The operator introduces the Meta Second Quarter Earnings Conference Call and reminds listeners that the call will be recorded. Kenneth Dorell, Meta's Director of Investor Relations, introduces Mark Zuckerberg and Susan Li, who will discuss the company's results. He also mentions that the call will include forward-looking statements and that both GAAP and non-GAAP financial measures will be presented. Mark Zuckerberg then begins by stating that the company had a strong quarter with over 3.2 billion people using their apps daily, with the US showing significant growth.

The paragraph discusses the growth and progress of various Facebook-owned apps, including WhatsApp, Instagram, and Threads. It also mentions the success of targeting young adults and the development of AI technology within the apps. The focus is on the improvements in content recommendations and the goal of creating a unified recommendation system across all surfaces. The company is pleased with the results so far but acknowledges that there is still room for improvement.

AI is going to revolutionize the way advertisers reach their target audience by using advanced algorithms to generate personalized ads. This will allow advertisers to simply state their business objective and budget, leaving the rest to AI. Additionally, AI is being used to create new experiences, such as Meta AI, which is on track to become the most used AI assistant. AI is also being used for utilitarian purposes, such as searching for information, and more creative purposes, like creating personalized images. Facebook is also allowing users to create their own AIs through AI Studio.

The CEO believes that the AI Studio will be valuable for creators, as it will allow them to engage more with their communities. This feature will also be available for anyone to build their own AI agents based on their interests. The company is also testing the use of AI agents for businesses, with the goal of making it easy for every business to have their own AI agent. The Llama family of foundation models, including the Llama 3.1, powers these new experiences.

The $405 billion open source AI model has better cost performance and is the industry standard. The author believes that open source is better for developers, Meta app, and the world, as it promotes safety, innovation, and shared prosperity. For Meta's interests, they need access to leading technology and a robust ecosystem of tools. The author is optimistic about the success of open source, citing past successes with the open compute project, PyTorch, and React.

The company is focusing on determining the appropriate level of infrastructure to support training advanced models, with plans for future models to be even more advanced. They are committed to operational efficiency and are also incorporating AI into their metaverse work, with holographic AR and Ray-Ban Meta Glasses being successful products. Demand for Quest 3 is also exceeding expectations.

The paragraph discusses the success of the Quest MR headset and its capabilities as a general computing platform. It also mentions the growth of Horizon and the upcoming Connect Conference. The company plans to make investments for the future and is optimistic about their progress. The consolidated results for Q2 show a 22% increase in revenue and a 7% increase in expenses, with cost of revenue driven by higher infrastructure and inventory costs.

In the first quarter, the company saw a 13% increase in R&D expenses, a 14% decrease in marketing and sales expenses, and a 12% decrease in G&A expenses. The company also reported a 38% operating margin and a net income of $13.5 billion. The Family of Apps segment saw a 22% increase in revenue, with the online commerce vertical being the largest contributor to growth. Ad revenue growth was strongest in rest of world and Europe, and Asia Pacific was the strongest advertiser geography.

In Q2, the total number of ad impressions and average price per ad both increased by 10%, driven by growth in Asia Pacific and rest of world. Family of Apps revenue was up 73%, mainly from WhatsApp business platform. Majority of investments are directed towards Family of Apps, with expenses representing 80% of overall expenses. Reality Labs segment saw a 28% increase in revenue driven by Quest headset sales. To drive revenue, the company is focused on delivering engaging experiences and improving monetization, with a focus on video and in-feed recommendations on Instagram.

Facebook is seeing positive results from their unified video player and ranking systems, which allows for a better viewing experience and increased engagement with short-form videos. They expect this to continue as they expand these systems to support more services. The company is also seeing success with their longer-term engagement priorities, including Generative AI and Threads. They have seen billions of queries through Meta AI and are expanding its availability to more countries and languages. The Threads community is also growing and engaging more with new features and content recommendations. The second driver of their revenue performance is increasing monetization efficiency, which involves optimizing the level of ads within organic engagement.

Facebook is seeing growth opportunities for ad supply on lower monetizing surfaces like video, and is improving ad delivery and marketing performance through the use of AI and tools like Advantage+ Shopping. These tools have been shown to increase return on ad spend for advertisers and new capabilities, such as flexible format and expanded conversion options, have been introduced to further improve performance.

Generative AI technology is expected to play a larger role in how businesses market and engage with customers. Facebook has already seen positive results from their Generative AI ad features and is expanding its capabilities. They are also testing the use of AI in messaging to improve communication with customers. Facebook's approach to capital allocation remains unchanged, with investments in both enhancing core experiences and developing transformative technologies, particularly in infrastructure to support AI work. The company expects strong returns from these investments in the future.

The company expects to see returns from their investments in Generative AI over a longer period of time, with potential opportunities in customized ad creative, business messaging, AI assistants, and organic content generation. They plan to scale their training capacity for generative AI while also maintaining flexibility to allocate resources to other areas, such as core ranking and recommendation work. The company is also investing in Reality Labs, particularly in their Quest 3 and Ray-Ban Meta smart glasses, and will continue to focus on operating efficiently. The revenue outlook for 2024 is expected to be between $38.5 billion to $41 billion, with foreign currency as a 2% headwind. Total expenses for 2024 are expected to be between $96 billion to $99 billion, with operating losses for Reality Labs increasing due to ongoing product development and ecosystem scaling efforts.

In the fourth quarter call, the company did not provide quantitative guidance for 2025, but mentioned that infrastructure costs will be a significant driver of expense growth next year. The company also expects significant CapEx growth in 2025 to support AI research and product development efforts. The full year 2024 tax rate is expected to be in the mid-teens. The company is monitoring an active regulatory landscape that could impact its business and financial results. Q2 was a good quarter and the company has exciting opportunities to deliver more value to its users and advertisers. During the Q&A session, Mark discussed new generative AI-enabled use cases such as Meta AI, Studio, chatbots, and foundation models.

Mark Zuckerberg discusses the potential drivers for the business in 2025 and 2026, highlighting the impact of AI on existing products and the potential for new products like Meta AI and AI Studio to increase engagement. However, he notes that monetization of these products will likely take years. The company's focus is on improving recommendations and advertising experiences through AI, with a longer business cycle of scaling new products before monetizing them.

The speaker discusses the success of their early indicators for new products, specifically mentioning Meta AI. They believe that AI will have a significant impact on their products and are excited about its potential. The company has two buckets of AI investments, core AI and Gen AI, with different stages of revenue and return measurement. They take a ROI-based approach to their core AI investments.

The company is seeing strong returns and continues to invest in improving engagement and ad performance. They are also investing in Gen AI, which they expect to open up new revenue opportunities over time. They are building AI infrastructure with flexibility in mind and are staging data center sites to meet demand. They expect to grow CapEx significantly in 2025 but have a framework in place to deploy it strategically. An analyst from Bernstein asked about these plans.

Susan Li, Facebook's Chief Financial Officer, discusses the company's revenue guidance and outlook, as well as the state of the overall digital ad market. She notes that they are seeing healthy global advertising demand and ongoing improvements in ad performance due to investments made in targeting, ranking, and delivery. However, they expect year-over-year growth to slow in the third quarter due to lapping strong growth from China-based advertisers and Reels impression growth from a year ago, as well as larger foreign exchange headwinds. In response to a question about the potential for engagement and monetization in newer elements of the platform such as Messaging and Threads, Mark Zuckerberg highlights the importance of the United States as a market and its impact on revenue.

The CEO of Meta discusses the success of WhatsApp in the US and its potential for growth, as well as the launch of their new app Threads and the challenges of scaling consumer products into large businesses. He also expresses excitement about the rare opportunity to grow a 1 billion person app.

The company is excited about the potential for adding another rare opportunity to its portfolio. They expect video to remain a source of impression growth in the second half of the year, driven by Reels on Instagram and short-form video on Facebook. The team is doing great work and the company expects continued community growth. The first question is about infrastructure and CapEx, as the company is currently building ahead for Llama 3 and 4, and possibly up to Llama 7. The second question is about the 3Q outlook, which may face tougher comps but is expected to only see a 1 point decrease in FX neutral.

Susan Li, responding to a question about the expected strength in the company's performance, mentioned that they have not shared a longer-term outlook on CapEx due to the dynamic nature of their infrastructure planning. However, they expect to significantly increase investments in AI infrastructure next year. She also noted that they are seeing healthy global advertising demand and ongoing ad performance improvements, leading to a 22% growth in revenue in Q2. In response to a question about US young adult user growth on Facebook and Instagram, the company did not provide a specific comment.

Facebook's efforts to cater to young adults have resulted in healthy growth in app usage in the US and Canada, with products like Groups and Marketplace seeing particular traction. Posting to groups and using Marketplace have both increased, driven mainly by young adults. Marketplace is a large and under-monetized asset that may have potential for future monetization. Facebook's headcount has remained relatively stable and they have not indicated significant growth in the future, despite increased CapEx.

The speaker discusses how Marketplace is part of a larger commerce strategy focused on creating the best shopping experience on the platform. They are happy with the growth of Shops ads and plan to increase headcount. The AI system Llama 3.1 has been incorporated and may eventually be opened up to the broader web.

Mark Zuckerberg is excited about the progress of Llama 3.1, which is being used in Meta AI to build a cohesive product. He believes there is a lot of potential for Meta AI to be used in various industries, and they have a long roadmap ahead to fulfill this potential. He also mentions that they will continue working on Llama 2. In terms of their relationship with EssilorLuxottica, Zuckerberg sees them as a great partner and is excited about the opportunities to deepen their relationship and potentially expand into new areas.

The second generation of Ray-Ban Meta glasses is performing well and is expected to continue growing with the AI revolution. EssilorLuxottica is a great company that will provide opportunities for partnership and further development of the glasses. The product vision for Llama 3 is to offer various products for different purposes, such as customer service or call center offerings, through open source technology. Llama serves as the foundation for various products, including Meta AI, AI Studio, business agents, and the assistant in Ray-Ban glasses.

The author explains that open sourcing their software, Llama, allows for a greater diversity of capabilities and tools to be added to the ecosystem, making it more valuable for the products they are building. They do not feel the need to build a cloud and sell it directly, as they are working closely with other companies like AWS, Databricks, Nvidia, Microsoft, and Google Cloud to support Llama. The open source model allows for Llama to be used anywhere, which the author is excited about.

The speaker discusses the focus on enterprise and business applications, specifically the potential for business agents to interact with customers and support sales. They mention the use of AI and the ability to easily set up agents for businesses using their platforms. This focus on business agents is just one example of the exciting developments happening across all of the products being built for both consumers and businesses.

The interviewer asks Mark about his statement that if scaling stopped, there would be five years of product work to do. They also ask about the capacity for future AI products. Mark says that without future foundation models, there would still be a lot of product innovation, but they are also planning for the potential of future foundation models. Susan will answer the question about capacity.

The company is currently planning for future versions of Llama and is focused on developing capabilities for Meta AI and real-time, multimodal glasses. The CEO expects the industry to continue to innovate in this area for a long time. The CFO mentions that the company is investing in building capacity for training and cannot provide a longer-term outlook at this time.

The company plans its data centers with a focus on training future generations of Llama and potential use cases for AI-based products. They consider a long time horizon and multiple decision points when ordering servers, allowing for flexibility in making future decisions.

This summary was generated with AI and may contain some inaccuracies.