Operator:
Good afternoon. My name is Chris and I’ll be your conference operator today. At this time, I’d like to welcome everyone to the Facebook First Quarter 2016 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. If you would like to ask a question during that time, please press star than number one on your telephone keypad. This call will be recorded. Thank you very much.
Ms. Deborah Crawford, Facebook’s Vice President of Investor Relations, you may begin.
Deborah Crawford:Vice President, Investor Relations:
Thank you. Good afternoon and welcome to Facebook’s first quarter 2016 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, our annual report on Form 10-K filed with the SEC.
Any forward-looking statements that we make on this call are based on assumptions as of today and we undertake no obligation to update these statements as a result of new information or future events. During this call, we 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.
Mark Zuckerberg:Founder, Chairman and Chief Executive Officer:
Thanks, Deborah, and thanks everyone for joining today. We started 2016 off well. 1.65 billion people now use Facebook every month and 1.09 billion people use Facebook every day. In recent weeks we’re also consistently seeing more than 1 billion people using Facebook on mobile every day. We are also pleased with our business results. Total revenue this quarter grew by 52% year-on-year to $5.4 billion and advertising revenue grew by 57% to $5.2 billion.
I’ll have more about these results in a minute but first I want to talk about a proposal by our Board of Directors to reclassify Facebook stock. I talked about our mission and how the work we are doing to connect the world is more important today than it’s ever been. I will walk through our 10 year roadmap focused on building the technology to give everyone in the world the power to share anything with anyone. Bringing people together and giving everyone a voice takes long term commitments not just over the next few years, but over the next few decades.
We are focused on the long term and that’s the main reason for today’s proposal. Facebook has always been founder like company so we can focus on our mission and build long-term value. This structure has served our shareholders as well. Early on we received some generous offers from companies trying to buy Facebook and our structure helped us resist that pressure. More recently we navigated a challenging transition to mobile but because we were a controlled company, we were able to focus on improving the user and product experience for our apps first and then build a strong mobile business overtime rather than being forced to do something short sighted. And over the years our structure has helped us make big bets on acquisitions like Instagram that were very controversial initially but were good decisions for our community and our business.
Facebook has been built by a series of bold moves. And when I look out at the future, I see more bold moves ahead of us than behind us. We’re focused not on what Facebook is, but on what it can be and what it needs to be and that means doing bold things. The lot of we are building today in areas like connectivity, artificial intelligence and virtual and augmented realities, may not pay off for years but they are important to our mission of connecting the world and I am committed to seeing this mission through and to leading Facebook there over the long-term.
Personally there is another element to this. While helping to connect the world, we’ll always be the most important thing that I do. There were more global challenges that I also feel a responsibility to help solve, to create a better world for my daughter and all future generations. Things like helping to cure all diseases by the end of the century, upgrading our education systems, so it’s personalized for each and protecting our environment from climate change. That’s why Priscilla and I created the Chan Zuckerberg Initiative and committed to give 99% of our Facebook shares to advance human potential and promote equality.
Today’s Board proposal will allow us to maintain and improve the voting structure that has served us well and allow me to fund the Chan Zuckerberg Initiative. In December, I also announced that I won’t sell more than $1 billion worth of stock of our Facebook shares per year over the next three years. That’s still my commitment and I’ll update our shareholders on future plans beyond that.
Dave will talk more about the mechanics of this proposal in his comments in just a few minutes but before we get there, I want to also share a few more thoughts on the progress we have made this quarter.
As I said before, our roadmap has three horizons. Over the next three years, we’re going to keep investing in our most developed ecosystem, the Facebook app and platform. Today, people around the world spend on average more than 50 minutes a day using Facebook, Instagram, and Messenger, that doesn’t even include Whatsapp yet. This growth isn’t happening because we came up with just one or two big changes. Our team has just worked day after day on lots of improvements over a long period of time and that progress continued in the first quarter. We launched reactions to help people express themselves in more ways and we improved our product to work on different mobile networks and devices all over the world.
Sheryl, will talk more about this in a minute but now more than 3 million businesses are using our advertising products every month. We have expanded our measurement capabilities so more businesses can see the results they get from ads, we made it easier for small and medium businesses to use the same targeting tools and ad formats that our larger advertisers use.
Over the next five years, we’re going to build ecosystems around our products that are already being used by a lot of people. We’re at the beginning of a golden age of online video. Video isn’t just a single kind of content, we think it’s a medium that allows people to interact in a lot of new ways. So that’s why in addition to normal internet video we are also focusing on more interactive video experiences like Live, and 360 Video. I am a big Game of Thrones fan and the other week HBO and our Oculus teams came out with a 360 video of the opening sequence of the show and it’s now the most watched 360 Video on Facebook in any 24 hour period with more than 12 million total views.
Earlier this month, we opened up Live to everyone. Live is just one part of our overall video efforts but we think it has a lot of potential. Friends go Live because it is unfiltered and personnel, actors and news anchors goes live because they can reach bigger audiences in some cases than they can even on their show, and if we do a good job we think it’s something that people will associate with Facebook, with interacting with people and not just watching content. But it’s also a very new and small part of all of the videos that we see on Facebook today.
I’m also really excited about what we’re building around messaging. Right now we have two of the top messaging apps in the world and 900 million people use Messenger every month and 1 billion people use WhatsApp every month. Between Messenger and WhatsApp, people send around 60 billion messages every day. That’s almost three times as many messages as SMS handled at its peak.
Over the past couple of weeks, we’ve talked about steps we’re taking to build messaging into a platform that developers and businesses can build on. We announced Spots for Messenger that allows you do things like order flowers or get news without leaving your Messenger address. But this is all very early and we’re rolling these experiences out carefully and slowly overtime.
We are also very happy with the way that Instagram is growing with more than 400 million actives and more than 200,000 businesses advertising every month. Now we’re focused on making the user experience even more engaging with more content in Instagram all the time, people are currently missing about 70% of what’s in their feed. So that’s why in the first quarter, we started rolling out feed ranking to help you see more of the posts that you care about and this is a long-term effort. But news feed shows that ranking creates the best and most engaging experiences for our community.
Over the next 10 years, we’re going to keep investing in new technology to help everyone connect. As part of internet.org, we’re building an open source telco infrastructure project called TIP to make it cheaper to operate mobile networks, free basics which helps people access tools for education, health information, and communication for free, now features more than 600 services and it has brought more than 25 million people online. That makes it one of the most successful connectivity initiatives in the world.
We are also working to help people connect and share in a more natural and intuitive way. Artificial intelligence is a long term effort for us but we are already using it in lots of ways. Right now our moment staff is using face recognition to help you share pictures with your friends. We are using AIs to show the most relevant content in news feeds, filter spam in messaging and even help blind people understand what’s their friends’ photos by reading explanations of them.
Finally, we are building technology in virtual and augmented reality that can change the way that we all experience the world. Gear VR started shipping late last year and the response so far has been great. They are now hundreds of apps built specifically for Gear and people have watched more than 2 million hours of video on it. In Q1 we also started shipping Oculus Rift and we have got a lot of great content with more than 50 games and apps built for Rift and again this is very early and don’t expect the VR to take off as a mainstream success right away. I really want to emphasize that. Most Rift early adopters are gamers and developers but eventually we believe that VR is going to be the next big computing platform and we are making the investments necessary to lead the way there.
So that’s our update for the quarter. As always, everything we do is focused on our mission to make the world more open and connected and to get there we are building technology that brings people together and that helps everyone in the world share anything they want with anyone. It takes a long term commitment and it won’t happen overnight. We are in a strong position and I am excited about what is next.
So thank you to everyone in our community, to all of our teams, all of our partners, and all of our shareholders for everything you are doing to help connect the world.
And now here is Sheryl.
Sheryl Sandberg:Chief Operating Officer:
Thanks Mark and hi everyone. With the great first quarter and a strong start to the year. Q1 ad revenue grew 57% or 63% on a constant currency basis. Mobile ad revenue reached $4.2 billion, up 75% year-over-year and is now approximately 82% of total ad revenue.
Our growth was strong across all verticals, marketer segments and regions, particularly North America and APAC. We remain focused on driving our clients businesses, moving the products off shelves, both in stores and online. A big focus for us in 2016 is helping our clients understand the true business impact of their ads especially on digital. We are pleased with the progress we made in Q1 across our three priorities; capitalizing on the shift to mobile, growing the number of marketers using our ad products, and making our ads more relevant and effective.
First, capitalizing on the shift to mobile. Consumers have shifted to mobile and businesses know they need to catch up. We hear from marketers that figuring out mobile today is like figuring out TV in its early days. But given where our consumers spend their time, the question now is not if they should market on mobile but how. One of the drivers of the consumer shift to mobile is video. People are sharing and creating nearly three times more video on Facebook than they were a year ago and as of February, the time people spend watching videos on Instagram increased by more than 40% over the preceding six months. This presents a big opportunity for marketers.
The best marketers understand that people watch videos differently in mobile feed than on TV. They create ads that grab attention in the first few seconds, sometimes even without sound what we now call from the stopping creative. For example Nestle took their TV ad from Natural Bliss Coffee Creamer and in less than a day added it for mobile feeds by creating a new opening and adding text overlays to lay their message without sounds. They showed both the original TV ad and the mobile ad on Facebook. The original TV ad drove a 4 point increase in ad recall. The mobile optimized version however drove an even stronger 10 point increase in ad recall and a 7 point increase in product awareness.
We want to help marketers optimize their video ad. For example we know that on average caption videos increased view time by 12% so we introduced auto captions to generate captions for video ads. In Q1 we introduced new ad format like canvas ads. Canvas ads showcase products by combining video, images and call to action buttons. While it’s still early, we are pleased with the results and are seeing adoption across many verticals. To motivate millenials to take on do it yourself projects, loads targeted 25 to 34 year old home owners with canvas ad that let them see bathroom designs discover the products in each design, and tap to purchase. The ads were so engaging that people spent an average of 28 seconds interacting with them, and are 6.7 times return on ad sense.
Our second priority is growing the number of marketers using our ad products. This quarter we announced that we have over 3 million active advertisers on Facebook and over 200,000 on Instagram. A significant number of these advertisers are small and medium businesses. These businesses use our platforms because it’s easy and affordable for them to connect with their consumers on mobile. We are also making it easier for SMBs to use the same targeting tools and ad formats that our most sophisticated advertisers use. We are seeing even small businesses use products like lead ads, slideshow and dynamic product ads.
Our third priority is improving the relevance and effectiveness of our ads. Last year we introduced convergence to measure how Facebook and Instagram campaigns drive business objectives like sales. We think clients across verticals from retail to auto use Conversion Lift to measure and improve the return on their ad investments. Chase Bank use Conversion Lift to measure how effectively their Super Bowl ad drove credit card applications. That’s on a combining Facebook video ads with their TV ads drove 1.5 times more conversions than TV ads alone.
In Q1 we expanded our Lift capabilities by testing Lift API, enabling more partners to measure the effectiveness of more of their campaign. For the value we are driving for our partners and the progress we are making across our three priorities. Helping marketers make the shift to mobile will take time. We have a lot of hard work ahead and we will continue to invest.
I want to thank our clients around the world for their partnership and congratulate our global team on the results of their hard work.
Thanks everyone and now here is Dave.
Dave Wehner:Chief Financial Officer:
Thanks Sheryl and good afternoon everyone. We are off to a great start in 2016 led by the ongoing growth and engagement in our community and continued momentum in our apps business. In Q1 we generated $5.4 billion in total revenue and delivered over $1.8 billion in free cash flow.
Let’s begin with our community metrics. In March 1.09 billion people used Facebook on an average day up 16% compared to last year. This daily number represents 66% of those 1.65 billion people who visited Facebook in the month of March. Mobile continues to drive our growth. Over 1.5 billion people access Facebook from mobile devices in March up 21% from last year.
Before diving into our Quarterly financial results I wanted to highlights the beginning this quarter I will focus my prepared remarks on our GAAP results and our all financial metrics our GAAP unless otherwise noted. The primary difference between our GAAP and non-GAAP metrics is stock-based compensation. Stock-based compensation plays an important role in how we compensate our employees and therefore we view it as a real expense to the business. We will continue to provide a reconciliation of GAAP to non-GAAP financial metrics in our press release and earnings slides. All of our comparisons are on a year-over-year basis unless otherwise noted.
Q1 total revenue was $5.4 billion, up 52% or 58% on a constant currency basis. Ad revenue in Q1 was $5.2 billion, up 57% or 63% on a constant currency basis. This marked a slight decline from the 66% constant currency ad growth rate we experienced in Q4. In Q1 this year we benefited from an additional day due to the leap year which contributed approximately 2 percentage points to our year-over-year ad revenue growth rate.
North America and Asia-Pacific were our fastest growing regions with advertising revenue growth of 64% and 62% respectively. Europe and rest of globe grew advertising revenue more slowly at 49% and 35% respectively with the latter particularly impacted by foreign exchange headwinds. Setting a slide currency headwinds, all regions exceeded 50% constant currency ad revenue growth. Mobile ad revenue was $4.2 billion representing approximately 82% of total ad revenue.
Mobile ad revenue grew 75% driven by strength from Facebook’s newsfeed. Our mobile ads business continuous to be driven by the combination of both supply side and demand side factors. On the supply side, we continue to see healthy growth in the number people using Facebook, time spend across our products and app. On the demand side we believe the investments we have made to improve our mobile advertising solutions are helping drive value for both people and marketers. We are seeing growth in both new customers as well as existing customers who are spending more with us on average compared to last year.
In Q1, the average price per ad increased 5% while total ad impressions increased 50%. The reported increase in price is being driven by the continued mix shift towards mobile which contains higher price newsfeed ads rather than the mix we have on PCs of both newsfeed ads and lower price right-hand column ads. The increase in impressions was driven by strong growth in mobile ad impressions and was offset partially by a decline in ad impressions delivered on personal computers consistent with the ongoing declines in PC usage.
Total payments and other fees revenue was $181 million, down 20% compared to last year. This decline was mainly driven by a reduction in payments revenue related to games played on personal computers.
Q1 total cost and expenses were $3.4 billion, up 29%. We ended the quarter with approximately 13,600 employees, up 35% compared to last year.
Q1 operating income was $2 billion representing a 37% operating margin. Our Q1 tax rate was 27%, down from our full year 2015 tax rate of 40%. Our Q1 net income was approximately $1.5 billion or $0.52 per share.
In Q1 capital expenditures were $1.1 billion, more than double compared to Q1 of last year. Server purchases and datacenters construction were the largest contributors to year-over-year growth. New builds in Texas and Ireland along with the expansion of existing facilities will nearly double our current datacenter footprint when completed. In addition to servers and datacenters, investments in office facilities also contributed to the year-over-year growth.
We ended the quarter with $20.6 billion in cash and investments.
Turning now to the outlook. First some color on revenue. We remain focused on creating value for the people and marketers who use our services. We expect that the main drivers of the advertising revenue growth will continue throughout 2016 but we will face tougher comparables as the year progresses given the accelerating ad revenue growth we experienced throughout 2015. Payments and other fees revenues will continue to face headwinds throughout the year given that the substantial majority of that revenue relates to payments from games played on personal computers. Even with the expected contribution from Oculus, we anticipate that our payments and other fees revenue for the full year 2016 will come in lower than the level in 2015.
Next onto to the expense outlook. Our expense guidance remains unchanged. We expect that full year 2016 total GAAP expense growth will be approximately 30% to 40%. We expect full year 2016 amortization expenses to be approximately $700 million to $800 million, and full year 2016 stock-based compensation expenses to be approximately $3.1 billion to $3.3 billion.
If you take into account our GAAP expense guidance as well as our amortization and SBC guidance, you will see that our full year 2016 total non-GAAP expense growth guidance range remains unchanged at 45% to 55%. We anticipate full year 2016 capital expenditures to be at the high end of the $4 billion to $4.5 billion range we gave last quarter as we invest to support the rapid growth of the business. We expect our Q2 and full year 2016 tax rates to be similar to our Q1 rates.
In summary, 2016 is off to a great start for Facebook, our results reflect healthy growth and engagement in our community, strength in our ads business and investments we’re making to capitalize on the long-term opportunities we see ahead.
Before going to questions I wanted to touch briefly on the share reclassification that Mark discussed at the beginning of the call. As we disclosed in the proxy statement we filed today, our Board of Directors has approved a proposal for the reclassification of our capital stock that would involve the creation of a new class of publicly listed non-voting Class C capital stock.
Pending stockholder approval, we intend to issue two Class C shares as a onetime stock dividend for each outstanding class A and class B share resulting in a tripling of the pre-reclassification total shares outstanding. All stockholders would be treated equally. The net effect of this transaction would be to establish two publicly traded classes of Facebook stock, one representing the current Class A shares and the other representing the non-voting Class C shares. Since the Class C shares would have the same economic rights as the Class A and Class B shares, we would expect that after the payment of the stock dividend, the share price of the Class A common stock would generally reflect a three for one stock split.
This will have no effect on the voting interests related to shares that investors currently hold. As Mark mentioned this structure will allow for the preservation of the voting structure that has served the company well to-date while allowing from for Mark to fund the Chan Zuckerberg Initiative over the course of his lifetime. Importantly, as part of this proposal the preservation of the multi-class capital structure would be generally predicated on Mark continuing to maintain an active leadership role at Facebook.
Let me talk about next step. The reclassification would be conditioned on approval by a majority of outstanding votes held by company’s stockholders and we anticipate a vote on the matter at our annual meeting to be held on June 28 this year. A record date for this dividend would be determines at a later day. With that Chris let’s open up the call for questions.
Question & Answer
Operator:
We will now open the lines for question-and-answer session. To ask a question press star followed by the number one on your touch tone phone. Please pickup your handset before asking your question to ensure clarity and if you’re streaming today’s call please mute your computer speakers. Your first question comes from the line of Eric Sheridan with UBS. Your line is open.
Eric J. Sheridan:UBS:
Thank you so much. I wanted to come back to your comments on the small and medium size business opportunity at Facebook maybe direct a few points to Sheryl to take it from comment. Wanted to understand what some of the opportunities are to continue to demonstrate to those advertisers what the potential is for both Facebook and maybe even Instagram and Facebook messenger long term as platforms to grow their businesses and sort of also pointing out what some of the measurement tools and operating challenges are to bring people on to the platform? Thank you.
Sheryl Sandberg:
Thank you for the question. SMBs or as they are causing different places around the world, we think are very core competitive advantage for us. It’s prohibitively expensive from those small businesses to reach people digitally. 35% of small businesses in United States which is often in most advanced market don’t have a web presence at all and setting up a mobile apps getting people to find and download in mobile apps can be even more expensive. And so what’s happening is that SMB’s are turning to Facebook pages as their mobile solutions. They are free they are easy to setup and they already know how to do them because almost all of them are already Facebook users in the first place.
And so the on boarding has been incredibly important and incredibly effective. We announced last year that we have over 50 million small business pages access on a monthly basis. 80% of those are active on mobile. We then work on helping them use our add products and up sell them to our paid add products to sell and we announced this quarter that we hit three million active advertisers on Facebook and 200,000 on Instagram.
What’s interesting is that what you see is SMBs able to use all of the some of the biggest brands in the world. There are over 2 million SMB’s have posted a video both paid and organic in the last month and that has to be many times the number of SMB’s that have short will place a TV commercial. In terms of measurement your question is important because it’s not just getting into our platform connect consumers its getting them to be able to measure our results and so we work hard to build the measurement into the product. So that when you buying that SMB is in a very easy interface and besides of what their goals are.
Are their goals measuring sales, are their goals putting to the website, are their goals on mobile apps downloads and then measuring all the way through from showing that ad to be purchase. I continued and we continue to very on bullish on this channels because we have such a broad-base of usage because that usage is so active and because we are very focused on investing and simplifying our products so that all --
Operator:
The next question is from Brain Nowak with Morgan Stanley. Your line is open.
Brian Nowak:Morgan Stanley & Co. LL
Thanks for talking my questions I have two. The first one show you talked about video and going to increasing the overall video consumption. Can you just talk about where you are interaction with video advertising and kind of the adoption of video ad units and the impact of video in the quarter and then secondly just kind of breaking down the advertising of that cohort could you talk to the strength of point of strength and weakness across direct response versus branded advertisers in the quarter. Thanks.
Sheryl Sandberg:
Sure I’ll take the second one first. Our growth was really broad-based and we grew across all of our markets of segments this quarter. That direct response brand SMBs and with -. Our direct response business continues to be very strong it’s very ROI focused and we continue to invest and rollout products that helps people so for example -- where people can still outperforms on a mobile device make your contacts from Facebook we have roll that out fully this quarter and that enable people to use Facebook in a very direct response way and we’ll continue to invest there.
Video ads are really exciting it’s worth noting that video ads take place in another adding speeds and not all of the revenue is incremental. But as consumer engagement in video has continues to grow that creates more and more of an opportunity for video ads. Marketers always love video because it’s a really compelling way to reach people and if now you can reach them mobile all day with those kind of messages.
Importantly marketers have to adjust sometime while the 30 second ads does perform well on newsfeeds we also people understanding that some of the formats or difference creating shorter ads creating ads that can work even without sound more personal ads as early matter. One example if Toyota news Facebook for the launch of the -- hybrid with -- in Los Angeles they use a very broad video to drive brand awareness it reached over 36 million than the target demo with --. Then and it’s a forecast even more interesting it retargeting people who watched a video with over 500 personalized video ads which were optimize for Facebook an instrument. So they were creating a direct response campaign to get people to take specific actions like requesting -- finding a specific dealers.
With that 14 or 14 point less in every call a 7 points less in message association and right now we are using a web tool to continue to measure their sales for the 30 and 60 days beyond the campaign -- happened we are pretty excited about what that shows in terms of how video can be released in a really broad-based way but also more personal way.
Operator:
The next question is from Douglas Anmuth of JP Morgan. Your line is open.
Douglas Anmuth:JP Morgan:
Thanks for taking my questions. I have a couple for Mark around messenger Mark do you could talk just about how you expect the shift user behavior within messengers to get users to focus more on businesses versus more personal communications and how you make users aware of the capabilities within the platform and then just secondly as you more about to come on board here in businesses are engaging with Messenger, how do you envision kind of bots and human working together in terms of providing more customer service? Thanks.
Mark Zuckerberg:
Sure. Part of our playbook for building out these ecosystems is we start with the person to person use case right. So whether that’s in messaging as people messaging their friends or group, newsfeed before that it was people posting updates and things was going on with their friends and the people that they care about. And then the next step is to create organic activity around public entities so whether that businesses, public figures, athletes, celebrities and types of folks that people want to interact with in these different platforms. We did that on Facebook and news group pages and we are working on a number of different ways to do that in Messenger. One of those is bots and one of the good things about bots that we is that it can increase or sorry decrease the amount of time that you have to wait before you get a reply back from interacting with the message.
So we have seen we have done some research on that a lot of people every day in Facebook today are already messaging pages that in businesses directly and their businesses respond. But what we have actually also found is that through some of our AI research we can look at the responses that businesses gives to common questions and can confidently provide the right reply a lot of the time and when we can do that the net decreases the latency and people want to do more of that activity.
So that’s one way that I think you are going to see box work between people who are actually driving the businesses directly will in some way train or answer questions for people but we can build artificial intelligence that can learn from people how to automate a lot of that and make that experience work faster for people who want to interact with businesses and public figures and after you start building out that segment of businesses and public figures in the platform that on top of that you have just a good amount of intent in this platforms to build a good business on top of that, that’s kind of
Operator:
the next question is from John Blackledge with Cowen & Co your line is open.
John Blackledge:Cowen & Co.:
Great thank you. Two questions. So Facebook just opened up globally to all publishers just wondering what you see as a publishers benefit who has joining in scenaricals and how should we think about the monetization impact in 2016 and then second question the ad revenue in APAC was much better than we saw just anymore color on the drivers there? Thank you
Mark Zuckerberg:
So instant articles is all have the quality of the consumer experience, right and right now to refer links that are in instant articles it can be a one of slowest part of the Facebook app I mean you’re browsing to a newsfeed, you tap on a link if you not having a good connection the content doesn’t catch it can take 10 or 20 seconds in some cases for that content to load and people in our community they don’t know the difference about whether that content is coming from Facebook or a different place I mean they hold up accountable for making their experience quick and we want to do everything we can do that.
So instant articles makes it to that any publisher around the world now can deliver a really great need of experience instantly with no latency in loading it and we’re just seeing that people like to engage with that lot more so that’s why we are more excited about that.
Sheryl Sandberg:
The APAC question. APAC has been growing really well for several quarters now and we’re seeing a lot of great adoption as people learned to use the products. One part of the business that I think has been really strong and is worth noting as we are working marketers in China to help with their export business. So Air China is a good example of their popular airline in China, but they don’t really have they are not really as well known oversees and before working with us they really only invested in traditional media.
Data goal of creating new flight routes including one from Mumbai to Beijing and their new aircraft. So they launched the campaign with us in 15 countries globally. We used reach in frequency and -- and video ad targeting and for example they would target in the US age 18 and above frequent international travelers living in cities where they have route or Indian -- in the US to permit -- to Mumbai. They reach 30 people globally more than 95% on mobile and here about they had a 73% sales left in the Unites States.
So our APEC business is robust and I think the global nature of our business is part of driving that.
Operator:
The next question is from Heather Bellini with Goldman Sachs. Your line is open.
Heather Anne Bellini:Goldman Sachs & Co.:
Great, thank you. I was just wondering if you could share with us how do you see Instagram’s ramp impacting Facebook’s ad growth in 2016 or if there is any color you could share with us about kind of how that’s been ramping and also if you could share with us how advertisers are viewing the platform. Are you finding that it’s typically more additive to their Facebook spending or they funding it with existing Facebook budgets. Thank you.
Sheryl Sandberg:
Facebook and Instagram are the two most important mobile ad platforms out there. In the short run some of the spend is incremental and some isn’t. There are people who will have a social budget or a digital budget and as I move to Instagram some of that will comes from Facebook and then medium to long run we believe we compare very favorably with any of the other spends that we can do because we have this very broad reach on these platforms plus the ability to target ad very specifically. So what you’re seeing in our results right now very strong for Facebook and very strong growth for Instagram.
We hit 3 million advertisers for Facebook, we hit 200,000 for Instagram and often the platforms really work together.
Operator:
The next question is from Justin Post with Merrill Lynch. Your line is open.
Justin Post:Bank of America Merrill Lynch:
Thanks question for Mark. There has been some concerns about traffic to publishers and sharing levels on Facebook I just wanted if you can talk about core Facebook engagement what’s really working are you concerned all about that and then when you think about the ad loads are you comfortable with whether ads is there still a lot room to go and then maybe last one if you were to our lead Facebook what would happen to your voting shares. Thank you.
Mark Zuckerberg:
Let’s talk about engagement first. So overall sharing is up across Facebook and people are spending more time on Facebook and the whole family of app and that is not just the case for the aggregate of the growing community, but it’s actually also the case on a per person basis as well in terms of people sharing more ad spending, more time individually. Now one of the things that we see is that the way that we are sharing is always changing. Right and some of this is because of underlying technical transition.
So on desktop for example is easier to type so we saw more text posts on mobile it’s easier to take video so we see more videos. On desktop people would have more commonly uploaded an album of photos that they took from their digital cameras and download on to their computer where as on mobile the more common behavior is to take a single photo or couple and just post those. So all of these transitions and that’s our job right us to make it so that we build great tools that people everyone around the world can show anything that they want with everyone.
Now the other thing that’s also true is that people want to share with lots of different kinds of audios. So Facebook gives the ability to share with all of your friends and publicly if you want and with groups. But we are also investing in things like messenger and Whatsapp because a lot of people want to share increasingly messages privately one-on-one or with very small groups. So in addition to messenger to the 900 million people a months and Whatsapp which is that more than a billion people a month.
Facebook groups is also at more than a billion people a month which I think represents the increasing diversity of the different types of audiences that people want to show it.
But ultimately I think that humans have such a deep desire to express themselves and want to connect with the people around them that I think that all of these audiences and all of these different types of media should grow over time and it’s our job to basically make sure that we build good product and --- all the bugs and make it separate performances fast and all the basic stuff works that where we get there but in general, right now all the high level trends look pretty positive on that.
I think I will kick it off to Dave to go through your questions about some of the technical pieces about the reclassification.
Dave Wehner:
Sure I guess I will suggest you had a question on ad load probably about the ad load and the question on the reclassification. So on ad load it’s definitely up from where we were a couple of years ago I think it’s really worth emphasizing that what’s enabled us to do that is just improving the quality and the relevance of the ad that we have and then that’s enabled us to show more of them without harming the user experience at all. So that’s an really key overtime we would expect that ad load growth will be a less significant factor driving overall revenue growth but we remain confident that we’ve got opportunity to need to grow supply to the continued growth in people and engagement on Facebook as well as on our other apps such as Instagram.
On the question regarding what would happen to Mark shares if he were to leave Facebook I would kind of refer that the new multi-class capital structure is generally dependant on Mark continuing to maintain an active leadership role at Facebook and if you going to the proxy materials it goes into more detail on how different things will play out under various other scenarios. So I would just refer you to those.
Operator:
The next question is from Ben Schachter with Macquarie. Your line is open.
Ben Schachter:Macquarie:
Mark we used get about our acquisitions broadly in what areas do you think Facebook needs to buy versus build so basically where you need external help and then on VR a few quick questions any update on the shipping delay or how many units shipped in the quarter and expectations for the year and then also on we’re understanding I know it’s very-very early but beyond games and entertainment what verticals do you expect to be first to utilize VR and AR thanks
Mark Zuckerberg:
So on the acquisition philosophy I mean I talked about how I think the social ecosystem will play out on a number of these calls the basic theory that we have that there a small number of services that are going to be ubiquitous utility is that a billion or 2 billion or more people are going to want to use right, so that kind of core basic messaging right the core functionality around having your real identity and connecting with all of your real friends and family online those are things that we just think are going be use ubiquitous. So we want to build those. At the same time we also think that there are going to be many good businesses and different other social used cases where there people doing good work and building different companies that we feel no need to own those things and I think people come up from time to time and suggest should we buy this company or that and we look at our what are the things that we think are going to be ubiquitous tool and who are the most talented people in the world to build it and so when you think about something like virtual and augmented reality that’s how we thought about that.
This is those are going to be important platform overtime it’s very early obviously it’s going to take a long time to get there. Lot what we saw like we’re buying there was a critical math of the best people and the best technology to go do all the things that we needed to do over next ten years to drive that home internet into a big platform. I mean you asked a question about virtual and augmented reality what are going to be the big used cases I mean for the first few years our virtual reality I think gaming and video are going to be the big ones. The initial market that we look at or all people who have Xboxes play stations and we use so either people who are excited have an immersive media experience sitting in their living room for a long period of time and that’s a pretty big market and even though that’s not all of that we hope to eventually serve and that’s not a full potential of these new platforms I think that is one case where you can obviously deliver better in reach experiences and what you can with the current generation of technology.
Video is going really well I showed at start for in some of my comments that on alone we are now add more than 2 million hours of video have been watched in the platform so that’s really exciting and that of course will be bolstered by the fact that this new kind of 360 videos can not only be watched in the hours so in the headset but we are building tools so you can share them on newsfeed and through our products elsewhere as well. So is exciting overtime there will be even more but that I think should be enough to have some initial use but again I do want to really emphasize this is early and it’s going to take a long time and I think there is a lot of pipe around this and we are just focused on building this to be very good over the long term.
Dave Wehner:
Then you asked about shipping units. We did began shipping units in the quarter this is a very small sale, we are still very early it’s not going to have a material impact on revenue in 2016 and I gave more color on that in my prepared remarks.
Operator:
The next question is from Mark May with Citi Investment Research. Your line is opened.
Mark May:Citi Investment Research:
Thanks a lot. First one for Sheryl I think wondering if you could update us on the progress you are seeing with fan you gave some metrics in Q4 it seems like that advertisers were really adopting that platform and seeing a lot of additional reach maybe if you could tell us how that’s going. And then I think couple of more on the tax rate we saw its stepped down quite a bit in Q1 but you are guiding for flat sequentially. Should we think about that as a run rate or you still attempting to manage your tax rate down even further then where you saw in Q1 and we are expecting for Q2.
And then on the OpEx guide 41% non-GAAP growth in Q1 obviously below your range but you maintained the range why is that is a just purely a function of the comps as you head in to the year there were some specific kind of investments plans that you have? Thanks.
Mark Zuckerberg:
Sure Mark. I can start with the detailed one the tax rate and the OpEx guide. So on the tax rate yes the rates came in better then guidance in terms of the tax rate. But it’s consistent with the long-term trend that I the long terms trend that I have indicated.
We do expect that, that rate will be the approximately the rate that will continue for the rest of the year. So and any for purposes of 2016 modeling, I would use the Q1 rate. On the OpEx guide, Q1 came in slightly below our annual expense growth guidance, but we do expect that investments in areas like video and Oculus will impact the remainder of the year more substantially. So that’s why we’re maintaining the annual OpEx growth guidance that we have and then Sheryl do you want to speak about audience network.
Sheryl Sandberg:
Yes. Audience network is important to us because we’re making a strategic investment in ad tech helping advertisers and publishers growth both on and off Facebook. We think we’re uniquely placed that bring people based marketing to scale and solve the measurement problem and the audience network is a place we’re focused. Because we feel like we’re delivering value for advertisers and publishers that we’re investing behind the growth we’ve seen.
We’ve seen the growth of native ads, 83% of the overall inventory on this platform is native and over 50% of our publishers are only using native ads. We’ve some great examples of audience network really improving people’s results.
Our recent one is eBay is even -- which is an online real estate destination working in Latin America and Mexico. When they were using a combination of Facebook, Instagram, and the audience network, they saw 57% lower cost per install was faced an optimization and 59% more volume versus running on Facebook alone which 5% to 6% incremental revenue. So compared to November a year before, the number of their app installs increased by 115%. So what we’re seeing is the results we’re able to deliver on Facebook and Instagram.
A lot of our marketing partners want more and our ability to do that is why we are investing in the audience network.
Operator:
The next question is from Colin Sebastian with Robert W. Baird. Your line is open.
Ben Schachter:Robert W. Baird:
Hi this is actually Ben on for Colin I just want ask for Mark you aren’t talked about the AI and machine learning applications with respect to Messenger and -- but I was wondering what are some of the more recent initiatives where you are applying machine learning or maybe were we might see those investments managed for some sales in the user experience over the next few years.
Mark Zuckerberg:
So the biggest thing that we’re focused on with artificial intelligence is building a computer services that have better perception than people. So in the basic human senses like seeing, hearing, language and the core thing is that we do. I think it’s possible to get to the point in the next 5 to 10 years where we have computer systems that are better than people at each of those things. That doesn’t mean that the computers will be thinking or be generally better, but that is useful for a number of things.
So for example, I talked about earlier we’re building this momentum so that way you can take photos on your phone and if you use this app our face recognition can look at the photos that you take and suggest that you might want to share photos that you took we have find them with that person right to that way you all the photos that might of you and your friend cameras they can share with you.
Another example is just spam filtering right and just making sure that we can actually read the content and understand what interesting to you not and not show that. One obvious thing I think overtime is if you just look at the way that we rank newsfeed today we use some basic signals like who your friends with and what pages you like as some of the most important things for figuring out what out of all of the millions and millions of pieces have content that are on Facebook what we are going to show and what will be the most interesting things to you and that’s because today our systems can actually understand what the content means right we don’t actually look at the photo and deeply understand what’s in it or look at the videos and understand what’s in it or read the links that people share and understand what’s in them. But in the future we will be able to I think on a five or ten year period.
So all of these millions and millions of pieces of content that are out there whether or not you added someone as a friend or have liked a page will be able know a lot better what types of things are going to be interesting to you to produce much better feed of content. So that’s a just basic example of we are having human level perception broadly is going to yield better experiences and lot of things people care about today.
Operator:
The next question is from Kenneth Sena with Evercore. Your line is open.
Kenneth Sena:Evercore ISI:
Hi I have a kind of high level longer term question but for brands we are seeing where promotion transactions and support capabilities for businesses are all deepening within Facebook therefore should we be thinking about a longer term transition from one the platform that basically all ad to something where more market place capability is offered given that you know buyers and sellers are so known and so connected and if so do we think about this but starting to monetize maybe on a transactions basis or even through various customer support capabilities the messaging tools AI et cetera that you’re beginning to offer businesses so maybe if you just kind of provide a little bit color on how you see that evolution that’ll be great. Thank you.
Sheryl Sandberg:
You’re right that people are increasingly using Facebook to discover products and services and we are testing some ways like a market place to make this easier. We are also testing some incremental features pages which enables businesses to drive purchases on a page directly people directly to their website. These are really early but we have had some positive feedback.
Our focus however continues to be on our app products because we think we can take people all the way from the top of the funnel where they can really get a brand awareness or product awareness and go all the way down to purchase not necessarily but as the purchase that’s happening on Facebook of because we can work on the measurement systems understand how we are advertising both at the top and the top and lower guiding the funnel is influencing these purchases.
We have been really excited by what we have seen in the commerce vertical of our ad products. The products like dynamic product ad, ---- working really well for us. This quarter we launched --- which are very fast loading and most of mobile ads. They are easy to build you can use the self-service told you don’t have to write any code.
They are native formats that they decrease that initial drop as you see when people quick off to another site. Very early days that the average of time is over certain seconds which shows how most of that is. I will show one example of how advertising a small business on Facebook through ad which is company called Sparkle and Team. There are -- top based SNB they are selling growth-.
It did a slide show add that included a sharp nail button which enables you to take action on their side. They were able to increase sales by 9% a month and more exciting for us this was six times more efficient in terms of acquisition than any other digital media channel and that shows how you can use our add products to go all the way from awareness measuring through to a sale and show how important our ads going to be to commerce on our platform.
Operator:
The next question is from Ross Sandler with Deutsche Bank. Your line is open.
Ross Sandler:Deutsche Bank Securities:
Great. So I guess question for Mark or Sheryl so you showcased the bunch of new features for Messenger including ads to promote your business inside of Messenger. So how should we think about the timing of those ad units coming on in Messenger and can you use of the same ads tag and the Facebook power editor that used on core Facebook and Instagram to get ads upon Messenger can you just talk walk us through that and then the second question on messaging so would WhatApp crossing a 1 billion users recently how do you view the product roadmap today on WhatsApp versus what you showcased recently with Messenger is it a year behind or is it further back in that any color there will be helpful. Thanks.
Sheryl Sandberg:
For Messenger and WhatsApp our focus right now continues to be on growth and engagement. We are not rolling out any monetization products on WhatsApp right now. But we did start that process that on Messenger and what we’re doing is following the organic activity that’s happening on the Messenger platform. Businesses and consumers are using Messenger to connect to each other in a more personal more immediate way and we rolled out a platform data which gives new opportunities to build compelling experiences fast, very early but giving the opportunity for more personal interactions between businesses and new -- just can receive APIs so that’s business does contained immediate responses to common question including engaging images and call for actions --.
In terms of the timing, it is really early we have a lot of opportunity to invest in advertising across our different platforms and so we want to make sure we get this right as we focused on continued engagement. You’re right that overtime when we make these investments we are going to able to relay on some of the core aspects of the ads infrastructure certainly are long ad are base of advertisers some of things we understand about how ads performed and the functionality will be an important part of the product offerings in the future, but those are not immediate by any stretch of the imagination.
Deborah Crawford:
Operator we have time for one last question.
Operator:
The last question is from Anthony DiClemente with Nomura. Your line is open.
Anthony DiClemente:Nomura Securities International, Inc.:
Thanks a lot. I have one for Sheryl and one for Mark. Sheryl there are many out there who might have assume that this leg of excellent growth at Facebook is realizing might have come at the expense of TV advertising but the TV world seems to be quite resilient here and you actually talked a lot in your prepared remarks about how market is benefit from running digital and TV campaigns in parallel. So I wonder if you can just comment on where your share gains are coming from in your view and then Mark on live video I realize it’s the small part of overall video, but I wonder do you think multiple platforms can succeed in live streaming overtime given the size of the market longer term or do you think it’s more of a network effect business where a vast majority of the traffic and economics will ultimately accrue to the leader in the live streaming space. Thank you.
Sheryl Sandberg:
We think our growth has been very broad-based that dollars are shifting from all types in video format to where consumers are spending their time. We tell our clients that we want to do best dollar and the best minute they spend and we want them to measure value. I don’t think this means that all of our expense comes in all of our growth comes to the expense of any one channel but its broad based and often TV and Facebook and Instagram to more clearly well together. I will give a fine example from the Super Bowl mobile wanted to use their Super Bawl campaign to increase their brand awareness and increase their reach.
So before the game they targeted their 30 seconds Super Bowl ads that featured --- to NFL and people with NFL and celebrity interest. It performed so well that they decided to run a 60 second version on Facebook and Instagram. That ad was so successful on Facebook and Instagram that they even ran the 60 second ad on TV instead of their 30 second ad.
So as people invest they can use these different platforms together and we are pretty excited to see that progress.
Mark Zuckerberg:
And on live video, the theme that I think is most important is just are there so much that people want to express and share with the people around them but they don’t have the tools to do today and I think the best as huge opportunity not just in live video but in lot of the other things that we are talking about.
One interesting example recently that I touched on a earlier is between Messenger and Whatsapp were around 60 billion messages a day and SMS at its peak we can --- on 20 billion messages a day and just unlocking some of the friction that existed in SMS and improving the products a little bit and we are moving the small fee that was there has just unlocked a huge amount of expression and we think that this is going to be the case in all different types of media and with all different audiences that are person would show. So in video there are billions and billions of videos that are viewed everyday on Facebook live is a very small part of it. The reason why we give this proportion attention to it is because we are trying to help push forward new formats that are not just about consuming content but are really bad interacting let’s say live, 360 video and the others in the future.
And so yes, I mean to answer your question I do think that multiple products and companies can succeed in building these things I also think that there is going to be a lot more interactive forms of video than just live and 360 like we’re talking right now and I think at this extent not just a video but for all the different types of media and audiences that we’re serving.
So we are very excited about continuing to do our work to help unlock all the expression and connection that people wanted.
Sheryl Sandberg:
Thank you for joining us today we appreciate your time and we look forward to speaking with you again.
Operator:
Ladies and gentlemen this concludes today’s conference call. Thank you for joining us you may now disconnect your lines.
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