Earnings Call Transcript - META Q3 2022

Operator, Operator

Good afternoon. My name is Martin and I will be your conference operator today. At this time, I would like to welcome everyone to the Meta Third Quarter Earnings Conference Call. This call will be recorded. Thank you very much. Ms. Deborah Crawford, Meta’s Vice President of Investor Relations, you may begin.

Deborah Crawford, Vice President of Investor Relations

Thank you. Good afternoon and welcome to Meta Platforms third quarter 2022 earnings conference call. Joining me today to discuss our results are Mark Zuckerberg, CEO; and Dave Wehner, CFO. Susan Li, VP of Finance and our Incoming CFO and Marne Levine, Chief Business Officer, are also on the call and will join Mark and Dave for the Q&A portion. 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 may present both GAAP and non-GAAP financial measures. A reconciliation of GAAP to non-GAAP measures is included in today’s earnings press release. The press release and an accompanying investor presentation are available on our website at investor.fb.com. And now, I’d like to turn the call over to Mark.

Mark Zuckerberg, CEO

Hey, everyone. Thanks for joining today. Our community continued to grow this quarter. We now reach more than 3.7 billion people monthly across our Family of Apps. While we continue to navigate some challenging dynamics of a volatile macro economy, increasing competition, ad signal loss, and growing costs from our long-term investments, I have to say that our product trends look better than what I have seen suggests. There has been a lot of speculation about engagement on our apps, and what we are seeing is more positive. On Facebook specifically, the number of people using the service each day is the highest it’s ever been, nearly 2 billion, and engagement trends are strong. Instagram has more than 2 billion monthly actives. WhatsApp has more than 2 billion daily actives, also with the exciting trend that North America is now our fastest-growing region. Across the family, some apps may be saturated in some countries or demographics, but overall, our apps continue to grow from a large base. We are also seeing engagement grow, especially strong growth in Reels, and I’ll share more details about that when I discuss our product priorities shortly. Our business saw total revenue grow slightly this quarter on a constant currency basis. We are still behind where I believe we should be, but we believe we will return to healthier revenue growth trends next year. That said, it’s not clear that the economy has stabilized yet, so we are planning our budget somewhat more conservatively. In 2023, we are going to focus our investments on a small number of high-priority growth areas. Some teams will grow meaningfully, but most other teams will stay flat or shrink over the next year. In aggregate, we expect to end 2023 roughly the same size or slightly smaller than we are today. Three of the primary areas we will focus on are our AI discovery engine that’s powering Reels and other recommendation experiences, our ads and business messaging platforms, and our future vision for the metaverse. We have seen leading work and are on the right track with these investments. Our goal is to grow Family of Apps operating income such that even with our AI infrastructure and Reality Labs investments, we can meaningfully grow our overall company operating income in the long term. Our current surge in CapEx is largely due to building out our AI infrastructure, and we expect CapEx to come down as a percent of revenue over the long term. We expect Reality Labs expenses to increase meaningfully again in 2023, mainly due to the launch of the next generation of our consumer Quest headset and hiring done in 2022, but for which we will be paying the first full year of salaries next year. We expect to pace Reality Labs investments to ensure we can achieve our goal of growing overall company operating income. Our capital allocation philosophy is to allocate a portion of the profits generated from the Family of Apps toward these future-focused areas while enabling a greater return of capital to shareholders. Now, I’d like to share some updates on the progress we’re seeing in product areas. Our AI discovery engine is increasingly important across our products, especially as advances enable us to recommend interesting content from our networks and feeds that were primarily driven just by the people and accounts you follow. This includes Reels, which continues to grow quickly across our apps, both in production and consumption. There are now more than 140 billion Reels plays across Facebook and Instagram each day, a 50% increase from 6 months ago. Reels is incremental to time spent on our apps. We believe we are gaining time spent share on competitors like TikTok. Over time, our discovery engine will allow us to recommend all types of content beyond Reels, including photos, text, links, communities, short and long-form videos and more. We can mix this content alongside posts from family and friends. Additionally, as more users and businesses interact, we are developing a flywheel between discovery and messaging that will strengthen our apps. On Instagram alone, users reshare Reels 1 billion times a day through DMs. Moving to monetization, the growth of short-form video creates near-term challenges since Reels doesn’t monetize at the rate of Feed or Stories yet. This means that as Reels grows, we are displacing revenue from higher monetizing surfaces. Closing this gap is also a high priority. Even with our progress, we are facing a more than $500 million quarterly revenue headwind due to this shift, but we expect to reach a more neutral place over the next 10 to 12 to 18 months. I previously mentioned that Instagram Reels had crossed a $1 billion annual revenue run-rate. We are scaling monetization across both Instagram and Facebook, and the combined run-rate across these apps is now $3 billion. Beyond Reels, messaging is another major monetization opportunity. Billions of people and millions of businesses use WhatsApp and Messenger every day, and we are confident we can connect them in ways that create valuable experiences. We started with click-to-messaging ads, allowing businesses to run ads on Facebook and Instagram that initiate a thread on Messenger, WhatsApp, or Instagram Direct. This is one of our fastest-growing ad products with a $9 billion annual run-rate. Click-to-WhatsApp just passed a $1.5 billion run-rate, growing over 80% year-over-year. Paid messaging is another opportunity we are starting to tap into, and it continues to grow quickly but from a smaller base. We are building the foundation to scale this with partnerships like Salesforce, allowing all businesses on their platform to use WhatsApp as the main messaging service for customer queries and updates and direct sales in chat. And we also launched JioMart on WhatsApp in India, our first end-to-end shopping experience showcasing the potential for chat-based commerce through messaging. So between click-to-messaging and paid messaging, I am confident this is going to be a big opportunity. Lastly, the metaverse is an area I want to discuss today. We just had our Connect conference and announced Quest Pro, our new high-end VR headset that delivers high-resolution mixed reality, enabling users to blend virtual objects into their physical environment. It’s amazing to see in action, and it will facilitate new experiences in socializing, gaming, fitness, and work. Work in the metaverse is a big theme for Quest Pro. There are 200 million people who acquire new PCs every year, primarily for work. Our goal for the Quest Pro line over the next several years is to help these users accomplish more in virtual and mixed reality, ideally better than they could on PCs. I am excited about the partnerships announced with Microsoft, integrating their enterprise management services to Quest, as well as collaborations with Adobe, Autodesk, and Zoom for their creative and communication tools. Building the next computing platform is a substantial undertaking, and while it may take several versions of each product before they gain mainstream traction, I believe our work here will be historically significant, forming a foundation for a transformative way we interact and integrate technology into our lives, as well as being crucial for our business long-term. In summary, focusing on our AI discovery engine, our ads and business messaging platforms, and our metaverse vision, gives us a path forward. The prioritization, discipline, and efficiency we are driving across the organization will help us navigate the current environment and emerge as a stronger company. I appreciate everyone at Meta for your hard work, and thank you for being on this journey with us. Now, I will turn it over to Dave.

Dave Wehner, CFO

Thanks, Mark, and good afternoon, everyone. Let’s begin with our consolidated results. All comparisons are on a year-over-year basis, unless otherwise noted. Q3 total revenue was $27.7 billion, down 4% or up 2% on a constant currency basis. Had foreign exchange rates remained constant with Q3 of last year, total revenue would have been approximately $1.8 billion higher. Q3 total expenses were $22.1 billion, up 19% compared to last year. This includes a $413 million impairment of certain operating leases as part of our ongoing work to align our office facilities footprint with our anticipated operating needs. In terms of specific line items, cost of revenue decreased 1% as a reduction in Reality Labs hardware costs was offset by growth in infrastructure and content-related expenses. R&D increased 45%, driven mainly by hiring within Family of Apps and Reality Labs segments, as well as Reality Labs technology development costs. Lastly, marketing and sales and G&A increased 6% and 15% respectively due to headcount-related costs. Our pace of hiring slowed in the third quarter, consistent with our previously stated plans. We added 3,700 net new hires in Q3, down from our Q2 net additions of 5,700 despite Q3 typically being a seasonally stronger hiring period. We expect hiring to slow dramatically going forward and to hold headcount roughly flat next year relative to current levels, which I will cover in my outlook section. Third quarter operating income was $5.7 billion, representing a 20% operating margin. Our tax rate was 21%. Net income was $4.4 billion or $1.64 per share. Capital expenditures, including principal payments on finance leases, were $9.5 billion, driven by investments in servers, data centers, and network infrastructure. Free cash flow was $173 million. We repurchased $6.5 billion of our Class A common stock in the third quarter and completed an inaugural debt offering of $10 billion. We ended the quarter with $41.8 billion in cash and marketable securities. Moving 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 2.9 billion people used at least one of our Family of Apps daily in September, with approximately 3.7 billion using one monthly. Facebook continues to grow globally, and engagement remains strong, with Facebook daily active users at 1.98 billion, up 3% or 54 million compared to last year. DAUs represented approximately 67% of the 2.96 billion monthly active users in September. MAUs grew by 48 million or 2% year-over-year. Q3 total Family of Apps revenue was $27.4 billion, down 4%. Q3 Family of Apps ad revenue was $27.2 billion, down 4%, but up 3% on a constant currency basis. Consistent with our expectations, the headwind to year-over-year growth from Apple’s ATT changes diminished in Q3 as we lapped the first full quarter post the launch of iOS 14.5. However, this was offset by weak advertising demand, which we believe continues to be impacted by the uncertain and volatile macroeconomic landscape. Our Q3 constant currency growth rate was in line with our Q2 rate. The healthcare and travel verticals were the largest contributors to growth in Q3. However, this was offset by continued softness in other verticals, including online commerce, gaming, financial services, and CPG. Revenue growth from large advertisers remains challenged, while we have seen more resilience among smaller advertisers. Foreign currency was a significant headwind to advertising revenue growth in all international regions. On a user geography basis, year-over-year ad revenue growth was strongest in Asia-Pacific and the rest of the world at 6% and 3%, respectively, benefiting from strong growth in click-to-messaging ads. North America and Europe declined by 3% and 16%, respectively. In Q3, the total number of ad impressions served across our services increased 17%, and the average price per ad decreased 18%. Impression growth was driven by Asia-Pacific and the rest of the world. The decline in pricing was primarily driven by strong impression growth, especially from lower monetizing surfaces and regions, foreign currency depreciation, and lower advertiser demand. Family of Apps other revenue was $192 million, up 9%, driven by strong business messaging growth from our WhatsApp business platform, partially offset by a decline in other line items. We continue to focus our investments towards the development and operation of our Family of Apps. In Q3, Family of Apps expenses were $18.1 billion, representing 82% of our overall expenses. FoA expenses grew 18% driven mostly by employee-related costs, infrastructure-related costs, and the impairment of certain operating leases for office facilities we plan to exit. Family of Apps operating income was $9.3 billion, representing a 34% operating margin. Within our Reality Labs segment, Q3 revenue was $285 million, down 49% due to lower Quest 2 sales. Reality Labs expenses were $4 billion, up 24% due primarily to employee-related costs and technology development expenses. Reality Labs operating loss was $3.7 billion. Turning now to the outlook, we expect fourth quarter total revenue to be in the range of $30 billion to $32.5 billion. Our guidance assumes foreign currency will be approximately a 7% headwind to year-over-year total revenue growth in the fourth quarter based on current exchange rates. Regarding our 2023 budget, we are holding some teams flat in headcount, shrinking others, and investing headcount growth only in our highest priorities. We expect headcount at the end of 2023 to be approximately in line with third quarter 2022 levels, and we are taking a more conservative approach to our budget, consistent with the current macroeconomic environment. In terms of specific expense outlook for '22 and '23, we expect 2022 total expenses to be in the range of $85 billion to $87 billion, updated from our prior outlook of $85 billion to $88 billion. This includes an estimated $900 million in additional charges in Q4 related to consolidating our office facilities footprint that we expect to record in the fourth quarter of 2022. We anticipate our full year 2023 total expenses to be in the range of $96 billion to $101 billion, which includes an estimated $2 billion in charges related to consolidating our office facilities footprint. We expect the majority of our 2023 expense growth to be driven by operating expenses, with the remaining growth coming from the cost of revenue. We expect the percentage growth rate of 2023 operating expenses to decelerate meaningfully as we curtail non-headcount related expense growth and keep 2023 headcount roughly flat with current levels. Conversely, cost of revenue growth is expected to accelerate driven by infrastructure-related expenses and Reality Labs hardware costs from the launch of our next generation of consumer Quest headset later next year. We do anticipate Reality Labs operating losses in 2023 to grow significantly year-over-year. Before turning to CapEx outlook, I’d like to provide context on our infrastructure investment approach. Our current investment cycle is primarily driven by two key areas. First, we are significantly expanding our AI capacity, resulting in much of our capital expenditure growth in 2023. This increased capital intensity arises from moving more of our infrastructure to AI, requiring more expensive servers and networking equipment, and building new data centers for next-generation AI hardware. We expect these investments to provide a technology advantage and unlock improvements across many key initiatives. Second, we continue investing in our data center footprint with ongoing work in 2023. These investments will provide greater flexibility with purchased servers and generate higher cost efficiencies over time. Turning to specific CapEx outlook for '22 and '23, we expect 2022 capital expenditures, including principal payments on finance leases, to be in the range of $32 billion to $33 billion, updated from our prior range of $30 billion to $34 billion. For 2023, we expect capital expenditures to be in the range of $34 billion to $39 billion, driven primarily by investments in data center servers, network infrastructure, and AI capacity. Turning to tax, absent any changes to U.S. tax law, we expect our fourth quarter 2022 and full year 2023 tax rate to be similar to the third quarter 2022 rate. In addition, we continue to monitor developments regarding the viability of transatlantic data transfers and their potential impact on our European operations. In closing, we are pleased with the growth of our Family of Apps community and the engagement improvements we are driving with efforts such as Reels and our AI-powered recommendations. While we are facing near-term headwinds on revenue, the fundamentals are there for a return to stronger top-line growth. We approach 2023 with a focus on efficiency and spending discipline, and I’m optimistic these moves will position us well for achieving our long-term goal of driving operating income growth while investing for future growth. I’d also like to note that I will be closing out a decade at Meta in the next few weeks, including the last eight years as CFO. In my new role, I’m excited to continue helping the company achieve its long-term mission and execute its financial plan. It’s an honor to hand off the CFO role to Susan Li, one of the most talented executives I've worked with in my long career in finance and tech. And with that, let me open the call for questions.

Brian Nowak, Analyst

Thanks for taking my questions. If I could squeeze in two. The first one is on CapEx and return on invested capital. The CapEx spend and forward expectations are remaining somewhat higher than investors expected. So Mark, can you maybe just give us some examples of what these new AI investments will enable you to do differently going forward than in the past? And what’s a reasonable period in which investors expect to see material incremental engagement or revenue from these? And then the second one is on engagement. I thought your comments about incremental time spent from Reels were interesting. But can you give us any update on what U.S. time spent trends look like to provide investors with confidence in the durability of the platform in your oldest market? Thanks.

Dave Wehner, CFO

Hey, Brian, why don’t I take the time spent question first, and then I’ll hand it off to Susan on the CapEx question. We’re really pleased with what we’re seeing on engagement. As Mark mentioned, Reels is incremental to time spent. Both Instagram and Facebook show year-over-year growth in aggregate time spent, in both the U.S. and globally. While we’re not specifically optimizing for time spent, those trends are positive. We aren’t specifically optimizing for time spent as that would tilt us toward longer-form video, whereas we’re focused on short-form content. Now, Susan, would you like to take the CapEx question?

Susan Li, Incoming CFO

Yes. Thanks, Brian. So as Dave mentioned in his script, we expect 2023 CapEx to be in the range of $34 billion to $39 billion, driven entirely by our AI investments. We’re very focused on evaluating the ROI of our AI investments, and that will inform our level of future spend. So far, we continue to see a strong impact on our recommendations products from advancements in our AI work. In the Q2 call, we shared that a single AI advancement in scaling our recommendations models led to a 15% watch time gain for Facebook Reels, and that gain has continued to grow. We expect additional watch time improvements from this work. On the ad side, we’re also rolling out more AI and ML improvements in new ad offerings and are encouraged by our early examples. We think we’re early in this journey, but our level of CapEx investment will depend on the returns we generate through these AI investments. If we generate significant engagement and revenue gains, we will continue investing here accordingly.

Mark Shmulik, Analyst

Yes. Hi, thanks for taking the question. A couple, if I may. Mark, the first one, you kind of mentioned in your opening remarks that you expect to get back to revenue growth in 2023. Any color you can share on the key drivers behind that? And how much of that is macro-driven versus some of these initiatives you are working on? And then secondly, for Susan, regarding your operating expense guidance into 2023, I know historically, those numbers have skewed a bit conservative. How much conservatism is baked in there? And how much flexibility is there to adjust those expenses depending on the health of your core business? Thank you.

Dave Wehner, CFO

So Mark, it’s Dave. I’ll take the first question. We’re continuing to see significant macro headwinds in the business. We do think there is a big cyclical factor, and some of it depends on the broader economy and recovery. We’re making progress in several areas for growth; Mark mentioned one of those being click-to-messaging ads, which have been performing well. It’s a $9 billion revenue run rate today, and we expect to see additional growth, especially in developing markets. Overall, we’re focusing on various initiatives to boost revenue, and while there’s progress, it’s partly dependent on the macro climate. We’re not facing as significant headwinds in our growth rates next year from signal changes as we are now, since we are lapping the big changes made on the iOS platform. So that will also be more favorable next year.

Susan Li, Incoming CFO

On your second question regarding next year’s OpEx guide, I’d emphasize that it includes an estimated $2 billion in one-time charges as part of our office facilities consolidation. We expect a little over half of our expense dollar growth in 2023 to come from OpEx, with the remainder from cost of revenue. The growth in 2023 OpEx is primarily driven by headcount-related costs for employees already hired, concentrated in technical and senior roles. The slowdown in payroll growth in 2023 results from the overall slowdown in headcount growth. We expect to end 2023 with headcount roughly flat compared to now, alongside acceleration in cost of revenue driven by depreciation from prior CapEx growth.

Justin Post, Analyst

Great. A couple of questions on the Reels transition. When you think about that business, do you think – how does it compare to News Feed regarding repeat rates or retention? Are you concerned that it’s a little less proprietary than your previous content? Also, on CapEx, is the build this year and next a one-time setup to get capabilities in place, and could you return to a mid-teens level as a percentage of revenue, or is the business just a higher capital intensity one?

Dave Wehner, CFO

So Justin, regarding the Reels transition, as Mark noted, it’s incremental to time spent, contributing to the overall engagement on the platform. However, it will take time before Reels becomes a positive contributor to revenue rather than a headwind. As Mark mentioned, we are currently experiencing a $500 million revenue headwind, but we anticipate that it will convert into a tailwind over the next 12 to 18 months.

Susan Li, Incoming CFO

Regarding your second question on CapEx, I would categorize our investment as consisting of AI and non-AI components. AI-driven investments will dictate future spending, based on the returns we can observe. AI capacity growth will support incremental revenue as we expect high ROI from these investments. Non-AI expenses relate to ongoing investments in data center capacity when forecasting efficiency improvements going forward. Therefore, we don’t have a specific benchmark for CapEx, as it will depend largely on the returns generated.

Mark Zuckerberg, CEO

I would like to add some context on Reels and discovery engine work since it is central to our current focus. When we introduce new formats, like Stories or mobile feed, we often focus on engagement and demand growth first. Monetization efficiency might lag behind traditional formats, but in Story's case, we have exceeded our initial expectations. Currently, Reels monetization is progressing satisfactorily, but we acknowledge it's taking time. We expect to close the monetization gap with Facebook and Instagram's traditional formats ultimately. Regarding engagement, the inventory across our system has room for growth through better content recommendations, especially with our AI capabilities. We're optimistic about increasing overall usage and engagement. While the results will take time and patience, we are confident we're heading in the right direction.

Doug Anmuth, Analyst

Thanks for taking the question. I have two. Dave, you talked about the ATT impact diminishing in Q3. Are you seeing any meaningful improvements around ATT, or is it just a function of the year-over-year comp dynamic? Can you also discuss your content creator recruitment efforts for Reels? Will revenue sharing impact your margin structure compared to current ad formats?

Dave Wehner, CFO

Regarding ATT impact, the primary factor is the lapping effect relative to Q2. We received a benefit in Q3, but it was offset by ongoing macro weakness. Regarding attracting content creators, we don’t anticipate a significant impact on the cost structure, as all that is factored into our expense guidance.

Eric Sheridan, Analyst

Thanks for taking the question. Maybe two, if I can. Mark, with the many headwinds the company has faced from platform changes, competitive dynamics, and macro impacts over the last 12 to 24 months, how much of this investment cycle is related to future-proofing the platform? And how do you view the evolution of the revenue opportunity over the next 3 to 5 years as the metaverse develops?

Mark Zuckerberg, CEO

It is a significant factor, but I don’t believe it’s the primary driver. Some risks stem from competition and changes like Apple’s ATT that we must navigate. However, we want to innovate and control more parts of our stack, which can lead to new revenue streams via business messaging—enabling direct communication, sales, and support on our platform—that will strengthen our measurement and attribution capabilities. Regarding metaverse revenue opportunities, we are working on various platforms, including social and VR, and are iterating on the Horizon product as we continue to evolve into a mature product. We’re investing in AR and VR systematically to sustain our technological advantage in the virtual space.

Youssef Squali, Analyst

Great. Thank you very much. Maybe one question for Dave or Susan, and then one for Mark. What kind of macro base case assumptions are you baking in for 2023 against that 12% to 15% increase in OpEx and CapEx guidance? Can you discuss the fixed versus variable components in the expense guide that could give you flexibility to respond to macro changes? Mark, compared to your expectations when you initiated the metaverse strategy, how do you rate the company’s performance so far in product rollout and engagement, and is the evolution aligning with your expectations? If not, what key factors are gating that?

Susan Li, Incoming CFO

We haven’t provided revenue guidance for 2023 yet, but our Q4 2022 guidance encompasses a variety of macro expectations. We are certainly experiencing a slowdown in advertising demand that aligns with various macroeconomic challenges such as rising inflation. When evaluating 2023’s budget, we’re applying increased scrutiny to our investment portfolio and are adopting a more conservative budget approach reflecting those uncertainties. Regarding 2023 OpEx components, over half comes from OpEx, with costs of revenue tied to depreciation from previous CapEx. Much of our forecasted OpEx growth comes from already hired employees, with headcount flat by the end of 2023, alongside a $2 billion office consolidation charge planned for 2023.

Mark Zuckerberg, CEO

Considering our metaverse efforts and their comparison to initial expectations, we’re focused on four core platforms. The social metaverse platform, seen in the evolving Horizon product, aims to enhance user interaction. VR is another key area where we expect robust scale for both consumption and work. There’s a large commitment to augmented reality work, which is still largely internal, and neural interfaces which are critical for future interactions. Some progress exceeds expectations while others may require more time, but ultimately, we believe our research is leading in these areas. Products will mature and launch across various timelines—some faster than others—but all essential for the future. We're pacing these investments carefully to align with the broader business conditions.

Mark Mahaney, Analyst

I want to follow up on a prior question regarding ad tools. I’m trying to discern how much of a priority this is for the company and how long it will take to develop a new probabilistic ad attribution model. This is an area that has resulted in a significant financial impact. I haven’t heard as much emphasis on this as a major investment priority—it’s a question of whether it's more elusive, and you might be better off directing resources to other areas.

Marne Levine, Chief Business Officer

We have continued our work to rebuild meaningful elements of our ad tech, enhancing performance and measurement through various investments. In the short and medium-term, we’ve focused on system evolution through on-site conversions via products like lead ads and click-to-message ads. We view our investments in AI and machine learning to improve measurement, targeting, and delivery as crucial. An example is Advantage+ Shopping, which we launched to help advertisers optimize campaigns faster, leading to a 32% increase in return on ad spend. Long-term, we're focusing on privacy-enhancing technologies, and all efforts are aimed at providing advertisers greater value.

Deborah Crawford, Vice President of Investor Relations

Thank you, Marne. Operator, we have time for one last question.

Operator, Operator

Thank you. That will come from the line of Brent Thill with Jefferies.

Brent Thill, Analyst

Summing up how investors feel right now, there seem to be too many experimental bets versus proven bets on the core. Could you elaborate why you believe these are not experimental and emphasize the payoff you anticipate? There is significant focus on the investment side, and I think investors would appreciate hearing why you believe this pays off.

Dave Wehner, CFO

We are making investments across the portfolio, including those in the ad space as mentioned by Marne. The investments we’re making to expand Reels and the business messaging platform on WhatsApp are critical for future engagements and monetization. The majority of our spending remains within our Family of Apps, focusing on both engagement and monetization while leveraging the AI systems. Click-to-messaging ads have already proven successful with a $9 billion business today, and we expect to build paid messaging into a substantial revenue source.

Mark Zuckerberg, CEO

I want to point out that there's a distinction between being experimental and not knowing how effective something will be. We’re confident in our initiatives within the Family of Apps, such as Reels, the discovery engine, and ad innovations, though the scale they will achieve is still uncertain. Our work in the metaverse is more of a long-term endeavor. There are numerous moving parts in the business and external forces affecting our outcomes. We appreciate your support and believe that those who are patient will ultimately be rewarded with results.

Marne Levine, Chief Business Officer

It's challenging for advertisers during uncertain times as they seek strong returns. However, regarding our Family of Apps and services, Reels is the fastest-growing format on Instagram and Facebook, facilitating discovery for users and connecting businesses effectively. We prioritize ensuring advertisers achieve substantial ROI from Reels. An instance exemplifying this is Corkcicle, which added Reels to its strategy and saw a 34% increase in return on ad spend and higher sales. Our investments are yielding progress in helping advertisers achieve the ROI they seek.

Deborah Crawford, Vice President of Investor Relations

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

Operator, Operator

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