Good afternoon. My name is France [ph], and I will be your conference operator today. At this time, I would like to welcome everyone to the Facebook Second Quarter 2021 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] This call will be recorded. We thank you very much. Ms. Deborah Crawford, Facebook's Vice President of Investor Relations, you may begin.

Thank you. Good afternoon, and welcome to Facebook second quarter earnings conference call. Joining me today to discuss our results are Mark Zuckerberg, CEO; Sheryl Sandberg, COO; and Dave Wehner, CFO. Before we get started, I would like to take this opportunity to remind you that our remarks today will include forward-looking statements. Actual results may differ materially from those contemplated by these forward-looking statements. Factors that could cause these results to differ materially are set forth in today's press release and in our quarterly report on Form 10-Q filed with the SEC. Any forward-looking statements that we make on this call are based on assumptions as of today, and we undertake no obligation to update these statements as a result of new information or future events. During this call, we may present both GAAP and non-GAAP financial measures. A reconciliation of GAAP to non-GAAP measures is included in today's earnings press release. The press release and an accompanying investor presentation are available on our website at investor.fb.com. And now, I'd like to turn the call over to Mark.

Hi everyone, thanks for joining us today. This was a good quarter for our product and business. There are now more than 3.5 billion people who actively use one or more of our services, and I'm excited about our product roadmap ahead. I want to start today by discussing some of the themes that we're seeing and our major efforts around creators, commerce and the next computing platform. Each of these areas is important and it's going to unlock a lot of value on its own, but we're also building blocks for the future of the Internet and the future vision for our company, and I'll discuss that as well. So first, let's talk about creators. We want our platforms to be the best place for millions of creators to earn a living. And if we can do this within our services, we'll also have the best content across many different types of media, from text and photos to audio, gaming and video. Video, in particular, is becoming the primary way that people use our products and express themselves. Now I know this is a theme that we've been talking about for a few years now, but we've been executing on this for a while, and video has steadily become more important in our product. Video now accounts for almost half of all-time spent on Facebook and Reels is already the largest contributor to engagement growth on Instagram. Across all forms of video, short-form video like Reels is growing especially quickly. We're very focused on making it easy for anyone to create video and then for those videos to be viewed across all of our different services, starting with Facebook and Instagram first. People like to watch videos recommended by our personalized algorithm, so this gives creators a good way to reach new people who don't follow them yet and this is also a good complement to our social feeds and it's an area where our progress in AI is going to make the experience a lot better in the coming months and years. On-demand video like in Facebook Watch is also growing quickly and is now growing faster than in other types of video or content in News Feed. We're building a number of new video monetization tools for creators that can get compensated for making great content. So for example, last year, people spent more than $50 million of stars to game stream creators going live on Facebook alone. And now we're extending stars to [Indiscernible] to any creator doing on-demand video as well. I just want to call out live video for a moment. This is a smaller percent of our overall video on our services, but it's some of the most unique content and gives creators a way to build community and engage with their followers. And we're also focused on developing monetization tools like live breaks, mid row ads and live shopping, so creators can make a living and engage their communities more deeply in commerce with their content. So overall, there is a lot more to do here. And as it becomes the majority of engagement across our services in the coming years, we're going to continue to focus on them. We're also focused on other types of creators beyond video and some of the most interesting emergent behavior that we're seeing is creators using a lot of different types of content to engage their communities. We launched live audio rooms this quarter, as well as podcast. We also launched bulletin, our publishing and subscription service for writers with features now can find and grow their audiences, including integrations with groups, Facebook Live and live audio rooms. To help grow the creator economy overall, we're going to keep our creator tools free to use through 2023, and we recently announced that we are investing $1 billion in creators across Facebook and Instagram. So I'm optimistic that creators will get more opportunities to do the work that they want and that's going to lead to people hearing lots of new voices across our different services. The second area that I want to talk about today is commerce. Our goal here is to create better experiences for people interacting with businesses and to help businesses grow even more on our platform. Our approach is to work our way down the stack and build world-class services at every layer of commerce, starting from discovery, at the top of the stack, all the way down to payments. And just like we want to be the best place for millions of creators to make a living, we also want to be the best place for businesses to grow as well. We started here by building world-class ads tools to help businesses reach potential customers and help people discover new products and services that they might like, but what we found is that when these ads link off site, you often land on a webpage that's not personalized or not optimized or where you have to re-enter your payments information and that's not a good experience for people and it doesn't lead to the best results for businesses either. So our next phase here is focused on building out shops, marketplace, business messaging and WhatsApp and Messenger to create more native commerce experiences across our apps. There's a lot of work here to do to support all of the business tools natively that already exist for the web. But as we bring more of this online and enable more of this, it's going to create a superior consumer experience and it's going to convert better for businesses. This is going to lead to more businesses investing in building out their presences across our services and that will lead to even more diversity of products for people to discover and interact with. So this is a long-term strategy. It's going to take a while before it's meaningful, especially given the scale of our ads business already, but I'm confident that it's the right long-term bet in product direction. And as we work our way down the stack from discovery and ads to native commerce storefront, we're also making progress on payments at the same time. So WhatsApp payments are now available to everyone in Brazil, as well as India. Lots of people are using this as a simple and secure way to send money to friends. We're adding new payments features in Messenger in the US like QR codes. We also just announced that we're making Facebook Pay available outside of our apps for the first time, which means that you're going to start seeing it as a checkout option on the web and especially in web view that you see within our apps after clicking on ads or other business content. The commerce experiences are now accessible across most of our services, and we have a full roadmap of deeper integrations that I'm excited about in the months ahead. The third area I want to talk about is building the next computing platform. We're continuing to invest very heavily in building technology and product to deliver a full sense of presence. This is going to be critical for unlocking the next generation of social internet services. Quest 2 in particular continues doing well and it keeps getting better monthly as we released regular software updates, including most recently our pass-through APIs so developers can start building mixed reality experiences on Quest. The range and content and experiences that we're seeing keeps broadening as well to the point where there are a lot of popular virtual reality experiences beyond games at this point. The most popular apps on Quest are social, which fits our original thesis here that virtual reality will be a social platform and that's why, while we're still focused on building it. But we're also seeing compelling use cases and other forms of entertainment as well, as well as work, creativity and fitness. Looking ahead here, the next product release will be the launch of our first smart glasses from Ray-Ban in partnership with EssilorLuxottica. The glasses have their iconic form factor, and they let you do some pretty neat things. So I'm excited to get these in people’s hands and to continue to make progress on the journey towards full augmented reality glasses in the future. Now, the areas that I've discussed today, creators, commerce and the next computing platform, they're each important priorities for us and they each can unlock a lot of value on their own. But together, these efforts are also part of a much larger goal to help build the metaverse. And I'll be sharing a lot more about this in the months ahead, so I want to discuss now as you can see the future that we're working towards and how our major initiatives across the company are going to map to that. So what is the metaverse? It's a virtual environment. We can be present with people in digital spaces. And you can kind of think about this is an embodied Internet that you're inside of rather than just looking at. And we believe that this is going to be the successor to the mobile Internet. You're going to be able to access the metaverse from all different devices and different levels of fidelity from apps on phones and PCs to immersive virtual and augmented reality devices. Within the metaverse, you can build a hang out, play games with friends, work, create and more. You're basically going to be able to do everything that you can on the Internet today, as well as some things that don't make sense on the Internet today like dancing. The defining quality of the metaverse is presence, which is this feeling that you're really there with another person or in another place. Creation, avatars and digital objects are going to be central to how we express ourselves and this is going to lead to entirely new experiences and economic opportunities. I think that, overall, this is one of the most exciting projects that we're going to get to work on in our lifetime. But it could take a lot of work and no one company is going to be able to build this all by themselves. Part of what I've learned over the last five years is that we can't just focus on building great experiences. We also need to make sure that we're helping to build ecosystem so millions of other people can participate in the upside and opportunity of what we're all creating. They're going to need to be new protocols and standards, new devices, new chips, new software from rendering engines to payment systems and everything in between. And in order for the metaverse to fill its potential, and we believe that it should be built in a way that is open for everyone to participate. I expect that this is going to create a lot of value for many companies, up and down the stack, but it's also going to require a very significant investment over many years. I see our focus here as a continuation of our work to build technology that brings people together. In many ways, the metaverse is the ultimate expression of social technology. Some of the experiences that I've dreamed of building since well before I started Facebook are only starting to become possible now. If you look at the investments that we've made over the years, you can see this vision gradually starting to come to focus, and you could see why we're so excited about it. So, in addition to being the next generation of the Internet, the metaverse is also going to be the next chapter for us as a company. And in the coming years, I expect people will transition from seeing us primarily as a social media company to seeing us as a metaverse company. And there's a lot that we do to get there, and they're going to be many exciting milestones along the way, including some, which we'll share in the months ahead. But in the meantime, I just want to take a moment to thank everyone in our community, all of our partners and employees and everyone who have supported us so far. I continue to be grateful to be on this journey with all of you. And now, here is Sheryl.

Hi everyone. Thanks, Mark. I hope you're all safe and healthy. So this was a really strong quarter for our business. Our total revenue for Q2 was $29.1 billion, which is a 56% year-over-year increase. We've seen strong growth in all regions and across most verticals. Our strongest verticals are those that have performed well throughout the pandemic, including e-commerce, retail and CPG. And we're also seeing continued recovery in others like travel that were hit hard by COVID. Our performance continues to be driven by the ongoing digital transformation, which has accelerated during the pandemic and our long-term investments in tools and products to help businesses make the shift online. Not long ago, it was much harder and much more expensive for businesses to create a digital presence, take orders online and reach customers remotely. Our tools and products make these things easier and more accessible. Businesses and creators can set up pages, profiles and chats on Facebook and Instagram. They can engage with customers directly and groups or through Messenger and WhatsApp. And they can tell their stories in creative ways with Reels, Stories or by going live on Facebook and Instagram. With personalized ads, they can easily reach the people most likely to be interested in their products or services for just a few dollars. This has helped so many businesses, especially small businesses, find success when reaching people in person have been much harder. A great example is the Pizza Cupcake, a family-owned baking business in New York City. They've been selling at pop-up shops since 2018. But when COVID hit, pop-up locations shutdown and catering events canceled. So in March last year, they became an e-commerce business. In Q3 they tested their first Facebook ad campaigns in the New York Tri-State area and by the following quarter ramped up their budget to sell across 28 states. They've since made three new hires and plan to start shipping nationwide this year. They've expanded production, which has also led to jobs being created at fulfillment centers in Maryland, Florida, Arizona and California. We're constantly working to improve the effectiveness of our ad products to help businesses like the Pizza Cupcake reach customers and create a great return on their investment. We're doing this through our investments in machine learning and monetization of newer surfaces like Stories and Reels. In all of this, we're planning for the long term. Mark talked about some of the key elements of our strategy going forward, so all focus on the strategy for the ads business. If you think about the journey we've been on over the past decade or so, we started with desktop ads on the right hand side of peoples feeds, then consumer shifted to mobile and we put ads in News Feed. Then quarter-after-quarter, year-after-year, as we've created great new consumer products like Stories and Reels, we found the right way for advertisers to reach consumers within these products. And we're constantly working to make our ads deliver more for businesses and be more relevant for people. To support the growth of our ads business over the next 10 years, it's going to take a similar effort. We need to build on our success by developing innovative new products and discovery experiences, while giving everyone more control over their personal information. To build the next era of personalized experiences, we're focused on product innovations in four areas. The first is discovery. We want to keep making our apps the best places to discover products and businesses you'll love. For example, we're testing a new experience in News Feed where you can tap to browse content from businesses on topics like beauty, fitness or clothing, and reducing context to make smarter recommendations about which ads to show. So if you're watching a travel video, we could show ads for hotels and flights. The second area is commerce, which Mark touched on a moment ago. We're building a modern commerce system across ads, community tools, messaging, shops and payments. It's all about creating a personalized seamless customer journey, where it's easier to discover a product, buy it, pay for it and have it delivered to your doorstep. The third area is privacy-enhancing technologies. We know businesses are experiencing challenges because of platform changes. We want to make sure they can continue getting great results through privacy safe personalized ads long into the future. So we're collaborating across the industry to develop new technologies to help minimize the amount of personal information we process, while still allowing us to show relevant ads and measure their effectiveness. The fourth is building tools to help businesses beyond marketing. We want to help solve all kinds of businesses, whether it's customer relationship management, business messaging tools, or hiring through Facebook Jobs. We're helping people run their business across our apps easily with Facebook Business Suite. We're making it easier to message customers across our apps from a single interface, and we're expanding our Messenger API for Instagram as customers increasingly rely on messaging instead of phone calls. The digital transformation is a long-term trend that isn't going away. By focusing on innovation in these four areas, we will continue to help businesses of all sizes make the shift online and reach customers with privacy safe personalized advertising. As ever, I'm grateful to all the businesses who work with us, and I continue to be amazed by our teams all over the world. Throughout this period, we've been really lucky to have so many brilliant people working hard to keep people connected and help businesses survive and thrive online. Now, over to Dave.

Thanks, Sheryl, and good afternoon, everyone. We delivered strong results in the second quarter, as our services continued to help millions of businesses reach customers around the world. Let's begin with our community metrics. We estimate that approximately 2.8 billion people used at least one of our services on a daily basis in June and that approximately 3.5 billion people used at least one on a monthly basis. Our global community continue to grow, even as we lapped elevated user growth in the second quarter of last year related to the pandemic. Facebook daily active users reached 1.91 billion, up 7% or 123 million compared to last year. DAUs represented approximately 66% of the 2.9 billion monthly active users in June. MAUs grew by 194 million or 7% compared to last year. Turning to the financials; all comparisons are on a year-over-year basis, unless otherwise noted. Q2 total revenue was $29.1 billion, up 56% or 50% on a constant currency basis. We benefited from a currency tailwind and have its foreign exchange rates remained constant with Q2 of last year, total revenue would have been $982 million lower. On a two-year basis, Q2 total revenue growth decelerated to 72% from 74% in the first quarter. Q2 ad revenue was $28.6 billion, up 56% or 51% on a constant currency basis. The macroeconomic environment for online advertising remains very strong. As Sheryl noted, the growth in the advertising revenue was largely driven by verticals that have performed well during the pandemic, such as online commerce and consumer packaged goods. In addition, we saw improved growth trends in verticals that were particularly challenged during the pandemic, such as travel, entertainment and media. On a user geography basis, ad revenue growth accelerated in all regions as we lap the strongest quarter of last year. This is the second quarter of last year, which was a period hardest hit by the pandemic. Growth was strongest in the rest of world at 86%, Europe, Asia-Pacific and the US and Canada grew 63%, 56% and 48%, respectively. Europe, Asia Pacific and rest of world all benefited from currency tailwinds. In Q2, the total number of ad impressions served across our services increased 6% and the average price per ad increased 47%. Impression growth was primarily driven by developing markets, especially in Asia Pacific, while pricing growth benefited from broad-based strength in advertiser demand. Recall that in the second quarter of 2020, the effects of the pandemic contributed to elevated impressions and depressed prices, which we are now lapping. Other revenue was $497 million, up 36%. Other revenue growth continues to be driven by Quest 2 sales, though the rate of growth slowed in the second quarter as we entered a seasonally slower sales period. We also recorded a revenue adjustment for returns related to the Quest 2 from facial interface recall. Turning now to expenses; Q2 total expenses were $16.7 billion, up 31% compared to last year. In terms of the specific line items, cost of revenue increased 41% driven by consumer hardware cost payments to partners and core infrastructure investments. R&D increased 37% driven primarily by hiring to support our core products and consumer hardware efforts. Marketing and sales increased 15%, mainly driven by hiring and marketing spend. Lastly, G&A expenses increased 23% driven mostly by employee-related costs and legal expenses. We added over 2,700 net new hires in Q2, primarily in technical functions. We ended the quarter with over 63,400 full-time employees, up 21% compared to last year. Second quarter operating income was $12.4 billion, representing a 43% operating margin. Our tax rate was 17%. Net income was $10.4 billion or $3.61 per share. Capital expenditures, including capital leases, were $4.7 billion driven by investments in data centers, servers, network infrastructure and office facilities. Free cash flow was $8.5 billion. We repurchased $7.1 billion of our Class A common stock in the second quarter, and we ended the quarter with $64.1 billion in cash and marketable securities. In terms of our sustainability efforts, we remain focused on achieving our goal to reach net zero emissions for our entire value chain in 2030. In June, we released our second Annual Sustainability Report, which details our work towards achieving our objectives. Turning now to the outlook. Similar to the second quarter, we expect that advertising revenue growth will be primarily driven by year-over-year advertising price increases during the rest of 2021. In the third and fourth quarters of 2021, we expect year-over-year total revenue growth rates to decelerate significantly on a sequential basis, as we lap periods of increasingly strong growth. When viewing growth on a two-year basis, to exclude the impacts from lapping the COVID recovery, we expect year over two year total revenue growth rates to decelerate modestly in the second half compared to the second quarter rate. We continue to expect increasing ad targeting headwinds in 2021 from regulatory and platform changes, notably the recent iOS updates, which we expect to have a more significant impact in the third quarter compared to the second quarter. As noted in recent earnings calls, we continue to monitor developments regarding the viability of transatlantic data transfers and their potential impact on our European operations. Turning now to expenses; we expect 2021 total expenses to be in the range of $70 billion to $73 billion, unchanged from our prior outlook. The year-over-year growth in expenses is driven primarily by investments in technical and product talent, infrastructure and consumer hardware-related costs. Our expense outlook reflects our commitment to invest ahead off a compelling long-term growth opportunities we see across our product portfolio. We expect 2021 capital expenditures to be in the range of $19 billion to $21 billion, unchanged from our prior estimate. Our capital expenditures are driven primarily by our investments in data centers, servers, network infrastructure and office facilities. We expect our full-year 2021 tax rate to be in the high teens. In closing, we are pleased with the strong performance of our business and remain committed to innovating on behalf of the people and businesses who use our services around the world. With that, France [ph], let's open up the call for questions.

Thank you. [Operator Instructions] Our first question is from the line of Brian Nowak with Morgan Stanley. Please go ahead, sir.

Thanks for taking my questions. I have two. The first one on shopping and sort of all the Instagram and Facebook shopping efforts. And you've been sort of at this for over a year now. And Mark, I thought, your comments about, it's going to take a while, while it’s meaningful tonight were [somewhat] (ph) meaningful. Talk to us about sort of what are one or two of the key execution areas you really need to overcome to make this shopping opportunity really be larger for the company over the next few years? And then secondly on the creator economy, there's a lot of different platforms with reach and algorithm sort of attacking this creator economy. Maybe just help us better understand a little bit the way you intend to really compete for creators to bring more exclusive content to your platform? Thanks.

Sure. I think I can probably take both of those. On commerce, I think the main thing to keep in mind is just the ads business is so large that it's going to take a long time before anything that we do with commerce is going to be particularly meaningful at scale. But I think overall, the strategy is really to work our way down the funnel from discovery and all the things that we're already world-class that with ads to making it so that those ads increasingly point to shops across our different services. In order to do that, each layer of the funnel that we're working on, we want to be world-class on its own, which means that basically there is this whole long tail of functionality that businesses have come to expect on the web and from other tools, and we need to make sure that that's available for shops and business messaging and all the tools, whether we do that through partnerships, with other e-commerce companies or building it up ourselves. So, we're seeing meaningful improvements every quarter in this in terms of how effective these are. There are already a pretty meaningful number of merchants and people who are using shops, and we expect this to compound over the coming years. But I just think in terms of the scale of the ads business that we're starting at, I just think realistically, we shouldn't expect that this is going to be a meaningful driver of our business or profitability in the near term, it's just going to take a while for that compounding to become meaningful numbers. But I think the strategy is the right one, it's creating a better product experience for people. When you click on an ad or when you engage with the business, it's just going to be much better to do that natively, whether you're in Instagram or Facebook or WhatsApp or whatever you're using, then go to a website that doesn't have your payment information and isn't personalized. So I think we're on the right path here, and we're focused on compounding this as quickly as we can. I guess for the second question on the creator economy. I mean, yes, there are a number of different companies that are focused on this. I'd say there are a couple of things here that are interesting properties of this. One is that if you're a creator and you're trying to get your content out there and you're trying to make a living, you want to be in all these different platforms. So I think a lot of what we're trying to do is, it's not necessarily the case that people are going to be on one platform versus another. We just want to make it so that that creators have their best content here and that we can help them make a living better than other platforms, and we think that if we do, we'll have an advantage on content over the long term, but it's not like we fundamentally have to win creators over from another place. Our monetization tools, I think, are a pretty big advantage that we bring to the table. Our advertising is world-class, so the ability to basically help creators make more money from the work that they're already doing, I think it's something that we should really be able to bring those set of tools to the table. We also have a lot of distribution an ability for people to find their communities and help personalize recommendations to help connect people with the people who are going to be interested in their content. So, I think about that is some of what we're seeing and why a lot of creators are excited about the work that we're doing. And over the long term, I think if we are able to make it so that, millions of creators are able to make a living across our platforms, I think that's just going to mean that there's going to be a long-term breadth and healthy set of content across the systems that I think is going to be increasingly important, especially as video becomes more important on our platforms like, what we're seeing both with Watch and Reels now.

And France, we can go ahead and take the next question.

Our next question is from Justin Post with Bank of America. Please go ahead.

Great. Thanks for taking my question. Maybe one for Dave and one for Mark. First on the DAUs, you're kind of back where you were in Q1 last year for US and Europe. How do you feel about how re-openings are affecting activity and penetration levels today, where could they go from here? And then Mark, really appreciate all the commentary on meta-universe. I think some companies would build in private. I appreciate the thoughts around that. Maybe first, what's kind of the business model on a very high level? And second, what kind of disclosures could we see on expenses around AR, VR? It looks like maybe up to 20% of job openings are Oculus. So it looks like the investments already started. I was wondering if you might be able to -- how you're thinking about giving us updates around that? Thank you.

Yes. Thanks, Justin. On the DAU front, we are seeing those trends being impacted by COVID, that's especially noticeable in some of the larger markets where we have high levels of penetration like North America and in Europe. And I'd say in North America, given our high level of penetration, we do expect sort of MAU and DAU levels to sort of bounce around from quarter to quarter, given kind of how significantly penetrated we are in that market. And then in Europe, we're seeing combination of seasonal slowness, as well as COVID-related softness, when we saw a restrictions ease, obviously, with Delta, we might see other trend, it's hard to predict how that's going to play out in this cycle, but that's kind of the best read on it I can give you at this point.

Sure. And on the metaverse points, we're primarily focused on here. Before I get into the business model, our basic playbook as a company is build products that you get to scale, especially social products. It's important that the people you want to interact with are there. So we are going to focus on having hundreds of millions of people use the metaverse and the new platforms that we're building before we really turn this into what I expect to be a very important and big part of the business. But overall, and I think that there is -- as we embark on this next chapter, ads are going to continue being an important part of the strategy across the social media parts of what we do and it will probably be a meaningful part of the metaverse too. I think commerce is going to be increasingly important, which is why we're -- one of the reasons why we're focused on this across our current apps and the current economy. But I think digital goods and creators are just going to be huge, right, in terms of people expressing themselves through their avatars, through digital clothing, through digital goods, the apps that they have, that they bring with them from place to place, a lot of the metaverse experience is going to be around being able to teleport from one experience to another. So being able to basically have your digital goods and your inventory and bring them from place to place and that's going to be a big investment that people make. And our focus for now is really on helping to develop the community, helping to develop the number of people who -- grow the number of people who can be in these metaverse experiences and can experience in the next computing platforms like virtual and augmented reality and that's I think what you should expect us to focus on for the next period. But over the long term, I think if there's going to be a very big digital economy around this. And that's where we're primarily going to be shooting for. Our business model isn't going to primarily be around trying to sell devices at a large premium or anything like that because our mission is around serving as many people as possible. So, we want to make everything that we do as affordable as possible. So as many people as possible can get into it and then compound the size of the digital economy inside it. So that's kind of at a high level how I'm thinking about this, and I'm happy to talk about this more as we continue to evolve the investments. And Dave can speak about the expenses and disclosures and all that, but I will note that that I appreciate the ingenuity and cleverness of looking to our job descriptions to just to see where we're investing. This is a big focus, as I called out in my comments at the beginning.

Yes. And Justin, I mean obviously, from a capital allocation perspective, our overall focus is on growth, and we've repeatedly called out that as it relates to our investments in innovation, FRL is a big focus area for us and a major investment driver in our expense outlook. So we have mentioned that we're investing billions of dollars annually, and we expect to invest in this area for the foreseeable future. As we make progress towards building this next computing platform, there is a lot of hard work that needs to be done. But it is a big focus, but we haven't provided any more granularity on it. Okay. France [ph], you can go ahead and go to the next question, please.

Our next question is from Doug Anmuth with JP Morgan. Please go ahead with your question.

Thanks for the questions. I'm going to go two for Dave. Just first on the mix of slower impression growth and then with prices the driver here for the year. Is there anything else that we should be thinking about beyond the comps from last year? And how do you think that expanding surfaces to create more ad inventory going forward? And then secondly, just curious if your view on ATT has changed over the past three months at all? And if you could comment at all just early on some of your mitigation efforts and what you're seeing there? Thanks.

Yes. Sure, Doug. In terms of impression growth, we'd called out last quarter that we would expect for the remainder of 2021 for pricing to be a bigger driver of growth. And mentioned at that time, there are a few factors driving it. The biggest factor is lapping the COVID engagement that we saw that was particularly pronounced in North America, where we saw more engagement related to the lockdowns and higher impression growth last year. So that is one of the big factors. The other factor that we're seeing is a shift towards video both for our products and other products. And that's just generally a big trend in the market and that tends to have a lower impressions per the amount of engagement than things like News Feed. So kind of both those things are factors, but the COVID factor is the one that I would call out. And when you think about how we're expanding services to create more ad inventory, I would say that we've got a number of impression growth opportunities. We've seen growing impression contributions from new services, like Instagram Explore broadly within video, marketplace and then when we look forward, I think Reels is a really significant future opportunity. We've only just really begun to make ads available globally on Reels. So, when you kind of look at all of these different services, we think there are a lot of good growth opportunities. They're still small and absolute size compared to things like Feed and Stories, but big opportunities for growth. In terms of your question on ATT. So the impact from the ATT changes has really generally been in line with our expectation. We're obviously benefiting as others are, from a very strong macro environment for advertising. But look, this has been very challenging for advertisers to navigate, and we're working with them to help them navigate these changes. And we've introduced solutions to help them do that through approaches like our aggregated events management API, which is aggregated data for targeting and measurement. Obviously, we're doing a lot of work on using machine learning and AI to help rank ads and make them more valuable. But overall, we do think there are opportunities to continue to improve our capabilities through investments in areas like machine learning and AI to make ads more effective. And if we can get advertisers to get the same number of conversions from fewer ads, that's great. That works for them and it creates more value for the ads for us. Okay. France [ph], we can go to the next question?

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

Okay. Two questions, please. Back on the metaverse investments, Dave you used to take a swing at that question about how much expense associated with building out the metaverse that investors should expect? We came up with their own crude numbers of maybe 5 billion a year or are we anywhere ballpark close on that? And then given the rise in pricing, just address the issue. I know you've done it in the past to the extent to which that's had a material impact on ROI for marketers. I know it's an auction-based system, but as prices rise, is there any reason to be concerned about whether there will be some marketers that would be priced out because of that and create less optimal outcomes for your platform? Thanks a lot.

Yes. Sure, Mark, and I certainly hit this with Justin's earlier question. We haven't given a specific breakout on what we're investing in FRL, it's obviously a significant investment we've categorized it is billions, and so your number is billions. So it's consistent with that saying billions. But beyond that, we don't have any more specificity to get. But it is certainly a significant investment. And I would say that is inclusive obviously of all of the efforts we're making across FRL, not just the metaverse. And then on pricing and ROI, Sheryl, you might be able to give some color on that as well. You're muted Sheryl. Hang on a second.

Sorry. On pricing and ROI, the beauty of an auction is that people can see the prices they're paying, they're able to measure the results and then data appropriately. As people get more specific, more personalized, more targeted in what they're doing, even if prices are rising, they can find the bias within the system that work for them. And the good news is that's good pressure in the system because it makes the ads more relevant for the people who are seeing them. Once you are really incentivized within an option to find the saying that is returning for you, that's actually almost always the same, that is the most relevant for people who are seeing the ads. And I think that's been a good system and good pressure within the system going forward. We're certainly seeing our large brand advertisers continue to spend and get better at using personalization in our ad formats. And we're seeing small advertisers be able to compete very effectively. It doesn't mean that rising prices aren't an issue some time, but I think overall, this is where the auction system serves us well, and most importantly, serves consumers well.

Okay, thank you.

Great. France [ph], we can go to the next question.

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

Great, thank you. Two questions, please. First for Mark, maybe going back to the metaverse vision, how much of the building blocks that you need to basically build this future is within your control versus maybe pieces that other need to build? I'm thinking, particularly around the hardware side because just listening to you, it seems like this is more of a communal thing that many, many, many people, many parties, even maybe some walled gardens would need to kind of open up to embrace this. Just wondering how you kind of look at that? And then maybe, Dave or maybe Sheryl, I want to go back to the impact of iOS 14.5 on targeting general, but maybe DR in particular, we heard from several marketers throughout the quarter that they had pulled back, not just on Facebook, but really across the board on the some ad formats like app installed ads because of ATT. I was wondering if you can maybe speak to DR versus brand? Thank you.

I can start off with the metaverse question. I do think that this is going to be a macro wave overall that a lot of companies are going to be able to ride and benefit from. So whether that companies like and videos that are building a lot of the graphics chips that are going to be really important for a lot of the content, but I think is going to be increasingly graphically intense, that certainly building those kind of graphics chips is not a thing that we're intending to get into, where certain accounting on companies like that in the industry to kind of continue improving compounding overall. But on the hardware side, I would say that we have a pretty big program on building virtual and augmented reality devices. And I mean, sure a lot of people are still going to be using phones and computers for a long time, but I think when it gets to what are the devices that are going to deliver the deepest sense of presence and that are going to be increasingly important over the next decade, we're certainly investing in that because we want to make sure that those develop in a way that's in line with the vision of these platforms helping people to interact with each other and socialize, then that means prioritizing certain feature development or certain sensors in the devices that we want to make sure that we can help push that in a direction that will help us to become a very social platform. So overall, I do think this is going to be a big space. The point that I was making is that, I think they're going to be a lot of winners and this is going to be nothing that one company builds alone, but I think it is going to be a whole ecosystem that needs to develop. So we're certainly making a lot of the key investments that we need to make in the foundational technology to be able to deliver the parts that we want to.

Youssef, why don't I start off on it, and then if Sheryl wants to add any color, she can jump in and add that. So in terms of Facebook ads performing well in both direct response and brand, this quarter, we continued to see solid growth across both direct response and brand. Direct response continues to be the bulk of our business and the primary driver of growth, but we did see a nice rebound consistent with others in the market of brand spend back on platform and brand obviously took a big hit on a year-ago basis, really saw a bigger pullback in brand and sub-brand came back more strongly than DR. But DR is still doing quite well. We're seeing a lot of the categories that let during the pandemic continue to do well and those are all highly DR-centric verticals like commerce, so continuing to see good performance there.

The only thing I'll add is that increasingly the brand DR distinction is less and less traditional, large brand advertisers that have done brand advertising for a very long time are increasingly learning to do direct response ads and use our different formats and use our different measurement tools. So even the categories that people are used to thinking about, I think it's more of the buy than the advertiser as our largest brand advertisers. I think many of them are becoming increasingly proficient and effective in what would traditionally be considered DR advertising.

France [ph], you can go ahead and go to the next question, please.

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

Hey, just one question for Mark or Dave. I guess, a follow-up on the creator economy topic. So YouTube pays $0.50 on every dollar to the creator, about $15 billion or so this year. So I guess, Dave, what's the view on the financial model and how that might change as you guys are winning in this area? I know that influencers are getting paid maybe not directly by Facebook today, but by other folks to postings on Facebook. So I guess in the new world, are we looking at lower margins and other things that might offset like higher engagement? And then is the creator content going to be on just the new surfaces like Reels or is it likely to proliferate everywhere, including like the News Feeds on Instagram? Thanks a lot.

Yes. Ross, I can take that. I think it's a question of definition as well. I mean, we already like YouTube pay a lot out to the creative industry more broadly as opposed to specific individual creators. So for instance, we pay to on the music licensing front, we do a fair amount of that, there is significant payments we make there above and beyond what we're talking about with $1 billion commitment to creators that Mark outlined. This is obviously something that is part of the cost structure, but it's something that we've long had in our outlook. So I don't think it's a meaningful change in the business model or outlook, but it is something that we're committed to helping people continue to build a vibrant communities and businesses on our platform, just like we have with advertising. France [ph], you can go ahead and go to the next question, please. Thanks.

Our next question is from Mark Shmulik with AllianceBernstein. Please go ahead.

Yes. Thanks for taking my questions. A couple for Sheryl or Dave. The first on Reels ad, a lot of talk around kind of the upgrade cycle to video and any color you can share around the engagement, traction or effectiveness of kind of video ads on that type of a platform? And secondly, with 1.2 million stories now on shop, specifically those selling on Facebook, are there any learnings or noticeable differences in the effectiveness of the ad of their advertising or conversion rates? Thank you.

I can start by talking about Reels ads. Our process has been, as I talked about, we roll out consumer products and then we find the right ad format so that businesses can take those opportunities as well. And I think that's what we're seeing. We now have Reels ads available to advertisers and almost all markets where we hold is live. It's a pretty similar format to Stories, it's full screen and in between Reels videos up to 30 seconds. We think it's a pretty natural fit in Reels. It's a really great discovery surface, and we're seeing engagement and effectiveness parallel some of our other products. And we're really pleased with that. It's still early, but we think that has a lot of potential. Do you want me to take the second question?

Either way, Sheryl, I can take it if you want.

Yes.

Yes. So Mark, on the second question, we're obviously very focused on making sure that our ads are effective, and we've got good conversion rates for our advertising partners. So part of what we're doing there and Mark talked about this in the Q1 call is making sure that the ad units optimized for whichever experiences is converting the best. So if you've got a store, a shop on Facebook or Instagram is that converting better or is your own web store converting better and then that allows us to also just get better at making our shops and more effective. And so we want to do what's best for the advertiser and also continue to make our online and our own shops more effective. So no specific numbers to share there, but we're continuing to work to make our shops convert better. And France [ph], we can go ahead and go to the next question, please.

Our next question is from Brent Thill with Jefferies. Please go ahead.

Thanks. Dave, just the modest deceleration to your two-year stack. There are a lot of investor questions. Do you mean more 3 or 3 points or de-cel or is it more 5 to 7, any more granularity you can add to what that modest de-cel looks like would be extremely helpful? Thank you.

Thanks, Brent. We didn't provide specific guidance on it. We obviously saw a deceleration from Q1 to Q2 from 74% to 72%, and we expect modest deceleration in the second half of the year, but we haven't put a specific number on that. And France [ph], you can go ahead and go to the next question.

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

Great, thanks. Two questions. On the iOS changes, any color on the opt-in rates for Facebook and Instagram? Are they in line, better or worse than your expectations at this point? And then on OpEx, at the midpoint of the guide, plus 39% growth in second half versus 28% first half. Just any color on key drivers of the accelerating OpEx growth in the back half of the year? Thank you.

Yes. Thanks, John. On the iOS changes, really very much in line with expectations on things like opt-in rates. So I would say overall the impact has been in line with our expectations. So not a huge surprise there. We're not fully rolled out with those changes, but Q3 will have the impact more or less of those being fully rolled out. And then in terms of the OpEx guide, yes, we do expect accelerating expense growth in the back half of 2021, and we're going to see that in areas like consumer marketing. So some of the non-headcount related spend, we expect to accelerate in the back half of the year. So that's the expectation on that front. And France [ph], we can go to the next question, please.

Our next question is from Colin Sebastian with Baird. Please go ahead.

Great, thanks. Good afternoon, everyone. Maybe a couple of higher level questions, really coming out of F8 Refresh. First off, can you talk about the integration of messaging across the family of apps and how the opening of messaging APIs is adding functionality to apps and if this is contributing incrementally to more business activity through messaging? And then with advanced AI and machine learning now seemingly table stakes for most platform companies, Mark, I'm just kind of curious if this is still a significant competitive advantage for you in your view? And based on what you heard of F8, I wonder how important a product like PyTorch is in terms of moving faster in new product development things like that? Thank you.

Sure. I can take both of those. So in terms of messaging, we're working on cross-dock communication between them, business messaging APIs. I mean, a lot of this is very much -- the business messaging I think is going to be an important part of commerce and helping people interact with businesses in a way that is natural to them. The cross-dock communication in terms of helping people reach people wherever they are, it kind of fits into this vision that we have for the future of people being able to easily teleport between experiences that I think it's going to be increasingly important as we move towards the metaverse. People are going to need messaging services that's going to continue to be a core way that people communicate, people are going to want to reach the people they care about, no matter what service they are on and be able to move between these. So when I talk about kind of interoperability and moving more there in the future, we're trying to get our core experiences today aligned with that as well. The other thing on messaging is the connect to the business today is that click to messaging ads are one of the parts of the ad business that is growing quickly and doing quite well. And part of that is because even if we're not charging a lot directly for the messaging APIs for businesses, that if the interactions between people and businesses end up helping businesses convert better and drive more sales and business is naturally going to want to pay to have their ads point towards that rather than other surfaces that we may not control or that may be a worst experience, so that's on the messaging side. On the AI side, I mean this is a really good question, it's probably something that doesn't come up as much on these earnings calls, as it probably should for how important of a driver of the progress in AI is for our overall results. One of the things that I've observed and just running the business over the last couple of years is there's a lot of focus on kind of different headwinds that we may face, whether it's from other platforms or regulation or different things. But one of the areas that I think has routinely outperformed our expectations is progress on AI. And we don't have a single product, which is like an AI product that's sort of the embodiment of all the AI work, that's not something that we've done yet. But basically, we've a very large investment in AI, and we build out this platform, but then all of our products used. So when we make foundational improvements, it makes ranking better, a news feed and Reels and ads and it makes our sound detection and our integrity systems more effective at identifying stuff, everything just get better and this is really been one of the big tailwinds are way of is that that we've been writing and just from what I can see technologically, on the horizon, it really doesn't seem like this is going to be slowing down anytime soon. And I don't think that this is a Facebook specific thing, I think that this is probably across the whole industry or maybe even across the whole economy more broadly. But I do think that the progress that's been made at the fundamental levels with AI is driving a lot of progress and just one of the important macro effects that we're seeing. For PyTorch specifically, I mean, it certainly helps that the framework that we use to develop our AI work is one that's embraced by the communities. So a lot of time is when we go to spin up a new project is that there already have been some team that contributed an open source library to it, and that makes it easy. So I think that there certainly are dividends that we get from having developed or help develop PyTorch to become an increasing standard, especially among researchers and it's certainly an area that we're going to focus on investing more in. I think that the core AI platform is just an important part of the progress that we're seeing overall.

And France [ph], I think we have time for one last question.

Very good. Then our last question will be from the line of Michael Nathanson with Moffett Nathanson. Please go ahead.

Great, thanks. One for Sheryl and one for Dave. Sheryl, in the past I've asked you this question, but now we're seeing it. So post-pandemic, there has been a real weakness in TV impressions. And as TV dollars are going to look like to Avon in YouTube. So can you talk a bit about your vision for video and how they may seek opportunity maybe grab some TV dollars? I mean do you expand the definition of creators to include premium video content or sports? And then for you, Dave, following up on Doug's question, can you talk a bit, I know it's early, about the learnings from your aggregated event measurement? What has been the impact on things like signal loss, ROI or spending from those who have used it in the early days? Thanks.

So I can talk about video ads. So we're seeing very strong growth in video monetization across Watch, Feed, Reels, and we think we're continually getting better at monetizing video. But there is still monetizing at lower rates versus feed stories, but we have a lot here. We have 2 billion people watching in stream ad eligible videos per month. Mobile first video is increasing, meaning even brand advertisers are getting better at doing mobile first video. And certainly, we think advertisers are looking for the best place to reach audiences, and we compare very favorably across the board. I'll share really I think a cool recent example, Walmart, a very larger advertiser engaged Ree Drummond, who is the Pioneer Woman cooking show host to host their first live shopping event. And the event was to launch for Walmart exclusive line of home and fashion products, and they used a mix of our personal ads to drive awareness to a live shopping event and then reengage its viewers after a purchase, and they had really great results across the board. They ran part of that live as video ads and resulted in thousands of engagements -- a lot of engagement with people and sales. And so, I think that's a good example of our products like live, combined with the use of video on our platform, combined with people taking an opportunity for video ads and putting it all together in ways. I think, will compete very favorably with other formats like TV.

And Michael, I'll take the second question. I don't have specific data to share, but I mean just contextually, the work that we're doing with the aggregated events management API is part of the broader work that we're doing to rebuild meaningful elements of our ad tech. So that our system can continue to perform well, having access to less data in the future. And it really dovetails into some of the work that Mark was talking about with machine learning and AI, because that's going to be an important part of being able to make better use of less data. And so, again, why having access to the ML and AI capabilities that we have with Facebook or is going to be so important to the future and maintaining and growing the efficacy of ads. So I think broadly, we're pleased with the progress we're making on this. It is disruptive for advertisers to have to go through the process of also learning how to retool. So I don't want to lessen the impact this is having on our advertisers. I think it is a challenging period for them, and we're trying to help them work through it as effectively as we can. So with that, I think we are done. So thank you, everybody, for joining us on the call today, and hope everybody stays safe.

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