Meta Platforms, Inc.

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 Facebook third quarter 2021 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during that time, please press the 1 and then the number 4 on your telephone keypad. This call will be recorded. Thank you very much. Ms. Deborah Crawford, Facebook Vice President of Investor Relations, you may begin.

Thank you. Good afternoon and welcome to Facebook's third quarter earnings conference call. Joining me today to discuss our results are Mark Zuckerberg, CEO, Sheryl Sandberg, COO, and Dave Wehner, CFO. Before we get started, I would like to take this opportunity to remind you that our remarks today will include forward-looking statements. Actual results may differ materially from those contemplated by these forward-looking statements. Factors that could cause these results to differ materially are set forth in today's press release and in our quarterly report on Form 10Q filed with the SEC. Any forward-looking statements that we make on this call are based on assumptions as of today, and we undertake no obligation to update these statements as a result of new information or future events. During this call, we may present both GAAP and non-GAAP financial measures. A reconciliation of GAAP to non-GAAP measures is included in today's earnings press release. The press release and an accompanying investor presentation are available on our website at investor.fb.com. And now I'd like to turn the call over to Mark.

Hey, everyone, and thanks for joining today. We made good progress this quarter across a number of product priorities, and our community continues to grow. There are now almost 3.6 billion people who actively use one or more of our services, And I'm excited about our roadmap to keep building great new experiences for them. As expected, we did experience revenue headwinds this quarter, including from Apple's changes that are not only negatively affecting our business, but millions of small businesses and what is already a difficult time for them in the economy. Cheryl and Dave will talk about this more later. But the bottom line is we expect we'll be able to navigate these headwinds over time with investments that we're already making today. Before I get to our product update, I want to discuss the recent debate around our company. I believe large organizations should be screwed. So I'd much rather live in a society where they are than one where they can't be. Good faith criticism helps us get better. But my view is that what we are seeing is a coordinated effort to selectively use leaked documents to paint a false picture of our company. The reality is that we have an open culture. where we encourage discussion and research about our work so we can make progress on many complex issues that are not specific to just us. We have industry-leading programs to study the effects of our products and provide transparency to our progress because we care about getting this right. When we make decisions, we need to balance competing social equities. like free expression with reducing harmful content, or enabling strong encrypted privacy with supporting law enforcement, or enabling research and interoperability with locking down data as much as possible. It makes a good soundbite to say that we don't solve these impossible trade-offs because we're just focused on making money, but the reality is these questions are not primarily about our business, but about balancing different difficult social values. And I've repeatedly called for regulation to provide clarity because I don't think companies should be making so many of these decisions ourselves. I am proud of our record navigating the complex trade-offs involved in operating services at global scale. And I am proud of the research and transparency we bring to our work. Our programs are industry-leading. We have made massive investments in safety and security with more than 40,000 people, and we are on track to spend more than $5 billion on safety and security in 2021. I believe that's more than any other tech company, even adjusted for scale. We set the standard for transparency with our quarterly enforcement reports and tools like the GLADS archive. We established a new model for independent academic researchers to safely access data. We pioneered the oversight board as a model of self-regulation. And as a result, we believe that our systems are the most effective at reducing harmful content across the industry. And I think that any honest account of how we've handled these issues should include that. I also think that any honest account should be clear that these issues aren't primarily about social media. That means that no matter what Facebook does, we're never going to solve them on our own. For example, polarization started rising in the U.S. before I was born. At the same time, independent research shows that many countries around the world have flat or declining polarization, despite similar social media use there in the U.S. We see this pattern repeat with other issues as well. The reality is, if social media is not the main driver of these issues, then it probably can't fix them by itself either. We should want every other company in our industry to make the investment and achieve the results that we have. I worry about the incentives that we are creating for other companies to be as introspective as we have been. But I am committed to continuing this work because I believe it will be better for our community and our business over the long term. Now, we can't change the underlying media dynamics. But there is a different constituency that we serve that has always been more important and that I try to keep us focused, and that's people. Billions of people use our services because we build the best tools to stay connected to the people you care about, to find communities that matter to you, and to grow your small business. And the reason we've been able to succeed for almost two decades is because we keep evolving and building. Facebook started in a dorm room and grew into a global website. We invented the newsfeed and a new kind of ads platform. We became a mobile first experience. And then we grew a whole family of apps that serve billions of people. And there is so much more to build. Even with all of the tools that we have today, we still can't feel like we're right there together with the people we care about when we're physically apart. We can't teleport as holograms to instantly be at the office without a commute. or at a concert with a friend, or in your parents' living room to catch up, the creative economy and commerce tools are still nascent. And there should be opportunity for millions of more people to make a living doing the work that they love. Our three product priorities remain our focus on creators, commerce, and building the next computing platform. A big part of our work with creators is our focus on real. Reels is already the primary driver of engagement growth. It's incredibly entertaining, and I think that there is a huge amount of potential ahead. We expect this to continue growing, and I am optimistic that Reels will be as important for our products as Stories is. We also expect to make significant changes to Instagram and Facebook in the next year to further lean into video and make Reels a more central part of the experience. One aspect of this is giving all our apps the goal of being the best services for young adults, which we define as ages 18 to 29. Historically, young adults have been a strong base, and that's important because they are the future. But over the last decade, as the audience that uses our apps has expanded so much and we've focused on serving everyone, our services have gotten dialed to be the best for the most people who use them rather than specifically for young adults. And during this period, competition has also gotten a lot more intense, especially with Apple's iMessage growing in popularity and more recently, the rise of TikTok, which is one of the most effective competitors that we have ever faced. So we are retooling our teams to make serving young adults their North Star rather than optimizing for the larger number of older people. Like everything, this will involve trade-offs in our products, and it will likely mean that the rest of our community will grow more slowly than it otherwise would have. But it should also mean that our services become stronger for young adults. This shift will take years, not months, to fully execute, and I think it's the right approach to building our community and company for the long term. Our next product priority is commerce. Helping people discover new products that they're interested in and reach customers inside our apps is going to unlock a lot of opportunities. As Apple's changes make e-commerce and customer acquisition less effective on the web, solutions that allow businesses to set up shop right inside our apps will become increasingly attractive and important to them. We built solutions like ads that can dynamically point to either a business's website or their shop on our platforms, depending on what will perform better for them. And that will help more businesses navigate this challenging dynamic and environment. Building a full-fledged commerce platform is a multi-year journey. Marketplace is already at scale and lots of people rely on it, especially now with supply chain issues that make it harder to get new products. Shops are getting more developed, and we have an exciting program planned for this holiday season where we're working closely with a number of the businesses that have invested the most in shops to identify what works to find new customers and grow their businesses even faster. And our plan is to then scale those solutions more broadly in 2022. Beyond reels and commerce, I also want to share some thoughts on our longer-term efforts to build the next computing platform and help bring the metaverse to life. This is a major area of investment for us and an important part of our strategy going forward. And I view this work as critical to our mission because delivering a sense of presence, like you're right there with another person, that's the holy grail of online social experience. Over the next decade, these new platforms are going to start to unlock the kinds of experiences that I've wanted to build since before I even started Facebook. Along with those social experiences, I expect a massive increase in the creator economy and amount of digital goods and commerce. If you're in the metaverse every day, then you'll need digital clothes and digital tools and different experiences. Our goal is to help the metaverse reach a billion people and hundreds of billions of dollars of digital commerce this decade. And strategically, helping to shape the next platform should also reduce our dependence on delivering our services to our competitors. Building the foundational platform for the metaverse will be a long road. We just released the 128-gigabyte Quest 2, replacing the 64-gigabyte model for $299. With Estelor Luxottica, we released our first smart glasses, and they're off to a strong start as well. But bringing this vision to life isn't just about building one glasses product. There's a whole ecosystem. We're building multiple generations of our VR and AR products at the same time, as well as a new operating system and development model, a digital commerce platform, content studios, and, of course, a social platform. So to reflect the significance of this for our business, today we are announcing a change to our financial reporting. Starting next quarter, we will begin disclosing financial metrics for Facebook Reality Lab separately from our family of apps. And this will provide investors with additional visibility into the investments that we're making in augmented and virtual reality. In 2021, we expect these investments to reduce our overall operating profit by approximately $10 billion. And I expect this investment to grow even further for each of the next several years. Dave will share more about this later, but I encourage you all to tune in to Connect on Thursday to hear more about our vision and our work here in more detail. I recognize the magnitude of this bet on the future, and I am grateful for the support of our investors, the creative community, and the thousands of talented people working on this effort inside our company to bring this inspiring future to life.