall as we mentioned we expect to and twenty twenty three you know with headcount roughly to where we are now on and on the cost of revenue side we are
spk_0: expect you know the growth rate of pasta revenue to accelerate and twenty three driven by the increased depreciation that we're seeing play through from the big callbacks investments that you know we've made so far and then as well as from reality labs with the launch of the next generation of the consumer quest headset later next year
spk_9: your next question comes from line is just and post with bank of america great a couple questions on on the real transition of when when you think about that business and and people coming to the site do you think you know it it cause the compared to the news feed as far as a repeat raids are retention and are you a little worried a little less proprietary than your prior content and and second i think a lot of questions on cutbacks i'm just wondering if it as to build here for this year and next is
spk_4: is is one time to kind of get your capabilities in place and then maybe even go back to come as a mid teens level as a percentage a revenue or is this the transition in the business just about higher capital intensity business thank you i just and on on the real transition mark noted incremental to time spent so we are seeing a benefit from you know from from reels to contributing to overall engagement on on the platform and it's you know contributing to healthy engagement day amex and i'd say that coupled with our recommendation engine which is also you know increasing engagement on the platform or both promising trans on the engagement front from a monitor zeeshan perspective you know we are still working to close the gap between reels in feet and stories but it's gonna take you know time before real becomes a tailwind to revenue as as is mark mention did wrong on about three billion dollar run rate today but some reels with still you know negative overall revenue or by about five hundred million dollars in the quarter so you know we expect that it should be a tailwind to the business eventually and and were sort of saying that's probably in the twelfth eighteen months time frame
spk_1: you know but overall we're we're pleased with the impact that reels has on that on the business specifically on engagement front
spk_7: and on your second question about the cap x guide i would really think about our topics i'm investment as kind of the are ai and nine ai components on the ai side which really is driving all of the callbacks growth and twenty twenty three year we will be pacing that future investment on the basis of the returns that were able to see and measure so frankly we're hopeful that there will be a big opportunity to invest in more here because we expect that this will be a high our ally area of investment for us army non a i sighed a lot of that span is an ongoing investments on our data center footprint what were we had stepped up our investment in recent years to build sort of ahead of are anticipated capacity needs and not work continues and twain twenty three we do expect this this component of our callbacks expand to become more efficient more efficient over time and where you know actively looking for for more efficiencies there so i don't know that we are benchmarking to an exact number on the combination of those two things the future intensity i think is going to depend on the rich
spk_2: turns that we generate through those increased ai investments yeah maybe maybe i'll just add some some color on how i'm thing the surges for years the real and discouraged workers such a big part of what it was spending or time and energy on right now get there are two comparisons to the things that we've done in the past year that are they're worth i going on for reals monetization specifically any time we've had a new format like when we added stories or even before that were primarily on desktop and we shifted to mobile feared we sort about this dynamic where we focused on increasing engagement and growing demand for the product but while that was happening motivation efficiency for the new format lags behind cover your news feed or mobile news feed compared to stories for some period while there is ramping up and well it's really hard for us to answer questions now that are like what is the eventual monetization efficiency going to be it it's really hard to predict doesn't advance what i can say because i think on stories we've ended up achieving something that was way greater than what we've been hoped to achieve at the time right in terms of where we where we thought that stories could net out and a lot of the progress we've been making on on real modernization so far as been at a clip that we've been pretty happy with so it obviously we want to close the modernization job as quickly as possible we want this to be a tailwind not a headwind i think we can get there it's it's but it but i think we we've gone through a few these transitions like that that that that will just take some some some time on the engagement side in terms of how incremental this is the basic would to think about this is you have a set amount of inventory across the system there's enough content from family and friends which is is quite differentiated and invaluable arm and accounts so you follow but now there's this whole larger corpus that we can use a ida effectively understand with the content means and understand individually what you might be interested in just have access to a much bigger corpus of content to to put into your feeds and increase engagement and we're seeing that start to work already and be incremental in terms of we're having more people use the services having them spend more time having them spend on here to engage more and feeds overall so on that part of things we think is going well we think will we should be able to continue driving results some of the results already have been due to some of the ai investments in infrastructure that we've made as if our best are correct is and then the a i cut backs that were bring on line should be able to drive incremental engagement that's pretty meaningful there but we think qualitatively that that investment makes makes just a lot of sense given the direction that that i'm that the world seems to be going and they do things that are are somewhat unique mix of both having the kind of social friends and family content and the ability to drive recommendations which i agree with with with some communities the premise of the question there and that the creators do want their content to be on multiple platforms such a thing as a little bit different from friends content where you wanna for the most part share your were your friends are you're not trying to have it be everywhere i think we should be able to do pretty well on both of those and and that that should that should grow over time but that's that's it's hard for us to be more specific than that now but like you think that these these trends and i get that this is this takes a little longer to play out then that than you would want for we've been through a couple of your cycles before already
spk_0: and i'm pretty confident this is going a good direction
spk_10: unicyclist and from line is dog a nice with jp morgan thanks for doing the questions or two
spk_11: davey talks about the a t t in fact diminishing him to meet you says you left the rollout jurors that you seen any meaningful improvements around a few years is just a function of the year over your clinton a and then second jesus just talk about your efforts to track content creators to reels does revenue share
spk_12: bring impact your marks and structure versus the current ad formats and surfaces thanks
spk_13: eighty ti
spk_4: you know we're we're out give the the primary factor is the lapping factor relative to to to so into to of twenty twenty one atp had not been fully rolled out it was know largely rolled out by two three of twenty one so the fact that we were laughing that period in the third quarter we got up you know about innocent relative to the second quarter but that was offset by you know continued macro weakness
spk_0: in terms of the efforts to attract content creators and specifically as it relates to the you know overall costs structure we don't anticipate that that's going to you know we a meaningful impact of the car structure and obviously it's factored into our expense guidance
spk_14: are you next question to throw line of you're cured and with goldman sachs
spk_11: interesting the course i'm ready to i can mark i would look the way in obviously the company has been the lot of headwinds from couple of changes couple the dynamics and while the macro with us to talk about of the last two twenty four months how much of this in the cycle is informed by
spk_14: you are news around future proofing the platform so there were less are now with that
spk_11: impacted your and control more of your own destiny vs elements of curveballs the to be thrown into the can cause volatility in the business in the in the medium to long term and i'd love this one on the metaverse you know are understood on the as up into the metaphorical next two years even the qualitatively houses does big but
spk_2: the revenue opportunity over the next three to five years with between the horde will opportunity and the non the hardware opportunity as you see it as a diverse evolve sure as a exec the first one and then i have like a second the second one to have so
spk_15: the first question was
spk_2: woah woah this sector yeah right okay so i think that's a factor but it's it's not that the primary thing that's driving it saw on the on the business side i think certainly see dynamics like what what apple's is has done with eighty ti and continues to to do and and in some ways with you know day the policy that they announced yesterday which are obviously big risks and and ah in and and with his issues of but there are also other thing with that like i'm we just believe that we've invested so much and measurement over time because since our ads help people higher up in the funnel then search ads for example we think that often less of the value of sales is attributed to us and should be so for all these reasons having a funnel that's more integrated where we do more commerce internally there's a big part of of of on what what we hope to achieve with business messaging and in fact that you can find a customer you have a thread directly with them and in a business chat on and deal to sell a product directly or to be able to do customer support and then help people out with a sit with a product and then maybe sell them something else have that kind of integration i think is going to be valuable very broadly in terms of making sure that the value that we're creating for businesses and consumers can be more efficiently measured and and attributed to to our services a lot of us though is it's it's not just about fortifying and outside threats a lot of this is just you can build new and innovative thing by when you control more of the stock yourself some in in in the in the metaverse sense you know a lot of the things that we're we're trying to to enable read this feeling of of presence which a lot of with sort of the ultimate social experience and we do it physically or eventually you know when when as you doing it virtually you'll be able to design the the hardware that were you can have sensors that can can help not your facial expressions and and emotions to to the avatar that you have virtual i think is going to be just a very profound experience and you can start to expire prince that with quest pro which is inches out now it's not clear if we were driving this forward than anyone else would be saying that that sort of integration innovation is really helpful similarly i think the fact that we can create a lot of the business and commerce platform around our messaging plot for our products but and linked to them from facebook and instagram i'm create some unique experiences i think would be very hard to create otherwise as well i'm just in terms of having that that i'm that kind of the loop and in the product so i'm not that like enabling more experiences i think is really the primary driver and then the the sort of fortification against external risks his arm is certainly a strategic advantage over the long term by but probably not the them
spk_0: the only reason why we're doing this
spk_16: you next question comes from line is used slowly with truest
spk_0: greetings very much maybe one question for days or susan and them want for mark i'm gonna the space assumptions full makeover you guys bacon in for twenty twenty three with against a tool to two percent increase in effect and topics guy them can you talk about maybe the six vs very
spk_16: herbal components and in the a guy that could give you the flexibility to dress material macro changes next year and market relative to your own expectations when you decided to pursue the metaverse strategy couple years ago how would you read the company's performance today
spk_1: in terms of product rollout engagement with things like horizon world et cetera and is the opportunity while then you know in line with are your expectations and if not what are their the key sectors thank you
spk_7: hi susan on the first question you know we haven't given revenue guidance yet for twenty twenty three but ah you know arc arc to for twenty twenty two guide is arranged in that range certainly encompasses i think a wide variety of max of macro expectations are certainly in a period right now where we are seeing a slow down in advertising demand and you know that correlates with a lot of things that we're seeing outside of just are our sector here including you know rising inflation and and supply chain issue sort of more broadly across the economy so you know with that in mind we have undertaken a twenty twenty three budget process that has applied higher scrutiny to you know almost all the areas of our of our i'm very broad investment portfolio and we had taken what is an intentionally more conservative approach to to our budget and are anticipated growth
spk_1: you asked about the sort of sexed vs variable components of the twenty twenty three our backs guide am i think i'd mention that you know over half
spk_7: a little over half of that is coming from our backs the rats from costa revenue so the cost of revenue piece you know that has the sort of the growth and depreciation which is certainly sexton you know is just playing through from prior year topics growth that you know part of that is coming from reality labs in the launch of the next and consumer quest had side so that sort of corresponds to the product launch and then on the are side you know we are a lot of the growth and twenty twenty three our backs is coming from from and who we've already hired we expect that we're gonna you know have the same number of employees he's you know and of twenty twenty three so that scenario where you know we're pretty focused on on on being ah
spk_2: disciplined also and and finally i just mentioned again there's such you billion dollar office facilities on consolidation charge that also included in the twenty three our backs guys certain in terms of thumb the metaverse efforts and and kind of how we're doing compared to two what i expected you know it's a it's a pretty wide portfolio things that were that we're working on which i think it is important to internalize because the it it is what i think most people fear the vr headsets right because that's that that's sort of the first thing that we launched and quest to is the first mainstream vr headset i kind of think about what we're doing this for major platforms that we're focused on developing up one is the be kind of social metaverse platform where you see an early version of that with horizon with the avatar system
spk_3: and that scenario where were really worried reading out in the open right it's a it's a kind of alive
spk_2: early product platform and that's evolving quickly but says that has a long way to go before it's going to be what we are we aspire for it to be but that's that's one important area that you're given what we were we do is sort of that the social companies it's about people interacting how you express yourself in in all forms the be kind of expressive avatars the photo realistic avatars it we think we're doing some some reading work there but but obviously when you take that into and into the product and damn and and continually rating on that vr is the second major platform in there you don't think that there's going to be a consumer focused product that that probably will reach very large scale but there's also i think going to be a work focused product that you know it's a good you you don't do most of your work on a five hundred dollar device we have we have computers and workstations that are much more powerful and of more technology and in them and i think that that's going into being similar here as well so we started that with with quest pro and and that we're sort of at the start of the journey there the to other areas which which are mostly
spk_17: and you still internal is a lot the work on augmented reality which is a a quite a large effort but we think is is going to be just a huge part of a value that gets created over time
spk_2: and they're in a week a lot of what i'm judging is your how well or the orange the efforts going there are some kind of basic things that we need to get right some integration of thing the some some figuring out how to manufacture things and and we're making progress on that and and i'd say a bunch of that is that there are some things that are going better than i expected something that similar they might take a bit longer but but overall engineers none of these non be indications that that i have would suggest that that anyone else in the world is doing reading work ahead of us in in in those areas even though we haven't we have an obviously shipped they are glasses yet and in the fourth platform new after the be kind of social platform vr and a are his arm his neural interfaces which i think the be kind of risk based e m g interface which is your for all these computing platform there's going to end up being your input is a really important part had he had you basically control the computing platform and your we think if it with by the time you have glasses and your kind of walking down the street with glasses you're you're not have controllers with that your iraq and wanna have your hands this kind of like hovering in the air you're not always going want to talk to the thing even though that's going to be one way to we them a bunch of the time sometimes you're gonna want something that's the a more private so we think that having a discrete waiter basically communicate with with the device is going to be critical and that's also an area where it is far as i can see the research that we're doing is is is really reading here so it's it's a pretty big surface you know i know that sometimes when we ship product in there is a meme where where people say hey you're spending all this money and and you produce this thing and you know as but that's not really the right would think about it i think they've you know there's there's a a number of different products and platforms that we're we're building on more we think we're doing reading work that will become yeah launching consumer products and then you know eventually mature products a different cadences different periods of time over the next five to ten years and in all these areas i i i think with the teams are making very good progress and ah making of this will be fundamentally important for the future or nothing that we're seeing suggests that that's not going to be the case we are pacing a bunch of the investments given the be kind of macro economic environment in the rest of the business performance but ultimately i mean look i get that a lot of people might disagree with this with disinvestment but from what would it would i can tell i think that this is going to be a very important saying and i think it would be a mistake for us to to i'm it not focus on any these areas which i think you're going be fundamentally important the future so we're going try to do this in a way that that is responsible and matches the the with the rest of the businesses is growing over time
spk_0: and i think we've we've built up the team to a point now where where i'm where think will be able to have kind of match that growth with the rest of the business more going forward
spk_18: but over time i i i i think that the user you are going to end up in very important investments for the future of of of our business and i think is is similar most historic work that we're doing that i think people are going to look back on decades from now on and and talk about the importance of the work that was done here you next question comes from line of mark mahaney with epicurus i
spk_6: a follow up on a pyre question it's back on the the ad tools and i'm just here and how much of a priority is for the company and how long the company thinks he can take this time to recover
spk_1: or to create a new and probabilistic at attribution model probabilistic lee based ad
spk_19: targeting model you know this is something that to ten billion been or maybe outta your business i mean at a material financial impact and listen to the call i just don't hear it as a major investment party so the challenge the question is is it a major investment priority or is it that that goal is just a elusive and it's better to focus on other things thanks a lot
spk_1: hi mark i'll take this question we have continued our broader work to rebuild meaningful elements of our ad tech sorry system can improve performance and measurement with and we've been making investments in the short and medium term and over the long term and short and medium term what we've been very focused on is a evolving are add system by growing on conversions with products like lead as and add six six to message and we're continuing to make investments and a i machine learning to improve measurement targeting and delivery we have been pleased with our progress that we've made this quarter to help advertisers improve performance targeting and measurement i would be remiss if i didn't talk about how ai and ml is really helping advertisers one example of this is advantage plus shopping we launched it in august it's a product that's enabled by machine learning that helps clients pass learn and optimize their campaign faster it's early but a recent tests across
spk_19: cross section of advertisers found that those using advantage plus shopping campaign saw a thirty two percent increase in return on add span
spk_1: over the longer term more focused on investing in privacy enhancing technologies but our own portfolio of solutions but also working with the industry to do that and all of this is in the spirit of
spk_0: investing in this technology to help and advertisers get more value
spk_20: thanks money we have operator we have time for one last question thank you that will come from line of bread still with jeffries
spk_4: i think i summon up the how investors are filling right now is that they're just too many experimental bad vs proven bad from the core and i i'm curious have you can just add more color why you don't feel these are expense experimental you feel like they pay off there's there's obviously a lot of focus on on the inside i think everyone love to hear what why you think this pays off take at least part of that mean we're making a number of investments across the portfolio marty outline some that were making him the ad space obviously the investments that were making in product areas like reels and the business messaging platform it what supper or are ones that we think will have a you know a significant pay off for the in business both in terms of engagement and monetization so we're making a wide portfolio that's still the give the majority of our are spending is directed towards our family of apps investment and those are across you know both you know engagement and monetization leveraging a i in many cases and we're we're making good progress on those fronts
spk_2: and then leveraging as well what is today you know a thoroughly under modifies resource in terms of our messaging platforms building more scale around those is being a source of future revenue growth we've already proven it out with our business or or click to quick to message ads with a nine billion dollar business today hey we think we can build a substantial side business around paid messaging which will complement that as well so i think we've got a lot of of that's across the family about portfolio you know in addition to the work that we're doing on reality lapse in the metaverse i just say that there's a difference between something being experimental and not knowing how good it's going to end up being a but i think a lot of the things that were working on across the family of apps are were quite confident that they're going to work in be good the into the real work the discovery engine work all the the ads work on on on signals the the business messaging work i'd we can tell you right now how much how big their going to scale to be but i think that each of these things are kind of going in the right direction
spk_21: he obviously the metaverse work as a longer term
spk_2: set of of of efforts that we're working on but i i think that that is that is going to end up working to so yeah i i think that what we read or number of different there are a lot of things going on right now in in in the business and in the world and so it's it's some it's hard to have like a simple you know we're going to do this one thing and that's gonna gonna solve all the issues i mean there's there's macro economic issues there's there's a lot of competition there's
spk_19: you know ads challenges especially coming from apple and then there's some the longer term things that were taking on expenses because we believe that they're going to provide greater returns over time and i they were going to resolve each of these things over different periods of time
spk_7: and i i appreciate the patients and i think that there is who who are patient and invest with us wonder being rewarded just adding to let mark just said it is a challenging time for advertisers and what they are focused on given the economic uncertainty is getting a strong return on investment going back to the family of apps and services real continues to be the fastest growing format on instagram and facebook and it is a great way for people to discover new interest creators
spk_1: and connect with businesses what we're focus on is making sure that that businesses get a strong our ally on wheels and one example that shows that were delivering on this in terms of our investments is courts to call which is the insulated drink were brand that added real to it's business as usual strategy and saw thirty
spk_0: four percent higher return on and spend and a thirty four percent higher sales so we are making progress with our investments and and helping advertisers find that our ally that they're looking for
Disclaimer