Good afternoon. My name is Dave, and I will be your conference operator today. At this time, I would like to welcome everyone to the Meta First Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. This call will be recorded. Thank you very much. Ms. Deborah Crawford, Meta's Vice President of Investor Relations. You may begin.

Thank you. Good afternoon and welcome to Meta Platforms' first quarter 2023 earnings conference call. Joining me today to discuss our results are Mark Zuckerberg, CEO, and Susan Li, CFO. Before we get started, I would like to take this opportunity to remind you that our remarks today will include forward-looking statements. Actual results may differ materially from those contemplated by these forward-looking statements. Factors that could cause these results to differ materially are set forth in today's press release and in 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.

All right. Thanks, Deborah. And thanks everyone for joining. This was a good quarter and we're seeing growing momentum in our products and business. Our community reached the milestone that now more than 3 billion people use at least one of our apps each day. Facebook also reached the milestone of 200 million daily actives in the U.S. and Canada after last quarter reaching 2 billion daily actives worldwide. Now in a moment, I'll talk more about the results in our business and the opportunities that I'm excited about. But first I want to share an update on our efficiency work. The goals of our efficiency work are to make us a stronger technology company that builds better products faster, and to improve our financial performance to give us the space in a difficult environment to execute our ambitious long-term vision. When we started this work last year, our business wasn't performing as well as I wanted. But now we're increasingly doing this work from a position of strength. Even as our financial position improves, I continue to believe that slowing hiring, flattening our management structure, increasing the percent of our company that is technical, and more rigorously prioritizing projects will improve the speed and quality of our work. I also believe that a stronger financial position will enable us to weather a volatile environment while remaining focused on our longer-term priorities. So far, we've gone through two of the three waves of restructuring and layoffs that we have planned for this year, in our recruiting and our technical groups. In May, we're going to carry out our third wave across our business groups. And this has been a difficult process. But after this is done, I think we're going to have a much more stable environment for our employees. And then for the rest of the year, I expect us to focus on improving our distributed work model, delivering AI tools to improve productivity and removing unnecessary processes across the company. Now moving on to our products and business. We're seeing strong engagement growth across our apps and good progress on monetization efficiency, which combined to drive good business results. Reels continues to grow quickly on both Facebook and Instagram, Reels also continues to become more social with people resharing Reels more than 2 billion times every day, doubling over the last six months. Reels are also increasing overall app engagement, and we believe that we're gaining share in short-form video too. Now a key theme that I want to discuss today is AI. I've emphasized for a number of these calls now that there were two major technological waves driving our roadmap, a huge AI wave today, and a building Metaverse wave for the future. And our AI work comes in two main areas. First, the massive recommendations and ranking infrastructure that powers all of our products, from feed to Reels, to our ad system, to our integrity systems and that we've been working on for many, many years. And second, the new generative foundation models that are enabling entirely new classes of products and experiences. Our investment in recommendations and ranking systems has driven a lot of the results that we're seeing today across our discovery engine, Reels and ads, along with surfacing content from friends and family. Now, more than 20% of content in your Facebook and Instagram feeds are recommended by AI from people groups or accounts that you don't follow. Across all of Instagram, that's about 40% of the content that you see. Since we launched Reels, AI recommendations have driven a more than 24% increase in time spent on Instagram. Our AI work is also improving monetization. Reels monetization efficiency is up over 30% on Instagram and over 40% on Facebook quarter-over-quarter. Daily revenue from Advantage+ shopping campaigns is up 7x in the last six months. Our work to build out business messaging as the next pillar of our business is making progress too. I shared last quarter that click to message ads reached a $10 billion revenue run rate. And since then, the number of businesses using our other business messaging service paid messaging on WhatsApp has grown by 40% quarter-over-quarter. Our success here depends on delivering results for other businesses, and at our scale that can have macroeconomic effects. We recently did a study with economists at UC Berkeley to understand the impact that our services make. And they concluded that every dollar spent on our ads drives on average $3.31 in revenues for our advertisers in the U.S. That means over $400 billion in economic activity annually is linked to supply chains relying on our platforms, supporting more than 3 million jobs. Beyond recommendations, the other major focus of our AI work is foundation models to enable a lot of new use cases, including Generative AI. That's been a pretty amazing year of progress on this front. And the work happening now is going to impact every single one of our apps and services. And I'm incredibly excited to ship more of the things that we're building over the coming months. Now I want to share a little bit about our approach and what you can expect to see from us. And the specifics are going to come into focus as we ship more these things. So these are just themes for now. But first for our product, we're always focused on connection and expression. And I expect that our AI work will reflect that. I think that there's an opportunity to introduce AI agents to billions of people in ways that will be useful and meaningful. We're exploring chat experiences and WhatsApp and messenger, visual creation tools for posts on Facebook and Instagram and ads, over time video and multimodal experiences as well. I expect that these tools will be valuable for everyone from regular people to creators to businesses. For example, I expect that a lot of interest in AI agents for business messaging and customer support will come once we nail that experience. Now over time, this will extend to our work on the Metaverse to where people will much more easily be able to create avatars, objects, worlds and code to tie them together. All right, next, let's talk about the technology platform to enable this. Right now most of the companies that are training large language models have business models that lead them to a closed approach to development. And I think that there's an important opportunity in the industry to help create an open ecosystem. And if we can help be a part of this, then much of the industry, I think will standardize on using these open tools and help improve them further. So this will make it easier for other companies to integrate with our products and platforms as we enable more integrations. And that will help our product stay at the leading edge as well. Our approach to AI and our infrastructure has always been fairly open. We open source many of our state-of-the-art models so people can experiment and build with them. This quarter we released our LLaMa LLM to researchers. It has 65 billion parameters but outperformed larger models and has proven quite popular. We've also open sourced 3 other groundbreaking visual models along with their training data and model weights, Segment Anything, DINOv2 and our animated drawings tool, and we've gotten some positive feedback on all of those as well. Now finally, let's talk about AI infrastructure and the CapEx. This has been a major investment for us. A couple of years ago, I asked our infra teams to put together ambitious plans to build out enough capacity to support not only our existing products but also enough buffer capacity for major new products as well. And this has been the main driver of our increased CapEx spending over the past couple of years. Now at this point, we are no longer behind in building out our AI infrastructure. And to the contrary, we now have the capacity to do leading work in this space at scale. As these new models and use cases continue scaling, we're going to need to continue investing in infrastructure, although we'll have a better idea of the trajectory of that investment later in the year once we can gauge usage of some of the new products we'll launch. Now beyond AI, the other major technology wave that we're focused on is the metaverse. A narrative has developed that we're somehow moving away from focusing on the metaverse vision. So I just want to say upfront that, that's not accurate. We've been focusing on both AI and the Metaverse for years now, and we will continue to focus on both. The two areas are also related. Breakthrough in computer vision was what enabled us to ship the first stand-alone VR device. Mixed reality is built on a stack of AI technologies for understanding the physical world and blending it with digital objects. Being able to procedurally generate worlds will be important for delivering compelling experiences at scale. And our vision for AR glasses involves an AI-centric operating system that we think will be the basis for the next generation of computing. Metaverse technologies will also help deliver AI as well. For example, embodying AI agents will take advantage of the deep investment that we've made in avatars over the last several years. Building the Metaverse is a long-term project, but the rationale for it remains the same, and we remain committed to it. Now in the near term, we've reached a few milestones that I think are worth calling out. More than 1 billion Meta Avatars have now been created. Since last year, the number of titles in the Quest store with at least $25 million in revenue has doubled. And more than half of Quest daily actives now spend more than an hour using their device. The next milestone is that we're gearing up to launch our next-generation consumer virtual and mixed reality device later this year. We launched Quest 2 almost three years ago at this point. It was a very big step forward for VR. And I'm really excited to show the world all of the improvements in new technology that we have developed since then at a price point that will be accessible for lots of people. All right. So that's what I want to cover today. We're seeing good momentum in our products and business. We have incredibly exciting opportunities ahead in our Family of Apps, AI and the Metaverse. I'm confident that our efficiency work will improve our ability to execute on all of this. As always, I'm grateful for our teams for all of your work. I know that this has been a challenging period, but I'm proud of the work that you're doing. And I'm also grateful for all of you for being on this journey with us. And now over to Susan.

Thanks, Mark, and good afternoon, everyone. Let's begin with our consolidated results. All comparisons are on a year-over-year basis unless otherwise noted. Q1 total revenue was $28.6 billion, up 3% or 6% on a constant currency basis. Had foreign exchange rates remained constant with Q1 of last year, total revenue would have been about $816 million higher. Q1 total expenses were $21.4 billion, up 10% compared to last year. In terms of the specific line items, cost of revenue increased 2%, driven by infrastructure-related costs that were partially offset by lower Reality Labs cost of goods sold. R&D increased 22%, driven primarily by restructuring charges related to facilities consolidation and severance expenses and headcount-related costs from our Reality Labs and Family of Apps segments. Marketing and sales decreased 8% due mainly to lower marketing spend and headcount-related expenses. And G&A increased 22% due primarily to restructuring charges related to severance and facilities consolidation expenses and legal-related expenses. We ended the first quarter with over 77,100 employees, down 11% from the fourth quarter as our reported headcount no longer includes substantially all of the employees impacted by the November layoffs. Employees that were impacted by layoffs in March are still included in the first quarter headcount. First quarter operating income was $7.2 billion, representing a 25% operating margin. Our tax rate for the quarter was 22%. Net income was $5.7 billion or $2.20 per share. Capital expenditures, including principal payments on finance leases, were $7.1 billion driven by investments in data centers, servers and network infrastructure. Free cash flow was $6.9 billion, and we repurchased $9.2 billion of our Class A common stock in the first quarter. We ended the quarter with $37.4 billion in cash and marketable securities. Moving now to our segment results. I'll begin with our Family of Apps segment. Our community across the Family of Apps continues to grow. For the first time, we surpassed 3 billion people using at least one of our Family of Apps on a daily basis in March, and approximately 3.8 billion people use at least one on a monthly basis. Facebook continues to grow globally as well, and engagement remains strong with DAU and MAU growing sequentially across all regions in the first quarter. Facebook daily active users were 2.04 billion, up 4% or 77 million compared to last year. DAUs represented approximately 68% of the 2.99 billion monthly active users in March. MAUs grew by 53 million or 2% compared to last year. Q1 total Family of Apps revenue was $28.3 billion, up 4% year-over-year, and Q1 Family of Apps ad revenue was $28.1 billion, up 4% or 7% on a constant currency basis. Within ad revenue, the online commerce vertical was the largest contributor to year-over-year growth followed by health care and entertainment and media. Online commerce benefited from strong spend among advertisers in China reaching customers in other markets. However, other verticals remain challenged with financial services and technology verticals being the largest negative contributors to year-over-year growth. On a user geography basis, ad revenue growth was strongest in Rest of World at 9%, followed by North America and Asia Pacific at 6% and 4%, respectively. Europe declined 1%. Foreign currency remained a headwind to advertising revenue growth in all international regions. In Q1, the total number of ad impressions served across our services increased 26% and the average price per ad decreased 17%. Impression growth was primarily driven by Asia Pacific and Rest of World. The year-over-year decline in pricing was primarily driven by strong impression growth, especially from lower monetizing services and regions, foreign currency depreciation and lower advertising demand. While overall pricing remains under pressure from these factors, we believe our ongoing improvements to ad targeting and measurement are continuing to drive improved results for advertisers. Family of Apps other revenue was $205 million in Q1, down 5%, as strong business messaging revenue growth from our WhatsApp business platform was more than offset by a decline in other line items. We continue to direct the majority of our investments toward the development and operation of our Family of Apps. In Q1, Family of Apps expenses were $17.1 billion representing approximately 80% of our overall expenses. Family of Apps expenses were up 9% due primarily to restructuring charges and growth in infrastructure-related costs. Family of Apps operating income was $11.2 billion, representing a 40% operating margin. Within our Reality Labs segment, Q1 revenue was $339 million, down 51% due to lower Quest 2 sales. Reality Labs expenses were $4.3 billion, up 18% due mostly to employee-related costs and restructuring charges. Reality Labs operating loss was $4 billion. Next, I'll discuss our ongoing monetization work. As I mentioned last quarter, there are two primary levers to increasing monetization, growing supply and demand. On the ad supply side, our foremost focus remains on building engaging experiences for our community, and we're continuing to make encouraging progress on our product priorities. Our investments in the discovery engine are delivering results. In Feed, recommendations are contributing to engagement, and we've seen real-time become more incremental to overall engagement on our services as we continue to improve our recommendation system. This is an important signal because it demonstrates that people are finding added value from the content we're helping them discover. Beyond that, we continue to focus on further narrowing the gap in monetization efficiency or monetization per time between Reels and our more mature surfaces, Feed and Stories. There are structural supply constraints with the Reels format as people view a reel for a longer time than a piece of Feed or Stories content, which results in fewer opportunities to serve ads in between posts. That will make it likely more challenging to close the monetization efficiency gap than it was with Stories. However, the overall economics of Reels will be determined by a combination of our ability to continue growing monetization per time on Reels and our ability to drive incremental engagement from Reels. As Mark noted, we have seen a 24% increase in overall time spent on Instagram from our ranking improvements since launching Reels globally. We continue to expect that Reels will become neutral to overall revenue by the end of this year or early next year. The other side of monetization is growing advertiser demand. One area of focus is around driving advertiser performance, and we are seeing continued strong conversion growth for advertisers, which we believe, coupled with lower cost per action, is driving higher return on investment. We remain focused on continuing to improve ad ranking and measurement with our ongoing AI investments while also leveraging AI to power increased automation for advertisers through products like Advantage+ shopping, which continues to gain adoption and receive positive feedback from advertisers. These investments will help us develop and deploy privacy-enhancing technologies and build new innovative tools that make it easier for businesses to not only find the right audience for their ad but also optimize and eventually develop their ad creative. Scaling on-site conversions is another important part of our work, and click-to-message ads continue to grow and bring incremental demand onto our platform. This format is mostly used by smaller advertisers today in Southeast Asia and Latin America, and one of the exciting opportunities ahead is to expand adoption to larger advertisers in more markets by investing in increased automation and reporting to help businesses more easily manage messages and measure results at scale. Before turning to our revenue outlook, I'd also like to talk about our operating philosophy given the recent significant changes to our investment plans. We believe increasing our organizational efficiency is vital to our long-term success. This will increase the speed of our execution and agility to ensure that we are constantly innovating for the people who use our services. Narrowing the scope of the projects that we are working on allows us to increase our focus on the highest leverage opportunities for the company, including AI today and the Metaverse longer term. It also enables us to invest in these areas while maintaining a strong financial position. As we look forward, I also expect that we will modestly evolve our capital structure over time to improve our overall cost of capital. We expect to do so through periodically accessing the debt markets to diversify our funding sources while still maintaining a positive or neutral net cash balance over time. In addition, we continue to monitor ongoing regulatory developments. We expect the IDPC to issue a decision in May in its previously disclosed inquiry relating to transatlantic data transfers of Facebook EU EEA user data, including a suspension order for such transfers and a fine. Our ongoing consultations with policymakers on both sides of the Atlantic continue to indicate that the proposed new EU-U.S. data privacy framework will be fully implemented before the deadline for suspension of such transfers, but we cannot exclude the possibility that it will not be completed in time. We will also evaluate whether and to what extent the IDPC decision could otherwise impact our data processing operations even after a new data privacy framework is in force. Turning now to the revenue outlook. We expect second quarter 2023 total revenue to be in the range of $29.5 billion to $32 billion. Our guidance assumes foreign currency headwinds will be less than 1% to year-over-year total revenue growth in the second quarter based on current exchange rates. Turning now to the expense outlook. We anticipate our full year 2023 total expenses will be in the range of $86 million to $90 billion, updated from our prior outlook provided in March. This outlook includes $3 billion to $5 billion of restructuring costs related to facilities consolidation charges and severance and other personnel costs. We continue to expect Reality Labs operating losses to increase year-over-year in 2023. Turning now to the CapEx outlook. We expect capital expenditures to be in the range of $30 billion to $33 billion, unchanged from our prior estimate. This outlook reflects our ongoing build-out of AI capacity to support ads, Feed and Reels, along with an increased investment in capacity for our generative AI initiatives. On to tax. Absent any changes to U.S. tax law, we expect our full year 2023 tax rate percentage to be around 20%. In closing, Q1 was a solid quarter for our business. Our global community continued to grow. We made important progress on our company priorities and improved the efficiency of our operations while strengthening the financial position of the company which sets us up well to execute on the opportunities ahead. With that, Dave, 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. Your line is open.

Thanks for taking my questions. I have two. The first one for Mark, the second one for Susan. Mark, first one for you is on generative AI and how you think about generative AI and some of the division models and your large language models potentially impacting your long-term advertising business and finding ways to deliver more value for advertisers over the next two, three, five years? How do you see generative AI impacting advertising? Then the second one for Susan. Just as we're thinking about hiring expectations for '24 and beyond. I think there's been some ink in the press about potential 1% to 2% hiring going forward. Can you just talk to us about that a little bit? And how does using AI internally factor into your thoughts about long-term hiring? Thanks.

I can begin by addressing the question about generative AI. Although I don't have many details to share right now, we will reveal more as we start to release new features in the coming months. I believe there is significant potential in this area. You specifically inquired about advertisers, and I believe it will help to create more engaging experiences, leading to higher engagement and, in turn, more opportunities for advertisers. Additionally, there are various possibilities in visual content creation to assist advertisers in generating diverse creative materials. We have aimed to enable advertisers to communicate their objectives while we handle as much of the work as possible. Now, being able to take on more creative tasks ourselves for those interested presents an exciting opportunity. I also anticipate an interesting convergence between AI agents in messaging and business messaging. Currently, business messaging is most successful in environments where businesses can afford personnel to respond to inquiries and engage with customers via chat. Once we empower millions of small businesses to utilize AI agents, there will be far more businesses able to afford chat engagement with customers. This also represents a significant opportunity. These are just a few aspects we are examining, as I believe this development will impact every one of our products and services in various ways. This is a substantial wave of new technologies being adopted, and we are collaborating across the company to explore it further.

Hi, Brian, it's Susan. Thanks for the question. You were asking about the 1% to 2% head count growth stat that's been out there. And I thought it was worth clarifying. So that comes from something Mark mentioned in a recent internal employee Q&A that he had expected company head count to increase only 1% to 2% year-over-year. And I want to clarify that Mark was actually speaking to employees about head count budgets that have already been allocated. What we've also said previously is we have been in a broad-based hiring freeze for the last half year. And as we complete our layoffs in April and May, we will resume hiring, and we would expect head count growth in excess of 1% to 2% in 2024 as a result as we ramp up those recruiting pipelines. But our long-term focus is very much on efficiency. And as hiring resumes, you'll find the biggest areas that we are hiring in will be to support priority areas like generative AI, ads, infrastructure, Reality Labs, and some of the areas that we've been talking about. And you also asked about using AI internally and how that factors into our thoughts on long-term hiring. We certainly don't have enough visibility yet into how AI will make our workforce more productive, but it's something we're excited about. And I think we will have more clarity on that as more tools begin getting developed to enhance employee productivity across the industry.

Your next question comes from the line of Eric Sheridan with Goldman Sachs. Your line is open.

Thanks so much for taking the questions. Maybe two, if I can. Mark, I was intrigued by your comment about open source and open systems with respect to AI. Obviously, we're coming off of Web2 in mobile, where there are a lot more walled gardens and ecosystems. Can you talk a little bit about what you might want to try to do, either from a priority or an investment standpoint to be a driver of more open-ended systems in AI compared to what we saw with Web2? And then maybe for Susan. You introduced the concept last quarter about revisiting your data center architecture over the medium to long term. Is there any update there for us in terms of how to think about AI as a driver of data center architecture medium to long term or what that might mean for capital intensity? Thanks so much.

I can take the first question. It’s important to distinguish between the products we provide and the technical infrastructure, especially the software we develop to support that. Historically, we've open-sourced much of our infrastructure, including contributions to the open compute project, even though we haven't open-sourced the code for our core products. The reason we do this is that unlike some companies in the industry, we’re not offering a cloud computing service that keeps our software infrastructure proprietary. For us, it's beneficial if the industry standardizes on the core tools we utilize. This allows us to benefit from the enhancements others contribute, and initiatives like Open Compute can lower costs, which in turn makes our business more efficient. We approach infrastructure differently than companies like Google, Microsoft, or Amazon, which creates unique incentives for us. I believe this will lead us to open-source more lower-level models and tools. However, much of our product development will remain specific and integrated with our offerings, so not everything will be open. A significant portion must be crafted to create unique value for our products. Overall, I expect us to foster and support an open ecosystem for the foundational models, which is crucial.

Hi, Eric, so I think your question had 2 parts. The first was an update on the data center architecture that we announced last quarter. And we're progressing with construction there, but the new data centers that we're building are intended really for future year capacity. So they won't come online for a few years. So we don't have too much more to share there, except that that work is ongoing. And the second part of your question was really, I think, about how AI might drive capital intensity over the next few years. So you can really think about our CapEx investment as having three broad buckets. The first, we've talked about before, non-AI compute needs. We do have ongoing general compute and storage needs to support the existing business, but this is an area where we've become much more efficient in terms of capital intensity and are very focused on continuing to do so over time. The second area is in our core AI investments, which is really most of our AI investment today, and that's supporting the building of the discovery engine, ranking unconnected organic content, ranking ads, and we're focused on measuring the return of those investments and making sure that we feel good about the ROI of our spend there, and that really will drive our future plans in terms of that core AI spend. And then the third bucket is really around CapEx investments now to support Generative AI. And this is an emerging opportunity for us. We're still in the beginning stages of understanding the various applications and possible use cases. And I do think this may represent a significant investment opportunity for us that is earlier on the return curve relative to some of the other AI work that we've done. And it's a little too early to say how this is going to impact our overall capital intensity in the near term. So to the extent that we spend more on CapEx in the near future, I expect it mostly to be to power this work. But I want to emphasize that we remain focused overall on striking the right balance between building out the AI capacity we need and being efficient with our CapEx spend.

Your next question comes from the line of Mark Shmulik with Bernstein. Your line is open.

Yeah. A couple of questions. Mark, this one's a bit more philosophical. But if we compare where Meta is today kind of pre-IDFA cookie-application type of world, how do you see the relative competitive position in digital advertising? In light of all of these technical integrations and AI tools because I think the prevailing view is that privacy will level the playing field, but it certainly doesn't seem that way. And then second, for Susan, I certainly appreciate the outlook on the revenue guidance. But in light of some of the commentary we've been hearing about U.S. consumers trading down, is there any additional color you can share about kind of where you're seeing strengths and weaknesses effectively quarter-to-date and beyond? Thank you.

Thanks, Mark. I can address both of your questions. Your first inquiry was about the post-ATT landscape and our positioning. Regarding our ads business, we have discussed this extensively over the last few years. We are making good progress in reducing the direct impact of ATT's platform changes. However, this reflects the current reality of the online advertising environment. We have invested not only in direct solutions we've previously mentioned, like the conversions API, but now we are focused on enhancing ad performance with our current signals landscape. This includes increasing the volume of ads aimed at on-site objectives and leveraging our AI investments, which have improved our ads' performance and allowed us to introduce new tools and features for advertisers. We believe we are well-positioned for on-site conversions, and our various offerings have been performing well. We've seen significant growth with click-to-messaging ads, which have opened up new business opportunities. Other successful formats in terms of on-site conversions include lead ads and shop ads, and we are continuously developing these ad formats. We've been investing in AI for a long time to enhance our ad systems, including ranking, modeling, and measurement, which supports the launch of new AI-powered tools and products. Overall, we feel confident in our relative position. This work has been ongoing, and along with some stabilization in the macro environment, it's starting to pay off. Now, regarding your second question about strengths and weaknesses in Q1 revenue and our outlook, we did see a stronger demand in Q1 compared to Q4, influenced by the anniversary of the Ukraine war that began in Q1 2022. Notably, there was an uptick among advertisers in China targeting users in other markets, likely due to reduced shipping costs and easing COVID restrictions for those advertisers. Exchange rates also played a role. Looking ahead to Q2 and the latter half of the year, we have easier year-over-year comparisons due to a weaker demand period last year and the first full quarter in Q2 without Russian revenue when compared to Q2 2022. We anticipate that currency will be less of a challenge than in the first quarter. However, there are various expectations reflected in our Q2 outlook, as we acknowledge that the macro environment remains volatile. The market has absorbed numerous developments over the past year, including inflation and higher interest rates, making it difficult to predict their impact on the broader economy and specifically the advertising markets for Q2 and beyond. The regulatory environment remains complex as well, which we are monitoring closely. Nevertheless, we are pleased with the performance we are providing for advertisers and the returns on our investments. Core engagement trends are strong, and while Reels currently represents a revenue headwind, we expect it to become revenue neutral by the end of this year or early next year. We also anticipate exchange rates will be favorable. We are indeed facing various factors as we approach Q2 and beyond.

Your next question comes from the line of Doug Anmuth with JPMorgan. Your line is open.

Thanks for taking questions. Susan, you've talked about the goal of building the muscle for long-term financial discipline. Just given the restructuring that we've seen across the business so far, how far along are you in building this muscle? And what gives you the confidence that it's durable and sustainable long-term even in a better macro environment, especially given all the work ahead on AI and the Metaverse?

Thank you, Doug. I believe there are a couple of key aspects to consider. Much of the efficiency initiatives we've been pursuing, particularly this year, are driven not just by financial necessity, but by the aim of enhancing operational efficiency. This has become one of our primary objectives, and a lot of our efforts have been centered around that. This involves carefully reviewing our roadmaps, phasing out projects that no longer hold top priority, and reallocating our investments. We've been developing this capability over the past six months, and I anticipate we will maintain this disciplined approach in evaluating our product roadmaps moving forward. Additionally, much of our work to improve operational efficiency, including ensuring proper management spans and layers, is intended to enable us to produce more and deliver faster. We plan to keep our organizational structure aligned with our goal of product development. As we move ahead, especially following the layoffs and restructuring, we will continue to emphasize efficiency in various areas, such as assisting developers in producing high-quality products more swiftly. We're committed to investing in tools that enhance product development speed and will persist in streamlining cross-functional processes that may hinder our progress. We also want to focus on increasing the quality and frequency of collaborative and face-to-face interactions to foster relationships within the organization and expedite our work. I expect this focus on improvement to be a continuous effort for us in the coming years.

Your next question comes from the line of Justin Post with Bank of America Merrill Lynch. Your line is open.

Hi, thank you. This could be for Susan or Mark. I think really interesting stat on the Instagram time you gave. But just wondering how you'd characterize the health of the Facebook user base and usage on the site? Obviously, DAUs went up to 68% this quarter. I think Asia was really strong. But what are you seeing there? And is there kind of a catch-up here where the real content could certainly help Facebook time spend as well as you saw with Instagram. But just stepping out, I think there is an area of that usage could be flat or down. Just wondering what your thoughts there. And what you're seeing on the core Facebook. Thank you.

Thanks, Justin. We are happy with the growth of the Facebook community and the positive engagement trends we've observed. Specifically, in the first quarter, the increase in daily active users benefited from strong product performance. However, it's important to mention that the first quarter is traditionally a strong period for engagement, which influences the quarter-over-quarter growth. Regarding your question about whether Reels is contributing to engagement on Facebook, I would say that our broader discovery initiatives and the investments we have made in ranking connected content extend beyond Instagram and are certainly part of what is driving growth on Facebook as well.

Your next question comes from the line of Youssef Squali with Truist Security. Your line is open.

Great. Thank you. I have two questions. I guess relative to OpEx guide from Q3 of last year, the new guide at the midpoint implies something like $10 billion to $15 billion lower adjusted for the restructuring costs. How does this impact your expectations for growth well beyond 2023? I'm not talking about this year, I'm just talking about the next, say, two to three years. Is it trying to get a sense of, is it all about efficiency? Or are we potentially cutting into the bone? And then on the regulatory front, can you just help explain how changes to the transatlantic data transfer rules may impact your European business as it goes into effect? Just trying to get a sense if we have potentially an IDFA situation with a signal loss here again. Thank you.

Yeah. Thank you. Youssef, thank you. So for your first question, how much sort of has the total expense guidance coming down, especially since we sort of issued our first passive guidance in Q3 last year, how has that downward sort of trend impacted our expectations beyond 2022 in the next two or three years. So we certainly haven't shared expense guidance for the out years. And frankly, that's something that we are ourselves working on internally as we lay our long-term planning exercise. But I do think that a lot of the muscle that we're building with regard to efficiency is going to translate into the longer run roadmap. And so I expect that we have really improved our cost structure over the last six months, and that's going to form the basis, along with an increased focus on operating efficiency going forward. I think that's going to form the basis for sort of our future outlook. And making sure that we are kind of constantly evaluating our investment roadmap to make sure that we are investing against the highest priority work and deprioritizing and winding down investments again where we don't see the ROI or we don't see a compelling opportunity. So again, we don't have guidance to share yet on the out years, but I do expect the overall efficiency ethos very much to be a part of the coming years. On your second question on what the potential impact to our European business is of the transatlantic data transfer rule. So first, I want to emphasize, we continue to be hopeful that the new EU U.S. privacy framework will be implemented before a deadline for suspension. But if it comes to that, there's a lot that we don't know in terms of the specifics of a final order and how long a suspension order would last, which would be important variables in determining the overall impact. What we do know is that roughly 10% of worldwide ad revenue comes from ads delivered to Facebook users in EU countries. But there are more details that we would need to understand, including the impact on advertisers in EU countries before we'd be able to really provide a more accurate or fulsome estimate of that impact.

Your next question comes from the line of Mark Mahaney with Evercore ISI. Your line is open.

Thank you. I have two questions. Are there any restructuring charges expected in Q2 or beyond the $3 billion to $5 billion that you mentioned? Did we see most of that in Q1? Also, I'd like to revisit the broader opportunity around click-to-message. Facebook has had great messaging assets, especially with WhatsApp, which has been under-monetized compared to other top assets, but that seems to be changing. The numbers are becoming significant. You mentioned there's a strong opportunity for marketers in Latin America and Southeast Asia. How can you leverage this differentiated product to expand its reach? Are there specific steps you can take to help more advertisers recognize the potential, especially with the cultural shifts towards messaging? Thank you.

Thanks, Mark. Regarding your first question about restructuring charges, the charges for Q1 are approximately $1.1 billion, and we expect the total for the year to be between $3 billion and $5 billion. We anticipate recognizing additional restructuring charges as the year progresses. As for the opportunity in click-to-messaging ads, especially on WhatsApp, we are quite enthusiastic about it. We have made significant investments and see ongoing potential to expand click-to-message capabilities, particularly on WhatsApp and in Instagram Direct. Both areas are still in the early stages of growth. We are focusing on making it easier for individuals and businesses to connect. First, we are enhancing the ad creation process, having made improvements to the ads manager and adding native ad creation features in WhatsApp over the past year. Additionally, we are working with partners to develop hosted API solutions across WhatsApp, Messenger, and Instagram, enabling our developers to create top-notch experiences for businesses. We are also aiming to enhance ad performance by improving conversion rates and introducing new methods to achieve desired outcomes. New features like in-thread payments and other commerce tools have been launched, and we believe there is significant potential in this area. We are committed to optimizing every aspect of the advertising experience, making it easier and more effective. Furthermore, we are optimistic about growth extending beyond core markets like Southeast Asia and Latin America, where messaging is already a prevalent method for businesses to connect with customers and prospects. We see promising growth in the U.S. and Canada, although it is still in the early stages there.

Your next question comes from the line of Ross Sandler with Barclays. Your line is open.

Yeah, hey. One more for Mark on the open sourcing of the models and infrastructure for generative AI. So do you view that as kind of an opportunity for developers to plug in to help ultimately improve engagement revenue on your Family of Apps? Or do you think there could be other, call it, business models that come out of that like APIs and other types of partnerships? Just any thoughts on that? And then second question is back to the 24% increase in time spent on Instagram from Reels and content ranking. Pretty incredible. So how much of that was like lost engagement from folks like TikTok that you're now recouping? And how do you think about how much more runway you have to increase that? Or when you layer in the discovery engine across blue and other apps as you're doing right now, is there some kind of benchmark you look at for increasing time spent? Is it 20%-30%? Any thoughts on that? Thank you.

Sure. I'll address the first question, and then Susan can handle the second. Regarding the AI tools, we have a lot of experience in this area. For instance, PyTorch has become a key standard in the industry, widely used by developers working on AI projects. This has been beneficial for us because the top developers in the field are using the same tools we use internally. This alignment allows us to easily integrate innovations they create into our projects. Similarly, our improvements enhance other products as well, thanks to the integration with our technology stack. This makes it simpler to ensure compatibility between developers' needs and our system requirements. There are numerous advantages to this, primarily as it strengthens our back-end infrastructure, enabling more product integrations and keeping us at the forefront of technology while improving our operational efficiency over time. PyTorch is just one model; Open Compute has also proven effective for us in achieving innovation and efficiency within our infrastructure. Our goals are well-aligned with moving in this direction. However, there is still much to explore. While you inquired about potential future opportunities, I can't specify what they might be at this stage as we're still in the early development phase. The success of our foundational work will hopefully lead to more opportunities arising. At a fundamental level, I believe we are inclined to proceed in this direction. Additionally, I want to clarify that although we aim to support an open ecosystem, LLaMA is a model we've primarily made accessible to researchers. There's significant positive development happening, but we aspire to make our work even more open. We will need to determine the best way to achieve that.

In response to your second question, which relates to how Reels is driving increased time spent on Instagram and the potential for future growth, we are not providing specific estimates regarding expected engagement growth. However, we are very encouraged by the incremental engagement that Reels has brought to the platform thus far. We have noted that the incremental benefits have increased over time, which is crucial as we enhance our ranking. Our focus is not only on the absolute growth of Reels but also on boosting the incremental engagement, and we are pleased with the positive trends we are observing. Regarding metrics such as plays, watch time, re-shares, and reactions, we are seeing significant growth in Reels. It is evident that users value short-form videos and recommendations. Additionally, this feature is opening up a new pool of content, providing engagement opportunities as we assist users in discovering more interesting posts. This is particularly beneficial given the social graph we have, and we are witnessing the sharing flywheel gain momentum, with Reels reshares doubling in the past six months. More broadly, our discovery engine is enhancing incremental engagement throughout the platform. Our in-feed recommendations extend beyond just Reels, encompassing various types of content including text, images, links, and group content. On Facebook, we are also observing that AI-driven recommendations are growing and fostering increased engagement on the app. While we aren't quantifying these results, we are pleased with our advancements and see considerable potential for further improvement.

Operator, we have time for one last question.

Certainly. Thank you. That will come from the line of Michael Nathanson with MoffettNathanson. Your line is open.

Thank you very much. I have two questions, if you can hear me. First, Susan, I appreciate your confidence in Reels monetization moving forward. Can you explain what gives you the confidence that it will shift from being a headwind to a neutral and then to a tailwind in the future? Can you share any data points regarding ROAS or adoption? Secondly, the updates on Messenger were great to hear. Do you think adoption is being influenced by the loss of Signal? How does messaging enhance marketers' ability to retarget after IDFA? Any insights on the impact of Signal loss and how messaging has aided marketers would be appreciated. Thank you.

Thank you, Michael. Regarding Reels, we have communicated for some time that we are addressing the revenue challenges associated with Reels, which is taking away some engagement time from our more established ad formats, Feed and Stories. We are weighing two key factors: the extent to which Reels is generating additional engagement on the platform against its lower monetization efficiency compared to Feed and Stories. Ultimately, the economics of Reels will depend on our ability to enhance monetization per unit of time as well as drive additional engagement. As I mentioned, we are on track for Reels to be neutral to revenue by the end of this year or early next year. However, it's important to note that Reels is fundamentally different from Feed and Stories, and we do not foresee achieving monetization parity with them in the near future due to these structural differences. Nevertheless, since Reels drives additional engagement, we anticipate continued improvement in its monetization from current levels. We believe that the combination of these factors will lead us to revenue neutrality by the end of this year or early next, with positive revenue growth afterward, despite its less efficient monetization. The second part of your question focused on messaging and how it enhances marketers' ability to retarget amidst signal loss. Click-to-messaging ads are a vital component of our overall advertising strategy concerning on-site objectives, forming an integral part of our first-party data approach. This is particularly important in a landscape challenged by signal loss. Additionally, it enables us to monetize messaging activities occurring on our platform while facilitating direct communication channels for businesses with their consumers, which we aim to expand through enhanced business messaging features over time. We are very enthusiastic about the progress of click-to-messaging ads and the business opportunities that lie ahead.

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

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