Below is the transcript of the Facebook Inc (NASDAQ:FB) 2014 Q3 earnings call. Facebook hosted a conference call to discuss its results at 2 p.m. PT / 5 p.m. on Tuesday, October 28, 2014.
Founded in 2004, Facebook Inc (NASDAQ:FB) mission is to give people the power to share and make the world more open and connected. People use Facebook Inc (NASDAQ:FB) to stay connected with friends and family, to discover what’s going on in the world, and to share and express what matters to them.
Participants:
Deborah Crawford, IR Contact Officer, Facebook.
Mark Zuckerberg, Chairman of the Board, Chief Executive Officer, Facebook.
Sheryl K. Sandberg, Chief Operating Officer, Director, Facebook.
David B. Fischer,Vice President – Business and Marketing Partnerships, Facebook.
Operator
Good afternoon! My name is Jay and I will be your conference operator today. At this time I would like to welcome everyone to the Facebook’s Q3 Earnings Conference Call. A line has been placed on mute to prevent any background noise. After the speakers’ remarks there will be a Q&A session. If you would like a question during that time please press Start and the number 1 on your telephone key pad. Thank you very much! Miss Deborah Crawford, Facebook President of Investor Relations you may begin.
Deborah Crawford, IR Contact Officer, Facebook
Thank you! Good afternoon and welcome to Facebook’s Q3 Earnings Conference call. Joining me today to talk about the result Mark Zuckerberg – CEO, Sheryl Sandberg – COO and Dave Wehner – CFO. Before we get started I would like to take this opportunity to remind you that our remarks today will include forward looking statements and actual results may differ materially from those contemplated by these forward-looking statements. Factors that could cause these results to differ materially are set forward in today’s press release and on our quarterly report on form 10 Q filled with the SCC. Any forward looking statements that we make on this call are based on assumptions as if today and we undertake no obligation to update these statements as a result of new information or future events. During this call we will present both gap and non-gap financial measures. A reconciliation of gap to non-gap measures is included in today’s earnings press release. The press release and an accompanying investors’ presentation are available on our website at investor.fb.com. And know I would like to turn the call over to Mark.
Mark Zuckerberg, Chairman of the Board, Chief Executive Officer, Facebook
Thanks, Deborah! And thanks everyone for joining today! This is a good quarter for Facebook and we’ve achieved strong results across the Board. We’ve continued to grow community in both size and engagement with 1.35 billion people now using Facebook each month and 64% using Facebook daily. On mobile 1.12 billion people are now using Facebook each month and 703 million people each day, nearly 40% growth from this time last year. Looking at our business we continue to do well. This quarter total revenue reached 3.2 billion dollars and advertising revenue grew 64% year over year. Mobile now accounts for 66% of our advertising revenue. These results show that Facebook is getting stronger every day as a community, a part of our developers and marketers and as a business. One thing that I am particularly pleased about is that while we are investing aggressively and making progress towards our big long-term goals, we also continued to execute well against our near term priorities. On previous calls you heard me talk about our big company goals, of connecting everyone, understanding the world and building the next generation of platforms. These goals are important for us and are the foundation of our strategy for the next decade. But achieving these will involve many different efforts in steps along the way. Some of that will achieve rapidly and others that are going to take longer. So with that in mind I would like to run through our progress this quarter on the different efforts that we expect to deliver a lot of impact over the next 3, 5 and 10 years. Let’s begin with our 3-year goals.
Over the next 3 years our main goals are around continuing to grow in third our existing community and businesses and help them reach their full potential. When you look at the size of engagement in our community, our progress remains very strong. 864 million people use Facebook every day and across our core product we continue to see huge engagement. For example around 700 million people now use Facebook groups every month. Achieving the scale shows that we are delivering experiences for the way people want to share and connect. Another example is our progress on public content. Last quarter I talked about how we are working to connect people around important public moments and personalities on Facebook. This quarter we continue to build on our result and there are now more than 1 billion interactions every week between public figures and their fans on Facebook. The investments we made in video have also played a big part in here. This quarter we announce a new milestone for video on Facebook achieving 1 billion video views a day made by videos. During the summer I spoke at Challenge. There are more than 10 billion video views by 440 million people which is a good sign of how far our video product has come.
Instagram has also made a lot of progress this quarter. In August the Instagram team launched hyper lapse – a standardized app for time lapse videos on iOS. The team has also invested heavily in improving the speed performance of Instagram on Android. This is help drive Instagram strong international growth which in some countries is achieved more than 100% year over year growth. Globally people using Instagram now spend there 21 minutes a day on average using the app. This is a strong figure compared to the industry and a good sign that Instagram strategy is on the right path.
Our other big focus over the next three years is to continue serving businesses well and creating a lot of value for marketers. As the result show, our approach here is working. To continue delivering value for businesses we worked to improve the quality of apps and news feed by reducing low quality content and improving our targeting to show more timey relevant content. We’ve also made some big advances in our app tag – most importantly the launch of our new Adlesse platform. Adlesse offers marketers a lot of new capabilities to help reach people across devices, platforms and publishers, as well as improve measurement of online campaign. We are very excited for the future of Adlesse and Sheryl is going to talk about this in a moment.
Next, let’s talk about our strategy over the next five years. Over the next 5 years our goals are on taking next generation of services – Instagram, Messenger and WhatsApp and search and helping them connect billions of people and become important businesses in our own right.
One big priority for us is messaging and continuing to build and grow Messenger and now WhatsApp as well as great services. This quarter we made an important change to our mobile messaging efforts by transitioning people to Messenger on iOS, Android and Windows phone. We believe that this change allows us to offer better and faster messages on mobile and our data show that people who use Messenger usually respond to messages about 20% faster. This month we also completed our acquisition of WhatsApp. I am excited be working with their team and for Jan to join our Board. WhatsApp continues to be on a path to connect more than a billion people around the world and we are going to be working to accelerate their efforts here.
Another key part of our strategy is helping developers build more great social experiences on our platform. Over the next few years our goal is to make Facebook the cross-platform platform that allows developers to build, grow and monetize their apps across every major mobile platform. We’ve continued to make good progress here. This quarter we opened our audience network to all developers and publishers allowing over 1.5 million advertisers on Facebook to extend their campaigns across mobile and for developers to begin monetizing their apps. We are also excited by the continued adoption of Applinks – our deep linking technology for mobile apps. Applinks is now used by hundreds of apps across iOS, Android, Windows phone and in just the past six months developers have created links to more than 3 billion individual destinations in these apps.
Now, let’s talk about how we are approaching our goals over the next 10 years. For the next 10 years our focus is on driving the fundamental changes in the world that we need to achieve our mission – connecting the whole world, understanding the world with big leaps and AI and developing the next generation of platforms especially in computing. This is a very big period, very busy period for our efforts with the.internet.org. In July we worked with Eric Tellez to launch the internet.org in Zambia. This provides free data access to instead of basic Internet services for health, education, employment and communication.
The results from this are very encourging. We’ve already heard a lot of amazing stories of how people using the Internet add value in their life. We hope to bring the Internet.org app to many more countries soon. Over the last two months I’ve also traveled to several countries and met with policy makers, industry leaders and people of communities that are coming online for the first time. Increasingly industry and governments are seeing expanding Internet access as one of their core priorities. This is a positive development for our work with internet.org, our long term goal of connecting everyone in the world. Finally, let’s talk for a minute about our progress with Oculus. As I said before, with Oculus we are making a long term bet on the future of computing. Every 10 to 15 years a new major computing platform arrives and we think that virtual and augmented reality are important part of this upcoming next platform.
This quarter Oculus continued make progress towards this vision. In September the first Oculus development conference took place where we announced a new prototype VR head set on the past of a consumer version of the rift. We’ve continued to see a lot of excitement in the developers’ community and we’ve now shift more than a 100,000 rift developers’ kits to 130 countries. It is still early for Oculus but we are encouraged to see the variety of apps and games being developed for this platform. Internet.org and Oculus are just two job opportunities ahead. Our efforts here will take longer to achieve their full impact but we are going to continue to preparing for the future by investing aggressively. So that is our approach and our strategy over the next 3, 5 and 10 years. While focusing on our big goals of connecting everyone, understanding the world an building the next generation of platforms. This has been a quarter with strong results.
I want to thank the entire Facebook community, our employees, our partners and our stockholders for their continued support. Because of your contribution Facebook continues to grow in strength, and create greater value in the world for people, partners and businesses. We have long journey ahead, we are on the right path and I am excited about the progress that we are making. Thank you! Know here is Sheryl.
Sheryl K. Sandberg, Chief Operating Officer, Director, Facebook
Thanks, Mark and hi everyone! We had another strong quarter and we are continuing to execute well on our priorities capitalizing on the shift to mobile, growing the number of Facebook marketers and building products to make our ads more relevant. Our goal this quarter was again very broad based. We had strong performance around the world as well as across verticals in our marketer segments – brands, direct marketers, developers and small and medium businesses. I’d like to briefly highlight some of our progress on the products’ front and then focus on important new investments for making an ad tag. One of our main ad products is to make ads more relevant. Just like content and news feed when ads are more relevant they provide better experience for people using Facebook and a better return for marketers.
One of the best ways to improve relevance is to help advertisers reach the right audience for their messages. Facebook’s age and gender targeting is 45% more accurate than the digital industry average. Working with Facebook advertisers can also target based on people’s interests. In addition, we are continuing to build app-customer audiences which enable marketers to use their own data to segment current and prospective customers. We are pleased with the response from clients and we are focused on driving deeper penetration with both existing and new clients. We also offer look-a-like audiences which help marketers find potential new customers who are similar to their current customers.
To share one recent example earlier this year Global Financial Services company MetLife wanted to find new customers for life insurance policies. Working with this agency Mercol, they use look-a-like audiences to find people more like their existing customers. Met Life run ads that led people to their get a quote website page. Over the 6 month campaign the leads that came from Facebook resulted in new policies at a 2.4 times higher rate than Met Life’s next desk performing channel and it has to cost of display ads. We are also making steady progress at newer ads initiative. Throughout this quarter we continued to enable auto play for more video ads. We are also continuing to roll out ads on Instagram. We think that there are big opportunities with both video and Instagram ads but we are going to remain deliberate and slow in our approach to scaling both businesses.
We are also making longer term investments that we believe will be important for Facebook and the ad industry. In Q3 we re-launched Adlesse, closed our acquisition of Liverail and rolled out our audience network. I want to spend a few minutes discussing our longer term ad tag strategy. We are investing in ad tag for simple reason. Consumers re shifting quickly to mobile and the advertising industry are not keeping up. 2013 was the first year the average American adult spent more time on digital media than watching TV and that gap had continued to grow. Today the average adult in the U.S. sends nearly 25% on their media time on mobile but advertisers spend only about 11% of their budgets there.
One of the main reasons the budgets are not moving as quickly as consumers is that advertisers haven’t yet had an effective way to serve ads and measure their returns on mobile. Current solutions work well for one person with one device, especially a PC and for sales that happen online. But today people often have multiple devices and still make many purchases in physical stores. Nealson OCR data shows that the digital industry is less than 60% accurate in demographic targeting of ads which means that 4 in 10 people are seeing the wrong ads. Similarly, marketers are not confident that they can measure mobile ad performance. Many of the most commonly used measurement systems over emphasis the value of the last click. This does not make sense given that studies of Facebook campaign shows that over 90% of ad driven in-store sales come from people who saw an ad but didn’t click on it. It is clear that marketers and publisher need better tools for the mobile world. This is an industry problem that we believe we are well placed to solve.
Our re-launch of Adlesse last month during AdWeek was an important early step that builds on the advancements and measurements that we have made over the past years. The new Adlesse is an ad serving measurement platform we completely rebuild. By using Facebook data Adlesse can deliver highly relevant ads regardless of device. Adlesse is also able to provide accurate measurement by connecting online marketing to in-store sales. Importantly Adlesse does all of this in a privacy protective way. Neither Adlesse, nor Facebook tells marketers who you are. At AdWeek we had productive conversations about Adlesse with many marketers and agencies. We are pleased with their interest.
We are also investing in additional piece of our ad tag platform. Our audience network improves the relevance of apps inside mobile apps. Liverail provides tools for publishers to enable personalized marketing at scale in either apps or websites. We believe Liverail can build our new success and desktop video to become a great solution for mobile publishers. I want to emphasis that the investments we are making on ad tag are long term. These are large and strategic investments. The payouts will take time but we think they provide the necessary foundation for the advertising industry to make the shift to mobile and for Facebook’s long term progress.
We recognize that by stacking engineers in strategic high tech areas we forego shorter term products’ improvement which will generate revenue more quickly. We believe these are the right decisions. As we look through our 2015 we are going to stay focused in areas that I talked about today – capitalizing on the shift to mobile, growing the number of Facebook marketers and building products that make ads more relevant. Our investments in ad tags will be an increasingly important part of all of these efforts.
Thanks everyone! And now here it is Dave.
David B. Fischer,Vice President – Business and Marketing Partnerships, Facebook
Thanks, Sheryl and good afternoon everyone! Q3 was a solid quarter across the Board. We had strong revenue grid, generated 766 Million dollars in free cash flow and continue to make investments to position our long term growth. 864 million people use Facebook on an average day in September of a 136 million from last year. This represents 64% of the 1.35 billion people that used Facebook during the month of September. Mobile continues to be the core driver of our grid. Over 1.5 billion people use Facebook on mobile during the month of September up 250 million from last year. In addition we have hundreds of millions of people on mobile using Instagram, Messenger and WhatsApp.
Turning now to the financials. Total revenue in Q3 was USD 3.2 B, up 59% compared to last year, or 58% on a constant currency basis. Total ad revenue was nearly USD 3 B, up 64% compared to last year or 63% on a constant currency basis. Ad revenue growth was strong around the world but each of our four reported geographic regions growing with 50% or more compare to last year. Mobile ad revenue was approximately USD 1.9 B or 66% of ad revenue compared to approximately USD 881 M or 49% of ad revenue last year. Desktop ad revenue was up 11% compared to last year but with flat sequentially. In Q3 the average price per ad increased 274% compared to last year while total ad impressions declined 66%.
The increase in the average effective price per ad was driven primarily by the redesign of our right hand column ads which resulted in larger, more engaging ads that delivered more value to markers and thus have higher effective prices. These right hand column ads were also fewer in numbers which drove the decrease of impressions in the quarter. To a lesser degree the shift of usage to mobile where we don’t have right hand column ads also can continue to contribute to the reported price volume trends. The price volume trends were largely consistent across our four geographic regions. Total payments in other fees revenue was USD 263 M up 30% versus last year.Our payments’ volume from games which represents the substantial majority of our payments and other fees revenue declined 2% compared to last year notably for the first time and we expect this trend to continue as desktop usage continues to decline turning that to expenses.
Note the beginning in Q3 our definition of non-gap also excludes the amortization of intangible app sets and historical non-gap measures discussed today have been updated accordingly. You can find our gap and non-gap reconciliations on page 10 of the Q3 press release. Our Q3 gap point expenses were USD 1.3 B, up 45% from last year and non-gap expenses were USD 1.5 B, up 39% from last year. Cost of revenue grew 11% on gap basis and 7% on a non-gap basis. We encoredexpenses in the Q3 of 2013 related to the transition of certain lead data centers. This mediated our cost of revenue growth in Q3 2014 as it is done in the last two quarters. Operating expenses excluding cost of revenue grew up 61% on the gap basis and 72% on a non-gap basis verses last year. Primarily due to increase in head count related cause.
We ended Q3 with 8,384 employees, up with 44% from last year. Of the nearly 1200 people we added sequentially about a quarter were from acquisition. Organic growth was high as the third quarter is our seasonally strongest new hire start period. Overall, we are pleased of our ability to attract and retain talented people who enable us to make strong progress against our mission. Q3 operating income was USD 1.4 B representing 44% operating margin, up from 37% last year and our non-gap operating income was USD 1.8 B representing 57% operating margin up from 51% last year. Interest in other income and expense was a net expense of USD 61 B in quarterversus a net expense of USD 10 M last year. This increase in expense was primarily due to foreign exchange office resulting from the periodic re-measurement of our foreign currency balances and largely resulted from the substantial reduction in the value of the euro relative to the dollar experience from the beginning to the end of the quarter.
Our gap and ungap tax rates for the quarter were 40% and 35% respectively. Gap net income was USD 806 M or 30 cents per share and our non-gap net income was USD 1.5 B or 43 cents per share. In Q3 we spent USD 482 M on capex and generated USD 766 M of free cash flow. We ended Q3 with approximately USD 14.3 B in cash and investments. This does not reflect the approximately USD 4.6 B cash payment that we made in conjunction with the WhatsApp acquisition which closed earlier this month.
Turning outlook. I would like to start by noting that my forward looking statement includes the impact of both Oculus and WhatsApp. In addition as part of WhatsApp deal we agreed to file a registration statement to register for resale the approximately USD 878 M shares issued of the WhatsApp stock holders. Nearly all of those shares will be fully registered and tradable during the open trading windows in Q4 2014 and Q1 2015 under the registration statement we plan to file later this week. In light of our recent acquisitions and our plans to file this registration statement we are providing some additional guidance this quarter including a more specifically outlook on the current quarter revenue and a preliminary view on our 2015 expenses. This is the more detailed outlook that we have historically provided or plan to provide on future earnings calls. Let me start with 2014 expenses.
We expect our full year 2014 total gap expenses including cost of revenue of stock compensation and the amortization of intangibles will grow approximately 45% to 50% versus the full year 2013. This increase from our prior range of 30% to 35% is primarily due to the impact of the WhatsApp acquisition on stock based compensation charges on the Q4. We continue to expect that our full year 2014 total non-gap expenses including cost of revenue but excluding stock compensation and amortization of intangibles will likely grow in the neighborhood of 30% to 35% versus the full year 2013. Turning now to revenue.
We expect that the total revenue in Q4 will grow in the range of 40% to 47% versus the same quarter of last year. Please, keep in mind that Q4 of 2013 was our first holiday season with the roll out of news feed ads at scalp which makes it more difficult for comparison. For taxes we anticipate the gap tax rate in Q4 will be approximately 45% to 50% which is higher than the current rate due to large non-deductible stock base compensation charges related to the closing of the WhatsApp transaction. Our Q4 non-gap tax rate should be similar to our Q3 rate. For share cap, we expect that our fourth quarter fully deluded share cap will be approximately 2.8 billion shares taking into account the shares that we issued upon the closing of WhatsApp deal. We expect that our 2014 cap tax will be at the low end of our prior USD 2 B to USD 2.5 B cap tax guidance.
And lastly while it is relatively early I wanted to provide some preliminary color of our expense outlet for 2015. As Mark discussed in his remarks we believe that we have very substantial growth opportunities in front of us and we have planned to invest aggressively to capitalize on those opportunities. As such we plan on 2015 being a significant investmentyear. Our current expectation is a total cost in expenses on a gap bases, inclusive a stock base compensation charges related to the recent transactions, are likely to increase of 55% to 75% compared to the full year 2014. On a non-gap basis, we expect total cost increase approximately 50% to 70% compared to 2014. Tax rates for 2015 should be similar to our Q4 rates on both gap and non-gap basis.
In summary, we are very pleased with the growth of our network. The great momentum we continue to see in our app business and the significant investments for making to drive near term and long term growth. We have large opportunities ahead of us and we are focused on capitalizing on those to achieve our mission and drive long term shareholder value. With that Operator, let’s open up the call for questions.
Operator
We will know open the lines or Q&A session. To ask a question press star followed by the number 1 on your touch tone phone. Please, pick up your hand set before asking your question to assure clarity. If your streaming stays cold please mute your computer speakers. You first question comes from the line of Douglas Aims from JP Morgan’s. Your line is open.
Douglas Aims, JP Morgan
Thanks for taking the questions. Dave, just follow up on the {Unclear} you just made on alcor expenses for 2015. You just help us understand more on the non-gap expenses the 50%, the 70% and where we should be thinking about the incremental dollars being spend there primarily and then secondly, you just talk, Sheryl perhaps, about where you see in terms of branded advertising? Whether you see it more as an inflection there, more bigger brands CPT companies, Auto OAMs are coming on board and how you position there for the holidays? Thanks!
David B. Fischer, Vice President – Business and Marketing Partnerships, Facebook
Sure, Doug! I will take the first part. So, we are investing where we think there is an opportunity for long term growth and that’s going to be really investing and continue to grow the talent base of the company, so we are investing in the people and that is a big part of it and we are also investing on the product side to grow the existing product but also to invest in new areas like Oculus, WhatsApp and then the App tag initiative that Sheryl was talking about. From an infrastructure side we plan to invest to support the growth of the core business. That includes things like video. It also includes things like our global growth efforts with Internet.org so we are really kind of investing across the Board on that. I guess in summary, we got, you know, the strength of the business today is really putting us in a strong position to invest smartly in the future and we are doing that.
Sheryl K. Sandberg, Chief Operating Officer, Director, Facebook
On brand we see very strong growth about our brand marketing segment. We are really excited about the engagement we are having right now with brand marketers and agencies. We think we are the first technology platform to offer the ability to do creativity and storytelling at scale in a personal way and we talk a lot with our partners and clients about personal marketing at scale, part of clients that are on different parts of the adoption curve. We have clients who are very early on and they don’t want any products or think about their ongoing messages without including Facebook and there are some for who we are not yet core and we are working on that. With all of this, we know we need to go client by client and we are especially focused on measurement because measurement is so key for this segment.
A lot of the products brand marketers are selling are bought in store and so showing that online and mobile ads lead to in store purchases is hugely important part of our strategy going forward as I talked about and video is really exciting, as well. When we think about holiday season Q4 is really important time for our clients and that makes it really important time for us and I think people are increasingly recognizing that mobile is important. 65% of people use their phones while they are out shopping and people are recognizing that opportunity. From an earnings prospective last Q4 was great quarter both because our businesses was growing but also because that was when we rolled out ads fully into news feed and so it’s worth keeping that in mind when you think about and how you think about our business going forward.
Operator
The next question comes from Ben Schachner with McCorry. Your line is open.
Ben Schachner, McCorry
A few questions. David there was no mention of 2015 revenue range but can you give us any thoughts of how much margin should compress in ’15 versus ’14? Then a couple for Mark. Mark now you spend more time with the Oculus team can you update us on how you plan for how Oculus have evolved since you first tried the device on? And then you our 10 mentioned it when you talked about year outlook. Is that mean we shouldn’t expect any consumer Oculus products in the next one or two years? And then similarly on Search you mentioned that in your 5-year plan. So does that mean we shouldn’t expect anything on the Search for the next five year?
Thanks!
David B. Fischer, Vice President – Business and Marketing Partnerships, Facebook
Hey, Ben! It is Dave. We are not really giving any guidance on 2015 revenue. We gave the gross range that we are expecting on Q4 which was 40% to 47% and that is down fro 59% in Q3 but we are not providing any specific guidance on 2015. Revenue sort of outlined the extends currents that we expect because of the substantial investment that we are making also drive of some of the acquisitions that we’ve made. So, I hope that is helpful for everybody.
Mark Zuckerberg, Chairman of the Board, Chief Executive Officer, Facebook
Schachner, on your questions about Oculus and Search, and some of the other things that we are doing. The strategy for Oculus is to help accelerating their growth. There are two products around rift on PC and their supporting IQRV and the Sampson team and building the mobile version and I am really excited about both of them. I don’t think this is going to be. It needs to reach very high scale – 50 to 100 million units before it really be a very meaningful thing as a computing platform. So, I give it is going to take a bunch of years before we get there. It is hard to predict exactly but I don’t think it is going to get to 50 or 100 million units in the next few years. That will take a few cycles of the device to get there and that is kind of what I am talking about. When you get to that scale that is when it starts to be interesting as a business in terms of developing out eco system. So, when I am talking about that is a 10-year thing, it’s building the first set of devices then building the audience and the eco system around that until it eventually becomes a business.
Some of the things like Search and some of these other products, this may sound a little ridiculous to say but for us products don’t really get that interesting to turn into businesses until they have about a billion people using them and also for Facebook we are there with news feed and that is why in the near term our priorities is really around continue to grow and serve that community and making sure that the business around news feed and those mobile ads fully reach their potential. Over a five year time frame we have a number of services which we think are well on their way of reaching a billion people. You know, Messenger, WhatsUp, Instagram and Search are a number of them.
Once we get to that scale then we think they will start to become meaningful businesses in their own right. I think the right way to think about that is to try to stay a repeatedly on these calls is not that we are going try to monetize them very aggressively in the next year or two because I really think for each of those categories the right strategy is to first focus on connecting a billion plus people and reaching the full potential for very aggressively turning them into businesses. But I do think this is such a big opportunity ahead of us. I can’t think of that many other companies or products that have multiple lines of products that are on track to reach and connect a billion people that have the clear path that how we can turn them into a business. So, that will be very fun and exciting challenge to work on over the next 5 years.
Operator
Your next question comes from Heather Bellini from Goldman Sachs. Your line is open.
Heather Bellini, Goldman Sachs
Right! Thank you for taking the question. I just had to, I guess one for Sheryl. If you could talk about, the comments she made on giving the advertisers better field for attribution, I was just wondering what percent of attribution do you find today is given to the last click and how overstated do you think that is right know? And then, just a follow up question for Dave. Given your total expense range from 50% to 70%, what are we’d seen in the past? I am just wondering how we should think about the low end versus the high end, under what scenarios you are thinking about those ranges.
Thank you!
Sheryl K. Sandberg, Chief Operating Officer, Director, Facebook
Heather, to your first question we think measurements really, really needs to evolve for the world we are in today in many ways. One of those is over emphasizing the last click and the percentages by which this is done are really, very but we think substantially across the industry are over emphasized. But there are also other problems. You know, the current measurement systems don’t work on mobile because they are largely tacky base. They are not accurate. We think they are only 59% accurate and even in the most basic demographic targeting. They don’t go offline to online. .They really works well for one person with one device, usually PC as making online purchases. The world we live in today is that everyone on stone call has multiple devices and people look at ads online and then purchase offline, as well as, you know, deserve more relevant ads and better targeting. So, as we re-launch Adlesse, we think about investing in app tag we are looking to solve all these problems and we think our re-launching is the first step.
David B. Fischer, Vice President – Business and Marketing Partnerships, Facebook
Heather, yes! And for the range of guidance it is wider. It is obviously an early view in 2015 and so consequently it is a wide range, giving you the best view that we have on it at this time and we will be updating that in the future in terms of expense guidance range we had in the past on an annual basis each quarter. So, either the big drivers will be things like the pace of hiring or the success we had in building the great teams that we want to build Facebook but we will be updating that as on and off basis.
Operator
Here is the next question. It comes from Eric Sheridan from UBS. Your line is open.
Eric Sheridan, UBS
Great! Thanks for taking the questions! Mark, you made comment about public contents and the way that’s evolved on Facebook. Love to get deeper thoughts there. What do you think a content distributions for develops on Facebook over the longer term? And then one for Sheryl. With the ad tag acquisitions and loop shoots made over the last year to two, I wanted to know when you think we should be looking at ad texting fully deployed in the market place and what sort of returns might generate from Facebook?
Thanks!
Mark Zuckerberg, Chairman of the Board, Chief Executive Officer, Facebook
Sure. Well, I can start talking about public content. So, historically a lot of people use Facebook for sharing moments of their lives with their friends and smaller sets of people, right. So, we have Messenger for one to one communication, group side just reached 700 million monthly active this quarter and then news feed which is kind of the primary thing that people are using to share with all their friends at once. And one of the big things we are looking at this eco system – thought is a big opportunity is the public content. It is content which people are either comfortable of sharing with everyone or want to consume that is public and shared with everyone. So, we are looking at a few public areas.
Video is a very big priority, news is a very big priority because a lot of people want to share that on Facebook already and enabling public figure whether they are celebrities, athletes or actors, or politicians, or leaders in different kind of communities to get on Facebook and use the platform to distribute the content they want. So, those are the three areas that you will probably see investing the most in over the next year. So, we are making a lot of progress and I shared some of the stuff before but we are very proud of what we are doing and we will have more to report then.
Sheryl K. Sandberg, Chief Operating Officer, Director, Facebook
On a tag, I think we are in the middle of what is very fundamental shift from marketing that is cookie based on a PC, one desktop, to people based marketing on multiple devices, to marketing that is primarily for online sales, to marketing that affects both online and offline sales on mobile. So, decor right now in a pretty big shift and we are not close to fully deploy there. We have a lot of pieces to do. Our Adlesse 3 launch is new where we are first growing our client base and we are pleased with our progress there and we are putting those other pieces on place on audience network or eyebrow. So, I think we are pretty far of being fully diploid on even this big shift. But I think in our industry nothing is ever fully diploid, that as soon as we catch up here there is going to be another movement and something else that happens we have to react to and build the technology for. We are long term company, run by a founder with a very long term vision and we want to keep our eyes ahead on these changes in technology and keep deploying the answer.
Operator
Your next question comes from Ralph Sandler from Deutsche bank. Your line is open.
Ralph Sandler, Deutsche bank
Thanks! I have two questions – one for Mark and then a group one for Dave. Mark, I don’t I heard you mention payments in the 3, 5, 10-year plan. There’s been some speculations of payment offering within Messenger. Can you give us a sense of high level of what you envision Facebook potentially doing in the payment space longer term across merchant payments, consumer products like sending and lending or peer to peer and the how do you see social interaction tied in with payments evolving? Does Messenger make payments then what’s out there on the market? And then Dave just a clarification. So, the high end of Q4 revenue guidance seems a pretty sure drop off even normalizing for some extra currency hit. So, are you seeing anything there that makes you concerned about pacing into the quarter or is it largely business as usual or is just a tougher love large number situation?
Thanks!
Mark Zuckerberg, Chairman of the Board, Chief Executive Officer, Facebook
I will start on payments. So, payments is an important part of online business eco system but we’ve traditionally thought about this is something that we are going to partner with other companies on to enable great solutions rather than trying to compete and o it as a business ourselves. The reason why we are taking this approach is it is very important for all online businesses and our customers and partners that there is a good online payment system. I mean, people run ads to get customers and sell products and in the end of that conversion if there is good payment system that is smooth then people will buy more things which ultimate makes the ads and the whole online flow more valuable for those partners and therefore more revenue in profit for our business as well. We view the ad part of the business as a more efficient part of the business then payments itself.
Payments tend to be fixed fee because of the auction model there is really good price discrimination build in so a partner or businesses who are willing to pay us 30% of their revenue can bid that and someone is willing to only 5% can bid that and the auction model currently takes care of that. So, we think focusing on the ad part will end up to be the more effective thing for us to do but we realize that it is important for our partners to be a payment system which is why we are excited about partnering with credit card companies and partnering with PayPal and all of the different approaches of online payments to make their solutions as good as it possible, as well.
David B. Fischer, Vice President – Business and Marketing Partnerships, Facebook
Hey, Ralph! It is Dave. Just, you know, our view now is our Q4 revenue will come in that 40% – 47% every year – growth range. You know, as I mentioned Q4 2013 was absolutely fantastic quarter for us. We had news feeds rolled out at scale. It was our first billion dollar mobile quarter, so we are competing again just a really outstanding quarter last year. That is really the largest issue. You asked about currency. We did see the euro drop about 7% value over the course of Q3 and that really didn’t pick up, as you saw it, didn’t pick up an impact in Q3 at all because it happened at the end of the quarter. So, that will be ahead when we see that is factored into the guidance.
Operator
Your next question comes from Mark Mahoney from Abc Capital Markets. Your line is open.
Mark Mahoney, ABC Capital Markets
Great! Sheryl you talked about being careful and slow in rolling out the video ads, autoplay video ads and Instagram monetization. Have you seen any push back in terms of user experiences to date on video or video ads? Is that overall caution or is anything that you’ve seen in the data that suggests you want to keep it in that really slow pace?
Thank you!
Sheryl K. Sandberg, Chief Operating Officer, Director, Facebook
We are pleased of the consumer response we had on both friends and we remain really optimistic over the long run about Instagram and video because there is a lot of interest. I spoke about before about creative storytelling, images, video can be such a big part and you create a really resonant experience for brands and companies. We really believe in going slow that as we grow products we pay attention to consumer experience. We want the consumer experience always to come first so although we are very optimistic about the opportunity here we continue to go slowly and pay a lot of attention to the quality of the advertising we see. To share one example we are seeing people using both Facebook and Instagram and also video and other apps, products and combinations. Mercedes Benz launched the GLL which was their first compact SUV on Facebook and Instagram and they found that by doing Facebook and Instagram together they got a 54% increase in their website visit. So, a lot of our products as you do one you also do more Facebook ads, as well and that is something we are paying a lot of attention into.
Operator
The next question comes from Paul Vogel with Barclays. Your line is open.
Paul Vogel, Barclays
Great! Thanks so much! I just wanted to talk a little bit about the engagement size. DAU and MAU continue to be very strong. Can you just sort of maybe talk about your older co-words versus the new cowards and how they behave? And then also geographically and on top of that on the frequency side DA used as a measure how often people come back more than once per day. So any update on increasing frequency of visits?
Thanks!
David B. Fischer, Vice President – Business and Marketing Partnerships, Facebook
I don’t think anything to update on the latter front Paul but the DAU to MAU ratio which we focus on our engagement was strong across all geographic regions. So, you know North America remains the high end and we are really pleased with what we are seeing there. Nothing to update on co-words.obviously we are really pleased with what the mobile impact has on the DAU to MAU ratio and we are really encouraged about what we are seeing across the board on engagement. So, I don’t see anything other than that specifically to call out.
Operator
The next question comes from Mark May with Citi. Your line is open.
Mark May, Citi
Thanks! For the last couple of years you’ve back on our bags for sure guidance. For that last couple of years you’ve current your cash up bags for around a billion a year with some consistency and I think that this seems to be continuing in this cycle of the year but obviously your mid-point guidance, our bag for the next year represents a very significant, I think it is 2.5%, USD 2.5 B increase at the mid-point. You are obviously plan to change the level of investments into something quite significantly. Just wondering if you could talk a little bit more specifically about what a couple other projects with capital intensive, you know, projects that you are planning for the next year. And then, is it physically possible to accelerate your highlight to that much at share?
David B. Fischer, Vice President – Business and Marketing Partnerships, Facebook
Yes, thanks Mark! You know, the projects, rely, that both Mark and Sheryl outlined in terms of continuing to invest in the core Facebook experiences, growth engagement and monetization, building the app tag side and the investments that we want to make there as well as the recent, you know, continue to invest against the recent acquisitions that we made against WhatsApp and Oculus. So, it is really the investments that we are making there. We are also going to support Global Growth with our Internet.org initiative investing there so a number of them. And key initiatives that Mark outlined in his comments that we are investing against and again we are giving a range of what we think are a reasonable range of guidance on that. And then we saw head count. We had a good grip of our head count office this quarter and we are going to be continuing to invest as we think whose will be good investments of the long run in terms of being able to draw our long term growth.
Operator
The next question comes with John Blackladge with County Company. Your line is open.
John Blackladge, County Company
Great! Thanks! Just a couple of questions on video. How should we think of Facebook as a video platform and how does the mix between user generated versus public content versus professionally produced content evolve over time and for example the upcoming short film content produced by Lions Gate around the Twilight franchise that will be shown exclusively on Facebook. Will that be the content Facebook users will see in the future? And then if you could just give an update on the Instagram monthly active user content that will be great. Thank you!
Mark Zuckerberg, Chairman of the Board, Chief Executive Officer, Facebook
I can speak of the video point. I think it is going to be all of the above in terms of what you said. You know, most of the content on Facebook is things people are sharing with their friends and people around them so we will continue to see that in video as well as this definitive trend over the last five years where if you go back five years most of the content was text now a lot of it is photos and if you look in the future as networks get better and the ability to capture good video and share it in a good way improves them. I think that going forward of all the contents people share will be video is very compelling. There is also a lot of great public content that is video especially the shorter form content that you are mentioning I think it will fit very well on to the feed form factor that people consume on Facebook. So, I think we are going to see a lot of both of these things and it is going to be a revolution over the next few years but I think you can expect to see a ramp of all these.
David B. Fischer, Vice President – Business and Marketing Partnerships, Facebook
And on Instagram we have update on numbers and they continue to grow nicely but we haven’t new public number on Instagram
Operator
The next question comes from Justin Post with Merrill Lynch. Your line is open.
Justin Post, Merrill Lynch
Thanks! Mark it seems like you are taking portfolio approach to apps and you’ve got several different experiences for people on mobile devices and other devices. Can you give us your philosophy around that and as people use things like WhatsApp and Instagram is it actually maybe possibly hurting Facebook’s reported metrics and how do you think about putting this all together and helping every, every path kind of work?
Mark Zuckerberg, Chairman of the Board, Chief Executive Officer, Facebook
Sure. So, one of the things that is happening on mobile is that there is an increased focus for apps to do one thing really well. So, on desktop a lot of the things that might have fit well and to a single Facebook website now are in order to pass people you need to build multiple standard on different apps. So, we are seeing that with Facebook and Messenger and the work that we did to kind of split Messenger from the Facebook to give a dedicated experience on that that we think is a better experience and we are going to do more than that in the future as well as the Facebook crib apps products that we are releasing. Part of what we’ve seen is that the use cases for products like Instagram and WhatsApp are actually more different in new on than the products that people compare them to that Facebook had already build.
So, for example on the WhatsApp and Messenger side Messenger is primarily used today for people to chat with their Facebook friends within this context of maybe it is not like a real time text, like you would send an SMS on your phone but somehow you are sending it to one of your Facebook friend if it happens to be there then you can text back and forth or maybe they will respond later. SMS and WhatsApp are more for kind of real time activity. People have contacts on WhatsApp who they wouldn’t want to make friends on Facebook, the graphs are somewhat different. So, some of the things we found interestingly to us as well was that Messenger and WhatsApp were actually growing quickly in a lot of the same countries.
I mean, there are countries that they are growing and they are different and there are growing in that they are the same which to me suggest that they are actually in more different markets than you probably intuitively would have thought and that was definitely was our understanding as we dug more into this. Same is with Instagram and the cut type of sharing that happened on Instagram versus News feed. We’ve recently started doing more to help promote and accelerate the growth of Instagram from the Facebook app itself because what we found is that by doing that our net worth growth increasing the amount of sharing people can do and connecting that they can do with our whole family of apps. So, we are definitely seeing this is all a creative and positive and we think that in the future there will probably be room for more apps for sharing as well.
Operator
The next question comes from Anthony DiClemente with Nomura Securities. Your line is open.
Anthony DiClemente, Nomura Securities
Thanks a lot! First for Sheryl. I want to just come back to the theme of media measurement . You gave us some good prospective. Can you help me first party data versus third party data. Can you get where we need to go with brand marketers using your in-house tools like Adlesse or you know. Do you think you need validity and integrity of third party measurement source Nealson in order to get there? And then second question for Mark. Mark, I was just wondering where you see Facebook in this point in terms of its place in the hardware eco system given so much time spending your apps do you think it is possible that you can get more aggressive in devices, in hardware in order to achieve some of the longer term or 10 year goals that you laid out?
Thank you!
Sheryl K. Sandberg, Chief Operating Officer, Director, Facebook
Your first question. Data is really important for both measurement and targeting and when you think about first party and third party data you have to think about both of its usage. Currently with measurement, third party verification of that data can be very important. A lot of our largest clients and agencies built their own data systems which are very important part measuring and kind of certifying everything we do with them. So, we are using a combination of first party and third party. I think where this really gets interesting is around relevance and as I talk about as a major theme for us we think it is one of the best things we can do to drive more value for marketers and to improve consumers’ experience on Facebook.
Data is a great way of doing that. For example with custom audiences. Custom audiences is a combination of our clients using the data they have on their client base combined with that data we have, that we can target. Let’s say target one ad to existing customers to get them to engage more and buy and one ad to bring new customers and you can see how having a different ad to people that have never bought your product and a different add to people who are currently buying your product would make a lot of sense. And then you look at something like look alike audiences where we are looking to map customers to share their characteristics – age, demos, likes, interests with current customers. And all this takes a combination of first party and third party data all of which we do in a very privacy protective way.
Operator
The next question comes from Stephen from Credit Suisse. Your line is open.
Stephen, Credit Suisse
So, Sheryl from a product development prospective it feels like from the outside looking in that you have accelerated to roll the delivery of various products. So, I was wondering how are you thinking of higher product delivery cadence will change especially given the investment shift prior to 2015. Thanks!
Mark Zuckerberg, Chairman of the Board, Chief Executive Officer, Facebook
Before we get into that I will quickly answer the hardware that I wasn’t given the chance to answer on the last session. We actually do more with hardware than it is apparent because we design with folks to build up all our data centers there. So, I think if it ever becomes the right thing for us to focus on from a product prospective we have some of the skills there already. When we were thinking working with Oculus that is actually one of the areas where we can help because we’ve build a supply chain team and we’ve been pretty effective at delivering. What we needed to run Facebook is this large system at scale. But I think there is huge amount of value in delivering these network and software services and that is where you should expect us to focus on the things that we’ve talked about.
Sheryl K. Sandberg, Chief Operating Officer, Director, Facebook
At the question about the role out of products. I think the usual way we do things is that we roll products slowly and then we elevate. So, one example is custom on aces and roll out custom on aces and then with add that website custom audiences to target at to people who use websites and the mobile app custom audiences. As to people who visited mobile apps and one is building on the next, building on the next. Similarly this month, earlier this month we launched local awareness targeting. It is a new option that allows local business to reach nearby customers and what we saw there weren’t a massive launch. It was a small launch. We enabled this targeting, get people to use it and we will develop it. Then, there are these options such as Adlesse. Adlesse was one big launch that we are still on the process of doing and that is really because it is a product we bought and needed to rebuild. But for the most part our product development tends to be very adverse and that’s what you can expect from us going forward.
Operator
The next question comes from Yusuf Qawwali with Kentor
Yusuf Qawwali, Kentor
Thank you very much! Mark you recently came back from China. How do you think about that opportunity and what gives the confidence that you can actually be successful where so may have failed and then second on Instagram we’ve seen some very complimentary data that shows that Instagram is actually becoming more popular than ever with some brand marketers.just wondering what are the best performing apps formats on the platform right now and where is the ad load versus where Facebook is?
Thank you!
Mark Zuckerberg, Chairman of the Board, Chief Executive Officer, Facebook
Sure. So, on China we were already doing more in China than I think a lot of folks think about and a lot of Chinese businesses use Facebook to grow their export businesses and help find customers around the rest of the world and grow the Chinese economy there. So, that is actually a pretty meaningful thing for us already and we always are looking to find ways to help businesses around the world to grow. And that will be just for long term sake.
Our approach to China and all these and every country is very kind of long term. We are going to be here for decades and we want to create good relationships these countries and businesses around the world that will help and grow over the long term. On the Instagram side I think we are pretty early. There have been a number of good ads both video and images that I think have been pretty effective but it is very early in the gross phase at this point thus top priority for Instagram is to grow from 200 and more and eventually connect billion or more people and I think that is something that should be possible and that’s what i am really focused on and excited about while we started building out some of the parts of the business as well.
Sheryl K. Sandberg, Chief Operating Officer, Director, Facebook
Operator, we have time for one last question.
Operator
Your last question will come from Scott David with Stiffo. Your line is open.
Scott David
Hi! Thanks! I think this question is for Sheryl. The app download business seems to grow quickly and become big contributor of the ad revenue total for Facebook. Just wondering how you think about app engagement relative to app downloads and which of those is the larger turn out opportunity for the company? Thanks!
Sheryl K. Sandberg, Chief Operating Officer, Director, Facebook
I am glad you asked the question because I think there has been some confusion around our mobile apps and our mobile ads and our mobile app engagement apps. So, on the engagement ad is it still pretty early and we have rolled those out. We rolled those after mobile assets so we definitely see less of them but we two think there is an opportunity. I think the broader point is that our growth in mobile apps is very broad based. It is across all marketers’ segments and it is across all pf our different ad formats that we talk about our mobile ad business growing, mobile assets are small part of that as growing in line with our total business. The other thing that I think people get a little confused about is who is using mobile assets.
I think commonly when you think about mobile assets people often think about developers and developers are using them and we are pleased that we are able to help them grow but they are also being used by some of the largest branders and marketers. For example Burger King. Burger King has just used our mobile assets to add install for their app. And the app was to find Burger King look at their menu and nutritional options, use mobile coupons and use of virtual gift cards. That was one use of mobile assets not what people typically think of.
Alright. Thank you for joining us today. We appreciate your time and look forward to speaking to you again.
Operator
This concludes today’s conference call. You can now disconnect.
