Meta Platforms, Inc.

(META)
Second Quarter 2024 Results Conference Call
July 31st, 2024

Kenneth Dorell, Director, Investor Relations

Thank you. Good afternoon and welcome to Meta Platforms second quarter 2024 earnings
conference call. Joining me today to discuss our results are Mark Zuckerberg, CEO and Susan Li,
CFO.

Before we get started, I would like to take this opportunity to remind you that our remarks today
will include forward‐looking statements. Actual results may differ materially from those
contemplated by these forward‐looking statements.

Factors that could cause these results to differ materially are set forth in today’s earnings press
release, and in our 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 will present both GAAP and certain non‐GAAP financial measures. A
reconciliation of GAAP to non‐GAAP measures is included in today’s earnings press release. The
earnings press release and an accompanying investor presentation are available on our website at
investor.fb.com.

And now, I’d like to turn the call over to Mark.

Mark Zuckerberg, CEO

Thanks Ken. And hey everyone -- thanks for joining today.

This was a strong quarter for our community and business. We estimate that there are now more
than 3.2 billion people using at least one of our apps each day. The growth we're seeing here in the
US has especially been a bright spot. WhatsApp now serves more than 100 million monthly actives
in the US, and we're seeing good year-over-year growth across Facebook, Instagram, and Threads
as well -- both in the US and globally.

I'm particularly pleased with the progress that we're making with young adults on Facebook. The
numbers we're seeing, especially in the US, really go against the public narrative around who's
using the app. A couple of years ago we started focusing our apps more on 18-29 year olds, and
it's good to see that those efforts are driving good results.

Another bright spot is Threads, which is about to hit 200 million monthly actives. We're making
steady progress towards building what looks like it’s going to be another major social app. We're
seeing deeper engagement and I'm quite pleased with the trajectory here.

The big theme right now is of course AI, and I'll focus my comments today on three areas: what AI
means for our family of apps and core business, what new AI experiences and opportunities we
see, and how AI is shaping our metaverse work.

1
So, let’s start: across Facebook and Instagram, advances in AI continue to improve the quality of
recommendations and drive engagement. We keep finding that as we develop more general
recommendation models, content recommendations get better. This quarter we rolled out our
full-screen video player and unified video recommendation service across Facebook -- bringing
Reels, longer videos, and Live into a single experience. This has allowed us to extend our unified AI
systems, which had already increased engagement on Facebook Reels more than our initial move
from CPUs to GPUs did. Over time, I'd like to see us move towards a single, unified
recommendation system that powers all of the content including things like People You May
Know across all of our surfaces. We're not there, so there's still upside -- and we're making good
progress here.

AI is also going to significantly evolve our services for advertisers in some exciting ways. It used to
be that advertisers came to us with a specific audience they wanted to reach -- like a certain age
group, geography, or interests. Eventually we got to the point where our ads system could better
predict who would be interested than the advertisers could themselves. But today advertisers still
need to develop creative themselves. In the coming years, AI will be able to generate creative for
advertisers as well -- and will also be able to personalize it as people see it. Over the long term,
advertisers will basically just be able to tell us a business objective and a budget, and we're going
to go do the rest for them. We're going to get there incrementally over time, but I think this is
going to be a very big deal.

Moving onto some of the brand new experiences that AI enables, last quarter we started broadly
rolling out our assistant, Meta AI, and it is on track to achieve our goal of becoming the most used
AI assistant by the end of the year. We have an exciting roadmap ahead of things that we want to
add, but the bottom line here is that Meta AI feels on track to be an important service and it's
improving quickly both in intelligence and features. Some of the use cases are utilitarian, like
searching for information or role-playing difficult conversations before you have them with
another person, and other uses are more creative, like the new Imagine Yourself feature that lets
you create images of yourself doing whatever you want in whatever style you want. And part of
the beauty of AI is that it's general, so we're still uncovering the wide range of use cases that it's
valuable for.

An important part of our vision is that we're not just creating a single AI, but enabling lots of
people to create their own AIs. This week we launched AI Studio, which lets anyone create AIs to
interact with across our apps. I think that creators are especially going to find this quite valuable.
There are millions of creators across our apps -- and these are people who want to engage more
with their communities and their communities want to engage more with them -- but there are
only so many hours in the day. So now they’re going to be able to use AI Studio to create AI agents
that can channel them to chat with their community, answer people’s questions, create content,
and more. So I'm quite excited about this. But this goes beyond creators too. Anyone is going to
be able to build their own AIs based on their interests or different topics that they are going to be
able to engage with or share with their friends.

Business AIs are the other big piece here. We're still in alpha testing with more and more
businesses. The feedback we're getting is positive so far. Over time I think that just like every
business has a website, a social media presence, and an email address, in the future I think that
every business is also going to have an AI agent that their customers can interact with. Our goal is
to make it easy for every small business, and eventually every business, to pull all of their content
and catalog into an AI agent that drives sales and saves them money. When this is working at
scale, I think that this is going to dramatically accelerate our business messaging revenue.

2
There are a lot of other new opportunities here that I'm excited about too, but I'll save those for
another day when we're ready to roll them out.

The engine that powers all these new experiences is the Llama family of foundation models. This
quarter we released Llama 3.1, which includes the first frontier-level open source model, as well as
new and industry-leading small and medium-sized models. The 405B model has better cost
performance relative to the leading closed models, and because it's open, it is immediately the
best choice for fine-tuning and distilling your own custom models of whatever size you need. I
think we're going to look back at Llama 3.1 as an inflection point in the industry where open source
AI started to become the industry standard, just like Linux is.

I often get asked why I'm so bullish on open source. I wrote a letter along with the Llama 3.1
release explaining why I believe that open source is better for developers, for Meta, and for the
world more broadly. My view is that open source will be safer, will enable innovation that improves
all of our lives faster, and will also create more shared prosperity.

For Meta's own interests, we're in the business of building the best consumer and advertiser
experiences. To do that, we need to have access to the leading technology infrastructure and not
get constrained by what competitors will let us do. But these models are ecosystems, they’re not
just isolated pieces of software that we can develop by ourselves. So if we want the most robust
ecosystem of tools, efficiency improvements, silicon optimizations, and other integrations to
develop around our models, then we need them to be widely used by developers across the
industry. Once we know that we’re going to have access to the leading models, then I am
confident that we’re going to be able to build the best social and advertising experiences.

Part of why I'm so optimistic about this is that we have a long track record of success with open
source. We've saved billions of dollars with Open Compute Project by having supply chains
standardize on our infra designs. Open sourcing tools like PyTorch and React has led to real
benefits for us from all of the industry's contributions. This approach has consistently worked for
us, and I expect it will work here too.

Another major area of focus is figuring out the right level of infra capacity to support training more
and more advanced models. Llama 3 is already competitive with the most advanced models, and
we're already starting to work on Llama 4, which we're aiming to be the most advanced in the
industry next year. We're planning for the compute clusters and data we'll need for the next
several years. The amount of compute needed to train Llama 4 will likely be almost 10x more than
what we used to train Llama 3 -- and future models will continue to grow beyond that. It's hard to
predict how this will trend multiple generations out into the future, but at this point I'd rather risk
building capacity before it is needed, rather than too late, given the long lead times for spinning up
new infra projects. And as we scale these investments, we're of course going to remain committed
to operational efficiency across the company.

The last area that I want to discuss is how AI is shaping our metaverse work, which continues to be
our other long-term focus. Last quarter I discussed how advances in AI have pulled in the timelines
for some of our products. A few years ago I would have predicted that holographic AR would be
possible before smart AI, but now it looks like those technologies will actually be ready in the
opposite order. We're well-positioned for that because of the Reality Labs investments that we've
already made.

3
Ray-Ban Meta glasses continue to be a bigger hit sooner than we expected -- thanks in part to AI.
Demand is still outpacing our ability to build them, but I'm hopeful that we'll be able to meet that
demand soon. EssilorLuxottica has been a great partner to work with on this, and we're excited to
team up with them to build future generations of AI glasses as we continue to build our long term
partnership.

Quest 3 sales are also outpacing our expectations -- and I think that's because it's not just the best
MR headset for the price, but it’s the best headset on the market, period. In addition to gaming,
people are increasingly taking advantage of Quest's capabilities as a general computing platform,
spending time watching videos, browsing websites, extending their PC via virtual desktop, and
more. Horizon also continues to grow across VR, mobile, and desktop -- and I expect that it will
become an increasingly important part of that ecosystem as well.

We're hosting our annual Connect conference on September 25, and we'll have lots of exciting
updates around all of our AI and metaverse work -- so I encourage you to tune in to that.

At the end of the day, we are in the fortunate position where the strong results we're seeing in our
core products and business gives us the opportunity to make deep investments for the future --
and I plan to fully seize that opportunity to build some amazing things that will pay off for our
community and our investors for decades to come. The progress we're making on both the
foundational technology and product experiences suggests that we're on the right track. I'm
proud of what our team has accomplished so far and I'm optimistic about our ability to execute on
the opportunities ahead. As always, thank you to our teams who are pushing all of this important
work forward, and thanks to all of you for being on this journey with us. And now, here's Susan.

Susan Li, CFO

Thanks Mark and good afternoon everyone.

Let’s begin with our consolidated results. All comparisons are on a year-over-year basis unless
otherwise noted.

Q2 total revenue was $39.1 billion, up 22% or 23% on a constant currency basis.

Q2 total expenses were $24.2 billion, up 7% compared to last year.

In terms of the specific line items:

Cost of revenue increased 23%, driven primarily by higher infrastructure and Reality Labs
inventory costs.

R&D increased 13%, primarily driven by higher headcount-related expenses and infrastructure
costs, which were partially offset by lower restructuring costs.

Marketing & Sales decreased 14%, due mainly to lower restructuring and headcount-related costs.

G&A decreased 12%, mostly due to lower legal-related expenses.

We ended the first quarter with almost 70,800 employees, up 2% from Q1.

4
Second quarter operating income was $14.8 billion, representing a 38% operating margin.

Our tax rate for the quarter was 11%.

Net income was $13.5 billion or $5.16 per share.

Capital expenditures, including principal payments on finance leases, were $8.5 billion, driven by
investments in servers, data centers and network infrastructure.

Free cash flow was $10.9 billion. We repurchased $6.3 billion of our Class A common stock and
paid $1.3 billion in dividends to shareholders, ending the quarter with $58.1 billion in cash and
marketable securities and $18.4 billion in debt.

Moving now to our segment results.

I’ll begin with our Family of Apps segment.

Our community across the Family of Apps continues to grow, with approximately 3.27 billion
people using at least one of our Family of Apps on a daily basis in June.

Q2 Total Family of Apps revenue was $38.7 billion, up 22% year over year.

Q2 Family of Apps ad revenue was $38.3 billion, up 22% or 23% on a constant currency basis.

Within ad revenue, the online commerce vertical was the largest contributor to year-over-year
growth, followed by gaming and entertainment and media.

On a user geography basis, ad revenue growth was strongest in Rest of World and Europe at 33%
and 26%, respectively. Asia-Pacific grew 20% and North America grew 17%. On an advertiser
geography basis, total revenue growth continued to be strongest in Asia-Pacific at 28%, though
growth was below the first quarter rate of 41% as we lapped a period of stronger demand from
China-based advertisers.

In Q2, the total number of ad impressions served across our services and the average price per ad
both increased 10%. Impression growth was mainly driven by Asia-Pacific and Rest of World.
Pricing growth was driven by increased advertiser demand, in part due to improved ad
performance. This was partially offset by impression growth, particularly from lower-monetizing
regions and surfaces.

Family of Apps other revenue was $389 million, up 73%, driven primarily by business messaging
revenue growth from our WhatsApp Business Platform.

We continue to direct the majority of our investments toward the development and operation of
our Family of Apps. In Q2, Family of Apps expenses were $19.4 billion, representing approximately
80% of our overall expenses. Family of Apps expenses were up 4%, mostly due to higher
infrastructure and headcount-related expenses, which were partially offset by lower restructuring
costs.

Family of Apps operating income was $19.3 billion, representing a 50% operating margin.

5
Within our Reality Labs segment, Q2 revenue was $353 million, up 28% driven primarily by Quest
headset sales.

Reality Labs expenses were $4.8 billion, up 21% year-over-year driven mainly by higher
headcount-related expenses and Reality Labs inventory costs.

Reality Labs operating loss was $4.5 billion.

Turning now to the business outlook. There are two primary factors that drive our revenue
performance: our ability to deliver engaging experiences for our community, and our effectiveness
at monetizing that engagement over time.

To deliver engaging experiences, we remain focused on executing our priorities, including video
and in-feed recommendations.

On Instagram, Reels engagement continues to grow as we make ongoing enhancements to our

recommendations systems. Part of this work has been focused on increasing the share of original
posts within recommendations so people can discover the best of Instagram, including content
from emerging creators. Now, more than half of recommendations in the US come from original
posts.

On Facebook, we are seeing encouraging early results from the global roll-out of our unified video
player and ranking systems in June. This initiative allows us to bring all video types on Facebook
into one viewing experience, which we expect will unlock additional growth opportunities for
short-form video as we increasingly mix shorter videos into the overall base of Facebook video
engagement. We expect the relevance of video recommendations will continue to increase as we
benefit from unifying video ranking across Facebook and integrating our next generation
recommendation systems. These have already shown promising gains since we began using the
new systems to support Facebook Reels recommendations last year. We expect to expand these
new systems to support more surfaces beyond Facebook video over the course of this year and
next year.

We’re also seeing good momentum with our longer-term engagement priorities, including
Generative AI and Threads.

People have used Meta AI for billions of queries since we first introduced it. We’re seeing
particularly promising signs on WhatsApp in terms of retention and engagement, which has
coincided with India becoming our largest market for Meta AI usage. You can now use Meta AI in
over 20 countries and eight languages, and in the US we’re rolling out new features like Imagine
edit, which allows people to edit images they generate with Meta AI.

Beyond generative AI, the Threads community also continues to grow and deepen their
engagement as we ship new features and enhance our content recommendation systems.

Now to the second driver of our revenue performance: increasing monetization efficiency. There
are two parts to this work.

The first is optimizing the level of ads within organic engagement. We continue to see
opportunities to grow ad supply on lower monetizing surfaces like video, including within
Facebook as the mix of overall video engagement shifts more to shorter videos over time, which

6
creates more ad insertion opportunities. More broadly, we are continuing to get better at
determining the best ads to show and when to show them during a person’s session across both
Facebook and Instagram. This is enabling us to drive revenue growth and conversions without
increasing the number of ads or in some cases even reducing ad load.

The second part of improving monetization efficiency is enhancing marketing performance. We

continue to be pleased with progress here, with AI playing an increasingly central role.

We’re improving ad delivery by adopting more sophisticated modeling techniques made possible
by AI advancements, including our Meta Lattice ad ranking architecture, which continued to
provide ad performance and efficiency gains in the second quarter.

We’re also making it easier for advertisers to maximize ad performance and automate more of
their campaign set up with our Advantage+ suite of solutions. We’re seeing these tools continue
to unlock performance gains, with a study conducted this year demonstrating 22% higher return
on ad spend for US advertisers after they adopted Advantage+ Shopping campaigns. Advertiser
adoption of these tools continues to expand, and we’re adding new capabilities to make them
even more useful.

For example, this quarter we introduced Flexible Format to Advantage+ Shopping, which allows
advertisers to upload multiple images and videos in a single ad that we can select from and
automatically determine which format to serve, in order to yield the best performance.

We have also now expanded the list of conversions that businesses can optimize for using
Advantage+ Shopping to include an additional 10 conversion types, including objectives like “add
to cart”.

Looking forward, we believe generative AI will play a growing role in how businesses market and
engage with customers at scale.

We expect this technology will continue to make it easier for businesses to develop customized
and diverse ad creative. We’ve seen promising early results since introducing our first generative
AI ad features – image expansion, background generation, and text generation - with more than
one million advertisers using at least one of these solutions in the past month. In May, we began
rolling out full image generation capabilities into Advantage+ creative, and we’re already seeing
improved performance from advertisers using the tool.

Finally, we expect AI will help businesses communicate with customers more efficiently through
messaging. We’re starting by testing the ability for businesses to use AI in their chats with
customers to help sell their goods and services and to generate leads. While we are in the early
stages, we continue to expand the number of advertisers we’re testing with and have seen good
advances in the quality of responses since we began using Llama 3.

Next, I would like to discuss our approach to capital allocation, which remains unchanged. We
continue to invest both in enhancing our core experiences in the near-term and developing
technologies that we believe will transform how people engage with our services in the years
ahead. We expect that having sufficient compute capacity will be central to many of these
opportunities, so we are investing meaningfully in infrastructure to support our core AI work, in
content ranking and ads, as well as our generative AI and advanced research efforts.

7
Our ongoing investment in core AI capacity is informed by the strong returns we’ve seen, and
expect to deliver in the future, as we advance the relevance of recommended content and ads on
our platforms. While we expect the returns from generative AI to come in over a longer period of
time, we are mapping these investments against the significant monetization opportunities that
we expect to be unlocked across customized ad creative, business messaging, a leading AI
assistant, and organic content generation.

As we scale generative AI training capacity to advance our foundation models, we will continue to
build our infrastructure in a way that provides us with flexibility in how we use it over time. This
will allow us to direct training capacity to gen AI inference, or to our core ranking and
recommendation work when we expect that doing so would be more valuable. We will also
continue our focus on improving the cost efficiency of our workloads over time.

Reality Labs remains our other long-term initiative that we continue to invest meaningfully in.
Quest 3 is selling well and Ray-Ban Meta smart glasses are showing very promising traction, with
the early signals that we are seeing across demand, usage, and retention increasing our
confidence in the long-run potential of AR glasses.

Finally, as we pursue these investments across near- and long-term priorities, we will remain
focused on operating the business efficiently.

Turning now to the revenue outlook.

We expect third quarter 2024 total revenue to be in the range of $38.5-41 billion. Our guidance
assumes foreign currency is a 2% headwind to year-over-year total revenue growth, based on
current exchange rates.

Turning now to the expense outlook. We expect full-year 2024 total expenses to be in the range of
$96-99 billion, unchanged from our prior outlook. For Reality Labs, we continue to expect 2024
operating losses to increase meaningfully year-over-year due to our ongoing product
development efforts and investments to further scale our ecosystem.

While we do not intend to provide any quantitative guidance for 2025 until the fourth quarter call,
we expect infrastructure costs will be a significant driver of expense growth next year as we
recognize depreciation and operating costs associated with our expanded infrastructure footprint.

Turning now to the capex outlook. We anticipate our full-year 2024 capital expenditures will be in
the range of $37-40 billion, updated from our prior range of $35-40 billion. While we continue to
refine our plans for next year, we currently expect significant capex growth in 2025 as we invest to
support our AI research and our product development efforts.

On to tax. Absent any changes to our tax landscape, we expect our full-year 2024 tax rate to be in
the mid-teens.

In addition, we continue to monitor an active regulatory landscape, including the increasing legal
and regulatory headwinds in the EU and the US that could significantly impact our business and
our financial results.

8
In closing, Q2 was another good quarter. We continue to execute well across our business
priorities and have exciting opportunities in front of us to deliver more value to the people and
businesses using our products around the world.

With that, Krista, let’s open up the call for questions.

Operator: Thank you. We will now be -- open the lines for a question and answer session.
To ask a question, please press star one on your touchtone phone. To withdraw
your question, again press star one. And please limit yourself to one question.
Please pick up your handset before asking your question to ensure clarity. If
you are streaming today’s call, please mute your computer speakers. And your
first question comes from the line of Brian Nowak from Morgan Stanley. Please
go ahead.

Brian Nowak: Great, thanks for taking my question. I have two, one for Mark, one for Susan.
Mark, I wanted to sort of go back to some of the new generative AI-enabled use
cases for users and advertisers. You talked about Meta AI, Studio, chatbots,
diffusion models.

If you could just sort of hone in on one or two of those that you're most excited
about, we're seeing good signal that could be a real driver for the business in
'25, '26 just so we sort of know where are you most focused on all those
opportunities, it'd be helpful. And the second one, Susan, you have a lot of
CapEx priorities from building new infrastructure for next-generation models,
compute capacity.

Just walk us through again on the CapEx philosophy and any guardrails you
have around ensuring you generate a healthy return on invested capital for
investors from all the CapEx. Thanks.

Mark Zuckerberg: I can take the first one. So I think the things that will drive the most results in
'25 and '26 are actually the first category of things that I talked about in my
comments, which are the ways that AI is shaping the existing products.

So the ways that it's improving recommendations and helping people find
better content as well as making the advertising experiences more effective. I
think there's a lot of upside there. Those are already products that are at scale.
The AI work that we're doing is going to improve that.

It will improve the experience and the business results. The other areas that
we're working on, I mean I think you all know this from following our business
for a while, but we have a relatively long business cycle of starting a new
product, scaling it to something that reaches a billion people or more and only
then really focusing on monetizing at scale.

So realistically, for things like Meta AI or AI Studio, I mean these are things that
I think will increase engagement in our products and have other benefits that
will improve the business and engagement in the near term.

9
 But before we're really talking about monetization of any of those things by
themselves, I mean I don't think that anyone should be surprised that I would
expect that that will be years, right?

It's just -- I think that that's like what we've seen with Reels. It's what we saw
with all these things.

But I think for those who have followed our business for a long time, you can
also get a pretty good sense of when things are going to work years in advance.
And I think that the people who bet on those early indicators tend to do pretty
well which is why I wanted to share in my comments the early indicator that we
had on Meta AI, which is, I mean look, it's early. Last quarter, we -- I think it just
started rolling it out a week or two before our earnings call.

This time, we're a few months later. And what we can say is I think we are on
track to achieve our goal of being the most used AI assistant by the end of this
year. And I think that's a pretty big deal.

Is that the only thing we want to do? No. I mean we obviously want to kind of
grow that and grow the engagement on that to be a lot deeper, and then we'll
focus on monetizing it over time.

But the early signals on this are good, and I think that that's kind of all that we
could reasonably have insight into at this point. But I do think that part of
what's so fundamental about AI is it's going to end up affecting almost every
product that we have in some way.

It will improve the existing ones and will make a whole lot of new ones possible.
So it's why there are all the jokes about how all the tech CEOs get on these
earnings calls and just talk about AI the whole time. It's because it's actually
super exciting, and it's going to change all these different things over multiple
time horizons.

Susan Li: And Brian, I can take the second question. On the ROI part of your question, I
would broadly characterize our AI investments into two buckets, core AI and
gen AI. And the two are really at different stages as it relates to driving revenue
for our businesses and our ability to measure returns.

On our core AI work, we continue to take a very ROI-based approach to our

investment here. We're still seeing strong returns as improvements to both
engagement and ad performance have translated into revenue gains, and it
makes sense for us to continue investing here.

Gen AI is where we're much earlier, as Mark just mentioned in his comments.
We don't expect our gen AI products to be a meaningful driver of revenue in
'24.

But we do expect that they're going to open up new revenue opportunities

over time that will enable us to generate a solid return off of our investment
while we're also open sourcing subsequent generations of Llama.

10
 And we've talked about the four primary areas that we're focused here on the
gen AI opportunities -- to enhance the core ads business, to help us grow in
business messaging, the opportunities around Meta AI, and the opportunities
to grow core engagement over time. The other thing I would say is, we're
continuing to build our AI infrastructure with fungibility in mind so that we can
flex capacity where we think it will be put to best use.

The infrastructure that we build for gen AI training can also be used for gen AI
inference. We can also use it for ranking and recommendations by making
certain modifications like adding general compute and storage. And we're also
employing a strategy of staging our data center sites at various phases of
development, which allows us to flex up to meet more demand and less lead
time if needed while limiting how much spend we're committing to in the outer
years.

So while we do expect that we are going to grow CapEx significantly in 2025,

we feel like we have a good framework in place in terms of thinking about
where the opportunities are and making sure that we have the flexibility to
deploy it as makes the most sense.

Operator: Your next question comes from the line of Mark Shmulik with Bernstein. Please
go ahead.

Mark Shmulik: Yes, hi thanks for taking the question. Just as we look at the revenue guidance
and the outlook, Susan, any color you can share on just kind of the state of the
overall digital ad market? And you've highlighted some areas where you're
seeing strength versus kind of some of the idiosyncratic efforts you've made to
kind of improve the efficacy of the ad product. Thank you.

Susan Li: Hi, Mark. We're continuing to see healthy global advertising demand, and we're
also delivering ongoing ad performance improvements just related to all of the
investments that we've continued to make over time, and improving the sort of
ads, targeting, ranking, delivery, all of the fundamental infrastructure there.
And we expect that all of that will continue to benefit ad spend in Q3.

We do expect year-over-year growth to slow in Q3 as we are lapping strong

growth from China-based advertisers as well as strong Reels impression
growth from a year ago. And we also expect modestly larger FX headwinds in
Q3 based on current rates.

Operator: Your next question comes from the line of Eric Sheridan with Goldman Sachs.
Please go ahead.

Eric Sheridan: Thank you so much for taking the question. I'll just ask one. You called out
building community size and what's happened in the United States as well as
Threads. How are you thinking about those newer, faster-growing elements of
either Messaging or Threads as a platform and the mix between the potential
for engagement growth and overall monetization longer term of either the
messaging layer or Threads and what you're most excited about there to build

11
 to sort of capitalize on scale but bring it back towards monetization? Thank
you.

Mark Zuckerberg: I can start, and Susan can jump in if she has anything else that she wants to
add. So the WhatsApp stat, I think, is really important as a business trend just
because the United States punches above its weight in terms of, it's such a
large percent of our revenue.

So before, WhatsApp was sort of the leading messaging app in many countries
around the world but not in the U.S. And I think now that we're starting to make
inroads into leading in the U.S. as more and more people use the product and
realize that, hey, this is a really good experience, it’s the best experience for
cross-platform communication and groups and on all these different things, I
think that that's going to just mean that all of the work that we're doing to
grow the business opportunity there over time is just going to have a big
tailwind if the U.S. ends up being a big market. So I think that that's one reason
why it's really relevant.

It's obviously also personally somewhat gratifying to see all the people around
us starting to use WhatsApp, so I think that's pretty fun but maybe somewhat
less relevant from a business perspective. Threads, I think it's another example
of something that it got off to about as good of a start of any app that I can
think of. I think it was the fastest-growing app to 100 million people.

And it's a good reminder that even when you have that start, the path from
there to 1 billion people using an app is still multiple years. And that's our
product cycle. And I think that that's something that is a little bit different
about Meta in the way we build consumer products and then business around
them than a lot of other companies that ship something and start selling it and
making revenue from it immediately.

So I think that's something that our investors and folks thinking about
analyzing the business, if needed, to always grapple with is all these new
products, we ship them and then there's a multiyear time horizon between
scaling them and then scaling them into not just consumer experiences but
very large businesses.

But the thing that I think is just super exciting about Threads is that we've been
building this company for 20 years, and there are just not that many
opportunities that come around to grow a billion-person app.

I mean there are, I don't know maybe a dozen of them in the world or
something, right? I mean there are certainly more of them outside the company
than inside the company, but we do pretty well and being able to add another
one to the portfolio if we execute really well on this is just really exciting to
have that potential.

Now obviously there's a ton of work between now and there. I mean we're
almost at 200 million. So it's a really good milestone, I'm excited about that. A
lot of work between this and it being a large part of the business.

12
 But I do think that these kind of opportunities are pretty rare and that's
something that we're just really excited about. I think the team is doing great
work on it.

Susan Li: Eric, I would just add to that in terms of nearer-term sources of impression
growth, we really expect that video is going to remain a source of impression
growth for us in the second half.

On Instagram, we expect Reels to continue to drive growth, while on Facebook,

we expect to grow overall video time while increasing the mix of short-form
video, which creates more impression growth opportunities. And generally, we
expect continued community growth across our apps.

Operator: Your next question comes from the line of Doug Anmuth with J.P. Morgan.
Please go ahead.

Douglas Anmuth: Hi, thanks for taking the questions. One for Mark, one for Susan. Mark, just in
terms of infrastructure and CapEx, you've talked about currently building out
not just for Llama 3 and 4 but really out to 7 perhaps and then Llama 4, 10x the
compute required versus Llama 3. Just given how much you're building ahead,
how does that influence the shape of the CapEx curve over a multiyear period?
And then Susan, if you could talk a little bit more about the 3Q outlook.

I know you're talking about tougher comps, but at the same time, it really
suggests only a point of FX neutral decel at the high end. So just curious if
there's anything else you can point to more specifically that's driving the
expected strength here? Thanks.

Susan Li: Thanks, Doug. I can go ahead and talk about both of those. So your first
question was sort of about the longer-term CapEx outlook. We haven't really
shared an outlook sort of on the longer-term CapEx trajectory.

In part, infrastructure is an extraordinarily dynamic planning area for us right

now. We're continuing to work through what the scope of the gen AI roadmaps
will look like over that time.

Our expectation, obviously again, is that we are going to significantly increase

our investments in AI infrastructure next year, and we'll give further guidance
as appropriate.

But we are building all of that CapEx, again with the factors in mind that I
talked about previously thinking about both how to build it flexibly so we can
deploy to core AI and gen AI use cases as needed and making sure that we both
feel good about the returns that we're seeing on the core AI investments,
which we're able to measure more immediately.

And then we feel good about the opportunities in the gen AI efforts. Your
second question was about the Q3 revenue outlook. Again, I mentioned this
earlier. We have seen healthy global advertising demand on our platform.

13
 We're delivering ongoing ad performance improvements, which again, we feel
like is the result of many, many quarters of effort that have accrued and will
continue to accrue value to our platform. And we saw basically in Q2 where
revenue grew 22%, that there was broad-based strength across regions and
verticals including particular strength among smaller advertisers, and we
expect that generally to continue into Q3.

Operator: Your next question comes from the line of Justin Post with Bank of America.
Please go ahead.

Justin Post: Great, thank you. I just want to get back to the comment on U.S. young adult
user growth, especially maybe on Facebook and Instagram. I know you made a
big change with Reels a couple of years ago. But what are those users doing on
Facebook and Instagram? And can you give us any quantification of the usage
growth?

Susan Li: Thanks, Justin. So building products with young adults in mind has been a core
priority area for the Facebook team in recent years, and we've been very
encouraged to see these efforts translate into engagement growth with this
cohort.

We've seen healthy growth in young adult app usage in the U.S. and Canada for
the past several quarters. And we've seen that products like Groups and
Marketplace have seen particular traction with young adults.

Posting to groups in the U.S. and Canada has been growing. That's been
boosted mainly by young adults. And we also see that they are active users of
Marketplace, which has benefited from product improvements and strong
demand for secondhand products in the U.S.

Operator: Your next question comes from the line of Mark Mahaney with Evercore ISI.
Please go ahead.

Mark Mahaney: Yeah, I was going to ask about Marketplace so that's a nice segue. It's a great,
somewhat undermonetized or arguably very under-monetized asset. I know
you indirectly monetize it and it's a very large marketplace.

It may even be bigger than eBay. Your thoughts on what you may want to do in
the future in terms of monetizing it, in part, maybe even improve the quality of
the Marketplace. And then secondly, I just want to ask you about headcount.

It's down about 1% year-over-year. You're pretty much back at par with where
the employee headcount was prior to significant reduction. How should we
think about headcount growth going forward? You talked about a significant
growth in CapEx.

Should we expect a moderate growth in headcount? Significant? Any thoughts

on that would be helpful.

14
Susan Li: Thanks, Mark. On your first question about Marketplace, again, we're obviously
excited that it's been one of the drivers of strength in young adults.

I would probably just say that more generally, Marketplace is one prong in a
broader commerce strategy that we have, which continues to be focused on
basically creating the best shopping experience on our platform. Marketplace is
obviously consumer-oriented. The broader part of the commerce strategy is
about making it easier for businesses to advertise their products, for buyers to
find and purchase relevant items on our platform.

And to that end, I would say that we feel quite happy with also the investments
we've been making in Shops ads. Shops ads revenue is growing at a strong
year-over-year pace.

We're seeing Shops ads drive incremental performance for advertisers, and it's
also working well in combination with some of our other products like
Advantage+ Shopping. Your second question was about headcount.

We continue to be disciplined about where we're allocating new headcount to

ensure that it's really focused on our core company priorities, but we're also
working down a prior hiring underrun.

And as we further close that hiring underrun over the course of this year, I do
expect that we will end 2024 with in-seat reported headcount that is
meaningfully higher than where we ended 2023.

We aren't providing sort of 2025 headcount growth expectations yet as we

haven't started our budgeting process yet. But again, I expect that we will
primarily target our hiring to focus on priority areas, and we will be running a
very disciplined headcount process.

Operator: Your next question comes from the line of Youssef Squali with Truist
Securities. Please go ahead.

Youssef Squali: Great, thank you very much. So the AI assistant using Llama 3.1 has been
incorporated in different variations and looks really impressive and seems to be
getting closer to becoming a full search engine for virtually everything except
for commercial queries so far.

So are there any plans to open it up to the broader web? Kind of like what
maybe OpenAI is alpha testing, maybe link it to third-party marketplaces for
commercial search, et cetera. And then on Ray-Ban, can you maybe talk a little
bit more about the opportunity to deepen your relationship with
EssilorLuxottica? What would that look like? What kind of areas are the most
exciting to you, Mark, in that relationship? Thank you.

Mark Zuckerberg: Yes. I'm very excited with how Llama 3.1 landed. I think the team there is doing
really great work going from the first version of Llama, to Llama 2 last year that
was a generation behind the frontier and now Llama 3.1, which is basically
competitive and, in some ways, leading the other top closed models. Meta AI

15
 uses a version of Llama 3.1 as well as a bunch of other services that we've built
to kind of build a cohesive product.

And when I was talking before about we have the initial usage trends around
Meta AI but there's a lot more that we want to add, things like commerce and
you can just go vertical by vertical and build out specific functionality to make it
useful in all these different areas are eventually, I think, what we're going to
need to do to make this just as -- to fulfill the potential around just being the
ideal AI assistant for people.

So it's a long roadmap. I don't think that this stuff is going to get finished in the
next couple of quarters or anything like that. But this is part of what's going to
happen over the next few years as we build something that will, I think, just be a
very widely used service.

So I'm quite excited about that. And we're going to continue working on Llama,
too. So I mean you mentioned Llama, and I think the question was a little more
about Meta AI but they're both -- I mean they're related. Llama is sort of like
the engine that powers the product and it's open source, and I'm just excited
about the progress that we're making on both of those.

On the smart glasses, EssilorLuxottica is a great partner. We are now in the

second generation of the Ray-Ban Meta glasses. They're doing well, better
than I think we had expected, and we expected them to grow meaningfully
from the first generation so that's been a very positive surprise.

And I think part of that is that it's just well positioned to dovetail well with the
AI revolution that we're seeing and offering all kinds of new functionality there.
So that was great.

But EssilorLuxottica is a great company that has a lot of different products

that we hope to be able to partner with to just continue building new
generations of the glasses and deepen the AI products and make it better and
better.

I think there's a lot more to go from here. And compared to what we thought at
this point, it's doing quite well. Compared to, I think, what it needs to be, to be
like a really leading piece of consumer electronics, I think we're still early but all
the signs are good.

Operator: Your next question comes from the line of Ron Josey with Citi. Please go
ahead.

Ronald Josey: Great, thanks for taking the question. I want to get back, Mark, to the
commentary on open source and Llama 3. Totally understand that Meta is not
offering a public cloud, and so what I wanted to hear from you is maybe a little
bit more on the product vision of products to come out of Llama 3.

And meaning potentially offering some of these products to other companies,

call it, for customer service or call center offerings or other verticals. And so any

16
 insights on just how you envision maybe the open source and Llama 3.1 can
sort of offer greater enterprise services for others to benefit from? Thank you.

Mark Zuckerberg: So Llama is the foundation model that people can shape into all kind of
different products.

So whether it's Meta AI for ourselves or the AI Studio or the business agents or
like the assistant that's in the Ray-Ban glasses, like all these different things are
basically products that have been built with Llama. And similarly, any developer
out there is going to be able to take it and build a whole greater diversity of
different things as well.

Like I talked about, I think -- the reason why open sourcing this is so valuable
for us is that we want to make sure that we have the leading infrastructure to
power the consumer and business experiences that we're building. But the
infrastructure, it's not just a piece of software that we can build in isolation.

It really is an ecosystem with a lot of different capabilities that other

developers and people are adding to the mix, whether that's new tools to distill
the models into the size that you want for a custom model, or ways to fine-tune
things better or make inference more efficient or all different other kinds of
methods that we haven't even thought of yet, the silicon optimizations that the
silicon companies are doing, all the stuff.

It's an ecosystem. So we can't do all that ourselves. And if we built Llama and
just kind of kept it within our walls, then it wouldn't actually be as valuable for
us to build all the products that we're building as it's going to end up being.

So that's the business strategy around that. And that's why we don't feel like
we need to necessarily build a cloud and sell it directly in order for it to be a
really positive business strategy for us. And part of what we're doing is working
closely with AWS, I think, especially did great work for this release.

Other companies like Databricks, NVIDIA, of course, other big players like
Microsoft with Azure, and Google Cloud, they're all supporting this. And we
want developers to be able to get it anywhere.

I think that that's one of the advantages of an open source model like Llama is -
- it's not like you're locked into one cloud that offers that model, whether it's
Microsoft with OpenAI or Google with Gemini or whatever it is, you can take
this and use it everywhere and we want to encourage that.

So I'm quite excited about that. The enterprise and business applications that
we're going to be most focused on, though, in addition to just optimizing the
advertiser experience like I talked about in my comments earlier, it is the
business agent piece.

I just think that there's a huge potential like I said earlier. I think pretty much
every business today, it has an e-mail address. They have a website. They have
social media accounts.

17
 I think in the future, they're going to have at least one, if not multiple business
agents that can do the whole range of things from interacting to help people
buy things to helping support the sales that they've done if they have issues
with the product, if they need to get in touch with you for something. And we
already see people interacting with businesses over messaging working quite
well in countries that have low cost of labor.

But the thing is that in order to have someone answering everyone's questions
is quite expensive in a lot of countries. And I think that this is like a thing that AI,
I think, is just going to be very well suited towards doing.

And when we can make that easy for the hundreds of millions of businesses
that use our platforms to pull in all their information and their catalogs and the
history and all the content that they've shared and really just quickly stand up
an agent, I think that's going to be awesome.

So we can combine Llama with a lot of custom work that we're doing in our
business teams and couple that with all the other investment that the rest of
the ecosystem is doing to make Llama good. And I think that's going to be
huge, but that's just one area.

I mean this really goes across all of the different products that we're building,
both consumer and business. So it's a lot of exciting stuff.

Kenneth Dorell: Krista, we have time for one last question.

Operator: Thank you. That question will come from the line of Ross Sandler with Barclays.
Please go ahead.

Ross Sandler: Great, Mark, so on Monday in your interview with Jensen, you said something
along the lines of if scaling ended up stopping one day, you'd have five years of
product work to do and ahead of you.

So outside of agents or AI assistants, what other areas in AI are you thinking

about or looking at in that five-year roadmap? And then the second question is
maybe one more stab at the capacity question. You guys said that Llama 3.1
was trained on 16,000 H100s. You've also said that you're going to have
600,000 available by year-end.

So even if we kind of go up to 160,000 GPUs for Llama 4, we have plenty of

extra capacity for inference and future products. I guess how are you guys
modeling out this entire kind of CapEx roadmap between training, inference,
and future things? That's all. Thanks a lot.

Mark Zuckerberg: I can start with the first one, and then I'll let Susan answer the second one. It's
an interesting question. It's a little hypothetical because I mean I do think it's
true that if, let's say, there were no future foundation models.

18
 I think there would just be a huge amount of product innovation that the
industry would bring to bear, and that just takes time.

But then at the same time, there are going to be future foundation models, and
they're going to be awesome and unlock new capabilities and we're planning
our products around those. So I'm not really planning our product roadmap
assuming that there isn't future innovation.

To the contrary, we are planning what's going to be in Llama 4 and Llama 5 and
beyond based on what capabilities we think are going to be most important for
the roadmap that I just laid out, for having the breadth of utility that you're
going to need in something like Meta AI, making it so that businesses and
creators and individuals can stand up any kind of AI agents that they want, that
you're going to have these kind of real-time, multimodal glasses with you all the
time that will just be increasingly useful for all the things that you're doing.

And that -- I guess this kind of dovetails with what I'd expect Susan to talk
about next -- we do have this huge set of use cases already about people
wanting to discover content and interact with their friends and businesses
reaching people, and all that stuff is getting better with this, too.

So I -- there's -- I guess my point there was it's just -- there's some lag between
the technology becoming available and the products becoming kind of fully
explored in the space.

And I just think that that was kind of my way of saying that I think that this is
just a very exciting area where there's just going to be a lot of innovation for a
long time to come. I'll let Susan take a stab at the numbers around the GPUs
and all that.

Susan Li: Thank you. We are clearly in the process of building out a lot of capacity, and
Mark has alluded to that in his comments about what we have needed to train
prior generations and the next generation of Llama.

And we are -- and that's driving sort of what we've talked about in terms of the
significant growth in CapEx in 2025. And we aren't really in the position now to
share a longer-term outlook. When we think about sort of any given new data
center project that we're constructing, we think about how we will use it over
the life of the data center.

We think about the amount of capacity we would use in terms of training

whatever the subsequent generations of Llama are and it’s architected around
that.

But then we also look at how we might use it several years into its lifetime
towards other use cases across our core business, across what we think might
be future needs for inference, for generative AI-based products.

So there's sort of a whole host of use cases for the life of any individual data
center ranging from gen AI training at its outset to potentially supporting gen

19
 AI inference to being used for core ads and content ranking and
recommendation and also thinking through the implications, too, of what kinds
of servers we might use to support those different types of use cases.

So we are really mapping across a wide range of potential use cases when we
undertake any given project. And we're really doing that with both a long time
horizon in mind, again, because of the long lead times in spinning up data
centers, but also recognizing that there are multiple decision points in the
lifetime of each data center in terms of thinking through when to order servers
and what servers to order and what you'll put them towards.

And that gives us flexibility to make the sort of the best decisions based on the
information we have in the future.

Kenneth Dorell: Great. Thank you all for joining us today. We appreciate your time, and we look
forward to speaking with you again soon.

Operator: This concludes today's conference call. Thank you for your participation, and
you may now disconnect.

20