Subtitles section Play video Print subtitles Good afternoon. My name is Mike, and I will be your conference operator today. At this time, I would like to welcome everyone to the Facebook Second Quarter 2018 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. This call will be recorded. Thank you very much. Ms. Deborah Crawford, Facebook's Vice President of Investor Relations, you may begin. Thank you. Good afternoon and welcome to Facebook second quarter 2018 earnings conference call. Joining me today to discuss our results are Mark Zuckerberg, CEO; Sheryl Sandberg, COO; and Dave Wehner, CFO. Before we get started, I would like to take this opportunity to remind you that our remarks today will include forward-looking statements. Actual results may differ materially from those contemplated by these forward-looking statements. Factors that could cause these results to differ materially are set forth in today's press release and in our Quarterly Report on Form 10-Q filed with the SEC. Any forward-looking statements that we make on this call are based on assumptions as of today, and we undertake no obligation to update these statements as a result of new information or future events. During this call, we may present both GAAP and non-GAAP financial measures. A reconciliation of GAAP to non-GAAP measures is included in today's earnings press release. The press release and an accompanying investor presentation are available on our website at investor.fb.com. And now, I'd like to turn the call over to Mark. Thanks, Deborah, and thanks, everyone, for joining us today. We had another solid quarter. Revenue grew 42% year-over-year to $13.2 billion. And Facebook now has more than 2.2 billion monthly active with almost 1.5 billion actives using it every day. For the first time today, we're also releasing how many people use at least one of our apps, Facebook, WhatsApp, Instagram or Messenger, and that's 2.5 billion people each month. This number better reflects our community for a couple of reasons. First, it refers to individual people rather than active accounts, so it excludes when people have multiple active accounts on a single app. And second, it reflects that many people use more than one of our services. And Dave will explain this in a little more detail later. I want to start by talking about all the investments we've made over the last six months to improve safety, security and privacy across our services. This has been a lot of hard work and it's starting to pay off. We recently launched two important ad transparency tools: one to let anyone see the ads any page is running even if the ads aren't targeted to you; and the other an archive of ads with political or issue content that's starting in the U.S. ready for the midterm election. These ads are now labeled so you can clearly see who's paying for them and, within the archives, you can see the budget associated with each ad, how many people saw it, and search all ads with political or issue content that an advertiser has run for up to seven years. This level of transparency will mean increased accountability and responsibility for advertisers globally. Over the next 18 months, there are important elections beyond the U.S. in Brazil, India, and the EU, and these will all be real tests for Facebook. But I'm confident that we will get this right given our results during last year's French and German elections, the Alabama special election, as well as this month's presidential election in Mexico, where our systems found and removed thousands of fake account pages and groups that violated our policies. Of course, security is not a problem that you ever fully solve. We face sophisticated well-funded adversaries who are constantly evolving. But, during each election, we learn and improve too. We're also making progress in the fight against misinformation. We're getting rid of the financial incentives for spammers to create fake news, much of which is economically motivated. We stopped pages that repeatedly spread false information from buying ads. And we also use AI to prevent fake accounts that generate a lot of the problematic content from ever being created in the first place. Our investments in AI mean that we can now remove more bad content quickly because we don't have to wait until after it's reported. It frees our reviewers to work on cases where human expertise is needed to understand the context or nuance of a situation. In Q1, for example, almost 90% of graphic violence content that we removed or added a warning label to was identified using AI. This shift from reactive to proactive detection is a big change, and it will make Facebook safer for everyone. I also want to talk about privacy. GDPR was an important moment for our industry. We did see a decline in monthly actives in Europe, down by about 1 million people as a result. And at the same time, it was encouraging to see the vast majority of people affirm that they want us to use context, including from websites they visit, to make their ads more relevant and improve their overall product experience. Looking ahead, we will continue to invest heavily in security and privacy because we have a responsibility to keep people safe. But, as I've said on past calls, we're investing so much in security that it will significantly impact our profitability. We're starting to see that this quarter. But, in addition to this, we also have a responsibility to keep building services that bring people closer together in new ways as well. Now, in light of increased investment in security, we could choose to decrease our investment in new product areas, but we're not going to, because that wouldn't be the right way to serve our community and because we run this company for the long term not for the next quarter. And Dave will talk about this in a few minutes. Now, perhaps one of the most important things we've done this year to bring people closer together is to shift News Feed to encourage connection with friends and family over passive consumption of content. We've launched multiple changes over the last half to News Feed that encourage more interaction and engagement between people, and we plan to keep launching more like this. Now, of course, connecting isn't limited to News Feed. Now, there are more than 200 million people that are members of meaningful groups on Facebook, and these are communities that, upon joining, they become the most important part of your Facebook experience and a big part of your real world social infrastructure. These are groups for new parents, for people with rare diseases, for volunteering, for military families deployed to a new base and more. We believe there is a community for every one on Facebook. And these meaningful communities often spend online and offline and bring people together in person. We found that every great community has an engaged leader. But running a group can take a lot of time. So we have a road map to make this easier. That will enable more meaningful groups to get formed, which will help us to find relevant ones to recommend to you, and eventually achieve our five-year goal of helping 1 billion people be a part of meaningful communities. Now, since the 1970s, there has been this long decline in people joining physical groups around the world, and that has contributed to a broad feeling of loneliness and isolation. But if we can help 1 billion people be a part of something meaningful, then that can help reverse this trend. Talking about being a part of something meaningful, it's been inspiring to see how people are using our fundraising tools to make a difference. Last month, a campaign to raise $1,500 for undocumented children separated from their families at the border ended up going viral and raising more than $20 million from more than 0.5 million donors all around the world. This quarter, we added the ability for pages to create and donate to fundraisers for causes that they care about too. This quarter, we also reached a milestone with now more than 1 billion actives on Instagram. And this is a moment to reflect on how this acquisition has been an amazing success. When Instagram joined us the team had only 16 people. And since then, Kevin and the team have built Stories, Direct, and now IGTV. This has been a story of great innovation and product execution. And it's also a story of how effective the integration has been. We believe Instagram has been able to use Facebook's infrastructure to grow more than twice as quickly as it would have on its own. So a big congratulations to the Instagram team and to all the teams across our company that have contributed to this success. I'm really excited about video too. And this quarter, we launched IGTV. People are watching less TV, but more video, but most video is not yet optimized for mobile. IGTV will help solve that problem. It's designed specifically for mobile and makes watching long-form vertical video from creators easy. There's a stand-alone IGTV app, but you can also watch within the Instagram app, so that means the entire Instagram community has been able to use it from the start. We're also seeing Watch start to grow more quickly on Facebook too. Our teams are focused on building new experiences that help people connect and start conversation. We recently rolled out Watch Party to all groups, so you can watch and chat with friends at the same time. And we're seeing some real traction with some of the original program, from the talk show Red Table Talk, featuring Jada Pinkett Smith, to Skam, an interactive series that started in Norway and features a new style of storytelling where the characters have accounts on Facebook and Instagram, and key parts of the story are told not just through video, but through posts on their pages. Stories continue to be a big part of the future of sharing too, and they're growing quickly across WhatsApp, Instagram, Facebook and Messenger. While we started off just implementing the basic Stories format, we've now moved well beyond it, and have built lots of new features like polls, questions, and collaborative stories and groups and events. And we're also making progress developing Stories into a great format for ads. We've made the most progress here on Instagram, but this quarter, we started testing Stories ads on Facebook too. The other major trend we're seeing is the shift to more private messaging. There's a lot to build here. We've been testing payments on WhatsApp in India, and it gives people a really simple way to send money to each other and contribute to greater financial inclusion. And of the people who have tested this, feedback and usage have been very strong. All signs point to a lot of people wanting to use this when the government gives us the green light. And in the meantime, we've broadened our focus to building this for other countries so we can give more people this ability faster. Over the next five years, we're focused on building out the business ecosystem around messaging on WhatsApp and Messenger. More broadly, our strategy is to use Facebook's computing infrastructure, business platforms and security systems to serve people across all of our apps. For example, we made the decision a decade ago to build our own data centers, and we opened our first custom-built data center in 2011. Today, we have six data centers around the world, and we're working on building eight more. We're using AI systems in our global community operations team to fight spam, harassment, hate speech, and terrorism across all of our apps to keep people safe. And this is incredibly useful for apps like WhatsApp and Instagram as it helps us manage the challenges of hyper-growth there more effectively. Beyond apps and looking at the next 10 years, we're making a lot of progress with virtual reality. Our goal is to create that feeling of presence like you're right there with people you care about even if you might be halfway around the world. Oculus Go is off to a good start, and at $199, it's going to be how a lot of people experience virtual reality for the first time. Overall, this is a critical year for Facebook. We've made progress preventing abuse, forged ahead with new innovation, and are adapting our services to the new trends of messaging, Stories, videos and groups. As always, thank you for being a part of this journey, and I'm looking forward to making more progress together. And now, here is Sheryl to talk about our business. Hi, everyone. It was a good second quarter with ad revenue growing 42% year-over-year. Mobile ad revenue was $11.9 billion, a 50% increase year-over-year, making up approximately 91% of total ad revenue. Our growth, again, was broad-based across regions, marketer segments and verticals. We are working to ensure that Facebook is a safe place for people and businesses. We've taken strong steps to address a number of issues, including election integrity, fake news and protecting people's information. One of the most important things we can do to affect change is to increase transparency because transparency leads to greater accountability. For example, when anyone can see any ad on Facebook, advertisers have to stand behind the ads they run. Transparency also allows us to get more input from our community and from experts around the world, so that we can find and fix problems. We wish we could find everything ourselves, but we never will, so we're building tools to make it easier for people to report issues to us. As Mark mentioned, this quarter, we took major steps to make advertising in pages more transparent. Now anyone can see all the ads a page is running across Facebook, Instagram, Messenger and Audience Network. You can also learn more about pages even if they don't advertise. You can see when a page was created and if they've changed their name. For political and issue ads, we're going even further. Advertisers placing ads with political content are now required to verify their identity and location. These ads will be labeled with a disclosure about who paid for them and saved in a searchable archive. The vast majority of ads on Facebook are run by legitimate organizations from small businesses looking for new customers to advocacy groups raising money for their causes. But we've seen that bad actors can misuse our products too, so we're erring on the side of transparency. We're being intentionally broad in our interpretation of political and issue ads. This includes ads for books about politicians and brand campaigns that touch on national issues. Given our commitment to transparency, we think it's important to apply this policy to more ads rather than fewer. These steps are just the start. We'll keep looking for ways to improve, and we hope these tools become standard across the industry. As we make these investments in transparency and accountability, we remain focused on our key priorities: helping businesses leverage the power of mobile, developing innovative ad products, and making our ads more relevant and effective. First: leveraging the power of mobile. For businesses, winning on mobile now means winning on video. Globally, people are creating and watching more video, especially on mobile devices.