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4,700 | META | 2 | 2,024 | 2024-07-31 17:00:00 | Meta Platforms, Inc. | 20,765,463 | Susan Li: Thanks Mark. On your first question about Marketplace, again we are obviously excited that it's been one of the drivers of strength in young adults. I would probably just say that more generally, Marketplace is one prong in a broader commerce strategy that we have which continues to be focused on basically creating the best shopping experience on our platform. Marketplace is obviously consumer oriented. The broader part of the commerce strategy is about making it easier for businesses to advertise their products, for buyers to find and purchase relevant items on our platform. And to that end, I’d say that we feel quite happy with also the investments we've been making in Shops ads. Shops ads revenue is growing at a strong year-over-year pace. We are seeing Shops ads drive incremental performance for advertisers, and it's also working well in combination with some of our other products like Advantage+ shopping. Your second question was about headcount. We continue to be disciplined about where we are allocating new headcount to ensure that it's really focused on our core company priorities, but we are also working down a prior hiring underrun. And as we further close that hiring underrun over the course of this year, I do expect that we will end 2024 with in-seat reported headcount that is meaningfully higher than where we ended 2023. We aren't providing sort of 2025 headcount growth expectations yet as we haven't started our budgeting process yet. But again, I expect that we’ll primarily target our hiring to focus on priority areas, and we will be running a very disciplined headcount process.
Operator: Your next question comes from the line of Youssef Squali with Truist Securities. Please go ahead. |
4,701 | META | 2 | 2,024 | 2024-07-31 17:00:00 | Meta Platforms, Inc. | 20,765,463 | Operator: Your next question comes from the line of Youssef Squali with Truist Securities. Please go ahead.
Youssef Squali: Great. Thank you very much. So the AI system using Llama 3.1 has been incorporated in different variations and looks really impressive and seems to be getting closer to becoming a full search engine for virtually everything except for commercial queries so far. So are there any plans to open it up to the broader web? Kind of like what may be OpenAI is off to testing, maybe link it to third-party marketplaces for commercial search, et cetera. And then on Ray-Ban, can you maybe talk a little bit more about the opportunity to deepen your relationship with EssilorLuxottica? What would that look like? What kind of areas are the most exciting to you, Mark in that relationship? Thank you. |
4,702 | META | 2 | 2,024 | 2024-07-31 17:00:00 | Meta Platforms, Inc. | 20,765,463 | Mark Zuckerberg: Yes. I'm very excited with how Llama 3.1 landed. I think the team there is doing really great work going from the first version of Llama, the Llama 2 last year that was a generation behind the frontier and now Llama 3.1, which is basically competitive and in some ways, leading the other top-closed models. Meta AI uses a version of Llama 3.1 as well as a bunch of other services that we've built to kind of build a cohesive product. And when I was talking before about we have the initial usage trends around Meta AI but there is a lot more that we want to add. Things like commerce and you can just go vertical by vertical and build out specific functionality to make it useful in all these different areas are eventually, I think what we're going to need to do to make this just as -- to fulfill the potential around just being the ideal AI assistant for people. So it is a long road map. I don't think, that this stuff is going to get finished in the next couple of quarters or anything like that. But this is part of what's going to happen over the next few years as we build something that will I think, just be a very widely used service. So I'm quite excited about that. And we are going to continue working on Llama 2. So I mean, you mentioned Llama, and I think the question was a little more about Meta AI but they are both -- I mean, they're related Llama is sort of like the engine that powers the product and it's open source, and I'm just excited about the progress that we are making on both of those. On the smart glasses, EssilorLuxottica is a great partner. We are now in the second generation of the Ray-Ban Meta glasses. They are doing well, better than I think we had expected, and we expected them to grow meaningfully from the first generation so that's been a very positive surprise. And I think part of that is that it is just well-positioned to dovetail well with the AI revolution that we are seeing and offering all kinds of new functionality there. So that was great. But EssilorLuxottica is a great |
4,703 | META | 2 | 2,024 | 2024-07-31 17:00:00 | Meta Platforms, Inc. | 20,765,463 | that we are seeing and offering all kinds of new functionality there. So that was great. But EssilorLuxottica is a great company that has a lot of different products that we hope to be able to partner with to just continue building new generations of the glasses and deepen the AI product and make it better and better. I think there is a lot more to go from here. And compared to what we thought at this point, it's doing quite well compared to, I think what it needs to be, to be like a really leading piece of consumer electronics, I think we are still early but all the signs are good. |
4,704 | META | 2 | 2,024 | 2024-07-31 17:00:00 | Meta Platforms, Inc. | 20,765,463 | Operator: Your next question comes from the line of Ron Josey with Citi. Please go ahead.
Ronald Josey: Great. Thanks for taking the question. I want to get back, Mark, to the commentary on open source and Llama 3. Totally understand that Meta is not offering a public cloud, and so what I wanted to hear from you is maybe a little bit more on the product vision of products that come out of Llama 3. And meaning potentially offering some of these products to other companies, call it for customer service or call center offerings or other verticals. And so any insights on just how you envision maybe the open source and Llama 3.1, can sort of offer greater enterprise services for others to benefit from? Thank you. |
4,705 | META | 2 | 2,024 | 2024-07-31 17:00:00 | Meta Platforms, Inc. | 20,765,463 | Mark Zuckerberg: So Llama is the foundation model that people can shape into all kind of different products. So whether it's Meta AI for ourselves or the AI Studio or the business agents or like the assistant that's in the Ray-Ban glasses, like all these different things are basically products that have been built with Llama. And similarly, any developer out there is going to be able to take it and build a whole greater diversity of different things as well. Like I talked about, I think -- the reason why open sourcing this is so valuable for us is that we want to make sure that we have the leading infrastructure to power the consumer and business experiences that we are building. But the infrastructure, it's not just a piece of software that we can build in isolation. It really is an ecosystem with a lot of different capabilities that other developers and people are adding to the mix, whether that's new tools to distill the models into the size that you want for a custom model, or ways to fine-tune things better or make inference more efficient or all different other kinds of methods that we haven't even thought of yet, the silicon optimizations that the silicon companies are doing, all the stuff. It is an ecosystem. So we can't do all that ourselves. And if we built Llama and just kind of kept it within our walls, then it wouldn't actually be as valuable for us to build all the products that we are building as it is going to end up being. So that's the business strategy around that. And that's why we don't feel like we need to necessarily build a cloud and sell it directly in order for it to be a really positive business strategy for us. And part of what we are doing is working closely with AWS, I think, especially did great work for this release. Other companies like Databricks, Nvidia, of course, other big players like Microsoft with Azure, and Google Cloud, they are all supporting this. And we want developers to be able to get it anywhere. I think that's one of the advantages of an open source model like |
4,706 | META | 2 | 2,024 | 2024-07-31 17:00:00 | Meta Platforms, Inc. | 20,765,463 | this. And we want developers to be able to get it anywhere. I think that's one of the advantages of an open source model like Llama is – it is not like you're locked into one cloud that offers that model, whether it's Microsoft with OpenAI or Google with Gemini or whatever it is, you can take this and use it everywhere and we want to encourage that. So I'm quite excited about that. The enterprise and business applications that we are going to be most focused on, though, in addition to just optimizing the advertiser experience like I talked about in my comments earlier, it is the business agent piece. I just think that there is a huge potential like I said earlier. I think pretty much every business today, it has an e-mail address. They have a website. They have social media accounts. I think in the future, they are going to have at least one, if not multiple business agents that can do the whole range of things from interacting to help people buy things to helping support the sales that they've done, if they have issues with the product, if they need to get in touch with you for something. And we already see people interacting with businesses over messaging working quite well in countries that have low cost of labor. But the thing is that in order to have someone answering everyone's questions is quite expensive in a lot of countries. And I think that this is like a thing that AI, I think is just going to be very well suited towards doing. And when we can make that easy for the hundreds of millions of businesses that use our platforms to pull in all their information and their catalogs, and the history and all the content that they've shared and really just quickly stand up an agent, I think that's going to be awesome. So we can combine Llama with a lot of custom work that we're doing in our business teams and couple that with all the other investment that the rest of the ecosystem is doing to make Llama good. And I think that's going to be huge, but that's just one area. I mean, this really goes across all of |
4,707 | META | 2 | 2,024 | 2024-07-31 17:00:00 | Meta Platforms, Inc. | 20,765,463 | doing to make Llama good. And I think that's going to be huge, but that's just one area. I mean, this really goes across all of the different products that we are building, both consumer and business. So it is a lot of exciting stuff. |
4,708 | META | 2 | 2,024 | 2024-07-31 17:00:00 | Meta Platforms, Inc. | 20,765,463 | Kenneth Dorell: Krista, we have time for one last question.
Operator: Thank you. That question will come from the line of Ross Sandler with Barclays. Please go ahead.
Ross Sandler: Great. Mark, so on Monday in your interview with Jensen, you said something along the lines of if scaling ended up stopping one day, you'd have five years of product work to do and ahead of you. So outside of agents or AI assistants, what other areas in AI are you thinking about or looking at in that five-year road map? And then the second question is maybe one more stab at the capacity question. You guys said that Llama 3.1 was trained on 16,000 H100s. You've also said that you're going to have 600,000 available by year-end. So even if we kind of go up to 160,000 GPUs for Llama 4, we have plenty of extra capacity for inference and future products. I guess how are you guys modeling out this entire kind of CapEx road map between training, inference, and future things? That's all. Thanks a lot. |
4,709 | META | 2 | 2,024 | 2024-07-31 17:00:00 | Meta Platforms, Inc. | 20,765,463 | Mark Zuckerberg: I can start with the first one, and then I'll let Susan answer the second one. It is an interesting question. It is a little hypothetical because I mean, I do think it's true that if, let's say, there were no future foundation models. I think there would just be a huge amount of product innovation that the industry would bring to bear, and that just takes time. But then at the same time there are going to be future foundation models, and they are going to be awesome and unlock new capabilities and we are planning our products around those. So I'm not really planning our product road map assuming that there isn't future innovation. On the contrary, we are planning what's going to be in Llama 4 and Llama 5 and beyond based on what capabilities we think are going to be most important for the road map that I just laid out for having the breadth of utility that you're going to need in something like Meta AI, making it set businesses and creators and individuals can stand up any kind of AI agents that they want, that you are going to have these kind of real-time, multimodal glasses with you all the time that will just be increasingly useful for all the things that you're doing. And that -- I guess this kind of dovetails what I'd expect Susan to talk about next. And we do have this huge set of use cases already about people wanting to discover content and interact with their friends and businesses reaching people, and all that stuff is getting better with this, too. So there is -- I guess my point there was its just – there is some lag between the technology becoming available and the products becoming kind of fully explored in the space. And I just think that -- that was kind of my way of saying that I think that this is just a very exciting area where there's just going to be a lot of innovation for a long time to come. I'll let Susan take a stab at the numbers around the GPUs and all that. |
4,710 | META | 2 | 2,024 | 2024-07-31 17:00:00 | Meta Platforms, Inc. | 20,765,463 | Susan Li: Thank you. We are clearly in the process of building out a lot of capacity, and Mark has alluded to that in his comments about what we have needed to train prior generations and the next generation of Llama. And we are -- and that's driving sort of what we've talked about in terms of the significant growth in CapEx in 2025. And we aren't really in the position now to share a longer-term outlook. When we think about sort of any given new data center project that we are constructing, we think about how we will use it over the life of the data center. We think about the amount of capacity we would use in terms of training whatever the subsequent generations of Llama are and it is architected around that. But then we also look at how we might use it several years into its lifetime towards other use cases across our core business, across what we think might be future needs for inference, for generative AI-based products. So there is sort of a whole host of use cases for the life of any individual data center ranging from gen AI training at its outset to potentially supporting gen AI inference to being used for core ads and content ranking and recommendation and also thinking through the implications, too, of what kinds of servers we might use to support those different types of use cases. So we are really mapping across a wide range of potential use cases when we undertake any given project. And we are really doing that with both a long time horizon in mind, again, because of the long lead times in spinning up data centers, but also recognizing that there are multiple decision points in the lifetime of each data center in terms of thinking through when to order servers and what servers to order and what you will put them towards. And that gives us flexibility to make the sort of the best decisions based on the information we have in the future.
Kenneth Dorell: Great. Thank you all for joining us today. We appreciate your time, and we look forward to speaking with you again soon. |
4,711 | META | 2 | 2,024 | 2024-07-31 17:00:00 | Meta Platforms, Inc. | 20,765,463 | Operator: This concludes today's conference call. Thank you for your participation, and you may now disconnect. |
4,712 | META | 1 | 2,024 | 2024-04-24 12:00:00 | Meta Platforms, Inc. | 20,765,463 | Operator: Good afternoon. My name is Krista, and I will be your conference operator today. At this time, I would like to welcome everyone to the Meta First Quarter Earnings Conference Call. [Operator Instructions] This call will be recorded. Thank you very much.
Ken Dorell, Meta's Director of Investor Relations, you may begin.
Kenneth Dorell: Thank you. Good afternoon, and welcome to Meta Platform's First Quarter 2021 Earnings Conference Call. Joining me today to discuss our results are Mark Zuckerberg, CEO; and Susan Li, CFO.
Before we get started, I would like to take this opportunity to remind you that our remarks today will include forward-looking statements. Actual results may differ materially from those contemplated by these forward-looking statements. Factors that could cause these results to differ materially are set forth in today's earnings press release and in 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 certain non-GAAP financial measures. A reconciliation of GAAP to non-GAAP measures is included in today's earnings press release. The earnings 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. |
4,713 | META | 1 | 2,024 | 2024-04-24 12:00:00 | Meta Platforms, Inc. | 20,765,463 | And now I'd like to turn the call over to Mark.
Mark Zuckerberg: All right. Thanks, Ken, and everyone, thanks for joining. It's been a good start to the year, both in terms of product momentum and business performance. We estimate that more than 3.2 billion people use at least one of our apps each day, and we're seeing healthy growth in the U.S. And I want to call out WhatsApp specifically, where the number of daily actives and message sends in the U.S. keeps gaining momentum, and I think we're on a good path there. We've also made good progress on our AI and metaverse efforts, and that's where I'm going to focus most of my comments today.
So let's start with AI. We're building a number of different AI services, from Meta AI, our AI assistant that you can ask any question across our apps and glasses, to creator AIs that help creators engage their communities and that fans can interact with, to business AIs that we think every business eventually on our platform will use to help customers buy things and get customer support to internal coding and development AIs to hardware like glasses for people to interact with AIs and a lot more.
Last week, we had the major release of our new version of Meta AI that is now powered by our latest model, Llama 3. And our goal with Meta AI is to build the world's leading AI service, both in quality and usage.
The initial rollout of Meta AI is going well. Tens of millions of people have already tried it. The feedback is very positive. And when I first checked in with our teams, the majority of feedback we were getting was people asking us to release Meta AI for them wherever they are. So we've started launching Meta AI in some English speaking countries, and we'll roll out in more languages and countries over the coming months. |
4,714 | META | 1 | 2,024 | 2024-04-24 12:00:00 | Meta Platforms, Inc. | 20,765,463 | You all know our product development playbook by this point. We release an early version of a product to a limited audience to gather feedback and start improving it, and then once we think it's ready, then we make it available to more people. That early release was last fall and with this release, we are now moving to that next growth phase of our playbook. We believe that Meta AI with Llama 3 is now the most intelligent AI assistant that you can freely use. And now that we have the superior quality product, we are making it easier for lots of people to use it within WhatsApp, Messenger, Instagram and Facebook.
Now in addition to answering more complex queries, a few other notable and unique features from this release. Meta AI now creates animations from still images and now generates high-quality images so fast that it can create and update them as you are typing, which is pretty awesome. I've seen a lot of people commenting about that experience online and how they've never seen or experienced anything like it before.
In terms of the core AI model and intelligence that's powering Meta AI, I'm very pleased with how Llama 3 has come together so far. The 8 billion and 70 billion parameter models that we released are best-in-class for their scale. The 400-plus billion parameter model that we're still training seems on track to be industry leading on several benchmarks. And I expect that our models are just going to improve further from open source contributions. |
4,715 | META | 1 | 2,024 | 2024-04-24 12:00:00 | Meta Platforms, Inc. | 20,765,463 | Overall, I view the results our teams have achieved here as another key milestone in showing that we have the talent, data and ability to scale infrastructure to build the world's leading AI models and services. And this leads me to believe that we should invest significantly more over the coming years to build even more advanced models and the largest scale AI services in the world. As we're scaling CapEx and energy expenses for AI, we'll continue focusing on operating the rest of our company efficiently. But realistically, even with shifting many of our existing resources to focus on AI, we'll still grow our investment envelope meaningfully before we make much revenue from some of these new products.
I think it's worth calling that out that we've historically seen a lot of volatility in our stock during this phase of our product playbook, where we're investing in scaling a new product but aren't yet monetizing it. We saw this with Reels, Stories as newsfeed transition to mobile and more. And I also expect to see a multiyear investment cycle before we fully scale Meta AI, business AIs and more into the profitable services I expect as well. Historically, investing to build these new scaled experiences in our apps has been a very good long-term investment for us and for investors who have stuck with us. And the initial signs are quite positive here, too. But building the leading AI will also be a larger undertaking than the other experiences we've added to our apps, and this is likely going to take several years. |
4,716 | META | 1 | 2,024 | 2024-04-24 12:00:00 | Meta Platforms, Inc. | 20,765,463 | On the upside, once our new AI services reach scale, we have a strong track record of monetizing them effectively. There are several ways to build a massive business here, including scaling business messaging, introducing ads or paid content into AI interactions and enabling people to pay to use bigger AI models and access more compute. And on top of those, AI is already helping us improve app engagement, which naturally leads to seeing more ads and improving ads directly to deliver more value. So if the technology and products evolve in the way that we hope, each of those will unlock massive amounts of value for people and business for us over time.
We're seeing good progress on some of these efforts already. Right now, about 30% of the posts on Facebook feed are delivered by our AI recommendation system. That's up 2x over the last couple of years. And for the first time ever, more than 50% of the content that people see on Instagram is now AI recommended. AI has also been a huge part of how we create value for advertisers by showing people more relevant ads. And if you look at our 2 end-to-end AI-powered tools, Advantage+ shopping and Advantage+ app campaigns, revenue flowing through those has more than doubled since last year. |
4,717 | META | 1 | 2,024 | 2024-04-24 12:00:00 | Meta Platforms, Inc. | 20,765,463 | We're also going to continue to be very focused on efficiency as we scale Meta AI and other AI services. Some of this will come from improving how we train and run models. Some improvements will come from the open source community, and we're improving cost efficiency is one of the main areas that I expect that open sourcing will help us improve similar to what we saw with Open Compute. We'll also keep making progress on building more of our own silicon. Our Meta training and inference accelerator chip has successfully enabled us to run some of our recommendations-related workloads on this less expensive stack. And as this program matures over the coming years, we plan to expand this to more of our workloads as well. And of course, as we ramp these investments, we will also continue to carefully manage headcount and other expense growth throughout the company.
Now in addition to our work on AI, our other long-term focus is the metaverse. It's been interesting to see how these 2 themes have come together.
This is clearest when you look at glasses. I used to think that AR glasses wouldn't really be a mainstream product until we had full holographic displays -- and I still think that, that's going to be awesome and is the long-term mature state for the product. But now it seems pretty clear that there's also a meaningful market for fashionable AI glasses without a display. Glasses are the ideal device for an AI assistant because you can let them see what you see and hear what you hear. So they have full context on what's going on around you as they help you with whatever you're trying to do. Our launch this week of Meta AI with Vision on the glasses is a good example where you can now ask questions about things that you're looking at. |
4,718 | META | 1 | 2,024 | 2024-04-24 12:00:00 | Meta Platforms, Inc. | 20,765,463 | Now one strategy dynamic that I've been reflecting on is that an increasing amount of our Reality Labs work is going towards serving our AI efforts. We currently report on our financials as if Family of Apps and Reality Labs were 2 completely separate businesses, but strategically, I think of them as fundamentally the same business with the vision of Reality Labs to build the next generation of computing platforms in large part so that we can build the best apps and experiences on top of them. Over time, we'll need to find better ways to articulate the value that's generated here across both segments so it doesn't just seem like our hardware costs increase as our glasses ecosystem scales, but all the value flows to a different segment.
The Ray-Ban Meta glasses that we built with Essilor Luxottica continue to do well and are sold out in many styles and colors. So we're working to make more and release additional styles as quickly as we can. We just released the new cat-eye Skyler design yesterday, which is more feminine. And in general, I'm optimistic about our approach of starting with the classics and expanding with an increasing diversity of options over time. If we want everyone to be able to use wearable AI, I think eyewear is a bit different from phones or watches in that people are going to want very different designs. So I think our approach of partnering with the leading eyewear brands will help us serve more of the market. |
4,719 | META | 1 | 2,024 | 2024-04-24 12:00:00 | Meta Platforms, Inc. | 20,765,463 | I think a similar open ecosystem approach will help us expand the virtual and mixed reality headset market over time as well. We announced that we're opening up Meta Horizon OS, the operating system we've built to power Quest. As the ecosystem grows, I think there will be sufficient diversity in how people use mixed reality, that there will be demand for more designs than we'll be able to build. For example, a work-focused headset may be slightly less designed for motion but may -- you want to be lighter by connecting to your laptop; a fitness-focused headset may be lighter with sweat-wicking materials; an entertainment-focused headset may prioritize the highest resolution displays over everything else; a gaming-focused headset may prioritize peripherals and haptics or a device that comes with Xbox controllers and a game pass subscription out of the box.
Now to be clear, I think that our first-party Quest devices will continue to be the most popular headsets as we see today, and we'll continue focusing on advancing the state-of-the-art tech and making it accessible to everyone. But I also think that opening our ecosystem and opening our operating system will help the overall mixed reality ecosystem grow even faster.
Now in addition to AI and the metaverse, we're seeing good improvements across our apps. I touched on some of the most important trends already with WhatsApp growth in the U.S. and AI-powered recommendations in our feeds and reels already. But I do want to mention that video continues to be a bright spot. This month, we launched an updated full-screen video player on Facebook that brings together reels, longer videos and live content into a single experience with a unified recommendation system. On Instagram, reels and video continue to drive engagement, with reels alone now making up 50% of the time that's spent within the app. |
4,720 | META | 1 | 2,024 | 2024-04-24 12:00:00 | Meta Platforms, Inc. | 20,765,463 | Threads is growing well, too. There are now more than 150 million monthly actives, and it continues to generally be on the trajectory that I hoped to see. And of course, my daughters would want me to mention that Taylor Swift is now on Threads, that one was a big deal in my house.
All right. That is what I wanted to cover today. I am proud of the progress we've made so far this year. We've got a lot more execution ahead to fulfill the opportunities ahead of us. A big thank you to all of our teams who are driving all these advances and to all of you for being on this journey with us. And now here is Susan.
Susan Li: Thanks, Mark, and good afternoon, everyone. Let's begin with our consolidated results. All comparisons are on a year-over-year basis unless otherwise noted. Q1 total revenue was $36.5 billion, up 27% on both a reported and constant currency basis. Q1 total expenses were $22.6 billion, up 6% compared to last year.
In terms of the specific line items, cost of revenue increased 9% as higher infrastructure-related costs were partially offset by lapping Reality Labs' inventory-related valuation adjustments. R&D increased 6%, driven mostly by higher headcount-related expenses and infrastructure costs, which were partially offset by lower restructuring costs.
Marketing and sales decreased 16% due mainly to lower restructuring costs, professional services and marketing spend. G&A increased 20% as higher legal-related expenses were partially offset by lower restructuring costs.
We ended the first quarter with over 69,300 employees, up 3% from Q4. First quarter operating income was $13.8 billion, representing a 38% operating margin. Our tax rate for the quarter was 13%. Net income was $12.4 billion or $4.71 per share. |
4,721 | META | 1 | 2,024 | 2024-04-24 12:00:00 | Meta Platforms, Inc. | 20,765,463 | Capital expenditures, including principal payments on finance leases, were $6.7 billion, driven by investments in servers, data centers and network infrastructure. Free cash flow was $12.5 billion. We repurchased $14.6 billion of our Class A common stock and paid $1.3 billion in dividends to shareholders, ending the quarter with $58.1 billion in cash and marketable securities and $18.4 billion in debt.
Moving now to our segment results. I'll begin with our Family of Apps segment. Our community across the Family of Apps continues to grow, with approximately 3.2 billion people using at least one of our Family of Apps on a daily basis in March. Q1 total Family of Apps revenue was $36 billion, up 27% year-over-year. Q1 Family of Apps ad revenue was $35.6 billion, up 27% or 26% on a constant currency basis. Within ad revenue, the online commerce vertical was the largest contributor to year-over-year growth, followed by gaming and entertainment and media.
On a user geography basis, ad revenue growth was strongest in Rest of World and Europe at 40% and 33%, respectively. Asia Pacific grew 25% and North America grew 22%. In Q1, the total number of ad impressions served across our services increased 20%, and the average price per ad increased 6%. Impression growth was mainly driven by Asia Pacific and Rest of World. Pricing growth was driven by advertiser demand, which was partially offset by strong impression growth, particularly from lower-monetizing regions and services.
Family of Apps other revenue was $380 million in Q1, up 85%, driven by business messaging revenue growth from our WhatsApp business platform. We continue to direct the majority of our investments toward the development and operation of our Family of Apps. In Q1, Family of Apps expenses were $18.4 billion, representing approximately 81% of our overall expenses. Family of Apps expenses were up 7% due mainly to higher legal and infrastructure costs that were partially offset by lower restructuring costs. |
4,722 | META | 1 | 2,024 | 2024-04-24 12:00:00 | Meta Platforms, Inc. | 20,765,463 | Family of Apps operating income was $17.7 billion, representing a 49% operating margin. Within our Reality Labs segment, Q1 revenue was $440 million, up 30%, driven by Quest headset sales. Reality Labs expenses were $4.3 billion, down 1% year-over-year as higher head count-related expenses were more than offset by lapping inventory-related valuation adjustments and restructuring costs. Reality Labs operating loss was $3.8 billion.
Turning now to the business outlook. There are 2 primary factors that drive our revenue performance: our ability to deliver engaging experiences for our community and our effectiveness at monetizing that engagement over time. On the first, we remain pleased with engagement trends and have strong momentum across our product priorities. Our investments in developing increasingly advanced recommendation systems continue to drive incremental engagement on our platform, demonstrating that people are finding added value by discovering content from accounts they are not connected to. The level of recommended content in our apps has scaled as we've improved these systems, and we see further opportunity to increase the relevance and personalization of recommendations as we advance our models.
Video also continues to grow across our platform, and it now represents more than 60% of time on both Facebook and Instagram. Reels remains the primary driver of that growth, and we're progressing on our work to bring together Reel's longer-form video and live video into one experience on Facebook.
In April, we rolled out this unified video experience in the U.S. and Canada, which is increasingly powered by our next-generation ranking architecture that we expect will help deliver more relevant video recommendations over time. |
4,723 | META | 1 | 2,024 | 2024-04-24 12:00:00 | Meta Platforms, Inc. | 20,765,463 | We're also introducing deeper integrations of generative AI into our apps in the U.S. and more than a dozen other countries. Along with using Meta AI within our chat surfaces, people will now be able to use Meta AI in search within our apps as well as feed and groups on Facebook. We expect these integrations will complement our social discovery strategy as our recommendation systems help people to discover and explore their interests, while Meta AI enables them to dive deeper on topics they're interested in. Threads also continues to see good traction as we continue to ship valuable features and scale the community.
Now to the second driver of our revenue performance, increasing monetization efficiency. There are 2 parts to this work. The first is optimizing the level of ads within organic engagement. Here, we continue to advance our understanding of users' preferences for viewing ads to more effectively optimize the right time, place and person to show an ad to.
For example, we are getting better at adjusting the placement and number of ads in real time based on our perception of a user's interest and ad content and to minimize disruption from ads as well as innovating on new and creative ad formats. We expect to continue that work going forward, while surfaces with relatively lower levels of monetization, like video and messaging, will serve as additional growth opportunities. |
4,724 | META | 1 | 2,024 | 2024-04-24 12:00:00 | Meta Platforms, Inc. | 20,765,463 | The second part of improving monetization efficiency is enhancing marketing performance. Similar to our work with organic recommendations, AI is playing an increasing role in these efforts. First, we are making ongoing ads modeling improvements that are delivering better performance for advertisers. One example is our new ads ranking architecture, Meta Lattice, which we began rolling out more broadly last year. This new architecture allows us to run significantly larger models that generalize learnings across objectives and surfaces in place of numerous smaller ad models that have historically been optimized for individual objectives and surfaces. This is not only leading to increased efficiency as we operate fewer models but also improving ad performance.
Another way we're leveraging AI is to provide increased automation for advertisers. Through our Advantage+ portfolio, advertisers can automate one step of the campaign setup process, such as selecting which ad creative to show, or automate their campaign completely using our end-to-end automation tools, Advantage+ shopping and Advantage+ app ads. We're seeing growing use of these solutions, and we expect to drive further adoption over the course of the year while applying what we learned to our broader ads investments.
Next, I'd like to discuss our approach to capital allocation. We continue to see compelling investment opportunities to both improve our core business in the near term and capture significant longer-term opportunities in generative AI and Reality Labs. As we develop more advanced and compute-intensive recommendation models and scale capacity for our generative AI training and inference needs, we expect that having sufficient infrastructure capacity will be critical to realizing many of these opportunities. As a result, we expect that we will invest significantly more in infrastructure over the coming years. |
4,725 | META | 1 | 2,024 | 2024-04-24 12:00:00 | Meta Platforms, Inc. | 20,765,463 | Our other long-term initiatives that we're continuing to make significant investments in is Reality Labs. We are also starting to see our AI initiatives increasingly overlap with our Reality Labs work. For example, with Ray-Ban Meta smart glasses, people in the U.S. and Canada can now use our multimodal Meta AI assistant for daily tasks without pulling out their phone.
Longer term, we expect generative AI to play an increasing role in our mixed reality products, making it easier to develop immersive experiences. Accelerating our AI efforts will help ensure we can provide the best version of our services as we transition to the next computing platform. We expect to pursue these opportunities while maintaining a focus on operating discipline, and we believe our strong financial position will allow us to support these investments while also returning capital to shareholders through share repurchases and dividends.
In addition, we continue to monitor an active regulatory landscape, including the increasing legal and regulatory headwinds in the EU and the U.S. that could significantly impact our business and our financial results. We also have a jury trial scheduled for June in a suit brought by the state of Texas regarding our use of facial recognition technology, which could ultimately result in a material loss.
Turning now to the revenue outlook. We expect second quarter 2024 total revenue to be in the range of $36.5 billion to $39 billion. Our guidance assumes foreign currency is a 1% headwind to year-over-year total revenue growth based on current exchange rates.
Turning now to the expense outlook. We expect full year 2024 total expenses to be in the range of $96 million to $99 billion, updated from our prior outlook of $94 million to $99 billion due to higher infrastructure and legal costs.
For Reality Labs, we continue to expect operating losses to increase meaningfully year-over-year due to our ongoing product development efforts and our investments to further scale our ecosystem. |
4,726 | META | 1 | 2,024 | 2024-04-24 12:00:00 | Meta Platforms, Inc. | 20,765,463 | Turning now to the CapEx outlook. We anticipate our full year 2024 capital expenditures will be in the range of $35 billion to $40 billion, increased from our prior range of $30 billion to $37 billion as we continue to accelerate our infrastructure investments to support our AI road map. While we are not providing guidance for years beyond 2024, we expect CapEx will continue to increase next year as we invest aggressively to support our ambitious AI research and product development efforts.
On to tax. Absent any changes to our tax landscape, we expect our full year 2024 tax rate to be in the mid-teens.
In closing, Q1 was a good start to the year. We're seeing strong momentum within our Family of Apps and are making important progress on our longer-term AI and Reality Labs initiatives that have the potential to transform the way people interact with our services over the coming years.
With that, Krista, let's open up the call for questions.
Operator: [Operator Instructions] And your first question comes from the line of Eric Sheridan from Goldman Sachs.
Eric Sheridan: Maybe I'll ask a two-parter. Mark, you used the analogy of other investments cycles you've been through around products like Stories and Reels. I know you're not giving long-term guidance today, but using those analogies, how should investors think about the length and depth of this investment cycle with respect to either AI and/or Reality Labs more broadly and mixed reality?
And you both talked about the impact AI is having on the advertising ecosystem. What are you watching for in terms of adoption or utility on the consumer side to know that AI adoption is tracking along with the investment cycle? |
4,727 | META | 1 | 2,024 | 2024-04-24 12:00:00 | Meta Platforms, Inc. | 20,765,463 | Mark Zuckerberg: Yes. In terms of the timing, I think it's somewhat difficult to extrapolate from previous cycles. But I guess like the main thing that we see is that we will usually take, I don't know, a couple of years, I mean, it could be a little more, it could be less to focus on building out and scaling the products. And we typically don't focus that much on monetization of the new areas until they reach significant scale because it's so much higher leverage for us just to improve monetization on other things before these new products are at scale.
So you enter this period where I think kind of smart investors see that the product is scaling and that there's a clear monetizable opportunity there even before the revenue materializes. And I think we've seen that with Reels and with Stories and with the shift to mobile and all these things, where basically, we build out the inventory first for a period of time and then we monetize it.
And during that time, when it's scaling, sometimes it's not just the case that we're not making money from that thing. It can often actually be the case that it displaces other revenue from other things. So like you saw with Reels, I mean, it scaled and there was a period where it was not profitable for us as it was scaling before it became profitable. So I think that's more the analogy that I'm making on this.
But I think it's -- what that suggests is that what we should all be focused on for the next period is as the consumer products scale, Meta AI really just launched in a meaningful way so we don't have any kind of hard stats to share on that. But I'd say that's the main thing that I'm focused on for this year and probably a lot of next year is growing that product and the other AI products and the engagement around them. And I think we should all have quite a bit of confidence that if those are on a good track to scale, then they're going to end up being very large businesses. So that's the main point that I was trying to make there. |
4,728 | META | 1 | 2,024 | 2024-04-24 12:00:00 | Meta Platforms, Inc. | 20,765,463 | Operator: Your next question comes from the line of Brian Nowak from Morgan Stanley.
Brian Nowak: Thanks for taking my questions, I have 2. The first one is on sort of the recommendation engine improvements and even, Susan, when you talked about further opportunities to increase the relevance of the models. Could you just unpack that a little bit for us? Can you give us examples of where you're still running the model in a suboptimal basis or opportunities for improved signal capture use or data you're not using? Where are sort of the areas of improvement you see from here?
And then the second one, when you talk about driving incremental adoption of AI tools for advertisers, what are sort of some of the main gating factors you've encountered to get advertisers to test these tools? And how do you think about sort of addressing that throughout '24 and '25?
Susan Li: Thanks, Brian. So to your first question, where are there more opportunities for us to leverage and improve our recommendations models to drive engagement? One of the things I would say is, historically, each of our recommendation products, including Reels, in-feed recommendations, et cetera, has had their own AI model.
And recently, we've been developing a new model architecture with the aim for it to power multiple recommendations products. We started partially validating this model last year by using it to power Facebook Reels. And we saw meaningful performance gains, 8% to 10% increases in watch time as a result of deploying this.
This year, we're actually planning to extend the singular model architecture to recommend content across not just Facebook Reels, but also Facebook's video tab as well. So while it's still too early to share specific results, we're optimistic that the new model architecture will unlock increasingly relevant video recommendations over time. And if it's successful, we'll explore using it to power other recommendations. |
4,729 | META | 1 | 2,024 | 2024-04-24 12:00:00 | Meta Platforms, Inc. | 20,765,463 | And analog exists, I would say, on the ad side. We've talked a little bit about the new model architecture Meta Lattice that we deployed last year that consolidates smaller and more specialized models into larger models that can better learn what characteristics improve ad performance across multiple services, like feed and Reels and multiple types of ads and objectives at the same time. And that's driven improved ad performance over the course of 2023 as we deployed it across Facebook and Instagram to support multiple objectives.
And over the course of 2024, we expect to further enhance model performance and include support for even more objectives like web and app and ROAS. So there's a lot of work that we're investing in, in the underlying model architecture for both organic engagement and ads that we expect is going to continue to deliver increasing ads performance over time.
The second question you asked was around getting advertisers to test and adopt gen AI tools. There are 2 flavors of this. The more near-term version is around the gen AI ad creative features that we have put into our ads creation tools. And it's early, but we're seeing adoption of these features across verticals and different advertiser sizes.
In particular, we've seen outsized adoption of image expansion with small businesses, and this will remain a big area of focus for us in 2024, and I expect that improvements to our underlying foundation models will enhance the quality of the outputs that are generated and support new features on the road map. But right now, we have features supporting text variations, image expansion and background generation, and we're continuing to work to make those more performant for advertisers to create more personalized ads at scale. |
4,730 | META | 1 | 2,024 | 2024-04-24 12:00:00 | Meta Platforms, Inc. | 20,765,463 | The longer-term piece here is around business AIs. We have been testing the ability for businesses to set up AIs for business messaging that represent them in chats with customers, starting by supporting shopping use cases such as responding to people asking for more information on a product or its availability. So this is very, very early. We've been testing this with a handful of businesses on Messenger and WhatsApp, and we're hearing good feedback with businesses saying that the AIs have saved them significant time while customer -- consumers noted more timely response times. And we're also learning a lot from these tests to make these AIs more performant over time as well. So we'll be expanding these tests over the coming months, and we'll continue to take our time here to get it right before we make it more broadly available.
Operator: Your next question comes from the line of Mark Shmulik from Bernstein Research.
Mark Shmulik: I guess back to that product playbook that we talked about a few times, with kind of Reels now such a large share of kind of time spent on Instagram and Facebook, how do we think about the next leg of kind of monetization growth from here? In particular, as we kind of get back to kind of shopping on platform or other ways to monetize, any color there on the road map kind of just beyond ad insertion from here?
And then, Susan, just on the ad market, in particular, previously, we heard a lot about kind of Chinese-based advertiser contribution. Any color you could share there on kind of how that spend is trending? |
4,731 | META | 1 | 2,024 | 2024-04-24 12:00:00 | Meta Platforms, Inc. | 20,765,463 | Susan Li: Sure. Thanks, Mark. So Reels revenue continued to grow across Instagram and Facebook in Q1, and that's driven both by higher engagement and increased monetization efficiency through our ads ranking and delivery improvements. And we -- as we've mentioned before, we don't plan on quantifying the impact from Reels going forward, but it remains a positive contributor to overall revenue. And we expect that there are going to be opportunities for us to continue improving performance and growing supply.
So on the performance improvements, we are investing in ongoing ranking improvements. We're continuing to make ads easier and more intuitive to interact with through work like optimizing call to actions and post-click experiences, which are especially important for DR performance. And we're also optimizing ads to feel more native to Reels.
In Q1, we rolled out our gen AI image expansion tools across Facebook and Instagram Reels after having introduced it to Instagram feed in Q4, and we're seeing, again, outsized adoption with small businesses. So we're excited about the opportunities to continue making these ads more performant. And even though ads -- the Reels ad loads, sorry, has increased over the last year, it remains lower on a per time basis than both Feed and Stories. So we're going to continue to look for opportunities to thoughtfully grow it in the future and invest in creative ways to address the structural supply constraints of the Reels format being more video-heavy, including higher density experiences and formats and increasingly personalizing ad loads, which we think will make sure that we're really putting ads in front of people when they're most likely to be interested and engaged with them. |
4,732 | META | 1 | 2,024 | 2024-04-24 12:00:00 | Meta Platforms, Inc. | 20,765,463 | The second question you asked was around China. Growth in spend from China advertisers remained strong in Q1. This was driven by online commerce and gaming, and it's reflected in our Asia Pacific advertisers segment, which remained the fastest-growing region, at 41% year-over-year in Q1. Now we did see strength across other geographies as well, including a 6-point acceleration in total revenue growth from North America advertisers.
So I would say that we aren't quantifying the Q1 contribution from China, and we don't have forward-looking expectations to share on quarterly China-based ad revenue, but I will say that we are lapping periods of increasingly strong demand over the course of 2024 given the recovery of China-based advertisers in 2023 from their prior pandemic-driven headwinds.
Operator: Your next question comes from the line of Doug Anmuth from JPMorgan.
Douglas Anmuth: Can you just talk about what's changed most in your view in the business and the opportunity now versus 3 months ago? And is there anything you're more cautious about in revenue in the ad market? And is the AI opportunity just even bigger, and therefore, requiring more investment than expected?
And then, Susan, can you also just comment on how you're thinking about that ability to sustain growth rates over the next few quarters as you face tougher comps off a big base of ad dollars? |
4,733 | META | 1 | 2,024 | 2024-04-24 12:00:00 | Meta Platforms, Inc. | 20,765,463 | Mark Zuckerberg: Yes, I can speak to the first one. I think we've gotten more optimistic and ambitious on AI. So previously, I think that our work in this -- I mean when you were looking at last year, when we released Llama 2, we were very excited about the model and thought that, that was going to be the basis to be able to build a number of things that were valuable that integrated into our social products. But now I think we're in a pretty different place. So with the latest models, we're not just building good AI models that are going to be capable of building some new good social and commerce products. I actually think we're in a place where we've shown that we can build leading models and be the leading AI company in the world. And that opens up a lot of additional opportunities beyond just ones that are the most obvious ones for us.
So that's -- this is what I was trying to refer to in my opening remarks where I just view the success that we've seen with the way that Llama 3 and Meta AI have come together as a real validation technically that we have the talent, the data and the ability to scale infrastructure to do leading work here.
And with Meta AI, I think that we are on our path to having Meta AI be the most used and best AI assistant in the world, which I think is going to be enormously valuable. So all of that basically encourages me to make sure that we're investing to stay at the leading edge of this.
And we're doing that at the time when we're also scaling the product before it is making money. So that's the analogy that I was making before, which is we've gone through some of those cycles before. But fundamentally, I think if you look at the facts of what our team is able to produce, I think it just -- our optimism and ambition have just grown quite a bit, and I think that this is just going to end up being quite an important set of products for us. So it was already going to be. Now I think it has the potential to be even more important. |
4,734 | META | 1 | 2,024 | 2024-04-24 12:00:00 | Meta Platforms, Inc. | 20,765,463 | Susan Li: And I can take that second question, Doug. So we aren't giving full year 2024 guidance. And obviously, our revenue for the full year will be influenced by many factors, including macro conditions and things that are harder to predict the further out you go. And of course, over the course of 2024, we will also be lapping periods of increasingly strong demand. With that said, we expect to see good opportunities to continue growing engagement across our products, driven by the investments we made in AI-based content recommendations, our ongoing video work. And we also expect that we will continue to drive ads performance gains and continue to make our ads sort of more effective and deliver increasing value to advertisers.
One thing I'd share, for example, is that we actually grew conversions at a faster rate than we grew impressions over the course of this quarter. So we are -- we're expecting to -- which basically suggests that our conversion grade is growing and is one of the ways in which our ads are becoming more performant. So I feel like there's a lot of opportunity for us, both with our organic engagement growth and with continuing to make the ads better and to continue driving more results for advertisers.
Operator: Your next question comes from the line of Justin Post from Bank of America.
Justin Post: First on the CapEx, mostly, you're kind of talking about an investment cycle here. Is there any way you could kind of use some of the metaverse spend over into AI? Are they converging and kind of use some of the money from the other areas to kind of fund the AI?
And then second, longer-term investors are very focused on returns on capital. Obviously, great returns on CapEx in the past with your margins today. How do we think about the returns on the capital you're spending? How are you thinking about it, I guess, going forward 2, 3 years out? |
4,735 | META | 1 | 2,024 | 2024-04-24 12:00:00 | Meta Platforms, Inc. | 20,765,463 | Susan Li: So on the -- I would say -- well, I can start with the second part, and then I'll defer to Mark on the first one. In terms of measuring the ROI on our CapEx investments, we've broadly categorized our AI investments into 2 buckets. I think of them as sort of core AI work and then strategic bets, which would include gen AI and the advanced research efforts to support that. And those are just really at different stages as it relates to being able to measure the return and drive revenue for our business. So with our core AI work, we continue to have a very ROI-driven approach to investment, and we're still seeing strong returns as improvements to both engagement and ad performance have translated into revenue gains.
Now the second area, strategic bets, is where we are much earlier. Mark has talked about the potential that we believe we have to create significant value for our business in a number of areas, including opportunities to build businesses that don't exist on us today. But we'll need to invest ahead of that opportunity to develop more advanced models and to grow the usage of our products before they drive meaningful revenue.
So while there is tremendous long-term potential, we're just much earlier on the return curve than with our core AI work. What I'll say though is we're also building our systems in a way that gives us fungibility in how we use our capacity so we can flex it across different use cases as we identify what are the best opportunities to put that infrastructure toward. |
4,736 | META | 1 | 2,024 | 2024-04-24 12:00:00 | Meta Platforms, Inc. | 20,765,463 | Mark Zuckerberg: And then on the question of shifting resources from other parts of the company. I would say, broadly, we actually are doing that in a lot of places in terms of shifting resources from other areas, whether it's compute resources or different things in order to advance the AI efforts. For Reality Labs specifically, I'm still really optimistic about building these new computing platforms long term. I mentioned in my remarks upfront that one of the bigger areas that we're investing in Reality Labs is glasses. We think that that's going to be a really important platform for the future.
Our outlook for that, I think, has improved quite a bit because previously, we thought that, that would need to wait until we have these full holographic displays to be a large market. And now we're a lot more focused on the glasses that we're delivering in partnership with Ray-Ban, which I think are going really well. And -- so that, I think, has the ability to be a pretty meaningful and growing platform sooner than I would have expected. So it is true that more of the Reality Labs work, like I said, is sort of focused on the AI goals as well. But I still think that we should focus on building these long-term platforms, too.
Operator: Your next question comes from the line of Youssef Squali from Truist Securities.
Youssef Squali: Mark, with the upcoming ban or sale of TikTok signed into law earlier today, how do you think that will impact the U.S. social media landscape? And then, in particular, what do you say to people who believe that this is potentially a slippery slope in terms of the government picking up -- picking winners and losers?
And Susan, how big is Advantage+ in terms of the spend on the platform and just in terms of its impact on overall CPM stabilizing?
Susan Li: Thanks, Youssef. We've obviously been following the events related to TikTok closely, but at this stage, it is just too early, I think, to assess its impact or what it would mean for our business. |
4,737 | META | 1 | 2,024 | 2024-04-24 12:00:00 | Meta Platforms, Inc. | 20,765,463 | To your second question on Advantage+, we're continuing to see good traction across our Advantage+ portfolio, including both with solutions, I mentioned this, that automate individual steps of a campaign creation setup as well as ones that automate the full end-to-end process. So on the single-step automation, Advantage+ audience, for example, has seen significant growth in adoption since we made it the default audience creation experience for most advertisers in Q4. And that enables advertisers to increase campaign performance by just using audience inputs as a suggestion rather than a hard constraint. And based on tests that we ran, campaigns using Advantage+ audience targeting saw, on average, a 28% decrease in cost per click or per objective compared to using our regular targeting.
On the end-to-end automation products like Advantage+ shopping and Advantage+ app campaigns, we're also seeing very strong growth. Mark mentioned the combined revenue flowing through those 2 has more than doubled since last year. And we think there's still significant runway to broaden adoption, so we're trying to enable more conversion types for Advantage+ shopping. In Q1, we began expanding the list of conversions that businesses could optimize for. So previously, it only supported purchase events, and now we've added 10 additional conversion types. And we're continuing to see strong adoption now across verticals.
So generally, I would say we are building a lot more functionality into the Advantage+ tools over time. also where a lot of our gen AI ads creative features have been introduced and where advertisers have the opportunity to experiment with those. And we'll keep looking to apply what we learn from these products more broadly to our ads investments over the course of the year.
Operator: Your next question comes from the line of Ken Gawrelski from Wells Fargo. |
4,738 | META | 1 | 2,024 | 2024-04-24 12:00:00 | Meta Platforms, Inc. | 20,765,463 | Operator: Your next question comes from the line of Ken Gawrelski from Wells Fargo.
Kenneth Gawrelski: As you look out through the coming period of product investment, how should we think about the relationship between Family of Apps revenue and cost growth? Is there any insight you can give us there?
And then maybe just one that's a little bit more specific to the G&A growth in 1Q. You called out legal expenses. Just wanted to see if there's anything onetime in there that would cause the elevated growth in 1Q.
Susan Li: Yes. On the second part of your question first, so on the G&A side, that was really driven by legal expenses. We recognized some accruals in Q1 related to ongoing legal matters, and you'll see more detail on that in the 10-Q.
On the first part of your question, which is really about sort of the kind of long-term margin profile of Family of Apps, we aren't giving guidance on that per se. But one of the things that we really have been very disciplined about over the course of 2023 and continuing is really operating the business in a very efficiency oriented way. So we're being very disciplined with allocation of new resources. This is a muscle that we really built over 2023 that we believe is important for us to keep carrying forward. And I think you'll see us continue to emphasize that, especially with the Family of Apps business being at the scale that it is.
Operator: Your next question comes from the line of Ross Sandler from Barclays.
Ross Sandler: Great. Mark, you partnered with Google and Bing for Meta AI organic search citations. So I guess stepping back, do you think that Meta AI longer term could bring in search advertising dollars at some point? Or do you view this as what others are doing, where you kind of attach a premium subscription tier once people kind of get going on it? |
4,739 | META | 1 | 2,024 | 2024-04-24 12:00:00 | Meta Platforms, Inc. | 20,765,463 | And then the second question is, you mentioned that you guys are working on building AI tools for businesses and creators. So just, I guess, how do you see the business model evolving when we all get to the stage of interacting with something like Taylor Swift's custom AI for merchandise or tickets or something like that. How is that going to play out?
Mark Zuckerberg: All right. So yes, on the Google and Microsoft partnerships, yes, I mean we work with them to have real-time information in Meta AI. It's useful. I think it's pretty different from search. We're not working on search ads or anything like that. I think this will end up being a pretty different business.
I do think that there will be an ability to have ads and paid content in Meta AI interactions over time as well as people being able to pay for whether it's bigger models or more compute or some of the premium features and things like that. But that's all very early in fleshing out.
The thing that I actually think is probably -- the biggest clear opportunity is all the work around business messaging. That's in addition to the stuff that we're already doing, just generate to increase engagement and ads quality in the apps. But business messaging thing, I mean, whether it's a creator or one of the 100-plus million businesses on our platform, we basically want to make it very easy for all of these folks to set up an AI to engage with their community. For a business, that's going to be able to do sales and commerce and customer support. And I think it will be similar for creators, although there will be more of a kind of just fun and engaging part there, but a lot of creators are on the platform because they see this as a business too, whether they're trying to sell concert tickets or products or whatever it is that their business goal is. |
4,740 | META | 1 | 2,024 | 2024-04-24 12:00:00 | Meta Platforms, Inc. | 20,765,463 | And a lot of these folks either aren't advertising as much as they could or, in business, the business messaging parts, I think, are still relatively undermonetized compared to where they will be. And I think a lot of that is because the cost of engaging with people in messaging is still very high. But AI should bring that down just dramatically for businesses and creators. And I think that, that has the potential. That's probably the -- beyond just increasing engagement and increasing the quality of the ads, I think that, that's probably one of the nearer-term opportunities, even though that will -- it's not like next quarter or the quarter after that scaling thing, but it's -- but that's not like a 5-year opportunity either.
So I think -- that is one that I think is going to be pretty exciting to look at. But yes, I mean, as Meta AI scales too, I think that, that will have its own opportunities to monetize, and we'll build that out over time. But like I tried to emphasize, we're in the phase of this where the main goal is getting many hundreds of millions or billions of people to use Meta AI as a core part of what they do. That's the kind of next goal, building something that is super valuable. We think this has the potential to be at a very large scale. And that's sort of the next step on the journey.
Kenneth Dorell: Krista, we have time for one last question.
Operator: And that question comes from the line of Ron Josey from Citi.
Ronald Josey: Mark, I want to follow up on a prior question that you mentioned optimism has grown internally quite a bit just with all the improvements and investments and innovations you're making. And we're seeing that in the experience for a few days of Meta AI. So can you just talk to us maybe how the $400 billion parameter model just might evolve the experience on Meta or how you think things might change over the next, call it, months, years, et cetera, as maybe messaging becomes a greater focus and things along those lines? So just a vision longer term. |
4,741 | META | 1 | 2,024 | 2024-04-24 12:00:00 | Meta Platforms, Inc. | 20,765,463 | Mark Zuckerberg: Yes. I mean I think that the next phase for a lot of these things are handling more complex tasks and becoming more like agents rather than just chat bots, right? So when I say chatbot, what I mean is you send it a message and it replies to your message, right? So it's almost like almost a 1:1 correspondence.
Whereas what an agent is going to do is you give it an intent or a goal, then it goes off and probably actually performs many queries on its own in the background in order to help accomplish your goal, whether that goal is researching something online or eventually finding the right thing that you're looking to buy. There's a lot of complexity and sort of different things. I think people don't even realize that they will be able to ask computers to do for them.
And I think basically, the larger models and then the more advanced future versions that will be smaller as well are just going to enable much more interesting interactions like that. So I mean if you think about this, I mean, even some of the business use cases that we talked about, you don't really just want like sales or customer support chatbot that can just respond to what you say. And if you're a business, you have a goal, right? You're trying to support your customers well and you're trying to position your products in a certain way and encourage people to buy certain things that map to their interests and would they be interested in? And that's more of like a multiturn interaction, right?
So the type of business agent that you're going to be able to enable with just a chatbot is going to be very naive compared to what we're going to have in a year even, but beyond that, too, is just the reasoning and planning abilities if these things grow to be able to just help guide people through the business process of engaging with whatever your goals are as a creator of a business. |
4,742 | META | 1 | 2,024 | 2024-04-24 12:00:00 | Meta Platforms, Inc. | 20,765,463 | So I think that that's going to be extremely powerful. And I think the opportunity is really big. So -- and on top of that, I think what we've shown now is that we have the ability to build leading models in our company. So I think it makes sense to go for it, and we're going to. And I think it's going to be a really good long-term investment. But I did just want to spell out on this call today, the extent to which we're focusing on this and investing in this for the long term because that's what we do.
Kenneth Dorell: Great. Thank you for joining us today. We appreciate your time, and we look forward to speaking with you again soon.
Operator: This concludes today's conference call. Thank you for your participation, and you may now disconnect. |
4,743 | META | 1 | 2,025 | 2025-04-30 17:00:00 | Meta Platforms, Inc. | 20,765,463 | Operator: Good afternoon. My name is Krista, and I will be your conference operator today. At this time, I would like to welcome everyone to the Meta 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] And this call will be recorded. Thank you very much. Kenneth Dorell, Meta's Director of Investor Relations, you may begin.
Kenneth Dorell: Thank you. Good afternoon, and welcome to Meta's first quarter 2025 earnings conference call. Joining me today to discuss our results are Mark Zuckerberg, CEO; and Susan Li, CFO. Our remarks today will include forward-looking statements, which are based on assumptions as of today. Actual results may differ materially as a result of various factors, including those set forth in today's earnings press release and in our Annual Report on Form 10-K filed with the SEC. We undertake no obligation to update any forward-looking statement. During this call, we will present both GAAP and certain non-GAAP financial measures. A reconciliation of GAAP to non-GAAP measures is included in today's earnings press release. The earnings press release and an accompanying investor presentation are available on our website at investor.atmeta.com. And now I'd like to turn the call over to Mark. |
4,744 | META | 1 | 2,025 | 2025-04-30 17:00:00 | Meta Platforms, Inc. | 20,765,463 | Mark Zuckerberg: All right. Thanks, Ken. Thanks, everyone, for joining today. We've had a strong start to the year. Our community keeps growing with more than 3.4 billion people now using at least one of our apps each day. Our business is also performing very well, and I think we're well-positioned to navigate the macroeconomic uncertainty. The major theme right now, of course, is how AI is transforming everything we do and, as we continue to increase our investments and focus more for our resources on AI, probably useful today to lay out the five major opportunities that we are focused on. Those are improved advertising, more engaging experiences, business engaging experiences, business messaging, Meta AI and AI devices. And these are each long-term investments that are downstream from us building general intelligence and leading AI models and infrastructure. Even with our significant investments, we don't need to succeed in all of these areas to have a good ROI. But if we do, then I think that we will be wildly happy with the investments that we are making. The first opportunity is improved advertising. Our goal is to make it so that any business can basically tell us what objective they're trying to achieve like selling something or getting a new customer and how much they're willing to pay for each result, and then we just do the rest. Businesses used to have to generate their own ad creative and define what audiences they wanted to reach, but AI has already made us better at targeting and finding the audiences that will be interested in their products than many businesses are themselves, and that keeps improving. And now AI is generating better creative options for many businesses as well. I think that this is really redefining what advertising is into an AI agent that delivers measurable business results at scale. And if we deliver on this vision, then over the coming years, I think that the increased productivity from AI will make advertising a meaningfully larger share of global GDP than it is today. In |
4,745 | META | 1 | 2,025 | 2025-04-30 17:00:00 | Meta Platforms, Inc. | 20,765,463 | that the increased productivity from AI will make advertising a meaningfully larger share of global GDP than it is today. In just the last quarter, we are testing a new ads recommendation model for reels, which has already increased conversion rates by 5%, and we're seeing 30% more advertisers are using AI creative tools in the last quarter as well. The second opportunity is more engaging experiences. This will come in two forms, better recommendations for existing content types and better new types of content. In the last six months, improvements to our recommendation systems have led to a 7% increase in time spent on Facebook, a 6% increase on Instagram, and 35% on Threads. Threads now also has more than 350 million monthly actives and continues to be on track to become our next major social app. In addition to better recommendations for existing content types, AI is also enabling the creation of better content as well. Some of this will be helping people produce better content to share themselves. Some of this will be AI generating content directly for people that is personalized for them. Some of this will be in existing formats like photos and videos, and some of it will be increasingly interactive. I've often talked about this long-term trend of content becoming richer over time. Our feeds started mostly with text and then became mostly photos, we all got mobile phones with cameras, and then became mostly video when mobile networks became fast enough to handle that well. We are now in the video era, but I don't think that this is the end of the line. In the near future, I think that we're going to have content in our feeds that you can interact within that, it will interact back with you rather than you just watching it. Over the long-term, as AI unlocks more productivity in the economy, I also expect that people will spend more of their time on engaging experiences across all of these apps. The third opportunity is business messaging. Right now the vast majority of our business is advertising and feeds on |
4,746 | META | 1 | 2,025 | 2025-04-30 17:00:00 | Meta Platforms, Inc. | 20,765,463 | apps. The third opportunity is business messaging. Right now the vast majority of our business is advertising and feeds on Facebook and Instagram. But WhatsApp now has more than 3 billion monthly actives with more than 100 million people in the U.S. and growing quickly there. Messenger is also used by more than a billion people each month, and there are now as many messages sent each day on Instagram as there are on Messenger. So business messaging should be the next pillar of our business. In countries like Thailand and Vietnam, where there is a low cost of labor, we see many businesses conduct commerce through our messaging apps. There's actually so much business through messaging that those countries are both in our Top 10 or 11 by revenue, even though they're ranked in the 30s in global GDP. This phenomenon hasn't yet spread to developed countries, because the cost of labor is too high, to make this a profitable model before AI, but AI should solve this. So in the next few years, I expect that, just like every business today has an email address, social media account and website, they'll also have an AI business agent that can do customer support and sales, and they should be able to set that up very easily given all the context that they've already put into our business platforms. And we're going to have more to share on upcoming calls about our progress in this area. The fourth opportunity is Meta AI. Across our apps, there are now almost a billion monthly actives using Meta AI. Our focus for this year is deepening the experience and making AI the leading personal AI with an emphasis on personalization, voice conversations, and entertainment. I think that we're all going to have an AI that we talk to throughout the day, while we're browsing content on our phones, and eventually, as we're going through our days with glasses. And I think that this is going to be one of the most important and valuable services that has ever been created. In addition to building Meta AI into our apps, we just released our |
4,747 | META | 1 | 2,025 | 2025-04-30 17:00:00 | Meta Platforms, Inc. | 20,765,463 | important and valuable services that has ever been created. In addition to building Meta AI into our apps, we just released our first Meta AI standalone app. It is personalized, so you can talk to it about interests that you've shown while browsing reels or different content across our apps. And we built a social feed into it so you can discover entertaining ways that others are using Meta AI, and initial feedback on the app has been good so far. Over time, I expect that the business opportunity for Meta AI to follow our normal product development playbook. First, we build and scale the product, and then once it is at scale, then we focus on revenue. In this case, I think that there will be a large opportunity to show product recommendations or ads, as well as a premium service for people who want to unlock more compute for additional functionality or intelligence. But I expect that we're going to be largely focused on scaling and deepening engagement for at least the next year, before we'll really be ready to start building out the business here. The fifth opportunity is AI devices, which is increasingly how we are thinking about our work on the next-generation of computing platforms. Glasses are the ideal form factor for both AI and the Metaverse. They enable you to let an AI see what you see, hear what you hear, and talk to you throughout the day, and they let you blend the physical and digital worlds together with holograms. More than a billion people worldwide wear glasses today. And it seems highly likely that these will become AI glasses over the next five to 10-years. Building the devices that people use to experience our services, lets us deliver the highest quality AI and social experiences, and this will serve as an amplifier on all of the opportunities I've mentioned so far, as well as unlocking some new opportunities as well. Ray-Ban Meta AI Glasses have tripled in sales in the last year, and the people who have them are using them a lot. We've got some exciting new launches with our partner, |
4,748 | META | 1 | 2,025 | 2025-04-30 17:00:00 | Meta Platforms, Inc. | 20,765,463 | in the last year, and the people who have them are using them a lot. We've got some exciting new launches with our partner, EssilorLuxottica, later this year, as well that should expand that category and add some new technological capabilities to the glasses. On Quest, we are also seeing deeper engagement as Quest 3S makes VR accessible to more people, and more people are creating experiences in horizon with AI tools. Now, everything that I've talked about today is built on top of our AI models and our infrastructure. We released the first Llama 4 models earlier this month. They are some of the most intelligent, best multimodal, lowest latency, and most efficient models that anyone has built. We have more models on the way, including the massive Llama 4 behemoth model. Overall, we are focused on building full general intelligence. All of the opportunities that I've discussed today are downstream of delivering general intelligence and doing so efficiently. The pace of progress across the industry and the opportunities ahead for us are staggering. I want to make sure that we're working aggressively and efficiently, and I also want to make sure that we are building out the leading infrastructure and teams that we need to achieve our goals. So to that end, we are accelerating some of our efforts to bring capacity online more quickly this year, as well as some longer-term projects that will give us the flexibility to add capacity in the coming years as well. And that has increased our planned investment for this year. More broadly, this has been a good start to what I expect will continue to be an intense year. We've got a lot more exciting work in the pipeline that I'm looking forward to sharing soon. I continue to think that this year is going to be a pivotal moment for our industry, and I'm grateful for everyone who is working so hard at the Company to deliver all this amazing technology and new experiences. As always, thank you all for being on this journey with us, `and now, Susan. |
4,749 | META | 1 | 2,025 | 2025-04-30 17:00:00 | Meta Platforms, Inc. | 20,765,463 | Susan Li: Thanks, Mark, and good afternoon, everyone. Let's begin with our consolidated results. All comparisons are on a year-over-year basis unless otherwise noted. Q1 total revenue was $42.3 billion, up 16% or 19% on a constant currency basis. Q1 total expenses were $24.8 billion, up 9% compared to last year. In terms of the specific line items, cost of revenue increased 14%, driven primarily by higher infrastructure costs and payments to partners, partially offset by a benefit from the previously announced extension of server useful lives. R&D increased 22%, mostly due to higher employee compensation and infrastructure costs. Marketing and sales increased 8%, driven mainly by an increase in professional services related to our ongoing platform integrity efforts. G&A decreased 34%, driven primarily by lower legal-related costs. We ended Q1 with over 76,800 employees, up 4% quarter-over-quarter. First quarter operating income was $17.6 billion, representing a 41% operating margin. Our tax rate for the quarter was 9%, as we recognized excess tax benefits from share-based compensation due to the increase in our share price versus prior periods. Net expenditures, including principal payments on finance leases, were $13.7 billion, driven by investments in servers, data centers, and network infrastructure. Free cash flow was $10.3 billion. We repurchased $13.4 billion of our Class A common stock and paid $1.3 billion in dividends to shareholders, ending the quarter with $70.2 billion in cash and marketable securities, and $28.8 billion in debt. Moving now to our segment results. I'll begin with our Family of Apps segment. Our community across the Family of Apps continues to grow, and we estimate more than 3.4 billion people used at least one of our Family of Apps on a daily basis in March. Q1 total Family of Apps revenue was $41.9 billion, up 16% year-over-year. Q1 Family of Apps' ad revenue was $41.4 billion, up 16% or 20% on a constant currency basis. Within ad revenue, the online commerce vertical was the |
4,750 | META | 1 | 2,025 | 2025-04-30 17:00:00 | Meta Platforms, Inc. | 20,765,463 | revenue was $41.4 billion, up 16% or 20% on a constant currency basis. Within ad revenue, the online commerce vertical was the largest contributor to year-over-year growth. On a user geography basis, ad revenue growth was strongest in Rest of World and North America at 19% and 18%, respectively. Europe and Asia-Pacific grew 14% and 12%. In Q1, the total number of ad impressions served across our services increased 5%, and the average price per ad increased 10%. Impression growth was mainly driven by Asia-Pacific. Pricing growth benefited from increased advertiser demand, in part driven by improved ad performance. This was partially offset by impression growth, particularly from lower monetizing regions and surfaces. Family of Apps' other revenue was $510 million, up 34%, driven mostly by business messaging revenue growth from our WhatsApp Business platform, as well as Meta Verified subscriptions. We continue to direct the majority of our investments toward the development and operation of our Family of Apps. In Q1, Family of Apps' expenses were $20.1 billion, representing 81% of our overall expenses. Family of Apps' expenses were up 10%, mainly due to growth in employee compensation and infrastructure costs, which were partially offset by lower legal-related expenses. Family of Apps' operating income was $21.8 billion, representing a 52% operating margin. Within our Reality Labs segment, Q1 revenue was $412 million, down 6% year-over-year due to lower Meta Quest sales, which were partially offset by increased sales of RayBan Meta AI glasses. Reality Labs' expenses were $4.6 billion, up 8% year-over-year, driven primarily by higher employee compensation. Reality Labs' operating loss was $4.2 billion. Turning now to the business outlook. There are two primary factors that drive our revenue performance our ability to deliver engaging experiences for our community and our effectiveness at monetizing that engagement over time. On the first, we're focused both on enhancing our core Family of Apps today and building |
4,751 | META | 1 | 2,025 | 2025-04-30 17:00:00 | Meta Platforms, Inc. | 20,765,463 | monetizing that engagement over time. On the first, we're focused both on enhancing our core Family of Apps today and building the next generation of devices and experiences through Reality Labs. I'll start with our Family of Apps. In the first quarter, we saw strong growth in video consumption across both Facebook and Instagram, particularly in the U.S., where video time spent grew double-digits year-over-year. This growth continues to be driven primarily by ongoing enhancements to our recommendation systems, and we see opportunities to deliver further gains this year. We're also progressing on longer-term efforts to develop innovative new approaches to recommendations. A big focus of this work will be on developing increasingly efficient recommendation systems, so that we can continue scaling up the complexity and compute used to train our models, while avoiding diminishing returns. There are promising techniques we're working on that will incorporate the innovations from LLM model architectures to achieve this. Another area that is showing early promise is integrating LLM technology into our content recommendation systems. For example, we're finding that LLM's ability to understand a piece of content more deeply than traditional recommendation systems can help better identify, what is interesting to someone about a piece of content leading to better recommendations. We began testing using Llama and Threads recommendation systems at the end of last year, given the app's text-based content, and have already seen a 4% lift in time spent from the first launch. It remains early here, but a big focus this year will be on exploring how we can deploy this for other content types, including photos and videos. We also expect this to be complementary to Meta AI, as it can provide more relevant responses to people's queries by better understanding their interests and preferences through their interactions across Facebook, Instagram, and Threads. Earlier this year, we began testing the ability for Meta AI to better |
4,752 | META | 1 | 2,025 | 2025-04-30 17:00:00 | Meta Platforms, Inc. | 20,765,463 | interactions across Facebook, Instagram, and Threads. Earlier this year, we began testing the ability for Meta AI to better personalize its responses by remembering certain details from people's prior queries and considering what that person engages with on our apps. We are already seeing this lead to deeper engagement with people we've rolled it out to, and it is now built into Meta AI across Facebook, Instagram, Messenger, and our new standalone Meta AI app in the U.S. and Canada. We're also continuing to focus on helping people connect over content. In Q1, we launched a new experience on Instagram in the U.S., that consists of a feed of content your friends have left a note on or liked, and we're seeing good results. We also just launched Blend, which is an opt-in experience in direct messages that enables you to blend your reels algorithm with your friends to spark conversations over each other's interests. These features all lean into Instagram's position at the intersection of entertainment and social connection. WhatsApp remains at its core a private messaging app, but it has evolved to also become a place people come to get updates from accounts they are connected to or follow. Today, there are tens of billions of views of status posts on WhatsApp each day, and we continue to invest in the Updates tab, as a place people can go to do more. Creators remain another big focus for us, and we're investing in tools to help them produce the best original content on our platforms. Last week, we launched our standalone Edits app, which supports the full creative process for video creators from inspiration and creation to performance insights. Edits has an ultra-high resolution short-form video camera and includes generative AI tools that enable people to remove the background of any video or animate still images, with more features coming soon. Moving to Reality Labs, we're seeing very strong traction with RayBan Meta AI glasses with over 4 times as many monthly actives as a year ago, and the number of people |
4,753 | META | 1 | 2,025 | 2025-04-30 17:00:00 | Meta Platforms, Inc. | 20,765,463 | strong traction with RayBan Meta AI glasses with over 4 times as many monthly actives as a year ago, and the number of people using voice commands is growing even faster as people use it to answer questions and control their glasses. This month, we fully rolled out live translations on RayBan Meta AI glasses to all markets for English, French, Italian, and Spanish. Now, when you are speaking to someone in one of these languages, you'll hear what they say in your preferred language through the glasses in real time. Now to the second driver of our revenue performance, increasing monetization efficiency. The first part of this work is optimizing the level of ads within organic engagement. We continue to optimize ad supply across each service to better deliver ads at the time and place they are most relevant to people. We are also starting to introduce ads on unmonetized surfaces like Threads, which we opened up to all eligible advertisers this month to reach people in over 30 different markets to start, including the U.S. As we do for any newly monetized surface, we expect to gradually ramp ad supply as we optimize the ad formats and ensure they feel native to the app. We don't expect Threads to be a meaningful driver of overall impression or revenue growth in 2025. The second part of increasing monetization efficiency is improving marketing performance. We're continuing to improve our ad systems by developing new modeling technologies to more efficiently predict the right ad to show. In Q1, we introduced our new Generative Ads Recommendation Model, or GEM for ads ranking. This model uses a new architecture we developed that is twice as efficient at improving ad performance for a given amount of data and compute. This efficiency gain enabled us to significantly scale up the amount of compute we use for model training with GEM trained on thousands of GPUs, our largest cluster for ads training to date. We began testing the new model for ads recommendations on Facebook Reels earlier this year and have seen up to a 5% |
4,754 | META | 1 | 2,025 | 2025-04-30 17:00:00 | Meta Platforms, Inc. | 20,765,463 | to date. We began testing the new model for ads recommendations on Facebook Reels earlier this year and have seen up to a 5% increase in ad conversions. We're now rolling it out to additional services across our apps. On the ads product side, we're seeing continued momentum with our Advantage+ suite of AI-powered solutions. We've been encouraged by the initial tests of our streamlined campaign creation flow for sales, app, and lead campaigns, which starts with Advantage+ turned on from the beginning for advertisers. In April, we rolled this out to more advertisers and expect to complete the global rollout later this year. We're also seeing strong adoption of Advantage+ creative. This week, we are broadening access of video expansion to Facebook Reels for all eligible advertisers, enabling them to automatically adjust the aspect ratio of their existing videos by generating new pixels in each frame to optimize their ads for full-screen surfaces. We also rolled out Image Generation to all eligible advertisers, and this quarter, we plan to continue testing a new virtual try-on feature that uses Gen AI to place clothing on virtual models, helping customers visualize how an item may look and fit. Last, we continue to evolve our ads platform to drive results that are optimized for each business's objectives and the way they measure value. One example of this is our incremental attribution feature, which enables advertisers to optimize for driving incremental conversions or conversions we believe would not have occurred without an ad being shown. We're seeing strong results in testing so far with advertisers using incremental attribution in tests, seeing an average 46% lift in incremental conversions compared to their business-as-usual approach. We expect to make this available to all advertisers in the coming weeks. Next, I would like to discuss our approach to capital allocation. Our primary focus remains investing capital back into the business, with infrastructure and talent being our top priorities. Starting with |
4,755 | META | 1 | 2,025 | 2025-04-30 17:00:00 | Meta Platforms, Inc. | 20,765,463 | focus remains investing capital back into the business, with infrastructure and talent being our top priorities. Starting with headcount, our hiring continues to be targeted at technical roles within our company priorities. In the first quarter, the significant majority of the roughly 2,800 employees we added were to support our priorities of monetization, infrastructure, generative AI, regulation and compliance, and Reality Labs. On infrastructure, we have two primary focuses to meet the growing compute needs of our services and AI initiatives. The first way is by significantly scaling up our infrastructure footprint. Our CapEx growth this year is going toward both generative AI and core business needs, with the majority of overall CapEx supporting the core. We expect the significant infrastructure footprint we are building will not only help us meet the demands of our business in the near term, but also provide us an advantage in the quality and scale of AI services we can deliver. We continue to build this capacity in a way that grants us maximum flexibility in how and when we deploy it to ensure we have the agility to react to how the technology and industry develop in the coming years. The second way we're meeting our compute needs is by increasing the efficiency of our workloads. In fact, many of the innovations coming out of our ranking work are focused on increasing the efficiency of our systems. This emphasis on efficiency is helping us deliver consistently strong returns from our core AI initiatives. For example, we shared on the Q3 2024 call that improvements to our AI-driven feed and video recommendations drove a roughly 8% lift in time spent on Facebook and a 6% lift on Instagram over the first nine months of last year. Since then, we've been able to deliver similar gains in just six months’ time with improvements to our AI recommendations delivering 7% and 6% time spent gains on Facebook and Instagram, respectively. Before moving to our financial guidance, I want to acknowledge the dynamic macro |
4,756 | META | 1 | 2,025 | 2025-04-30 17:00:00 | Meta Platforms, Inc. | 20,765,463 | gains on Facebook and Instagram, respectively. Before moving to our financial guidance, I want to acknowledge the dynamic macro environment and note that our range reflects the potential for a wider set of outcomes. We continue to feel good about the fundamental drivers of revenue growth and believe the past work we've done to streamline our operations and cost profile puts us in a strong position to navigate a variety of outcomes. Moving to our financial outlook. We expect second quarter of 2025 total revenue to be in the range of $42.5 billion to $45.5 billion. Our guidance assumes foreign currency is an approximately 1% tailwind to year-over-year total revenue growth based on current exchange rates. Turning now to the expense outlook. We expect full year 2025 total expenses to be in the range of $113 billion to $118 billion, lowered from our prior outlook of $114 billion to $119 billion. Turning now to the CapEx outlook. We anticipate our full year 2025 capital expenditures, including principal payments on finance leases, will be in the range of $64 billion to $72 billion, increased from our prior outlook of $60 billion to $65 billion. This updated outlook reflects additional data center investments to support our AI efforts as well as an increase in the expected cost of infrastructure hardware. The majority of our CapEx in 2025 will continue to be directed to our core business. On to tax. Absent any changes to our tax landscape, we expect our full-year 2025 tax rate to be in the range of 12% to 15%. In addition, we continue to monitor an active regulatory landscape, including legal and regulatory headwinds in the EU and the US, that could significantly impact our business and our financial results. The European Commission recently announced its decision that our subscription for no ads model is not compliant with the DMA. Based on feedback from the European Commission in connection with the DMA, we expect we will need to make some modifications to our model, which could result in a materially worse user |
4,757 | META | 1 | 2,025 | 2025-04-30 17:00:00 | Meta Platforms, Inc. | 20,765,463 | with the DMA, we expect we will need to make some modifications to our model, which could result in a materially worse user experience for European users and a significant impact to our European business and revenue as early as the third quarter of 2025. We will appeal the Commission's DMA decision, but any modifications to our model may be imposed before or during the appeal process. In closing, this was another solid quarter for our business. We believe the investments we're making across our company priorities will position us well in the coming years to continue delivering engaging services for our community, compelling results for advertisers, and strong business performance. With that, Krista, let's open up the call for questions. |
4,758 | META | 1 | 2,025 | 2025-04-30 17:00:00 | Meta Platforms, Inc. | 20,765,463 | Operator: Thank you. We will now open the lines for a question-and-answer session. [Operator Instructions] And your first question comes from the line of Brian Nowak with Morgan Stanley. Please go ahead.
Brian Nowak: Great. Thanks for taking my questions. I have two. The first one is on Llama. Mark, can you -- the LLM landscape continues to sort of evolve and be somewhat competitive. Can you sort of talk us through some of the key areas of advancement you are most focused on and excited about as we sort of think about behemoth and next versions of Llama to come? And then the second one on Meta AI, almost a billion users globally. Any help on sort of how you're seeing US traction there and the types of recurring user behaviors that you're seeing in the early Meta AI use cases? Thanks. |
4,759 | META | 1 | 2,025 | 2025-04-30 17:00:00 | Meta Platforms, Inc. | 20,765,463 | Mark Zuckerberg: Sure. I can talk about the LLMs. On the Meta AI usage, I'm not sure if we have more stats to share on that now. Yes, it's -- I mean, I'll defer to Susan on if there's anything that we're ready on that. On the LLM, yes, there's a lot of progress being made in a lot of different dimensions. And the reason why we want to build this out is, one is that we think it's important that for kind of how critical this is for our business that we sort of have control of our own destiny and are not depending on another company for something so critical. But two, we want to make sure that we can shape the development to be optimized for our infrastructure and the use cases that we want. So to that end, Llama 4, the shape of the model with 17 billion parameters per expert, was designed specifically for the infrastructure that we have in order to provide low latency experience to be voice optimized. One of the key things if you're having a voice conversation with AI is it needs to be low latency. So that way, when you're having a conversation with it, there is no large gap between when you stop speaking and it starts. So everything from the shape of the model to the research that we're doing to the techniques that go into it are kind of fit into that. Similarly, another thing that we focused on was context window length. And in some of our models, we have really -- we're industry-leading on context window length, and part of the reason why we think that that's important is because we're very focused on providing a personalized experience. And there are different ways that you can put personalized -- personalization context into an LLM, but one of the ways to do it is to include some of that context in the context window and having a long context window that can incorporate a lot of the background that the person has shared across our apps is one way to do that. So that's like -- it kind of is giving you a flavor of the products that we're trying to build and then some specific technical architecture decisions |
4,760 | META | 1 | 2,025 | 2025-04-30 17:00:00 | Meta Platforms, Inc. | 20,765,463 | of is giving you a flavor of the products that we're trying to build and then some specific technical architecture decisions and research prioritization that we basically have made in order to deliver the specific experience that we're going for. I could go on and add a lot more. The reason -- I think it's also very important to deliver big models like Behemoth, not because we're going to end up serving them in production, but because of the technique of distilling from larger models, right? The Llama 4 models that we've published so far and the ones that we're using internally and some of the ones that we'll build in the future are basically distilled from the Behemoth model in order to get the 90%, 95% of the intelligence of the large model in a form factor that is much lower latency and much more efficient. So these things are all very important. Obviously, we wouldn't be able to do that kind of distillation from other closed models. So that kind of gives you a flavor for how we're thinking about the development of this. And then, of course, the models and the infrastructure that we're building out power all of the opportunities that I mentioned before. |
4,761 | META | 1 | 2,025 | 2025-04-30 17:00:00 | Meta Platforms, Inc. | 20,765,463 | Susan Li: Brian, I'm happy to answer your second question about Meta AI. The top use case right now for Meta AI from a query perspective is really around information gathering as people are using it to search for and understand and analyze information, followed by social interactions from -- ranging from casual chatting to more in-depth discussion or debate. We also see people use it for writing assistance, interacting with visual content, seeking help. And we see Meta -- people engage with Meta AI from several different entry points. WhatsApp continues to see the strongest Meta AI usage across our family of apps. Most of that WhatsApp engagement is in one-on-one Threads, followed by Facebook, which is the second largest driver of Meta AI engagement, where we're seeing strong engagement from our Feed deep-dives integration that lets people ask Meta AI questions about the content that's recommended to them. And we're obviously excited about the launch of the Meta AI standalone app.
Operator: Your next question comes from the line of Eric Sheridan with Goldman Sachs. Please go ahead.
Eric Sheridan: Thanks so much for taking the question. Maybe following up on Brian's question and coming at it from a different angle, and appreciate the color on the use cases you're seeing today for Meta AI. How would you suspect those use cases evolve with a standalone app? Can you bring us into a little bit the decision process to do a standalone app, what that might change in terms of utility, frequency, or scale relative to what you see inside Family of Apps today? And how do you think about positioning Meta AI as a standalone app against the competitive landscape today of other standalone sorts of consumer AI apps? Thank you. |
4,762 | META | 1 | 2,025 | 2025-04-30 17:00:00 | Meta Platforms, Inc. | 20,765,463 | Mark Zuckerberg: Yes, I can talk about that. We're going to focus on both integrating it into our Family of Apps in more ways and building a standalone experience. I think some people want faster access to it or a more built-out feature set than you can build into an app like WhatsApp, so the standalone app will be valuable for that. I also think that the standalone app is going to be particularly important in the United States because WhatsApp, as Susan said, is the largest surface that people use Meta AI in, which makes sense if you want to text an AI, having that be closely integrated and a good experience in the messaging app that you use makes a lot of sense. But we're -- while we have more than 100 million people use WhatsApp in the United States, it -- we're clearly not the primary messaging app in the United States at this point, iMessage. We hope to become the leader over time, but we're in a different position there than we are in most of the rest of the world on WhatsApp. So I think that the Meta AI app as a standalone is going to be particularly important in the United States to establishing leadership in -- as the main personal AI that people use. But we're going to keep on advancing the experiences across the board in all of these different areas.
Operator: Your next question comes from the line of Justin Post with Bank of America. Please go ahead.
Justin Post: Great. Thank you. A couple of questions. Just on the guide in the second quarter, there are reports of potential supply issues in e-commerce. How you thought about that in the guide, and maybe how you're thinking about it for the back half? And then on a bigger picture question, your CapEx spend is now on close to some hyperscalers with very big client bases? Just help us conceptualize the kind of ecosystem you're building with your CapEx. I know you gave a lot of help on the intro, but maybe the ROI works without direct enterprise spend to drive revenues. How you're thinking about that? Thank you. |
4,763 | META | 1 | 2,025 | 2025-04-30 17:00:00 | Meta Platforms, Inc. | 20,765,463 | Susan Li: Thanks, Justin. On the Q2 guide, there is uncertainty, obviously, and how the macro environment will evolve over time and how that could impact different segments of our business. Our Q2 revenue outlook aims to factor that in and partly -- that's partly why the $3 billion range reflects the potential for a wider range of outcomes. Specifically, we have seen some reduced spend in the US from Asia-based e-commerce exporters, which we believe is in anticipation of the de minimis exemption going away on May 2nd. A portion of that spend has been redirected to other markets, but overall spend for those advertisers is below the levels prior to April. But our Q2 outlook reflects the trends we're seeing so far in April, which have generally been healthy. So it's very early and hard to know how things will play out over the quarter, and certainly harder to know that for the rest of the year. Your second question is about why we're investing more in CapEx. And we really believe that our ability to build world-class infrastructure gives us a meaningful advantage in both developing the leading AI technology and services over the coming years, and there are a lot of opportunities also for us to improve our core business by putting more compute against our ads and recommendation work. So even with the capacity that we're bringing online in 2025, we are having a hard time meeting the demand that teams have for compute resources across the company. So we are going to continually invest meaningfully here across our infrastructure footprint, but we are also really looking to build this capacity in a way that gives us the maximum flexibility in how and when we deploy it over the coming years. So we can respond to how the market and technology develop.
Operator: Your next question comes from the line of Doug Anmuth with JPMorgan. Please go ahead. |
4,764 | META | 1 | 2,025 | 2025-04-30 17:00:00 | Meta Platforms, Inc. | 20,765,463 | Operator: Your next question comes from the line of Doug Anmuth with JPMorgan. Please go ahead.
Doug Anmuth: Thanks for taking the questions. I just wanted to follow up on CapEx and infrastructure spending. Just on the higher range for CapEx, can you just help us understand how much of that is tied to the additional data center investments versus the increased hardware costs, and really what's driving those higher hardware costs? And then separately, there have been some articles suggesting that you've been looking to partner to share some of the costs of the AI infrastructure build-out. Can you just help us understand your thought process there and some of the pros and cons of going alone versus partnering? Thanks.
Susan Li: Thanks, Doug. So our increased CapEx outlook reflects both of those updates, the increased data center spend this year as we have made some adjustments to flex our build strategy that will enable us to really stand up capacity more quickly, both in '25 and '26. We haven't broken down sort of the exact drivers. The higher cost we expect to incur for infrastructure hardware this year really comes from suppliers who source from countries around the world, and there's just a lot of uncertainty around this given the ongoing trade discussions. And so that is both reflected in the wider range that we are giving, and we're also working on our end on mitigations by optimizing our supply chain and our outlook is really trying to reflect our best understanding of the potential impact this year across all of that uncertainty. On the second part of your question, we are -- we are pleased to have partners investing alongside us and bringing Llama to market like AWS and Azure, who are helping us host Llama. We're always looking for opportunities to continue deepening or expanding those partnerships, but we are funding the infrastructure that is being used to train Llama, and we don't have any expectation that will change at this point. |
4,765 | META | 1 | 2,025 | 2025-04-30 17:00:00 | Meta Platforms, Inc. | 20,765,463 | Operator: Your next question comes from the line of Mark Shmulik with Bernstein. Please go ahead.
Mark Shmulik: Yes, thanks for taking the questions. Mark, in your conversation last night with Satya, I think you both discussed a bit around kind of the portion of code being written internally by AI. Kind of back to some of your previous comments around this being a year where we might see AI kind of the place of a mid-level engineer. With the world evolving so quickly, can you share some places where you've seen strong traction there? And are we progressing kind of faster, slower as you expected towards this milestone? And then, Susan, with the expense guidance coming down just a touch, how should we think about just the overall cadence of expected spending, really as it relates to kind of core business performance and just the realities of the day-to-day world we're living in? Thank you.
Mark Zuckerberg: I can talk about the coding agent work. I don't think that there's been any real change in our prediction for the timing of this. So I'd say, it's basically still on track for something around a mid-level engineer, kind of starting to become possible sometime this year, scaling into next year. So I'd expect that by the middle to end of next year, AI coding agents are going to be doing a substantial part of AI research and development. So, we're focused on that. Internally, we're also very focused on building AI agents or systems that can help, run different experiments to increase recommendations across our other AI products, like the ones that do recommendations across our feeds and things like that. So I think that if it works should just accelerate our progress in those areas. That's the basic bet that we're making. |
4,766 | META | 1 | 2,025 | 2025-04-30 17:00:00 | Meta Platforms, Inc. | 20,765,463 | Susan Li: On your second question about our lowered expense outlook, really, we are four months into the year the lowered outlook reflects more refined forecasts, including updated expectations for both employee compensation as well as some other non-headcount-related operating expenses this year. And that's partially offset by higher expected infrastructure costs related to our increased CapEx outlook as well as higher expected Reality Labs cost of goods sold. And we've maintained our $5 billion range just given the more dynamic operating environment that we're in. And what I would say is our investment posture today reflects the significant opportunities that we see across each of the Company and priorities that we're investing in this year. We will obviously continue evaluating depending on how macro conditions more broadly evolve. But we really feel like these are big strategic priorities for us and are critical for us to continue investing in. And in fact, I think one of the aims of our efficiency work over the last two years was to put us in a stronger financial position, so that we can continue investing in key priorities through tougher financial cycles.
Operator: Your next question comes from the line of Ross Sandler with Barclays. Please go ahead. |
4,767 | META | 1 | 2,025 | 2025-04-30 17:00:00 | Meta Platforms, Inc. | 20,765,463 | Operator: Your next question comes from the line of Ross Sandler with Barclays. Please go ahead.
Ross Sandler: Great. Mark, yesterday in one of your many kind of podcast or keynote presentations, you had mentioned that like a bunch of projects that your teams want to or aspire to do are kind of bottlenecked by the AI capacity, which Susan just talked about earlier, and that even some of the testing that the ad ranking team wants to run is just getting kind of delayed. So I guess looking out either this year, next year, or whatever, when do you kind of see some of this constraint being eased back? And more broadly, we're kind of three years past the IDFA impact to your business. So, where do you -- where do you think we are in terms of just the overall improvements to the ad ranking system, the ROI that you guys are able to deliver, and like what inning are we in on that in your opinion? Thank you very much. |
4,768 | META | 1 | 2,025 | 2025-04-30 17:00:00 | Meta Platforms, Inc. | 20,765,463 | Susan Li: I can take a shot at both of those, and Mark, you can obviously chime in. On the first question, the cap -- the capacity landscape we are in is pretty dynamic, both in terms of the many moving parts in terms of us bringing capacity online, but also in terms of the demand from different product groups in our company, whether they are in the Gen AI teams or whether they're doing more of the core AI work around ranking and recommendation. So both the supply and demand are quite fluid and so we don't have a sort of fixed answer in terms of when we expect that we will sort of have enough supply to meet all demand, but that's something that we are working very hard to alleviate and it's part of why we accelerated bringing more data center space online this year and also we're very focused on increasing the efficiency of our workloads over the course of the year. On your second question about ads performance ads ranking. We have invested for many years and continue to invest in driving ad performance improvements. Year-over-year conversion growth remains strong, and in fact, we continue to see conversions grow at a faster rate than ad impressions in Q1. So, reflecting increased conversion rates. And ads ranking and modeling improvements are a big driver of overall performance gains. We have a lot of innovations in model architecture in both the ads retrieval and ranking stages of the ads delivery process to serve more relevant ads to people. We talked about the introduction of the new GEM ads recommendation model in Q1, and we have talked about some of the prior model architecture improvements like Lattice and Andromeda in past quarters. For us, we really believe first and foremost that advertising is a relative performance game, and that's especially important for us, because the vast majority of our business is direct response advertising. So we feel good about how the prior investments are paying off, and we continue to invest in a lot of different work to constantly improve our ads ranking and |
4,769 | META | 1 | 2,025 | 2025-04-30 17:00:00 | Meta Platforms, Inc. | 20,765,463 | investments are paying off, and we continue to invest in a lot of different work to constantly improve our ads ranking and recommendations performance. |
4,770 | META | 1 | 2,025 | 2025-04-30 17:00:00 | Meta Platforms, Inc. | 20,765,463 | Operator: Your next question comes from the line of Kenneth Gawrelski with Wells Fargo. Please go ahead.
Kenneth Gawrelski: Thank you so much. Two for me, please. First, maybe, Mark. How should we think about the timing of AI capabilities necessary to drive WhatsApp for business adoption in higher cost -- higher labor cost labor markets? What is Meta doing to accelerate that adoption? And do you see this as mostly incremental to SME ad spend that you're already capturing? And then first, Susan, one, please. What does the revised CapEx outlook for this year for '25 mean about future years? Does it mean anything, or you talked about this being an acceleration in your revised outlook statement. Should we think about this as a new starting point for -- to think about '26 and beyond? Or should we just start fresh in '26 and think about the needs and capacity at that point? Thank you. |
4,771 | META | 1 | 2,025 | 2025-04-30 17:00:00 | Meta Platforms, Inc. | 20,765,463 | Susan Li: I'm happy to take -- I'll go ahead and take both of those, and Mark, you should feel free to chime in wherever you would like. So Mark talked a little bit about our general vision that every business will soon have an AI that is an expert on their business for their customers to talk to in the same way that today they've got email and websites, social media presences, et cetera. We are currently testing business AIs with a limited set of businesses in the U.S. and a few additional countries on WhatsApp, Messenger, and on -- ads on Facebook and Instagram. We've been starting with small businesses and focusing first on helping them sell their goods and services with business AIs. But ultimately, we are working on tools to support businesses at every stage of the customer funnel, from lead generation to order management and customer service, and a core area that we're addressing right now is really the ability for businesses to customize and control the agent to achieve the outcome that they want. So we've launched a new agent management experience and dashboard that makes it easier for businesses to train their AI based on existing information on their website or WhatsApp profile, or their Instagram and Facebook pages, and we're starting with the ability for businesses to activate AI in their chats with customers. We are also testing business AIs on Facebook and Instagram ads that you can ask about product and return policies, or assist you in making a purchase within our in-app browser. So again, the ultimate vision is to build an experience that serves customers across all of these different services and apps. No matter where you engage with the business AI, it should be one agent that recalls your history and your preferences and we're hearing encouraging feedback is particularly that adopting these AIs are saving the businesses that we're testing with a lot of time and helping to determine which conversations make sense for them to spend more time on. And then your second question right was about |
4,772 | META | 1 | 2,025 | 2025-04-30 17:00:00 | Meta Platforms, Inc. | 20,765,463 | to determine which conversations make sense for them to spend more time on. And then your second question right was about 2026 CapEx. You know, infrastructure, as I alluded to earlier, just is a very dynamic planning area given the continued advances in AI, and also for us, the fact that we continue to find a lot of good use cases to put capacity toward in our core AI ranking and recommendations work. So I would say it's too early to discuss plans beyond 2025. |
4,773 | META | 1 | 2,025 | 2025-04-30 17:00:00 | Meta Platforms, Inc. | 20,765,463 | Operator: Your next question comes from the line of Youssef Squali with Truist Securities. Please go ahead.
Youssef Squali: Great. Thank you guys for taking the question. So Mark, in a world where we now have maybe five to 10 chatbots, including Meta AI, on our smartphones doing virtually the same thing. Do you think this is a market much like Search, where the winner takes most, or is it likely to be much more fragmented? But in either case, what would you say are the top two or three competitive advantages of Meta AI? And then, Susan, on the EU decision connection with the DMA, what kind of modifications will you need to make to the apps? And can you maybe just help us gauge the potential financial fallout, understanding that it may still obviously be too early? Thank you. |
4,774 | META | 1 | 2,025 | 2025-04-30 17:00:00 | Meta Platforms, Inc. | 20,765,463 | Mark Zuckerberg: Yes. On Meta AI, I mean, I think that there are going to be a number of different agents that people use, just like people use different apps for different things. I'm not sure that people are going to use multiple agents for the same exact things, but I'd imagine that something that is more focused on kind of enterprise productivity might be different from something that is somewhat more optimized for personal productivity and that might be somewhat different from something that is optimized for entertainment and social connectivity. So I know there will be -- there will be different experiences. One of the trends that I think we're starting to see now is personalization across the -- across these. Right now, if the experience is unpersonalized, then you can kind of just go to different apps and get reasonably similar answers to different questions, but once an AI starts getting to know you and what you care about in context and can build up memory from the conversations that you've had with it over time, I think that will start to become somewhat more of a differentiator. That's one thing that we think will matter. And then, of course, there's all the different modalities, being able to not just answer questions about in text, but being able to do voice and multimodal and be able to produce images and videos and understand all those things and have good conversations about that I think is going to be important overall. So yes, I mean I think Meta AI is well-positioned, but we have a lot of work to do in order to make it the leading personal AI. |
4,775 | META | 1 | 2,025 | 2025-04-30 17:00:00 | Meta Platforms, Inc. | 20,765,463 | Susan Li: And Youssef, on your second question, it is really too early to speak about what those changes could be because we are in the process of engaging with the European Commission. I think maybe the most useful sort of metric I could give you is just that our advertising revenue in the European economic area in Switzerland, which would be the geographies impacted here, was 16% of our worldwide total revenue in 2024. Again, we are continuing to engage actively with the European Commission further on this. So we hope to have more clarity by next quarter's call.
Kenneth Dorell: Krista, we have time for one last question.
Operator: Your last question comes from the line of Mark Mahaney with Evercore ISI. Please go ahead.
Mark Mahaney: Thanks. I'll just throw in two. I think you called out the China-based retailers as one sort of potentially soft advertising vertical. Anything else you'd call out? And I would just suggest autos, is that an area of any softness? And then on the Reality Labs and on the losses associated with Reality Labs, they've been very consistent, whatever, $4 billion a quarter for quite some time. Is there -- is there light at the end of the tunnel? Is there a reason to think? Is there a factor that would occur that would cause those losses to come down? And when would that be, but maybe more importantly, what is going to cause those losses to come down? Thank you very much.
Susan Li: Mark, let me take your first question about other verticals. We generally saw healthy growth in most verticals in Q1. We did see some weakness in gaming and politics. So, year-over-year growth in gaming was negative in Q1, as we lapped a period of strong spend from China-based advertisers that were promoting a larger volume of game titles in Q1 of 2024. And then year-over-year growth in the government and politics vertical dropped sharply as expected with the conclusion of U.S. elections and but that continues to just be a very small vertical overall. And then your second question on Reality Labs. Yes. |
4,776 | META | 1 | 2,025 | 2025-04-30 17:00:00 | Meta Platforms, Inc. | 20,765,463 | Mark Zuckerberg: I mean, we're basically focused on doing the work more efficiently, but as the AI glasses have really taken off, I've talked about this on a number of calls, there are more investments that I think make sense to make around making sure that we can distribute this and grow it very quickly. I mean, some of the -- if you look at the -- some of the leading consumer electronics products of other categories, by the time they get to their third generation, they're often selling 10 million units and scaling from there and I'm not sure if we're going to do exactly that, but I think that that's like the ballpark of the opportunity that we have and that's something that I think we're kind of focused on scaling to that and then scaling beyond that for the generations after that. So, I think some of the effort that we're doing is going to -- we're going to get more efficient in some parts of the work that we do, but then as a bunch of the products start to hit and start to grow even bigger than the number that I just said is just sort of like the sort of a near-term milestone, then I think we'll continue scaling in terms of distribution and then at some point, just like the other products that we build-out, we will feel like we're at a sufficient scale that we're going to primarily focus on making sure that, we're monetizing and building an efficient business around it. But that's kind of where we're at on it. We're definitely focused on doing the work more efficiently, but also very optimistic about what we're seeing in the results, especially on the AI glasses side.
Kenneth Dorell: Great. Thank you, everyone, for joining us today. Excuse me, and we look forward to speaking to you again soon. |
4,777 | MS | 4 | 2,024 | 2025-01-16 08:30:00 | Morgan Stanley | 472,898 | Operator: Good morning. Welcome to Morgan Stanley's Fourth Quarter and Full Year 2024 Earnings Call. On behalf of Morgan Stanley, I will begin the call with the following disclaimer. This call is being recorded. During today's presentation, we will refer to our earnings release, financial supplement, and strategic update, copies of which are available at morganstanley.com. Today's presentation may include forward-looking statements that are subject to risks and uncertainties that may cause actual results to differ materially. Please refer to our notices regarding forward-looking statements and non-GAAP measures that appear in the earnings release and strategic update. Within the strategic update, certain reported information has been adjusted as noted. These adjustments were made to provide a transparent and comparative view of our operating performance. The reconciliations of these non-GAAP adjusted operating performance metrics are included in the notes to the presentation or the earnings release. This presentation may not be duplicated or reproduced without our consent. I will now turn the call over to Chairman and Chief Executive Officer, Ted Pick. |
4,778 | MS | 4 | 2,024 | 2025-01-16 08:30:00 | Morgan Stanley | 472,898 | Ted Pick: Good morning, and thank you for joining us. First, we would like to acknowledge our colleagues, clients, shareholders, friends, and family in Los Angeles. Our hearts go out to all those impacted and dealing with the horrific devastation from the wildfires. We're grateful to all the firefighters and first responders, we are thinking of you. Over the last several years, we've been faced with two central themes. One, the end of financial repression, namely the passing of the era of ultra-low interest rates and the reemergence of inflation. And two, the end of the end of history with the resumption of geopolitical uncertainty. These paradigm shifts juxtaposed against renewed investor and corporate confidence, present opportunities to support clients with exceptional advice and market access. Morgan Stanley is well positioned to execute against these opportunities. The firm's consistent execution is demonstrated by the cadence of top-line and bottom-line in 2024. Revenues across the four quarters of $15.1 billion, $15.0 billion, $15.4 billion, and $16.2 billion, and earnings per share of $2.02, $1.82, $1.88 and $2.22. The fourth quarter was a top-line record with the highest earnings per share in over 15 years, capping-off one of Morgan Stanley's strongest years. For the full year, the firm delivered a return on tangible of 19% and earnings per share of $7.95, making significant progress toward our long-term goals. The results reflect consistent durable earnings across the firm, evidencing that Morgan Stanley can deliver during this period of continued macroeconomic and geopolitical uncertainty. As we do every January, let's begin with our 2025 strategic update entitled Four Pillars of Morgan Stanley: The Integrated Firm. The slides can be found on our website. On Slide 3, we introduce the four pillars of Morgan Stanley to support our integrated firm, strategy, culture, financial strength, and growth. Strategy is about consistently serving our clients and raising, managing, and allocating capital. Culture |
4,779 | MS | 4 | 2,024 | 2025-01-16 08:30:00 | Morgan Stanley | 472,898 | strength, and growth. Strategy is about consistently serving our clients and raising, managing, and allocating capital. Culture is about rigor, humility, and partnership. Financial strength is about strong capital and liquidity alongside durable earnings and growth is about smart strategic investments across the firm, which generate new opportunities to capture client share. The investment thesis for Morgan Stanley rests on our ability to deliver the integrated firm supported by these four pillars. Slide 4. First, to reiterate, Morgan Stanley's clear strategy to raise, manage, and allocate capital for corporations, individuals, asset managers, and asset owners around the world. In the past year, our engagement advice across the full range of institutional and individual clients drove results. Slide 5. Morgan Stanley culture is defined by rigor, humility, and partnership. The leadership group on the operating and management committees have an average tenure at the firm of more than 20 years, many of them across business segments and regions. More broadly, our leadership body of 2,312 Managing Directors, 173 of whom we recently promoted to the partnership have been with Morgan Stanley for an average of 15 years. 30% of our Managing Directors have been at the firm for two decades. Our partnership is defined by Morgan Stanley leaders who embody this homegrown culture, joined by acquisition and lateral talent who bring an incremental skill set to the platform. Morgan Stanley's culture of first-class business in a first-class way forged over many years of trial and success is a competitive advantage and will contribute to the success of the integrated firm. Slide 6 highlights our position of financial strength, the third pillar of the integrated firm, and is the output of a clearly defined strategy and a tightly knit culture. Our consistently strong capital position over recent years is a standout. In 2024, we accreted over $5.5 billion of CET1, while continuing to return capital to our shareholders. We will continue |
4,780 | MS | 4 | 2,024 | 2025-01-16 08:30:00 | Morgan Stanley | 472,898 | In 2024, we accreted over $5.5 billion of CET1, while continuing to return capital to our shareholders. We will continue to prudently grow the dividend, continue to invest in each of our three businesses and across our infrastructure, and continue to opportunistically repurchase the stock. In 2024, we effectively deployed capital to support clients and translated that into earnings growth. High capital levels protect us in challenging climates and sustain us for long-term growth. Slide 7 brings us to the fourth pillar of the strategy, revenue and earnings growth. Earnings expansion in 2024 reflects a return on multiyear investment to support clients. We will continue to invest heavily across the firm, in our talent, our clients, in e-trade and in parametric, in our bank, across resiliency in technology and infrastructure, and in the development of the integrated firm. In the past year, expense growth was tempered by our focus on rolling off initial integration spend and taking opportunities to consolidate our real estate footprint. Investments for growth will continue to be supported by ongoing disciplined prioritization of our expense base. Slide 8. The last six years shows step function change in the firm's growth across our businesses. In the Wealth and Investment Management segments, combined revenues have grown from $20 billion to $34 billion and total client assets have nearly tripled to $7.9 trillion. This growth has been achieved both by way of acquisition and through organic execution. You will also note that institutional securities wallet share has grown by nearly a 100 basis points. These results reflect not only constructive markets, but also a sharpened focus on key client relationships and an expanded coverage of corporates and asset managers. Morgan Stanley scale positions us over the long-term to deliver growth in each of our three business segments. We win both through an expanding denominator of global securities, banking, wealth, and investment management activity and by increasing our |
4,781 | MS | 4 | 2,024 | 2025-01-16 08:30:00 | Morgan Stanley | 472,898 | an expanding denominator of global securities, banking, wealth, and investment management activity and by increasing our numerator as in our wallet share in each segment. In short, we seek to gain durable share in the secular growth businesses in which we participate. Slide 9, goes a level deeper into institutional securities. First, the growth in institutional securities has been both broad based and crucially is global. It is important that we are relevant in all the major regions around the world. Amidst geopolitical and interest rate uncertainty, each region grew revenues by roughly 20% in 2024. These results follow multiple years of investment in talent and leadership, as well as efficient and disciplined RWA growth. In 2024, we saw institutional securities deliver an operating margin of 31% and revenue growth that was significantly higher than our RWA growth. We are in a leadership position and can offer trusted advice and market access into the investment banking new issue and M&A cycle, which just lies ahead. Slide 10. In Wealth Management, investments in our self-directed and workplace channels drive our differentiated client acquisition funnel. Today, with our expanded offering, we reach over 19 million relationships and have added net new assets of over $250 billion in each of the past two years on track to delivering $10 trillion plus of total client assets. An important indicator of Wealth Management momentum is fee-based flows, which reached an exceptional $123 billion in 2024. Delivering on new relationships and net new asset growth creates opportunities for our team of world class financial advisors to tap into the integrated firm for their clients. Slide 11 highlights the breadth and tenure of wealth management's client relationships as 60% of advisor-led assets are associated with clients who have an average duration of 20 years. We retain 99% of our clients reflecting their enduring trust in Morgan Stanley. The slide illustrates our multichannel model, which continues to drive new assets to |
4,782 | MS | 4 | 2,024 | 2025-01-16 08:30:00 | Morgan Stanley | 472,898 | their enduring trust in Morgan Stanley. The slide illustrates our multichannel model, which continues to drive new assets to the platform. 30% of our advisor-led assets are associated with clients who have a Morgan Stanley relationship of less than 10 years and 10% of advisor-led assets are with clients of less than two years. The client acquisition funnel supports durable growth, namely as clients mature with our financial advisors, they become the foundation for the continued growth of recurring fee-based revenues. Slide 12. In Investment Management, we continue to focus on the secular growth areas of customization and alternatives. Our industry leading parametric platform, inclusive of overlay has grown to $575 billion. In alternatives, our investable assets have more than doubled in size to $240 billion. Investments in these secular growth areas have brought more balance to our investment management business and supported fee-based revenues. Additionally, the integrated firm, particularly the relationship with wealth management continues to benefit the investment management platform with the enhancement of retail oriented distribution offerings and additional product capabilities. Slide 13. An area of investment is in the incremental growth of our U.S. banks. Since 2018, the firm has significantly grown deposit balances and continues to source deposits from wealth management clients with an expanded product offering. On the asset side, we will continue to grow our wealth management lending capability by covering clients holistically as their financial needs evolve. In addition, we will continue to utilize the bank platform to support growth in eligible institutional businesses. As we continue to grow our capabilities across the integrated firm, we are well-positioned to provide a full suite of solutions to our clients. Slide 14. A dividend that is aligned to the growth of fee-based earnings has been a leading priority. Our durable results demonstrate consistent execution of our strategy, and we have raised |
4,783 | MS | 4 | 2,024 | 2025-01-16 08:30:00 | Morgan Stanley | 472,898 | earnings has been a leading priority. Our durable results demonstrate consistent execution of our strategy, and we have raised our quarterly dividend by $0.075 for three years in a row to $0.925 per share. Slide 15. As you've heard us discuss during the past year, the integrated firm brings together our world class wealth and investment management franchises with our world class institutional securities franchise. We are consistently strengthening the pillars underlying the integrated firm to deliver on our strategic goals. Across the integrated firm, Morgan Stanley is relevant to our clients, spanning from the advice dispensed and corporate boardrooms to our financial wellness programs for that company's employees. We are also the premier holistic partner to asset managers partnering with them to grow their businesses and to generate alpha. We can deliver institutional capabilities to our clients alongside sophisticated wealth management advice and distribution in an integrated service model. And in so doing, be mindful of potential conflicts. To open 2025, we have formalized the integrated firm by positioning leadership talent at the center of client coverage, integrated data, risk management, and infrastructure to drive growth as we serve more clients across their full suite of needs. This effort will be led by Mandell Crawley, a three decade Morgan Stanley executive and a member of our operating committee. Together with Co-Presidents Dan Simkowitz and Andy Saperstein, the integrated firm organization is aligned to scale client opportunities across Morgan Stanley. Slide 16. The Morgan Stanley investment thesis is robust. In 2024, we deliver top-line and bottom-line strength and consistency. The full year results are strong relative to our long-term firmwide goals. We ended 2024 with total client assets at $7.9 trillion, wealth management pre-tax margins of 27%, a firm efficiency ratio of 71%, and a return on tangible of 19%. Of note, we added a new goal to achieve durable wallet share gains in institutional |
4,784 | MS | 4 | 2,024 | 2025-01-16 08:30:00 | Morgan Stanley | 472,898 | of 71%, and a return on tangible of 19%. Of note, we added a new goal to achieve durable wallet share gains in institutional securities. The additional metric for institutional securities is an appropriate reflection of the expected contribution of this business segment to the firm's growth narrative. The key word is durable. There will always be market and business cycles in each of these businesses. Morgan Stanley's trusted relationships over the very long-term lead to superior results. Against the four pillars of strategy, culture, financial strength, and growth, delivering the integrated firm is foundational to durable earnings growth and 20% returns through the cycle. Thank you. Now Sharon, will review our fourth quarter and annual results, then together we will take your questions. |
4,785 | MS | 4 | 2,024 | 2025-01-16 08:30:00 | Morgan Stanley | 472,898 | Sharon Yeshaya: Thank you, and good morning. The firm produced revenues of $61.8 billion in 2024 and ended the year with fourth quarter revenues of $16.2 billion. For the full year, ROTCE was 18.8%, and EPS was $7.95. For the fourth quarter, ROTCE was 20.2%, and EPS was $2.22. The full year efficiency ratio was 71.1%. Improved efficiency not only demonstrates our ability to grow revenues, but also to prioritize our controllable spend. Occupancy and equipment costs held flat, benefiting from the prior year's consolidation of our real estate footprint. During 2024, we took real estate charges of $62 million, which impacted full year EPS by $0.03. Professional services declined year-over-year, aided by the roll off of integration related expenses and discipline across project spend. These savings helped self-fund investments across infrastructure to support growth such as expanding data center capacity, renovations, and technology modernization efforts. Self-funding investments remains a priority. In the short run, similarly sized additional modernization efforts focused on decommissioning legacy technologies may result in higher amortization costs. This alongside business enabled innovation and process optimization with AI should support the firm's future efficiency path. Now to the businesses. Institutional securities delivered very strong annual results across business and regions, demonstrating the high quality breadth and depth of our world class global franchise. Full year revenues of $28.1 billion included our highest reported equity revenues and the highest results across combined equity and fixed income markets. The strong annual performance showcases our global footprint and our ability to capture client share amidst an increasingly constructive backdrop. Fourth quarter revenues were $7.3 billion as markets remained active, bucking the typical seasonal slowdown. We supported clients throughout the quarter and ended the year with momentum. Investment banking revenues were $6.2 billion for the full year, |
4,786 | MS | 4 | 2,024 | 2025-01-16 08:30:00 | Morgan Stanley | 472,898 | throughout the quarter and ended the year with momentum. Investment banking revenues were $6.2 billion for the full year, reflecting growth across regions and products. 2024 commenced with strong debt underwriting activity, followed by M&A announcements that picked up in the second half, and ended with increased equity underwriting activity as the IPO market posted its highest volumes since 2021. Fourth quarter investment banking revenues were $1.6 billion. Results were largely driven by accelerating strength in equity underwriting as follow-on and IPO issuance saw meaningful improvements across -- over the comparison period. We also saw corporates and sponsors take advantage of constructive markets in the quarter. Advisory revenues improved year-over-year on higher completed M&A transactions. Looking ahead to 2025, our M&A pipelines are healthy and diversified, outpacing recent years. Financial sponsors are joining corporates to drive activity, evaluating exit opportunities for long held assets. CEO and boardroom confidence continues to improve as valuations stabilize and financing markets remain strong. Our business is well positioned for a strong continued rebound in deal making activity. Turning to equity. We continue to be a global leader in this business, evidenced by record full year revenues of $12.2 billion. These results reflect year-over-year growth across regions with record performance out of Asia, demonstrating the importance of having a global footprint. Full year results were supported by increased prime brokerage balances and our agility as we navigated the market well. Revenues were $3.3 billion in the fourth quarter. Following the U.S. elections, clients re-risk quickly, given shifting market dynamics. Additionally, third quarter strength in Asia carried into the fourth quarter with renewed investor interest across the region. Prime brokerage revenues were a record for the business as clients remained engaged and balances rose to peak levels. Cash results increased year-over-year, consistent |
4,787 | MS | 4 | 2,024 | 2025-01-16 08:30:00 | Morgan Stanley | 472,898 | the business as clients remained engaged and balances rose to peak levels. Cash results increased year-over-year, consistent with higher levels of client engagement and volumes. Derivative results increased versus last year's fourth quarter on the back of higher activity across a variety of products, in line with improved risk appetite from clients. Fixed income revenues were $8.4 billion for the full year, driven by consistent quarterly performance across the businesses. The full year results demonstrate our multiyear efforts to recenter our fixed income business around the integrated firm, improved trading performance, growth in durable lending revenues, and servicing corporate and sponsor relationships all contributed to results. Quarterly revenues were $1.9 billion, driven by credit products and commodities. Micro revenues were above historical quarterly averages. Results were driven by securitized products, which benefited from higher loan balances and an increase in securitization activity. Macro performance was relatively flat versus the prior fourth quarter. Commodity revenues improved year-over-year. Results were led by our North America power and gas business, where structured opportunities for corporate clients leveraged the integrated firm. Turning to ISG lending and provisions. For the full year, ISG provisions were $202 million and $78 million for the quarter. The quarterly provision was driven by portfolio growth and a build in a handful of individual assessments. For the full year, ISG net charge-offs were $210 million. For the quarter, net charge-offs were $62 million, primarily related to several commercial real estate loans, which were largely provisioned for in prior quarters. Turning to Wealth Management. 2024 was a strong year for wealth management. Full year highlights include records, revenues of $28.4 billion, pre-tax profit of $7.7 billion, and a reported margin of 27.2%. The strength of our scaled and differentiated client acquisition funnel continues to set us apart. Fee-based flows |
4,788 | MS | 4 | 2,024 | 2025-01-16 08:30:00 | Morgan Stanley | 472,898 | of 27.2%. The strength of our scaled and differentiated client acquisition funnel continues to set us apart. Fee-based flows were $123 billion, exceeding $100 billion for the fourth consecutive year. Clients continue to seek Morgan Stanley's advice, supporting our thesis that as assets move through the funnel, incremental revenue growth and margin expansion will follow. For the fourth quarter, revenues were $7.5 billion and the reported PBT margin was 27.5%. DCP and real estate related charges negatively impacted the quarterly margin by approximately 140 basis points. Asset management revenues in the quarter set a new record of $4.4 billion, showcasing the progress we have made to durable fee-based revenues. With each quarter this year, asset management revenues saw sequential improvement, powered by constructive markets and consistently strong fee-based flows. Fourth quarter fee-based flows were $35 billion. Importantly, over the last two years, we have seen an increase in the number and the pace of assets migrating from advisor-led brokerage accounts to fee-based accounts. We remain an industry leader in organic growth. Net new assets for the quarter were $57 billion. Full year NNA of $252 billion represents approximately 5% annual growth of beginning period assets. This year, our advisor-led channel drove the results, benefiting from both existing clients and new clients coming to the firm. Transactional revenues for the quarter were $1 billion. Excluding the impact of DCP, transactional revenues represent the highest level of activity we have seen since the peak in 2021. Higher retail engagement in equity-related products and demand for alternative products supported results. These revenues will continue to benefit from the breadth and the depth of our growing alternatives platform. Bank lending balances were $160 billion. Loan growth of $4 billion was driven by securities based lending, where we saw demand for new lines and a decline in the pace of paydowns. Total deposits increased 3% sequentially to $370 |
4,789 | MS | 4 | 2,024 | 2025-01-16 08:30:00 | Morgan Stanley | 472,898 | where we saw demand for new lines and a decline in the pace of paydowns. Total deposits increased 3% sequentially to $370 billion, driven by higher sweep balances. End-of-period sweep deposits have increased for two consecutive quarters, supporting the view that as rate dynamics change and markets turn to be more constructive, sweep balances will be increasingly transactional in nature. While clients deployed more sweep cash in the rising markets, particularly in December, balances held strong as clients showed less rate sensitivity with their transactional cash. Net interest income was $1.9 billion in the quarter. The sequential increase was primarily driven by higher sweeps. Looking ahead into 2025, the combination of a more stable deposit mix, higher lending balances, and the rate outlook suggests that first quarter NII should not fluctuate materially from our fourth quarter results. We are intently focused on driving additional growth across channels. In our advisor-led channel, our effectiveness in deepening relationships is evidenced by our consistently strong fee-based flows. In Workplace, our recently announced partnership with Carta, puts us at the center of new client stock plan opportunities as private companies consider going public. And in self-directed, the number of active traders on the E*TRADE platform grew, ending the year at levels higher than 2022. Moving to Investment Management. The business reported annual revenues of $5.9 billion and quarterly revenues of $1.6 billion. Our AUM reached a new peak at year-end of $1.7 trillion, supported by market gains and net inflows. Long-term net inflows were $4.3 billion in the quarter, driven by continued demand for our fixed income strategies and parametric customized portfolios. This brings 2024 long-term net inflows to $18 billion. Within Alternatives and Solutions, Parametric remains a key differentiator for MSIM. Growth of the brand will be supported by investments in technology, ongoing education for retail clients on the benefits of |
4,790 | MS | 4 | 2,024 | 2025-01-16 08:30:00 | Morgan Stanley | 472,898 | Growth of the brand will be supported by investments in technology, ongoing education for retail clients on the benefits of customization, and tailored solutions for asset managers. Liquidity and overlay services had inflows of $67 billion on the back of strong fund performance and seasonality, some of which may reverse in the first quarter. Fourth quarter asset management and related fees of $1.6 billion increased 11% versus the prior year, driven by higher average AUM. As a reminder, performance fees are recognized on an annual basis, largely in the fourth quarter, which drove the increase sequentially. Quarterly performance based income and other revenues were $88 million. Gains were concentrated in infrastructure, U.S. private equity, and private credit. In parallel with Wealth Management MSIM is helping to deliver our asset-led strategy. Our efforts to build a business that is well diversified and focused on secular growth areas, as well as global opportunities gives us confidence to drive incremental growth. Turning to the balance sheet. Total spot assets were $1.2 trillion. Over the course of 2024, we demonstrated velocity of resources. Standardized RWAs declined sequentially to $473 billion, driven by year-end seasonality and market dynamics. Lower RWAs at period end have already begun to reverse as we enter a new calendar year. During the year, we accreted over $5.5 billion of common equity Tier 1 capital and our standardized CET1 ratio ended the year at 15.9%. For the full year, we bought back $3.3 billion of common stock. Our tax rate was 23.1% for the full year. The quarterly tax rate was 24.1%, reflecting the level and the mix of earnings. We expect our 2025 tax rate to be approximately 24%, and consistent with prior years we expect some quarterly volatility. As we look ahead into 2025, our franchise is well positioned for growth, exiting the year with momentum across all of our businesses with a strong capital position to invest in our clients and our businesses. We enter the year with record asset |
4,791 | MS | 4 | 2,024 | 2025-01-16 08:30:00 | Morgan Stanley | 472,898 | our businesses with a strong capital position to invest in our clients and our businesses. We enter the year with record asset levels, healthy and diversified pipelines, an engaged and institutional retail client base, and a strong global brand. We are focused on disciplined execution as we progress towards our goals. With that, we will now open the line up to questions. |
4,792 | MS | 4 | 2,024 | 2025-01-16 08:30:00 | Morgan Stanley | 472,898 | Operator: We are now ready to take in questions. [Operator Instructions] We'll take our first question from Glenn Schorr with Evercore.
Glenn Schorr: Hey, thanks very much.
Ted Pick: Good morning, Glenn. How are you doing? Glenn, how are you?
Glenn Schorr: All right. Appreciate it. Where to begin -- I guess, let's talk about trade. There is a lot of upside in trading. We've all seen great trading environments and this certainly was a good one. But I wonder if you could just try to parse out, how you think about great trading environment versus what your words are, just more durable the higher client balances, the record PB, the share gains, and how are you going to measure the success of those durable gains? I'm just trying to separate your actions versus the environment. You've certainly been performing really well. Thanks. |
4,793 | MS | 4 | 2,024 | 2025-01-16 08:30:00 | Morgan Stanley | 472,898 | Ted Pick: I appreciate that. The focus on institutional securities over the last number of years is of course to deliver to key clients, the whole product set across what -- as you know, we called at one point about five, six years ago, I think it was in 2018, the integrated investment bank. And that was the bringing together of folks in equities, fixed-income, capital markets, and investment banking, minding obviously all the walls between them, but having folks mobilize across those divisions, across the regions and really understand what life is like to sit in the shoes of folks in different divisions. And as you know in this business, you don't actually know what that feels like unless you're in that business, so we had leaders moving around. And six years later now with ISG under Dan Simkowitz’s leadership, we're able to -- in an environment that is friendly to a lot of the businesses because now we have a real corporate finance activity. We have real interest rates and you have effectively two way markets in lots of places around the world with respect to central bank activity, with respect to buyers and sellers of assets. And of course, if you're well organized, you can prosecute that in an orthodoxical way. We have during this period under leadership of Sharon in the office of CFO been quite prudent on the deployment of those risk weighted assets through our Chief Risk Officer, Charles Smith, how do those risk weighted assets and GAAP balance sheet get deployed to clients? One mistake, Glenn, is you can lose the forest of the trees and not think about all the client touchpoints across the integrated firm, we're calling it or you can actually lose sight of the real drivers of what makes that client valuable to the institution. And now we've had six, seven years of really focusing on that and preparing ourselves for the ability to expand our wallet at a time where we believe the denominator is growing as well. It's a little trickier to try to expand the numerator, your wallet when the denominator is not |
4,794 | MS | 4 | 2,024 | 2025-01-16 08:30:00 | Morgan Stanley | 472,898 | denominator is growing as well. It's a little trickier to try to expand the numerator, your wallet when the denominator is not moving as was the case with zero interest rates because you are effectively not a price maker and you are potentially going to be taking some concentrated risk. But here now with the cycle having transitioned, we were able to lean in first across our sweet spot, which is equities to have not just prime brokerage, but the cash equities and derivatives businesses really start to generate above cost of capital ROEs. So the entire basket of equities offering to our clients, but then in fixed income, which has been extraordinarily stable in what is intrinsically an unstable business given the very different businesses of commodities, interest rates, foreign exchange, and credit. On the leadership there Hallik and Horder have done a brilliant job, really running a durable business with a lot of annuitized revenue around well considered financing, structuring, lending businesses that look quite like the businesses we have in classic underwriting such that when we now go into this investment banking cycle where we do think there is going to be an acceleration of classic primary and secondary offerings we're already doing business that looks like that inside of sales and trading, our lending businesses, client advice, and of course, there is real collegiality across the investment bank. The last piece of this is what we've been waiting for, which are M&A tickets, which as you know are the top of the waterfall, the highest margin product that then have multiplier effect through the whole organization and that has begun. The pipeline is very strong, depending on how you measure it, the strongest it's been in five years to 10 years, maybe even longer, and we are excited about pushing that through to the rest of the investment bank. What I've said and I would repeat here too, just to give a lengthy answer, Glenn, is that on ISG wallet share, we are clear that we want those share gains to be durable, |
4,795 | MS | 4 | 2,024 | 2025-01-16 08:30:00 | Morgan Stanley | 472,898 | just to give a lengthy answer, Glenn, is that on ISG wallet share, we are clear that we want those share gains to be durable, which is why we didn't go with quantification. We want those gains to be ones that are not gains by reaching concentration risk, counterparty risk, but the clients know we are serious about bringing ISG to the fore and that the integrated firm now is bringing together these world class wealth and investment management businesses with our investment bank. And the proof is in the pudding, this past year 100 basis point gain, plus or minus in the investment bank to roughly a 15% wallet in a growing denominator. And as you can tell, given we've been quite disciplined on RWA growth against that and you see the operating leverage in the income statement, it's fair to say the institution at large is very exciting. |
4,796 | MS | 4 | 2,024 | 2025-01-16 08:30:00 | Morgan Stanley | 472,898 | Glenn Schorr: That was a very full answer. I really appreciate it. I'll cede my follow-up to the group. Thanks.
Ted Pick: Thanks, Glenn.
Operator: We'll take our next question from Ebrahim Poonawala with Bank of America.
Ted Pick: Good morning, Ebrahim.
Ebrahim Poonawala: Hey, good morning. I guess, maybe just -- I know this is -- you've addressed this in prior calls, but as we think about just investments in systems as it pertains to AML, BSA on the wealth management side. If you don't mind addressing where the firm stands there today in terms of sort of meeting all the highest standards from a regulatory compliance standpoint. And I think the essence of my question is, as we think about the growth opportunity in terms of international wealth, do you need to sort of get your ducks lined up on the AML, BSA front in order to pursue those more aggressively or actively? Thanks. |
4,797 | MS | 4 | 2,024 | 2025-01-16 08:30:00 | Morgan Stanley | 472,898 | Sharon Yeshaya: Thank you for the question. I think that the, the way I would answer your question is more fulsome than just specifically looking at one particular sector. The point that I would underscore is the results themselves in this business speak for themselves. In terms of the investment, the ability to attract clients, both existing assets as well as new clients across the wealth management platform. So that's the first point that I would make. Second point that I would make is that over the course of the -- not just the last year, but really multiple years, we've been investing in all of our processes and our systems in order to engage and make sure that we have a robust infrastructure in order to be allowed to grow broadly and meet all of our growth objectives. And that has to do with everything that I mentioned across the technology side, across better understanding our data, better servicing our clients in terms of investment dollars and in terms of the underlying infrastructure. So what we're trying to do and what we've been actively pursuing is making sure that across the firm, not just specific to wealth, we can service and look and impact all of our clients. And moreover, you can see that very well in terms of our ability to actually continue to attract assets, we'll be making all of the necessarily investments to continue to be world class, both across people and our technology.
Ebrahim Poonawala: Got it. Thank you. And I guess, a separate question, Slide 13 with regards to the investment into the bank. Just remind us in terms of the -- where we stand in terms of the integration of the bank. And as we think about -- with some of your peers where the bank and the wealth businesses probably are fully integrated, are we there yet? And then, what's the opportunity when you think about just deposit growth from your wealth management clients that you can bring onboard? |
4,798 | MS | 4 | 2,024 | 2025-01-16 08:30:00 | Morgan Stanley | 472,898 | Sharon Yeshaya: We're definitely not there yet. We still have a lot of -- to do when we think about the bank. I've always, both internally and for those -- for many externally have felt that the bank itself is an incredible growth engine across the institution. If you look at our bank, we obviously started our bank much later than many of the peers that we now compete with from a commercial bank perspective. We have a very different deposit mix than others. And what's so interesting our deposit mix is that over 70% of our deposits come from our wealth management clients. Now there is -- that's currently, as you know, is largely coming from sweeps and for savings accounts. There is much more that we can do when we think about the deposit franchise itself, and then we can talk a little bit also about the other side of the balance sheet. But we're investing in those deposit opportunities. Remember, we didn't really have bank rails until we bought E*TRADE. That was part of the value proposition of acquiring E*TRADE and working with those bank rails to offer real checking accounts and continue to have a savings account offering. Moreover, as you think about the work we're doing to invest the banking products within Workplace, you now have different ways to manage cash and cash alternatives for the actual underlying employees, as Ted talked about from an integrated firm perspective. So there is much more that we can do with servicing and growing that deposit base over time. As you think about the lending side and you think about where we are, we continue to see opportunities to help our wealth clients as they expand their lending needs and we better understand their portfolios. Moreover, just holistically, as Ted mentioned in the slide, there are places where we are still working to move eligible ISG assets onto the bank. That should help institutional securities as you think about the actual funding profile associated with those assets. So there are many places that when you look overall at the integrated firm, the |
4,799 | MS | 4 | 2,024 | 2025-01-16 08:30:00 | Morgan Stanley | 472,898 | funding profile associated with those assets. So there are many places that when you look overall at the integrated firm, the bank plays an important role in making sure we have the ability to see that grow. |
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