Good afternoon. My name is France, and I will be your conference operator today. At this time, I would like to welcome everyone to the Facebook Third Quarter 2021 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker’s remarks, there will be a question-and-answer session. This call will be recorded. Thank you very much. Ms. Deborah Crawford, Facebook Vice President of Investor Relations, you may begin.

Thank you. Good afternoon and welcome to Facebook's Third Quarter 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. Our actual results may differ materially from those contemplated by these forward-looking statements. Factors that could cause these results to differ materially are set forth in today's press release and in our quarterly report on Form 10-Q, filed with the SEC. Any forward-looking statements that we make on this call are based on assumptions as of today, and we undertake no obligation to update these statements as a result of new information or future events. During this call, we may present both GAAP and non-GAAP financial measures. A reconciliation of GAAP to non-GAAP measures is included in today's earnings press release. The press release and an accompanying investor presentation are available on our website at investor.fb.com. And now, I'd like to turn the call over to Mark.

Hi, everyone. And thanks for joining today. We made good progress this quarter across a number of product priorities, and our community continues to grow. There are now almost 3.6 billion people who actively use one or more of our services, and I'm excited about our roadmap to keep building great new experiences for them. As expected, we did experience revenue headwinds this quarter, including from Apple's changes that are not only negatively affecting our business but millions of small businesses, and what is already a difficult time for them and the economy. Sheryl and Dave will talk about this more later. But the bottom line is we expect we'll be able to navigate these headwinds over time with the investments that we're already making today. Before we get to our product update, I want to discuss the recent debate around our Company. I believe large organizations should be, so I'd much rather live in a society where they are than one where they can't be. Good, safe criticism helps us get better, but my view is that what we're seeing is a coordinated effort to selectively use leaked documents to paint a false picture of our Company. The reality is that we have an open culture where we encourage discussion and research about our work so we can make progress on many complex issues that are not specific to just us. We have industry-leading programs to study the effects of our products and provide transparency into our progress because we care about getting this right. When we make decisions, we need to balance competing social values, like free expression with reducing harmful content or enabling strong encrypted privacy with supporting law enforcement or enabling research and interoperability with locking down data as much as possible. It makes a good sound bite to say that we don't solve these impossible trade-offs because we're just focused on making money. But the reality is these questions are not primarily about our business but about balancing difficult social values. And I've repeatedly called for regulation to provide clarity because I don't think companies should be making so many of these decisions ourselves. I am proud of our record navigating the complex trade-offs involved in operating services at global scale. And I'm proud of the research and transparency we bring to our work. Our programs are industry-leading. We have made massive investments in safety and security, with more than 40,000 people. And we're on track to spend more than $5 billion on safety and security in 2021. I believe that's more than any other tech Company, even adjusted for scale. We set the standard for transparency with our quarterly enforcement reports and tools like the ads archive. We established a new model for independent academic researchers to safely access data. We pioneered the oversight Board as a model of self-regulation, and as a result, we believe that our systems are the most effective at reducing harmful content across the industry. And I think that any honest account of how we've handled these issues should include that. I also think that any honest account should be clear that these issues aren't primarily about social media. That means that no matter what Facebook does, we're never going to solve them on our own. For example, polarization started rising in the U.S. before I was born. At the same time, independent research shows that many countries around the world have flat or declining polarization despite similar social media use there than in the U.S. We see this pattern repeat with other issues as well. The reality is social media is not the main driver of these issues and probably can't fix them by itself either. We should want every other Company in our industry to make the investment and achieve the results that we have. I worry about the incentives that we're creating for other companies to be as introspective as we have been. But I am committed to continuing this work because I believe it will be better for our community and our business over the long term. Now we can't change the underlying media dynamics. But there is a different constituency that we serve that has always been more important, and then I try to keep a focus on, and that's people. Billions of people use our services because we build the best tools to stay connected to the people you care about, define communities that matter to you, and to grow your small business. And the reason we've been able to succeed for almost two decades is because we keep evolving and building. Facebook started in a dorm room and grew into a global website. We invented the News Feed and a new kind of ads platform. We became a mobile-first experience, and then we grew a whole family of apps that serve billions of people. And there is so much more to build. Even with all of the tools that we have today, we still can’t feel like we're right there together with the people we care about when we're physically apart, we can't teleport as holograms to instantly be at the office without a commute or at a concert with a friend, or in your parents' living room to catch up. The creative economy and commerce tools are still nascent, and there should be opportunities for millions of more people to make a living doing the work that they love. Our three product priorities remain our focus on creators, commerce, and building the next computing platform. A big part of our work with creators is our focus on Reels. Reels is already the primary driver of engagement. It is incredibly entertaining, and I think that there is a huge amount of potential ahead. We expect this to continue growing, and I'm optimistic that Reels will be as important for our products as Stories is. We also expect to make significant changes to Instagram and Facebook in the next year to further lean into video and make it more central to the experience. One aspect of this is giving all our apps the goal of being the best services for young adults, which we defined as ages 18 to 29. Historically, young adults have been a strong base, and that's important because they are the future. But over the last decade as the audience that uses our apps has expanded so much and we focused on serving everyone, our services have gotten dialed to be the best for the most people who use them rather than specifically for young adults. During this period, competition has also gotten a lot more intense, especially with Apple's iMessage growing in popularity and more recently, the rise of TikTok, which is one of the most effective competitors that we have ever faced. So we are retooling our team to make serving young adults their North Star rather than optimizing for the larger number of older people. Like everything, this will involve changes in our products, and that will likely mean that the rest of our community will grow more slowly than otherwise would have. But it should also mean that our services become stronger for young adults. This shift will take years, not months to fully execute. I think it's the right approach to building our community and Company for the long term. Our next product priority is commerce. Helping people discover new products that they're interested in and reach customers inside our apps. We’re going to unlock a lot of opportunity. As Apple's changes make e-commerce and customer acquisition less effective on the web, solutions that allow businesses to set up shop right inside our apps will become increasingly attractive and important to them. We built solutions like ads that can dynamically point to either a business's website or their shop on our platforms depending on what will perform better for them. That will help more businesses navigate this challenging dynamic and environment. Building a full-fledged commerce platform is a multiyear journey. Marketplace is already at scale and lots of people rely on it, especially now with supply chain issues, and they get harder to get new products. Shops are getting more developed. We have an exciting program planned for this holiday season, where we're working closely with several businesses that have invested the most in shops to identify what works to find new customers and grow their businesses even faster. Our plan is to then scale those solutions more broadly in 2022. Beyond Reels and commerce, I also want to share some thoughts on our longer-term efforts to build the next computing platform and help bring the metaverse to life. This is a major area of investment for us and an important part of our strategy going forward. I believe this work is critical to our mission because delivering a sense of presence, like you're right there with another person, that's the holy grail of online social experience. Over the next decade, these new platforms are going to start to unlock the kinds of experiences that I've wanted to build since before I even started Facebook. Along with those social experiences, I expect a massive increase in the creator economy and the amount of digital goods and commerce. If you're in the metaverse every day, then you'll need digital clothes, digital tools, and different experiences. Our goal is to help the metaverse reach a billion people and hundreds of billions of dollars of digital commerce this decade. Strategically helping to shape the next platform should also reduce our dependence on delivering our services for competitors. Building the foundational platform for the metaverse will be a long road. We just released the 128-gigabyte Quest, replacing the 64-gigabyte model for 299. With EssilorLuxottica, we released our first smart glasses, and they are off to a strong start as well. Bringing this vision to life isn't just about building one glasses product. There is a whole ecosystem. We're building multiple generations of our VR and AR products, at the same time as well as a new operating system, development model, digital commerce platform, content studios, and of course, a social platform. To reflect the significance of this for our business, today we're announcing a change to our financial reporting. Starting next quarter, we will begin disclosing financial metrics for Facebook Reality Labs separately from our family of apps. This will provide investors with additional visibility into the investments that we're making in augmented and virtual reality. In 2021, we expect these investments to reduce our overall operating profit by approximately $10 billion, and I expect this investment to grow even further for each of the next several years. Dave will share more about this later, but I encourage you all to tune into connect on Thursday to hear more about our vision and our work here in more detail. I recognize the magnitude of this bet on the future, and I am grateful for the support of our investors, the creative community, and the thousands of talented people working on this effort inside our Company to bring this inspiring future to life.

Thanks, Mark, and hi everyone. This quarter, our total revenue was $29 billion, up 35% year-over-year. We saw solid revenue growth across all regions, and we continue to grow our user base. We felt the impact of some big external factors in Q3. I want to explain some of the revenue softness we've seen and what we're doing to mitigate the headwinds and help businesses over the crucial holiday period and beyond. To start, let's take a step back. Over the past decade, we've seen more and more businesses shift online. When the pandemic hit, this digital transformation accelerated. We've invested in tools and products over many years to help businesses make this shift. This acceleration drove very strong growth for us throughout the last few quarters. We've been open about the fact that there were headwinds coming, and we've experienced that in Q3. The biggest is the impact of Apple's iOS 14 changes, which has created headwinds for others in the industry as well, major challenges for small businesses, and advantaged Apple's own advertising business. We started to see that impact in Q2, but adoption on the consumer side ramped up by late June, so it hit critical mass in Q3. As a result, we've encountered two challenges. One is that the accuracy of our ad targeting decreased, which increased the cost of driving outcomes for our advertisers. The other is that measuring those outcomes became more difficult. On targeting, we focused on improving campaign performance even with the increased limitations facing our industry. We're building commerce tools to help businesses reach more new customers, and get more incremental sales. Over the longer term, we're developing privacy-enhancing technologies in collaboration with others across the industry to help minimize the amount of personal information we process, while still allowing us to show relevant ads. Progress in these areas will take time and will be a focus for us throughout 2022 and beyond. On measurements, as we brought in a recent blog post, we believe we are under-reporting iOS web conversions. This means real-world conversions like sales and app installs are higher than what's being reported for many advertisers, especially for fall advertisers; we're making good progress fixing that. We think we'll be able to address more than half of the under-reporting by the end of this year, and we'll continue to work on this into 2022. Another external factor is slowing e-commerce growth. The strong e-commerce growth in recent quarters was driven in part by the acceleration of the digital transformation that is now tapering off. I think most people see this in their own lives. There was a period of time when many people who were able to stay at home ordered things online much more. But now, in many places, things have opened up and people are increasingly making purchases in person. That doesn't mean e-commerce has stopped growing. Businesses are still making the shift to online, but e-commerce is no longer growing at the pace it was at the height of the pandemic. These factors have been compounded for many advertisers by major global supply chain issues and labor shortages, which have left many consumer businesses with less inventory. This has reduced their appetite to generate demand from consumers, which has impacted advertising spend. Businesses in every region and across a range of verticals have been affected. At the same time, we've also seen some impact from COVID surges around the world in places like Southeast Asia. Overall, if it wasn't for Apple's iOS 14 changes, we would have seen positive quarter-over-quarter revenue growth. While we and our advertisers will continue to feel the effect of these changes in future quarters, we will continue working hard to mitigate them. Despite the headwinds, we remain confident about our future. We believe Facebook and Instagram are the best places for people to connect with their friends and families, build communities, and start to grow businesses. We believe they're still the best platforms for advertisers to reach people where they are and get measurable outcomes. Our focus remains where it has always been, building products that help people connect and businesses grow. Mark talked about video a moment ago. Not only is this a growing area for us overall, but we're also continuing to get better at monetizing it. More than 60% of video revenue now comes from mobile-first video, meaning videos that are shot vertically or are under 15 seconds. Over 2 billion people per month now watch videos that are eligible for in-stream ads, which are ads shown before, during, or after videos. We're expanding access to Reels ads on Instagram to more advertisers with automatic placement in new creative formats. Another area we're seeing good progress is in lead generation. Our products helped businesses generate quality leads at scale and meet customers where they are on their preferred channel of communication, whether it's messaging, forms, or calls. In April, we started rolling out a new conversion with optimization goal for higher-quality leads. Advertisers can also integrate their CRM with Facebook via our conversions API. The tests show that, on average, advertisers see a 20% increase in lead to sale conversion rate when they use both the optimization goal and the integration. Q4 is the most important quarter of the year for many businesses, large and small. As always, we're focused on making the holiday season a success for them. We are working to fix the measurement issues they are experiencing and deliver the tools and products they need to grow. We're rolling out a range of holiday shopping experiences to help people find great deals, support small businesses, and shop with local and black-owned businesses. We're bringing exclusive gifts to shops that will be available when people checkout on Facebook or Instagram, with 20% off your first purchase and free shipping. Starting next week, we'll host daily shopping experiences of companies large and small, brands like Walmart, Macy's, Benefit Cosmetics, and Paintbox Nails to educate shoppers and share exclusive deals. We're bringing back one of my favorite campaigns ever, BuyBlack Friday, to showcase black-owned small businesses during the holidays. It includes things like BuyBlack collections and a Facebook and Instagram shop tab, and a weekly BuyBlack Friday show with live shopping segments from up-and-coming black-owned small businesses. I want to close by expressing my gratitude to our partners around the world, and to our incredible teams who are working so hard to help people and businesses throughout this period. Now, here's Dave.

Thanks, Sheryl, and good afternoon, everyone. We delivered solid results in the third quarter in the face of a challenging mobile platform landscape and a changing macroeconomic environment. Let's begin with our community metrics. Our global community continued to grow even as we lapped elevated user growth in the third quarter of last year related to the pandemic. We estimate that approximately 2.8 billion people used at least one of our services on a daily basis in September, and that approximately 3.6 billion people used at least one on a monthly basis. Facebook daily active users reached 1.93 billion, up 6% or 110 million compared to last year. DAUs represented approximately 66% of the 2.91 billion monthly active users in September. MAUs grew by 170 million or 6% compared to last year. Turning to the financials, all comparisons are on a year-over-year basis unless otherwise noted. Q3 total revenue was $29 billion, up 35% or 34% on a constant currency basis. We benefited from a currency tailwind, and had foreign exchange rates remained constant with Q3 of last year, total revenue would have been $259 million lower. Q3 ad revenue was $28.3 billion, up 33% or 32% on a constant currency basis. On a user geography basis, year-over-year ad revenue growth was strongest in the rest of the world at 50%, Europe, North America, and Asia Pacific grew 35%, 31%, and 28% respectively. Europe, Asia Pacific, and the rest of the world benefited from currency tailwinds, though to a lesser degree than in the prior quarter. In Q3, the total number of ad impressions served across our services increased by 9%. The average price per ad increased by 22%. Impression growth was driven primarily by developing markets, especially in Asia Pacific. Pricing growth benefited from advertiser demand in lapping COVID-related pricing weakness during the third quarter of last year. Although, as Sheryl noted, growth was hindered by three primary headwinds. First, advertising spend was negatively impacted by performance in measurement headwinds related to Apple's changes. Second, we are seeing some macro headwinds as growth in online commerce has moderated from the elevated levels experienced earlier in the pandemic, and businesses faced supply chain disruptions. Third, COVID resurgences in Southeast Asia have led to additional lockdowns and a curtailment of economic activity. Other revenue was $734 million, up 195% driven by strong Quest 2 sales. Turning now to expenses. Q3 total expenses were $18.6 billion, up 38% compared to last year. In terms of specific line items, cost of revenue increased by 38% driven mostly by consumer hardware costs, core infrastructure investments, and payments to partners. Research and Development increased by 33%, driven primarily by hiring to support our core products and consumer hardware efforts. Marketing and sales increased by 32%, mainly driven by higher marketing spend. Lastly, G&A expenses increased by 65% driven primarily by higher legal-related costs and employee-related costs. We added over 4,700 net new hires in Q3, primarily in technical functions. We ended the quarter with over 68,100 full-time employees, up 20% compared to last year. Third-quarter operating income was $10.4 billion, representing a 36% operating margin. Our tax rate was 13%. Net income was $9.2 billion or $3.22 per share. Capital expenditures, including finance leases, were $4.5 billion, driven by investments in data centers, servers, network infrastructure, and office facilities. Free cash flow was $9.5 billion and we ended the quarter with $58.1 billion in cash and marketable securities. We repurchased $14.4 billion of our Class A common stock in the third quarter, and had $8 billion remaining on our prior authorization as of September 30th. Today, we announced a $50 billion increase in our stock repurchase authorization. Turning now to the outlook, starting with our results for the fourth quarter of 2021, we plan to break out Facebook Reality Labs or FRL as a separate reporting segment. As we've discussed, we're dedicating significant resources towards our augmented and virtual reality products and services, which are an important part of our work to develop the next generation of online social experiences. The new segment disclosures will provide additional information on the performance of FRL, and the investments we're making. Under this reporting structure, we will provide revenue and operating profit for two segments. The first segment, family of apps, will include Facebook, Instagram, Messenger, WhatsApp, and other services. The second segment, Facebook Reality Labs, will include augmented and virtual reality related hardware, software, and content. As Mark noted, we expect our investment in FRL to reduce our overall operating profit in 2021 by approximately $10 billion. We are committed to bringing this long-term vision to life, and we expect to increase our investments for the next several years. Ahead of the fourth-quarter earnings call, we will share additional details about the reporting format of our segments’ financials. Turning now to the revenue outlook; we expect fourth-quarter 2021 total revenue to be in the range of $31.5 billion to $34 billion. Our outlook reflects the significant uncertainty we face in the fourth quarter in light of continued headwinds from Apple's iOS 14 changes and macreconomic and COVID-related factors. Also, we expect non-ads revenue to be down year-over-year in the fourth quarter as we lap the strong launch of Quest 2 during last year's holiday shopping season. As previously noted, we also continue to monitor developments regarding the viability of transatlantic data transfers and their potential impact on our European operations. Turning now to the expense outlook, we expect 2021 total expenses to be in the range of $70 billion to $71 billion, updated from our prior outlook of $70 billion to $73 billion. We anticipate our full-year 2022 total expenses will be in the range of $91 billion to $97 billion, driven by investments in technical and product talent and infrastructure-related costs. We expect 2021 capital expenditures to be approximately $19 billion, updated from our prior estimate of $19 billion to $21 billion. For 2022, we expect capital expenditures to be in the range of $29 billion to $34 billion, driven by our investments in data centers, servers, network infrastructure, and office facilities. A large factor driving the increase in CapEx spend is an investment in our AI and machine learning capabilities, which we expect to benefit our efforts in ranking and recommendations for experiences across our products, including in feed and video, as well as improving ad performance and relevance. We expect our Q4 2021 tax rate to be in the high teens absent any changes to U.S. tax law; we would expect our full-year tax rate in 2022 to be similar to the full-year 2021 rate. Please note that our outlook for 2022 expenses, capital expenditures, and tax rate are preliminary estimates as we have not yet finalized our 2022 budget. In closing, this was another solid quarter for our business, despite facing some headwinds. We believe the investments we're making in our current services, as well as in new products and experiences, will enable us to remain the best place for people to connect and for businesses to advertise both now and in the years ahead. With that, France, let's open up the call for questions.

Thank you. We will now open the lines for the question-and-answer session. Your first question comes from the line of Brian Nowak with Morgan Stanley. Please go ahead.

Thanks for taking my questions. I have two. The first one on Reels. It sounds like it’s a pretty important part of long-term adoption. Curious to hear about anything you'll share about current user adoption, current engagement, or more color on the demographics of people who are using Reels now. Then the second one, just a little more question on Apple and the ATT changes. I appreciate the color on accuracy and measurement improvements. Any more specifics you can share about where you've made the most progress from your investment to date, and some of the areas where you're seeing more challenges, you need to continue to invest to really improve, to navigate through this more challenging environment. Thanks.

Yeah, sure, Brian. On Reels, that's been a bright spot for Instagram, and currently, we are seeing good growth globally, strengthening in a number of different markets. We've been making a lot of progress on Reels and have been happy with it on Instagram. In terms of the launch on Facebook, that's at an earlier stage on the monetization front. We're just starting to roll out ads in Instagram, so it's earlier on that front, and we really haven't gotten to a monetization point with Reels on Facebook. Sheryl, do you want to take the iOS 14 question?

Yeah, I can take that. When you start at the top of this, you really have to think about what personalized ads are. We think they're better for people and businesses, and they're especially important to small businesses. They can also be delivered in a very privacy-safe way. There are two big challenges coming from this iOS changes. One is targeting, and one is measurement. I'm taking the second one first. On measurement, we think we can address more than half of that underreporting by the end of the year and make more progress in the years ahead. We estimate we're underreporting iOS web conversions. We believe that real-world conversions like sales and app installs are higher. We have to do the work to help clients measure these properly in order for them to really understand the outcomes they're getting and improving performance. Again, we think we can get a good chunk of that done this year and more in the next year. Targeting is a longer-term challenge. Our direct response products are built on user-level conversions. As a result of the iOS changes, we don't see the same level of conversion data coming through. So we have to rebuild our targeting and optimization systems to work with less data. This is a multiyear effort. We're developing privacy-enhancing technology to minimize the amount of personal information we learn, using more aggregate or anonymized data while still allowing us to show those relevant personalized ads and measure ads effectiveness. In order for this to work and benefit all businesses, this requires some cross-industry collaboration and more commerce tools. Those are going to be longer-term efforts.

Operator, we can go to the next question.

Our next question is from Eric Sheridan with Goldman Sachs. Please go ahead.

Thanks so much. Maybe two if I can. Maybe Sheryl, following up there, in terms of thinking in terms of quarters or years, on both the targeting and the measurement piece. Can you help us just go one level lower in terms of what you're building, in terms of what's in your control to put into the advertising ecosystem, versus what might just take time for advertisers to adopt and get comfortable with and better understand the data that drive their business outcomes and how they allocate advertising budget, that would be for you. And then Dave, maybe if I could follow up on OpEx and CapEx, just how should we be thinking about the elements of core Facebook versus some of the things you're trying to build against Mark's vision for the long term with Reality Labs, and how that might be a driver of permanent versus transient nature of OpEx and CapEx in the years ahead. Thanks so much.

Some of the technology we can build ourselves. We build AI, and we make continued investments in AI that help us maintain or improve long-term performance data. We're building some of our own commerce tools. Those are tools we can build that we need other people to adopt. Some of the targeting opportunities, we see tools we can build or tools we can build in industry collaboration. We're really working as part of several industry collaborative groups on what those tools will look like and how those get adopted. Those obviously take more partnership and are less on our direct control.

Hey, Eric. On the outlook on expenses in 2022, it's obviously early, but we wanted to give an initial outlook of our expected expense range since we typically do that in Q3. Mark outlined we have a lot of priorities that we're investing against across the business that includes a lot of areas in the core sort of Family of Apps, but also in FRL. We've got a lot of priorities in advertising, AI, commerce, and privacy. So when you pull all these things together, we have a pretty robust spending plan next year. The primary driver is going to be accelerating headcount growth in 2022, so that's going to be something you'll see, headcount coming in above 20%, obviously that we have this quarter. We also expect to have higher expenses from office operations and travel once larger parts of the workforce are returning to the office in 2022. We're not providing a specific breakdown at this point for segment expenses.

Our next question is from Doug Anmuth with JPMorgan. Please go ahead.

Great. Thank you. One for Mark and one for Dave. Mark, just given the significant investments in both P&L expenses and CapEx. And clearly, you were talking about the heavy focus on the metaverse over the long term. Just hoping you could help us recap the 1-year, 3-year, and then 5-year aspirations from a product perspective, as you've done in the past. And then Dave, just on the 2022 expenses, which are about 29% to 38% growth. Do you have any commentary on revenue growth in '22 to go along with that? Thanks.

I can talk about the metaverse and Reality Labs part of this. So for the next one and three years especially, I think what you'll see is us putting more of the foundational pieces into place. This is not an investment that is going to be profitable for us anytime in the near future. But we believe that the metaverse is going to be the successor to the mobile Internet. That it's going to enable social experiences that are the ultimate expression of what we try to build, which is allowing people to feel really present with the people they care about, no matter where they actually are. We think it's going to unlock a massively larger creative economy of both digital and physical goods that would exist today and allow millions of people to do work doing what they love, enabling a whole different economy around that. There's going to be another important pillar of our business over the next decade. On the next one to three years, I wouldn't focus on the sort of business outcome there quite as much as I would just the product and the infrastructure that we're putting in place. There's a new platform, there's hardware components, there's a whole virtual reality product line, there's an augmented reality product line. We're starting with those pieces in place. There's the operating system and development models for all these new creative tools, and then there are the commerce parts of what we're doing around this and how they fit into broader commerce efforts across our family of apps. There’s social platform work that we're doing with our Horizon effort that touches a bunch of different areas of what we're doing. You’ll see all of those pieces starting to get built out and maturing a bit over the next few years. Later in this decade is when we would sort of expect this to be more of a real business story, but we think about delivering product experiences that are completely groundbreaking, ones that people try and see as amazing, giving a glimpse of where this is going. If we do a good job, by the end of the decade, we hope to help a billion people use the metaverse and support hundreds of billions of dollars of digital commerce. I think if we can do that, then this will be a good investment over the long term.

Hey, Doug, it's Dave. We're not at this point providing a specific revenue outlook for 2022. We continue to see opportunities to grow both, impressions and price next year, but we're obviously coming off an incredibly strong year of revenue growth in 2021. We do expect deceleration in growth in 2022 from the full-year 2021 rate. There's uncertainty implied in our range for Q4 revenue, and I think that holds true for the 2022 outlook as well. There's a lot of factors at play, including advertisers working their way through the impact of the Apple platform changes. We're obviously navigating a challenging macroeconomic environment. We'll have a better sense of how these things work together as we get through the holiday season.

Thank you. Our next question is from Justin Post with Bank of America Merrill Lynch. Please go ahead.

Great. Thank you. Maybe one for Mark and one for Dave. Getting 18 to 29-year-old users is not easy. I wonder if you could maybe outline some of your strategies to kind of make some progress there. I know it's multi-quarter. And then Dave, in your guidance for Q4, can you help us on the IDFA impact? Is it contemplated to be about the same as 3Q, a little bit better as you work on your measurement or is it a little bit more of a headwind in Q4? Thank you.

Yeah. Justin, I can actually take both of those questions. In terms of the younger demographics. Our products are obviously widely used by young adults and we remain focused on building out those product capabilities, continuing to make our products relevant for that audience. I think Reels is a big part of that strategy. We've rolled that out in over 100 countries since launching in August of last year, and we're continuing to invest in that experience and enhance the product. That's probably one of our big focus points that I would point to in terms of the IDFA.

Reels is going to be a meaningful, qualitative change in how people use a lot of different products across the engine. I think every once in a while a format comes along that allows new types of content. We saw this with News Feed. We saw it with Stories, and I think Reels has, from everything I've seen, the potential to be something of that scale, where there are different flavors of it in different apps. I think we are still closer to the beginning of that journey than we are to its maturity, especially having rolled out some of the initial tests and experiences on Facebook. You mentioned all the countries that we've rolled out in Instagram, but it's just continuing to grow very quickly. So I think that's going to be a big part of our focus here, and I’m excited over the next year or two to see how that growth progresses.

Justin, on the iOS question as it relates to Q4 versus Q3. The bulk of iOS 14 updates were completed as we entered Q3, which contributed to this step-up in the impact from Q2 to Q3. Since iOS 14 is now widely adopted, we don't expect a similar step-up in Q4. But importantly, we haven't gone through a holiday season with these changes, and prices are higher during the holidays given strong demand, and so there's uncertainty how that will intersect with the challenges on targeting and measurement coming from the iOS changes. That brings some uncertainty into the Q4 outlook that's reflected in our guidance range.

Our next question is from Youssef Squali with Truist Securities. Please go ahead.

Great. Thank you very much. Two questions for me. Mark, is the week of Facebook connects. So I was hoping you can provide us an update on Horizon. This is the social app where people can create games and experiences to share together. When will that finally come out of the closed beta? I think it's been in for the last 2 years. It seems to us that to move Facebook into the metaverse successfully, you really need to have a VR social app that's obviously cool and successful. The other question is around this focus on 18-29. Can you maybe just speak to the current trends in engagement at both Facebook and Instagram among millennials and younger audiences? I know you're speaking about a focus on going forward, but how has it been trending of late? Thank you.

I'll go first, and then Dave will discuss the numbers you want to know about. On Thursday during Connect, we'll share detailed information about our vision for the metaverse and how we plan to contribute to its development. I encourage all of you to tune in. We will discuss Horizon and its role in this vision. We are actively onboarding more creators and users, and continuously expanding the number of virtual worlds available. This will be a key aspect of our platform and our efforts. We recently launched Workrooms, and I am thrilled with how that experience has developed. It’s essential to provide an experience that spans all platforms. We aim to create more than just a VR social network; we want to ensure users can feel present with others and have immersive experiences. While VR or AR and holograms will provide the best experiences, it must be functional across our entire suite of apps, including on the web, phones, and computers. There's still much work to be done.

Just on overall engagement trends, our products are widely used by teens, but we are facing tough competitions from the likes of TikTok and Snapchat. We're focused on obviously continuing to innovate and roll out products like Reels and attract and retain the younger demographics for our products. We're actively investing in those areas.

Our next question is from Mark Mahaney with Evercore ISI. Please go ahead.

I apologize. I have two questions. First, regarding the iOS changes, can you say that they constitute the main challenges you encountered in Q3 and expect to face in Q4? Second, for Mark, about using artificial intelligence to better manage content and ensure that inappropriate material is removed from Facebook and Instagram, where do you believe you stand in achieving your goals? I know this has been an ongoing investment over several years. Here we are years later; is this a specific task? Do you think you've successfully utilized AI in a constructive manner? Thank you.

Hey, Mark, it's Dave on the first question. Yes, the Apple platform changes were the largest factor in terms of Q3 headwinds. It was really the first full quarter impact of those new ATT policy changes following just the increase in consumer adoption ramp of the iOS updates. If it weren't for that, we would have expected sequential growth from Q2 to Q3. So that was the largest headwind in the quarter.

Sure. I can speak a bit to AI. My answer is yes; I think it's made a big impact. We issued these quarterly transparency reports, which I should add we’re industry-leading on this and both in terms of just finding that and in terms of the depth of what we outlined to hold us accountable, and see the breakdown on how we're actually doing. What we measure in those reports and disclose, is what percent of the content we act on is our AI or systems finding rather than people reporting. I'm convinced we have many users of our products, and if they find something that's problematic and report it to us, it used to be that most of what we did for community integrity was just respond to incoming reports. We decided to get in front of this and build really sophisticated systems so that we are not just relying on people to tell us when there are issues, but we can proactively go address that. In most categories, we've basically gotten to the point where over 90% of the content we're acting on, we're identifying largely through our AI systems. This varies a bit by category, but for categories like nudity, where it's relatively simple to train a computer to identify, the numbers are very high. For categories like hate speech, which have been harder, there’s a lot of cultural nuance and you want to ensure you understand the innuendos. We’ve made a lot of recent progress, and we're now above 90% of the content we take an action on being identified by AI. I know there’s a lot of scrutiny, but I'm really proud of the progress we've made.

Our next question is from Ross Sandler with Barclays, please go ahead.

Thanks. Dave, one nit-picky question on the guide and then one big picture for Sheryl, maybe. Since we're now all focusing on the two-year CAGRs for the guidance for the high end of the fourth quarter revenue, actually has an acceleration on the two-year CAGR. I know we're talking about headwinds and IDFA and supply chains and everything like that, but sequential growth looks normal. That 2-year CAGR is accelerating. I guess where is the strength coming from, and would you call that a strong 4Q environment? Then Sheryl, you talked about overhaul and targeting longer-term to have less focus on users or user-based targeting and more contextual and other things. I guess high level. How do you think that will impact the overall return on ad spend compared to pre-IDFA levels?

Hey, Ross, it's Dave. We're giving sort of specific quantitative revenue guidance on Q4. If you look at the range, it's from a sequential growth basis on a seasonal basis, Q3 to Q4. It's lower sequential growth than we've seen historically. I do think that reflects some of the uncertainty we're seeing out there in light of how IDFA, sorry, the iOS 14 and ATT and IDFA impacts play into pricing during the holidays. Macro-economic factors like supply chain issues also play into it.

In terms of the overall targeting, it's hard to say exactly where we're going to end up. This is going to be a multiyear effort. We've definitely seen a hit already, and we're definitely focused on tools to help advertisers. We think we have opportunities to strengthen targeting both through our direct work and as part of industry consortium. You're right in your question that advertisers have to choose where they advertise. So the question for us is how good our targeting can be compared to others. I think our targeting can suffer compared to others like Apple, who have the direct data themselves, but it remains very good for advertisers. When you compare us in terms of ROI, we've always performed well, we still do. Even though we've taken a hit, we're focused on continuing to do that for businesses.

Our next question is from John Blackledge with Cowen, please go ahead.

Thank you. I have two questions. First, regarding the macro situation, are you currently experiencing supply-chain issues affecting fourth-quarter ad revenue, or do you anticipate these issues will become more significant later in the quarter? Secondly, concerning Instagram, with the increasing popularity of Reels, is it affecting engagement with other Instagram features? Thank you.

Yes, John, we're not the macroeconomic authority on all things. What we're hearing from advertisers is they are seeing supply chain issues that were true in Q3 and are expected to continue to carry over into Q4. That intersects with targeting and measurement headwinds from iOS 14. It’s hard to parse exactly how the platform issues and the macroeconomic factors will play into Q4, but I think those are the two biggest factors driving the range of potential outcomes outlined in our guidance.

In terms of Reels and other IG services, whenever we launch new experiences, this was true with Stories, it was true with Facebook Watch, you're always going to see some amount of people's time and attention shifting to those new areas. We do think that benefits the overall experience, and we think that it makes the overall experience more engaging over time. It’s why we're investing to do that.

Can we go to the next question?

From the line of Mark Shmulik with Alliance Bernstein, please go ahead.

Yes, one for Sheryl, specifically around kind of on-platform commerce and that pivot. I know previously you've shared kind of merchant and user adoption metrics, but any progress you could share on that product as it relates to activity or how our users are embracing it? The second question, more broadly, around recruiting. I know the recent posts to create 10,000 jobs guided to the metaverse in Europe. Any particular rationale for how you’re thinking about recruiting globally? Thanks.

On commerce, we have a lot of commerce activity on our platform already. People are discovering lots of products through our feed and Stories ads. This is our largest ad vertical and COVID really accelerated it, but it's also been one of the fastest-growing verticals over a 5-year period. We believe we've driven hundreds of billions of dollars of offsite e-commerce gross merchandise volume today through our ads business. We think the commerce tools will be built and layered on top of that to help businesses reach new customers and drive more incremental sales. In these commerce efforts, we'll focus on three areas: continuing to be the best place to advertise, making it easier to sell on the platform, and improving the customer experience. I think we’re in different places on those. In terms of continuing to be the best place to advertise, we are a great place to find customers. We think that ROI is very strong and continues to be competitive. In terms of making it easier to sell on the platform, we are catching up to other mobile and web shopping experiences. I think we have some work to do there. On improving the consumer experience to encourage people to shop, we're making progress, but we have room to grow.

On the recruiting front, we're looking for good technical talent globally. We're going to be hiring people to do more remote work and focus on that, investing in locations outside of the Bay Area, aiming to build our technical and product capabilities across the globe. Europe is an important part of that, and that’s why it was outlined in that announcement.

Operator, we have time for one last question.

Thanks, Dave. Just on the CapEx up at the midpoint, over 70%. There are a lot of questions just as it relates to what the surge is related to there. Is there any more detail you can help us better understand that investment?

Yes, sure, Brent. I mentioned in my prepared remarks that our 2022 outlook really reflects a significant increase in our planned investment in areas like AI and machine learning. A lot of that will be dedicated to investing in areas where we can use machine learning to improve ranking and recommendations to power experiences across our products. In areas like feed and emerging areas like Reels, we'll also dedicate that to ads as we work to improve ad relevance, leveraging machine learning and AI to help balance out the loss of signal experienced from some of the platform changes. We think that our position gives us a good ability to do that, hence the big increase in CapEx budget next year.

Great. Thank you again for joining us today. We appreciate your time and we look forward to speaking with you again.

And this concludes today's conference call. Thank you for joining us. You may now disconnect your lines.