Facebook Management Discusses Q2 2012 Results - Earnings Call Transcript - Seeking Alpha

5/5/2016
Facebook Management Discusses Q2 2012 Results - Earnings Call Transcript | Seeking Alpha
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FacebookManagementDiscussesQ22012ResultsEarningsCall
Transcript
Jul.26,20129:30PMET10comments
by:SATranscripts
Facebook(NASDAQ:FB)
Q22012EarningsCall
July26,20125:00pmET
Executives
DeborahCrawford
MarkZuckerbergFounder,ChairmanoftheBoardandChiefExecutiveOfficer
SherylK.SandbergChiefOperatingOfficerandDirector
DavidA.EbersmanChiefFinancialOfficer
Analysts
SpencerWangCrditSuisseAG,ResearchDivision
MarkS.MahaneyCitigroupInc,ResearchDivision
JasonMaynardWellsFargoSecurities,LLC,ResearchDivision
DouglasAnmuthJPMorganChase&Co,ResearchDivision
HermanLeungSusquehannaFinancialGroup,LLLP,ResearchDivision
ScottW.DevittMorganStanley,ResearchDivision
AnthonyJ.DiClementeBarclaysCapital,ResearchDivision
HeatherBelliniGoldmanSachsGroupInc.,ResearchDivision
LauraA.MartinNeedham&Company,LLC,ResearchDivision
KennethSenaEvercorePartnersInc.,ResearchDivision
BenjaminA.SchachterMacquarieResearch
DanielSalmonBMOCapitalMarketsU.S.
Operator
Goodafternoon.MynameisMike,andIwillbeyourconferenceoperatortoday.Atthistime,Iwouldliketowelcomeeveryoneto
theFacebookSecondQuarter2012EarningsConferenceCall.[OperatorInstructions]Ms.Crawford,youmaybeginyour
conferencecall.
http://seekingalpha.com/article/755071-facebook-management-discusses-q2-2012-results-earnings-call-transcript?part=single
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DeborahCrawford
Thankyou.Goodafternoon,andwelcometoFacebook'sfirstearningsconferencecall.Joiningmetodaytotalkaboutoursecond
quarterresultsare:MarkZuckerberg,CEOSherylSandberg,COOandDavidEbersman,CFO.
Beforewegetstarted,I'dliketotakethisopportunitytoremindyouthatduringthecourseofthiscall,wewillmakeforwardlooking
statementsregardingfutureeventsandthefuturefinancialperformanceofthecompany.Wecautionyoutoconsidertheimportant
riskfactorsthatcouldcauseactualresultstodiffermateriallyfromthoseintheforwardlookingstatementsinthepressreleaseand
thisconferencecall.TheseriskfactorsaredescribedinourpressreleaseandaremorefullydetailedunderthecaptionRisk
FactorsinourfinalprospectusfiledwiththeSEConMay18,2012.
Inaddition,pleasenotethatthedateofthisconferencecallisJuly26,2012,andanyforwardlookingstatementsthatwemake
todayarebasedonassumptionsasofthisdate.Weundertakenoobligationtoupdatethesestatementsasaresultofnew
informationorfutureevents.
Duringthiscall,wewillpresentbothGAAPandnonGAAPfinancialmeasures.AreconciliationofGAAPtononGAAPmeasuresis
includedintoday'searningspressrelease.ThiscallisbeingbroadcastontheInternetandisavailableontheInvestorRelations
sectionoftheFacebookwebsiteatinvestor.fb.com.Arebroadcastofthecallwillbeavailableafter6:00p.m.,PacificTime,today.
Theearningspressreleaseandanaccompanyinginvestorpresentationarealsoavailableonourwebsite.Aftermanagement's
remarks,wewillhostaQ&Asession.
AndnowI'dliketoturnthecallovertoMark.
MarkZuckerberg
Thankyou,Deborah.AndthankstoeveryonelisteningforjoiningFacebook'sfirstearningscallasapubliccompany.We
appreciatehavingtheopportunitytospeakdirectlytoallofyouandtoshareourperspectiveonhowwe'redoinginfulfillingour
missionofmakingtheworldmoreopenandconnected.Hopefully,you'llcomeawayfromtoday'scallwithaclearsenseofthe
investmentswe'remakingtocreatevalueoverthelongtermbymakingFacebookevenmoreusefulforallofthepeoplewhouse
ourservicesworldwide.
WeendedJunewith955millionmonthlyactiveusers,over1/2ofwhomusedFacebookonadailybasisandover1/2ofwhom
usedFacebookformobiledevices.WesawmorepeopleusingourservicesattheendofJunethanattheendofMarchacrossall
keycountries,including3millionmorepeopleintheU.S.GrowingthenetworkofpeoplewhouseFacebookandexpandingthe
socialexperiencesavailabletothemremainsthefoundationofoureffortsandthekeytoourfuturesuccess.
I'mgoingtofocustherestofmycommentstodayonourtopprioritiesacrossourproductareasfor2012,specificallymobile,
platformandsocialads.
Let'sstartwithmobile.MobileisahugeopportunityforFacebook.Ourgoalistoconnecteveryoneintheworld.Andoverthenext
5years,weexpect4billionto5billionpeopletohavesmartphones.That'smorethantwiceasmanypeoplethathavecomputers
today.Sobuildinggreatservicesforthesedevicesisessentialforustohelppeopleconnect.Wealsothinkthatpeopleare
inherentlysocial,andhavingadevicewithyouwhereveryouarecreatesmoreopportunitiesforsharingandconnecting.
We'refindingthatpeoplearequicklyadoptingourmobileservices.AsoftheendofJune,543millionpeoplewereactivelyusing
ourmobileserviceseverymonth,eachmonth.That's67%morepeoplethanthe325millionwhowereusingourmobileservices
justayearago.We'vealsofoundthatpeoplewhouseourmobileservicesaremoreactiveFacebookusersthanpeoplewhoonly
useourdesktopservices.Onaverage,mobileusersarearound20%morelikelytouseFacebookonanygivenday.Somobilenot
onlygivesusthepotentialtoconnectmorepeoplewithourservices,butitalsogivesustheabilitytoprovidemorevalueanda
moredeeplyengagingexperience.
Wedon'tjustwanttohavethemostwidelyusedmobileapps,though.Wewanttobuildthebestappsandwealsowanttobuild
experiencesthatareasdeeplyintegratedaspossibleintoeverydeviceandmobileappthatpeopleuse.We'reinvestingvery
heavilyinimprovingourmobileapps,primarilyacrossiOS,AndroidandthemobileWeb.Thisinvolvesbuildingoutworldclass
teamswithcompetenciesindifferenttechnicalstacks,makingsignificantinvestmentsinimprovingthetechnicalfoundationofour
appsanddesigningnewproductsandintegratingintothesemobilesystemsasdeeplyaswecan.
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We'vemadesomegoodprogressfromthepastquarteraswereleasedourCameraapp,shippednewreleasesofMessenger,
shipped2releasesofourAndroidapp,agreedtoacquireInstagramandworkedwithAppletointegrateFacebookintotheir
upcomingreleaseofiOS.Goingforward,youshouldexpecttoseeafrequencyofimprovementtoeachofthesemobile
experiences.
Finally,we'realsobeginningtodemonstratethatwecanadvertiseeffectivelywithinthemobileexperience.I'lldiscusssocialads
moreinaminute.Butatahighlevel,ourSponsoredStories,whichwelaunchedinmobileNewsFeedearlierthisyear,havegrown
quicklyanddemonstratedearlysuccess.
Nowlet'sshifttoplatform.Webelieveoneofthebiggestopportunitieswehaveistocreatetheidentityandsociallayerthatallnew
appsandwebsitescanbebuiltontopof.Wethinkalmosteveryproductisbetterwhenyoucanexperienceitwiththepeopleyou
careabout.Soovertime,weexpectalmostalloftheseproductsshouldnaturallybecomesocial.Sincethere'snowaywecould
everbuildalloftheseourselves,we'refocusedonbuildingasuccessfulplatform,whichenablesdeveloperstobuildgreatsocial
experiencesintotheirownappsbyintegratingwithandexchanginginformationwithFacebook.
Ourplatformstrategyenablesmillionsofdeveloperstobuildbetterproductsandhelpsusprovidealotofvaluetothepeoplewho
useFacebook.We'vealreadyseenhowsocialdynamicscantransformindustries,likegaming,andwebelieveotherindustries,like
music,arestartingtofollowaswell.Ourgoalistomakeiteasyfordeveloperstobuildthesesocialapps.Wedothisin2ways:
first,byenablingpeopletosignintoappsusingFacebookandtherebybringingtheirrealidentities,friendsandotherinformationto
theappssothattheappscanofferamorepersonalizedexperienceandsecond,byenablingpeopletosharewhatthey'redoingin
theseappstotheirfriendsbackonFacebooksotheseappscangetaccessedtoourdistributionandtheycanscaleandgrow
quickly.
Today,youcoulddownloadSpotify,loginwithFacebookandimmediatelyseeourmusicplayerlightupwithsongsyourfriendsare
listeningtoandrecommending.Wecanimagineadaywhenyoubuyanewcarandbyloggingintothecar'scomputerwith
Facebook,youcansimilarlyhaveitimmediatelylightupmusic,addresses,restaurants,storesandotherdestinationstargeted
specificallyforyoubasedonyourfriendsandyourinterests.
Webelievesocialproductslikethiswillprovidebetterexperiences.Butifwe'reright,thenFacebookisinauniqueplacetoenable
theseexperiencestogetbuilt.It'sworthcallingoutthatourvisionforplatformisbiggerthanwhatmostpeopleperceive.We
believeourplatformisaboutbringingsocialcontexttoappsandprovidingdistributionforappsregardlessofwhatenvironment
they'rebuiltin,includingmobileapps,websitesoronourownCanvasonourownwebsite.Whenmanypeoplethinkaboutour
platform,theythinkonlyaboutgamesthatarebuiltinsideoftheFacebookwebsitedirectlyandnotalloftheotherkindsofapps
thatdeveloperscanbuild.
OurOpenGraphplatformiswhatwecallthetoolswe'velaunchedlastyearthatenabledeveloperstoeasilyintegratemorekinds
ofactionsandexperienceswithFacebook.OpenGraphhasalreadybeenadoptedbymanyofthemostpopularwebsitesand
mobileapps.ManyofthetopappsintheiOSandAndroidappstoresareintegratedwithFacebook.AppslikeSpotify,Netflix,
Pinterest,foursquare,Instagram,Airbnb,Tumblr,VeeHD,Nike+,SongPopandthousandsmorehaveintegratedwithOpenGraph
toprovidebettersocialexperiencesandgrowtheiruserbases.Alreadypeoplearesharingnearly1billionpiecesofcontenteach
dayusingOpenGraph.
TheseOpenGraphintegrationsenableFacebookuserstosharemoreofthecontenttheywantwiththeirfriends.Thishelpsmake
ourservicemoreengagingoverallsincethere'smorecontenttoconsume.Additionally,wefoundthatourlargestdevelopersalso
tendtobecomeourlargestadvertisersastheylooktofurtherboostthedistributionthey'regettingfromus.
We'restillintheearlydaysofourOpenGrapheffort,andwe'recontinuallyworkingtoimprovehowitworks.Abigfocusforusright
nowisgivingpeoplemoretoolstocontrolhowtheysharetheirinformationusingtheseintegrations.We'realsoworkingon
improvingthedistributionthattheseappsgetinexchangeforthecontenttheyhelppeopleshare.Thesearesomecomplex
problemsthatwilltaketimetoworkout,butyoushouldexpectustomakesteadyprogresstowardsbuildingoutthisecosystem.
Finally,I'dliketodiscussoursocialadsinitiatives.Thebasicideahereisthatthebesttypeofadvertisingisamessagefroma
friend.Facebookwantstoofferadvertisersthebesttoolstocreateadsthataresocial.Webelievethatthemoreouradvertising
includeinterestingcontentfrompeopleyoucareabout,themoremarketerswillbeabletocreateadvertisingthataddsvalueto
people'sexperienceonFacebook.AdvertisementonFacebooktodayisalreadydeliveringacompellingROI,eventhoughmost
advertisingonFacebooktodayisn'tsocial.Webelievetheexperiencecanbebetterandmoresocial.Forexperiencefor
example,ifIlikearestaurant,thenmyfriendsmightseethatIlikethatplace,andthat'slikelyamoreconvincingadthananything
therestaurantwouldproduceonitsown.That'sanexampleofaligningsocialactivityinads.Oneimportantaspectofsocialadsis
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thatsincethey'rebasedonsocialactivity,they'vebeentoourNewsFeedproductonbothmobileanddesktop.Thisisimportant
becausemobileusersalreadyspendsomuchtimereadingtheirNewsFeed.SothesesocialadsinNewsFeedgiveusaclear
pathtobuildingastrongbusinessonmobile.
ImentionedearlierthatwerecentlybegantorolloutourSponsoredStoriesinbothdesktopandmobileNewsFeed.Bytheendof
June,SponsoredStoriesinNewsFeedwasatarunrateofover$1millionperdayinrevenueandabout1/2ofthatiscomingfrom
mobile.ThisisanencouragingstartinourefforttogeneraterevenuefromthemobileuseofFacebook.Weknowthatsocialads
performmuchbetterthannonsocialads,soourjoboverthenextfewyearsistoincreasethepercentageofadsthataresocialand
engaging.
Overall,Ihopemycommentsheregiveyouagoodsenseofourprioritiesaroundmobile,platformandsocialads.Wehavealotof
interestingthingsgoingonhere.Therearealotofchallengesandthesearethetypesofproblemsthatweliketoworkon.We're
workinghardtostaffupacrossthecompany,especiallyinthetechnicalgroups,tomakesurewemakeprogressagainstthese
goals.
Wejustannouncedwe'vebegunrecruitingengineerstoworkinourLondonofficetohelpusaccesstalentacrossEurope.We're
pleasedthatthecompanyandculturearecenteredonbuildinggreatproductsandaroundourmissiontomaketheworldmore
openandconnected.
Thanks,again,fortakingthetimetobeonthecallwithustoday.AndnowI'dliketohanditovertoSheryl.
SherylK.Sandberg
Thanks,Mark.I'mgoingtofocustodayonFacebook'sopportunitiesintheadvertisingmarketandtheprogresswe'vemadeinthe
pastquarter.Ourtotalsecondquarterrevenueof$1.18billion,$992millioncamefromadvertising.Thisrepresentsa32%year
overyearincreaseoverallanda28%increaseforadvertising.
Facebook'spowertochangethewaypeopleandbusinessesinfluenceeachothercreatesuniqueadvertisingopportunities.We
offermarketerstheabilitytoreachamassoratargetedaudienceandestablishrealandongoingrelationshipsdirectlywithour
customers.Marketershavealwaysknownthatarecommendationfromafriendisoneofthemostpowerfulwaystoselltheir
products.MarketingonFacebookisfundamentallydifferentthanothermediumsbecausemessagescanbesharedfromfriendto
friend.Thisiswordofmouthmarketingatanunprecedentedscale.Inanincreasinglycrowdedworld,thisisessentialforthe
world'slargestglobalcompanies,aswellasthesmallbusinessaroundthecorner.
Webelieveweareverywellpositionedtocompeteforadvertisingdollarsthroughouttheentiremarketingfunnel,fromtheverytop
wherecompaniesfocusongeneratingdemand,tothebottomwherethefocusisonfulfillingdemand.Themajorityofthe
advertisingspendthatismigratedonlinetodatehasbeenfordemandfulfillment,whichhappenswhenacustomeralreadyhas
intenttopurchase.Searchadvertisinghasbeentheprimarydriverofthismigration.Facebookisalsoeffectiveatthebottomofthe
funnel,withgamingbeingaprimaryexample.ButwebelievethatFacebookalsohelpsmarketersbuildbrandsandgenerate
demand.Thisisimportantbecausethemajorityofthe$600billionglobaladvertisingmarketisspentondemandgeneration.
Overthepastquarter,wehavemadeimportantprogressinourmonetizationeffortsin3areas:first,rollingoutnewadproducts
second,demonstratingtheirROIofFacebookadspendandthird,makingiteasierforbusinessestoadvertisewithus.
I'llstartwiththenewproductsweintroduced.Earlierthisyear,welaunchedSponsoredStoriesinFacebookNewsFeed.
SponsoredStoriesareregularstoresthatpeopleseeintheNewsFeedsalready,updates,likes,commentspostedtoFacebook
everydaythatamarketerpaystohighlight.Forexample,ifIpostapositivereviewofaproductIpurchasedatWalmart,about20%
ofmyfriendshaveseenthepost,dependingonthingslikewhentheychecktheirNewsFeed.UsingSponsoredStories,Walmart
canpaytoboostdistributionofthispostsoalargerpercentageofmyfriendsseeit.
DeliveringsocialmessagesinFacebook'sNewsFeedisanextraordinaryopportunityformarketers.OntheWeb,peoplespend
moretimeusingFacebookthananyotherservicebyfar.Webelievethisistrueinmobiledevicesaswell.Moreover,Facebook
usersspendalargepercentageoftheirtimeonNewsFeed.SponsoredStoriesenablemarketerstointeractwiththeircustomers
wheretheircustomersarespendingtheirtime.Ourearlyresultsareencouraging.Asmeasuredbyclickthroughrates,Sponsored
StoriesinNewsFeedperformmultipletimesbetteronbothdesktopandmobilethanadsintherighthandcolumn.
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SponsoredStoriesinNewsFeedarethecornerstoneofourmobilemonetizationstrategy.NewsFeedfunctionsinexactlythe
samewaywhetheryou'reonthedesktoporphone.Thisisimportantbecauseweavoidthedilemmafacedbyotherindustry
players,wheretoputadsonthesmallerscreens.WithNewsFeed,marketingisincorporatedseamlesslyintotheuserexperience
onmobiledevices.WerecentlyenabledouradvertiserstobuyusexclusivelyinmobileNewsFeed.We'reseeingstronginterest,
particularlyfromourclients,whoknowmobileiscriticaltoreachingnewcustomers,especiallyinemergingmarkets.
Asalways,atFacebook,theuserexperienceisparamount.We'vebeendeliveringandintroducingSponsoredStoriesinawaythat
maintainstheexperienceusershavewithourservice.AswecontinuetorolloutSponsoredStoriesinNewsFeed,wearecarefully
monitoringuserengagementandsentiment,andwe'repleasedwiththeresultstoday.WebelievethatSponsoredStoriesinNews
Feedhasthepotentialtobeamongthemostrelevantadformatsformarketers.AsMarkmentioned,intheshortamountoftime
sincelaunch,bytheendofQ2,wearealreadygeneratingmorethan$1millionadayfromthisproductwithapproximately1/2of
thisgeneratedinmobile.
InQ2,wealsobegantestinganothernewadproduct.TheFacebookAdExchange,orFBX,allowsmarketerstobidinrealtimefor
adimpressionsonFacebook.Realtimebiddingisastandardindustrypracticetohelpadvertisersreachtherightcustomeratthe
righttime,anditwillhelpusdelivermorerelevantadstousers.We'reinanearlyoffertestwithFBX,butadvertiserinterestis
strong.eMarketerestimatesthismarkettobeapproximately$2billionintheU.S.alone.
Thesecondareaofprogressthisquarterhascomefromoureffortstobetterdemonstratetheeffectivenessofadspendon
Facebook.Today,nearlyeveryoneoftheGlobalAdAge100advertisersspendswithuseveryquarter.Buttodate,mostonly
allocateasmallsizeoftheirbudgettoFacebook,eventhoughtheircustomersspendlargeamountsoftimeusingourservice.This
imbalancerepresentsasubstantialopportunityforusifwecaneducatethemarketabouttheROIouradsdeliver.
WehavepartneredwithNielsentodemonstratethatFacebookadsarenotjustseenbutremembered.Studiesofover500ad
campaignsshowthatonaverage,Facebookadsdrive98%thatareadrecallsand31%higherbrandawarenessthannon
Facebookonlineadcampaigns.Independentresearchhasalsodemonstratedthatsocialcontextsignificantlyincreasesbothad
recallandbrandawarenessofFacebookads.Thisisnotsurprisingsincepeoplearemorelikelytorememberamessagethat
comesfromtheirfriend.
Werecognizethatadrecallisimportant,butit'sonlythefirststepindeliveringresultsformarketers.Marketers'ROIisgenerated
whenthecashregisterrings.We'remakinggreatprogressmeasuringourabilitytohelpmarketersgeneratesales.Independent
analysisofmorethan60campaigns,45ofwhichwerecompletedinthefirsthalfofthisyear,showthat70%ofthosecampaigns
deliveredareturnonadspendof3xorbetter.And49%ofthosecampaignsdeliveredareturnof5xorbetter.I'dliketoshareafew
examples.
ElectronicArtsrecentlyspent$2.75millionpromotingBattlefield3onFacebook.Theyattributed$12.1millionoftheirsalesto
theseads,translatingtoa4.4xreturnontheirFacebookmarketingspend.
BarclaycardagreedtopurchaseFacebookadsaspartofthedirectresponsestrategytopromoteNFLteambrandedcreditcards.
Theytargetedtheadstopeoplebasedonthespecificteamsthosepeoplelike.TheirFacebookadsgenerateda40%higher
conversionratethananyotheronlineadplatformstheyusedinacampaign.Thismadetheircostperacquisition48%loweron
Facebookthanfromotheronlineadbuys.Intotal,60%oftheapprovedcreditcardapplicationsfromthecampaigncamefrom
Facebook.
Wooga,aninternationalgamesdeveloper,usedmobileNewsFeedtodriveinstallsofitsDiamondDashgame.Theyincreased
downloadsby26%intheU.S.,29%inGermanyand37%inFrance,allatattractivecostsperappinstalled.
ThisisjustthebeginningofourimportantefforttoeducatethemarketabouttheROIFacebookadsdeliver.Wewillcontinueto
workaccountbyaccountandcampaignbycampaigntodemonstratethevalueweprovide.
Finally,ourthirdareaofprogresshasbeentomakeiteasierforsmallandmediumsizedbusinessestoadvertiseonFacebook.
LocalbusinessadvertisingisconsideredbymanytobetheHolyGrailofInternetadvertisingsincethemarketopportunityisso
great.Thisisprovingdifficult,however,becausesmallbusinessownersoftenlackthetimeorabilitytoadoptnewtechnology.
Facebookisuniquelyaccessibletothem.AstheytypicallylearntouseFacebookbysettinguppersonalprofilesorTimelines,they
thendiscoverthevalueourservicecanprovidethemasbusinessowners.Manyoftheworld'sapproximately60millionbusiness
ownersarealreadyFacebookusers.Over11millionbusinessesalreadyhavepagesonFacebook.Over7millionofthesepages
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areactivelyusedeachandeverymonth.Inaddition,hundredsofthousandsofsmallbusinessesadvertisewithus.Bymakingit
easiertocreateabusinesspageandrunads,webelievewecanincreasethenumberofsmallandlocalbusinesseswhouseour
tools.
Inthelastquarter,webegantestingsimpleradsandeasierpurchaseloads.Forexample,pageownerscannowturnapostintoan
adcampaignwithjustafewclicks.We'restillintheearlydaysofbuildingourmonetizationengine.Fortherestof2012,weplanto
focusonthesameprioritiesIhavediscussed,inparticulartherampupofSponsoredStoriesinNewsFeed.Ifwearesuccessful
workingwithadvertiserstoincreasetheamountofcontenttheygeneratethataresocialandengagingenoughtopromoteonNews
Feed,webelieveweshouldbeabletoincreaseourrevenueonthosePCsandmobiledevices.
In2012andbeyond,wewillalsocontinuetoinvestindevelopingnewproducts,particularlyinmobile,andineducatingthemarket
onthevaluewedeliver.Webelievetheworldisbecomingincreasinglysocialandpersonal,andthefutureofmarketingdepends
uponbuildingwherethemapisscaled.Wealsoinvesttoolsformarketerstonotjustparticipatein,buttoshapethisevolution.This
willclosethegapbetweentheaudiencewedeliverandourshareofadvertisingbudget.
NowI'mhappytoturnitovertoDavid,towalkyouthroughourfinancialresultsforthequarter.
DavidA.Ebersman
Thankyou,Sheryl.Andgoodafternoon,everyone,thanksforjoiningusonthecalltoday.I'mgoingtowalkyouthroughourQ2
progressagainstourkeyfinancialmetricsrelatedtorevenue,usersandexpenses.
AsSherylmentioned,revenueinthesecondquarterwasup32%fromlastyear.Thestrengtheningofthedollarcostusafew
percentagepointsofrevenuegrowth,whichwould'vebeen36%withconstantexchangerates.Adsrevenuewasup28%,driven
byan18%increaseinthenumberofadsdeliveredanda9%increaseintheaveragepriceperad.Theincreaseinadsdelivered
wasprimarilyduetousergrowthandalsobenefitedfromtheneteffectofproductchangesthatincreasedtheaveragenumberof
adsperpagerelativetolastyear.Adimpressionscontinuedtherecenttrendofgrowingmoreslowlythanusersasmoreofour
usageisonmobiledevices.ThistrendisparticularlytrueinmarketssuchastheU.S.,wheresmartphoneuseisexpandingrapidly.
TheoverallnumberofadsdeliveredintheU.S.thisquarterdecreased2%yearoveryeardespitea10%increaseindailyusers
anddespitetheincreaseinadsperpagefromtheproductchangesImentionedearlier,asdailyWebusersintheU.S.declinedin
favorofmobileusers.Andwe'reseeingsimilartrendsinotherdevelopedmarkets.
The9%increaseinpriceperadwasdrivenprimarilybytheUnitedStates,whereCPMsincreasedbyover20%dueinlargepartto
therampupofSponsoredStoriesinNewsFeedonbothPCsandmobiledevices.SponsoredStoriesinNewsFeedaredisplayed
wheretheuser'sprimaryattentionisandarestoriesthatwebelieveuserswillfindengagingbasedontheirinterestand
connections.ThatmakesSponsoredStoriesinfeedmorerelevant,resultinginstrongerclickthroughratesandhigherprices.
PriceperadalsoincreasedsignificantlyinAsiaandtherestofworldmarkets.Thesemarketsaregrowingmorerapidlyintermsof
users,andtherefore,arereceivingagrowingshareofouradimpressionseachquarter,sowe'repleasedtoseecontinued
improvementinpricing.TherelativelyfastervolumegrowthinAsiaandrestofworlddoeshavetheeffectofreducingour
worldwideaveragepriceperadduetotherelativelylowerpricinginthosemarkets.
InEurope,priceperaddecreasedafewpercentagepointscomparedtolastyear,similartowhatwesawinQ1,andwebelieve
dueinlargeparttotheoverallmacroenvironmentthere.Overthelongterm,wecontinuetobelievethatwehaveasignificant
opportunitytoincreaseCPMs.Thereareanumberofpotentialdriversincluding:increasingthenumberofSponsoredStories
deliveredinNewsFeedacrossdesktopandmobileimprovementsinouradproducts,includingbettertargetingcapabilities
increasedadvertisingdemandaswecontinuetodemonstrateROIandasourclientsgetbetteratcreatingsocialandengaging
adsandoverallgrowthanddevelopmentofonlineadmarketsglobally.
PaymentsrevenueforQ2was$192million.Forthepast3sequentialquarters,paymentsrevenuehasbeenessentiallyflat.We
believethistrendisduetothefactthatgaming,ingeneral,hasbeengrowingmainlyonmobiledevices,whereourpayment
systemisgenerallynotutilized.We'recontinuingtoinvestinthegamingecosystemonfacebook.com,forexample,withournew
FacebookAppCenter,whichisdesignedtohelppeoplediscovernewgamesandothertypesofappsaswell.
Intermsofrevenueperuser,ARPUincreasedbydoubledigitratesinNorthAmerica,Asiaandrestofworldandby8%inEurope,
andworldwideARPUwas$1.28inthequarter.Ourhigherusergrowthingeographieswithrelativelylowerrevenueworkstoweigh
downworldwideARPUandtheglobalgrowthrate.
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Stayingwithusermetricsforaminute.WeendedJunewith955millionmonthlyusers,up29%from12monthsearlier.Onaverage
inJune,552millionpeopleaccessedFacebookeachday,up32%fromayearago.Relativetolastquarter,Brazil,IndiaandJapan
werekeycontributorstoourgrowthindailyusers.58%ofourmonthlyuserswereactivedailyusersoftheproducts,whichweview
asapositivemeasureofuserengagement.Andinaddition,engagementpatternsremainsteadyorgrewacrossusergroupsas
measuredbythepercentageofpeoplecreatingcontentorprovidingfeedback,suchaslikesandcomments,andbytheamountof
contentandfeedbackcreatedperperson.
We'reencouragedthatgrowthinengagementhaveremainedstrongasournetworkhasexpandedandaswe'veaddedlater
adopterstotheservice.Weviewthisstrongengagementasasignoftheutilityoftheserviceinthenetworkandasthefoundation
foreverythingwe'retryingtoaccomplish.
Acoupleofpointsonusermetrics.First,wereviewedourmethodologyforestimatingusersbygeography,andasaresult,have
madesmalladjustmentstothegeographicdistributionofusersasoftheMarch31measurementdate.Second,wealsorefined
andimprovedourmethodologyforrecognizingwhatwecallduplicateorfalseaccounts.Theserefinementsresultedinanincrease
inourestimateofduplicateorfalseaccountsrelativetoourearlierglobalestimate,primarilydrivenbyemergingmarketssuchas
TurkeyandIndonesia.PleaseseeSlides18and19formoredetail.SinceauthenticidentityissoimportanttotheFacebook
experience,we'llcontinuetotrytoimproveourusermeasurementtechniqueswiththegoalofensuringthateveryaccounton
Facebookrepresentsanauthenticuniqueindividual.
Turningnowtoexpenses.InQ2,ourGAAPexpenseswere$1.93billion.Asplannedanddescribedinourprospectus,thebiggest
expenseitemwasstockbasedcompensation,includingassociatedpayrolltax,whichtotaled$1.3billioninthequarter,drivenby
thecompletionofourIPOandtherecognitionofexpenseforRSUsgrantedbetween2007and2011,whichhadavestingcondition
tiedtotheIPO.PleasetakealookatSlide9formoreinformationonthepastandexpectedfutureflowofstockcompexpense.
Excludingtheeffectofstockcomp,ourremainingexpensesincreased60%to$669million,drivenbyheadcountgrowthand
infrastructure.Headcountattheendofthequarterwasjustunder4,000,ayearoveryearincreaseofabout50%.Whilewewill
seektoremaindisciplinedinourspendacrossthecompany,hiringtoptalentremainsakeypriority,enablingustoaggressively
pursuetheopportunitiesinmobile,platformandmonetizationthatMarkandSheryldiscussedearlier.
Inthesecondhalfof2012,weexpectouroperatingexpenses,excludingstockcomp,tocontinuetoincreasesignificantlyrelative
toourspendinthesecondhalfoflastyear,probablyataslightlyhighergrowthratethanweobservedinQ2.Whileweultimately
believeFacebook'sbusinessmodelshouldsupportattractiveoperatingmargins,atthisearlystageofourgrowth,investmentisa
toppriorityasopposedtomanagingforatargetmargin.Therefore,youcanexpectustocontinueanaggressivepaceof
investmentinR&Dandinfrastructure,inparticular.
WehadaGAAPoperatinglossof$743millioninthesecondquarter.Excludingtheeffectofstockcomp,ouroperatingincome
would'vebeen$515million,representinga43%operatingmargin.OureffectivetaxrateforQ2was79%,drivenbythefactthata
portionofourstockcompexpenseisnottaxdeductible.Excludingtheeffectofstockcomp,ourtaxratewould'vebeen
approximately40%.Weexpectthatoverthelongrun,ourtaxratewillbesimilartotheratesofotherU.S.technologycompanies
thathaveasimilarmixofbusinessinsideandoutsidetheU.S.Thefuturereductioninourtaxratewilloccurgraduallyoverseveral
years.
Asdescribedinourprospectus,theamountofcashtaxwepayin2012andthereafterwillbesignificantlydifferentfromthetax
provisionwereportonourP&L,duetothedeductionsweexpecttogetfromvestingofRSUsandexerciseofoptions.Attoday's
stockprice,weestimatewewillhaveataxdeductionofaround$13billionthatwouldreduceourcashtaxesforseveralyears.
OurnetlossforQ2was$157millionor$0.08pershareonaGAAPbasis.Excludingstockcomp,netincomeinQ2was$295
millionor$0.12persharecomparedto$285millionor$0.12pershareinQ2lastyear.Wepurchased$413millionofpropertyand
equipmentinQ2andacquiredanother$52millionofequipmentfinancedthroughcapitalleases.Asnotedinourprospectusfor
2012,weexpecttoinvestapproximately$1.6billionto$1.8billionincapitalexpenditures,includingequipmentpurchasedthrough
capitalleases.AndweendedQ2with$10.2billionincashandinvestmentsonourbalancesheet.
Aswelooktothesecondhalfof2012,we'reencouragedthatthenetworkofpeopleusingFacebookcontinuestogrowandtheir
engagementisstrong.WeremainfocusedonbuildingoutbetteranddeepersocialexperiencesforthepeoplewhouseFacebook,
whileatthesametimeexecutingonthemonetizationstrategiesandinitiativesoutlinedtoday.
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Thankyouforgivingustheopportunitytodiscussourprogress.We'recommittedtoprovidingyouwithbalancedandthorough
disclosure,andwewelcomeyourfeedbacktodayandinthefutureintermsofhowwecanmakeourcommunicationsmosthelpful
toyou.
Onarelatednote,IwanttowelcomeDeborahCrawford,ournewDirectorofInvestorRelations,whoyouheardfromatthe
beginningofthecall.Deborah'sbeenwithusfor3weeksnow.Andwe'rethrilledtohaveherleadingourIRefforts.
Andnowwe'dliketoopenthecallforquestions.
QuestionandAnswerSession
Operator
[OperatorInstructions]YourfirstquestioncomesfromthelineofSpencerWangfromCreditSuisse.
SpencerWangCrditSuisseAG,ResearchDivision
Iguess,maybeforSheryl.IwaswonderingwithrespecttotheFacebookadvertisingexchange,basedonsomeoftheinitialtests,
couldyoujusttalkabouthowthatmayimpactmonetizationasyourollthatout?AndthenthesecondquestionisontheYahoo!
patentdeal.JustbeyondtheIP,canyoutalkaboutorprovideanydetailsontheadvertisingpartnershiportheexpanded
distributionagreementpartofit?
SherylK.Sandberg
Sure.FacebookAdExchange,ourrealtimebeingoffered,whichwasadvertisersgettingrealtimeonaspecificadimpressions.
Thegoalofthisistoshowpeoplemorerelevantads.ThisissomethingthirdpartieshavebeendoingacrosstheWebforawhile.
Forusrightnow,we'reatveryearlyalphastagetestandwedon'thavemoreinformationtoshare.Butwe'rereallyencouragedby
howinterestedouradvertisersandcustomersarebecausethisgivesthemanopportunitytoconnecttousers,ourusers,that
they'retryingtoreachtootherthingstheydoacrosstheWeb.OntheYahoo!deal,theYahoo!dealhad2parts.Thefirstpartwasa
crosslicenseofallthepatents.Andthesecondpartwasapartnership,whereweworkedwithYahoo!ontentpoleanchorevents,
suchastheOlympics.WewerereallypleasedtosigntheYahoo!dealbecauseitreallyextendedtheplatformrelationshipwe've
hadandreallybroughtusbacktowhatwasaverygoodrelationshipwe'vehadhistoricallywithanimportantclient.AndIthinkwe'd
alsoliketotaketheopportunitytocongratulateMarissaonhernewjobatYahoo!
Operator
YournextquestioncomesfromthelineofMarkMahaneyfromCitigroup.
MarkS.MahaneyCitigroupInc,ResearchDivision
2questionsforMark.Youtalkedabouttheengagement.Haveyouseenanytrendsintermsoftheengagementwiththeyounger
cohorts,anythingthatindicatesdeclineinengagement?Andthenbroadly,howdoyouthinkaboutthesizeofthecompany?
Facebookrelativetootherleadersinthetechnologyspacerunsprettythin.You'vetriedtohaveaprettyleanorganization.Asyou
thinkaboutthe3elementsofthe3broadgrowthareasforthecompanyinthefuture,doyouthinkyouisthereanychangein
yourthinkingabouthowbigthecompanyphysicallyneedstobe?
MarkZuckerberg
Sure.Sojusttotakethefirstonefirst.Ithinkwhatwe'reseeingisprettysteadygrowthinengagementinallthesecohorts,
includingtheyoungerones.Soreally,nothingoutoflinewiththeoverallmetricsthere.Onyoursecondquestionabouttheoverall
sizeofthecompany,we'vealwaysbeensignificantlysmallerperemployeecomparedtothenumberofpeoplewhoweserveinthe
world.Soit'sreallybakedintothecompanythatwehavetobuildsystemsandsoftwarethattakeintoaccounttheleveragethat
employeesherehave.Andthat'sactuallyoneofthereasonswhyalotofpeopleloveworkinghereandoneofthebiggestreasons
whypeopleciteforwantingtojointhecompanyandstayinghere.Soit'salsoaffectedthestrategy.Imentionedwebelievethatall
theseconsumerproducts,andmaybeevenmorethanconsumerproductsthatpeopleuse,willbecomesocialovertime.Butwe
can'tbuildallthosethingsourselves,sowefocusedonbuildingthisplatform.Overtime,itmightmakesenseforustobuildmore
ofthesethingsourselves.Butbecauseofthescalethatwe'reat,wereallyfocusonthe3thingsthatIlaidouttoday.Thisshift
towardsmobileisincrediblyimportant.Buildingthehighestqualityapplicationsandproductsisreallycritical.Buildingaplatformso
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5/5/2016
thatthe1millionmoredeveloperswhouseFacebookcanbuildtheseproducts.It'sthehighestleveragethingthatwecando.And
wethinkthatsocialadsarejustgoingtomonetizemuchbetterthannonsocialadsasweincreasethepercentofouroverall
advertisingthathassocialcontextinit.Sothat'skindofwhereweare,andwe'rebasicallygrowingbytryingtofindasmany
talentedengineersaswecanforthemostpart.ButIthinkfortheforeseeablefuture,we'rejustgoingtobewaysmallerthanother
companiesthataddresssignificantorcomparablesizeuserbases.
Operator
YournextquestioncomesfromthelineofJasonMaynardfromWellsFargo.
JasonMaynardWellsFargoSecurities,LLC,ResearchDivision
OneofthequestionsI'mcuriousonthemobilefrontiswhenyoulookatmonetization,Ithinkthere'salotofdifferentviewsonhow
thiswillplayoutoverthenextcoupleofyears.AndI'mcuriousjustphilosophically,doyouthinkthatitisimportanttoowntheentire
experience,i.e.integrateddevice,versusbeing,ifyouwill,purelyanapplication?Ordoyouthinkit's,ifyouwill,afederatedviewof
kindofaplatformfeedingintomanyapplications?Howdoyouthinkaboutthedifferentscenariosonthatfrontandhowthatcould
potentiallyworkforFacebook?
MarkZuckerberg
Well,Facebookisthemostusedapponbasicallyeverymobileplatform,right?Sowhenwethinkaboutwhatwewanttodoright
now,wewanttoincreasethedepthoftheexperienceinadditiontojustgrowingusers.Wethoughtalotaboutthisquestionof
andIeventalkedaboutitinmyopeningremarkstoday,wewanttonotjusthaveappsthatpeopleusebutalsobekindofdeeply
integratedintothesystemsaspossible.Wewanttosupportadevelopmentecosystem,whereotherappscanbuildontopof
Facebook.Sothat'swhyyou'llseeusdothingslikesupportAppleintheiOSintegrationthattheywantedtodo.Therearealotof
thingsthatyoucanbuildinotheroperatingsystemsaswellthataren'treallytakingthataren'treallylikebuildingoutawhole
phone,whichIthinkwouldn'treallymakemuchsenseforustodo.SoIthinkthatthere'sabigopportunityforushere.Theamount
oftimethatpeoplespendintheappsisgreater.PeoplecometotheappsanduseFacebookmorewhentheyhavemobilephones.
AndIthinkwe'rereallymuchclosertothebeginningherethantheendintermsofwhatwecando.Ifyouusetheappstoday,
they'rerelativelybasiccomparedtowhatIthinkanyonecanimaginetheywouldwantfromtheirFacebookexperienceonaphone.
Operator
YournextquestioncomesfromthelineofDougAnmuthfromJPMorgan.
DouglasAnmuthJPMorganChase&Co,ResearchDivision
Ijustwantedtoask2things.First,Sheryl,youprovidedsomecoloronclickthroughratesonSponsoredStoriesrelativetotheads
ontherighthandrail.Iwashopingyoucouldprovidealittlebitofcoloronwhatyou'reseeinginpricinghereonarelativebasis
earlyon.AndthenDavid,perhapsifyoucouldtalkalittlebitmoreaboutthepotentialformarginexpansiongoingforward,how
you'rethinkingaboutthatpotentiallyintothebackhalfoftheyearand'13.
DavidA.Ebersman
Sure.Doug,thisisDavid.I'llstartonthepricing,andthenSherylcanchimein.Sowe'reverypleasedbywhatwe'veseeninthe
earlyrampupofSponsoredStoriesinfeedinbothdesktopandmobile.Butit'simportanttonotethatit'searly,sowehavea
relativelylimitedamountofvolumethatwe'veputintothesystematthispoint.Ithinkthetestoverthesecondhalfoftheyearthat
we'reexcitedtoseehappenisworkingwithadvertiserstoincreasedemandforSponsoredStoriesinfeedcreatingbettersocial
contentthatwecanputinfeedwithouthavingadeleteriouseffectontheuserexperienceandseeingwherethattakesusinterms
ofclicksandpricesandthingsalongthosenature.Sowhiletheearlydataisquitepositive,itisatlowvolume,sowejusthaveto
becarefulaboutextrapolatingfromit.Intermsofmargins,notalottoaddtowhatIsaidearlierinthecall.Atthispointintime,we
aregrowingthebusinessreallyfocusedontheopportunitiesthatweseektoinvestinandtheimportancethattheycouldhaveand
shouldhaveforthelongtermbusinessthatwecanbuild.Andsowe'remorefocusedonmakingsurethatwe'repositionedto
capitalizeonwhatwe'retryingtodoinmobileandplatformandsocialadsandnottryingtooptimizeforashorttermmargintarget.
Inthelongrun,Ithinkwehavethekindofbusinessthatbecausewehavesuchalargenetworkandsomuchvaluecomesfrom
thecontentthatit'screatedanddistributedbythemembersofthenetworktohaveabusinessthatworksreallyefficiently.
SherylK.Sandberg
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I'lljustaddonething,whichiswhilewe'renotcommentingonpricingspecificallybecauseit'searly,it'sreallyworthnotingthat
higherclickthroughratesleadtohigherCPMsovertimeevenwithoutpricingchanges.
Operator
YournextquestioncomesfromthelineofHermanLeungfromSIG.
HermanLeungSusquehannaFinancialGroup,LLLP,ResearchDivision
Wonderingifwecantalkaboutsomeofthepenetrationofsomeofthesocialadsthatyouguyshaveontheplatform.Wondering
thelevelofpenetrationofsocialadsthatyouhavetodayonthesiteandtheopportunityandIhaveaquickfollowup.
SherylK.Sandberg
Sofewerthan1/2ofouradsaresocial,andit'sanincrease.We'reveryfocusedonincreasingthepercentageofourads,which
aresocialinnature.Weknowfromalargenumberofstudiesinworkingwithadvertisersthattheadsthataresocialhavehigher
engagementratesfromusers,muchhigherROIforadvertisers.Sodrivingthatpercentageupisalso,isreallyimportanttous.It
alsofeedsintotheSponsoredStoriesinNewsFeedstrategythatI'vespentmostofmyremarkstalkingabout,whichisthatweput
thingsinNewsFeedthataremostrelevant.Sothemoresocialcontexttheadshaveandthemorerelevanttheyaretoourusers,
themorewe'llbeabletodriveupthatpercentageofouradsthatgointoNewsFeed.
DavidA.Ebersman
Andjusttoadd,justtomakesurethatwe'recommunicatingthisclearly,averysmallpercentageofouradsareSponsoredStories
inNewsFeedatthispoint.Wejuststartedwiththatproductrecentlyandwe'rebeingverycarefulintermsofthevolumethatwe've
putintoNewsFeedbecauseit'ssuchacorepartoftheuserexperience.
Operator
YournextquestioncomesfromthelineofScottDevittfromMorganStanley.
ScottW.DevittMorganStanley,ResearchDivision
Ihad2,please.Giventhevarioustestingthatyoualwaysseemtobedoingaroundproductsandmonetization,you'vetalkedalot
todayaboutthesuccessofSponsoredStories.Iwaswonderingifthereareotherareasthatarelookingpromisingtoyoubasedon
recenttesting.Andthensecondly,fromourcalculation,theDAUtoMAUratiodeclinedmoderatelysequentiallybothinNorth
AmericaandEurope.Iwaswonderingwhatyouwouldattributethatto.Isitseasonality?Andwhatareyoudoingtodrive
engagementinthoseregions?
SherylK.Sandberg
Icantakethefirstpart.Yes,theSponsoredStorieshaveshownreally,reallygoodresults.Andwearealsoseeinggoodresults
fromotheradsonthesitethathavesocialcontext.Soaswerolledoutmorewaystomakeyouradssocial,weseeincreasing
engagement,increasingROIfromthoseads.FBXisearly.Butourinitialtestingshowedverypromisingresultsforadvertisersas
theyareabletoconnectwhatthey'redoingelsewhereacross.It'salsoworthnotinghowoptimisticwearearoundourearlytesting
aroundmobile.Mobileforitselfisaninherentlysocialexperienceandforourserviceisinherentlysocial.Andwhatpeopleare
doingontheirmobiledevicesiscontinuingtheirNewsFeedandsharing.Soreally,thebigaccomplishmentwe'vehadinadsover
thelastquarteror2aswerolledSponsoredStoriesintoNewsFeedandonmobile,hasbeenverypromisingforusbecausethe
resultsshowthatusersengagewiththoseadsandadvertisersgetahighROIfromthem.
DavidA.Ebersman
First,theDAUrelativetoMAUcomparison.Weremainreallypleasedwiththepercentageofourmonthlyuserswhocomeback
everyday.Wehavesortofassumedearlieroninourhistorythataswefurtherpenetratedthemarketofpeopleintheworldand
gotintolateadoptersthat,thatnumberwouldgodown.Andwe'veseenthatjustconsistentlygoup,whichIthinkspeakstothe
valueofkindofthenetworkeffects,themorepeoplethatuseFacebook,themoreinterestingitis.Thenumberdoesn'ttendto
movedramaticallyfromquartertoquarter.It'saslowmovingnumber.ItdiddeclinefractionallyfromQ1toQ2asyounoted.Ithink
that2thingsthere.Oneisthatwedidmakesomechangestowhatwe'vedescribedearlierasbackgroundpinging,orIthinkwe
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calleditautomaticbackgroundactivityintheprospectus,whichiswhenphonescontactourserverswithouttherebeingauser
activeontheotherendjusttodownloadinformation.Weseethatonseveralofthemobileservices,ithelpsyoutohavemore
informationfromFacebookwhenyoudocheckyourphones.Wetryandunderstandwhatthatlookslikeintermsoftechnicallyso
thatwedon'tcountthatasusage,andwesortofcontinuallymakesomechanges.Thathadsomeimpactontheapplestoapples
natureoftheDAUcomparison,JuneversusMarch.Youaskedaboutseasonality.Idon'tknowthatwehaveagreathandleonthe
seasonalityeffectsasitrelatestobymonth.Wetendtoseethingslikeholidays.Therewouldbesomedropindailylevelas
engagement,soitdependsonwhatmonth,holidaysandotherthingshappenin.
Operator
YournextquestioncomesfromthelineofAnthonyDiClementefromBarclays.
AnthonyJ.DiClementeBarclaysCapital,ResearchDivision
OneforMarkandoneforDavid.Mark,wonderingifyoucangiveusanupdateonyouracquisitionofInstagram.Iknowit'searly
butwouldbecurioustohearhowtheintegrationofthatacquisitionishelpingyoureffortsonmobileandmonetization,andifthere
areothersoutthere,otheracquisitionslikeInstagramouttherethatyouseeaspotentiallydesirable.Arethereotheracquisitions
likethatone?AndthenDavid,justwonderingontheoutlook,mostofthemodelshave2Qasthelowestquarteroftheyearin
termsofyouryearoveryeargrowthinrevenue.CanyouIguess,canyouvalidateorconfirmthat?Is2Qthelowestquarterof
theyearintermsofyearoveryeargrowth?
MarkZuckerberg
Sure.Sotothefirstone,theacquisitionhasn'tclosed,right?Sothere'sbeennointegrationoranythinglikethat.Andtherewillbe
anupdatewhenthathappens.Intermsofwhatelsewemightacquire,Imean,ourstrategyhasprimarilybeentobuycompanies
fortalent.Imean,wehavethisveryentrepreneurialculture,wherewewantthetypeofpeopleinsidethecompanytotakerisksand
bethetypeofpeoplewhowouldwanttobuildoutwholecompaniesontheirown.Sooftenthebestwaytofindalotofthose
peopleistofindpeoplewhoarebuildingcompanies,whomaybeareworkingonaproblemwheretheythinkthatthey'dhavemore
leverageiftheyjoinedFacebook.SoxofInstagram,mostoftheacquisitionsthatwe'vedonefitthatcategory,andthatwillcontinue
tobetheapproachgoingforward.
DavidA.Ebersman
Toyoursecondquestion,Imean,ifyousortofstartbylookingbackwardsalittlebitintermsofhowrevenuehasgrowntogetusto
wherewearetoday,acoupleofyearsago,wehadacoupleofhundredmilliondollarsinrevenue,andobviouslyit'sgrownalot.
It'ssortofacombinationof,Iwouldsay,2things:aseriesofongoingoptimizationsthatwemakeeverydayintryingtomakethe
businessworkbetter,increaseadvertiserdemand,betteradformats,etceteraandthenontopofthat,majorchangesthatwe
make,liketheintroductionofpayments,whichreallystartedimpactingthebusinesslatelastyear,orfundamentalchangestothe
productandhowweadvertiseonit.Andsowhenwelookforwardtothesecondhalfofthisyear,Ithinkwe'llcontinuetomakethe
kindsofoptimizationswe'realwaysmakingtotryanddrivemoreadvertiserdemand,bettertargetingofads,etcetera.Butthebig
priorityandthebigopportunityforusiswhatwe'redoingwithSponsoredStoriesinNewsFeed.AndIthinkit'sjustdifficultto
forecastwhatthat'sgoingtolooklikebecausewe'restillearlyintoit.WestartedputtingSponsoredStoriesinfeedearlierthisyear
butreallydidn'trampthatupsubstantiallyuntilreallyJuneofthisyeariswhenthenumbers,westartedputtingmorevolumein.
Andthusfar,wefeellikewe'reinareallygoodpositionbecauseaswe'verampeduptowherewearetoday,weseehighlevelsof
advertiserdemandandgoodlevelsofuserengagement.Buttheforecastingpartisdifficultbecausewe'regoingtoproceedslowly
withthis.Wewanttobesure.ThebiggestmistakeIthinkwecouldmakeistomovetooquicklyandtofindourselvesinasituation
wherewe'rehavinganimpactonuserengagementthatwedidn'tanticipateorishardforustomanage.SoIthinkaswecontinue
torampup,wewilllearnfromeachchangewemakeandseehowquickly,orwhatkindofspeedoframpupmakesthemost
senseforus.ButIthinkrightnow,tryingtoforecastthatisdifficult.
Operator
YournextquestioncomesfromthelineofHeatherBellinifromGoldmanSachs.
HeatherBelliniGoldmanSachsGroupInc.,ResearchDivision
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Great.Ijusthadafollowuponthat,David.IntermsofhowfastyouhowdoyougaugehowoftentoshowSponsoredStories?I
mean,whattypeoffeedbackareyoulookingforfrompeopletoknowthatmaybeyou'reshowingthemtoomanyinNewsFeedor
thatyouhavetheabilitytomaybeputthefootonthegaspedalalittlebitmore?Ialsowantedtoknowifthesearerolledout
globallyatthispointtoeverybody.AndthenIguess,thelastquestionmaybeforMarkwouldbeorSheryl,howdoyouseelocal
fittingintothemobileexperience?AndwheredoyouseeadvertisersintermsofleveragingwhatFacebookcanofferthere?
SherylK.Sandberg
SoforSponsoredStories,intermsofrollingitout,whatwe'redoingiswe'relookingat2thingsverycarefully.We'relookingatthe
socialcontexttomakesureit'sreallyrelevant.Sothebetterstorieswecangenerate,wherepeopleareinteractingwiththingsthat
aremonetizable,themoreSponsoredStorieswecanrollout.We'realsolookingreallyclearlyatuserreaction.Andthegoodnews
forusisthatit'seasyforustomeasureuserreactionbecausewecanseeifusersaresharing,clicking,liking,commenting,if
they'reengagingwiththosestories.Andwecanlookathowmuchthey'reengagingwiththosestoriesrelativetoothers.We'vealso
beenprettycareful,evenwhenbothofthosemetricsarehigh,atjustlimitingthenumberofSponsoredStoriesaswerollout.
We'vebeenfairlycautiousononlyrollingoutacertainamount.Andweintendtobecontinuallycautiousaswereallyworkonuser
demand,ontheuserperception.WehavenotrolledoutSponsoredStoriesinNewsFeedacrossallcountries.Therearecertain
countriesthatwe'restillworkingoutfinishes,soit'snotentirelygloballyrolledout.Andwithapologies,I'mnotsureIrememberthis
local,yes,Iknewtherewasathirdpartofthequestion.Yes,Imean,localishuge.We'vealwaystalkedaboutit.AndIthinkI
mentioneditinmyremarks.LocalistheHolyGrailoftheInternet.Everyoneisabouttogetpeopleintolocal.Andthisissomething,
certainly,inmyhistoryofworkingoninthisindustry,I'vespentalotoftimeon.Theproblemisthatlocalbusinessesarejustnot
verytechsavvy.SoifyoulookatlocalbusinessesintheUnitedStates,obviouslyoneofthemoredevelopedmarkets,something
likemorethan40%ofthemhavenoWebpresenceatall.Sotheydon'tadoptthingsthatarereally,inourview,mightbe
somethingthatwewouldthinktheywouldobviouslyadopt.ThisiswhereIthinkFacebookhasahugecompetitiveadvantage
becausethosesamelocalbusinessownersareusingFacebookasusers.Sowhiletheywon'tadoptsomethingfortheirproduct,
they'vesetuptheirprofilesortheirtimelines,andwhentheyusetheproduct,theystarttoseemessagesfromotherbusinesses.
Andthentheystartthinking,"Wow,thiscouldworkformybusinessaswell."Theproductwewantthemtouse,whichispages,is
alsoincrediblysimilartotheirtimelineorprofile.Andsotheleapthesmallbusinessownerneedstomakeisjustsmallerherethan
wethinkitiswithanyoneelse.Andthenumbersbearthatout.Wehavesomany,asImentionedbefore,7millionsmall
businessesthatareusingtheirpagesonamonthlybasis.Whichissomethingwe'vedonewithoutanyreallytargetedmarketing
efforttothematall,andthenhundredsofthousandsofthosegetupsoldintobecomingadvertisers.Ourpush,whichImentioned
inmyremarks,tomakeiteasierforthemtoadvertise,sothethingwerolledoutlastquarter,whichisyoucanjustpickaposter,do
itonyourpageandmakeitsupereasytoadvertise.Ithinkthosethingswillmakeabusinessareallybigdifferenceinaccelerating
thisevenfurther.
Operator
YournextquestioncomesfromthelineofLauraMartinfromNeedham&Company.
LauraA.MartinNeedham&Company,LLC,ResearchDivision
AcoupleforMark.SoMark,we'vebeenwritingalotabouttheoptionalityortheoptionvalueoftheFacebookplatformglobally.
AndIguess,I'mreallyinterestedoutsidethevisiblerevenuestreams,whichtodayarepaymentsinadvertising.Couldyoutalk
throughhowyou'rethinkingaboutcommerceonthisplatform?Andalsovideo,becausevideoisoneofthemostsharedthings,as
youknow.Aswethinkaboutoverthenext3to5yearsotherrevenuestreams,howdoyouthinkphilosophicallyaboutwhat
Facebookcouldbecomeoveralongerperiodoftimeintermsofrevenuestreams?
MarkZuckerberg
Sure.Well,thebasicapproachthatwehavefornowiswe'rebuildingoutthisplatformandothercompaniescanbuildontopof
that.Andyoucanviewourbusinessasanadvertisingandpaymentsbusinessoryoucouldviewitastherewillbethese
companiesthathelptotransformtheseindustries,andwewillgetsomeportionofthevaluethatcomesfromthat,thatwe're
helpingtoprovide,right?Soingaming,forexample,wethinkthatwe'rehelpingtoprovidealotofthevalue,soweendupgetting
arelativelyhighpercentageoftherevenuethatcomesintothosecompanies.Whereasinsomethinglikemusicorsomeofthe
mediacompaniesthatarenowgettingbuiltusingOpenGraph,Ithinkwearen'tprovidingquiteasmuchofthepercentageofthe
valueaswithgames,sotheoverallamountoftherevenuethatcomestoFacebookthrough,whetherwhateverthebreakdownof
adsandpaymentsis,Ithink,willbesomewhatless.Butalotofpeoplewilldothatstuff,too.SoIthinktherealwaytothinkabout
thisisthatovertime,moreandmorenuancedexperienceswillbecomesocial.Sogamingissuchabasicthingthatpeoplewantto
dowiththeirfriends,soevenwitharelativelybasicplatform,peoplecouldbuildthatecosystemout.Someofthemediastuff
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requiredmorenuance.Ithinkcommercewillrequirealittlemoreandsoon.Butasthesethingsgetbuiltout,Ithinkwe'llbuildout
thetoolstobothenablethoseproductstogetbuiltandtobeabletocapturesomepercentageofthevaluethatwe'rehelpingto
create.ButImean,Idon'treallyhaveanymoreplansthatI'mgoingtosharewithyoutodayaboutourproductroadmapor
anythinglikethat.
SherylK.Sandberg
Onethingtothinkaboutinthecommerceareaorinotherareaslikevideoisthatourviewoftheworldisthingsbecome
increasinglysocial.Andthattakestime.Gamingwasobviouslyfirst.Butpeopleareinformedwhentheypurchasethingsbytheir
friends,andthecommercecompaniesthatarereallyadoptingsocialareseeinggoodresponses.Fabisoneofthem.Fabisvery
earlyoninitshistory,butit'satrulysocialshoppingexperience.Andthey'reseeingnear20%to40%oftheirtrafficfromFacebook
onadailybasis,aswellasaverygoodreturnontheirinvestmentonadsthattheirCEOhasbeentalkingaboutpublicly.Welook
outatwhatpeople'sshoppingbehaviorsare.Andsomuchofthemreallysomuchoftheirshoppingbehaviorsreallyaresocial,
thatwethinkthere'sabigopportunityforthesocialcontextthatweoffertobeamajorpartofhowpeoplediscoverproducts.
Operator
YournextquestioncomesfromthelineofKenSenafromEvercorePartners.
KennethSenaEvercorePartnersInc.,ResearchDivision
Wehearfrommarketersalotthattheplatformisrelativelycomplicatedstillintermsoftheadproductsofferedandservices.How
longorhowquicklycanmarketersexpecttoseethatsimplified?Andthenalso,intermsoftheAppCenter,canyougiveusany
senseoftheeconomicsbehindthatarrangement?Andistherearevshare?Andifso,howdoesthatcomparetoyourstandard
30%onyourplatformforpayments?Andthenfinally,ifyoucouldlookbackoverthelastfewmonthsintermsofgoingpublic,is
thereanythingthatyouwouldredo?
SherylK.Sandberg
I'lltakethefirst2andhandoffthethird.WhenyouthinkabouttheadvertisingexperienceonFacebook,itiscomplicatedtoday.
Andthat'smainlybecausewe'reacompletelynewkindofmarketing.We'renotTV,we'renotsearch,weareathirdmedium.And
that'spresentsachallengebecausethemessagesthattalkatconsumersonotherplatformsneedtoreallybeadoptedand
changedtobemoreinclusive.TherightadonTVoronsearchisthewrongadforFacebook.Facebookmarketersneedtolearn
howtomaketheiradsreallyatwowaydialoguewithconsumers.Wealsohaveameasurementchallenge.Whenyouseeanad
onFacebook,youdon'tgoandclicktoapurchaserightthere,butyou'remorelikelytosearchlateronandbuyaproductortowalk
intoastoreandbuyaproduct.Sowehavethechallengeofteachingmarketershowtodevelopsocialmarketing,andthenworking
withthemsothatwecantietheconsumerexperienceofseeingaFacebookadandinteractingwiththatbrandtoapurchasethat
happenslateron.Andthat'swhywe'resofocusedonthemarketeducation.Withourclientswhohavedonealotwithus,Ithink
they'relearningalotonthosetrajectoriesandseeingverypositivereturns.ButittookalongtimefortheTVmarketandadvertising
tobetrulyunderstood.Ittookalongtimeforsearch.AndIthinkwe'restillinthatlearningcurvewithalotofourclients.Thegood
newsisthatourresultsaresostrong.TheROIresultsItalkedaboutinmyremarks,wherewe'venowdone60campaigns,ifyou
talktoCMOs,thoseROIresultsofgettingto3xtheiradspendor5xtheiradspendorbetteraretrulygood,comparedvery
favorablywithanythingelsemarketersdo.Andsoourviewisthatifouradsworkandwecontinuetomakeouradsworkandthey
workforadvertisersandourusers,we'llbeabletoeducatethemarketovertime,howquicklythatwillhappenwilldepend.Butwe
feellikewe'reonagoodpartofthatgrowthtrajectory.IntermsoftheAppCenter,thegoalbehindtheAppCenteristhatwebelieve
socialdiscoverywillleadtoappinstalls.Youaremorelikelytowanttouseanappyourfriendsareusingthanyouareonethatyou
knowthegenericpopulationrepresents.Rightnow,wearenotofferingpaidapps,sotherevenueshareissueyou'retalkingabout
isnotsomethingwehaveaproducttodealwithrightnow.
DavidA.Ebersman
AndKen,youaskedaboutlessonslearnedlookingbackwards.Obviously,we'redisappointedabouthowthestockhastraded,butI
thinktheimportantthingforusistostayfocusedonthefactthatwe'rethesamecompanynowaswewerebefore.We'vegotthe
sameopportunityinfrontofustobuildsomethingreallyimportantandvaluableovertime.Andifwestayfocusedonbuildinggreat
products,weexpectandwewanttobejudgedbasedonthequalityoftheexperiencesaswebuildandthevaluewecancreate
overthelongterm.
Operator
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YournextquestioncomesfromthelineofBenSchachterfromMacquarie.
BenjaminA.SchachterMacquarieResearch
Ihadsomephoneproblems,soIapologizeifyougotthesealready.ButonequestionforMarkandoneforDavid.David,when
you'rethinkingaboutvisibilityintothebackhalfoftheyearandhowquicklyadrevenueisramping,howdoesthatlookversussort
ofexpectationsthatwereearlierinthequarterpreIPO?AndthenasimilarquestionontheOpExgrowth.Doyouhavemore
visibility,lessvisibility?HowdothingslooknowversuswheretheywerejustbeforetheIPO?AndthenMark,onthetopofthesort
ofinformationintheNewsFeedthattheuserdidnotspecificallyaskfor,trendingstoriesortrendingvideoandcertainlySponsored
Stories,beyondclickthroughrate,howdoyouthinkaboutmeasuringandunderstandingthatuserexperiencesoyouknownotto
sortofgoovertheedgeanddegradetheuserexperience?
MarkZuckerberg
Sure.SoImean,intermsofthemethodologyforbuildingNewsFeedandatanygivenpoint,wehavealotofdifferenttests,
differentalgorithmsrunning,andwemeasureengagementofeverythingdownstreamfromNewsFeedandthewholesystem,
right?Soobviously,clicksandengagementandfeedbackinNewsFeed,howmanypeoplewanttoshare,butalsohowmanypage
viewsandhowmuchtimepeoplespendonFacebookoverall,adperformance,everything,downtoallofthedifferenttweaksthat
wedoinNewsFeed,andusersentimentaswell.SoIthinkwehaveprettyrobustsystemsthatarebuiltoutaroundthis.Andone
ofthethingsthatIthinkisprettyinterestingiswhatwe'veseenisthatwecanputingoodsponsoredcontentandhaveitnot
degradethosemetrics.Sothat'sreallywhatwe'retryingtodo,iswe'rerollingsomeoftheseSponsoredStoriesoutmore
conservativelybecausewewanttomakesurethatthequalityisveryhigh.Andwe'rebasicallycontinuingtorunthoseteststo
makesurethatweareproducingthebestproductthatwecan.
DavidA.Ebersman
SoBen,thanksforyourquestiononthelookingforwardpart.Ithinkthe2thingsyouaskedareprettydifferent,atleastfrommy
standpoint.Tryingtoprojectoperatingexpensesis,whilenoteasyorprecise,wehaveafairamountofunderstandingofhow
thingsaretrendingandwhatweexpecttospendinthesecondhalfoftheyear.Sothat'swhyweprovidedalittlebitmorespecifics
inmyopeningremarksormypreparedremarksaboutwhatweexpectintermsofoperatingexpensegrowth.Ithinkrevenue
growthisjusthardertopredict,andit'sparticularlyhardtopredictwhenyou'rereallyfocusingonanewproductthatyou'reinthe
earlystagesoflaunching,aswearewithSponsoredStoriesinNewsFeed.SoasIsaid,we'repleasedwithwhereweare,where
wewereattheendofJune,wherewearenow.Andthat'sgoingtomake,wehope,asizableimpactonwhatkindsofperformance
wecandeliver,notjustinthesecondhalfoftheyearbutoveralongertermhorizonbecausewethinkthiscanbe,fundamentally,a
reallyimportantmarketingproduct.
Operator
YourlastquestioncomesfromthelineofDanSalmonfromBMOCapitalMarkets.
DanielSalmonBMOCapitalMarketsU.S.
MyquestionwasonthePreferredMarketingDeveloperProgram,whereIthinkyou'reuptoaround330formalpartnerstoday,with
agreatmanyofthemqualifiedforapps.Butaround50orso,andIthinkaround2050forads,20forinsights,andIjustwanted
toseewhatyourexpectationsaretoseethosenumbers,boththetotalnumberofPMDdevelopersgrowingandinthose2
categories,inparticular.
SherylK.Sandberg
Ithinkwe'reveryoptimisticaboutourplatformpartners.Ourgoalistotakeeverythingpeopledo,oratleastclosetoeverything
peopledo,andmakeitsocial.Andwhatwedoisprovidetechnologyforourplatformpartnerstodothat.Howmanypeoplegointo
specificprogramsisnotthethingwemostfocuson.Wefocusalotonhowmanydevelopersoutthereareusingourtools,how
manyoftheappsthataregrowingquickly,howmanyoftheservicespeoplearegrowingquicklyareusingtoolslikeOpenGraph,
aswellasads,sothatwecanbuildanecosystem.Marksaidinhisremarksthatwereallybelievethatwearegoingtoprovidethe
identityandthesociallayerforeverythingthathappensacrossWeb,acrossmobile.Giventhesizeofourgraph,thisengagement
peoplehavewithus,whichevenaswegrow,isnotjuststayingflatbutinmanywaysincreasing.We'reveryoptimisticthatifyou
14/17
5/5/2016
werechoosingtodevelopaservice,youwouldchoosetodoitwithus.Wereallyconsiderourselvesapartnershipcompany.And
thatmeansthatwewanttotakesocialcompaniesandmakethembig,andbigcompaniesandmakethemsocial,becausewe
thinkbringingwhatFacebookprovides,whichisyourfriends,makeseveryservicebetter.
Operator
Iwillnowturnthecallbackovertomanagement.
DavidA.Ebersman
Allright.Thankyouverymuch.We'regratefultoallofyouforjoiningustoday.Andwelookforwardtospeakingwithyouagain
nexttime.
Operator
Thisconcludestoday'sconferencecall.Youmaynowdisconnect.
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Facebook(FB):Q2EPSof$0.12inline.Revenueof$1.18B(+32%Y/Y)beatsby$30M.Shares
+4.3%AH.(PR)
Comments(10)
riccaro1
MymoneyflowanalysisindicatesastrongsellonFBatacurrentpriceof24.05
Sellthestockandthecallsbasedoncashoutflows.
Stoplossat30.
26Jul2012,10:22PM
wbeach13
15/17
5/5/2016
32%revgrowth&43%,margin(excludingstockcompwhichwasdisclosed/expectedfromIPOprospectus)
13billiontaxdeductioncarryforwardfromstockcomp)
1milperdayofsponsoredstoriesrevonmobile/regplatform
Whichdemonstratestheywillgrowmobileadrevrapidly
Nowthatfocusisthere&67%mobilegrowthy/yFBusergrowthcomingfrommobile.
Instagramdealclosetoclosingadding50mmmoreusers
&10billionincashforstrategicdeals.
SellnakedDec$20puts&lookforgoodrally1st1/42013afteremp&taxlosssellingcompleted
27Jul2012,02:15AM
remurraymd
noGUIDANCEjusthyperbolefromZucknoearningsfrommobile
Wedwebought#75Aug30/29/28PUTSforourfoliosclientshitbig.
Wewilltakehalfoffintothecraterkeephalfforfurthercrater
withlockupsellingintotheTEENScomingsoon.
27Jul2012,05:33AM
temirzhan
Thisisarubbishstock.Iwonderwhyanyonewouldinvestinit,apartfromspeculation.Theyaremore
expensivethanGoogleandApple,whicharehighlyprofitableandhavetonsofcash.Howaretheygoingto
makemoneyoutofthoseteenagers?FBisforchildreneverybodyIknowjustusesitasanaddressbookand
nooneseesanadonFBandthinks,Ohwhydon'tIgooutandbuyaChevroletnow?
27Jul2012,08:25AM
Cifmiller
Idon'tsayohwhydon'tIgobuyaChevyvoltwhenIseeavolttvcommercialeither.
27Jul2012,09:00AM
Cifmiller
EvenifabunchkidswouldbegivingmethethumbsupwhenIdrovepassedthem.
27Jul2012,09:04AM
WallStreetSmart,Contributor
ForananalystquestionMarksaid"IdonthaveanymoreplansthatIamgotosharewithyouaboutour
productroadmap".Thisisasrudeasitgets.Themostunfriendlyshareholdermanagementstyle.
27Jul2012,09:29AM
16/17
5/5/2016
fivedayoil
Facebooksunmatchedmarketingmagnetismcanonlybetrulyscrutinizedunderthemicroscopeoftime
comparison.
Inthepreviousstunteddecades,thehungrybutunenlightenedhordesofenthusiasticyethopefulteenage
trendsettersremainedrootedinoldfashionedbutundeniablysuccessfulfadssuchastheyoyoandhulahoop
trends.
Today'smodernarmyofyounggunsandgalshavepermanentaccesstoanynumberofchoicesinwhichthey
canquenchandrefreshdaily,hourly,orinstantaneously.
ThemajortimedivideddifferenceisFacebooksaccesstotheultimatedrivingforce,theforcethatwasinitially
recognizedandestablishedbyitsearlyfounderandsubsequentcofounders,thatoftheinexhaustible
everlastingaspirationalgenerationsthatwillconstantlyrefreshandabsorbtheconstantwishtoexplorethe
latestandmostuptodateenthusiasmgrabbingadvertising,liberally
showeredamongstthedailyconversationalsocialgaiety.
Facebookscurrentlowsharepriceof$24isalongtermbargainalthoughsomewillbewatchingandwaiting
forthebargainbasementtwentydollarmarkwhichshouldFacebookactuallysinkthatlownodoubtsetoff
anavalancheoffreneticbuyingactivity.
27Jul2012,03:52PM
BobUrUncle
Zuckerberg'sheadeddownJerry"Yahoo"Yang'sroad.Founderswhocan'tmanagewallstreet,willsoonfind
theirstockscrateredandcallstoresign.
Ilikethefactthattheiradcustomershavenowaytomeasuretheimpactoftheirads.Nicewaytodobusiness.
28Jul2012,01:34AM
JSR1
Ithinkthatit'sgoingtogoto$13/share.
30Jul2012,05:12PM
PRAD
TTING
FORX
INARY
DPOIT100ANDRCIV
*T&C'Appl.
Loecan
exceeddepoit
17/17

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