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Facebook,Inc.(FB)FourthQuarterandFullYear2017ResultsConferenceCallJanuary31st,2018OperatorGoodafternoon.MynameisMikeandIwillbeyourconferenceoperatortoday.AtthistimeIwouldliketowelcomeeveryonetotheFacebookfourthquarterandfullyear2017EarningsCall.Alllineshavebeenplacedonmutetopreventanybackgroundnoise.Afterthespeakers'remarks,therewillbeaquestionandanswersession.Ifyouwouldliketoaskaquestionduringthattime,pleasepressstarthenthenumber1onyourtelephonekeypad.Thiscallwillberecorded.Thankyouverymuch.Ms.DeborahCrawford,Facebook’sVicePresidentofInvestorRelations,youmaybegin.DeborahCrawford,VPInvestorRelationsThankyou.GoodafternoonandwelcometoFacebook’sfourthquarterandfullyear2017earningsconferencecall.JoiningmetodaytodiscussourresultsareMarkZuckerberg,CEO;SherylSandberg,COO;andDaveWehner,CFO.Beforewegetstarted,Iwouldliketotakethisopportunitytoremindyouthatourremarkstodaywillincludeforward-lookingstatements.Actualresultsmaydiffermateriallyfromthosecontemplatedbytheseforward-lookingstatements.Factorsthatcouldcausetheseresultstodiffermateriallyaresetforthintoday’spressrelease,andinourquarterlyreportonform10-QfiledwiththeSEC.Anyforward-lookingstatementsthatwemakeonthiscallarebasedonassumptionsasoftodayandweundertakenoobligationtoupdatethesestatementsasaresultofnewinformationorfutureevents.DuringthiscallwemaypresentbothGAAPandnon-GAAPfinancialmeasures.AreconciliationofGAAPtonon-GAAPmeasuresisincludedintoday’searningspressrelease.Thepressreleaseandanaccompanyinginvestorpresentationareavailableonourwebsiteatinvestor.fb.com.Andnow,I’dliketoturnthecallovertoMark.MarkZuckerberg,CEOThanksDeborah,andthankseveryoneforjoiningustoday.2017wasastrongyearforFacebookinmanyways.Ourcommunitycontinuestogrowwithmorethan2.1billionpeoplenowusingFacebookeverymonthand1.4billionpeopleusingitdaily.Ourbusinessgrew47%year-over-yearto$40billion.

I'mproudoftheprogressthatourteamhasmadeandthewaysFacebookishelpingpeoplearoundtheworld:givingpeopleavoicewhodidn'thaveonebefore,strengtheningrelationshipsbyhelpingfamilyandfriendsstayconnectedwherevertheyare,andenablingmorethan70millionsmallbusinessestogrowandcreatejobs.

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But2017wasalsoahardyear.Theworldfeelsanxiousanddivided—andthatplayedoutonFacebook.We'veseenabuseonourplatform,includinginterferencefromnationstates,thespreadofnewsthatisfalse,sensationalandpolarizing,anddebateabouttheutilityofsocialmedia.Wehavearesponsibilitytofullyunderstandhowourservicesareused,andtodoeverythingwecantoamplifythegoodandpreventtheharm.Thisismypersonalchallengefor2018.

Oneofthemostimportantthingswecandoismakesureourservicesaren'tjustfuntouse,butalsogoodforpeople'swell-beingandforsocietyoverall.

Sofarthisyearwe'vealreadyannouncedacoupleofimportantupdates:

Thefirstisprioritizingmeaningfulsocialinteractionsoverpassiveconsumptionofcontent.Researchshowsthatstrengtheningourrelationshipsimprovesourwell-being.Whenweusesocialmediatoconnectwithpeople,thatcorrelateswithlongtermmeasuresofwell-beingthatyou'dexpect,likehappinessandhealth.Butpassivelywatchingvideosorreadingarticlesmaynothavethosesameeffects.

Youcanthinkaboutitthisway.WhenyouseeaphotofromafriendinNewsFeed,that'snotjustcontentthatmakesyousmileorlaugh,it'sanopportunitytoconnectwiththatfriend,toreachouttothemandtoremindthemthatyoucareabouteachother.Thatconnectionisdeeplyimportanttousaspeople.Butwhenyouseeavideooranewsarticle—evenifit'sinformativeorentertaining—unlessyoustartaconversationaroundit,you'renotbuildingarelationship.

We'vealsogottenfeedbackfromourcommunitythatthesemomentsthatleadustoconnectaretheuniqueexperiencethatpeoplewantandexpectfromFacebook.Butinthelastcoupleofyears,theecosystemofpubliccontentlikevideo,news,andpostsfrombusinesseshasgrownmassively—tothepointwhereit'sstartingtocrowdoutthepersonalconnectionpeoplevaluemost.

NewsandvideowillalwaysbeanimportantpartofFacebook.Butwhenpeoplearespendingsomuchtimepassivelyconsumingpubliccontentthatitstartstakingawayfromthetimepeopleareconnectingwitheachother,that'snotgood.Soletmebeclear:helpingpeopleconnectismoreimportantthanmaximizingthetimetheyspendonFacebook.

Asaresultofthisupdate,youwillnowseemorecontentfromfriends,familyandgroupsthatleadyoutointeractwithpeople,andlesspubliccontentthatleadstomoreoveralltimespent.

Now,asImadeclearannouncingthesechanges,IexpectthetimepeoplespendonFacebookandsomemeasuresofengagementwillgodownasaresult.ButIalsoexpecttheamountweactuallyinteractwitheachothertogoupovertime.

We'realreadystartingtoseethisplayout.Onourlastearningscall,Isaidthatvideodonewellcanbringpeopletogether,buttoooftentoday,watchingvideoisjustapassiveexperience.Toshiftthatbalance,Isaidthatweweregoingtofocusonvideosthatencouragemeaningfulsocialinteractions.AndinQ4,weupdatedourvideorecommendationsandmadeotherqualitychangestoreflectthesevalues.

WeestimatetheseupdatesdecreasedtimespentonFacebookbyroughly5%inthefourthquarter.Toputthatanotherway:wemadechangesthatreducedtimespentonFacebookbyanestimated50

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millionhourseverydaytomakesurethatpeople'stimeiswellspent.That'showseriousweareaboutthis.

Now,wedon'tnormallysharetimemetricsbecausethey'renotthebestwayofunderstandingengagement.ButthisshowshowcommittedwearetomakingsurethetimeyouspendonFacebookisvaluable.

Throughthisprocess,wehavealsogottenasenseforhowsomeupdatesimpactothermetricsaswell.Forexample,changeswemadetoimprovequalityinthefourthquartercontributedtoadeclineinpeopleusingFacebookdailyinsomecountries.

Byfocusingonmeaningfulinteractions,IexpectthetimeweallspendonFacebookwillbemorevaluable.AndIalwaysbelievethatifwedotherightthinganddeliverdeepervalue,ourcommunityandourbusinesswillbestrongeroverthelongterm.

Inthiscase,itintuitivelymakessense.Ifpeopleinteractmore,thatshouldleadtoastrongercommunity.AndwealreadyknowthattimeinNewsFeedinteractingwithpeopleismorevaluablethantimepassivelyconsumingvideoornews.Whenyoucareaboutsomething,you'rewillingtoseeadstoexperienceit.Butifyoujustcomeacrossaviralvideo,thenyou'remorelikelytoskipoveritifyouseeanad.

SoIwanttobeclear:themostimportantdriverofourbusinesshasneverbeentimespentbyitself.It'sthequalityoftheconversationsandconnections.Andthat'swhyIbelievethisfocusonmeaningfulsocialinteractionsistherightone.

ThesecondupdateweannouncedisaboutmakingsuretheinformationyouseeonFacebookcomesfrombroadlytrustedandhigh-qualitysources,inordertocountermisinformationandpolarization.

Theideaisthisupdatewillshowmorenewsfromsourcesthatarebroadlytrustedacrossthecommunityandnotonlybythosewhoreadthemdirectly.Forexample,taketheWallStreetJournalortheNewYorkTimes.Evenifyoudon'treadthemorifyoudon'tagreewitheverythingtheywrite,mostpeoplehaveconfidencethatthey'rehighqualityjournalism.Ontheflipside,thereareblogsthathaveintensefollowingsbutarenotwidelytrustedbeyondtheircoreaudience.Wewillshowthosepublicationssomewhatless.

Preventingfalsenews,hatespeech,andotherabuseisanotherimportantareaoffocusforus.Inordertoprotectthesecurityandintegrityofourplatform,we'reinvestinginbothpeopleandtechnology.Wenowhavearound14,000peopleworkingacrosscommunityops,onlineops,andoursecurityefforts.That'salmostdoublewherewewereayearago.We'vealsobuiltnewtechnologytodetectsuicidalpoststhathashelpedfirstrespondersreachmorethan100peoplewhoneededhelpquickly,andwe'vebuiltAIsystemstoflagsuspiciousbehavioraroundelectionsinrealtimeandremoveterroristcontent.ThankstoourAIsystems,99%oftheISISandAl-Qaeda-relatedterrorcontentwetakedownisnowremovedbeforeanyoneevenflagsittous—andinsomecases,beforeanyoneseesit.

We'vealsomadeprogressdemotingfalsenewsinNewsFeed,whichtypicallyreducesanarticle'strafficby80%anddestroystheeconomicincentivesthatmostspammersandtrollfarmshavetogeneratethesefalsearticlesinthefirstplace.

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Finally,we'vestartedrollingoutamajoradstransparencyeffort.WesupportCongresspassinglegislationtomakealladvertisingmoretransparent,butwe'renotgoingtowaitforthemtoact.We'vealreadybegunlaunchingawayforanyonetoviewtheadsapageisrunningonFacebook,Instagram,andMessenger—eveniftheyaren'ttheintendedaudience.We'retestinginCanadafirstwiththegoalofrollingitoutintheUSthissummeraheadofthemidtermelections.

AsIsaidlastquarter,Iexpecttheseinvestments—ontopofotherinvestmentswe'remaking—willsignificantlyimpactourprofitability.Butjustlikethechangeswe'remakingthatwillimpacttimespent,theseinvestmentswillhelpusbuildastrongercommunityoverthelongterm.

Now,buildingastrongercommunityalsomeansdeliveringonourproductroadmapforthenext3,5and10years.

Overthenextthreeyears,weknowvideowillcontinuetogrow,soourjobistobuildvideoexperiencesthathelppeopleconnectwithfamily,friends,andgroups.That'swhyI'mexcitedaboutWatchasaplacetoconnectwithpeoplewhohavesimilarinterests,andit'swhywelaunchedproductslikeWatchPartywherefriendscanwatchashowtogether.

Anotherimportantshiftthatwe'reseeingacrosstheindustryisthegrowthofStories.WeexpectStoriesareontracktoovertakepostsinfeedsasthemostcommonwaythatpeopleshareacrossallsocialapps.That'sbecauseStoriesisabetterformatforsharingmultiplequickvideoclipsthroughoutyourday.ThegrowthofStorieswillhaveanimpactonhowwebuildproductsandthinkaboutourbusiness,includingWhatsAppandInstagram,whicharethe#1and#2most-usedStoriesproductsintheworld.

Beyondvideo,wehavealongroadmapworkingtohelppeopleconnectinmeaningfulways.

Today,morepeopleareusinggroupsthanever.Theseincludesmallergroupsoffriendsandfamily,andalsolargercommunitieswherepeopleconnectaroundsharedinterests.We'refocusedonhelpingmorepeoplefindtherightcommunitiesforthemandgivinggroupadminsandleadersthenewtoolstheyneedtorunthesegroupsandhelpthemgrow.

ThegoalofMarketplaceistoconnectpeoplethroughcommerce.Morethan700millionpeopleeachmonthnowcometoFacebooktobuyandsellthings.WelaunchedMarketplacein30countrieslastyear,including11countriesinthelastquarteralone.

Overthenextfiveyears,weremainfocusedonbuildingecosystemsaroundourservicesthatlotsofpeoplealreadyuse.

InMessengerandWhatsApp,we'reworkingtogivebusinessesmorewaystocommunicatewiththeircustomers.Welaunchedaplug-inforMessengersopeoplecanchatlivewithcompaniesontheirwebsites,andnowmorethan2billionmessagesaresentbetweenbusinessesandcustomerseverymonth.

WhatsApprecentlycrossed1.5billionmonthlyactives,withpeoplenowsendingmorethan60billionmessageseveryday.Agrowingnumberofthesemessagesarebetweenpeopleandcompanies,whichiswhywelaunchedWhatsAppBusiness—anewappdesignedspecificallyforsmallandmediumbusinessestoconnectwithpeopletheywanttoreach.

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Overthenext10years,we'reworkingonthefoundationaltechnologiesneededtobringtheworldclosertogether.

OurgoalwithAIistounderstandthemeaningofallthecontentonFacebooktohelpusbuildbetterservices.Inadditiontomakingiteasiertogetpeoplethehelptheyneedandremoveharmfulcontent,thiswillalsohelpusshowmorecontentthatencouragesconnectionandconversation.

OntheVRside,we'reexcitedtogetOculusGointopeople'shandsthisyear.TimeMagazinenameditoneofthetopinventionsof2017,andIcan'twaitformorepeopletouseit.

So2017wasagoodyearinmanyways,butitwasalsochallenging.That'swhyourfocusthisyearwillbemakingsureourservicesarenotjustfun,butalsogoodforus—andI'mconfidentthatwewillwe'llrisetothechallenge.Thankstoallofyouforbeingpartofthisjourney,andI'mlookingforwardtomakingmoreprogresstogether.

Andnow,here'sSheryltotalkaboutourbusiness.SherylSandberg,COOThanksMarkandhieveryone.Wehadastrongfourthquarterandagreatendtotheyear.Q4adrevenuegrew48%year-over-year.Mobileadrevenuewas$11.4billion,up57%fromlastyear,andcontributedapproximately89%oftotaladrevenueinQ4.Fullyear2017mobileadrevenuegrew56%comparedto2016–andwasbroad-basedacrossregions,marketersegmentsandverticals.Wecontinuetomakeprogressonourthreepriorities:helpingbusinessesleveragethepowerofmobile,developingnewadproductsandmakingouradsmorerelevantandeffective.FacebookandInstagramarewherepeopleandbusinessesconnectandareespeciallymeaningfulplatformsforsmallbusinesses.Globally,70millionbusinessesuseFacebook.Wesurveyedsmallbusinessesin18countries,and57%ofthemareemployingmorepeopleduetogrowthindemandsincejoiningFacebook.Lastweek,ImetAdamofKingsBarbersClubwhostartedwith2employeesinBirmingham,Englandandnowhas15salonsand70employees.IalsometDomingofromPescaria,arestaurantinSouthernItalythatusesFacebookandInstagramtoconnectwithcustomers.80%oftheirdiners–and70%oftheirrevenue–comesfromFacebook.Theyopenedtheirsecondrestaurant,andnowemploymorethan60people.LikeAdamandDomingo,smallbusinessownersaresomeofthemostdedicatedentrepreneurs.Theyaretheheartofeveryeconomyandcreatethemajorityofnewjobsthroughouttheworld.AsMarksaid,wearetakingstrongactiontomaximizethegoodwedoincommunities.Aspartofthis,weareinvestingheavilyinsmallbusinessesandinhelpingpeoplegaindigitalskills.InNovemberwelaunchedourCommunityBoostprogram,whichprovidesdigitaltrainingforpeopleinneedofworkandhelpslocalbusinessesandnonprofitsgetthemostoutoftheinternet.Duringmytriplastweek,Iannouncedwe’reexpandingtheprogramtotheEU.Thisyearwe’llvisitmorethan30citiesintheU.S.andEuropetoworkside-by-sidewithSMBs,startupsandNGOs.Over2millionpeopleandbusinesseshavealreadyusedouronlineandofflinetraining–andby2020,we'llhavetrained1millionpeopleandbusinessesacrossEuropealone.

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Aspeopleandbusinessesshifttomobile,Instagramcontinuestogrowquickly.Therearemorethan2millionactiveadvertisersonInstagramandweannouncedinNovemberthatmorethan25millionbusinesseshaveprofilesonInstagram–upfrom15millioninJuly.Instagramisabusiness’smobilevisualshop,andwe’reseeingmorepeopleseekoutbusinessesthere.Abouttwo-thirdsofthevisitstoInstagrambusinessprofilesarefrompeoplewhodon’tfollowthemyet–andthisishelpingbringinnewcustomers.Oursecondpriorityisdevelopinginnovativeadproducts.Eachyearmobileadvertisingreachesnewmilestonesduringtheholidayshoppingseason.Ayearago,wesawmobileconversions–actionstakenonamobilewebsiteafterviewinganadonFacebook–surpassdesktopconversionsforthefirsttime.In2017,mobileconversionscontinuedtoaccelerate.Datafrom17marketsshowsmobileaccountedfor69%ofonlineconversionsonBlackFridayand64%onCyberMonday.Italsodrove80%ofconversionsonSingles’Day,apopulardayforonlineshoppinginChinaandincreasinglyothercountries.BigshoppingdayslikethesearethekindofglobaleventsthatFacebookandInstagramareuniquelypositionedtosupport.Duringtheseeventsandthroughouttheyear,businessesareusingourinnovativeadproductslikeDynamicAdstoconnectandreconnectwithshoppers.Forexample,HolidayInnExpressrecentlyusedDynamicAdsforTravelwithourCollectionformattoadvertisetopeoplewhosearchedforhotelsontheirwebsitebuthadn’tyetbooked.Theyranadswithavideothatshowedapersonalizedselectionofhotelsforthecityanddatespeoplehadlookedup.Thisresultedin3Xhigherreturnonadspendthantheirpreviouscampaigns.InQ4wealsolaunchedDynamicAdsforAuto,whichallowsdealersandmanufacturerstoshowtherightcarstotherightaudiences.

Asweexpandandimproveouradproducts,advertisersareincreasinglydevelopingmobile-firstadsratherthansimplytakingtheirTVcreativeandputtingthemonline.Mobile-firstvideowas50%ofourvideoadrevenuethisquarter,comparedto41%lastquarter.We’reseeingtheseshort-formvideosworkwellinInstagramStories,wherepeoplecanwatchafull-screenverticalvideoandswipeuptoquicklylearnaboutaproductorbrand.60%oftheseadsareviewedwithsoundon.

Recently,OpenTableusedInstagramStoriestoadvertisetheirreservationservicetoUSadultswhoarefrequentdinersorareinterestedindining.Theycombinedfoodandrestaurantfootagewitha“BookNow”button.Theadsreached1.5millionpeopleandachieved33%lowercostperreservationthantheirothercampaigns.WearemakingiteasierforanyadvertisertotryStoriesadsaspartoftheirothercampaignsonourplatform.

Ourthirdpriorityismakingouradsmorerelevantandeffective.Targetingmakesadvertisingbetter–morerelevanttopeopleandmoreeffectiveforbusinesses.Thisisespeciallyimportantforsmallbusinessesastheyhavelimitedbudgetsandneedtomakeeverydollarcount.Facebookgivessmallbusinessesthesamepowerfultoolsthatwerepreviouslyonlyavailabletolargeadvertsiers–sotheycanreachtherightpeopleattherighttime.Forexample,we’recontinuingtoinvestinValueOptimization,whichhelpsadvertisersshowtheiradstopeoplewhoarelikelytospendmorewiththem.We’vebeengraduallyrollingthisouttoadvertisersusingWebconversion,DynamicAds,andMobileAppInstallads.Theearlyresultsarepromising–over2,500businesseshavetriedValueOptimizationsinceJuneandmanyareputtingmoreoftheirbudgetstowardit.

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Wetakeourresponsibilitytopreventabuseofouradsystemsveryseriously,andweareinvestingheavilyinbothpeopleandtechnologytoprotecttheintegrityofourplatform.InadditiontorollingouttheadstransparencytoolinCanadathatMarkmentioned,we’vedisabledtheoptionthatletsadvertisersexcludepeopleinspecificmulticulturalaffinitysegmentsuntilwecandevelopbettersafeguardsagainstdiscrimination.We’realsofocusedonimprovingadqualityanddeliveringabetterexperienceforpeoplewhointeractwithmarketersonourplatform.Thisholidaywetookadditionalstepstopenalizee-commerceadvertiserswhocreatedmisleadingornegativeads.In2018,we’llcontinuetofocusonoursamethreepriorities–anddomoretoensurethequality,transparency,andauthenticityofadsonourplatform.Aspartofourefforttobemoretransparent,lastquarterwepublishedourAdvertisingPrincipleswhichhavelongguidedourapproachacrossallofourplatforms.Theseprinciplesareourcommitmenttothepeoplewhouseourservices.Theyare:

• Webuildforpeoplefirst• Wedon’tsellyourdata• Youcancontroltheadsyousee• Advertisingshouldbetransparent• Advertisingshouldbesafeandcivil;itshouldnotdivideordiscriminate• Advertisingshouldempowerbusinessesbigandsmall• Andwe’realwaysimprovingouradvertising

AsMarksaid,2017wasachallengingandimportantyearforFacebook–ayearwherewecommittedtoincreasingourinvestmentinthesafetyandsecurityofourcommunity.Itwasalsoastrongyearforourbusiness,whereourinvestmentsinhelpingourclientsgrowpaidoff.Wewillcontinuetomakealloftheseinvestmentsin2018andinthecomingyears.I’mthankfultoourpartnersaroundtheworldandtoouremployeeswhoworksohardtomakeusbettereveryday.Thanks,andnowhere’sDave.DavidWehner,CFOThanksSheryl,andgoodafternooneveryone.Q4wasastrongquarterforFacebookandagreatendtotheyear.Full-year2017totalrevenuegrew47%toover$40billionandwegeneratedover$17billionoffreecashflow.Let’sbeginwithourcommunitymetrics.Overallourglobalcommunityisstrongandgrowing.DailyactiveusersonFacebookinQ4reached1.40billion,up14%comparedtolastyear,ledbygrowthinmarketslikeIndia,IndonesiaandBrazil.

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Thisnumberrepresentsapproximately66%ofour2.13billionmonthlyactiveusersinQ4.MAUswereup269Mor14%comparedtolastyear.AsMarkmentioned,certainproductqualitychangesimpactedourDAUgrowth.IntheUS&Canada,thesechangescontributedtoaDAUdeclineof700,000comparedtoQ3.Wedon’tseethisasanongoingtrend,butwedoanticipatethatDAUinthisregionmayfluctuategiventherelativelyhighpenetrationlevel.WecontinuetoseehealthygrowthacrosstheFacebookfamilyofappsincludingInstagram,WhatsAppandMessenger.Turningnowtothefinancials.Allcomparisonsareonayear-over-yearbasisunlessotherwisenoted.Q4totalrevenuewas$13billionup47%or44%onaconstantcurrencybasis.Foreignexchangetailwindscontributed$329MofrevenueinQ4.Q4totaladrevenuewas$12.8billion,up48%or44%onaconstantcurrencybasis. Mobileadrevenuewas$11.4billion,up57%.InQ4,theaveragepriceperadincreased43%andthenumberofadimpressionsservedincreased4%,drivenprimarilybyfeedadsonFacebookandInstagram.Payments&otherfeesrevenuewas$193million,up7%.TotalexpensesinQ4were$5.6billion,up32%.Headcountremainsaprimarydriveroftotalexpenses.InQ4,weaddedapproximately1,900peopleandendedtheyearwithover25,000employees,up47%comparedtolastyear.In2017,wemadesignificantinvestmentsinR&Dandsecurity.OntheR&Dside,weaddedmorepeoplein2017thanwedidin2016and2015combined.Onthesecurityside,asMarkmentioned,wehaveacceleratedoureffortsandattheendoftheyearhadaround14,000employeesandcontractorsworkingacrosscommunityoperations,onlineoperations,andintegrityefforts.Wealsocontinuedtoinvestaggressivelyinkeyareassuchascontentandourlong-terminnovationefforts.Q4stockbasedcompensationexpenseswere$814millionwhichwasdownfromthe$831millioninQ4oflastyearduetoadeclineindeal-relatedstockbasedcompensationexpenses.AsareminderweacquiredOculusandWhatsAppin2014andweexpectthedeal-relatedSBCexpensestobesubstantiallyrecognizedbytheendof2018.

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Q4operatingincomewas$7.4billion,representinga57%operatingmargin.Oureffectivetaxratewas43%.InQ4,werecordedapproximately$2.3billioninone-timechargesasaresultofthe2017TaxCutsandJobsAct.Thiswaslargelydrivenbythemandatorytransitiontaxbasedontheaccumulatedearningsfromourforeignsubsidiaries.Netincomewas$4.3billionor$1.44pershare.Again,theone-timechargesrelatedtothetaxonaccumulatedearningsreducedEPSbyapproximately$0.77.Full-year2017capitalexpenditureswereapproximately$6.7billion,drivenbyinvestmentsinservers,datacenters,officefacilitiesandnetworkinfrastructure.In2017,wegeneratedover$17billioninfreecashflowandendedtheyearwithnearly$42billionincashandinvestments.In2017,weboughtbackapproximately$2billionofourClassAcommonstockandhadapproximately$4billionremainingonourcurrentauthorizationasofDecember31st.Weremaincommittedtorepurchasesofourstocktohelpmanagedilution.Turningnowtotherevenueoutlook.WebelievewehavegoodopportunitiestogrowthebusinessacrossbothFacebookandInstagramin2018.WecontinuetoimprovetheeffectivenessofouradswhichhelpsdriveROIforadvertisersanddemandforouradproducts.Onthesupplyside,weexpectwewillbeabletocontinuetogrowadimpressionsatamodestpace.In2018weexpectconstantcurrencyadrevenuegrowthratestodecelerateconsistentwiththetrendswehaveseenoverthepastyear.Iwouldalsonotethatinthefirsthalfof2018wewilllikelybenefitfromfavorableexchangeratetailwindsduetotherecentdepreciationofthedollar.Movingontoexpenses.Wecontinuetoexpectfull-year2018totalexpenseswillgrowapproximately45to60%comparedtofull-year2017.TurningnowtoCapEx.Weexpectthatourfull-year2018capitalexpenditureswillbeintherangeof$14to$15billion,drivenbyincreasedinvestmentindatacenters,servers,officefacilitiesandnetworkinfrastructure.Wecurrentlyanticipatethatourfull-year2018taxratewillbeinthemid-teens.Insummary,2017wasanothergoodyearforFacebook.Wecontinuedtogrowourglobalcommunityanddelivergreatresultsforouradvertisers.Importantly,weacceleratedourinvestmentstomakeourproductsbetterandthecommunitystrongeraswepushforwardonourmissionofgivingpeoplethepowertobuildcommunityandbringtheworldclosertogether.

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Withthat,Mike,let’sopenupthecallforquestions.

Operator: Wewillnowopenthelinesforourquestionandanswersession.Toaskaquestion,

press“star”followedbythenumber“one”onyourtouchtonephone.Pleasepick

upyourhandsetbeforeaskingyourquestiontoensureclarity.Ifyouarestreaming

today’scall,pleasemuteyourcomputerspeakers.

YourfirstquestioncomesfromthelineofBrianNowakwithMorganStanley.

BrianNowak: Thanksfortakingmyquestions.Ihavetwo.Thefirstone,thequalitychangesthat

youmentionedthatleadtoanimpactondailyactiveusersinNorthAmerica.Iguess

anyfurtherdetailonwhatthosequalitychangeswere?Andwhatmakesyoufeel

comfortablethatthisisn’tlikelytocontinue?Ithinkyoumayneedtomakefurther

changesincleanupthroughoutthecourseoftheyear.

Andthesecondone,Mark,IthoughtyourcommentaryonStoriesengagementwas

reallyhelpful.I'dbecurioustohearaboutearlylearningsonmonetizationofthe

Storiesformatandanychallengesmadetoovercometodrivemonetizationthrough

thatconsumption.

DavidWehner: OnthequalitychangesandtheimpactonDAUandtheU.S.andCanada,really,no

furtherIthinkelaborationonthat.Iwouldjustsaythatwedon'tanticipatethatthat

willbeacontinuingtrend,butgiventhehighpenetrationrates,wedothinkthat

therewillbesomefluctuationthere.There'salotofdifferenteffectsthatcome

fromthedifferentqualitychangesandthefocusonmeaningfulsocialinteractions.

Butthat'sourexpectationatthispoint.

SherylSandberg: Onstorymonetization,adsinStoriesandInstagramisasmallbutquicklygrowing

partofourrevenue.Thereare300milliondailyactivesonInstagramalone.Andthe

formatisprettyexcitingfromasalespointofviewbecauseithasalotofpotential.

It'sfullscreen,it'sauthentic,it'sveryengaging.Sotheopportunityinthefuturefor

ustocombinethepowerofthisnewformatwiththetargetingandmeasurement

weoffer,wethinkisgoingtobereallypowerfulinthebusinessofourclients.Its

earlydays,butI'mprettyoptimisticaboutthis.

Operator: YournextquestioncomesfromthelineofDougAnmuthwithJPMorgan.

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DouglasAnmuth: Thanksfortakingthequestion.First,Mark,youmadeitprettyclearthatdriving

meaningfulsocialinteractionsisthecompany'sprioritythisyear.Butcanyoutalka

littlebitabouthowthechangesyou'remakingimpactadvertising?Maybeyoucan

talkabouthowyou'rethinkingaboutanychangesaroundadloadorjustoverall

impressionvolume.

Andthenhowdoadsworkinanenvironmentofmorefriendsandfamilycontent,in

anenvironmentwhereyoudon'tseeasmanybusinessposts?Andthensecondly,

canyoutalkaboutGDPRaswell?Idon'tthinkyoumentionedit,butjustcurious.I

mean,youputtheblogpostouttheotherday.Butifyoucouldtalkabouthow

you'repreparinghere,that'salittleoutoverthenextfewmonths,andwhetheryou

thinkthatpresentsandtherisktoengagementormonetization.

DavidWehner: Doug,it'sDave.I'llstartoffontheimpactonthebusiness.Thebiggestfocus--the

biggestimpactonthefocusonmeaningfulinteractions,asMarkmentioned,willbe

inareaslikepassivevideowherefromabusinessperspective,wemonetizelesson

thetimespentbasis.Soifyouthinkaboutitintermsofthingslikeposts,viewsin

NewsFeedwhichdrivesimpressiongrowth,wethinkthiswillhavealessofan

impact.

Sothat'ssortofbuiltintowhatIhadsaidaboutthebusinesscommentarywhenI

commentedon2018revenueoutlook.Westill,Ibelieve,wehaveanopportunityto

growimpressionsonamodestpaceyear-over-yearacrosstheplatform.

SherylSandberg: WhenIthinkabouttheMSIchanges,obviouslyanychangethat'sbeneficialforthe

communityisgoodforthelong-runhealthofourbusiness.BecauseasMarksaid,

wecarenotjustabouttimespendonFacebook,buttimewellspent.Buteveninthe

shorterterm,alltimespentonFacebookisnotequal.Becausewhenpeoplespend

timeviewingmoreposts,becausethey'reinteractingwithfamilyandfriends,and

they'renotinvolvedinlongerposts,wehaveactuallymoremonetization

opportunities.

We'renotdoingthistobepositiveornegativeforrevenue,we'redoingitbecause

it'stherightthingforourcommunity.Buttheimpactithasonmonetizationis

certainlynotclearlynegative.WhenyouthinkaboutGDPR,theFacebookfamilyof

appsalreadyappliesthecoreprinciplesintheGDPR,whicharetransparencyand

control.Andwe'rebuildingonthistomakesurethatwe'rereadytofullycomplyby

May.

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We'regoingtocontinuetogivepeopleapersonalizedexperienceandbeclearhow

we'reusingdataandgivechoices.Andwerealizethatthismeansthatsomeusers

mightoptoutofouradstargetingtools.WealsoknowthattheremaybeaDAU

impactforimplicationsonEuropeanusage.Butfromthetargeting,we'renot

forecastingabigimpacthere.There'ssomeriskandwe'rewatchingclosely.Over

thelongrun,wefeelconfidentthatwe'reverywellplacedtonavigatethe

transition.

Operator: YournextquestioncomesfromthelineofHeatherBelliniwithGoldmanSachs.

HeatherBellini: Great,thankyou.Ihadtwoquestions.One,Iwasjustwonderingwhatthe

advertiserresponseisthentothelowerengagement,andalsojustthekindof,I

guesscleaningupoftheNewsFeed,ifyouwill.What'skindoftheirviewonthis?

Andalso,canyousharewithusanymetricsonWatch?AndIknowit'sreallyearly,

butanythingthat'sinterestingfromanengagementperspectivehereandkindof

howyouthinkthiscouldevolve?Thankyou.

SherylSandberg: OntheDAUimpactandtheadvertiserresponse,ourbusinessisstrong.Wehave

over184millionpeopleusingFacebookeverydayintheU.S.,whichisconsiderably

morethanSuperBowleverydayonmobilealone.Wealsohavewethinkthebest

abilitytomakeadvertisingrelevantforbusinessesandpeoplewhoseeads.

We'recontinuingtobuildproductsthatallowbusinesstogetahigherreturnforthe

dollarstheyspendandallowpeopletoseemorerelevantinformationandadson

ourplatform.Sowe'repleasedwiththegrowth,andwebelievethatdeliveringthe

strongquarterwehaveshowsthat.OnWatch,it'sjustearlydays.Wehavea

dedicatedplaceforpeopletowatchandcomment.We'reheavilyfocusedonthe

socialaspectsofvideoviewing,butit'stooearlytoreportanyrealfindings.

Operator: YournextquestioncomesfromthelineofEricSheridanwithUBS.

EricSheridan: Maybefollowinguponthethemearoundengagementandthechangesonproduct

first.Howwouldyoubedefiningsuccess?Whatwillyoubewatchingforintermsof

eitherthetimespentontheplatform,ortheusergrowthontheplatform,or

relativeengagementtosaythatyougotthemixrightandthatpeopleareseeingthe

rightcontentandhaveahealthyexperiencewithFacebookoverthenextcoupleof

years?

13

Thatwouldbenumberone.Andnumbertwo,Dave,withrespecttotheOpExand

CapEx,giventheintentofthecompanythatyougetalotofthingsrightonthe

securitysideandwithrepositioningproduct,shouldweexpecttheretobea

differentcadencethisyearintermsoftheinvestmentsthatthecompanymight

make,maybemorefirsthalfversussecondhalf?Wanttoknowiftherewasany

colorthere.

MarkZuckerberg: Icantakethefirstpointaboutmeaningfulsocialinteraction.Sotheproduct

directivethatI'vegiventoallofourteamsistoshiftfromfocusingonshowingthe

mostmeaningfulcontenttopeopletoinsteadtonowencouragingthemost

meaningfulsocialinteraction.SothatwillfirsttakeholdasaseriesofNewsFeed

changes.Butovertime,therearegoingtobenewproductsthatwebuild,new

interfacesthattheteamhasdesignedwiththatgoalofencouraginginteractions

betweenpeople.

Sothethingthatwe'regoingtobemeasuringisbasically,thenumberof

interactionsthatpeoplehaveontheplatformandoffbecauseofwhatthey're

seeingthattheyreportthemtousismeaningful.OneinterestingthingthatIthink

that'sworthbeingclearaboutintermsofhowwedevelopNewsFeed,Ithinkthere

isthismyththatwedesignedNewsFeedinordertoadjustoptimizeforatime,or

forlikesorcommentsorsomesignalslikethat.

Therealityisthewaythatwe'vedonethisforyearsiswe'vehadapanel,asurvey,

ofthousandsofpeoplewhobasicallyweasked,what'sthemostmeaningfulcontent

isthattheyhadseenintheplatformortheyhaveseenofftheplatform.Andwe

designoursystemsinordertobeabletogettothatgroundtruthofwhatpeople,

realpeoplearetellingusisthathigh-qualityexperience.

Sonowwe'regoingtoshiftthatmethodologyalittlebittoinsteadofjustbeing

focusedonthecontent,nowtobemorefocusedontryingtomeasureandhave

peopletelluswhatiscreatingthemostmeaningfulinteractionintheirlivesright?

NotjustonFacebook.ItcouldbeamessagethatyouhaveonMessengeror

WhatsApp,butitcouldalsothatyouseesomethingonFacebookandhavea

conversationaboutthatintheworldwithsomeonewho'smeaningfultoyou.

Andthat'ssomethingthatweneedtounderstandthat.Butthat'sbasicallywhat--

wherewe'regoingtobemovingallthesystemstowards--overthenextperiodof

timeandisnotgoingtobeoneNewsFeedchangethathappensovernight.Itwillbe

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aseriesofrolloutsandthenanumberofproductchangesthatgototheinterfaceof

theproductofthingswelaunchedofthosethingsaswell.

DavidWehner: Andthen,Eric,youhadaquestionabouthowwemightexpectexpensegrowthto

progressthroughtheyear.There'snospecificoneitemthat'sgoingtodriveit.So

wewouldexpectexpensegrowthtorampthroughouttheyear,largelyduetothe

factorsthatwe'vetalkedaboutonpriorcallsintermsofwhat'sdrivingtheoverall

acceleration.There'sthecontinuedinvestmentonthesecurityfront.

WetalkedaboutthatinbothMark'scommentsandmycomments,andwe're

continuingtorampthatinvestment.Wearecontinuingtoinvesttosupportthis

videostrategyonWatchsoweexpectthatcontentinvestmenttocontinueand

ramp.Andthenfinally,we'recontinuingtoinvestinthelong-terminitiativesin

areaslikeAR,VR,AIandconnectivity.Soacrosstheboard,wewouldexpect

expensegrowthtorampthroughouttheyear.

Operator: YournextquestioncomesfromthelinefromPeterStablerwithWellsFargo

Securities.

PeterStabler: Thankyou,TwoifImay,oneforDaveandoneforSheryl.FirstofallforSheryl,I'm

wonderingifyoucouldupdateusonthesearchopportunity.Giventherapidgrowth

ofproductadvertisingontheplatform,isthereanopportunityforFacebookto

transitionfrommoreofademandgenerationplatformtodemandfulfillment?

AndthenforDave,canyougiveusasenseofthetimingchangestotheNewsFeed?

Isthisafullycompletedrolloutwheretherearedifferentcohortsthatsawitfirst?

Wasthereanyregionalphasingoranythinglikethat.Thankyou.

DavidWehner: Yes,Peter.I'lltakethesecondpartfirst.Webegantomakechangesarounda

numberofdifferentqualityinitiativesinthefourthquartersothataffectedmetrics

thatwe'vetalkedabout,includingboththetimespentandtheDAU.Butwe

continuetomakechangestoimproveandtooptimizearounddrivingmeaningful

socialinteractions,asMarktalkedabout.

That'sgoingtobeanongoingjourneythroughouttheyear.Sothere'sno--Idon't

thinkweeveraregoingtodeclarethatwearedonemakingchanges.changes.SoI’d

expectwewouldcontinuecontinuetomakechangesandevolve.

15

SherylSandberg: Onthesearchopportunity,there'sagrowingnumberofsearchesonFacebook,but

we'restillawaysofffrommonetization.It'sworthnotingthoughthatbecauseof

ouradstargetingandourabilitytoreachpeoplemultipletimes,wedobelievethat

someofouradsuccessistakingpeoplefromdemandgenerationthroughdemand

fulfillment.

Sowehavemultipleclientswhowillshowanad,videoadtoeveryoneintheU.S.,

forexample,ortoabigcohortofpeople.Andthenthey'llfollowupwithanadthat

targetsoneitherInstagramorFacebook.Thepeoplewhoengagedwiththatfirstad;

thentheycanfollowupwiththenextteam.Andweareseeingasbusinessesare

increasinglymeasuringtheiradspendintermsoftheirrealROIpersalesthateven

withinourownplatforms,wecanmovepeopledownthatmarketingtunnelfrom

demandgenerationtodemandfulfillment.

Operator: YournextquestioncomesfromthelineofJustinPostwithBankofAmerica,Merrill

Lynch.

JustinPost: Great,thankyou.Dave,maybeyoucouldtalkalittlebitaboutthesustainabilityof

thepricinggrowththatyou'reseeingwithadvertising.Obviouslyyouroutlookfor

nextyearsuggeststhatitdeceleratesmodestly,butit'scertainlyataveryhighlevel,

andtalkalittlebitaboutthat.AndthenmaybeMarkorDave,justtalkabouthow

theWatchtabisevolving.Areyouseeingalotofusagethere?Andhowdoyou

thinkaboutcontentintheWatchtabversusthenewfeed?Thankyou.

DavidWehner: Yes.Sure,Justin.Onpricinggrowth,Ithinkthere,wefeellikewe'remakinggood

progressinourgoalofdrivingbetteroutcomesandROIforouradvertisersthrough

thingslikebettertargeting,betteradunits,drivingbetterconversion.Andwethink

we'remakinggoodprogressthereandthewillingnessofadvertiserstocontinueto

growbudgetswithus,Ithinkhighlightsourprogressthere.

Remember,they'reoptimizingattheendofthedayforbusinessresultsforgiven

dollarsspent,nottheimpressionpricethatwe'rekindofnormallyreportinghere.

Soyouthinkofallthiswork.AndSheryltalkedabouttheValueOptimizationefforts

aspartofthatofbeinganefforttoimprovetheyieldoftheimpressionsthatwe

havetodrivedownstreambusinessresultsforouradvertisingpartners.

Andifwecandrivethoseeffectively,thatwilltranslateintohighereffectiveprices

forourbusiness.AndasImentioned,Ithinkwebelievewestillhavealotofworkto

doyoutocontinuetoimprovethat.Sowethinkthere'sopportunitieshere.

16

MarkZuckerberg: AndforWatch,I--it'searly,therearesomepromisingsigns.Butintermsofhowwe

thinkaboutthisoverallcomparedtoNewsFeed,Iwouldsayit'sreallyimportantto

internalizethattheNewsFeedvideoecosystemandtheWatchvideoecosystemare

almostcompletelyseparatethings,right.SotheWatchbehaviorthatwe'rebuilding

isonewherepeoplecomeintentionallytowatchspecificvideosandtointeractwith

thecommunityaroundthat.

That'sincontrasttowhatweworryistoopassiveconsumptionofanexperiencein

NewsFeedtoday,wherepeoplejusthappentooftenseeavideo,andmaybethey'll

watchitforafewminutes,butmaynotinteractarounditasmuchinNewsFeed.

Sowe'restillveryoptimisticlongtermthatWatchwillbeauseforvideothathelps

tobebringpeopleclosertogether,andthatwillcorrelatewithallthethingsthatour

communityistellingustheywantandthatcorrelateswiththemeasuresofwell-

beingthatwethinkthatsocialproductscangeneratebyhelpingpeoplebuild

relationshipsintermsofallthelong-termmeasuresofwell-beingthatwecare

about;likelongtermhappinessandhealth,etc.

Operator: YournextquestioncomesfromMarkMahaneywithRBCCapitalMarkets.

MarkMahaney: Twoquestionsplease.Europeanadvertisingrevenuegrowth,oryouradrevenue

growthinEurope,accelerated.Isthatjustcurrency?Oranythingelseyouwouldcall

rightthere?Andthenyoutalkedaboutprogressinmovingawayfromkindof

demand--orcreationtowardsdemandfulfillmentorincludingdemandfulfillment.

AndIwaswonderingifyoucouldgiveanymoreexamplesofthat.Iknow,Sheryl,

twoyearsagoorso,youmentionedbooking.combeingontheplatform.Istillthink

thoseOTAs,basedonourwork,arestilldoing10xasmuchspendonGoogle.So

there'sarealopportunityversusFacebook.Arethereexamplesoranyother

evidenceyoucanshowortalkaboutthatcompaniesarereallyfindingtheabilityto

dodemandfulfillmentonFacebook?Andwhat'scausedthattochange?Thanksa

lot.

DaveWehner: SoletmejustquicklyhitontheconstantcurrencyquestionIthinkyouhadatthe

beginning,Mark.TheaccelerationthatwesawfromQ3toQ4wascurrencyfor

Europe.ButEuropecontinuestogrowataveryhealthypace,andonaconstant

currencybasis.Sowe'reverypleasedwiththeresults,bothinconstantcurrency

termsandnominalterms.AndthenSheryl.

17

SherylSandberg: Sototakethefirstquestion,theEU,thestrengthinEuropewasdrivenbySMBs.We

grewacrosstheboardwithlargecompaniestoo,butSMBswerereallyimportant

forthis.Thereare18millionsmallbusinessesonFacebookinEurope,andIhada

chancetomeetalotofthemonmytrip.Buttomentionjustone,whichjustshows

thepoint,acouplenamedLindaandMariusstartedacompanycalledIELM.They’re

akidsclothingretailer.

TheystartedonSwedenonFacebook.Shewassewinginherlivingroomandselling

them.Facebookisdrivingabouthalftheirsales.Theythenopenedafactoryin

RomaniaandmovedbacktoRomaniawherethey'renowemploying100people.

Andthey'reshippingacrossSweden,Romania,GermanyandAustria.They’restilla

smallbusinessat100people,butthey'reagrowingbusinessandshowingthepower

ofhowourworkwithSMBsisgrowingjobs.

Youwereaskingalsoforanexampleofdemandgenerationgoingallthewaydown

todemandfulfillment.Here'sanotheronefromEurope.GymSharkisafitness

clothingbrandbasedontheU.K.TheyranFacebookvideoadsandInstagramstory

adsfortheirBlackFridaycampaign.Andthentheytargetedwithlook-alikespeople

whohadpreviouslypurchased,andCustomAudiencesforpeoplewhostartedbut

didn'tcompletethepurchase.

Andtheysawa9.3xreturnofinvestmentoverthetwoweekholidayperiod.What

happensonourplatformisoftenpeoplethatwillstartoutdoingdemand

generationandusetherepeatopportunitytoshowpeopleads,movingdownthe

funneltodemandfulfillment.Ifyouuseourtargetingtoolswell,youcanactually

startoutwithdemandfulfillment.

SosomeoftheseexamplesI'vesharedonthiscall,fromHolidayInntoGymShark,

areaboutpeopleusingthetargetingtoolstofindpeoplewhoareinterestedinthe

products,andthenyoucangetcloseranddownthefunneltodemandfulfillment.

Operator: YournextquestioncomesfromthelineofRossSandlerwithBarclays.

RossSandler: Justtwoquestions.Mark,onthetopicofpassiveversusactiveconsumption.Can

youtalkaboutwhatpercentoftheDAUsactivelycontributetodayversusjustthe

leanbackpassiveconsumption?Andhowhasthatratiomaybechangedversus5or

10yearsagobasedonsomeoftheproductchangesthatyouhadinNewsFeed?

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Andthen,Dave,justtofollowuponpricing.Sotherewasabunchofnoisegiventhe

growthratesofdesktopversusmobile.Canyoutalkaboutwhatpricinggrowth

lookslikeinmobileonalike-for-likegeographybasis.Isthat20percent,30

percent?Anycolortherewouldbehelpful.

DavidWehner: Yes,Ross.IguessI'lltakeboth.Yes,wedon'tbreakoutthetypeofmetricthat

you'retalkingaboutonthepassiveversusactiveconsumption.Sowedon'thave

anythingspecificallytosharethere.Intermsofbreakingoutpricingona--ona

mobilebasisImean,Ithinkoverallthatthetrendsreflectgenerallywhat's

happeningonmobile,butthereisstillanoverlayoftheshiftfromdesktop.But

overall,weareseeingpricesincreaseonmobileinregions,soIthinkthat's

consistentwiththereportedtrend.

Operator: YournextquestioncomesfromthelineofBrentThillwithJefferies.

BrentThill: Thankyou.OnInstagram,I'mjustcuriousifyoucouldgiveabitmorecoloronthe

progressthatyou'reseeing.Anymetricstohelpfillinwhat'shappeningthere?

DavidWehner: WecontinuetobepleasedwiththegrowthofInstagram,bothonauserbasisand

onarevenuebasis.Itcontinuestomakeanincreasingcontributiontothebusiness.

Sowe'reverypleasedwiththeInstagramresults,nothingspecificallytohighlight

fromametricspointofview.

SherylSandberg: Onthebusinessside,Ithinkwehave--arebothpleasethattheresultsbutseea

verybigopportunityinfrontofus.Wehave6millionadvertisersonFacebook,

whichmeansthatwehavealotofopportunityonInstagram,whereweonlyhave

twomillionadvertisers,togrowtheirengagementwithusandtheirspend.

Operator: YournextquestioncomesfromthelineofMichaelNathansonwith

MoffettNathanson.

MichaelNathanson:IhaveoneforMarkonnewstrustworthinessandthenthegroupandsports.So

Mark,Irealizethatyou'retakinggreatpainnottoplaytheroleofnewseditoron

yourplatform.You'reaskingusersabouttrustworthiness.ButIwonder,doesthat

pickupbiasesinourowntheoriesofwhatwebelievetobetrustworthy,andhow

doyougetpastthat?

Andthenwoulditmakesensetojustsimplyyouplaytheroleofpopulatinganew

NewsFeed,maybeitsowntab,withnewsthatweallbelieve--webelievetobe

trustworthy.Soatsomepoint,youtakeamoreactiveroleandidentifythenews

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thatyourplatformbelievestoberealnewsandmaybecreateanewtabthatway.Is

thateversomethinginyourthinking?

MarkZuckerberg: Thevaluethatwecareabouthereishelpingtobuildcommonground,right,and

helpingtodoourparttofightfalsenewsandpolarization.Sowhatwe'redoingwith

thisspecificchange,whichisoneofanumberofNewsFeedchangesthatare

gearedatimprovingthequalityandtrustworthinessofnewsonFacebook,istowe

basicallyaskpeople--wedon'twanttoassessbyourselveswhichsourcesare

trustworthy.

Ithinkthat'snotasituationthatorapositionwe'recomfortablewithourselves.I

don'tthinkpersonallythatthat'ssomethingthatourcommunityoroursociety

wantsustodo.Soforallofthefeedbackthatwegetthatweshouldtakemoreofa

viewonthat,Iactually,Idon'tbelievethat,thatistherightthingbroadly.

Whatwetrytodoisgetourcommunitytotelluswhatmatterstothem.Because

webelievethatwhenwecangetanaccuratesignalfromthecommunity,then--

peoplearesmart.Theyknowwhattheywantandwhat'sgood.Andtheycantellus

thatifwecanasktheminasimpleenoughwayandgetaggregatedata.Andsowhat

we'redoingiswe'rebasicallyjustaskingpeopleifthey'refamiliarwithnewssources

andwhethertheytrustthem.

Andtheeffectofthatisthatitbasicallynormalizesfor--therearegoingtobe

peoplewhoreadagivennewssource,whowillprobablytrustitbecausetheyneed

that.Butthequestionisforpeoplewhodon'treadwhoarestillfamiliarwithit,do

theythinkit'strustworthy?Andthat'stheexampleIgavebeforeofTheWallStreet

JournalorNewYorkTimes.Alotofpeoplereadthose,alotofpeopledon't.

Butpeoplewhodon'tstillthinkthehigh-qualityjournalismingeneral.Andthat's

nottrueforalotoftheotherstuffthat'soutthere.Andwefoundthatthat'sa

reliablesignalofcontentthathelpstobuildcommongroundthatisunlikelytobe

polarizing,thatisunlikelytobefalsenews.Andwhatwe'redoingishelpingtoshow

thatalittlebitmore.Again,we'renotgoingtotellyouthatyoucan'tshareother

stuff,right?

Youcansharethatontheplatform.Peoplecangotoyourprofile.ButinNewsFeed,

we'regoingtoshowthatalittlebitmoredotowhatweviewasourroleishelping

usbuildingcommongroundandcountersomeoftheseotherforcesintheworld.

20

SherylSandberg: OntheSportsanswer,sportsisoneofthewaysthatpeoplegettogetheron

Facebookandbuildcommunity.We'reexcitedtobringtheUEFAChampionsleague

soccerandcollegebasketballtoFacebook.Andwe'regoingtocontinueto

experimentwithdevelopingmanydifferentformsofcontentforFacebook.

Operator: YournextquestionisfromthelineofJohnBlackledgewithCowenandCompany.

JohnBlackledge: Greatthanks.Twoquestions.OnMarketplace,withtheexpansionto30countries,

justwonderinghowthebusinessmodelevolvesovertime.Doesitkindofmirror

Amazon'sthird-partybusinessoreBay'smarketplacebusiness?Andthenjustonthe

adunits,onamidrollvideoad,justwondering,Iknowit'searly,butjustanycolor

ontheaddemand,andperhapshowyouthinkabouttheimpactofthisadunits

overthenextcoupleofyears.

SherylSandberg: OnMarketplace,we'rejustgoingtocontinuetoiterateontheadstest.We'repretty

encouragedbywhatwe'veseen,eventhoughit'sprettyearlydays.Whatwe're

excitedaboutisthatourbusinessishelpingpeopleconnectwiththingstheywantto

buy.It'salsoimportanttonotethatcommerceisareallyimportantverticalinour

adsbusinesssoit’snotjustthatcommerceisbeingdriveninadsinMarketplace,

butinamuchbiggerway,commerce,discoveringproductsallthewaythroughto

salesisabigpartofwhat'sdrivingouradsbusiness.

Operator: Yournextquestion.

SherylSandberg: Sorry,onadbreaksformid-rollvideo.Earlydays,prettygoodresults,morethan70

percentofadbreaksupto15secondsinlengthonFacebookandAudienceNetwork

arebeingviewedtocompletion.Mostarebeingviewedwiththesoundon,but

again,it'sveryearlyforthis.

Operator: YournextquestionisfromthelineofAnthonyDiClementewithEvercoreISI.

AnthonyDiClemente:Thanksfortakingmyquestions.Sheryl,justhopingyoucouldhelpusthinkabout

howmarketingbudgetsgrowasretailmovesonline.Soinvestorswespeaktoask

thequestionabouttheaddressablemarketforFacebook.Isit--istheaddressable

marketrunningoutofopportunityastheplatformgetslarger?Doyoubelievethe

overalladmarketortheTAMispossiblyexperiencingstructuralexpansionduetoa

shiftine-commerceoverall?

AndthenMark,IwantedtoaskaboutAI.Canyoujusttalkaboutthebroader

applicationsofthetechnologiesthatyouareinvestingintoimprovetheuser

21

experienceandsafetyontheplatform?SoIunderstandyou'reusingAItoimprove

thequalityoftheexperienceandengagement.Butshouldwebethinkingabout

theseinvestmentsasalsoenablingnewfeaturesandproductsovertimewhetherit

beshippinghardwareorcustomchipsorpotentiallyAIasaserviceexternally?

DavidWehner: Anthony,onthemarketingbudget,wecontinuedtothinkwe'vegotgreat

opportunitiestogrowinthelargeglobaladvertisingmarket.Whenyougetsortof

downtothemicrolevel,youtalkedaboute-commerce.E-commercewas--isand

remainsoneofourstrongestverticalsinQ4.Andwethinkwe'redoinganexcellent

jobofbuildingtherightproductsfore-commerceretailers.

AndSheryltalkedaboutValueOptimizationandthatsortofworkthatwe'redoing.

AndsoIthinkwe'vegotcontinuedopportunitieswithe-commercegoingforward.

SoIthinkwe'reverywellpositionedinthee-commercespace.OnAI?

MarkZuckerberg: IcantalkaboutAI.Somachinelearningis--theimprovementstherearebyfarthe

largesttechnologicaltrendsthatwe'reseeingintheindustryandacrossthe

business.Andwereallyseeitinthreeways.Thefirstandmosttacticalarejustthe

optimizationtoeverythingthatyousee,fromrankinginNewsFeeds,torankingof

ads,orsearch,orimprovingoursecuritysystems.

Andthat'sdrivingalotofthebusinessandthequalityimprovementthatwe're

seeing,andthat'sreallyimportant.Thesecondcategory,Iwouldcallqualitative

changesinhowwedobusiness.Forexample,inNewsFeed,historically,allthe

contentthat'sbeeninNewsFeedhasbeencontentyou'reconnectedto.You

becomefriendswithsomeone,oryoufollowaPage,andthentheircontentcan

showupinNewsFeed.

Butlongterm,--ornotevenlong-term,overthenextseveralyearsaswedevelop

anunderstandingofallthecontentonFacebook,thatwon'tbeaconstraint

anymore.Atsomepoint,we'llbeabletounderstandthemeaningofallthecontent

that'spostedthatyoucouldpotentiallyseeandusethatascandidatestopotentially

improveyourexperienceandmakeitthatyoucanviewmorecontentthanyou

mightbeabletotodayandofcoursewe'lldothattohelpencouragemoresocial

interaction.

Thewaythatthisisimprovingtheworkthatwe'redoingaroundsecurityand

integrityisalsoveryfundamental.Today,thatwholemodelisthatpeoplecanpost

whattheywantandthenapersoncanflagitandthenoursystemswilllookatit.

22

Butincreasingly,aswemoveintothefuture,we'regoingtobeabletoproactively

takedownsomenegativecontent.Igavetheexampleoftheterrorism-related

contentandsomethingsaroundsuicidalpostswheresomeonepostssomething

thatthey'rethinkingaboutsuicide.

Nowtoday,wedon'thavetowaitforsomeonetoreportitalotofthetime.Inthe

lastfewmonths,therehavealreadybeenmorethan100instanceswherewe've

beenabletoreachoutandgetintouchwithfirstrespondersthatcangivepeople

thehelpthattheyneed.That'sabigstructuralchangeinthewaywedobusinessin

termsofprotectingtheintegrityofourcommunity.

Thethirdmajorcategoryisgoingtobecompletelynewproductsandplatforms.So

there,we'vetalkedaboutallthethingsthatwe'rebuildingaroundVRandARand

theabilitytobepresentwithanyone,anywhere.Certainly,AIisgoingtobeabig

partofthat,bothonthevisionsideandthevoiceside.Andtherearegoingtoneed

tobebigadvancesthere,butthat'sreallyexciting.

ButIthinkineachofthosethreecategories,theoptimization,theupgradinghow

wedobusinessandreallychanginghowthatworksinourproductstoday,andthen

thenewproductsthisis--Iwouldsaythatimprovementsinmachinelearningare

themostimportanttechnologicaltrendintheindustrynowbyfar.

DeborahCrawford: Operator,wehavetimeforonelastquestion.

Operator: YourlastquestioncomesfromthelineofMarkMaywithCiti.

MarkMay: Justwantedtoaskafollow-upquestionregardingMark'scommentsthatuser

engagementhaddeclinedbyIthink50millionminutesanddailyhoursinthe

quarter.Iguessthequestionis,howconfidentareyouthatthatimpactwasdueto

NewsFeedchangesthatyoumadeproactivelyversussomeotherfactorsoutside

yourcontrol?

Andifyouarestillfairlyearlyintheprocessofmakingthesequalityimprovements

totheNewsFeed,doyouexpectforengagementdeclinestocontinuegoing

forward?AndjustforDave,Iknowyouchooseyourwordscarefully.Justwantedto

clarify,youmentionedthisyear,youexpectconstantcurrencyadrevenuegrowthto

decelerate,consistentwithtrendsthatwe'veseeninthelastyear.Ithinkyour

constantcurrencygrowthratein'17declinedbyabout12percentagepoints.Isthat

kindofwhatyou'retryingtoleadustowards?

23

DavidWehner: Icantakethesecondquestionfirst,Mark.IthinkwhatIamtryingtosayisthatwe

doexpectconstantcurrencyrevenuegrowthtocontinuetodecelerate,consistent

withthesteadydecelerationthatwe'veseenoverthepastyear.Sowedoexpect

thattrendtocontinue.I'mnotputtingspecificpercentagesaroundit.

MarkZuckerberg: Icanspeaktothefirstone.

DavidWehner: Yes.

MarkZuckerberg: SoinQ4,wemadeanumberofqualitychangesthatwerelargelyaroundvideo.We

aregoingtocontinuetomakequalitychangesnowgoingforwardaround

meaningfulsocialinteraction.AndIdothinkthat,thatislikelygoingtocontinuethis

trendofdecreasingpassiveconsumption.Butifwedoourjobswell,itshould

increasethenumberofmeaningfulinteractionsthatpeoplehave.

Andwethinkthat'sgoingtobepositive.Sowethinkitwillhelpmakethe

communitystrongeroverthelongterm,andwethinkitwillbegoodforthe

businessinthelongterm.Butthisiswhatpeoplearetellingusiswhattheywanton

theproduct.It’stheuniquevaluethatyoucanexpectfromFacebook.Youcouldgo

toalotofplacestoconsumecontent,buttherearen'talotofserviceswhereyou

couldstrengthenyourrelationships.

That'swhatpeoplewant,sothat'stherightthingforustofocuson.Italsolinesup

withallthewell-beingresearchthatwe'vedonewhich,asyouknow,there'sbeena

lotofdebateoverthelastyearabouttheutilityofsocialmediaandtheInternet.

Wetakethisveryseriously.It'sourresponsibilitytomakesurethatweunderstand

everythingthat'sgoingononourplatform.

Andoneofthebigtakeawaysfromthatisthattimewhenpeopleareengagingand

buildingrelationshipsisgoodtime.Thatcorrelateswithalltheaspectsoflong-term

well-beingthatyouwouldexpect,likehappinessandhealthandfeelingmore

connectedandfeelinglessalone,andallofthethingsthatqualitativelymatterin

ourlife.Andwethinkwecanhelpdrivethatandimprovepeople'slivesbydoing

that,sowe'reabsolutelygoingtodothat.

DeborahCrawford: Great.Thankyouforjoiningustoday.Weappreciateyourtimeandwelookforward

tospeakingwithyouagain.

24

Operator: Ladiesandgentlemen,thisconcludestoday'sconferencecall.Thankyouforjoining

us.Youmaynowdisconnectyourlines.

END