Deborah Crawford - Director of IR Mark Zuckerberg - Chairman and CEO Sheryl Sandberg - COO David Ebersman - CFO

Heather Bellini - Goldman Sachs Douglas Anmuth - JPMorgan Carlos Kirjner - Sanford Bernstein Eric Sheridan - UBS Peter Stabler - Wells Fargo Ben Schachter - Macquarie Evan Wilson - Pacific Crest Anthony DiClemente - Nomura Mark Mahaney - RBC Capital Markets Justin Post - BofA Merrill Lynch Youssef Squali - Cantor Fitzgerald Colin Sebastian - Robert Baird Brian Wieser - Pivotal Research Ross Sandler - Deutsche Bank John Blackledge - Cowen & Company

Operator: Good afternoon. My name is Jake and I will be your conference operator today. At this time, I would like to welcome everyone to the Facebook 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. [Operator Instructions] Thank you very much. Ms. Deborah Crawford, Facebook's Director of Investor Relations, you may begin.

Thank you. Good afternoon and welcome to Facebook’s first quarter earnings conference call. Joining me today to talk about our results are Mark Zuckerberg, CEO, Sheryl Sandberg, COO and David Ebersman, CFO. Before we get started, I would like to take this opportunity to remind you that our remarks today will include forward-looking statements, and 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 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 will 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.

Thanks Deborah, and thanks everyone for joining today. This was a very busy quarter and a strong start to 2014. We continued to grow our community in size and engagement, with nearly 1.28 billion people now using Facebook each month and almost 63% visiting daily. We also reached new milestones as a mobile company, with more than one billion monthly actives on mobile and almost 55% of our daily actives only connecting on mobile. When you look at our business performance, we’ve also made some good progress. Our total revenue grew 72% year-over-year. Our advertising grew 82%, our strongest annual growth rate in nearly three years. And mobile accounted for 59% of our advertising revenue. These results show Facebook’s business is strong and growing, and we’re in a great position to continue making progress towards our mission. This quarter we made a number of big investments in our future. We reached agreements to acquire WhatsApp and Oculus, and we announced our new Connectivity Lab that’s focused on developing technologies to expand Internet access around the world. These are important efforts that we believe will help us continue making progress towards our mission over the long term. But as this quarter shows, we’re also staying focused on execution, and carefully improving our core products and business. Execution gives us the strength to bet on the future, and our success over the long term depends on us serving our community today and delivering against our current strategy. So, with that in mind, I’d like to run through our progress this quarter towards our three big company goals; connecting everyone, understanding the world and building the knowledge economy. Connecting everyone is about making Internet services available to everyone in the world, and allowing everyone to connect with the people and things that they care about. Our strategy for connecting everyone is based on two approaches. The first is about giving people new apps for sharing different kinds of content with different people. Today our apps are at different stages of maturity. Our core Facebook app has an audience of over one billion people, and has become an essential sharing infrastructure for the world. We’re currently focused on building a great business around this, and our continuing revenue growth on mobile this quarter shows our strong momentum here. For the next set of apps like Messenger, Instagram and hopefully soon WhatsApp, the current priority is growth. Messenger and Instagram both reached 200 million monthly actives this quarter. We believe these apps have a lot of room to grow and will start to be important businesses in the future, but monetization isn’t our near-term priority here. And for the new apps that we’re building as part of our Creative Labs effort, we’re still in the very early stages of development. We’re working hard to develop the technical foundations for these services so that we can rapidly launch new products and then refine them based on the initial feedback from our community. For Creative Labs projects that demonstrate a lot of value, our next priority will be to grow them to reach 100 million people, before we start developing them into significant businesses. Now we’re pleased by the early reaction to Paper, our first app from Creative Labs, and we expect this to be a good test case for our strategy. The longer term part of our strategy for connecting everyone is focused on Internet.org, our effort to make affordable basic Internet services available to the entire world. We recently reached 100 million monthly actives in India, and through Internet.org we’re looking to build on this kind of success. We’ve already started to deliver results. By partnering with mobile operators in the Philippines and Paraguay, we’ve doubled the number of people using mobile data with our partners and brought almost three million more people onto the Internet. Our early tests and research into new technologies such as drones and other infrastructure to connect people are promising. And over the long term we also expect WhatsApp to play an important part in connecting everyone by offering a simple, fast and reliable messaging system that could be as ubiquitous as Facebook one day. We’ll have more to share after the deal closes. Next, let’s talk about understanding the world. Understanding the world is about using Facebook to build up long term knowledge about the world and helping to answer questions for people that no other service can. Next week Facebook holds our fifth f8 conference, the main event for our developer community. We do this because even with all the experiences we’re building, we understand that there will always be more social experiences that we can’t build. So we want to keep serving developers better, and to help them build, grow and monetize their apps. We’ve made good progress here. On mobile, App Installs has been one of our best performing ad products, driving over 350 million installs to date. Over 60% of the top grossing apps on the Apple App Store and Google Play use Mobile App Ads, which is pretty impressive performance for a product that launched in January last year. On desktop, games continue to be popular on our platform and over the last twelve months desktop game developers generated more than $3 billion in payments volume on Facebook. It's worth noting that even though our mobile and desktop products seem completely different, they're both delivering the same value to developers; the ability to reach a large targeted audience. That's what we provide, and regardless of the format we will continue to improve this value. We see a big opportunity to continue improving the relevancy of the ads people see on and off Facebook, to help mobile developers better monetize their apps, and to help provide greater reach for marketers. I look forward to sharing more details next week at f8. Finally, let’s talk about our efforts to build the knowledge economy. Building the knowledge economy is about building out the technology platforms the world needs for the future, so everyone can use information to do their jobs better. Advertising and the ability to reach people more broadly is one of the most important technology platforms for achieving this, and we're investing a lot to serve four major kinds of partners: small businesses, brands, developers and e-commerce partners. After introducing News Feed ads, which increased the supply of ads in our system, our recent efforts have primarily focused on improving the relevance and quality of these ads. To do this, we’ve been working to improve the tools we provide for marketers, so they have access to better targeting capabilities, simpler ad products and more useful measurement tools. Our approach is less about developing new products for marketers and more about improving our existing ones and helping businesses to use them efficiently. Our goal is to make our ads as interesting as organic content on Facebook, so that more people find ads useful and businesses can engage effectively with our community and grow. Our most recent data shows that this approach is working well, and we continue to be really encouraged by the feedback we’re seeing from people about our ads. There is still more work to be done here, but we’ve shown that we can continue to serve our community well while also growing a healthy business. So that’s my update on how we’ve been executing against our strategy over the last quarter. It’s been a busy quarter and a strong one. We’re proud of our progress as a company and everything that we’re accomplishing today. In large part this is due to the incredible quality of our team, and I’m very grateful for the support of everyone here at Facebook, as well as our stockholders and partners, as we continue working to achieve our mission. In addition to thanking our employees, I'd also like to thank one person in particular: David Ebersman, who is stepping down as CFO after almost five years. David has been a great partner in building Facebook. He has set the right tone about operating efficiently. He has set us up to make the long term investments we need. And most importantly, he has built an incredibly strong team, including Dave Wehner, who will be our next CFO. I've learned a lot from David, both personally and professionally, and I'm grateful for everything he has done to help make the world more open and connected. Thanks, and now here’s Sheryl.

Thanks Mark and hi everyone. Before I start, I want to join Mark in thanking David for being an extraordinary partner and friend over these past five years. As Mark said, he has contributed so much to our company and I've learned so much, personally, working with him. Great people build great teams and that's what David has done. And so I’m also really excited to continue working with Dave Wehner as he steps into his new role as our CFO. We are off to an outstanding start in 2014. Our total revenues were up 72% year-over-year and our advertising revenue growth accelerated to 82%. That’s our strongest year-over-year advertising growth rate in nearly three years. We’re really pleased with these results and the level of execution in our business. The team is staying focused on each element of our monetization strategy: capitalizing on the shift to mobile, growing the number of marketers who advertise with us, and investing in our ad products. Mobile continues to be a big driver for us – and a big opportunity. Mobile comprised 59% of our ad revenue in the quarter, up six percentage points from Q4. We continue to believe that this is because Facebook has the best mobile ad product in the market. We also continue to grow the number of marketers using Facebook and saw growth from existing advertisers as well. Our growth is very broad-based and coming from all types of marketers, with particular strength from SMB and direct response. We saw strong performance this quarter from verticals such as mobile gaming, e-commerce, and consumer-packaged goods. I am especially pleased with what we are seeing and hearing from clients around the world as they shift budgets to online, to mobile, and to Facebook. One recent powerful example is Sport Chek, Canada’s largest sports retailer. They recently decided to pull their paper circulars, which their company have relied on as its primary ad vehicle for 92 years for two weeks and replace them completely with digital spend, a majority of which was on Facebook. During those two weeks, national in-store sales grew 12% year-over-year and in-store sales of the items they promoted on Facebook grew 23%. As a result, they are going to continue with their tests and their goal is to transition more than 25% of their print spend to digital and Facebook in the next year. And last week I was in Europe meetings with clients, agencies, SMBs and developers and what I heard from them was how FB was becoming increasingly important in driving their businesses. Investing to improve and expand our ad products remains a very important priority for us. Our goal is to continue to develop new ways to help marketers reach their customers. We’ve done this over the last couple of years by enhancing our targeting capabilities, simplifying our ad products, and improving our measurement tools. I’ll touch on each of these three areas. First, targeting. Along with Facebook’s reach and scale, marketers value our proprietary targeting to help them reach the right customers and create more personalized and, therefore, more efficient and effective ad campaigns. Ten times more marketers are now using our Custom Audiences targeting feature compared to last year. To share just one recent example, Ben & Jerry’s wanted to drive more sales from its classic flavors. They used a wide range of our targeting capabilities, including Custom Audiences and Partner Categories, to reach premium ice cream buyers. Their campaign reached 14 million people, roughly 90% on mobile and drove an 8.1% sales lift from those consumers. As more marketers use our targeting tools, our ads become more relevant for our users and drive even better results for marketers. Second, we are simplifying and enhancing our ad tools for the over one million advertisers on Facebook. The tools that were previously available to only the biggest and most sophisticated advertisers like Custom Audiences and Partner Categories are now available in our self-service ad creation process. By making these tools more accessible, we believe we can grow the number of advertisers on our platform and improve their results. Additionally, for direct response marketers, we’ve added more specific calls to action in our ads, including “buy now” or “install now” buttons that greatly improve the efficacy of these ads. Finally, we’re also really pleased with the results we’re seeing from our investments in measurement tools. Our online conversion measurement tools enable our direct response advertisers to measure the impact their Facebook ad campaigns have on online sales. And, we recently launched new offline conversion tools to measure in-store sales, which have yielded positive initial results. Our ongoing focus will continue to be on improving the quality, relevance and performance of our ads and demonstrating value to marketers. We believe we still have a lot of opportunity to generate future returns by continuing to focus in these areas. We also have significant opportunities to develop newer products like premium video, ads on Instagram and our recently launched ad network test. Our initial efforts show a lot of promise and we’ve gotten good feedback from marketers in all of these areas. But, it’s still very early and we don't expect meaningful contributions from these projects this year. To summarize, our ads business is performing very well. I want to take a minute to congratulate and thank our teams all around the world and our ads engineering, product and design teams on the progress we have made. I also want to thank our clients, agencies, PMDs, and other partners, who work with us every day to use our platform to build their relationships with their customers to create personalized marketing at scale. It’s an exciting time for us as more marketers around the world gain conviction in the results they can achieve on Facebook. We have a great opportunity to build the world’s first platform for personalized marketing at scale. It’s early in that journey and we are going to stay focused on making the right investments in our ads business and executing against our plan. Thanks everyone, and now here’s David.

Thanks Sheryl and good afternoon everyone. Before I dive into the numbers, I wanted to say a few words about my decision to step down as CFO. This was a hard decision for me because of how much I love Facebook and all the people I work with here. In particular, I can’t thank Mark and Sheryl enough for their friendship and support and for letting me be a part of their team. I’m confident that Facebook’s best days lie ahead and I’m excited about the path Mark and Sheryl are leading the company on. My decision’s a personal one based on my desire to get back into health care where I spent my entire career before Facebook. And, after ten years as a CFO, half of them here, I’m ready for a different role and challenge. Right now feels like a good time for this change. The business is doing well, the foundation is solid, and in Dave Wehner we have a terrific successor who’s up to speed and ready to go. I have complete confidence in Dave and the rest of the Finance team. Dave will formally take over me in June and he’ll take my place on the next earnings call, though I plan to stay with the company through September to ensure a smooth transition. I also want to thank our shareholders for your partnership and support. Now to the quarter. Q1 was a strong quarter for us across the business. We increased our revenue growth rate, expanded operating margins, delivered free cash flow of over $900 million, and continued to make investments to position the company for near-term and long-term growth. Let’s start with some people metrics. The number of people using Facebook on an average day in March grew to 802 million, up 137 million from a year ago. As Mark mentioned, this daily number represents almost 63% of the 1.28 billion people who used Facebook during the month. And overall engagement remains strong. Additionally, these stats don’t include Instagram, which now has more than 200 million monthly active users, showing the remarkable progress by the team. Two years ago this month, when the acquisition was announced, Instagram had fewer than 22 million monthly actives. Turning now to the financials. Q1 total revenue was $2.50 billion, up 72% versus Q1 last year, and total ad revenue was $2.27 billion, up 82%. Ad revenue growth was strong around the world, with each of our four geographic regions growing by over 70%. Mobile ad revenue was approximately $1.3 billion, compared to around $377 million in Q1 last year, and notably mobile ad revenue was up 7% sequentially, despite the seasonal benefits in Q4. Desktop ad revenue in Q1 was up 8% compared to Q1 last year. In Q1, the average effective price per ad displayed increased 118% year-over-year while total ad impressions declined 17%. The decrease in ad impressions was due to factors including the continued shift towards mobile use, where people are shown fewer ads compared to desktop. The increase in average price per ad was primarily driven by a mix shift with more ads being shown in News Feed. News Feed ads have significantly higher engagement, click through rates, and price per ad compared to right hand column ads, so a higher proportion of ads appearing in News Feed drives up the overall average price per ad. The price volume trends were pretty consistent across our four geographic regions. Total Payments and Other Fees revenue was $237 million, up 11% versus Q1 last year. However, the more meaningful comparison, that better reflects the organic growth we saw in the Payments business, comes from looking at Payments volume from Games specifically, which was up 1% in Q1 compared to Q1 last year, down from the 8% year-over-year growth rate we saw in Q4. As we’ve discussed before, the shift to mobile is a significant headwind since our Games Payments revenue comes from desktop only, where usage is flat or declining, so growing this business going forward will be challenging. Turning to expenses, our Q1 GAAP expenses were $1.4 billion, up 32%, and our non-GAAP expenses were $1.1 billion, up 26%. Our headcount increased 39% from a year ago. Our Q1 GAAP operating income was $1.1 billion, representing a 43% operating margin, and our non-GAAP operating income was $1.4 billion, representing a 55% margin, up from 39% last year. While the margin improvement was helped by some non-recurring items that drove up costs in Q1 last year, we’re pleased that the increase in margins came mostly from cost of revenue and G&A. As planned, we’ve created efficiencies in infrastructure and administration while continuing to aggressively grow our investment in R&D along with marketing and sales to drive future performance. Our GAAP and non-GAAP tax rates were 40% and 36%, respectively. GAAP net income was $642 million or $0.25 per share, and non-GAAP net income was $885 million or $0.34 per share. In Q1, we spent $363 million on CapEx and generated $922 million in free cash flow. We ended Q1 with $12.6 billion in cash and investments. Now, looking forward. First, I want to note that the forward-looking comments I’ll share today do not reflect any impact from the recently announced acquisitions of WhatsApp and Oculus, neither of which has closed. After the deals close, we’ll update our guidance as appropriate. In terms of expenses, consistent with what we’ve said previously, we’re planning that our total 2014 GAAP expenses, including cost of revenue and stock comp, will likely grow in the neighborhood of 35% to 40%, and that non-GAAP expenses, including cost of revenue but excluding stock comp, will likely grow in the neighborhood of 40% to 45%. For taxes, we expect GAAP and non-GAAP rates for the rest of 2014 to be similar to or a bit higher than our Q1 rates, although this could vary widely depending upon our international revenue and expense mix, and other factors including the impact from acquisitions. We continue to anticipate our 2014 CapEx will be approximately $2 billion to $2.5 billion. We also continue to expect shares outstanding for calculating EPS to grow from around 2.6 billion at year-end 2013 by 2% to 2.5% in 2014 excluding the two large deals we’ve announced. Those deals once closed will add another 207 million shares, as well as additional unvested RSUs that will affect our share count over the subsequent four to five years. Turning last to ad revenue. As you know, our year-over-year comparables will get more challenging going forward from here because of the timing of the ramp up of News Feed ads in 2013. As the comps become more difficult, we continue to expect that over the rest of 2014, our year-over-year ad revenue growth rates will decline from the Q1 rate and be meaningfully lower by the end of the year. That being said, we believe, we are still in the early stages of building our ads business, and we remain as optimistic as ever about the long-term opportunity to grow revenue impressively by improving the quality and relevance of our ads and increasing the value we bring to marketers. In summary, Q1 was a great start to the year. We're very pleased with how well our ads performed. The strong marketer interest in our ads platform particularly on mobile and the investments we're making to build long-term shareholder value. Now let's open for questions.

We will now open the line for a question-and-answer session. [Operator Instructions] Your first question comes from the line of Heather Bellini with Goldman Sachs. Your line is open. Heather Bellini - Goldman Sachs: Great. Thank you very much. I was just wondering, Mark or Sheryl, if you can share with us your vision of payments for Facebook, and how the Company might be able to play a role in reducing the friction that exists today when users are trying to engage in mobile e-commerce. And then the follow-up question was just going to be if you could share with us what inning do you think we are in, in terms of improving the relevancy of the ads that you are showing? Thank you.

On payments, our payments business has been important in supporting some of the developer activity on Facebook, primarily games. So we continue to be interested in that. I guess really important to know that, our advertising business is very relevant for e-commerce and that doesn't depend on taking payments and it doesn't depend on a payment strategy because we provide a really great opportunity for marketers to find customers who are then going to go ahead and buy their products both online and offline. In terms of relevance, I think we are in really early innings. I think people can see it from their own experience. Those people I talk to and certainly the data we have across the base of people use Facebook suggest that the ads are getting more relevant, but there is a long way to go. Our goal is that every time you open newsfeed, every time you look at Facebook, you see something whether it's from consumers, or whether it's from marketers, that really delights you, that you're genuinely happy to see. I think we hit that more than we used to with our ads, but I think the truth is we still have a long way to go to hit that bar and that's the bar we are striving for.

Your next question comes from Douglas Anmuth with JPMorgan. Your line is open. Douglas Anmuth - JPMorgan: Great. Thanks for taking the question. David, just wanted to ask you a little bit more about margins, in particular. If we look at this quarter, it looks like the incremental margins here are 78% or so. So, I was hoping you could drill down a little more just on the drivers within cost of revenues and how you are thinking about the sustainability of that going forward. And is the 40% to 45% growth that you mentioned in non-GAAP OpEx, is that taking into account the acquisitions at all? Just thinking about how you can get to that level of spend given what you are starting the year. Thanks

Yeah. Thanks for the question Doug. I think Q1 is traditionally a light spending quarter for us because we budget with an annual cycle and often it takes some time to sort of ramp up the new program. So I don't think it's surprising that Q1 year-over-year increase would come in a little lighter than we expect for the full year. Additionally there were some one-time things that benefited the quarter, that kept expenses down particularly in cost of revenue as we continue to exit lease data centers and sort of amend our supply chain. I think that going forward our expectation was and remains the 40% to 45% growth excluding the impact from the acquisitions. So, we will update that guidance once the integration plans are clearer and have a better sense for what those spend patterns will look like. In general in terms of margins, the comments I would make are that, we don’t have a quarter-to-quarter target margin that we're managing closely to. To do so, would require varying our spend patterns as revenue changes up and down over time. And I think that's the wrong way to focus on how you spend your money in the company. Our priority is really to try and make investments that are high quality that drive the creation of value and makes the business better. And since many of those investments take a longer period to mature, we want to be able to think about our spend increases over a longer term horizon. And as you can see looking back at the last couple of years and then our plans for this year, there has been a pretty steady rate at which we've been growing spend particularly in R&D and marketing and sales where we really want to focus on making sure we're growing smartly and thoughtfully at a rate we can manage wisely and doesn't get ahead of our ability to manage it. On cost of revenue and G&A what you can see in the Q1 numbers is the fruits of a lot of labor trying to manage those parts of the business really efficiently and free up resources to invest elsewhere. So, I think we've always believed that Facebook has the opportunity to be a sustainably high margin business and we continue to believe that, noting that there were some individual items that helped us in Q1.

The next question comes from Carlos Kirjner with Sanford Bernstein. Your line is open. Carlos Kirjner - Sanford Bernstein: I think for Mark, how do you think about the evolution of browser technology, HTML5, and development tools versus native apps? If you look two to three years out, do you think native apps could finally become less important for many use cases? Or, in other words, maybe you guys were not wrong when you tried HTML5, you were just too early. Thank you.

Yeah, well timing matters a lot and so, I do think that there's nothing wrong with the standard of HTML5 technically. I think a lot of what we see is what the main platform providers want to push as the standard for developing on their own platforms. And what we've seen is that both Apple and Google have really favored and made it easier to build high quality experiences in their own proprietary formats rather than the open web format. So, while our bias for a number of reasons would have been to have really pushed on HTML5 and I don't want to sound like we've walked away from this because a large number of people access Facebook from the mobile web and I don't know if we break that out specifically but it's quite a large number of people. So, we're continuing to develop that, but for the foreseeable future, we see the best path to continuing to deliver great experiences by working on the native app experiences that we have now.

The next question comes from Eric Sheridan with UBS. Your line is open. Eric Sheridan - UBS: Thanks for taking the questions. Congratulations, David, on your future endeavors, as well. Mark, maybe a quick question for you about the way in which you think Facebook, and the various applications Facebook is developing also, move towards a communication ecosystem longer term. A big picture question on where the various applications go, the ones that are in the process of being acquired and the ones you are developing organically. And then second question, to use the baseball analogy again, as you continue to take ad impressions out of the Facebook platform, wonder if we should think about where you get to longer term on a level of ad impressions that you think are the perfect mix for balancing engagement and monetization, and what inning we are in that process.

Sure. I think I can probably take both of those. So in terms of building out a whole communication ecosystem, the way that we think about the new apps and products that we're building is that people want to share all kinds of different content with all kinds of different audiences. Right so, sometimes you want to have one-on-one conversation or text or chat or voice call up to having a small group conversation to communicating, updating all your friends and something at once. And sometimes there is really good public content, whether it’s news or premium video or things like that. At the intersection of each type of content and each audience, we think that there is a really compelling experience to be built. And Facebook historically is focused on friends and public content, now with Messenger and WhatsApp we're taking a couple of different approaches towards more private content as well. You're going to see us do more things in more private content I think, I don’t know that’s an ecosystem that's growing incredibly quickly and also that speaks to why WhatsApp and Messenger are both growing independently quickly is because they actually serve pretty different used cases within private sharing and private content. In terms of our investments, I think you want to look at it, I kind of outline this in my remarks, but I think it's important enough to say again. There are different stages of maturity for the different things that we're doing. So, the Facebook app by itself is the furthest along and more than a billion people use it and it's not only one of the most used apps, but it's the most used app it's also at the core of our business. Then the second set of apps that we have are Messenger, Instagram and soon WhatsApp and you know Messenger and Instagram are each now greater than 200 million active users. I think the WhatsApp folks independently announced, I think it was yesterday that they just passed 500 million active. So these are apps that are now at a pretty big scale and the immediate priority is going to be getting them to a billion people where they're continuing to focus on that before focusing on monetization and the way that we have with the core Facebook app, so that's kind of a second stage. The third set are the new Facebook Creative Labs apps that we're just getting started. The things like Paper and a number of other things that we might announce that at some point. Those are even further along than even Messenger, Instagram and WhatsApp, where it will probably take few years for those to even to get to the stage that Instagram, Messenger and WhatsApp are at, which by themselves are probably a few years away from being important businesses for us. So that's kind of the pipeline of things that we see and there is kind of a full ecosystem of different ways the people want to share with different people. In terms of ads going to your second question, I don't actually think we have a strategy that decrease ad impression. I think what you're seeing and what David mentioned is, we have newsfeed ads, which are higher quality and perform better and then we have this legacy of right hand column ads on desktop, which generally are just showing higher volume and they performed less well per ad unit. So as we shift more towards newsfeed, what you're seeing is the total raw number of impressions as decreasing, but actually the amount of value that we're delivering is increasing. So that might continue to shift as we continue to shift towards mobile, but I think overall what we're trying to do is make it that the individual load on a per person basis is isn’t increasing at a dramatic rate, but instead we're driving most of the wins in user experience, advertiser performance and our own revenue to increasing the quality primarily around newsfeed ads. And we think that there is quite a lot to go there as Sheryl said. We want to get to a state where the ad content is as good as the organic content and we see we're getting pretty close in a few countries but we want to get to that everywhere.

Your next question comes from Peter Stabler with Wells Fargo. Your line is open. Peter Stabler - Wells Fargo: Good afternoon. Thanks for taking my question. I wanted to ask a question about engagement. By one measure, DAU over MAU, it's at an all-time high. But no doubt you always have a body of last users. I'm wondering if you could share any color on what types of algorithm or product tweaks that you've made have yielded the most return or the greatest return in terms of re-engaging last users. And then, secondly, just quickly, any color you could provide on your estimate of the overlap of Instagram and Facebook users, perhaps based on the linking of those accounts. Thank you very much.

Unfortunately, I don’t think I'm going to have much color on either of those. We are constantly doing things to make it so that people can share the content that they want, that they have the tools, that the new network showing them most relevant content to people. That is always going to be the way that people will use the service not through some kind of trick or something that we're using to reengage people. One stat that I think is pretty interesting is that, you would expect naturally that as our -- the community continues to grow and we're getting into later and later adapters, that the percent of people who are using Facebook or use it every day would decrease. And I have actually predicted for a long time, that eventually that would flatten out and I thought it would decrease but actually it continues to increase much to our surprise and joys. And you know now this quarter I think, we're add almost 63% of people who use Facebook in a month will use it in a given day. And I think another stat, I think is actually quite interesting, is we tracked how many people use Facebook not just every day. So I mean one day out of -- so what percent of our monthly folks use it today. But what percent of people used it six out of seven days of the week. And that number for the first time in the last quarter passed 50%. So I mean that's pretty crazy if you think about is that, you have this really big engaged community and not only are almost 63% of people touching it in a given day and using the service because it's really engaging content, but we've gone to a period where more than 50% of people have used it six out of seven a week, almost every single day of a week. That just speaks to I think - just the underlying kind of fundamental strength in the content and the work that we're doing just surface the best content of best people.

Your next question comes from Ben Schachter with Macquarie. Your line is open. Ben Schachter - Macquarie: First, David, let me add my congratulations on your success. And good luck with the future role. Mark, beyond games, do you see other categories of apps that are ramping? And do you need to see that or can games continue to be the primary driver of app install and app engagement ads? And then, separately, on Graph Search, do you see the potential for more partnerships for Graph Search in terms of additional data sets and distributions partners? Or is this more go-it-along? And then, finally, maybe for Sheryl or David, can you just give us a sense on pricing trends on app install ads? Thanks.

Yes, I mean on app-installs, I actually think we see more diversity in the customers and developers on mobile now then we saw on desktop with Canvas. So Canvas the business was almost entirely games that is now -- we see that a lot of these games, but a lot of it is other kind of folks because I mean everyone who is building apps on mobile needs installs and we have the number one products out there for delivering that. So, we see that happening and we feel pretty good about that.

On pricing, we don't break our pricing by type of ad, but overall in the ecosystem, our prices are up as Mark said, the effective price per ad shown is driven up by more ads and newsfeed, and that's because newsfeed ads have significantly higher engagement and click-through rates.

The next question comes from Evan Wilson with Pacific Crest. Your line is open. Evan Wilson - Pacific Crest: Hi, thanks for the question. Just a small item. It looks like the Asia engagement metric, the MAU, was down sequentially, slightly. Was there something there that impacted that in Q1 or was there something competitive there you think might be impacting that part of the business, like the big mobile messaging services? Thanks.

I don't know that I would read anything into that yet. We haven't identified that as a trend that we're focused on at this point. The number is $2 bucks around a little bit from quarter-to-quarter in various regions.

The next question comes from Anthony DiClemente with Nomura. Your line is open. Anthony DiClemente - Nomura: Congratulations, David. And best of luck in your new endeavors, as well. One question for David and one for Sheryl. David, I just wondered if you could talk about your mix of impressions in terms of brand versus direct response. How has that changed this quarter versus prior quarters? And what else can be said about that split? And then, secondly, for Sheryl, just wondered if you could give us a little more of an update on premium video ads. Specifically, I'm curious as to how those are sold. Are they sold on an impression basis or on a performance basis, or some hybrid of the two? And then I know you don't give pricing by property, but is there a way to think about the premium or premium multiple of price that premium video ads would go for as compared to core News Feed ads? Thanks for any color on that.

Thanks Anthony, I'm happy to take the first part of the question. I think in the first quarter we delivered strong performance across all the advertiser segments that we focus on. And so I think they are all growing nicely. We don't have a perfect measure for what kind of demand is, brand versus DR per say, because someone doesn't have to input that into the system when they come in. We've lots of things we do to try and find surrogates for that and are happy to see using some of that data, we're seeing nice growth across the various segments.

On video ads, video represents a really big opportunity, really driven by consumer behavior. Smartphones are going better and faster and more people have phones that can provide a great video experience. So we're seeing consumers do a lot more in video. There's also a lot more video going through newsfeed that consumers are putting in and that creates an opportunity for us, both on the consumer side and the ad side. We have our current product in the market, it's a click to play video ad, it's part of the page post, you can post the video. Those are so both CPM and CPC and those are going really well and I think explains some of the growth we are seeing in our ads business. We also have been in early conversations with some clients about what would be a CPM autoplay video ad and in terms of the expectations for that, we really want to see autoplay video ads be something that's pretty common in the newsfeed experience based on consumer usage before we push very hard in the ads business. So we remain, long term very excited, we do expect that product, demand to premium product but as I said in my remarks, we won't see a material contribution from it this year.

Your next question comes from Mark Mahaney with RBC. Your line is open Mark Mahaney - RBC Capital Markets: On those autoplay videos, as an average Facebook user, I've noticed them more and more in my News Feed, and I think they're really neat. I think all my friends love watching videos of my kids play basketball. The question I'd have for you is what have you seen internally in terms of engagement. I assume that since I'm seeing more, other people are too, and that users like having them in. But is there any way you could quantify or maybe talk broadly about the impact that's having on usage? Thank you.

Our goal is to make newsfeed as engaging as possible and I think if you look at the engagement we have on mobile, we're getting 20% of mobile time on Facebook in the U.S. and growing globally as well. I think you see with that engagements grade, I'm sure your friends love seeing your kids play basketball. I think they probably like to see more of those. And when and if we deliver a really great ad experience and ads that you love, something you're interested in, I think you're going to like that just as much, we look forward to the growth.

Your next question comes from Justin Post with Merrill Lynch. Your line is open. Justin Post - BofA Merrill Lynch: Great. I have a couple questions. On the app installs, can you help us at all understand what -- I know you gave us the number of total apps, but maybe how that revenue as a percentage of total, how important it is to you? And then there's a lot of competitors targeting that market with new products. Maybe you could outline some of Facebook's competitive advantages in that market. And then one for Dave. We will miss you. Maybe you could talk a little bit about maybe some things Facebook could do to offset some of the dilution from the acquisitions, if anything. Thank you.

On mobile app ads, we've seen really strong adoption and this is a very nascent but growing market. I think people sometimes think that a lot of our mobile ad revenue is coming from this one type of ad and our mobile ad revenue is very broad based. We know you're seeing in newsfeed and what we see are ads from brand marketer's direct response, SMB's end developers and so we're pretty distributed there and pretty happy about that. I think it's not surprising that other people are entering states, it's obviously growing, it's one that performs well. I think we continue to be excited by the results we're seeing for our marketers and developers. The results we are seeing from consumers and we think the fact that we've already been investing and learning and growing, puts us in a great position to continue to have a very strong product offering even in a more competitive space.

So, Justin on the -- the acquisition is the most important thing we'll do to truly I would say justify, the delusion will be to make those acquisitions successful and over time ensure that the unique assists that we're buying contribute to Facebook success and to our cash flows over time. This business is obviously in really healthy shape right now in terms of the cash it's generating and we look forward at the moment to really continuing to prioritize where it's appropriate, investing that in the business to drive future growth.

Your next question comes from Youssef Squali with Cantor Fitzgerald. Your line is open. Youssef Squali - Cantor Fitzgerald: Thank you very much. So firstly David, can you talk a little bit about the ad load during the quarter? We saw noticeable increases here in the holidays and through Q1 versus that 5% or 6% you mentioned back on the Q3 call. Is the new ad load we are seeing sustainable, do you think, going forward? And, second, maybe Mark or Sheryl, can you just talk a little bit about timing for monetization of Instagram? Are there any thresholds, either in terms of users, user engagement, whatnot, before you can ramp that advertising, or advertise on that platform? I think, David, you were talking earlier about maybe reaching a billion, but I think that was a general comment. Thanks.

Yeah, thanks Youssef. So as Mark sort of alluded to earlier as it relates to ad load, what we're trying to do is optimize across multiple variables that really produce the best experience for people who use the network and help us to grow the business. And ad load is one of the variables that we look at. And of course we also look at things like the size of the ad, the prominence of the ads and of course the quality of the ads. And what we're trying to do is to continually really tweak all of those variables and then measure what impacts we're having on engagements, on feedback from people, on revenue and trying to optimize using that data and the changes that we've made. And I think the story there is a really good one. Things continue to go very well obviously in terms of revenue what you see, but also in terms of engagement, in terms of feedback we get from people when we survey them. So we think we remain in a really very strong position in that way. Actually we'd not validate the assertion that you gave that the ad load increased dramatically in the timeframe you described since that's not consistent in aggregate with our data. What I can say is that, every person who uses Facebook has their own experience and the experience including the ad experience is personalized based on the other content we have available based on how much they've engaged with ads we've shown in the past etcetera. So, ideally we'd like to personalize not just the organic content that you see, but also your ad experience in a way that's really optimized for you and your interests.

On Instagram, Instagram is a great product. I think that's why we see so much engagement from people who are using it and the gross passing 200 million. It's also a great advertising product and there's just tons of demand because you know, the picture themselves are so visually appealing and also there's so much consumer engagement. We're in really early days, we've seen some great results, just to mention one, Levi's is running an ad, which is basically pictures of people wearing denim in really beautiful outdoor spaces. They targeted people 18 to 34 in United States. Reached over seven million people and importantly they drove a 24%-- 24 point left in ad recall which was three times the control group. So, I think that shows that just as people engage with consumer pictures on Instagram, they're going to engaged with the right pictures from marketers. That said, we're very focused on consumer growth and we move slowly and deliberately in monetization. So, we don't see the need or the urge to ramp this as quickly as we possibly could but really want to grow it slowly, grow it deliberately and continue the growth on the consumer side and a great returns for marketers.

Your next question comes from Colin Sebastian with Robert Baird. Your line is open. Colin Sebastian - Robert Baird: Thanks, I appreciate the chance to ask two questions. The first one is, I wonder if there's any way we can generalize or correlate around the growth in mobile monetization with the shift to 4G LTE, and whether this could be a driver, as well, of improving monetization internationally, as those higher-speed networks are deployed in new markets. And then, secondly, regarding Nearby Friends, just wondering how you plan to tie that feature and data set into more of a commercialized local offering for businesses, whether that's geo targeting or other related services. Thank you.

Well, a lot of what we're trying to do with internet.org is making so that everyone has the cellular networks that they need to be able to get on the Internet and access basic services, which we think are text-based communication services, whether it's things like social networks or messaging or email or search, whether stock prices,-- like basic stuff like that, that people will use on a day-to-day basis, but don't require huge amount of data. We're pretty happy with the early progress that we've made. We have a multi-year initiative to work with operators around the world to roll-out a program where folks can have free basic services. And as I mentioned before, a lot of the initial work is the initial partnerships were in the Philippines and Paraguay. And what we're really pleased with, even just a few months of work, we were able to help almost three million people get access to data for the first time. So, there is no doubt that going from having no access to data to having some access is a huge jump in terms of the activity on the business that we see -- that's available from people. Moving towards things like LTE later on in the funnel, will be helpful as we move towards richer types of contents like higher resolution photos and videos. so that will be important especially as the mix of content that people share moves towards the richer media. But we're really focused on both and we have a huge investment as well and the internet.org starting just making sure that everyone in the world gets connected.

And Nearby Friends, it's a great new features, is an optional feature we just rolled out last week, I don't know if, people have had a chance to try it yet. But, rolling out slowly, but it’s a great product experience one we're excited to be able to offer. We use the information like this to enhance all the services we provide, and make things more relevant including relevant ads.

Your next question comes from Brian Wieser with Pivotal Research. Your line is open. Brian Wieser - Pivotal Research: Hi. Thanks for taking the questions. First of all, I was wondering, with regard to the WhatsApp acquisition, I was wondering if you could update us on the status, if the current situation with Russia poses any issues given the development team space there. And then, separately, I was wondering if you could talk Nielsen and the use of OCR with respect to advertisers' interest in using OCR tools. Do you find that that's making a difference at the present time in terms of brands spending money with you, in general?

On the first, yeah, the development team is located in Mountain View not in Russia. So… Brian Wieser - Pivotal Research: And they are doing extremely well.

Yes, they're doing really well.

The deal has been closed. We don't have anything to share. But I just would just point you to a blog post that Jan wrote. I think it was yesterday announcing that they just help to connect 0.5 billion monthly asset. We're growing very quickly. So I think that's up to about 460 million monthly is just a couple of months ago when we announced the deal was done in the first place.

And I think that Jan specifically called out a few countries including Russia and Brazil and I think India is some of the fastest growing markets for WhatsApp. So I'd just direct you that statement and you should read that for more information on how they're doing and we'll update you more when the deal closes.

And Nielsen OCR anything that helps advertisers measure their spend is really important. I've talked on the call a bunch about how measuring online and in-store sales really matters. It also matters to marketers to be able to measure their spend compared to other investments they can make. And what OCR has done, it's given advertisers and marketers comparability between TV and digital and our spend. I think in those comparisons we do very well. And I think that is part of the shift that’s happening and its part of why we see growing interest from clients.

Your next question comes from Ross Sandler with Deutsche Bank. Your line is open. Ross Sandler, your line is open. Ross Sandler - Deutsche Bank: Good afternoon. Can you guys hear me now? Okay, Just two quick questions. Facebook's on pace to represent around 20% of global display advertising or non search advertising in 2014. Do you view that as your addressable market? And, if so, what do you see as the potential market share you guys can capture relative to the -- I think, Sheryl, you said it is 23% mobile consumption, ex-China, globally today. And then the second question is, there's been some press recently that Facebook is looking at building peer-to-peer money transfer services. Is that a market that you view as an opportunity? Would that fit into Messenger or potentially a standalone app?

We had our payments business for a while and we continue to have one and nothing new to apps there. On the first question, I think our adjustable market is much bigger than digital and you see that in the trends. The big trend that’s happening is the shift from consumer time. So last year was the very first time those lines crossed and consumers spent more time in digital, which is mobile and desktop than they did on TV. That continues to grow, so where we are right now is, the average U.S. consumer as an example spent 4.5 hours per day on TV but five and three quarter on digital and that’s largely been driven by mobile. That means that as consumer time and attention shifts, we think ad budget shift as well particularly if you have good mobile ad products and you can measure results. So we definitely believe there will be and continuous to be a shift happening. I talked about a print shift happening with that example of Sport Chek in Canada. But we see this across the board that marketers are looking for the highest ROI they can find and they should be comparing us and everyone else across and they do that not just across digital but across print, across radio, across TV, across any other vehicle they can. I think our investments and measurement really pay-off here. We say to our clients all around the world, we want to earn your business because we want to be the best dollar and the best minute you send because both their dollars and their time are so valuable. And we want them to compare us to the other investments that could make to see who can drive the most value to the bottom line and that's what we are focused on and that goes way beyond digital.

I think we have time for one last question.

Your next question comes from John Blackledge with Cowen & Company. Your line is open. John Blackledge - Cowen & Company: Great. Thanks for the questions. Just wondered if you could discuss how Facebook's potential mobile ad network would provide additional value to advertisers than other existing mobile ad networks. And then just a second question for David. I don't know if you could help quantify what meaningfully lower year-over-year ad revenue growth is, or just give us a sense of how to think about it for modeling purposes. Thank you.

On the ad network, we are in very testing for mobile ad network. We do see a big opportunity here. We think because we're people based, we have an opportunity first to provide greater reach for marketers and developers who are working with Facebook across other platforms, but also improve the relevance of the ads people see both on and off Facebook. And I think that has been our core advantage and will continue to be. That said, it's really early days and we're on the early testing phase.

Yes John, obviously the Q1 ad revenues growth here was 82% which is fantastic and a real tribute to the team and the platform. One of the things that contributed to that growth rate is the ramp up of newsfeed ads that in Q1 of last year was still really early in that part of the journey and so the comparison between the state of newsfeed ads in the Q1 we're reporting now in a year ago is meaningfully different. As you'll remember from last year, newsfeed ad really ramped up in the second quarter and revenue growth ramped up as well. So that’s just going to impact the comparisons in the subsequent quarters of the year. Having said that, there is lots of things that we're focused on, that will continue to drive our ad revenue growth including more users and critically more marketer demand. So bringing more marketers into the system, improving our products and tools to increase their returns and their ability to measure those returns and generally improving the quality and relevance and value of the ad. So those are the things that we'll stay focused on.

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. You may now disconnect.