Facebook – FB

Meta Platforms, Inc. (FB)
Fourth Quarter 2021 Results Conference Call
February 2nd, 2022

source: https://s21.q4cdn.com/399680738/files/doc_financials/2021/q4/Meta-Q4-2021-Earnings-Call-Transcript.pdf

Best quotes

Mark: The first is competition. People have a lot of choices for how they want to spend their time and apps like
TikTok are growing very quickly. And this is why our focus on Reels is so important over the long-term.

The second area, and related to this, is that we’re in the middle of a transition on our own services
towards short-form video like Reels. So as more activity shifts towards this medium, we’re replacing
some time in News Feed and other higher monetizing surfaces. So as a result of both competition and
this shift to short-form video as well as our focus on serving young adults over optimizing overall
engagement, we’re going to continue to see some pressure on impression growth in the near term.

And while
video has historically been slower to monetize, we believe that over time short-form video is going to
monetize more like feed or Stories than like Watch – so I’m optimistic that we’ll get to where we need to
be with Reels too.

It’s clear short-form video will be an increasing part of how people consume
content moving forward, and Reels is now our fastest growing content format by far. It’s already the
biggest contributor to engagement growth on Instagram and it’s growing very quickly on Facebook too.

Our strategy here
since introducing Shops a year and a half ago has been to make it as easy as possible for people to make
a purchase after discovering a new brand or product, without having to switch over to a browser or reenter their payment info.

On the hardware front, we’re seeing real traction with Quest 2. People have spent more than $1B on
Quest store content, helping virtual reality developers grow and sustain their business. We had a strong
holiday season and Oculus reached the top of the App Store for the first time on Christmas Day in the
US. We’re working towards a release of a high-end virtual reality headset later this year and we continue
to make progress developing Project Nazare, which is our first fully-augmented reality glasses.

Sheryl Sandberg, COO:

Our total ad revenue in Q4 was $32.6B, which is up 20% year-over-year. The close of the year also
marked the first time our business generated more than $100B in annual revenue. 

Q4 was also the first
holiday season after Apple’s iOS changes, which have had an impact on businesses of all sizes –
especially small businesses who rely on digital advertising to grow. This will continue to be a factor in

Apple created two challenges for advertisers. One is that the accuracy of our ads
targeting decreased, which increased the cost of driving outcomes. The other is that measuring those
outcomes became more difficult.

Right now, Reels monetizes at a lower rate than Feed and Stories, but we expect this to
improve over time. We’ve made successful transitions before – the shift from web to mobile, and then
another shift from Feed to Stories. We have a playbook here. The experience we have from monetizing
Stories is directly applicable, so we’re not starting from scratch. We think that over the long term this
shift will be a success for us and our partners too.

we started testing Live Shopping for creators – an early glimpse of the
immersive shopping experiences that will be possible in the metaverse.

In November, they
launched exclusively on Instagram for 24 hours, and hosted a Live Shopping event: a conversation
between John Mayer and Laundress co-founder Lindsey Julia Boyd, where people could buy the new
products as they talked about them live. The hour-long event generated more than $40,000 in sales.

Our largest
monetization effort is Click to Messaging ads, where you click on an ad in your Facebook or Instagram
feed and it opens a chat with the business in Messenger, Instagram Direct or WhatsApp.

Cost of revenue increased 22%, driven primarily by Reality Labs hardware costs, core infrastructure
investments, and payments to partners.
R&D increased 35%, driven primarily by hiring to support Family of Apps and Reality Labs as well as
increased Reality Labs R&D operating costs.

We added over 3,700 net new hires in Q4, the majority in technical functions. We ended the quarter
with over 71,900 full-time employees, up 23% compared to last year.

Free cash flow was $12.6 billion. We repurchased $19.2 billion of our Class A common stock in the
fourth quarter and we ended the quarter with $48.0 billion in cash and marketable securities.

On a user geography basis, year-over-year ad revenue growth was strongest in Asia Pacific at 31%. Rest
of World, Europe, and North America grew 28%, 20%, and 15%, respectively.

Within our Reality Labs segment, Q4 revenue was $877 million, up 22%, driven by strong Quest 2 sales
during the holiday season.
Reality Labs expenses were $4.2 billion, up 48%, driven by employee-related costs, R&D operating
expenses and cost of goods sold.
Reality Labs operating loss was $3.3 billion in the fourth quarter. For the full year 2021, Reality Labs
operating loss was $10.2 billion.

We expect first quarter 2022 total revenue to be in the range of $27-29 billion, which represents 3-11%
year-over-year growth.
We expect our year-over-year growth in the first quarter to be impacted by
headwinds to both impression and price growth.
• On the impressions side, we expect continued headwinds from both increased competition for
people’s time and a shift of engagement within our apps towards video surfaces like Reels,
which monetize at lower rates than Feed and Stories.
• On the pricing side, we expect growth to be negatively impacted by a few factors:
▪ First, we will lap a period in which Apple’s iOS changes were not in effect and we
anticipate modestly increasing ad targeting and measurement headwinds from platform
and regulatory changes.
▪ Second, we will lap a period of strong demand in the prior year and we’re hearing from
advertisers that macroeconomic challenges like cost inflation and supply chain
disruptions are impacting advertiser budgets.
▪ Finally, based on current exchange rates, we expect foreign currency to be a headwind
to year-over-year growth.

We expect 2022 total expenses to be in the range of $90-95 billion, updated from our prior outlook of
$91-97 billion. Our anticipated expense growth is driven by investments in technical and product talent
and infrastructure-related costs.
We expect 2022 capital expenditures, including principal payments on finance leases, to be in the range
of $29-34 billion, unchanged from our prior estimate.

And as a result, we believe Google’s search ads business could have
benefited relative to services like ours that face a different set of restrictions from
Apple. And given that Apple continues to take billions of dollars a year from Google
Search ads, the incentive clearly exists for this policy discrepancy to continue.