Good afternoon. My name is Dave, and I will be your conference operator today. At this time, I would like to welcome everyone to the Meta fourth quarter and full year 2022 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. If you would like to ask a question, please press one then four on your telephone keypad. This call will be recorded. Thank you very much. Ms. Deborah Crawford, Meta's Vice President of Investor Relations, you may begin. Thank you. Good afternoon, and welcome to Meta Platforms' fourth quarter 2022 earnings conference call. Joining me today to discuss our results are Mark Zuckerberg, CEO, and Susan Li, CFO. Javier Olivan, COO, is also on the call and will join Mark and Susan for the Q&A portion. 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 press release and in our quarterly report on Form 10-Q 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 may present both GAAP and non-GAAP financial measures. A reconciliation of GAAP to non-GAAP measures is included in today's earnings press release. The press release and an accompanying investor presentation are available on our website at investor.fb.com. Now, I'd like to turn the call over to Mark. All right. Hey, everyone, thanks for joining us today. 2022 was a challenging year, but I think we ended it having made good progress on our main priorities and setting ourselves up to deliver better results this year, as long as we keep pushing on efficiency. I said last quarter that I thought our product trends look better than most of the commentary out there suggests. I think that's even more the case now. We reach more than 3.7 billion people monthly across our Family of Apps. On Facebook, we now reach 2 billion daily actives and almost 3 billion monthly. The number of people daily using Facebook, Instagram, and WhatsApp is the highest it's ever been. Now, before getting into our product priorities, I wanna discuss my management theme for 2023, which is the year of efficiency. We closed last year with some difficult layoffs and restructuring some teams. When we did this, I said clearly that this was the beginning of our focus on efficiency and not the end. Since then, we've taken some additional steps like working with our infrastructure team on how to deliver our roadmap while spending less on CapEx. Next, we're working on flattening our org structure and removing some layers of middle management to make decisions faster, as well as deploying AI tools to help our engineers be more productive. As part of this, we're gonna be more proactive about cutting projects that aren't performing or may no longer be as crucial. My main focus is on increasing the efficiency of how we execute our top priorities. I think that there's gonna be some more that we can do to improve our productivity, speed, and cost structure. By working on this over a sustained period, I think we'll both build a stronger technology company and become more profitable. I'm very focused on doing this in a way that helps us build better products. Because of that, even if our business outperforms our goals, this will stay our management theme for the year, since I think it's gonna make us a better company. At the same time, I'm also focused on delivering better financial results than what we've reported recently and on meeting the expectation that I outlined last year of delivering compounding earnings growth even while investing aggressively in future technology. Next, I wanna give some updates on our priority areas. Our priorities haven't changed since last year. The two major technological waves driving our roadmap are AI today and over the longer term, the metaverse. First, let's talk about our AI discovery engine. Facebook and Instagram are shifting from being organized solely around people and accounts you follow to increasingly showing more relevant content recommended by our AI systems. This covers every content format, which is something that makes our services unique. We're especially focused on short-form video since Reels is growing so quickly. I'm really proud of our progress here. Reels plays across Facebook and Instagram have more than doubled over the last year, while the social component of people resharing Reels has grown even faster and has more than doubled on both apps in just the last six months. The next bottleneck that we're focused on to continue growing Reels is improving monetization efficiency, or the revenue that's generated per minute of Reels watched. Currently, the monetization efficiency of Reels is much less than Feed. The more that Reels grows, even though it adds engagement to the system overall, it takes some time away from Feed, and we actually lose money. People wanna see more Reels, though. You know, the key to unlocking that is improving our monetization efficiency, so that way we can show more Reels without losing increasing amounts of money. We're making progress here, and our monetization efficiency on Facebook has doubled in the past six months. In terms of the revenue headwind, we're still on track to be roughly neutral by the end of this year or maybe early next year. After that, we should be able to profitably grow Reels while keeping up with the demand that we see. In our broader ads business, we're continuing to invest in AI, and we're seeing our efforts pay off here. In the last quarter, advertisers saw over 20% more conversions than in the year before. Combined with a declining cost per acquisition, this has resulted in higher returns on ad spend. We continue to be excited about the monetization opportunity with business messaging too. Facebook and Instagram are the first two pillars of our business, in the next few years, we hope to bring messaging online as the next pillar. You know, one way of doing this is Click-to-Message ads, which is now at a $10 billion run rate. Paid messaging is the other piece of this. We're earlier here, but we continue to onboard more businesses to the WhatsApp Business Platform, where they can answer customer questions and updates and sell directly in chat. For example, Air France started using WhatsApp to share boarding passes and other information, other flight information in 22 countries and in four languages. You know, businesses often tell us that more people open their messages and they get better results on WhatsApp than other channels. AI, it's the foundation of our discovery engine and our ads business. We also think that it's going to enable many new products and additional transformations in our apps. Generative AI is an extremely exciting new area with so many different applications. One of my goals for Meta is to build on our research to become a leader in Generative AI, in addition to our leading work in recommendation AI. The last area that I want to talk about is the Metaverse. We shipped Quest Pro at the end of last year. I'm really proud of it. It's the first mainstream mixed reality device, and we are setting the standard for the industry with our Meta Reality system. As always, the reason why we're focused on building these platforms is to deliver better social experiences than what's possible today on phones. The value of MR is that you can experience the immersion and presence of VR while still being grounded in the physical world around you. We're already seeing developers build out some impressive new experiences like Nanome for 3D modeling, molecules and drug development, Arkio for architects and designers to create interiors. Of course, a lot of great games. The MR ecosystem is relatively new, I think it's going to grow a lot over the next few years. Later this year, we're going to launch our next-generation consumer headset, which will feature Meta Reality as well. I expect that this is going to establish this technology as the baseline for all headsets going forward and eventually, of course, for AR glasses as well. Beyond MR, the broader VR ecosystem continues growing. There are now over 200 apps on our VR devices that have made more than $1 million in revenue. We're also continuing to make progress with avatars. We just launched avatars on WhatsApp last quarter, more than 100 million people have already created avatars in the app. Of those, about one in five are using their avatar as their WhatsApp profile photo. I thought that was an interesting example of how the Family of Apps and Metaverse visions come together. Even though most of our Reality Labs investment is going towards future computing platforms, glasses, headsets, and the software to run them, as the technology develops, most people are going to experience the Metaverse for the first time on phones and then start building out their digital identities across our apps. All right. So those are the areas we're focused on. AI, including our discovery engine, ads, business messaging, and increasingly Generative AI, and the future platforms for the Metaverse. From an operating perspective, we are focused on efficiency and continuing to streamline the company so we can execute these priorities as well as possible and build a better company, while improving our business performance. As always, I'm grateful to our teams for your work on all of these important areas, and to all of you for being on this journey with us. Now over to Susan. Thanks, Mark, good afternoon, everyone. Let's begin with our consolidated results. All comparisons are on a year-over-year basis, unless otherwise noted. Q4 total revenue was $32.2 billion, down 4% or up 2% year-over-year on a constant currency basis. Had foreign exchange rates remained constant with Q4 of last year, total revenue would have been approximately $2 billion higher. Q4 total expenses were $25.8 billion, up 22% compared to last year. In terms of the specific line items, cost of revenue increased 31%, driven mostly by a write-down of certain data center assets as well as growth in infrastructure-related costs. R&D increased 39%, marketing and sales increased 4%, and G&A decreased 7%. Operating lease impairments and employee-related costs were the largest contributors to growth for all three expense lines. Growth in marketing and sales was partially offset by lower marketing spend, and growth in G&A was more than fully offset by a decrease in legal-related expenses. We ended the fourth quarter with over 86,400 employees, which includes a substantial majority of the approximately 11,000 employees impacted by our previously announced layoff, who remained on payroll as of December 31st due to applicable legal requirements. We expect the vast majority of impacted employees will no longer be captured in our reported headcount figures by the end of the first quarter of 2023. Fourth quarter operating income was $6.4 billion, representing a 20% operating margin. Our tax rate for the quarter was 24%. Net income was $4.7 billion or $1.76 per share. Capital expenditures, including principal payments on finance leases, were $9.2 billion, driven by investments in servers, data centers and network infrastructure. Free cash flow was $5.3 billion, and we ended the year with $40.7 billion in cash and marketable securities. In the fourth quarter, we repurchased $6.9 billion of our Class A common stock, bringing our total share repurchases for the full year to $27.9 billion. We had $10.9 billion remaining on our prior authorization as of December 31st, and today we announced a $40 billion increase in our stock repurchase authorization. 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. We estimate that approximately 2.96 billion people used at least one of our Family of Apps on a daily basis in December, and that approximately 3.74 billion people used at least one on a monthly basis. Facebook continues to grow globally and engagement remains strong. We reached 2 billion Facebook daily active users for the first time in December, up 4% or 71 million compared to last year. DAUs represented approximately 67% of the 2.96 billion monthly active users in December. MAUs grew by 51 million or 2% compared to last year. Q4 total Family of Apps revenue was $31.4 billion, down 4% year-over-year. Q4 Family of Apps ad revenue was $31.3 billion, down 4%, up 2% on a constant currency basis. Consistent with our expectations, Q4 revenue remained under pressure from weak advertising demand, which we believe continues to be impacted by the uncertain and volatile macroeconomic landscape. The financial services and technology verticals were the largest negative contributors to the year-over-year decline in Q4. Both have relatively smaller shares of our revenue. Growth remained negative in our largest verticals, online commerce and CPG, though the pace of year-over-year decline in online commerce has slowed compared to last quarter. The largest positive contributors to year-over-year growth in Q4 were the travel and healthcare verticals, though both are relatively smaller verticals in absolute share. Foreign currency remained a significant headwind to advertising revenue growth in all international regions. On a user geography basis, ad revenue growth was strongest in Rest of World at 5%. North America was flat, while Asia-Pacific and Europe declined 3% and 16%, respectively. In Q4, the total number of ad impressions served across our services increased 23%, and the average price per ad decreased 22%. Impression growth was primarily driven by the Asia-Pacific and Rest of World regions. The year-over-year decline in pricing was primarily driven by strong impression growth, especially from lower monetizing surfaces and regions, lower advertiser demand, and foreign currency depreciation. While overall pricing remains under pressure from these factors, we have continued to make improvements to our ads targeting and measurement that we believe are driving more conversions and better returns for advertisers. Family of Apps other revenue was $184 million in Q4, up 19%, with strong business messaging revenue growth from our WhatsApp Business Platform, partially offset by a decline in other line items. We continue to direct the majority of our investments towards the development and operation of our Family of Apps. In Q4, Family of Apps expenses were $20.8 billion, representing 81% of our overall expenses. Family of Apps expenses were up 23% due primarily to restructuring- related expenses and growth in infrastructure-related costs. Family of Apps' operating income was $10.7 billion, representing a 34% operating margin. Within our Reality Labs segment, Q4 revenue was $727 million, down 17% due to lower Quest 2 sales. Reality Labs expenses were $5 billion, up 20% due primarily to employee-related costs and restructuring- related expenses. Reality Labs' operating loss was $4.3 billion. Before turning to the outlook, I'd like to discuss our work to grow profitability by scaling monetization and improving our operational efficiency. There are two primary levers to increasing monetization: growing supply and growing demand. Growing ad supply gives businesses more opportunities to get in front of people, and we are focused on enabling that in a couple of ways. First and foremost, we remain focused on building engaging experiences for the people who use our apps. We are coming into 2023 with a strong foundation as Reels continues to scale, and we're seeing in-feed recommendations contribute to engagement as we help people discover new content in their feeds. We will continue to invest in making these experiences best in class. The other side of growing supply comes from more effectively monetizing the surfaces within our apps, including those that have a lower level of ads today. In the nearer term, ramping Reels monetization remains a primary focus. Over the longer term, we see opportunities to continue improving Facebook and Instagram monetization while also scaling revenue contributions from our messaging platforms. Growing advertiser demand is the other focus, and a big effort here is around continuing to drive advertiser performance. While we're still contending with the broader macro uncertainty and signals landscape weighing on advertiser demand in the near term, we're making good progress on our roadmap and are already seeing improvements to ad performance and measurement from the investments we've made. We see opportunities for continued gains in the near and medium term, with our AI investments powering a lot of this work as we continue to improve ads ranking and enable increased automation for advertisers to make it easier for them to run campaigns and use our systems to optimize their performance. Another opportunity we have is to further scale on-site conversions through products like Click-to-Message, Lead Ads, and Shop ads. Click-to-Message ads continue to grow quickly. We believe they're bringing incremental demand onto our platform, with over half of Click-to-Message advertisers exclusively using Click-to-Messaging ads on our platform. We see further opportunity as we continue to scale Click-to-WhatsApp ads and are investing in growing newer formats like Shop ads. Over the long term, we're investing heavily in AI to develop and deploy privacy-enhancing technologies and continue building new tools that will make it easier for advertisers to create and deliver more relevant and engaging ads. Moving now to our efficiency work. We took significant actions in 2022 to operate more efficiently. In Q4, we made the difficult decision to lay off employees while deprioritizing certain projects and curtailing non-headcount-related expenses. We've applied the same scrutiny to our physical assets. We identified opportunities to consolidate our office facilities. We have streamlined our future data centers to a new architecture, which we believe will be more cost-efficient and more flexible, that provides us optionality to support both AI and non-AI workloads. In Q4, we recorded $4.2 billion of total restructuring costs in connection with all of these efforts and expect there to be some additional costs in 2023 in areas like office facilities impairments as we continue this work. As Mark has said, these actions are just the beginning of our efficiency efforts. We remain keenly focused on this in 2023. We are working across the company to deprioritize lower ROI work, move faster, increase productivity, and reduce costs across the business. As part of this, we are carefully scrutinizing our hiring needs, actively reevaluating projects, and reducing management layers. I'm confident that our company-wide focus on efficiency will position us to be an even more productive organization going forward. Turning now to the revenue outlook. We expect first quarter 2023 total revenue to be in the range of $26 billion-$28.5 billion. Our guidance assumes foreign currency will be an approximately 2% headwind to year-over-year total revenue growth in the first quarter based on current exchange rates. Turning now to the expense outlook. We anticipate our full year 2023 total expenses will be in the range of $89 billion-$95 billion, lowered from our prior outlook of $94 billion-$100 billion due to slower anticipated growth in payroll expenses and cost of revenue. We now expect to record an estimated $1 billion in restructuring charges in 2023 related to consolidating our office facilities footprint. This is down from our prior estimate of $2 billion as we recorded a portion of the charges in the fourth quarter of 2022. We may incur additional restructuring charges as we progress further in our efficiency efforts. Turning now to the CapEx outlook for 2023. We expect capital expenditures to be in the range of $30 billion-$33 billion, lowered from our prior estimate of $34 billion-$37 billion. The reduced outlook reflects our updated plans for lower data center construction spend in 2023 as we shift to a new data center architecture that is more cost- efficient and can support both AI and non-AI workloads. Substantially all of our capital expenditures continue to support the Family of Apps. On to tax. Absent any changes to U.S. tax law, we expect our full- year 2023 tax rate percentage to be in the low-20 s. As noted on previous calls, we continue to monitor developments regarding the viability of transatlantic data transfers and their potential impact on our European operations. 2022 was a challenging but pivotal year for our business. We made important progress on our priorities and have taken significant steps to improve our efficiency and productivity. We are set up well to build on this work in 2023 as we continue investing for future growth while remaining focused on delivering strong financial performance. Dave, let's open up the call for questions. Thank you. We will now open the lines for a question- and- answer session. To ask a question, press one followed by the number four on your touch- tone phone. Please pick up your handset before asking your question to ensure clarity. If you are streaming today's call, please mute your computer speakers. Your first question comes from the line of Brian Nowak with Morgan Stanley. Your line is open. Great. Thanks for taking my questions. I have two. One for Mark, one for Susan. Mark, the first one's on Generative AI. Sort of wanted to dig a little more into how you think about, you know, your blue-sky potential user and advertiser use cases of Generative AI, and how do you think about the timeline for when we could first see some glimpses of those on the platform? Then the second one for Susan, just any more color on the new data center architecture and how we should think about the long-term capital intensity of the business, whether it's CapEx per minute, CapEx per DAU. How big of a long-term benefit could this, could this change be to the overall cash flow? Thanks. Yeah, I can start with Generative AI. You know, I think this is a really exciting area. I mean, I'd say, you know, the two biggest themes that, you know, focused on for this year, and one is efficiency, and then the kind of the new product area is gonna be the generative AI work. We have a bunch of different work streams across almost every single one of our products to use, the new technologies, especially the large language models and diffusion models for generating, images and videos and avatars and 3D assets and all kinds of different stuff across all the different work streams that we're working on. As well as over the long term, you know, working on things that could really empower creators to be way more productive and creative across the apps and, you know, run a lot of different accounts. I know there's some really exciting stuff here. I wanna be careful not to kinda get too far ahead of the development of it. I think you'll see us launch a number of different things this year, and we'll talk about them, and we'll share updates on how they're doing. I do expect that the space will move quickly. I think we'll learn a lot about what works and what doesn't. A lot of the stuff is expensive, right, to kind of generate an image or a video or, you know, a chat interaction. You know, these things we're talking about, like, cents or fraction of a cent. One of the big interesting challenges here also is going to be how do we scale this and make this work more efficient, so that way we can bring it to a much larger, user base. I think once we do that, there are gonna be a number of very exciting use cases. I realize this is a pretty high-level answer for now, but I think that, we'll be able to share more details over the coming months. Thanks, Brian. On your questions about CapEx. Your first question was about the new data center architecture that we talked about, which is underpinning the lowered CapEx outlook. We're shifting our data centers to a new architecture that can more efficiently support both AI and non-AI workloads, and that's going to give us more optionality as we better understand our demand for AI over time. Additionally, we're expecting that the new design will be cheaper and faster to build than previous data center architecture. Along with the new data center architecture, we're going to optimize our approach to building data centers. We have a new phased approach that allows us to build base plans with less initial capacity and less initial capital outlay, but then flex up future capacity quickly if needed. We're still planning to grow AI capacity significantly. You know, that connects, I think, to a lot of the things that Mark was describing earlier in his question. In terms of longer run capital intensity, you know, we certainly expect that the lower CapEx outlook will have some incremental benefit to CapEx as a percent of revenue. That's still really something that we are focused on over the longer term. The current surge in CapEx is really due to the building out of AI infrastructure, you know, which we really began last year and are continuing into this year. We'll be measuring the ROI of these AI investments. Their returns will continue to inform our future spend. You know, our intention is still to bring CapEx as a percent of revenue down, but capital intensity in the nearest term is really gonna depend in part on the revenue outlook and our needs to further build AI capacity for future demand. Your next question comes from the line of Eric Sheridan with Goldman Sachs. Your line is open. Thank you so much. Maybe I can ask a multi-parter on coming back to some of your comments on Reels. Mark, you've always had this philosophy of letting the user sort of continue to grow engagement and monetization has always lagged sort of consumer adoption of new products. How do you think about going a little bit deeper on the mixture of letting the engagement of short-form video continue to build versus eventually sort of continuing to drive higher levels of monetization against that product? Second, you know, can you give us a little bit of color of how advertiser conversations continue to evolve around short-form video and the adoption of the canvas and the utilization of that as a means to deliver a mixture of brand and DR messages? Lastly would just be, can you quantify at all the gap that still exists between the engagement, around short-form video and the monetization and how that might close as we look out over the next couple of years? Thanks so much. I mean, the way that I've always looked at this, I can take the first part of this, is that for these consumer products, often building up and scaling the product use case is a somewhat different discipline than working on the monetization. It's such a kind of hard problem to build these new types of products that you wanna give the teams as much clarity and as simple of goals as possible. In the beginning, just saying, "Okay, just let's make something that works for people." You know, once we get to, you know, many hundreds of millions of people or billions of people using it, then we'll focus on ramping up the monetization, which has been a formula that's worked for us. That's the general approach. Now, with Reels, we do have a lot of people using it now. I think at this point the question is there any strategic advantage to letting it scale further than would be profitable to do? I think at the scale that it's at right now, it's not clear that there's much strategic advantage. I mean, there are certain flywheels, and you get, you know, certain more feedback or, you know, data points from a little bit more distribution. But at this point we're at pretty good scale. I think for now the right thing to do is to work on monetization efficiency. We know that there is demand to see some more Reels. As we naturally improve the monetization efficiency, which I have confidence in because the teams are doing good work, and that's been, you know, working. I shared the stat about it, the efficiency doubling over the last 6 months on Facebook. I think as we can continue some of those trends, then we'll naturally just unlock the ability to show more and more Reels, and it will continue to grow from there. That's the overall approach. I do think that our philosophy of building these consumer products, focusing on getting them to hundreds of millions or billions of people, and then focusing on monetization beyond that and bringing that in as the balance is the right approach. It's served us well. You can expect us to continue doing that on future things that we do, including some, you know, you know, hopefully some of the new Generative AI products or some of the new metaverse stuff that we're doing. We're gonna take the same approach there as well. On the advertisers' reaction to Reels, you know, we continue working on enabling more advertisers to participate in Reels ads, more formats, more objectives, more tools to create them, and we've been making good progress. I believe now over 40% of our advertisers use Reels ads across our apps. Between direct response versus brand, we're actually seeing progress with both. But direct response continues to be where advertisers are focused. This is an example, Outletcity, which is a German fashion retailer, developed creative specifically for Reels to test its impact on conversions. They found that Reels resulted in a 19x higher ROAS, 89% lower cost per purchase, and 9 times higher lift in sales. Overall, pretty good results. On your third question, Eric, we are not quantifying the gap in monetization efficiency between Reels and other services. We know it, you know, took us several years to bring the gap close between Stories and feed ads and, you know, we expect that this will take longer for Reels. Having said that, we are still roughly on track to bring the overall Reels revenue headwind to a neutral place by the end of this year or early next year, and we're planning to do that through both improving Reels monetization efficiency and growing incremental engagement from Reels. Your next question comes from line of Mark Shmulik with Bernstein. Your line is open. Yes, thanks for taking the questions. I've got a couple as well. You know, first one I know for Susan or Javier. You know, as we think about, you know, I appreciate the color on improving conversion rates. Would it be fair to say that you're kind of through the other side of some of those IDFA headwinds we've been talking about for the last year or so? Any more color, just kind of that journey of the AI-driven ad edge, and would be appreciated. Secondly, Mark, you know, kind of diving into that annual theme of efficiency and following on Boz's post, you know, what's the right way to think about long-term investment intensity in Reality Labs? You know, and kind of balancing that with the ambitions to build the next computing platform. Is this the right intensity of kind of where you're at right now to think about, or are there any milestones we should be looking for? Thanks. Thanks, Mark. On your first question, you know, we are continuing to make progress in mitigating the impact from the ATT change. You know, this is more generally just the reality of the online advertising environment that we operate in now. You know, we're continuing to work on building tools that mitigate the impact of those changes, and we see strong adoption of those tools, including tools we've talked about before, like CAPI Gateway, et cetera. We're also investing in ways to bring conversions on site, and we have a lot of ad formats that have been instrumental in doing so across both Click-to-Message ads, Lead Ads, and Shop ads being, you know, formats that bring conversions on site. Over the longer run, we're continuing to invest in our privacy-enhancing technologies to more fundamentally enable us to deliver more performant and privacy-safe ads to advertisers. Javi, is there anything you wanna add on that? Yeah. No, I think, Susan, you touched on most of it. I think if you look at the strategy on ads, it really has two parts, which is continue investing in AI, and that's where we're seeing a lot of the improvement in ads relevance. As Mark was saying, we saw over 20% more conversions than in the prior year, which combined with the decline in customer acquisition results on higher ROAS. We also used it for automated experiences for the advertisers, improvements on measurement, which allow advertisers to do better budget decisions. The second part is bringing more conversions on site, which are also obviously helping offsetting these signal loss. Indeed, we're reframing the problem as a signal growth opportunity. One example would be Lead Ads, where, just to give another example, IDeaS, which is an online marketing and sales automation agency in Italy for hotels and resorts, they use these ads to collect a higher volume of qualified leads at a lower cost. Basically, compared to off-site leads, sending the leads offsite, they managed to achieve a 2x more final bookings with on-site leads, 4x more qualified leads with on-site leads, and a 2.7x lower cost per lead with on-site versus the alternative of sending the lead acquisition offsite. All right. I can give some color on how we're thinking about this efficiency theme as it applies to Reality Labs over time. You know, I guess there are two ways that I think this applies. The first thing is I think it's important to not just think about Reality Labs as one thing, right? There are like three major areas, right? There's the augmented reality work long term, which is actually the biggest area, but is still, you know, a large research problem. There is a lot of work there that we haven't actually shipped the product yet. VR, which is starting to ramp, right? Quest 2, I think did quite well. We have multiple product lines there with the Quest Pro. The smallest by kind of budget size today is the Metaverse software program. You know, it doesn't reflect the importance of it. I think, you know, the software and social platform might be the most critical part of what we're doing, but software is just a lot, you know, less capital-intensive to build than the hardware. It's the smallest part of the program. Within each of those areas, there are a lot of different things that we're doing. You know, just like any project that we would run, you know, we're constantly learning from how the products that we've shipped are doing, how the market is evolving overall, how competitors are doing and, you know, what reaction they're seeing to different things and what experiments are being played out. We're kind of constantly tuning the roadmap. You know, obviously some of these are longer-term things, right? You, you start planning out the hardware that you're gonna ship, you know, two, three years in advance. We're kind of constantly looking at the signals and learning and making decisions about what it makes sense to do forward. That's definitely going to continue. None of the signals that I've seen so far suggest that we should shift the Reality Labs strategy long term. We are constantly adjusting the specifics of how we execute this. I think that's, we'll certainly look at that as part of the ongoing efficiency work. The other piece is, you know, just different tactics, things like trying to flatten the org, things like that. Those are going to apply across the whole company. We expect that, you know, within the roadmap that we're trying to execute, both on Reality Labs and Family of Apps, we just wanna focus on making all of our work more efficient. You know, a lot of the time when people talk about efficiency, there's a lot of focus on prioritization and, you know, which big things can you cut. I actually think what makes you a better company over time is being able to execute and do more things because you're operating more efficiently and you can get things done with fewer resources. I'd like to kind of get us to that mode more, which I guess gets me to a higher level point in this, which is, I just think we've entered somewhat of a phase change for the company where we just grew so quickly for like the first 18 years of the company's growth. It's very hard to really crank on efficiency while you're growing that quickly. I just think we're in a different environment now where we have a bunch of areas that I think are still extremely exciting and growing quickly for the future, where I think the right strategy will be to focus on kind of top-line growth. I think a lot of what we do, it really just makes sense to really focus on the efficiency a lot more than we had previously and making sure that we can do that work more effectively. For what it's worth, I think if we do that well, I think we'll be able to do better product work, and I think it'll be a more fun place for people to work because I think they're gonna get more stuff done. I'm pretty committed to this, and it's gonna go across all of the different things that we're doing. Your next question comes from line of Doug Anmuth with JP Morgan. Your line is open. Great. Thanks for taking the questions. Susan, I know the expense outlook came down by $5 billion. Just hoping you could talk about some of the areas where you may be able to get increased efficiency still. What does the new expense outlook suggest for hiring levels in 2023? Separately, hope you could comment on the issues in Europe around Meta's use of first-party data to target ads. How could this get resolved and how should we think about the risk to Meta? Thanks. I'll start with the 2023 expense outlook. The primary components of the reduction in the 2023 expense outlook are across three areas. The first is slower payroll growth. We're continuing to scrutinize how we allocate resources across the company on this. We have a broad hiring freeze in place right now, and we continue to expect a slower pace of hiring in the year as we evaluate what roles we're gonna open. I'll roll in the answer to your second question here, which is, you know, this is an ongoing process for us. We don't presently have a hiring target to share for the end of the year. The second component of the lower expense, the lower expense outlook is on cost of revenue. We're expecting slower growth. Depreciation here is impacted by us extending the useful lives of non-AI servers in Q4. The third component is our outlook now reflects an estimated $1 billion in facilities consolidation charges. That's down from the prior $2 billion estimate that we gave in the last guidance range since a portion of the previously estimated charges were already recognized in Q4 2022. Those are really the big. Those are really the primary issues as it pertains to the lower expense outlook. Your second question was on the issues in Europe around Meta using data to target ads. I think, you know, I think if you're referring to the EU DPC ruling that we have to change our approach regarding our reliance on contractual necessity as a legal basis for ads in Europe, that's a decision, you know, we don't agree with it. We believe that our current approach is GDPR compliant. We're appealing the substance of the rulings and the fines. We don't expect that those decisions are going to affect our ability to provide personalized advertising in the EU. Advertisers should be able to continue to use our platforms to reach customers and grow their businesses. Your next question comes from line of Justin Post with Bank of America. Your line is open. Great. Thank you. Maybe a follow-up on the privacy and data use. Are you still facing headwinds in the first quarter or are you kinda past that from IDFA or ATT? Then as you look out over the next year, anything on Android or in the EU with Digital Markets Act, or anything we should be thinking about or aware of? Thank you. Thanks, Justin. You know, on ATT, I think what I would say is there is still certainly an absolute headwind to our revenue number, you know, that is the impact of the ATT changes being in place. You know, having said that, you know, we are lapping its rollout and adoption, and we're making progress in mitigating the impact due to a lot of the work that both Javi and I just talked about, including the different advertiser tools, including ad formats that bring ad conversions on-site, and including the longer term AI investments in privacy-enhancing technologies. The second part of your question was on anything from Android and other headwinds. On Android, it's too early to know where this will land. You know, I think Google's taking a approach that is collaborating with the industry, which, you know, we think is critical and, you know, we'll have updates as more time elapses there. The third part of your question, I think, was on regulatory issues in the EU. I think this was on on DSA. You know, we have been preparing for some time to comply with DSA and meet the compliance deadlines that we expect to come into effect this year. Those are, you know, a meaningful but manageable segment of costs we've been preparing for a long time, and those costs have been factored already into our total expense guidance. Your next question comes from line of Youssef Squali with Truist. Your line is open. Great, thank you. Two questions for me, please. First, maybe one for Susan. To stay on the theme of efficiency and with all the adjustments to your cost basis, lately, can you maybe just speak to the relationship you're trying to build between revenue growth and OpEx, CapEx growth over time? I think the last time we saw them move in tandem, or close to each other was back in 2017. Are you at a point where you'd want them to grow much closer to each other, or are we still in investment mode and therefore potentially margin compression mode, beyond just 2023? Maybe Mark, can you just provide an update on kind of the health of the broad digital ad space, especially for the SMB side and DR? Just curious if, you know, coming out of Q4, you're incrementally bullish or you're still as cautious as, say, you were three or six months ago. Thank you. First question. You know, certainly the lower expense outlook and CapEx outlook puts us in a better position in terms of financial performance for this year. We are, I think, still. You know, we're focused on the goal that Mark outlined, I think last quarter of delivering compounding earnings growth while enabling aggressively in the future technology, that continues to be the principle by which we're guiding our financial plans. The second question is on the health of the broader digital ad space. You know, I can start with this, Javi, you should feel free to jump in if you wanna add more color. You know, Q4 for us, you know, we saw that the holiday season for us fell mostly within our range of expectations. Trends in online commerce modestly improved for us, which is encouraging, but again, the growth was still negative year-over-year. Overall, I think this is still a pretty volatile macro environment. It's early in the year to know how this will shape up for 2023. If there's anything, Javi, you'd like to add, you can jump in. No, I think you covered it well, Susan. Your next question will come from the line of Ron Josey with Citi. Your line is open. Great. Thanks for taking the question. Mark, I wanted to talk a little bit more around the progress on the AI discovery engine in Reels. We're seeing in our, in our own usage in terms of content and categories and just getting more insights and content that we'd like to see. Can you just talk about the added signal that Meta is seeing and gaining here to produce this more relevant content across Reels to Stories to Feed and maybe even to Messenger? Thank you. I'm not exactly sure what would be useful to share here. You know, in general, a lot of the gains that we're seeing on the discovery engine overall, which, you know, we basically use to refer to our AI recommendation system across Facebook and Instagram, across all different content types, of which Reels is sort of a special case and that's growing the fastest with short-form video. I mean, there's not like one specific data type that's useful. You know, a lot of the trend that we're seeing here is, we're using larger models, which require more computation. We've shifted the models from being more CPU-based to being GPU-based. We've seen big improvements in the amount of time and engagement that we've gotten. We, you know, it's a little bit hard for us to predict exactly how much we'll be able to continue tuning those and improving. But, you know, from the experience that we've had so far, I would bet that there's still pretty significant upside there. I know that you kind of asked about specific data points, but I think that that's really the theme that we're seeing, and that applies across Reels and the rest of the discovery engine. The one thing that I'd add, it's a little bit separate from your question, but we do spend most of the time talking about Reels, so maybe it's worth giving some color on the rest of the discovery engine work. Which has also been doing quite well and is much more incremental to the rest of the business because, you know, if people end up being able to discover additional photos or links or groups or things like that in Facebook or, you know, just interesting content across Instagram, then they're just more engaged in the product and we already know how to monetize that content. That ends up being really helpful, both for the overall engagement, not very cannibalistic at all, and already profitable. We've spent less time talking about that because I get that Reels is sort of the faster-growing area. You know, we do still expect that as a percent of the overall feeds in Facebook and Instagram, recommended content will continue growing. I don't know if it'll be a majority by the end of this year, but, you know, maybe it'll be, you know, 30%, 40%, something in that, in that zone, and continuing to grow because we can just find content that people are gonna be interested in that may not be from accounts that they've followed directly. Hopefully that's some useful color on what we're seeing across those efforts. Your next question comes from line of John Blackledge with Cowen. Your line is open. Great. Thanks. Two questions. Just a follow-up on Reality Labs. Should we continue to expect accelerating losses at Reality Labs in 2023? If so, should we expect Reality Labs to be at peak op losses this year? Second, Susan mentioned Shop ads in the bucket of early monetization. Just any color there on how we might see that scale this year? Thank you. Yeah. Sorry. I'll go ahead and take the first question about Reality Labs, and Javi, you can take the second question on shop ads. On Reality Labs, we still expect our full year Reality Labs losses to increase in 2023, and we're gonna continue to invest meaningfully in this area given the significant long-term opportunities that we see. It is a long-duration investment, and our investments here are underpinned by, you know, the accompanying need to drive overall operating profit growth while we're making these investments. I'll turn it to Javi on the shop ads. Yeah. In Q4, we continued to test Shop ads in the U.S., we're seeing increased performance by helping direct a consumer to the place where they're most likely to purchase. It's early to know, we really finally saw product market fit in a test. It's of a small base, to just give you a sense, we saw triple-digit growth in both revenue and adoption across Q4. We expect this growth to normalize to a lower level in 2023. The Shop ads beta has a revenue run rate in the hundreds of millions of dollars. That gives you, it's a small base, it's small revenue run rate yet, but it's growing rapidly, and we expect it to continue but normalize to more lower levels in 2023. Your next question comes from the line of Mark Mahaney with Evercore ISI. Your line is open. Thanks. Two questions, please. The Click- to-Message ad now that $10 billion revenue run rate, how do you think about the growth path for that going forwards? Do you find that that's bringing in brand-new advertisers to Meta that you hadn't seen before? Like, who's coming in on that, and does that give you a new growth path? Mark, if I could just ask you, this year of efficiency, you know, it's almost like there's been a journey going on since early last year when you talked about talking about driving the business for growing operating profit. I guess I just wanna ask the why question. I mean, it's, you know, the markets obviously like what they're hearing from you today and the changes, but why the much greater focus on efficiency, not just tonight, but like, kind of over the last, you know, nine or 12 months with maybe a few hiccups? Like, what? Is it just the maturity of the business? Is it just trying to take advantage of a crisis, but there is a crisis out there in terms of the economy, and maybe that's forced minds to think this way? Just a little bit more color on the why. Thanks a lot. Thanks. This is Susan. On the Click- to-Message ads. This is one of our fastest-growing ads products, and we believe that they're bringing incremental demand onto our platform. I mentioned in my script that over Click-to-Message advertisers exclusively use Click-to-Message ads on our platform. You know, you asked how we're gonna scale, and I think there are a couple dimensions. In terms of demand, I think the biggest piece here is getting more businesses, to adopt Click-to-Message ads via creating more entry points, simplifying creation flows. We're trying to integrate with partners who can help smaller businesses scale, so there's a lot of work going on there. On the performance side, we're continuing to focus on just driving up the ROI that advertisers get from Click-to-Message ads. You know, we're trying to give advertisers the ability to do more down-funnel optimization, create better in-thread experiences, and simplify flows that help them drive conversion. Ultimately, we're always focused on growing supply, and in this case, growing the business messaging ecosystem by creating more ways for people and businesses to connect across our messaging apps. I think an example of that would be something like business directory search on WhatsApp. It's an opportunity we're very excited about, and we've invested a lot in, and we've seen very healthy growth. I'll turn it to Mark on the efficiency question. Yeah. I mean, on the efficiency point, I think we come to it from a few places. I mean, one is just like the journey of the company. For the first 18 years, I think we grew it, you know, 20%, 30% compound or a lot more every year, right? Then obviously that changed very dramatically in 2022, where our revenue was negative for the growth for the first time in the company's history. That was a pretty big step down. We don't anticipate that that's gonna continue, but I also don't think it's gonna necessarily go back to the way it was before. I do think this is a pretty rapid phase change there, that I think just forced us to basically take a step back and say, "Okay, we can't just treat everything like it's hypergrowth." There are gonna be some areas that are going to be very rapidly growing or that are very kind of future investments that we wanna make. We also have a lot of things now that are, you know, just have a lot of people using them and support large amounts of business, and that we think we should operate somewhat differently. I think that there's that piece of it. The other part of it that I'd say is that as we've started doing the work, I actually think it makes us better, right? That was somewhat unexpected. Right? I kind of historically would have thought that this would just occupy some amount of our mind space and that that would be more of a trade-off against how we are able to build products and get things done. At this point, I'm actually fairly optimistic that there are a pretty good roadmap of things that we can do that will just make us more efficient and actually better able to build the things that we want. Not all of them will help save money, right? For example, focusing on AI tools to help improve engineer productivity, it's not necessarily going to reduce costs, although over the long term, maybe it'll make it so we can have fewer, you know... We just hire less, right? Stay a smaller company for longer. I do think things like, you know, reducing layers of management just make it so information flows better through the company, and so you can make faster decisions. I think ultimately that'll help us not only make better products, but I think it'll help us attract and retain the best people who wanna work in a faster moving environment. I don't know. That honestly was a little bit surprising, right? That as we started digging into this, that the company would actually start to feel better to me. I don't know. Like, how long the roadmap is of things that we can continue to do where that'll be the case. I do think we have a good amount of things like that. That's why I'm really focused on this now. I do wanna continue to emphasize the dual goals here of making the company a better technology company and increasing our profitability. They're both important, but I think it's also really important to focus on the first one of just making it a better company, because that way, you know, even if we, you know, outperform our business goals this year, I just wanna communicate, especially to people inside the company, that we're gonna stick with this because I think it's just gonna make us a better company over the long term. I think that's it for now. Operator, we have time for one last question. Thank you. That will come from the line of Brent Thill with Jefferies. Your line is open. Thanks. Susan, for your Q1 guidance, can you just remind us all what your embedded expectations are for, you know, market conditions, how you think about seasonality? What's embedded in that guidance? Thanks, Brent. I mean, for Q1, you know, we are, you know, our guidance range of $26 billion to $28.5 billion, you know, corresponds to -7% to +2% year-over-year growth. It reflects, you know, a wide range of uncertainty given the continuation of the general macro environment that we've been operating in. Again, we are pleased with the core engagement trends that we've talked about and the performance improvements that we're delivering for advertisers with our monetization work and our investments in AI. We expect FX to be less of a headwind to year-over-year growth in Q1 than it was in Q4. Again, you know, we are keeping a close eye on advertising demand and on the ongoing macroeconomic volatility. Great. Thank you for joining us today. We appreciate your time, and we look forward to speaking with you again. This concludes today's conference call. Thank you for joining us. You may now disconnect your lines.