Meta Platforms, Inc.

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 Meta third quarter 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'd like to ask a question, please press the one, then the number four in your telephone keypad. This call will be recorded. Thank you very much. Ms. Deborah Crawford, Meta's Vice President of Investor Relations, you may begin.

Thank you. Good afternoon and welcome to Meta Platform's third quarter 2022 earnings conference call. Joining me today to discuss our results are Mark Zuckerberg, CEO, and Dave Wehner, CFO. Susan Lee, VP of Finance, and our incoming CFO, and Marnie Levine, Chief Business Officer, are also on the call and will join Mark and Dave for the Q&A portion. Before we get started, I would like to take this opportunity to remind you that our remarks today will include forward-looking statements. Actual results may differ materially from those contemplated by these forward-looking statements. Factors that could cause these results to differ materially are set forth in today's press release and in our quarterly report on Form 10-Q filed with the SEC. Any forward-looking statements that we make on this call are based on assumptions as of today, and we undertake no obligation to update these statements as a result of new information or future events. During this call, we may present both GAAP and non-GAAP financial measures. A reconciliation of gap to non-gap 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. Thanks for joining today. Our community continued to grow this quarter. We now reach more than 3.7 billion people monthly across our family of apps. And while we continue to navigate some challenging dynamics of volatile macro economy, increasing competition, ad signal loss, and growing costs from our long-term investments, I have to say that our product trends look better from what I see than some of the commentary I've seen suggests. There's been a bunch of speculation about engagement on our apps, and what we're seeing is more positive. On Facebook specifically, the number of people using the service each day is the highest it's ever been, nearly 2 billion. and engagement trends are strong. Instagram has more than 2 billion monthly actives. WhatsApp has more than 2 billion daily actives, also with the exciting trend that North America is now our fastest-growing region. Across the family, some apps may be saturated in some countries or some demographics, but overall, our apps continue to grow from a large base. We're also seeing engagement grow, especially strong growth in Reels, and I'll share more details about that when I discuss our product priorities shortly. In terms of our business, total revenue grew slightly this quarter on a constant currency basis. We're still behind where I think we should be, but we believe that we will return to healthier revenue growth trends next year. That said, it's not clear that the economy has stabilized yet, so we're planning our budget somewhat more conservatively. In 2023, We're going to focus our investments on a small number of high priority growth areas. So that means that some teams will grow meaningfully, but most other teams will stay flat or shrink over the next year. In aggregate, we expect to end 2023 as either roughly the same size or even a slightly smaller organization than we are today. Three of the primary areas we're going to focus on are our AI discovery engine that's powering reels and other recommendation experiences. our ads and business messaging platforms, and our future vision for the metaverse. The internal indications I've seen suggest we're doing leading 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 AI infrastructure and reality labs investments, we can still meaningfully leverage grow our overall company operating income in the long term. Our current surge in capex is largely due to building out our AI infrastructure, and we would expect capex to come down as a percent of revenue over the long term. We expect Reality Labs expenses will increase meaningfully again in 2023, with the biggest drivers of that being the launch of the next generation of our consumer quest headset and hiring that has been done in 2022, but for which we're going to be paying the first full year of salaries next year. More broadly, beyond 2023, we expect to pace Reality Labs investments to ensure that we can achieve our goal of growing overall company operating income. Our 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 greater return of capital to shareholders. All right, now I'd like to share some updates on the progress that we're seeing in these product areas. Our AI discovery engine is playing an increasingly important role across our products, especially as advances enable us to recommend more interesting content from across our networks and feeds that used to be primarily driven just by the people and accounts you follow. So this, of course, includes Reels, which continues to grow quickly across our apps, both in production and consumption. There are now more than 140 billion Reels plays across Facebook and Instagram each day. That's a 50% increase from six months ago. Reels is incremental to time spent on our apps. The trends look good here, and we believe that we're gaining time spent share on competitors like TikTok. Over time, I expect a few things to set our products apart here. First is that our discovery engine work allows us to recommend all types of content beyond Reels as well, including photos, text, links, communities, short and long form videos, and more. Second is that we can mix this content alongside posts from your family and friends, which can't be generated by AI alone. And third, as more social interactions move to messaging, we're developing a flywheel between discovery and messaging that are going to make these apps stronger. On Instagram alone, people already reshare Reels one billion times a day through DMs. Moving to monetization, I've discussed in the past how the growth of short-form video creates near-term challenges since Reels doesn't monetize at the rate of feed or stories yet. That means that as Reels grows, we're displacing revenue from higher monetizing surfaces. And I think this is clearly the right thing to do That way Reels can grow with the demand that we're seeing. But closing this gap is also a high priority. Even with the progress we've made, we're still choosing to take a more than $500 million quarterly revenue headwind with this shift. But we expect to get to a more neutral place over the next 12 to 18 months. I mentioned last quarter that Instagram Reels had crossed a $1 billion annual revenue run rate. We continue scaling monetization across both Instagram and Facebook, and the combined run rate across these apps is now $3 billion. Beyond Reels, messaging is another major monetization opportunity. Billions of people and millions of businesses use WhatsApp and Messenger every day, and we're confident that we can connect them in ways that create valuable experiences. We started with click-to-messaging ads. which lets businesses run ads on Facebook and Instagram that start a thread on Messenger, WhatsApp, or Instagram Direct so that they can communicate with customers directly. This is one of our fastest growing ads products with a $9 billion annual run rate. And this revenue is mostly on click to Messenger today since we started there first, but click to WhatsApp just passed a $1.5 billion run rate and growing more than 80% year over year. Paid messaging is another opportunity that we're starting to tap into, and it continues to grow quickly, but from a smaller base. We're putting the foundation in place now to scale this with key partnerships like Salesforce, which lets all businesses on their platform use WhatsApp as the main messaging service to answer customer questions, send updates, and sell directly in chat. And we also launched GeoMart on WhatsApp in India, And it's our first end-to-end shopping experience that shows the potential for chat-based commerce through messaging. So between click-to-messaging and paid messaging, I'm confident that this is going to be a big opportunity. The last area that I want to discuss today is the metaverse. We just had our Connect conference and announced Quest Pro, which we just started shipping. It's our new high-end VR headset that delivers high-resolution mixed reality, so you can blend virtual objects into the physical environment around you. It's pretty amazing 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 is a big theme for Quest Pro. There are 200 million people who get new PCs every year, mostly for work. And 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 PCs. And to deliver a great work and productivity experience, I'm excited about the partnerships that we announced with Microsoft bringing their suite of productivity and enterprise management services to Quest, Adobe and Autodesk bringing their creative tools, Zoom bringing their communication platform, Accenture building solutions for enterprises, and more. There's still a long road ahead to build the next computing platform, but we are clearly doing leading work here. This is a massive undertaking, and it's often going to 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, our ads and business messaging platforms, and our future vision for the metaverse, those are three of the areas that we're focused on. I believe that the tougher prioritization, discipline, and efficiency that we are driving across the organization will help us navigate the current environment and emerge as and even stronger company. As always, I'm grateful to everyone at Meta for your hard work and to all of you for being on this journey with us. And with that, I'm going to turn it over to Dave.