Meta Platforms, Inc.

Good afternoon. My name is Dave 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 would like to ask a question, please press one, then the number four on your telephone keypad. This call will be recorded. Thank you very much. Ken Durrell, Meta's Director of Investor Relations. You may begin.

Thank you, good afternoon and welcome to meta platforms third quarter 2023 earnings conference call joining me today to discuss our results are mark zuckerberg CEO and Susan Lee CFO. Before we get started, I would like to take this opportunity to remind you that our remarks today will include for looking statements. Actual results may differ materially from those contemplated by these for looking statements. Factors that could cause these results to different materially are set forth in today's press release and in our quarterly report on form 10 Q file 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 will present both GAAP and certain 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.

All right, thanks, Ken. Thanks, everyone, for joining today. This was a good quarter for our community and our business. We estimate that there are now more than 3.9 billion people who use at least one of our apps every month. The big product news this quarter is that we just held our annual Connect conference, and we discussed Quest 3, which is the first mainstream mixed reality device, and the next generation of Ray-Ban Meta smart glasses, which are the first smart glasses with our Meta AI built in. There continues to be a ton of innovation in AI, and we used Connect to describe and start launching a lot of the new consumer AI experiences that we expect to become meaningful parts of all of our apps and our business over the coming years. We started rolling out Meta AI, our new assistant that you can access across all our messaging experiences and smart glasses to answer questions, get access to real-time information, and generate photorealistic images. We started launching our AI studio platform that enables people to create and interact with lots of different AIs for help getting things done and just having fun. We rolled out Emu, our image creation model that produces high quality images and stickers fast. We launched an early alpha of business AIs so that eventually every business can have an AI to interface with customers, to do sales and support. And we let out the plan to launch creator AIs next year, so every creator can have an AI their fans can engage with to help them build out their community. And that's just a snapshot of some of the AI work that we're doing. The experiences that we started rolling out at Connect are going to transform the way that people use all our services, feeds, messaging, hardware, advertising, business messaging, interacting with creators and more. But it's going to take time to tune all these experiences before hundreds of millions or billions of people are going to use them. And I expect that dialing in these products and the vision that we articulated at Connect is going to be our theme for much of the next year. And I think that it's going to be a very exciting 2024. As we are looking ahead and planning for next year, I want to share a few thoughts on what I'm expecting. I've been happy with our results this year so far, and we are planning to continue focusing on operating efficiently going forward, both because it creates a more disciplined and lean culture, and also because it provides stability to see our long-term initiatives through in a very volatile world. Now, in terms of investment priorities, AI will be our biggest investment area in 2024, both in engineering and compute resources. But I want to avoid allocating a lot of new headcount. So we're going to continue deprioritizing a number of non-AI projects across the company to shift people towards working on AI instead. On the recruiting front, one dynamic that I want to flag is that We have a sizable hiring backlog right now since part of our layoffs earlier this year included teams swapping out certain skill sets for being able to hire others. And we're still going to be hiring those roles into 2024. So that means that even though we're planning to grow headcount at a much slower rate going forward, the actual rate next year may temporarily be faster as we work through this hiring backlog. All right, now let's get into our product updates. Let's start with Reels, which continues to do very well. We estimate that with all the ranking and product improvements that we've made, Reels has now driven more than 40% increase in time spent on Instagram since launch. We also reached a monetization milestone earlier than expected, and we estimate that Reels is now net neutral to overall company ad revenue. In many ways, Reels has... and now graduated from being an early initiative to now being a core part of our apps. So going forward, we're going to continue focusing on Reels, but we'll also look at growing it as part of our overall portfolio of video services, which make up more than half of the time that is spent on Facebook and Instagram. And there's a lot more to do across all of these. All right, AI. AI advances are driving a lot of our product and business performance. Generative AI will increasingly be important going forward. I outlined our product roadmap earlier. And on top of that, we're also building foundation models like Llama 2, which we believe is now the leading open source model with more than 30 million Llama downloads last month. Beyond that, there is also a different set of sophisticated recommendation AI systems that powers our feeds, reels, ads, and integrity systems. And this technology has less hype right now than generative AI, but it is also very important and improving very quickly. AI-driven feed recommendations continue to grow their impact on incremental engagement. This year alone, we've seen a 7% increase in time spent on Facebook and a 6% increase on Instagram as a result of recommendation improvements. Our AI tools for advertisers are also driving results with Advantage Plus shopping campaigns reaching a $10 billion run rate and more than half of our advertisers using our Advantage Plus creative tools to optimize images and text in their ads creative. Business messaging also continues to grow across our services and I believe will be the next major pillar of our business. There are more than 600 million conversations between people and businesses every day on our platforms. To give you a sense of what this could look like when it's scaled globally, Every week now, more than 60% of people on WhatsApp in India message a business app account. Revenue from click to message ads in India has doubled year over year. Now, I think that this is going to be a really big opportunity for our new business AIs that I talked about earlier that we hope will enable any business to easily set up an AI that people can message to help with commerce and support. Today, most commerce and messaging is in countries where the cost of labor is low enough that it makes sense for businesses to have people corresponding with customers over text. And in those countries like Thailand or Vietnam, there's a huge amount of commerce that happens in this way. But in lots of parts of the world, the cost of labor is too expensive for this to be viable. But with business AIs, we have the opportunity to bring down that cost and expand commerce and messaging into larger economies across the world. So making business AIs work for more businesses is going to be an important focus for us into 2024. I want to give a quick update on threads. We're three months in now, and I'm very happy with the trajectory. There are just under 100 million monthly actives at this point. And we're now getting to the point where we're going to be focusing on growing the community further. From what we can tell, people love it so far. You know, I thought for a long time that there should be a billion-person public conversations app that is a bit more positive. And I think that if we keep at this for a few more years, then I think we have a good chance of achieving our vision there. All right. Now, finally, in addition to AI, our other major long-term focus is the metaverse. And we just launched Quest 3, our most powerful headset yet, at a very competitive price. We packed a lot of improvements in there, including a next-generation chipset with 2x the graphics performance, our best displays yet, and a form factor that's 40% thinner than Quest 2. But the most important breakthrough for Quest 3 is that it's the first mainstream mixed reality device. And that means that when you put on the device, You see your physical room around you, and you can bring digital objects and games into your physical space, whether that's a ping pong table, your workstation, a big screen TV to play Xbox games on, or your friends as holograms. The early reviews have been great, and it's been fun to see how people respond to this. We also launched the next generation of Ray-Ban Meta smart glasses. They're upgraded from the first generation in basically every way. Better camera, clearer audio, they're lighter, they have more styles, and you can now even live stream video from them. But most importantly, these are the first smart glasses shipping with Meta AI built in. So you can ask your glasses questions throughout the day and it'll answer them right in your ear. And in many ways, glasses are the ideal form factor for an AI device because they enable your AI assistant to see what you see and hear what you hear. Again, it's good to see the early reviews are so positive, and I'm looking forward to this space evolving quickly over the coming years. We are also making progress on software for the Metaverse 2. Horizon is now growing faster. There's more new worlds like Super Rumble and Citadel come online. We also started testing Horizon for phones, tablets, and PCs, which is going to be an important part of how we build out the metaverse across devices. And we've had a couple of important milestones with avatars as well, both for our expressive avatars and the latest codec avatars that I showed off recently. Now, as I said at Connect, I think one of the most interesting questions for our industry over the coming decades is going to be how we bring together our physical and digital worlds into a coherent and good experience. I think we're starting to see some of the building blocks come together between mixed reality for bringing digital objects into the physical world, our AI studio work for enabling interactions with all kinds of different AIs, and eventually smart glasses to bring all of this together into a stylish form factor. So I am very excited about the roadmap ahead. All right. That is my update for today. This was a good quarter. I'm pleased with our progress on efficiency this year. We're a leaner organization, shipping faster and advancing the state of the art in all of our long-term initiatives. And while investing heavily for the future, we also just recorded our highest operating margin in two years. So I'm looking forward to carrying this product momentum and operating discipline forward. As always, thank you to everyone on our team and all of you who are on this journey with us. And now here's Susan.