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 Second 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. Ken Dorell, Meta's Director of Investor Relations, you may begin.

Thank you. Good afternoon and welcome to Meta Platforms Second 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 quarterly report on Form 10-Q filed with the SEC. Any forward-looking statements that we make on this call are based on assumptions as of today and we undertake no obligation to update these statements as a result of new information or future events. During this call, we will present both GAAP and certain non-GAAP financial measures. A reconciliation of GAAP to non-GAAP measures is included in today's earnings press release. The press release and an accompanying investor presentation are available on our website at investor.fb.com. And now, I'd like to turn the call over to Mark.

Thanks, Ken. Thanks everyone for joining. This was a good quarter for our business. We're seeing strong engagement trends across our apps. There are now more than 3.8 billion people who use at least one of our apps every month. Facebook now has more than 3 billion monthly actives with daily actives continuing to grow around the world, including in the US and Canada. In addition to our core products performing well, I think we have the most exciting roadmap ahead that I've seen in a while. We've got continued progress on Threads, Reels, Llama 2 and some groundbreaking AI products in the pipeline, as well as the Quest 3 launch coming up this fall. We're heads-down executing on all this right now and it's really good to see the decisions and investments we've made start to pay off. On Threads briefly, I'm quite optimistic about our trajectory here. We saw unprecedented growth out of the gate. And more importantly, we're seeing more people coming back daily than I expected. And now we're focused on retention and improving the basics. And then after that, we'll focus on growing the community to the scale that we think is going to be possible. Only after that we are going to focus on monetization. We've run this playbook many times before with Facebook, Instagram, WhatsApp, Stories, Reels and more. And this is as good a start as we could have hoped for. So I'm really happy with the path that we're on here. One note I want to mention about the Thread launch related to our year of efficiency is that the product was built by a relatively small team on a tight timeline. We've already seen a number of examples of how our leaner organization and some of the cultural changes that we've made can build higher-quality products faster, and this is probably the biggest example so far. The year of efficiency was always about two different goals: becoming an even stronger technology company and improving our financial results, so we can invest aggressively in our ambitious long-term roadmap. Now that we've gotten through the major layoffs, the rest of 2023 will be about creating stability for employees, removing barriers that slow us down, introducing new AI-powered tools to speed us up, and so on. Over the next few months, we're going to start planning for 2024 and I'm going to be focused on continuing to run the company as lean as possible for these cultural reasons, even though our financial results have improved. I expect that we're still going to hire in key areas, but newly budgeted headcount growth is going to be relatively low. Now that said, as part of this year's layoffs, many teams chose to let people go in order to hire different people with different skills that they need. So, much of that hiring is going to spill into 2024. The other major budget point that we're working through is what the right level of AI CapEx is to support our roadmap. Since we don't know how quickly our new AI products will grow, we may not have a clear handle on this until later in the year. Now moving on to our product roadmap, I've said on a number of these calls that the two technological waves that we're riding are AI in the near-term and the Metaverse over the longer-term. Investments that we've made over the years in AI, including the billions of dollars we've spent on AI infrastructure, are clearly paying off across our ranking and recommendation systems and improving engagement and monetization. AI recommended content from accounts you don't follow is now the fastest-growing category of content on Facebook's feed. Now, since introducing these recommendations, they've driven a 7% increase in overall time spent on the platform. This improves the experience because you can now discover things that you might not have otherwise followed or come across. Reels is a key part of this discovery engine and Reels plays exceed 200 billion per day across Facebook and Instagram. We're seeing good progress on Reels monetization as well with the annual revenue run-rate across our apps now exceeding $10 billion, up from $3 billion last fall. Beyond Reels, AI is driving results across our monetization tools, through our automated ads products, which we call Meta Advantage. Almost all our advertisers are using at least one of our AI driven products. We've also deployed Meta Lattice, a new model architecture that learns to predict an ad's performance across a variety of datasets and optimization goals. And we introduced AI Sandbox, a testing playground for generative AI powered tools like automatic text variation, background generation and image cropping. Business messaging is another key piece of our monetization strategy and we recently announced that the 200 million users of our WhatsApp Business app will now be able to create Click-to-WhatsApp ads for Facebook and Instagram without needing a Facebook account. This is a pretty big unlock, particularly in countries where WhatsApp is often the first step to bring their business online. Paid messaging is a bit earlier, but it's also showing good adoption. The number of businesses using our paid messaging products has doubled year-over-year. While we're on messaging, I mentioned that we started rolling out channels on WhatsApp last month. It's a simple, reliable and private way to receive important updates from people and organizations. And I'm quite excited for more people to try it as we bring the product to more countries through the rest of this year. Beyond the recommendations and ranking systems across our products, we're also building leading foundation models to support a new generation of AI products. We partnered with Microsoft to open-source Llama-2, the latest version of our large language model, and to make it available for both research and commercial use. We have a long history of open-sourcing our infrastructure and AI work from PyTorch, which is the leading machine-learning framework to models like segment anything, image bind and DINO to basic infrastructure as part of the open compute project. And we found that open-sourcing our work allows the industry, including us, to benefit from innovations that come from everywhere. And these are often improvements in safety and security since open-source software is more scrutinized and more people can find and identify fixes for issues. The improvements also often come in the form of efficiency gains, which should hopefully allow us and others to run these models with less infrastructure investment going forward. So I'm really looking forward to seeing the improvements that the community makes to Llama-2. We are also building a number of new products ourselves using Llama that will work across our services. I'm going to share more details on that later this year, but you can imagine lots of ways that AI can help people connect and express themselves in our apps, creative tools that make it easier and more fun to share content, agents that act as assistants, coaches or that can help you interact with businesses and creators and more. And these new products will improve everything that we do across both mobile apps and the Metaverse, helping people create worlds and the avatars and objects that inhabit them as well. Our investments in AI continue. We remain fully committed to the Metaverse vision as well. We've been working on both of these two major priorities for many years in parallel now. And in many ways, the two areas are overlapping and complementary. The next big thing on the Reality Labs side is the launch of our Quest 3 mixed reality headset at Connect. It's our most powerful headset yet with better displays and resolution and next-gen Qualcomm chipset with twice the graphics performance. It will also have the best immersive content library out there and it's 40% thinner than Quest 2. Its mixed reality seamlessly blends your physical world and the virtual one by intelligently understanding the physical space around you. We pioneered mixed reality with our Quest Pro headset and Quest 3 takes that to the next level. Now others in the industry are, of course, working on bringing mixed reality to the market too, but Quest 3 is going to be the first mainstream accessible device that we expect many millions of people will get to experience this technology with. The Metaverse content and software vision continues coming together as well. We recently announced that Roblox is coming to Quest with an open beta on App Lab. For Horizon, the team is focused on retention right now and we're making good progress on that. We made big improvements on avatars as well and that's going to be a bridge between our mobile apps and our VR and mixed reality experiences. We have a lot more to share on both our Metaverse and AI work coming up at our Connect conference, which we're going to be hosting in Hacker Square at our headquarters on September 27. It's going to be a good one, so I hope you'll tune in. Alright, to wrap up, I just wanted to say that I'm really proud of our teams for everything that we've accomplished so far this year. It's been a tough year in a lot of ways, but it's also been an impactful one. I'm quite optimistic about the road ahead and I'm grateful to all of you for being on this journey with us. And now, I'm going to hand it 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. Q2 total revenue was $32 billion, up 11% or 12% on a constant currency basis. Q2 total expenses were $22.6 billion, up 10% compared to last year. In terms of the specific line items, cost of revenue increased 15%, driven primarily by infrastructure-related costs. R&D increased 8%, driven mainly by headcount-related costs from our Reality Labs and Family of Apps segments, as well as restructuring costs. Marketing and sales decreased 12%, due mostly to lower marketing spend and payroll-related costs. And G&A increased 39%, due primarily to an increase in legal accruals, which was partially offset by lower payroll-related costs. We ended the second quarter with over 71,400 employees, down 7% from the first quarter. Our second quarter headcount still included roughly half of the approximately 10,000 employees impacted by the 2023 layoffs. We expect that our third quarter headcount will no longer include the vast majority of impacted employees. Second quarter operating income was $9.4 billion, representing a 29% operating margin. Our tax rate for the quarter was 16%. This is lower than our previous full-year outlook as our higher share price provided a higher tax deduction and lowered our taxes. Net income was $7.8 billion or $2.98 per share. Capital expenditures, including principal payments on finance leases were $6.4 billion, driven by investments in data centers, servers and network infrastructure. Free cash flow was $11 billion, significantly benefiting from a deferral of income taxes that we expect will be paid in the fourth quarter. We repurchased $793 million of our Class-A common stock in the second quarter and ended the quarter with $53.4 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. We estimate that approximately 3.07 billion people used at least one of our Family of Apps on a daily basis in June and that approximately 3.88 billion people used at least one on a monthly basis. Facebook continues to grow globally and engagement remains strong. For the first time, we crossed 3 billion monthly active users with Facebook MAU ending at 3.03 billion in June, up 3% or 96 million compared to last year. Facebook's daily active users were 2.06 billion, up 5% or 96 million. DAUs represented approximately 68% of MAUs. Q2 total Family of Apps revenue was $31.7 billion, up 12% year-over-year. Q2 Family of Apps ad revenue was $31.5 billion, up 12% or 13% on a constant currency basis. Within ad revenue, the online commerce vertical was the largest contributor to year-over-year growth, followed by entertainment and media and consumer packaged goods. Online commerce benefited from strong spend among advertisers in China, reaching customers in other markets. On a user geography basis, ad revenue growth was strongest in Rest of World at 16%, followed by Europe, North America and Asia-Pacific at 14%, 11% and 10%, respectively. Foreign currency was a headwind to advertising revenue growth in all international regions. In Q2, the total number of ad impressions served across our services increased 34% and the average price per ad decreased 16%. Impression growth was primarily driven by Asia-Pacific and Rest of World. The year-over-year decline in pricing was driven by strong impression growth, especially from lower monetizing surfaces and regions. 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 $225 million in Q2, up 3% as strong business messaging revenue growth from our WhatsApp business platform was partially 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 Q2, Family of Apps expenses were $18.6 billion, representing approximately 82% of our overall expenses. FoA expenses were up 8% due primarily to legal-related expenses and restructuring charges, partially offset by a decrease in non-headcount related operating expenses, including marketing. Family of Apps operating income was $13.1 billion, representing a 41% operating margin. Within our Reality Labs segment, Q2 revenue was $276 million, down 39% due to lower Quest 2 sales. Reality Labs expenses were $4 billion, up 23% due to lapping a reduction in Reality Labs loss reserves in Q2 of last year, as well as growth in employee-related costs. Reality Labs operating loss was $3.7 billion. Turning now to the business outlook. There are two primary factors that drive our revenue performance: our ability to deliver engaging experiences for our community and our effectiveness at monetizing that engagement over time. On the first, overall engagement within Facebook and Instagram remained strong. Reels continues to grow and drive incremental engagement. On Facebook feed, in particular, recommended content from accounts you don't follow has increased significantly over the past year while also becoming more incremental to engagement, demonstrating that people are getting added value from discovering content from unconnected accounts. Looking forward, we are optimistic about our ability to increase that value even further by leveraging advanced AI techniques to improve recommendations. In addition to improving the value people get within our Family of Apps today, we're also investing in entirely new experiences for the future. We're standing up infrastructure to support new AI-powered products across our services, which will give people more tools to express themselves and connect. And we've been pleased with the initial reception of our new standalone app Threads since its launch earlier this month. Our focus now is on further developing this into a product that will be valuable for a large set of people over time. Moving to the other driver of revenue, improving monetization. Here, we're focused on improving monetization efficiency of products that monetize at lower rates today like Reels and our messaging services and more broadly, driving measurable performance and returns for our advertisers. On Reels, we are making good progress on monetization with more than three-quarters of our advertisers now using Reels ads. We remain focused on further reducing the Reels revenue headwind and narrowing the monetization efficiency gap with our more mature surfaces. However, we continue to expect time on Reels will monetize at a lower rate than Stories and Feed for the foreseeable future since people scroll more slowly through video content. Within messaging, billions of people and millions of businesses use our messaging services every day to connect. We see a significant opportunity to build tools and functionality for businesses to help facilitate those interactions and are seeing early but promising progress with WhatsApp's paid messaging solution today. In terms of our work to drive measurable performance for advertisers, it's concentrated in two primary areas, AI and onsite conversions. We're leveraging AI to move our systems towards using fewer, larger models that enable us to leverage learnings across product surfaces and deploy improvements more quickly, broadly and efficiently. We're also leveraging AI to power advanced ads products like Advantage+ shopping, which continues to gain adoption. We're seeing this work translate into results for advertisers as conversion growth remained strong in Q2. In terms of driving on-site conversions, we continue to see strong results with click-to-messaging ads and are well-positioned given our suite of messaging applications. Daily click-to-WhatsApp ads revenue continues to grow very quickly at over 80% year-over-year. We also recently started testing the ability to buy click-to-WhatsApp ads directly from the WhatsApp Business app, which now has more than 200 million monthly users. Looking ahead, we're focused on enabling businesses to optimize for conversions further down the funnel in our messaging applications. We're also investing in scaling other onsite objectives like lead generation and shops ads. Before turning to our revenue outlook, I'd also like to talk about our investment philosophy. We expect to bring the discipline and habits that we built during this year of efficiency with us as we plan for the future. At the same time, we remain focused on investing in the significant opportunities ahead. Part of supporting these initiatives will come from prioritizing them against other areas of work and shifting resources. However, in some cases, they will require incremental investment. This is particularly true in the areas we see the most significant opportunity, which include AI and the Metaverse. As I mentioned last quarter, we also remain focused on modestly evolving our capital structure over time. We were pleased to execute our second bond offering in May and expect a measured pace of future debt raises as we work toward improving our overall cost of capital while maintaining a positive or neutral net cash balance. In addition, we continue to monitor the active regulatory landscape. With respect to EU-US data transfers, we saw a positive development with the European Commission's adoption of a final adequacy decision, which allows us to continue to provide our services in Europe. This is good news. Though broadly speaking, we continue to see increasing legal and regulatory headwinds in the EU and the US that could significantly impact our business and our financial results. Turning now to the revenue outlook. We expect third quarter 2023 total revenue to be in the range of $32 billion to $34.5 billion. Our guidance assumes a foreign currency tailwind of approximately 3% to year-over-year total revenue growth in the third quarter based on current exchange rates. Turning now to the expense outlook. We anticipate that our full-year 2023 total expenses will be in the range of $88 billion to $91 billion, increased from our prior range of $86 billion to $90 billion due to legal-related expenses recorded in Q2. This outlook includes approximately $4 billion of restructuring costs related to facilities consolidation charges and severance and other personnel costs. We expect Reality Labs operating losses to increase year-over-year in 2023. While we are not providing a quantitative outlook beyond 2023 at this point, we expect a few factors to be drivers of total expense growth in 2024 as we continue to invest in our most compelling opportunities, including AI and the Metaverse. First, we expect higher infrastructure-related costs next year. Given our increased capital investments in recent years, we expect depreciation expenses in 2024 to increase by a larger amount than in 2023. We also expect to incur higher operating costs from running a larger infrastructure footprint. Second, we anticipate growth in payroll expenses as we evolve our workforce composition toward higher cost technical roles. Finally, for Reality Labs, we expect operating losses to increase meaningfully year-over-year due to our ongoing product development efforts in AR, VR, and our investments to further scale our ecosystem. Turning now to the CapEx outlook. We expect capital expenditures to be in the range of $27 billion to $30 billion, lowered from our prior estimate of $30 billion to $33 billion. The reduced forecast is due to both cost-savings, particularly on non-AI servers, as well as shifts in CapEx into 2024 from delays in projects and equipment deliveries, rather than a reduction in overall investment plans. Looking ahead, while we continue to refine our plans as we progress throughout the year, we currently expect total capital expenditures to grow in 2024, driven by our investments across both datacenters and servers, particularly in support of our AI work. On to tax, absent any changes to US tax law, we expect the tax rate for the rest of the year to be similar to Q2 2023. In closing, Q2 was a good quarter for our business. We're executing well across our core priorities and are continuing to make progress on delivering exciting new experiences for our community. With that, Dave, let's open up the call for questions.

Certainly. And thank you very much. 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. Maybe a two-parter for Mark. Mark, you've spoken a few times over the last few months on AI agents and sort of building different types of assistants through Llama. I guess, the two-part question is, can you sort of talk to us a little bit about some of the use cases or consumer advertiser offerings you're most excited about enabling for some of these AI agents? And then the second one, just to sort of level-set on timing a bit, can you just help us understand some of the larger technological barriers in your mind the teams would need to overcome to really scale these types of agent products across the ecosystem? Thanks.

Sure. So, I think the main thing that I'll say on this for now is, tune into Connect coming up in September, we're going to have a lot more to talk about on the roadmap and products that we're launching. We wanted to get the Llama 2 model out now. That's going to underpin a lot of the new things that we're building and now we're nailing down a bunch of these additional products and this is going to be stuff that we're working on for years, but I think a lot of the journey will kind of start later this year when we start rolling out some of these things. But overall, I think there are three basic categories of our products or technologies that we're planning on building with generative AI. One, our different kinds of agents, which I'll talk about in a second. Two, were just kind of generative AI-powered features. So some of the canonical examples of that are things like in advertising, helping advertisers basically run ads without needing to supply as much creative or, let's say, if they have an image, but it doesn't fit the format, be able to fill in the image for them. So I talked about that a little bit upfront in my comments, but there's stuff like that across every app. And then the third category of things, I'd say we're broadly focused on productivity and efficiency internally. It's everything from helping engineers write code faster to helping people internally understand the overall knowledge base at the company and things like that. So there's a lot to do on each of those zones. For AI agents specifically, I guess what I'd say is one of the things that's different about how we think about this compared to some others in the industry is, we don't think that there's going to be one single AI that people interact with, just because there are all these different entities on a day-to-day basis that people come across, whether they're different creators or different businesses or different apps or things that you use. So, I think there are going to be a handful of things that are just sort of focused on helping people connect around expression and creativity and facilitating connections. I think there are going to be a handful of experiences around helping people connect with the creators who they care about and helping creators foster their communities. And then the one that I think is going to have the fastest direct business loop is going to be around helping people interact with businesses. I mean, you can imagine a world on this where over time every business has an AI agent that basically people can message and interact with them. And it's going to take some time to get there, right? I mean, this is going to be a long road to build that out. But I think that's going to improve a lot of the interactions that people have with businesses as well as if that does work, it should alleviate one of the biggest issues that we're currently having around messaging monetization is that in order for a person to interact with the business, it's quite human labor intensive for a person to be on the other side of that interaction, which is one of the reasons why we've seen this take off in some countries where the cost of labor is relatively low. But you can imagine in a world where every business has an AI agent that we can see the kind of success that we're seeing in Thailand or Vietnam with business messaging could kind of spread everywhere and I think that's quite exciting. But overall, I think, we're going to follow a playbook that's similar to what we normally do on products. In terms of how quickly some of these new products scale, that's one of the big unknowns for the business and one of the things that we're debating heavily when thinking through the amount of AI CapEx to bring online. Because the reality is, we just don't know how quickly these will scale and we want to have the capacity in place in case they scale very quickly, but because they're kind of brand new things and there aren't that many precedents for things like this, it's actually quite hard to forecast. So I don't know Susan, if there's anything on that last point that you want to jump in on. But I think that's probably all I'll say on this for now. But I'm really excited about the segment. This is just going to be – it fits into all the different products that we're building really well. I think this is going to both complement and touch and transform every single thing that we're doing and I'm really excited for it, so tune in to Connect.

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 one for Mark, one for Susan. Mark, just following up on Brian's question, I did want to ask just to draw that out a little bit more, how you think about the extensions of the developer community sort of growing up around a platform like Llama 2? And we were intrigued by the Microsoft announcement. You traditionally have been more of a consumer-facing company with products. Could this provide you an avenue to be more of an enterprise-facing company over the long-term? And is there a strategy there maybe we haven't seen from you in the past? I'd love to flush that out a little bit. And Susan just one for you, the VRL losses just continue to build and I think we continue to struggle a little bit of what the drivers of those losses are and how should we think about some of the components driving the losses versus elements of earning a return on those losses over the medium-to-long term as Mark sort of frame the timeframe around Metaverse. So any color there about sort of rate of change or components of the losses in VRL I think would be super helpful. Thanks so much to you both.

Yes, sure. I'll take a cut at both of those, and Susan can jump into the second one if there's anything that she wants to add there as well. All right. So Llama is an open-source project, which is a little bit different from building out a developer platform, although there will be an ecosystem around this. What we've seen around open-source work that we've done, which we've done a lot of in our core infrastructure work, design of servers and data centers and basic infrastructure as well as in AI. And I pointed out some of these in my remarks upfront, like PyTorch and just a bunch of other models that we've released recently. One of the things that we've seen is that when you release these projects publicly in open-source, there tend to be a few categories of innovations that the community makes. So, on the one hand, it's – I think it's just good to get the community standardized on the work that we're doing that helps with recruiting because a lot of the best people want to come and work at a place that is building the things that everyone else uses, makes it that people are used to these tools from wherever else they're working. They can come here and build here. But in terms of improvements that we expect to see from the community, there were really a few different types. One is specifically around safety and security. It's – that's a very important issue in AI. In open-source software overall, we've just seen through the history here that open-source software gets scrutinized more and therefore ends up being more secure and safer. And we think that there's a very good chance and that's the likely outcome here. And whatever improvements that people make to harden it in the community, we will be able to roll that into our work, both for the first-party products that we will launch, as well as making it easy to propagate that across the industry and make the AI that everyone uses safer. I would also hope to see efficiency improvements. I mean, even from the initial Llama that was just released as a research project, some of the improvements were around things like quantization and being able to run the model way more efficiently. Now, we're spending so much on AI CapEx that all the help that we can get from the community to make the stuff more efficient to run will be helpful, not just for individuals to be able to run powerful models on their laptop or locally or without a huge amount of compute, so individuals can afford it, but that should hopefully translate over time into just a more efficient infrastructure for us, which hopefully could be quite a big savings. So that's more of what we're seeing there. We partnered with Microsoft specifically because we don't have a public-cloud offering. So this isn't about us getting into that, it's actually the opposite. We want to work with them because they have that and others have that and that was the thing that we aren't planning on building out. But one of the things that you might have noticed is, in addition to making this open through the open-source license, we did include a term that for the largest companies, specifically ones that are going to have public-cloud offerings that – they don't just get a free license to use this, they’ll need to come and make a business arrangement with us. And our intent there is, we want everyone to be using that. We want this to be open. But if you're someone like Microsoft or Amazon or Google and you're going to basically be reselling their services, that's something that we think we should get some portion of the revenue for. So those are the deals that we intend to be making and we've started doing out a little bit. I don't think that that's going to be a large amount of revenue in the near term, but over the long term hopefully that can be something. Not sure if there's anything else to add on that, but Susan, you can jump in if you want. On RL, let me just jump over to that for a second. I don't think we're going to break-out numbers right now, but I'll defer to Susan on that. I mean, one big thing for the next year is that the launch of Quest 3, right? And basically, this is going to be the biggest headset that we've released since 2020 when we came out with Quest 2. And there's just a lot of expenses related to bringing that to market and I think that's at least in the near term going to be one of the major drivers of this. So I think that's probably the main thing that I would point to there. We're continuing to think, looking at the VR work that we're doing and the AR work, some of the neural interfaces work. I think we're leading in these areas. It's been good to see what others in the industry have done, because to some degree, it gives us more confidence that we're on the right track. Even though I understand that most investors typically do not have as long a time horizon as we do, I can see why some of them might prefer us to spend less in the short term. I believe we are at the forefront in these areas and they will prove to be significant over time. We have demonstrated the ability to achieve strong business results in the short term while making ambitious long-term investments. I intend to keep pursuing that approach, and I remain confident that in the long run, we will be pleased with our decisions. Susan, if you have anything to add, feel free to do so.

Sure, let me just add a couple of things. Very quickly on the first question, I just want to clarify that we don't expect that Llama is going to result in a separate top-line enterprise revenue line, so just making sure we're totally clear. On the second question about the growth in Reality Labs operating losses in 2024. Mark alluded to the fact that this is an ambitious long-term horizon multifaceted roadmap. There are lots of components to the Reality Labs portfolio across VR, AR, Metaverse, social platforms, neural interfaces. And we really have a long-term time horizon for evaluating the return on our investments here. So in the near term, we're focused on growing adoption of the existing products and we're constantly learning more about demand and use cases that inform our future plans. But a lot of the investment that's driving the growth here is around conducting the fundamental R&D to solve hard technology problems that are going to enable our vision here. A lot of is around clearing technical hurdles that will make subsequent devices smaller, cost less, weigh less, et cetera. So that's really on the Reality Labs side. Again, as we said, we expect operating losses to increase meaningfully year-over-year in 2024. In 2024 specifically, I think that will be driven by a combination of both headcount-related and operating costs. But again, our ambitions in Reality Labs haven't changed and it continues to be a significant long-term opportunity for us.

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

Great. Thanks for taking the question. Mark, things move quickly, like a month ago, we weren't talking about Reels, a quarter ago we were talking about Llama, and at the start of the year we were barely talking about AI. If you think back to how you are prioritizing your time at the start of the year and kind of where you are today and how that kind of changed? Would love to just get some color on the changing priorities and really where you're spending your time.

Yes, I can start with the first and then Susan can take the second. I actually think our priorities have been pretty consistent for a few years now. I think the way that people hear that might be different. But, for example, last year, I think we were getting quite a bit of critique for the volume of AI CapEx spending that we were doing and now, obviously, people want to understand where that's going and where we think that trajectory is going and want to make it as efficient as possible. I believe it is now clear that this was a good investment, as it is driving short-term results and allowing us to create new experiences that we consider fundamental. While I don't view Reels as new, perhaps Threads could be considered in that light. However, Threads is not a massive project. I believed that the potential for public conversations and a text-based product was greater than what had previously been realized in the market, so we had a relatively small team work on it. This year, there have been two things that have vastly exceeded my expectations. One was Llama. Initially, we thought it was interesting, but the level of adoption, even for the research version, really motivated us to develop Llama 2, which turned out to be much more successful than we anticipated. The second is Threads, which has seen significantly more adoption and a faster growth rate than we expected. We initially thought this would be a small project with a limited team, but it unexpectedly grew into a significant opportunity right away. Over time, you should anticipate that we will concentrate on AI and the Metaverse. AI encompasses all the ranking and recommendation systems that support our core applications, influencing the content you see on Facebook and Instagram, as well as the advertisements. It also forms the foundation for our safety systems and increasingly involves generative AI developments. And then the Metaverse stuff I think we've talked about for a while. So I don't think there's much change there except that it's sort of signals that we're getting from the market are certainly not getting adopted a lot faster than we expected. That's sort of the somewhat sobering signal, but on the other side, I think a lot of companies that otherwise are doing, we respect and do great work. We don't necessarily view as building things that are ahead of where we are, which gives us confidence that we think the long-term thesis still will hold there. We think that we're going to be the leaders in it and nothing that we're seeing from the market makes us rethink that in a fundamental way. So, I think we're going to continue focusing on AI in the Metaverse as the two big thrust of what we're doing and all the other things kind of fall out of that.

And Mark, I will take the second question that you asked around the Q2 revenue acceleration. So, I think there were a couple of parts. One was around the acceleration in the core ads business; the second was on the Advantage+ products. In terms of the Q2 revenue acceleration, I'd highlight there are few factors driving that. The first is, frankly we're lapping a weaker demand period, including the first full quarter of the war in Ukraine and the suspension of our services in Russia. Second, we saw increased supply and improvements to ad performance including improved Reels monetization as we continue to work down the Reels revenue headwind. And third, there were lower foreign exchange headwinds for us in this quarter. So those were all three things that helped drive the revenue acceleration in Q2. In terms of the question about Advantage+ specifically, Advantage+ is one of multiple AI-powered ad products that we have right now in the market. With Advantage+ specifically, we're seeing strong adoption, in particular, success with the e-commerce and retail verticals and then we've seen good traction with other verticals like consumer packaged goods, especially direct-to-consumer brands and we're continuing to launch features to unlock use cases for advertisers and make it easier for them to adopt Advantage+ campaigns and measure their performance gains. So we've got a lot in the pipeline there that we're excited about for both the Advantage+ shopping campaigns specifically which were our first sort of foray into this area, but then the Advantage+ portfolio more broadly that basically enables us to take that same playbook of helping advertisers iterate and test very quickly and apply it to many different steps of the end-to-end ad-buying experience. So the feedback and results that we've seen from advertisers is good and we think it's a really promising area that we're continuing to invest in, but it's one of many ways that we're using AI to continue to sort of help make our ads systems and recommendations and ranking engines more performance to deliver better measurement and results to advertisers.

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

Thank you for taking my question. I want to follow up on Reality Labs, noting the $40 billion in losses and the annual increase expected next year. Could you help us understand the return on investment for this business, both as a standalone venture and as part of the Family of Apps from an investor's perspective? Thank you.

Well, I think it's both overtime. The primary way that I think about this is that we've been able to show that we can I think been quite successful at building large scale social experiences within the constraints of platforms that often our competitors are defining. I think we're going to be able to do even better work and there is a lot of things that I would like to see us build that we just can't because the ways that we're constrained by the competitors who build these platforms. And over-time, the main way that I think about this just from a product admission perspective is, we're here to build awesome experiences that help people connect. I think helping to shape the next platform is going to unlock that in a profound way for decades to come. And that's what I'm here to do and I think what a lot of people are here to do. So that's kind of the first principles as part of this. From a business perspective, I think there is going to end up being a large business component of this that is Reality Labs specific, directly the products that we're building there and having that be a good business. I believe that much of this will create significant value for our existing applications within the Family of Apps. Currently, we are missing out on a lot of potential value, such as increased engagement and features we want to develop, but are hindered by restrictions from Apple and others that prevent us from implementing those ideas. And I think that that's really unfortunate for the industry. I think that there's a lot of lost engagement that would have happened, a lot of the monetization value that gets created. I mean, just look at what happened with our tracking transparency, the massive value destruction for small businesses because of the rules that were set by another platform. And in a future version of the world, that would not be recognized by device sales or the new experiences we're creating in Reality Labs. You would see that instead come from more efficient monetization of the apps and experiences we are developing elsewhere. So, I think it's going to be both. But I think this is just a very fundamental thing, this is a very long-term bet. I at a deep level, I understand the discomfort that a lot of investors have with it because it's just outside of the model of I think even most long-term investors, how you would think about this. And look, I mean I can’t guarantee you that I'm going to be right about this bet. I do think that this is the direction that the world is going in. There are 1 billion or 2 billion people who have glasses today. I think in the future they're all going to be smart glasses. And like – and the time that we spend on TVs and computers, I think that's going to get more immersive and looks something more like VR in the future. And I think that what we're seeing is richer ways for people to communicate across even the mobile apps that we have going from text, to photos to videos just continual trend towards being more immersive. So, like all of these trends line up to make me think that this is the right thing; I think we're going to be happy that we did this. So that's kind of how I think about it, both from kind of a mission and product perspective, a business perspective and investment timeframe perspective. But I also understand the discomfort that some folks have with something that I can't put exact numbers on a near-term time horizon around.

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

Thanks for taking the questions. One for Mark, one for Susan. Mark, you touched on it a bit, but can you just talk a little bit more about what you've learned from Threads early on, not just for that product specifically, but also as you look to leverage the Family of Apps platform to launch additional products over time.

Yes, regarding Threads, it might be too soon for that type of analysis. On one hand, we've attempted several standalone experiences over time, and generally, we haven't had much success in creating standalone apps. The main exception has been Messenger, which initially started its functions within Facebook before being launched separately. So pardon me wonders if this is just a kind of classic venture capital portfolio question where you try a bunch of things and a bunch of them don't work. And then every once in a while, one hits and is a much bigger success. It could be that or it could just be that this is such an idiosyncratic case because of all the factors that are happening around Twitter or X, I guess it's called now. So it's hard to say. I mean, but I think when something works or doesn't you can often point to the reason why you did or didn't and there I think is an interesting intellectual question of whether you could have known that our priority, but that was actually going to be the case. I'm not completely certain, but instead of trying to analyze that, I would say we have significant work ahead to help Threads achieve its full potential. It's not guaranteed yet, although I believe we have made a great start, and I'm hopeful that in the long run, it could become an important app within the Family of Apps. However, we have a lot of fundamental work to accomplish. And we have a basic playbook here, which is build an experience, it's got to be something that people like, and product market fit. Once you get that, it's not always retentive, so a lot of people might like an experience, but you need to kind of tune it that way the numbers works that people who use it are continuing. We feel like we're getting to a good place on that with Threads. There's still a lot of basic functionality to build. Once we feel like we're in a very good place on that, then I'm highly confident that we're going to be able to pour enough gasoline on this to help it grow once we get to the point where we feel good that everyone who is using it and going to continue using it at a high rate. Once we reach a point where we have hundreds of millions of users, if we can achieve that, then we will focus on monetization. Essentially, that's the strategy we are concentrating on. Instead of worrying about what this means for other potential projects, our priority is to seize this unexpected opportunity and ensure we maximize our execution at this significant scale. But I do think it has been sort of these weird anomalies thing in the tech industry that there hasn't been an app for public discussions like this that has reached a billion people. When I look at all the different social experiences, it just seems like there should be one like this. I think there were a lot of reasons that you can point to why that might have not been the case historically, but it's awesome that we get a chance to work on this and I'm really optimistic about where we are.

And Doug, on your second question about our 2023 CapEx forecast and the impact on 2024. So I'll start with 2023. The reduced forecast that we gave for 2023, I mentioned on the call, is driven both by some cost savings, particularly on non-AI servers where we previously had some underutilized capacity and we've been identifying ways to be more efficient in the way that we allocate that capacity towards all of our various needs, as well as shifts in CapEx in 2024 that's coming from delays in data center projects and server deliveries and that'll just push that associated CapEx, which we were planning for in 2023 into 2024. We're still working on our 2024 CapEx plans. We haven't yet finalized that and we'll be working on that through the course of this year. But I mentioned that we expect that CapEx in 2024 will be higher than in 2023. We expect both data center spend to grow in 2024 as we ramp up construction on sites with the new data center architecture that we announced late last year. And then we certainly also expect to invest more in servers in 2024 for both AI workloads to support all of the AI work that we've talked about across the core AI ranking recommendation work along with the next-gen AI efforts. And then, of course, also our non-AI workloads as we refresh some of our servers and add capacity just to support continued growth across the site.

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

Dave, we have time for one last question.

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