The world's largest social networking site Wednesday released its first quarter earnings report in 2017, followed by an analyst conference call, CEO Mark Zuckerberg, COO Sheryl Sandberg) and CFO David Wehner attended the conference call to introduce the company's first quarter of the business and financial situation, and the scene to answer the analyst questions.
The following is a summary of the conference call:
UBS Securities analyst Eric J. Sheridan: I would like to ask Mark and Cheryl to answer a question related to Instagram. Please talk about the prospect of the development of the Instagram user community, such as user growth, user engagement, and the profitability of advertiser and advertising product reforms, as well as the impact of these prospects on the future of Instagram, which has developed Facebook over the past two years What is the difference compared to the business?
Facebook CFO Weiner: I have to answer this question, Cheryl added it. Speaking of Instagram, we will witness the development and growth of the user community. In the past quarter, we announced that Instagram's monthly active users reached 700 million people, which is global growth, we are satisfied with this.
As for the development of advertising, we do not intend to publish Instagram's specific revenue data, because these ads are also sold through the Facebook advertising interface, but we found Instagram has provided a considerable revenue contribution, its growth rate is also very impressive. We are developing this business through a variety of advertising products, and virtual reality will be a more important part of the Instagram business. Instagram initially focused on the brand business, but we will expand this product to direct response, we will continue to introduce more advertising products Instagram.
Facebook COO Sandberg: We are very pleased with the development of the Instagram advertising business, as Facebook and Instagram are two of the most important mobile advertising platforms. Instagram has a special attribute, that is, to enhance the visual effects of advertising and creative canvas, Facebook positioning technology and detection system is really an extraordinary combination of combination. We found that these ads and creative canvas has been widely used, many small customers are using them. Instagram platform has 1 million advertisers and 8 million case files.
For example, Brazil has an online store called "Loja Nama", which sells decorations and accessories. Owner Joanna Cariello takes pictures of the goods on their mobile phones and then makes an ad with the "Shop Now" button. Her target customers are young people in Brazil who are interested in fashion, decorations, movies and architecture. During the promotion, 79% of her store's revenue came from Instagram. I think this is enough to show how powerful the very advanced positioning technology we offer on all platforms, it can use very simple tools such as mobile phones to produce very complex but visually appealing ads.
Douglas T. Anmuth, an analyst at JP Morgan Securities: First of all, I would like to ask Mark to talk about Facebook's video strategy, Facebook Live section of the push and authorized content type will happen what kind of change, which will video What is the impact of the business's revenue share and gross margin?
Second, advertising revenue in the US and Canada increased by 47%, but it was lower than the growth rate in previous quarters. What is the reason behind this?
Weiner: Yes. But I do not think there is any particular reason why the growth rate in the US and Canada markets is declining. We have already said that we expect advertising revenue growth rate will decline, we found that the US and Canada market situation is true.
It is clear that we are very pleased that the demand for beneficiary areas such as the Asia Pacific region and the rest of the world is very strong. The market demand for the entire Asia-Pacific region is really strong, and in the rest of the world, we have found a rebound in demand in Latin America, especially Brazil, where demand is particularly strong. I think this is a bright spot.
In terms of content, we will invest heavily in building an ecosystem for long-term content on Facebook, which will affect how we collaborate with content providers to create content. In the long run, we expect this platform to implement a revenue share of the business model. Obviously, we have to share with the content provider, from the cost of the file point of view, this with the core Facebok News Feed profit margins are different.
Morgan Stanley analyst Brian Nowak: I would like to ask Mark to talk about the biggest trends you see in terms of Messenger's monetization. In the next two to three years, you think that the monetization of Messenger What will happen to make your most delightful changes?
In the user participation, Instagram and Messenger user base has maintained a healthy development. I am curious, do you think each of these three platforms will continue to increase the time for each user? Even in the case of growing customer base in Japan.
Zuckerberg: Let me talk about strategy. What we have to do first is to let many businesses use Messenger and WhatsApp organically to build behavior files for everyone who has contact with them for customer support or access to news content. These things may not eventually become a big business case, but It can establish these people and friends and the interaction between the various business behavior of the file.
Once we have created this behavioral archive, we can zoom in on it through various means. We have already conducted two tests, the first test is to show the News Feed ads, but not in Messenger or WhatsApp internal display, but in Messenger or WhatsApp directly with the enterprise communication link. The test results are great, the conversion rate for enterprises than before to improve a lot. They can communicate better with potential customers and build long relationships. I think this way is valuable. The other way, of course, will eventually show paid content in Messenger, either in the inbox or in other places in the product in the right way.
But it is imperative to establish the organic interaction between man and business basis. Once we build this foundation, there is a great opportunity to set up a business that will be proportional to the number of organic interactions that potential customers want to do.
Bank of America Merrill Lynch Bank analyst Justin - Justin Post (Justin Post): the first quarter of the ad load growth? What drives the first quarter of advertising prices up? Looking to the third quarter and ad blocking applications to the desktop, will you increase your ad blocking efforts to maintain this growth rate? Is there any other way to think about it?
Weiner: I will not disclose specific measures in terms of advertising supply. Supply growth is healthy, the first quarter of the user spending time and advertising load have contributed.
As for what promoted the rise in advertising prices, I think it is demand, which is in the supply growth rate slow down is justified. Of course, as you can see, advertising auctions have boosted ad prices, and supply growth and price increases have always been relevant. We found that strong demand for price increases have a great influence.
When we apply these initiatives to the desktop, I think you will find a long-term trend. This will be a holistic factor affecting the desktop business and our ability to develop and maintain desktop business, so I think this is a fundamental factor. We will test the ad blocker repeatedly on the desktop. So I think this will continue to affect the desktop business revenue.
Robert W. Baird analyst Colin Alan Sebastian: Please talk about the trend of user participation in video content and video ads, such as average viewing time, and whether this will affect To impress impressions increase And then please talk about Facebook application growth of video advertising spending on television advertising budget caused by how much negative impact? Is there evidence that this share is changing?
Weiner: The first quarter of the impression impression growth rate of 32%, slightly lower than the previous quarter.
People who have been concerned about Facebook development know that we will periodically adjust the product, which will affect some of the financial indicators. What I want to say is that one of the factors that affect the growth rate of impressions in the first quarter is that we decide to increase the ranking of long videos in the News feed. This means that people spend time on the video will increase, which will certainly affect the News Feed in some of the growth rate of advertising impressions. I think you will see the impression that the growth rate of impressions and our focus on video content there is a certain interaction between.
Sandberg: In terms of television advertising, we found that people continue to advertise on television and Facebook ads as a supplement. In time, we believe that advertising will change with the attention of the audience, we hope to attract customers and customers advertising budget, to help them in a variety of advertising channels to make the best choice.
I am more and more that the problem is not what kind of TV will be, but not how will move. We are trying to help advertisers create creative video compatible with mobile platforms, because the difference between the middle is really great. We believe that combining mobile creative ideas with our detection and targeting technology will be a very powerful product.
John Blackledge, an analyst at Cowen & amp; Co.: I asked two questions, first asking Mark to talk about Facebook's intention to recruit 3,000 people to review the content. Will the use of artificial intelligence technology to help solve the problem of content review? From a broader perspective, how does the company deploy artificial intelligence in each business compared to two years ago?
The second question is whether new ad formats such as mid-roll video help ease the slowdown in ad load growth in the second half of 2017.
Zuckerberg: I'm talking about content and artificial intelligence. Simply put, the answer is yes. Artificial intelligence tools play a greater role in helping people review content over time, so that we can give priority to what we care about. What we have to do is not just clean up some bad content from Facebook. Last week, something happened, some people use Facebook Live to spread suicide video. We did not take it down after we saw the video, but contacted the law enforcement agencies, who used live video to get in touch with the man and saved their lives. Therefore, we have to do a lot of things, not just to remove some of the bad content, but also in people need help when they help. We value that very much.
Artificial intelligence tools will get better and better with the passage of time. Now, Artificial Intelligence technology has been able to do something by understanding text, photos and video content. It will become better over time. But in order to achieve the quality of the series we want, it takes about a few years time. So our strategy now is to continue to develop as good a tool as possible, because no matter how many people in our team, we will never be able to do unavoidably. This would be a daunting challenge.
But because it is important, and live video is growing very fast, we promise to redouble our efforts to ensure that as much as possible for the entire user community to provide a security experience, that is, we decided to expand the size of the community management team Reason, so that we can focus on solving live video security issues. But with the passage of time, more work will be done to artificial intelligence tools to do, but this process may take several years.
Weiner: John, I think you are asking about advertising time (Ad Breaks) and video in the form of advertising. We are testing small advertisements on longer live and on-demand videos, and testing is going well, but it's too early to talk about the test results. We will continue to work hard to improve these products and continue testing. In this regard, our goal is to create a best video experience for the community, giving priority to providing relatively long video content. Advertising time will help us to find long video monetization strategy. But as I said, it is too early to talk about these.
Goldman Sachs analyst Heather Bellini: I mention a question about Instagram and Facebook Stories. Last year we were talking about advertising growth, and Weiner said that advertising spending growth slowed down, and I think we all expected that. But how do we see these new applications or use new ways of using these applications? You have already begun to see the use of mobile phone applications will appear in the process of inserting ads. Whether this is not the same as the changes in the ad load of Weiner?
Also I would like to ask Sandberg a question. Are advertisers now asking for some of the advertising test indicators, can you help them? This may make them more eager to transfer the budget from the TV platform to the Facebook platform.
Weiner: About Facebook Stories, the situation is the same with the advertising time. The various forms of advertising used in Stories are still in very early stages, and they are not counted as ad loads. So as you said, this is not the same as what I said before. But it is clear that these products are still in the very early stages.
Sandberg: We all know that advertising testing is important. We really want to detect the core business results and make it the biggest factor in the development of our customers business. We will continue to evaluate our test indicators. When we find loopholes or mistakes, we will report them to the customer, solve the problem, and in the use of indicators continue to analyze the indicators.
We have also been very concerned about expanding the scope of testing cooperation and third-party verification. In the last quarter, we extended visibility testing to Audience Network and added DoubleVerify, a verification partner for video advertising and display advertising testing, and launched our MMM (Marketing Portfolio Modeling) website to help people detect Advertising on different platforms, and comparing the efficiency of advertising spending on different platforms.
Nomony Securities analyst Anthony DiClemente (Anthony DiClemente): I would like to Zuckerberg and Sandberg asked a question. Zuckerberg at the F8 conference and today are talking about the camera to become the core of the application, so that the camera has become the first to enhance the reality platform. I know it's still early to talk about it, but please talk about some of your ideas about the potential business applications that enhance real technology.
Recently the industry has been talking about Facebook and Instagram platform celebrity marketing and its effect. When the brand to use celebrities or influential people to use Facebook posts to sell their products, Facebook plans to participate in how? Do you want to make more transactions on the platform to complete, in the Facebook platform to create a shopping experience?
Zuckerberg: Okay, let me talk about enhancing reality. The news we announced at the F8 conference is a big step forward, and many different applications have joined the camera factor, and many independent developers have developed applications that have a single camera effect. But what we have to say is that people have developed so many innovations and different types of effects, but we do not want developers to develop a new visual tool and have to develop their own individual applications and develop to such a large scale.
So we took this work, we will put all the applications within the camera to create the first platform to enhance the reality, playing an open platform, which with all the previous use of the camera did not do the same The This will create a large number of application cases, not just as we have developed a virtual mask or style change that application case, you will have thousands of different choices, not just 10 or 20 options. There are many new features that we can not think of now.
I showed at the F8 conference one of the cases using object recognition and computer vision technology, aligning the camera with an object, and clicking on it would get the information or even a purchase button. Over time, this content will have many different ways to enhance the objects that exist in the real world and eventually replace them, and I think it's an interesting opportunity. Perhaps eventually will not appear in the mobile phone to enhance the reality above, but above the smart glasses.
I think that one day, we may no longer need a TV, as long as a $ 1 application can watch TV. This will be a fun thing, now the real world there will be a lot of things will no longer exist, but also to developers around the world to open endless innovation opportunities. Many people do not own factories, they can not produce televisions. But taking into account the number of children around the world and different developers, they can sit in the dormitory they can now develop things that can not be developed.
So I hope this will create a rather interesting economy. A lot of things to wait 5 years or even 10 years to become a reality. But we want to work in this direction. I think we found this trend a bit late, but now we are at the technical level ahead, we will develop this technology, make it an open platform is a big step forward The Many people will use these products in our various applications, and I expect that we will continue to lead this trend.
Sandberg: When it comes to influence marketing, we find publishers interested in it, and brands are interested in it. So we have been making brand content, sponsor OEM and share posts. Financial arrangements are still between sponsors and publishers. Although it is still some early now, but we have seen publishers in the Facebook platform to publish brand content brings a lot of positive results. In the first quarter, we opened this feature to unverified pages, so that we can make more people use this targeting technology.
We found more targeted content. For Facebook users and marketers, the key factor driving performance improvement is the best-performing ad. Therefore, the influence of marketing is a way to achieve this goal, but we focus on a very comprehensive orientation function. We are very pleased with the use of targeted products such as Custom Audiences, Lookalikes and Dynamics Ads, and we believe that these targeted products can improve the ad orientation and give the marketer a higher return, and they will make the user more satisfied.
RBC Capital Markets analyst Mark Mahaney: First, Facebook decided to publish earnings in accordance with US GAAP requirements is a good thing. Second, we've said about advertising and ad load, and I'm not sure if you have a slight change in the amount of ad load that is mentioned throughout the year and the second half.
The third question I would like to ask Sandberg and Zuckerberg. Recently, the media reported that there was a gender discrimination in the Facebook engineers' team, and you immediately responded that you said that even if there was a job discrimination, I thought it could give Facebook a chance to make it better for Silicon Valley and the whole There is a general problem in the technical community that does not respect female technical staff. How do you see this opportunity?
Weiner: I will soon solve this ad load problem. If I had not said enough before, then now I reiterated that the company did not adjust the expected target. We still expect advertising revenue growth will slow down, which will become very obvious in the second half of 2017, because from the second half of the ad load will no longer be an important factor in promoting advertising revenue growth.
Sandberg: I am happy to have the opportunity to talk about the problem of female engineers in the Facebook technical team, because I attach great importance to this problem. The research on which the report was based was conducted by a former employee of the company, but the data he was in was very incomplete. Our corporate culture encourages employees to conduct such research and share research results, and the study is shared with other employees in the company, and we are very pleased because it helps to make the problem appear, and we immediately use the complete data Their own research.
We found that the main reason why the code was sent back at different speeds was not related to gender, but to the level of the job. The outside world has this misunderstanding because our senior engineers are mostly male. If there is no difference between male and female engineers who compare the same positions.
This has brought some other problems, such as whether the same speed to promote male employees and female employees? Are the salaries paid to male employees and female employees fair? We have a comprehensive analysis of each of the personnel promotion, pay and performance evaluation, we concluded that: we promote the male staff and female employees the speed is the same.
Nevertheless, there are still many problems with the entire technology industry, and we have a lot of problems. We do not have enough women senior engineer, not enough women to enter the field of computer science, we attach great importance to this problem, we have done a lot of efforts with LinkedIn, also established a lot of colleges and universities in the United States "CS & amp; E Lean In" , To encourage more women and vulnerable groups to enter the technology industry. We added some great content to the internship program, so that those who did not major in computer science but the ability to engage in this work to join in, to provide them with a summer training, watching them come back to ensure that Various problems of discrimination are emerging and resolved. For us, there is no more important than this.
Barclays Capital analyst Ross Sandler (Ross Sandler): I would like to mention two questions on the video. Although the video business is still in the testing phase, you see those trends? From a long-term perspective, the video column under the video consumption will grow significantly? Or do you stay in the News feed now?
Are the costs associated with video ad revenue sharing or video content authorization recorded in the 2017 operating expenses budget? Will this part of the expenditure continue to increase in the coming year?
Zuckerberg: Facebook may not have published statistics for video columns. But from a strategic point of view, there are now two cases that use Facebook to sign in. Very often, people use News Feed is the biggest problem is their limited time, they do not intend to see a particular type of content, but just want to sign to see the current news.
There is also a case of use of content, because you certainly want to see some content and want to see on the line, then you are willing to look at them in the application or sit on the TV to see them? This is the reason and purpose of launching the video section so that you have a place where you can directly consume what you want to see.
Why should it be made into a different section or at least one service different from News Feed? It is because people visit it for the purpose is different. Later you will find that some people are visiting Facebook for the News Feed, and some are visiting Facebook for some video in the video section. That's what we have to do, that's our strategy.
Weiner: The cost associated with video ad revenue sharing or video content authorization is indeed credited to the 2017 operating expense budget, which includes all the R & D investments we are conducting, including the content that we have said today Community operation investment. But I would like to say that this video content transaction is likely to continue after 2017. So there will be some expenditure in 2017, but I think these expenses will continue to increase after 2017.
Citi Global Market Analyst Mark A. May: Zuckerberg, you mentioned that the company will intensify efforts to nurture local communities and user groups, which seems to be an interesting experiment, like Local Marketplaces The same as the ongoing experiment. Can you talk about Local Marketplaces usage and user engagement?
Second, for the size of the Ad Breaks feature, content producers seem to need to use this feature in their content, and of course, users need to be involved. So I think the question is whether the completion rate of advertising time above? Is the content creator willing to use this feature?
Zuckerberg: I think your basic point is right, that's why we have to develop Marketplace and related columns, because when we analyze the biggest use case of Groups, we find that many people use Groups to shop and sell each Something different. So they formed these communities, frankly said that we feel very surprised, because we are not shopping and the sale of goods designed for this product. It is designed for group chat, which is what people use it for the purpose. So we decided to set up a team and invest, make it suitable for shopping and selling goods, to see the extent to which the economy can be developed. I do not know if we have published the relevant data on it, but I am really interested in this area.
As for the local community, we have found a clear trend, whether it is sports teams or religious organizations, a variety of different communities in the past few decades the number of participants are declining. I think this is a big social problem, it corrupts the social structure of society as a whole, not only the United States, the world is so. I hope and believe that Facebook can play an important role in strengthening the social structure.
Every month more than 1 billion people use our Groups products. You may be a member of a lot of different groups, and the frequency of your sign in these groups may be different. As a result, many of the groups we think are of great significance exist between groups of people who are suffering from the same disease, who may join the relevant group and share the story with the patients around the world. They may spend most of their time on these groups, which will be an important part of their experience, which is also a fundamental part of the real world support structure.
Sandberg: Let me talk about advertising time and some of the trends we see. Now talk about testing ads and get user feedback and some early, we do not have too much data to share. But the test results are very good, we are very happy. Whether it is live video or upload video, business progress is smooth. We believe that, over time, marketers will pay close attention to where people will spend their time. If the ad's orientation is good, we can see the increase in user participation, we have seen this situation.
It is worth mentioning that the most important final indicator is to drive revenue growth. Any advertising indicators are only proxy indicators, it is important that the impact of advertising on revenue. So we think that the better we can do the testing, the more people will be the focus of attention to business indicators, advertisers and their business can get the more return.
Securities analyst Peter C. Stabler: I would like to ask Sandberg a question. You talked about Facebook's directional advantage, you said there are a lot of data and resources to illustrate this point. Talk about the importance of collecting signals and collecting signals outside the platform, such as Facebook users' interaction with third-party websites. Is this an important competitive advantage for you?
Sandberg: We believe that targeted testing is an important competitive advantage for us. We are very concerned about people's privacy, no matter what they are doing, where to do, and we are in a very responsible way to use this information. We believe that because people have a common interest, because people on the Facebook platform is their own, we have a basic orientation above has a huge advantage. In terms of age and sex, our targeting technology is more accurate than the industry average.
We believe that focusing on business performance is a real competitive advantage. We are trying to change people's minds and let them know what their real goals are, so they can focus on developing their business. Ultimately, when you publish an ad, you want to sell the product, whether it is sold online or offline, which is what we are concerned about, and we will continue to focus on it.