Meta Platforms, Inc.

Good afternoon, my name is Krista and I will be your conference operator today. At this time, I would like to welcome everyone to the META first 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 star one on your telephone keypad. To withdraw your question, again press star one. we ask that you limit yourself to one question. 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 Platform's first quarter 2024 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 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 earnings press release and in our annual report on Form 10-K 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 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 earnings 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. And hey, everyone. Thanks for joining. It's been a good start to the year, both in terms of product momentum and business performance. We estimate that more than 3.2 billion people use at least one of our apps each day, and we're seeing healthy growth in the U.S. And I want to call it WhatsApp specifically, where the number of daily actives and message sends in the U.S. keeps gaining momentum, and I think we're on a good path there. We've also made good progress on our AI and metaverse efforts, and if That's where I'm going to focus most of my comments today. So let's start with AI. We are building a number of different AI services from Meta AI, our AI assistant that you can ask any question across our apps and glasses, to creator AIs that help creators engage their communities and that fans can interact with, to business AIs that we think every business eventually on our platform will use to help customers buy things and get customer support. to internal coding and development AIs, to hardware like glasses for people to interact with AIs, and a lot more. Last week, we had the major release of our new version of Meta AI that is now powered by our latest model, Lama 3. And our goal with Meta AI is to build the world's leading AI service, both in quality and usage. The initial rollout of Meta AI is going well. Tens of millions of people have already tried it. The feedback is very positive. And when I first checked in with our teams, the majority of feedback we were getting was people asking us to release Meta AI for them, wherever they are. So we've started launching Meta AI in some English-speaking countries, and we'll roll out in more languages and countries over the coming months. You all know our product development playbook by this point. We release an early version of a product to a limited audience to gather feedback and start improving it. And then once we think it's ready, then we make it available to more people. That early release was last fall. And with this release, we are now moving to that next growth phase of our playbook. We believe that Meta AI with Llama 3 is now the most intelligent AI assistant that you can freely use. And now that we have the superior quality product, we are making it easier for lots of people to use it within WhatsApp, Messenger, Instagram, and Facebook. Now in addition to answering more complex queries, a few other notable and unique features from this release, Meta AI now creates animations from still images and now generates high quality images so fast that it can create and update them as you are typing, which is pretty awesome. I've seen a lot of people commenting about that experience online and how they've never seen or experienced anything like it before. In terms of the core AI model and intelligence that's powering Meta AI, I'm very pleased with how Llama 3 has come together so far. The 8 billion and 70 billion parameter models that we released are best in class for their scale. The 400 plus billion parameter model that we're still training seems on track to be industry leading on several benchmarks. And I expect that our models are just going to improve further from open source contributions. Overall, I view the results our teams have achieved here as another key milestone in showing that we have the talent, data, and ability to scale infrastructure to build the world's leading AI models and services. And this leads me to believe that we should invest significantly more over the coming years to build even more advanced models and the largest scale AI services in the world. As we're scaling CapEx and energy expenses for AI, we'll continue focusing on operating the rest of our company efficiently. But realistically, even with shifting many of our existing resources to focus on AI, we'll still grow our investment envelope meaningfully before we make much revenue from some of these new products. I think it's worth calling that out, that we've historically seen a lot of volatility in our stock during this phase of our product playbook. where we're investing in scaling a new product but aren't yet monetizing it. We saw this with Reels, Stories, as News Feed transitioned to mobile and more. And I also expect to see a multi-year investment cycle before we fully scaled Meta AI, business AIs, and more into the profitable services I expect as well. Historically, investing to build these new scaled experiences in our apps has been a very good long-term investment for us and for investors who have stuck with us. And the initial signs are quite positive here too. But building the leading AI will also be a larger undertaking than the other experiences we've added to our apps. And this is likely going to take several years. On the upside, once our new AI services reach scale, we have a strong track record of monetizing them effectively. There are several ways to build a massive business here, including scaling business messaging, introducing ads or paid content into AI interactions, and enabling people to pay to use bigger AI models and access more compute. And on top of those, AI is already helping us improve app engagement, which naturally leads to seeing more ads, and improving ads directly to deliver more value. So if the technology and products evolve in the way that we hope, each of those will unlock massive amounts of value for people and business for us over time. We're seeing good progress on some of these efforts already. Right now, about 30% of the posts on Facebook feed are delivered by our AI recommendation system. That's up 2x over the last couple of years. And for the first time ever, more than 50% of the content that people see on Instagram is now AI recommended. AI has also been a huge part of how we create value for advertisers by showing people more relevant ads. And if you look at our two end-to-end AI-powered tools, Advantage Plus Shopping and Advantage Plus App Campaigns, revenue flowing through those has more than doubled since last year. We're also going to continue to be very focused on efficiency as we scale Meta AI and other AI services. Some of this will come from improving how we train and run models. Some improvements will come from the open source community, and where improving cost efficiency is one of the main areas that I expect that open sourcing will help us improve, similar to what we saw with Open Compute. We'll also keep making progress on building more of our own silicon. Our meta training and inference accelerator chip has successfully enabled us to run some of our recommendations related workloads on this less expensive stack. And as this program matures over the coming years, we plan to expand this to more of our workloads as well. And of course, as we ramp these investments, we will also continue to carefully manage headcount and other expense growth throughout the company. Now, in addition to our work on AI, Our other long-term focus is the metaverse. It's been interesting to see how these two themes have come together. This is clearest when you look at glasses. You know, I used to think that AR glasses wouldn't really be a mainstream product until we had full holographic displays. And I still think that that's going to be awesome and is the long-term mature state for the product. But now it seems pretty clear that there's also a meaningful market for fashionable AI glasses without a display. Glasses are... the ideal device for an AI assistant because you can let them see what you see and hear what you hear. So they have full context on what's going on around you as they help you with whatever you're trying to do. Our launch this week of Meta AI with Vision on the glasses is a good example where you can now ask questions about things that you're looking at. Now, one strategy dynamic that I've been reflecting on is that an increasing amount of our Reality Labs work is going towards serving our AI efforts. We currently report on our financials as a family of apps and reality labs. We're two completely separate businesses, but strategically, I think of them as fundamentally the same business with the vision of reality labs to build the next generation of computing platforms in large parts that way we can build the best apps and experiences on top of them. Over time, we'll need to find better ways to articulate the value that's generated here across both segments so it doesn't just seem like our hardware costs increase as our glasses ecosystem scales, but all the value flows to a different segment. The Ray-Ban metaglasses that we built with Essilor Luxottica continue to do well and are sold out in many styles and colors. So we're working to make more and release additional styles as quickly as we can. We just released the new Cat Eye Schuyler design yesterday, which is more feminine. And in general, I'm optimistic about our approach of starting with the classics and expanding with an increasing diversity of options over time. If we want everyone to be able to use wearable AI, I think eyewear is a bit different from phones or watches in that people are going to want very different designs. So I think our approach of partnering with the leading eyewear brands will help us serve more of the market. I think a similar open ecosystem approach will help us expand the virtual and mixed reality headset market over time as well. We announced that we're opening up MetaHorizon OS, the operating system we've built to PowerQuest, As the ecosystem grows, I think there will be sufficient diversity in how people use mixed reality that there will be demand for more designs than we'll be able to build. For example, a work-focused headset may be slightly less designed for motion, but may want to be lighter by connecting to your laptop. A fitness-focused headset may be lighter with sweat-wicking materials. An entertainment-focused headset may prioritize the highest resolution displays over everything else. A gaming-focused headset may prioritize peripherals and haptics or a device that comes with Xbox controllers and a Game Pass subscription out of the box. Now, to be clear, I think that our first-party Quest devices will continue to be the most popular headsets, as we see today, and will continue focusing on advancing the state-of-the-art tech and making it accessible to everyone. But I also think that opening our ecosystem and opening our operating system will help the overall mixed reality ecosystem grow even faster. Now, in addition to AI and the metaverse, we're seeing good improvements across our apps. I touched on some of the most important trends already with WhatsApp growth in the U.S. and AI-powered recommendations in our feeds and reels already. But I do want to mention that video continues to be a bright spot. This month, we launched an updated full-screen video player on Facebook that brings together reels, longer videos and live content into a single experience with a unified recommendation system. On Instagram, reels and video continue to drive engagement with reels alone, now making up 50% of the time that's spent within the app. Threads is growing well, too. There are now more than 150 million monthly actives, and it continues to generally be on the trajectory that I hope to see. And, of course, my daughters would want me to mention that Taylor Swift is now on Threads. That one was a big deal in my house. All right. That is what I wanted to cover today. I am proud of the progress we've made so far this year. We've got a lot more execution ahead to fulfill the opportunities ahead of us. A big thank you to all of our teams who are driving all these advances and to all of you for being on this journey with us. And now here is Susan.