🔒 MASTERCLASS: Facebook’s Zuckerberg, Sandberg, Wehner share vision of the future

Mark Zuckerberg, who turns 33 next week, was never keen to list Facebook when he did so in 2012. The founder of the social media phenomenon has long been convinced this is a business that will continue to appreciate in value. Just two years after starting Facebook in 2004, he turned down an offer of $1bn from Yahoo. Three years later Zuckerberg allowed Microsoft to acquire a 1.6% stake at a price that valued the company at $15bn. A decade on and the now Nasdaq-listed Facebook shares have a market value of $434bn. Is it worth that much? Homo sapiens find the concept of exponential growth difficult to absorb. And even if one does have a grasp of it, any stock trading on 28 times annual free cash flow seems hard to swallow. Except when it is a company whose revenues are growing at over 50% a year and because of benefits of scale, its profit by even more. The consequence of compounding at this rate is staggering. If Facebook were able to continue on the current path, in just seven years it will generate free cash flow equivalent to the current market cap. Today’s buyers believe there’s a good chance of that happening. I listened carefully to this week’s webcast for professional investors and edited the transcript to make it easier for you to make your own assessment. From the way I see it, the Facebook team have a wonderful grasp of the key issues. And if Zuckerberg is only half right in forecasting the big trends – video moving from TV to mobile; people coalescing increasingly into online groups – Facebook shares will become increasingly valuable into the future. But read it from the horse’s mouth and make up your own mind. – Alec Hogg

Mark Zuckerberg, CEO: In my letter to our community back in February, I talked about how, for the past decade, Facebook has focused on connecting friends and families. Now, with that foundation, our next focus will be building community. There’s a lot to do here. Building global community is bigger than any one organization, but we can help by developing social infrastructure for community — for supporting us, for keeping us safe, for informing us, for civic engagement, and for including everyone.
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Building a global community that works for everyone starts with building millions of smaller, supportive communities. This is especially important since membership in many physical communities is declining. We recently found that more than 100 million people on Facebook are members of what we call “very meaningful” groups, like parenting or rare disease support groups that are an important part of their support structure.

My hope is to help more than a billion people join meaningful groups to strengthen our social fabric over the next few years. Over the next year, we’ll be adding 3,000 people to our community operations team around the world — on top of the 4,500 we already have today — to review the millions of reports we get every week, and to improve the process for doing it quickly.

Over the next five years, we’re going to build ecosystems around our products that a lot of people are already using. I put Live video in this category. Last month, we announced that one in every five Facebook videos is a live broadcast — and over the past year, daily watch time for Facebook Live broadcasts has grown by more than 4x. Over the next 10 years, we’re developing consumer use cases around technologies that are a big part of our future, but won’t be a big part of the business for a while.

On the connectivity side, in April we successfully simultaneously beamed 16 gigabits of data in each direction between a location on the ground and a Cessna aircraft circling more than 7 km away. Eventually, we’re going to use this technology along with Aquila, our solar-powered plane we’re building, to beam internet to parts of the world that currently don’t have access.

As people share more video, as we explore more things like augmented reality, and as we build more tools to keep our community safe, we’re going to keep investing aggressively in the infrastructure we need to grow and serve our community. That’s why we announced that our next two new data centres will be built in Odense, Denmark and Papillion, Nebraska.

Sheryl Sandberg, COO: We had a strong first quarter and a great start to the year. Q1 ad revenue grew 51% year over year. Mobile ad revenue was $6.7 billion, up 58% year-over-year, and was approximately 85% of total ad revenue. Growth again this quarter was broad-based across regions, marketer segments, and verticals. Our goal is to build meaningful connections between businesses and people.

Our first priority is helping businesses leverage the power of mobile. More businesses around the world are shifting to marketing on mobile. Over 70 million businesses are now using Facebook Pages around the world on a monthly basis, and more and more of them are becoming advertisers. We also recently announced that over 5 million businesses are actively advertising on Facebook, including more than 1 million in emerging markets.

Read also: Who will fall first – Google, Amazon, Apple, Facebook or Microsoft?

Our second priority is developing innovative ad products that help businesses make the most out of their campaigns. We continue to improve Dynamic Ads which enable advertisers to promote their full range of products across all devices. Advertisers can now target Dynamic Ads to broad audiences and are seeing great results. Last week, I visited home retailer Wayfair in Boston. They used Dynamic Ads to reach a large audience with personalized recommendations from their catalog of over 8 million items. By finding higher revenue customers at a lower cost, the campaign beat Wayfair’s return on ad spend goal by more than 20%.

Our third priority is making our ads more relevant and effective. Measurement is critical. We recently introduced new and expanded verification partnerships, and committed to audits with the Media Rating Council. Whether marketers are trying to get people to buy something on their website or in their store, we now have systems in place to help them measure results and third-party partnerships to verify those results. These are important steps as we continue to build the advertiser trust.

In Q1, we started testing a set of advanced measurement tools that make it easier for marketers of all sizes to compare the effectiveness of Facebook, Instagram and Audience Network alongside other publishers. We are off to a strong start in 2017.

David Wehner, CFO: Q1 was a strong quarter for Facebook. In March, 1.28 billion people visited Facebook on an average day, up 18% compared to last year. This daily number represented 66% of the 1.94 billion people that visited Facebook during the month of March, which was up 282 million or 17% compared to last year. Our community growth in Q1 was driven by product improvements, Internet.org, and ongoing third party promotional data plans in markets like India.

Turning now to the financials. All of our comparisons are on a year-over-year basis unless otherwise noted. Q1 total revenue was $8.0 billion, up 49%. Ad revenue was $7.9 billion, up 51%. Exchange rates did not affect our overall growth rate this quarter as headwinds in certain currencies were offset by tailwinds in others.

In terms of regional advertising growth, Rest of World and Asia Pacific were our strongest growers in percentage terms at 66% and 60% respectively. Both regions benefitted from particularly strong advertiser demand. Europe and North America both grew at 47%.

Mobile ad revenue was $6.7 billion, up 58% and represented approximately 85% of ad revenue. Desktop ad revenue grew 22%, despite a decline in desktop usage, and was aided by our recent efforts to limit the impact of ad blocking technologies, which we began in Q3 of last year.

Read also: Typing with brain waves and chopper Internet: Facebook lab gets to work

Our mobile ads business continued to be driven by healthy supply and demand dynamics. In Q1, the average price per ad increased 14% and the total number of ad impressions served increased 32%, primarily driven by mobile feed ads.

Q1 total expenses were $4.7 billion, up 40%. In 2017, we have continued to accelerate our hiring efforts. We added over 1,700 employees in Q1 – predominantly in technical and recruiting functions – and ended the quarter with approximately 18,800 employees, up 38% compared to last year. This marked an acceleration from the 34% growth rate in Q4.

Q1 operating income was $3.3 billion, representing a 41% margin. Our tax rate was 10%, which reflects the adoption of ASU 2016-09 in the fourth quarter. Excluding this adoption, our tax rate would have been approximately 9 percentage points higher. Net income was $3.1 billion, or $1.04 per share. Q1 capital expenditures were approximately $1.3 billion, driven by investments in data centers, servers, office facilities and network infrastructure. In Q1, we also broke ground on our ninth data center in Nebraska.

We generated approximately $3.8 billion in free cash flow. In the first quarter, we repurchased $228 million of our Class A common stock and used $771 million in cash for taxes paid related to the net share settlement of equity awards. We ended the quarter with $32.3 billion in cash and investments.

Turning now to the outlook. With regards to revenue, we continue to expect that our ad revenue growth rates will come down meaningfully over the course of 2017. We expect that ad load will play a less significant factor in driving revenue growth after mid-2017. We also expect desktop ad revenue growth rates to slow in the third quarter when we begin to lap our efforts to limit the impact of ad blockers.

Turning to the expense outlook, we continue to expect that full-year 2017 GAAP expenses will grow 40- 50% compared to full-year 2016. I would note that as we look into 2017 and beyond there are going to be a number of initiatives we believe are valuable to the community and to the company in the long term but are going to be net negative on our operating margins.

We are embarking on a significant ramp up in infrastructure supporting global growth, and we continue to expect that full-year 2017 capital expenditures will be in the range of $7-$7.5 billion dollars which is up over 50% compared to last year.

Q&A

Question from Eric Sheridan from UBS: On Instagram. Wanted to understand what you’re seeing in terms of the development of the community on user growth, engagement as well as monetization?

David Wehner: This past quarter, we announced 700 million monthly actives (on Instagram). In terms of the development on the advertising side, we’re not specifically breaking out Instagram revenue, because that’s sold through the same Facebook ad interfaces. But we’re seeing really good growth there.

Sheryl Sandberg: We’re pretty excited about what’s happening in the Instagram ad space because Facebook and Instagram are the two most important mobile ad platforms. And there’s a special property with Instagram, which is that the increasing visualization of ads and the creative canvas it offers. The science behind the Facebook targeting and measurement systems is really a pretty unusual combination. We’re also seeing very broad adoption including small customers. We’re pretty excited to have 1 million advertisers and 8 million Instagram business profiles on the platform.

To share one example, an online store in Brazil called (Loja Nama – pics above), they sell decorative items and accessories. Their business owner, Joanna, took photos of her products on her phone and then created ads with our Shop Now button. She targeted young audiences in Brazil who are interested in fashion, decoration, movies and architecture. And during the period of her campaign, Instagram accounted for 78% to 79% of her sales. I think what that shows is the power of the very sophisticated targeting we offer across our platforms, along with really the ability to use very simple tools like a phone to create very sophisticated but visually compelling ads.

Question from Douglas Anmuth of JPMorgan: On the video strategy, was hoping you could talk a little bit about how that’s evolving; and on ad revenue, the U.S. and Canada was very strong at 47% growth, but at the same time, it also did decellerate more than we’ve seen in recent quarters.  

David Wehner: I don’t think there was anything particularly surprising about the deceleration in the growth in U.S. and Canada. We’ve been talking about expecting a deceleration in ad revenue growth, and we saw that play out. Obviously, we’re particularly pleased that there was really strong demand that benefited regions like APAC and Rest of World a rebound in Latin America, especially, Brazil. On the content front, we’re looking at investing in an ecosystem for longer-form content on Facebook. That involves working with content providers to develop that content. In the long run, we expect it to be a revenue share model on the platform.

Question from Brian Nowak of Morgan Stanley: On Messenger monetization: Can you just talk about some of the biggest trends you’re most excited about over the next 2 or 3 years? And then on engagement, you continue to grow Instagram and Messenger user bases do you continue to see rising time spent per user across all 3 of those platforms even as the DAUs (daily average user) base gets bigger?

David Wehner: On the engagement front, we’re seeing time spent growth per DAU across the Facebook family of apps and that includes Facebook itself. Instagram has been strong, especially with feed ranking and Stories.

Mark Zuckerberg: The first thing that we need to do on Messenger and WhatsApp is get a lot of businesses using it organically and build the behaviour for people so that they reach out to businesses. For different things, like customer support or for getting news content – people interacting not only with their close friends but also with businesses. Once we have that behaviour, I think there are going to be a number of ways to amplify that. We’re already experimenting with a couple. One is ads that actually display in News Feed, not in Messenger or WhatsApp but linked to the ability to communicate with a business directly in Messenger or eventually WhatsApp. That converts better for the businesses – they can have a better dialogue with the person, a persistent relationship. The other way is eventually showing paid content in Messenger whether that’s in the inbox or in relevant ways throughout the product. But the top priority right now is just building up the base of organic interaction between people and businesses that they want to interact with.

Question from Justin Post from Bank of America Merrill Lynch: How much is the ad load growth is contributing? And what drove the improvement in pricing in the quarter? And when you look out to the third quarter and you lap the ad blocking on desktop, is there more you can do to help maintain that growth? Or are there other drivers for desktop that we could think about?

David Wehner: Supply growth was healthy and we had contributions from users time spent and ad load in the quarter. In terms of what drove the improvement in the pricing, it’s strong demand; that’s playing through in the face of a little bit slower supply growth. You’re seeing the auction drive pricing and their interplay between the supply growth and the pricing growth, and we’re seeing strong demand play through on the pricing side. You have a secular trend away from desktop, so that’s going to be an overall factor in our ability to grow and maintain the desktop business. We’re always going to be in a back and forth with ad blockers on the desktop side so I think that’s going to constantly be a thing that plays into the desktop revenue.

Question from Colin Sebastian of Baird: Could you add some perspective on engagement trends with video content and video ads such as average viewing time? And whether those mix is what is impacting impression growth? And offer some perspective on how much of the video ad spending on Facebook applications are incremental to television budgets or if there’s any evidence you’re seeing of a share shift?

David Wehner: Impression growth was 32% in Q1, a bit slower than in previous quarters. Those of you who have been following us for a while know that periodically, we make changes to the product that is going to impact some of the metrics. One of the things that I would call out in Q1 as a contributing factor on the impression growth side was our decision to rank longer-form video higher in News Feed. That means more time in video. And that does come at the expense of some impression growth in News Feed.

Sheryl Sandberg: We are definitely seeing people continue to advertise on TV and use us as a complement. Over time, we believe that the dollars shift with eyeballs, and we want to earn it from our clients to be the best dollar and the best minute they spend and help them measure across channels. I think increasingly, the question is not you can do without TV but if you can do without mobile. And we’re working hard to help advertisers develop the video creative that really works for mobile because that makes the really big difference. The combination of the creative working for mobile but also the measurement and targeting we can do is a very powerful offer.

Question from John Blackledge of Cowen: Mark, you mentioned adding 3 000 reviewers of content at Facebook. Could artificial intelligence be used over time to help solve some of the monitoring? How is AI being employed in processes at the company now versus a couple of years ago? And then second item would newer ad units like mid-roll video help mitigate the decelleration from the lower ad load growth contribution in second half of 2017?

Mark Zuckerberg: The short answer is yes. AI tools, over time, will be able to do a better job of flagging things for the set of people who are in the community ops teams. A lot of what we’re trying to do here, it’s not just about getting content off Facebook. Last week, there is this case where someone was using Facebook Live to broadcast, or was thinking about suicide, and we saw that video and helped to get in touch with law enforcement to use that Live Video to communicate with that person and help save their life. So a lot of what we’re trying to do is not just about taking the content down but also about helping people when they’re in need on the platform. We take that very, very seriously.

Over time, the AI tools will get better. Right now, there are certain things that AI can do in terms of understanding text and understanding what’s in a photo and what’s in a video. That will get better over time. That will take a period of years to reach the quality level we want. So for a while our strategy has been to continue building as good tools as we can. Because no matter how many people we have on the team, we’re never going to be able to look at everything. So that’s going to be a big challenge. But given the importance of this, how quickly Live Video is growing, we wanted to make sure that we double down on this and make sure that we provide as safe an experience for the community as we can which is why we’re almost doubling the size of the community ops team to focus on some of these issues around safety on Live Video. But over time for sure, more AI will do this but this is over a period of years.

David Wehner: On ad breaks and the mid-roll type of formats, we’re testing the ability and are putting short ad breaks into longer form live and on-demand videos. Tests are going well but it’s really early days to talk about that being a significant contributor. So we’re working to continue to make those products better and continuing those tests. We’re focused on building out the best video experiences for our community and growing longer-form content as a priority. And ad break is going to allow us to have a monetization strategy with longer-form content.

Question from Heather Bellini from Goldman Sachs: How do we think about these new ways to engage with the apps at the top of your phone where you’re starting to see ad insertion show up as well? Are there any measurement metrics advertisers are asking for that would make them even more eager to shift budgets over from TV?

David Wehner: It’s early in terms of using the ad format in stories. We certainly rolled those out. They are not in the ad load calculation per se. So it is different as you said, from the ad load commentary that I’ve given. But obviously, it’s very early on those products.

Sheryl Sandberg: We’re very focused on expanding measurement partnerships and third-party verification. This last quarter, we extended viewability measurement to the Audience Network, add another verification partner, DoubleVerify, for video and display measurement and introduced our MMM portal, so that we can help people measure across all of the different platforms and compare the effectiveness of their ad spend no matter what their end goal is.

Question from Anthony DiClemente of Nomura Instinet: Mark, at F8 and in your comments today, you talked about making the camera central to the app in the camera, the first augmented reality platform. Can you maybe share with us your thoughts about the potential commercial application of augmented reality as you see it today? And then Sheryl, how is Facebook thinking about sharing in the economics of when brands use celebrities or influencers to market their products using their Facebook posts? 

Mark Zuckerberg: We’re making the cameras inside the whole family of apps into the first augmented reality platform — into an open platform, which is different from what any other apps that has a camera has done before. It’s going to open up a much greater diversity of use cases, not only making it so that use cases like Facemasks or style transfers that we already have, you’re now going to have thousands of options instead of just 10 or 20 at a time. But there are also going to be all of those kinds of things we’re not even building today that developers will be able to experiment with. One of the examples I showed at F8 was around using object recognition and computer vision to be able to point your camera at something and then tap on it and get a card of information maybe even a Buy button.

So there are lots of different ways that, over time, this kind of content is going to both augment existing real-world objects and eventually replace them, which I think is going to be an interesting opportunity, maybe not on augmented reality on the phone but on glasses eventually when you have that. I think were going to get to a point where you’ll no longer need a physical TV, you’ll get $1 app that you can watch a screen on. It will be an interesting exercise to see how many physical things don’t actually need to be physical in that world. And how much innovation that opens up independent developers all around the world and a lot of people don’t have a factory.

Think about how many different developers there are around the world, kids in dorm rooms and all these different places who are going to be able to create things that today they couldn’t. So I think this is going to create a pretty interesting economy. A lot of that stuff is pretty far out, 5, 10 years. But we want to be pushing this forward. I think we’re a little bit late to the trend initially around making cameras the center of how sharing works. But I do think at this point, we’re pretty much ahead in terms of the technology that we’re building and making it an open platform is a big step forward. A lot of people are using these products across our family of apps, and I would expect us to continue leading the way forward on this from this point on.

Sheryl Sandberg: When you think about influencer marketing, we definitely see publishers interested in it, brands interested in it. And so we’ve worked on branded content, the ability to tag a sponsor and share a post or an insight, and the financial arrangement remains between a sponsor and a publisher. It’s early but we’re seeing some positive results with publishers of many different types bringing branded content to Facebook. In Q1, we opened this up to unverified Pages, so we could enable more people to take advantage of this kind of targeting. We see this in the broader context of better targeting when you think about what really drives great performance for people who are using Facebook. But for marketers, it’s well-targeted ads. And so influencer marketing is one way to get there. But we’re focused on a very full range of ability to target well. We’ve been really pleased with the adoption of our targeting products from Custom Audiences to look-alikes to Dynamic Ads. And we think all of these can improve the relevance of the ad. Because when they’re more targeted, they have higher returns for marketers and they’re more enjoyable and relevant for people.

Question from Mark Mahaney of RBC: David, I couldn’t tell if there was a subtle shift when you’re saying the ad load pressure would occur after the end of the year rather than in the second half of the year. And then for Sheryl and Mark, some comment on recent stories about gender bias amongst the engineers at Facebook…… 

David Wehner: I’ll just real quickly address the ad load issue. Really no change in outlook there. We continue to expect that we’ll see deceleration in ad revenue growth. And that’s going to be particularly pronounced as we get into the second half of 2017 because ad load will be a less significant factor driving growth.

Sheryl Sandberg: On the issue you raised of the Facebook female engineers, I’m really glad to have a chance to address this because this is an issue I take very seriously. On the specific report on this study, the study was conducted by a former employee with very incomplete data. When that study was shared with people internally we immediately conducted our own research using the full data. And what we found is that the main reason code was sent back at different rates was not correlated with gender. It was correlated with levels, and the fact that we have more male senior engineers was explaining it. If you compared female engineers at the same level, there was not this discrepancy. That leads to the obvious question: are you promoting men and women at the same rate? And the broader question of are you paying men and women fairly?

We do a comprehensive look at every single promotion and pay and performance cycle we have, which is 6 months. We know that we’re promoting men and women at the same rate as men. That said, our industry still has issues and we still have issues. We don’t have enough senior female engineers. We don’t have enough women going into computer science. And we take this very seriously from the work we’ve done with LinkedIn to get CS and even Lean In Circles all over college campuses to encourage more women and underrepresented minorities to come into our field. We’ve had a really nice program in extra internship where we’re taking people who are not yet majoring in computer science but we think have the ability – and teaching them for a summer and seeing them return to the work we’re doing with our female engineers to make sure that all forms of bias are surfaced and eliminated, and we can continue to use the full talent of the population. Nothing is more important to us.

Question from Ross Sandler of Barclays: What kind of traction do you see with the video tab that’s in beta? And do you think longer term, the video consumption is going to be in that dedicated tab or will it stay in the News Feed based on what you’re seeing right now? And then Dave, a follow-up on the cost related to video ad rev share or licensing of video content – is that baked into your guidance for ’17? 

Mark Zuckerberg: I don’t know if we have any public stats on the video tab, probably not. There are 2 basic use cases for checking in with Facebook and seeing what’s going on in the world. What people do with News Feed a lot of the time is they have a few free minutes or you want to sit down for maybe a longer session, see everything that’s going on in the world, you don’t have a specific intention to watch a specific type of content. You kind of just want to check in and see what’s going on in the world. There’s this whole other use case around content, which is going because — going to the app or sitting down at TV because there’s some content that you want to watch and you want to go directly to it. And that’s what we’re trying to do with the video tab: to make it so that all the different folks whether they’re pages that you follow or creators that you like, who you want to subscribe to and kind of get the updates to what they’re doing that you have a place that you can go to with more intent to consume that content. The reason why it needs to be a different tab or at least a different service from News Feed is because people come to it with a different intent. I think you’re going to start in the future getting people coming to Facebook for the News Feed use-case of checking in and people coming with an intent to go to the video tab to watch specific videos.

David Wehner: Our guidance on total costs is all inclusive, so it includes all the R&D investments we’re making. But I would say that the nature of the types of video content deals we’re doing will make them more likely to show up after 2017.

Question from Mark Mahaney of Citi: Talk to us about the kind of adoption and engagement you’ve seen with local marketplaces. And secondly for ad breaks to scale, it appears content creators need to adapt their programming and users need to engage with the ads. How are completion rates for ad breaks? And how would you characterize the willingness of content creators to adopt?

Mark Zuckerberg: Your basic point is right that the reason why we started working on marketplace and the tab around that is because when we were exploring what the biggest use cases were of Groups. We uncovered that a very large number of people, hundreds of millions, used Groups to buy and sell different things. Whole communities have formed, which was surprising to us because we hadn’t developed the product specifically for buying and selling, it was for group communication. So we decided, ‘Hey, we’re going to put together a team that’s going to invest in making this good for buying and selling and see how much we can grow that economy.’ I don’t know that have any public stats on that yet, but that’s an area that I’m certainly very excited about.

One of the big trends in the world that we’ve seen is that participation in all kinds of different physical communities, whether they’re sports teams or some religious groups or different kinds of different things, have been declining a lot over the past several decades. And that is a big issue eroding the social fabric of the whole society, not just our country, but around the world. That’s one where I wonder if Facebook can play a role in helping to strengthen that. There are more than 1 billion people every month who use our Groups product. But if you think about your own use of the Groups product, you probably are a member of a bunch of different groups that you may be checking on very infrequently. So that’s very different from there’s a handful of people, around 100 million or a bit more, who are a member of what we call a very meaningful group: that could be a parenting group or you’re diagnosed with a rare disease, and you can now connect to people all around the world to share stories around that. These are groups that upon joining may become one of the things they spend the most time with on Facebook, one of the most important parts of your experience and a really fundamental part of your real-world support structure. So we looked at that and we asked the question of, ‘Hey, if 100 million people are in those very meaningful groups today, can we get that to be 1 billion people over the next several years?’ That’s a big part of what we’re focused on across a number of different initiatives.

Sheryl Sandberg: I’ll talk a little bit about the ad break, what we’re seeing. It’s really early both in terms of testing the ads and getting any feedback from people who use Facebook, so we don’t have that data to share. But we’re pleased the test is active, we’re pleased it’s going well and that we can do both live and uploaded videos. Over time marketers will follow where people are spending their time. And if the ads can be well targeted, we’ll be able to see engagement and we already see that. When ads are really well targeted and taking full advantage of the kind of targeting we offer, that you’re showing people something they want to see, we see engagement that, we think, is really critical. It’s also worth noting that the metrics that really matter at the end are driving sales. And so any of the engagement with ad metrics, whether it’s remembering an ad going back to people have been measuring that to how long a video ad is viewed, our only proxy metrics — what matters is the impact on sales. And so we think the better the measurement of what actually matters, the more people will shift their focus to business metrics, the better it will be for the return they get and ultimately, our business.

Question from Michael Nathanson of MoffettNathanson: It’s interesting to see the NFL games go from Twitter and Amazon. Do the NFL games form part of the video strategy, why or why not? Two is I know the model is revenue share but a lot of more traditional companies would like a license fee or the ability to sell their own inventory on your platform. Is that something that you consider? Last, the question about monetization – why is mid-roll optimal to pre-roll and can you share anything about the testing of that concept?

Mark Zuckerberg: In terms of experimenting with content, we’ll try a number of different things. Working with folks to produce all kinds of content, sports is probably something that we’ll want to try at some point. But the goal is going to be creating some anchor content initially that helps people learn that going to the video tab – that’s a great destination where they can explore and come to Facebook to watch the video they want. The long-term goal is actually not to be paying for specific content like but doing a revenue share model once the whole economy around video on Facebook is built up. We’re working on that. And I think we’ll probably look at different pieces of content like this around the world. But at this point don’t feel like any specific one of them is a must-have for us.

David Wehner: Mark touched on the question of a business model here, and our focus really is on revenue share. We will be investing to kick start the ecosystem with content, so de-risking it for some of our content partners to start off with, but the focus is really to build a revenue share model that’s sustainable. That’s the focus as opposed to other models. In terms of why mid-roll is preferable to pre-roll, Facebook is well-suited for shorter form content. We’re ranking things to be longer-form as well, so we’re ranking long form video but that’s still relatively short video views. And for that reason, we think mid-roll is a good – is a better user experience.

Question from Peter Stabler of Wells Fargo: Could you talk about the relative importance of collecting signals on the platform versus off the platform, for instance, the behavior of Facebook users interacting with third-party websites. Is this the depth of your off-platform collection a significant competitive advantage for you?

Sheryl Sandberg: We think that targeting and measurement are significant competitive advantages. We’re very focused on the privacy of what people do, wherever they do it and using the information we have in a very responsible way. We believe that because people are sharing interests because people are themselves their real identity on the Facebook platform, we have a significant advantage. Just in basic targeting itself, just age and gender, we’re 38% more accurate than broad-based targeting according to Nielsen in the U. S. And that’s just age and gender. And then if you think about some of the case studies I shared, targeting people who purchase a certain item, targeting people who are interested in a certain item, we think that’s very substantial. We also think that there’s a real competitive advantage in focusing on business results, as we have. We’re working on shifting people to understanding what their real objectives are so that they can focus on driving businesses. At the end of the day, when you show an ad, you want to move a product off a lot, off a shelf, into a shopping cart, whether it’s online or off-line. And that’s where our focus is and will continue to be.

*This is an edited version of Facebook’s quarterly results webcast held on May 3, 2017. Listen to the full webcast here.