Below is transcript of the Facebook Inc (NASDAQ:FB)’s Q4 2014 Earnings Conference Call, held on Wednesday, January 28, 2015 at 5:00 pm EST. Srs Investment Management, Ibis Capital Partners and Tekne Capital Management was among Facebook Inc (NASDAQ:FB)’s shareholders at the end of the third quarter.
Facebook Inc (NASDAQ:FB) is a social networking website company. The Company provides Facebook’s websites and mobile applications enabling customers to stay connected with their friends and family. The Company’s business focuses on creating value for users, marketers, and developers. The Company supports developers to build, grow, and monetize mobile and web applications.
Host:
Deborah Crawford – Vice President of Investor Relation, Facebook Inc.
Company Representatives:
Mark Zuckerberg – CEO Facebook Inc.
Sheryl Sandberg – COO Facebook Inc.
Dave Waners – CFO Facebook Inc.
Analysts:
Heather Blain – Goldman Sachs
Eric Sheridan – UBS
John Blacklidge – Colin
Justin Post – Merrill Lynch
Ben Swinburne – Morgan Stanley
Peter Stabler – Wells Fargo
Anthony Decramins – Wimnora
Colins Sebastian – Robert Berreck
Carlos Gressioner – Bernstein
Paul – Barkley
Robert Pack – SunTrust
Arwin Bechio
Brian Wiser
Ross Sandler.
Operator
Good Afternoon, my name is Courtney and I will be your conference operator today. At this time, I would like to welcome everyone to the Facebook fourth quarter and four year 2014 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers remarks, there will be a question and answer session. If you like to ask a question during that time, please press * then the number one on your telephone keypad. Thank you very much. Miss Deborah Crawford, Facebook vice president of investor relations, you may begin.
Deborah Crawford, Vice President of Investor Relation
Thank you, good afternoon and welcome to Facebook’s first quarter earnings conference call. Joining me today to talk about our results are Mark Zuckerberg – CEO, Sheryl Sandberg – COO and Dave Waners – 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 fourth in today’s press release are an report on firm ten K and the most recent quarterly report on firm ten Q filled with the GSCC.
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 then the company presenter information are available on our website at investor.fb.com. And now I like to turn the call over to Mark.
Mark Zuckerberg, CEO
Thanks Deborah and thanks everyone for joining today. This has been a great quarter for Facebook and a great end for the year. Our community continued to grow in size and engagement and we are very pleased for the growth of our business. Overall, 2014 was a year of great progress for the Facebook community. 1.39 billion people now use Facebook each month and 890 million people daily. An increase of an 165 million monthly actives and an 133 million daily actives this year. Time spent per person per day across our services continued to rise growing this quarter by more than 10 % compared to last year. And that doesn’t even include Whatsapp which joined us by last year. These milestones show that our community continues to get stronger. It’s not just our community were we have met a lot of progress. 2014 was also a year of big investments in our future.
This year we made big invest on the next generation of communication and computing platforms by acquiring Whatsapp and Oculus. We focused on serving our community better across all of our products raising the quality and relevance of content and newsfeed, improving our search and video products and improving the performance and efficiency of our mobile apps and we continue to invest in our employees and infrastructure growing our head count by 45% this year and opening our newest data center in November in Altoona, Iowa. When you consider the progress of our community and our investments, 2014 was an important year for us and a good sign of how we are thinking about the future. In the next decade, Facebook is focused on our mission to connect the entire world welcoming billions of people to our community and connecting many more people to the internet through internet.org. To serve the entire world, we need to build products that serve our community and allow people to share different types of content with different audiences. We need to offer new services and infrastructure at greater scale, but we need to create new tools and innovate to solve fundamental challenges in the places we want to connect. During this will take a lot of effort over the coming years and Facebook is going to have to evolve. Similar tour transition to mobile over the last couple of years, now we want to really focus on serving everyone in the world. Our mission has always been to make the world more open and connected. This is something we have been preparing for over the last decade. Everything we have achieved in 2014 and over the last 10 years has helped us to build the foundation for a future of greater scale. I am excited for our progress in 2015. Now with that in mind, I want to talk about the figures we expect to execute on over the next 3, 5 and 10 years.
Over the next three years, our main focus is to continue to serve and grow our community by delivering better services for people and businesses around the world. One side of our continued growth and engagement is our progress on visual and public content. More than 2 billion photos are now shared daily across Facebook, Instagram messenger and Whatsapp. Video grew significantly this year to an average of more than 3 billion video views per day on Facebook. But we now have more than 2 billion interactions every week on Facebook between public figures and their fans. Instagram is also growing in helping people share and consume the most engaging content in different communities across the world. Instagram reach 300 million monthly actives with more than 70 % outside of the US. Average time spent using the app continues to be very strong compared to other mobile services. Across Facebook and Instagram we have done a very good job on engagement, a special one comes to helping people find and consume content they like.
In 2015, we will continue working on this as well as developing more ways for people to share even more of their moments they care about on Facebook. Five years ago, most of the content showed on Facebook was text and some photos. Today it is primarily photos with some text and video. Over the next 5 years, we want to keep developing new products and features to help people share the way they want. When it comes to serving businesses, we have continued to help drive results for businesses of every size around the world. Last week, a deloitte report found that in 2014, Facebook created more than $225 billion of global economic impact and 4.5 million new jobs. This is an important reminder of the big opportunity we have to create value for businesses and while we are committed to serving them well. In 2014, we invested aggressively in improving our Adtech and measurement tools, we are going to continue in working to provide new capabilities for marketers. Sheryl will talk about this more in a moment.
Next, lets talk about our efforts over the next 5 years to build the next generation of Facebook services. We expect Whatsapp and messenger to connect hundreds and millions of more people and become indispensable services for the world as well as important contributors to our business. Messenger and Whatsapp recently achieved impressive new milestones. In November, messenger reached 500 million monthly actives and at the beginning of January, Whatsapp reached 700 million monthly actives with more than 30 billion messages sent each day. These numbers speak to the quality of both products and the size of the opportunity ahead to help billions of people communicate and collaborate. Search at Facebook is another important effort that we expect to create a lot of value over the next few years. In this quarter we launched updates to Facebook search to make it easier to find content and posts on mobile and desktop. We are going to continue listening to feedback from our community and taking the time to build a really valuable product here. We are optimistic about our ability to deliver value that only Facebook is able to provide.
Working with developers is the other part of our strategy. In this quarter, we continue to make progress to helping developers build, grow and monetize their apps. In October, we rolled out our audience network around the world and since then, the number of apps in the network has nearly tripled. An impression served by the network has more than quadrupled. In 2015, we will continue to build upon our long term goal of making Facebook a truly cross platform platform that allows developers to share their work across every major mobile platform and we look forward to sharing more details at our next essayed event at San Francisco this March.
Finally, let’s talk about our plans over the next decade to connect everyone to the internet through internet.org and to develop the next generation of computing platforms with Oculus. Internet.org now has a lot of momentum. We have launched free basic internet services in Zambia, Tanzania, Ghana, Kenya and Columbia. More than 150 million people living in these countries now have the option to connect to the internet using internet.org. We have already connect 6 million of them to the internet who didn’t have access before. We are very excited by internet.org‘s progress and the level of interest we are seeing across industries, governments and our community. 2015 is going to be an important year for our long term plans and I expect us to share more updates about our progress year over the coming months.
Oculus continues to make progress towards the future of immersive experiences that are part of daily life for millions of people. This month the team had another good showing in CES and develop our interest in Oculus platform continues to grow. So that’s my update for this quarter, it’s been a good quarter and a good end to an important year for us. I want to thank everyone on our Facebook community and our employees, our partners and our stockholders for their support. Thanks to you our community is growing stronger every day and are making progress in making the entire world more open and connected. Thanks and now here is Sheryl.
Sheryl, COO
Thanks Mark and Hi everyone. We have been strong across the board having a great year. This is our first quarter with over three billion in ad revenue and over two billion in mobile ad revenue. Our q4 ad revenue grew 53 % year over year, our mobile ad revenue grew 69% of the total ad revenue and doubled in the past year. Our growth is strong across all verticals of marketers segments. We also saw healthy growth around the world although growth rates outside the US were affected by exchange rates.
Looking back at 2014, our teams made great progress on our three main priorities, capitalizing on the shift to mobile, growing the number of marketers using our ad products and making our ads more relevant. We believe that the marketing increasing understands that we have the leading mobile ad product and are the only platform that delivers people based marketing at scale. The shifts in mobile is changing the way people consume video. As Mark said, video grew dramatically on Facebook in 2014 especially around global events like the world cup and the ALS ice bucket challenge. In just one year, the number of videos post per person on Facebook increased 75 % globally and 94% in the US. Today, over 50 % of people in the US who come to Facebook daily watch at least one video per day and globally over 65 % of Facebook video views occur on mobile. Marketers have followed this trend and are using video to help people discover and learn about their brand. In q4, we expanded auto play video as internationally. During the holiday season, we saw many clients telling us stories creatively through video. 2014 was also the year we began scaling Instagram apps. In Q4, we rolled out Instagram apps in Australia and Canada. Marketers are excited to have access to the 300 million people who use Instagram and the creativity it inspires for seeing beautiful, creative and great results from brand marketers across verticals. From insurance and text to app from retail to entertainment for example as one of our first Instagram video advertisers, Banana Republic developed a series of videos to promote its new VR clothing line. The videos showed fashion sketches from the new collection and over 23 point left in ad recall. While it’s still early and we are being delivered in our app, we believe that Instagram will become core to advertisers mobile brand building efforts.
We also made progress growing the number of marketers using our ad products. Custom audiences are speed of proprietary targeting products has become an essential tool for segmenting current and potential customers. Conversion tracking away from marketers to measure the impact of their campaigns online is also seeing writer adoption. We have made it easier for businesses of all sizes to plan and manage their ad campaigns and for small businesses to use our targeting tool. Travel Company, Thomas Clark recently used Facebook in Belgium to reach a broad audience and used custom audiences to send targeted messages to existing customers based on the places they expressed interest in. They reached 30% of the Belgium population in just 1 day and achieved a 3.85 times a return on investment. Results like these are attracting more marketers of all kinds to our platform.
Finally, we made great progress in improving ad relevance and measurements. To do this, we made significant investments and build our core measurement and targeting tool as well as ad tech. Earlier in 2014, we introduced ad buying capabilities based on reaching frequency matrix which is similar to how brand marketers buy tv ads and therefore enable better cross comparison. We improved our ads manager product to give better insights into ad campaign for audience and impact. In the fall we relaunched Atlis to help marketers reach real people and measure results across multiple devices. [Unidentified Company Name] was our first global client and this month we announced a partnership with Avast to further expand globally. We also invested in audience network which helps marketers extend their campaigns that of Facebook and Livewire which provides publishers with video tools to monetize their inventory more efficiently.
Heading into 2015, we are excited to build on the progress we have made with our core ad product as well as with newer areas like video, Instagram and Adtech. It’s still early days in all of these efforts, there is a lot of hard work to do and we plan to invest aggressively. Our ultimate goal is to be a critical business partner to our clients providing people based marketing at scale to build their brands and move their products off shelf. Over the past two weeks, I have had a chance to meet with many of our largest global clients and agency partners and talk about how we can drive real business results for them making every impression count and every dollar they spend improve their bottom line. Our clients here are excited by the opportunity to use video, Instagram and ads on and off Facebook to reach the right people with the right message. In turn, other ads become more relevant, we provide a better experience for the people who use Facebook.
Coming up is our biggest year ever, I want to say a special thank you to the Facebook teams around the world, to our global sales engineering, product designing and infra structure team. Your accomplishments over this past year are the reason our business is in such a great place. To our entire company, I feel lucky to work with you as we stay focused on our priorities and work together to help connect the world and to our clients. Thank you for your partnership and your trust in us. Heading into 2015, we have big opportunities and a lot of work ahead. Thanks and now here is Dave.
Dave, CFO
Thanks Sheryl and good afternoon everyone. Q4 wrapped up a strong year for Facebook. In 2014, our revenue grew 58% to approximately 12.5 billion dollars and we generated over 3.6 billion dollars in free cash flow. We are very pleased with the continuing growth of our network. In December, the number of people using Facebook on an average day increased by 18% compared to last year to 890 million. The daily number represents 64% of the 1.39 billion people use Facebook during the month. Mobile remains the primary driver of our growth. We ended the year with 1.19 billion people using Facebook on mobile in the month.
We also continue to see solid growth with Instagram, messenger and Whatsapp recently crossing 300 million, 500 million and 700 million MAU respectively. Turning now to the financials, all of our comparisons are on a year over year bases unless otherwise noted. In addition, as a reminder, our non gap measures excludes stock based compensation and the amortization of intangibles. Total revenue in Q4 was 3.9 billion dollars up 49% or 53% on a constant currency basis. Given how significantly exchange rates have continued to move, we anticipate that this currency head will increase in 2015. I will give more color on this later in the call. Ad revenue was 3.6 billion dollars, up 53% or 58% on a constant currency basis. Mobile ad revenue in Q4 doubled to 2.5 billion dollars or 69 % of ad revenue compared to approximately 1.2 billion dollars or 53 % of ad revenue last year. Desktop ad revenue was up approximately 1% despite the fact that overall desktop usage was down. In Q4, the average price per ad increased 335 % while total ad impressions declined 65%.
Similar to last quarter these price volume trans were primarily driven by the redesign of our right hand column ads which rolls out in the third quarter. Total payments and other fees revenue was 257 million dollars, up 7 %. Note that the growth was driven from revenue by acquisitions made in the past year. On an organic basis, payments revenue from games, which represents the substantial majority of our payments and other fees revenue declined 10% compared to last year. As previously noted, we expect this trend to continue as desktop usage declines. Turning now to expenses, our Q4 total gap expenses were 2.7 billion dollars, up 87 % and non gap expenses were 1.6 billion dollars up 50%. Gap expense growth was driven primarily by significant stock base compensation and amortization expenses related to the Whatsapp acquisition. Non gap expense graph was driven primarily by increases in head count related cost, cost of revenue and marketing expenses. On a full year basis, our 2014 gap expenses were 7.4 billion dollars, up 47% and our non gap expenses were 5.3 billion dollars, up 34%. We ended the year with roughly 9200 employees, up 45%.
Overall we remain very pleased with our ability to attract and retain top gear talent. Gap operating income was 1.1 billion dollars in Q4, representing a 29% operating margin, down from 44% last year, again primarily due to expenses related to our recent large acquisitions. Non gap operating income was 2.2 billion dollars in Q4 representing a 58% operating margin, consistent with the margin last year. Interest in other income and expense, was a net expense of 19 million dollars in Q4 versus a net expense of 3 million dollars in Q4 last year. This increase in expense was primarily due to foreign exchange losses resulting from the periodic re-measurement of our foreign currency balances during the period. In Q4, we benefited from the reinstatement of the R&D tax credit. Our gap tax rate was 37%, but would have been approximately 42% excluding the benefit of the tax credit. Our Q4 non gap tax rate was 31% and would have been approximately 32% excluding this benefit. Q4 net income was 701 million dollars or 25 cents per share and non gap net income was 1.5 billion dollars or 54 cents per share. In 2014, we spent 1.8 billion dollars on Capex and generated over 3.6 billion dollars of free cash flow. We ended 2014 with 11.2 billion dollars in cash and investments and a net operating loss carry forward of approximately 4.5 billion dollars. Turning now to the outlook, let me now start with revenue. We are still in the early stages of building out many aspects of our apps business and we remain optimistic about our long term opportunities.
Looking at 2015, there are couple things I want to know. The first involves how the recent movements in exchange rates might impact our 2015 revenue. Assuming exchange rates were to remain constant at today’s level, we would expect that our total revenue in 2015 would be approximately 5% lower than it would be under 2014 exchange rates. Note this 5% represents the expected reduction in 2015 total revenue, not the reduction in the year over year growth rate. And second, we were recording revenue from Atlis, live real and the audience network on a net, not a gross basis. So, the growth in those products will have less of an impact on our overall reported revenue growth in 2015. Turning now to expenses, we are tightening are ranges modestly given the better visibility into 2015 spending. We expect that a full year 2015 total gap expenses will increase 55 to 70 % compared to 2014. We expect that our 2015 total non-gap expenses will increase 50 to 65 %.
A simple way of thinking about our investments across three categories, people, product and infra-structure. On the people’s side, we entered 2015 with 45 % more employees than we did a year ago and we will continue to invest in and grow the talent base throughout the year. In terms of product, we are investing to build great experiences for people, marketers and developers ranging from our existing products and services to newer initiatives such as ad tech, internet.org and Oculus and Whatsapp. We will also invest in marketing to support all of these initiatives which is I noted was a driver of expense growth in Q4. Turning to infrastructure, we continue to build out our global infrastructure to enable billions of people around the world to connect, message and share with each other.
We will be investing in data centers, our network and servers to grow our existing services and support newer initiatives such as video and our global connectivity efforts through internet.org. We anticipate our 2015 will be in the neighborhood of 2.7 to 3.2 billion dollars. We expect stock based compensation for 2015 to be in the range of 3 to 3.3 billion dollars, approximately half of which is related to our prior acquisitions most notably Whatsapp. We expect amortization expenses for 2015 to be approximately 700 to 800 million dollars. And finally we anticipate our Q1 and full year 2015 gap tax rates to be in the mid to high 40’s and non gap rates to be in the mid to high 30’s. In summer, a Q4 caps off a great year for Facebook in which we executed well and also made very important investments for our future. In 2015, we are focused on continuing to execute on the business and investing in our long term mission and success. With that Courtney, let’s open up the call for questions.
Operator
We will not open the lines for a question and answer session. To ask a question, press * followed by the number 1 on your touch tone phone. Please pick up your handset before asking your question to assure clarity. As well if you are streaming today’s call, please mute your computer speakers.
Your first question comes from the line of Heather Payne with Goldman Sachs. Your line is open.
Heather Payne, Goldman Sachs
Great thank you, I just had two quick questions, Sheryl or Mark I was just wondering from a brand advertising perspective, is there a way you could share with us how your conversations with these advertisers has been trending over the past 12 months, how they have been evolving and kind of what they are, how they are thinking about the video opportunity and then Dave, I just wanted to follow up on your question about total expense guidance because in the past you have given a 5 point range. I believe for total expenses in this year its 15 granted you did tighten it which we appreciate and just wondering the parameters around, you know how we think about the low end versus the high end.
Sheryl
It is a great time for the brand question because over the past few weeks that spent a lot of time kicking off 2015 with our largest agency partners and largest clients. And I would say that people remain really excited about Facebook but people are bigger believers because we have had an opportunity to do more measurement over the past year. I think there are two things about the Facebook platform that are really exciting for brand marketers. The first is the creativity and storytelling and certainly as you have mentioned videos are a big part of that because video is a format that marketers have used for a long time to build an emotional connection to brands and the second is measurement. And what clients want and what they should want is an ability to look at their ad spend and see how effective it is not just in the brand list matrix, even though those are important, but in moving products off shelf. And over the past year and a half, the investments we have made in building out that measurement has paid off, so when I sit down as clients at the beginning of this year compared to last year, we have more actual case studies of marketing we have done with them, we have been able to a/b test you know Facebook ads vs no Facebook ads and what the effectiveness is on their sales and I think across the board we are showing very healthy and very competitive ROI.
The opportunity and challenge now Is to scale, even for our largest clients globally we still represent a really small part of what they do and so it’s on us to prove to them that the results we are showing them in these smaller tests can happen in more brands more countries that are the larger part of their business.
Dave
Hi heather its Dave, so just following up on that where we land in the range of guidance on expenses will depend on a number of different factors it’s going to depend on how successful we are at hitting our recruiting goals, how much we ramp in areas like marketing how quickly we deploy our capital against our Capex Plas and then how we execute against our plan of ramping investment in new areas like Oculus, Whatsapp, internet.org etc. You know we feel good about where we are where we are going we are going in 2015 on a high note so I feel like we are making these investments from a position of strength and excited about the opportunities to put more capital to work in 2015.
Operator
Your next question comes from the line of Eric Sheridan with UBS, your line is open
Eric Sheridan, UBS
Thanks for taking the question, I’m going to follow up on your comment around search its early days but what the company is seeing in terms of the way people interacting with the new search functionality inside Facebook broadly and then maybe tying it back to advertising what that might mean for closing the loop with some of your small and medium size business advertisers and maybe the places initiative long term. Thanks.
Dave
Sure, so our view on this is that there is a lot of unique content that people have shared on Facebook a lot of personal content, recommendations from friends that you can get that you just wouldn’t be able to get through the traditional web search service or other app and we are on this multier voyage to basically index all the content and make it available to people and rank it well, you know we started off by launching graph search which I think included more than a trillion different connections in the first system and the second round of the search progress that we just started rolling out at the end of last year was post search which now has indexed more than I think a trillion posts which I mean the size of these corteses are bigger than anything than a traditional web search cortes you could find and its interesting and fun challenge to make this work.
We are seeing that people immediately understand how they can use this and find content that they had seen in newsfeed before or they posted with just a few keywords and we are excited about that but there is a lot more to do I would say that we are not thinking of advertising on it yet on a scale that our community operates a billion searches per day is actually not that big compared to what we think the opportunity here should be and we are just continuing to keep working on it because there’s just a lot of unique value that people should be able to get from their friends on Facebook through search.
Operator
Your next question comes from the line of John Blacklidge with Colin. Your line is open
John Blacklidge, Colin
Great thanks, just want to think about your view about Facebook as a video platform given that video views per day increase to 3 billion in December from a billion in September 2014 and now we should think about the video content mix over the next couple of years and just it seems like a topic being given a sense of user and advertiser feedback on the autoplay video ads that could be great. Thank You.
Dave
l will talk about the consumer product and then Sheryl can jump in about ads. So, what we are seeing in and I eluded to this In my opening remark that there has been evolution of content on Facebook over the last 10 years towards richer formats that convey more of the moments that people care about. So if you go back 5 years ago a lot of Facebook was primarily text right and a little bit of photos and now the primary mode people to share are using are photos, I wouldn’t be surprised if this in the future that shifted more and more towards videos. So we are thinking about how to enable consumption first that the content people are sharing and this year an increased focus on new opportunities around production that way it’s easier for people to capture the moments that are important to them, create higher quality moments and pieces of content out of those and increase their experiences through that, so there’s a lot more to do here and I think this is going to be one of the big trends over the next 3 or 5 years in growth in video and richer content in our service.
Sheryl
From a consumer and marketer feedback on video ads point of view those two things really go together, it’s exciting that we gotten into 3 billion video views per day that means consumers are using video ads and enjoying them on Facebook and newsfeed. The way we think about our ads products is that we want them to blend in with the consumer experience. And so that the fact we have this much consumer video on Facebook means we have an opportunity to grow our ad business and that’s exciting for marketers.
Operator
Your next question comes from the line of Justin Post with Merrill Lynch, your line is open
Justin Post, Merrill Lynch
Great, It looks like you did 9$ of revenue in the US per MAU which you know applies over 30$ run rate which is impressive. Sheryl maybe first question to you how do you grow that from here is it usage, is it more higher ad loads, is it the mix of ads or is it targeting maybe some thoughts on how you grow from there and then Mark if you look at your other 3 platforms you know Whatsapp, Instagram messenger and other things you probably in your mind. Can they monetize anywhere as well as Facebook if you look out your five year plan? Thank You.
Sheryl
Sir thanks for the question, when you think about whats happening, certainly the growth has been good but it’s still true that marketing dollars have not followed consumer time in the same percentages. So, in the US mobile gets 25% of consumer media time but only 10% of the ad budgets and to take one comprehendible example that means that for every consumer hour spent on print marketing dollar. And they spend 7 cents per hour on mobile which means we have an opportunity to grow.
One of the most important ways we grow is not just to bringing more marketers into Facebook having them use more of our ad products but as you mentioned that are targeting. A more relevant ad is a better ad experience for consumers, but also drives them a much higher return for marketers and since we are running an auction, as our ads get more relevant and we provide higher ROI, we should be able to continue to grow. I think we have done a good job over the last year in making our ads more relevant and people on this call would say that you see more relevant ads than you used to a year ago. But I still think you know some of the Facebook ads still have room for improvement in terms of relevance and so we see a lot of room for improvement there and those ROI we deliver and then the experience we can provide consumers.
Dave
Yes so all ads come into that, just on the side of how we think about value to Facebook and then I will talk about the other ads. In terms of the product development that we do here we have four major groups inside the company and this is how our company is organized. We have one which is focused on growing the community, one which is focused on the increasing content consumption and people’s engagement another which is focused on kind of efficiency and helping people get the most value out of each moment that they are spending in Facebook and then the fourth group is our core business which is focused on helping people to see the best ads and basically make the most money per moment that the people are spending at the lowest cost and most efficiency in terms of serving people . And there is I think a big upside in each of those four categories.
I mean are community is in our comments upfront that time spent across our services is growing by 10% year by person which is pretty meaningful, utility and efficient are increasing and of course the ad business per person and the efficiency of our services are both increasing as well. So, I am pretty excited about that I think we are organized in a way where we can continue. The other opportunity in Instagram messenger and Whatsapp.
I’m really excited about and I do think they are going to reach the level where they contribute to our business in a pretty big way, but it’s really important to get this right and not rush it, and you know what I would say it around messaging is where pretty early in that cycle we are about where Facebook was in around 2006 or 2007 where at that point you know Facebook was really just a consumer product, there where no businesses and eco system and a lot of people were telling us okay go put banner ads in and that’s just felt wrong and I just felt that was going to be the right way to build the product or build the business so instead what we did was we built pages which was away for businesses to interact for free in the system and start creating organic interactions between people and businesses so we could figure out what the people using Facebook wanted businesses on Facebook and we built more tools for pages and businesses to engage and our recent success with advertising is really just built on top of those organic interactions between people and businesses and when you see in messenger and Whatsapp now is we are still in our early end of that curve where the interaction is still primarily people to people and businesses are starting to figure out in the case of Whatsapp much less than messenger so far, what the organic interaction is, but we going to have to go through a whole cycle of figuring out how that works before really make sense to start monetizing them in a big way but yea I mean I big am a fundamental believer that these are going to to be very big contributors to our businesses over time but we just have to do it right.
Operator
Your next question comes from the line of Ben Swinburne with Morgan Stanley. Your line is open.
Ben Swinburne, Morgan Stanley
Thank you, two questions, so can you talk about where we are in the north American market vs the other regions in terms of advertiser maturation and acceptance of the Facebook platform, the growth rates in north America can be really impressive despite being the biggest business when you look at the arpu trends compared to the other regions seems to be moderating a bit and then I was wondering Dave you could talk about the pricing growth which actually accelerated from Q3 to Q4, can you give us some color there I know there were changes righthand rail, but anything else you would add about why there was this huge acceleration in pricing growth. Thanks.
Sheryl
North America remains a really important market for us and as you said we had growth we are very happy with its still true for that any client no matter how big they are for us we represent a really tiny part of their ad spent and we represent an under investment in terms of where they can reach their consumers so we believe by continuing to make these investments we can continue to grow you know we get 20% of peoples time on mobile phone in the US between Facebook and Instagram.
You know we don’t get close to that in terms of any ones marketing spend or the time they spend. We say to our clients over and over again is that we want to drive their business and that’s probably the most important thing we are doing for these large North American spenders is around the measurement work we have done. Two years ago we were not able to measure all the way through to purchase off the shelves and we can, yesterday we rolled out a product we called lift which is really the next consideration of measuring our capabilities and enables large customers to go in and setup ads with control test groups that today can a/b test, this group of people saw a Facebook ad, this group of people didn’t and they can measure all the way through to conversion of whatever they are measuring, but there is online conversion to a sale we think measurement out there online in digitally is not particularly accurate, people don’t have real people based measurement through our investments in atlas and through our investments in the core Facebook measurement tools, we think if we can the and show ROI marketers are getting and we can increasingly do so we can continue to penetrate in north America market.
Dave
Ben its Dave, so also on building on what Sheryl said you know worth noting that the drop in the value of international currencies impacted our results outside the US, some of what you are seeing here is the result of that it reduced the revenue growth rate by 7% to 8% in the different international regions so that’s a big reason why you see the US doing much better as well as the fact that it’s a more advanced market in what we have done in terms of just building up the advertiser base and getting it option off our best targeting products which Sheryl is talking about.
Going to your question on pricing growth, I just reiterate what I said in my comments its largely due to the right hand column re design and then also the shift to mobile where we don’t show right hand column and that’s really whats causing the pricing shift you know that’s fundamentally worth, we just get better at targeting that drives better engagement and as we get better engagement, that drives better ROI for our advertisers which ultimately I think Sheryl commented on earlier gets reflected in better pricing for our ads and that’s a big opportunity for us and we are seeing we are getting better and better in driving engagement from the ad units that we have and getting it right ad in front of the right person so that’s a big factor as well.
Operator
Your next question comes from the line of Douglas Amas from jp morgan, your line is open.
Douglas Amas your line is now open.
Your next question comes from the line of Brian Wiser [Unidentified Company Name], your line is open.
Brian Wiser
Hi thanks for taking the question, first I was wondering if you could talk about the degree to which you can think proving video content is or is not necessary to optimally capture budget from advertisers that might otherwise have gone to tv you have couple of initiatives around bbc and nfl and so curious for you to share your thoughts on that and separately I’m not quite sure using atlas and specially those who are new to atlas, do you get a sense of their spending on digital media is changing or so how are they alternatively are they happy with the campaign management tools. Thanks very much.
Sheryl
On video ads, what really matters is that consumers are using video on Facebook because that gives us an opportunity, one to provide a great consumer experience but 2 to have that ad match that consumer experience, if there wasn’t consumer video on Facebook video ads on your news feed would be very jarring as a percentage of the videos you are seeing video ads did nicely into that experience. I don’t think it matters as much what the video content is and so while we are certainly exploring some premium content as you said we have horizon test out there in the public eye.
We are already seeing pretty explosive growth without that kind of premium content in the system in large numbers and so we will continue to figure out and we are certainly open to increasing video content either way, but we haven’t quite figured out what the mix needs to be and right now the growth is very strong. In terms of Atlis, we just re-launched this fall and we are just seeing as the adoption so I think it’s too soon for us to report that Atlis drives an increase in digital spend and increase in any particular kind of expense, but here’s what we believe really deeply which is that atlas is going to revitalize marketing by making the measurement more accurate. If you look at how digital ads are being measured, they are being measured based on a cookie based world that assumes that people have one device largely a pc and that’s just not true. Consumers have phones they have tablets they have pcs as well and the inability to understand that’s one person to serve an ad and measure all the way through correctly we think it’s going to massively improve the efficiency in the system as it gets adopted.
Operator
Your next question comes from the line of Peter Stabler with Wells Fargo. Your line is open
Peter Stabler, Wells Fargo
Thanks for taking the question, one for Sheryl, Sheryl as you push further toward monetizing off platform inventory. Wondering if you could speak to the state of your relationships with premium publishers, there’s a narrative out there we sometimes encounter that publishers are growing a bit concerned about the power you guys wield. Particularly as you push into monetizing off the platform. Thanks very much.
Sheryl
Our audience network efforts are still pretty new, we have a goal of serving more relevant ads to people off Facebook which will provide great reach for Facebook marketers and also a better opportunity to monetize for publishers. We will see some nice results, so Shazam reported that using audience network increased their revenue from ad networks by 37%. We believe by working with publishers by if we can increase the value of their inventory by providing more relevant and targeted ads they are going to be really happy with that opportunity and when we are in the early stages of finding as partners.
Operator
Your next questions comes from the line of Anthony Decramins with Wimnora. Your line is open
Anthony Decramins
Thanks, thanks a lot, first for either Mark or Sheryl on the subject of public video content and what you guys are doing to increase the amount of video in the newsfeed, are those things in terms of you know actors, celebrities, public figures that you can do to economically incentivize those creators of what say the higher quality user generated content on to Facebook platform be it a revenue share what have you relative to the economics for those types of folks on competing online video platforms and then just one quick one for Dave you mentioned you would be shifting the accounting for Facebook audience network in Livewire to be the revenue to be net intact in 2015 vs gross in 2014 I’m just wondering why are you going to do that and there any help us with in terms of order of that shift. Thanks
Sheryl
So, on premium video content we haven’t figured out exactly how important this is to the eco system or how much we are going to invest or what kind of monetization we are going to offer. Video is growing quite nicely through the eco system right now. We have made a lot of investments in public content working with public figures to use the Facebook platform, where by far the largest social platform and increasingly you’re seeing public figures everything from news broadcasters to journalists to public figures do a lot of on Facebook and that’s important test because it provides the kind of sharing people want.
People come to Facbeook to share with their friends and family, but they also come to Facebook to connect with everyone from politicians to journalists to celebrities they want to connect with and get news and we have definitely seen public content grow as a percentage of what people get we also had nice wins with the golden globe this year. Other things we are doing to go deep we are doing some partnership we did in Dallas with cnbc to show how we can help content creators increase their distribution and reach people directly on Facebook.
Dave
Yea and Anthony just to be clear net revenue recognition for those products that’s how we did it in Q4 as well those are all small today but there is not a change in accounting in 2015, that’s how we accounted for what those products in Q4 as far. As net vs gross we just evaluated all the facts and circumstances and made the judgment that net revenue recognition was the appropriate treatment here.
Operator
Your next question comes from the line of Ross Sandler. Your line is open.
Ross Sandler
Thanks, just following up on the video concept how important is it that Facebook posts the videos vs I guess sharing clips from third party players in the feed and what percent of that 3 billion streams daily is Facebook embedded vs from other players and are you able to monetize videos from third party players today or is there a way to work around that in the future. Thanks.
Mark
The stats that we shared of 3 billion a day is all native on Facebook so there are probably other shares from other video services as well. but the way those look on our services are as if there are links to other sites and you know the reason why I think native video is so valuable for people using our service is that when someone uploads a video to Facebook directly, we can optimize how its delivered, alright so we can make it auto play, we can find the right quality and bit rate to send down to person the based on their connection over time and optimize all kinds of different things. So what I think people are finding from public figures to everyday videos that people are uploading that’s the best experience you can get is by uploading content native to Facebook which is I think a big part of the growth we are seeing here.
Operator
Your next question comes from the line of Colins Sebastian with Robert Berreck. Your line is open.
Colins Sebastian, Robert Berreck
Great, thank you, I wonder if it’s possible to distinguish how much is the growth and advertise revenues can be attributed to changes in organic compressions and how you balance the desire of business partners to contribute content to see its versus monetization, thank you.
Dave
Not sure I exactly understand the question but let me see if I can take a crack at it Colin I mean, what we are seeing obviously great growth in DAU which is up 18% we are seeing growth in time spent across the network up 10% per DAU so you got those sort of underline drivers of engagement you know driving growth. We are also you know monetizing at higher rates because we are able to get better targeting into the ads and get better conversion for advertisers that’s reflected in better pricing. So there is a number of different factors that are coming in to play, but clearly driving organic growth and engagement is critical in the business and we are seeing good success there.
Mark
One thing that I would just add to emphasize here is that I think there have been a couple of questions to this effect, is that you know are primary strategy for growing the ad businesses for increasing the quality of content not increasing the number of ads per story that people are seeing on Facebook. So there are impacts like as people start consume more content on Facebook within the ratio of ads that organic content that will show might be more ads, but overall our strategy is much less about increasing the volume of ads and much more about increasing the quality of the content and the quality of the targeting to get the right content to the right people and this is a pretty controversial strategy internally and we were not sure if that was going to work out but for the last year it’s really fueled our growth in a good way and we feel very confident that this is the right path going forward as well.
Operator
Your next question comes from the line of Carlos Gressioner with Bernstein. Your line is open.
Carlos Gressioner, Bernstein
I have 2 quick questions, first when you said that time spent decreased 10% year on year it is roughly uniform across your geographic regions, and secondly mark I think during your remarks in every you talk to investors for a considerable amount of time for Facebook first to connect the world and specifically about internet.org which suggests that it’s important to investors. Can you clarify it is modest to investors and its importance why you think Facebook can make significance difference to scale given that your inappropriate in the emerging markets is about 5 bucks to connect.
Mark
Well, it matters to kind of investors we want to have, because we’re very mission focused company and you know we wake up every day and make decisions because we want help connect the world and that’s what we are doing here so in a part of this the subject of your question is that yea if we were only focused on making money we might put all our energy on just increasing ads to people in the us and the other most evolved countries but that’s not the only thing we care about here. So you know I think over the long term that focusing on helping connect everyone will be a good business opportunity for us as well.
We may not be able to tell you how many years that’s going to happen in but as these countries get more connected the economies grows the ad market grows and Facebook and other services in our communities the number 1 and 2 3 4 5 services people are using then overtime we will be compensated for some of the value we provided. You know this is why we are here, we are here because our mission is to connect the world and I think it’s very important that investors know that.
Dave
And Carlos on all that time spent on DAU we are just giving them the 1 point, we are not breaking out any region.
Operator
Your next question comes from the line of Paul from Barkley, your line is open.
Paul, Barkley
Great thank you, I am just curious given the impact that currently had on the quarter on growth outside the u.s is there any market you can call out particularly that would either better or worst that might be mapped by current 2 things no1 and no2 I am just curious if current trends say where it is does it all impact all of your spending plans on how and where you will invest.
Dave
Hey Paul its Dave, taking your second part first we are not really making investment decisions on short term fluctuations in currencies so I would say in general no its not affecting those decisions, there are certainly big macro effects that are going on part of those are driving those currencies fluctuation as well, so you have regions that are certainly growing quickly and growing more slowly from a macro perspective that united states is doing better in terms of growth vs Europe and Latin America.
You see those compounded in currency and macro-economic conditions in those regions so I think generally we got more favorable market conditions to operate in the u.s, overall I would say the business is driven by the fundamentals of continuing the execution of our plans so whether you are in the market suffering from the macroeconomic headwind and we still had the best mobile product in the market in that market we are growing so I think at the end of the day it’s the fundamental of our business that’s driving our success and we are focused on that but one of these gives us color around how the currency might impact the 2015 results.
Operator
Your next question comes from the line of Robert Pack with Suntrust. Your line is open
Robert Pack, Suntrust
Yes, I have quick 2 questions, one; Mark: You have spoken much here today about e-commerce opportunities in front of Facebook digitally the buy button can you elaborate a little bit on the plans of e-commerce do you see that opportunity and then Dave, I was wondering for investors could you go through your view on how do you see capital efficiency and ROI so that whether it would be acquisitions or Capex or even Opex how do you see a good return on that spend.
Sheryl
Q4 is a really important quarter in general but its particularly important quarter for e-commerce so it’s timely question. When you think of buy on Facebook, it’s a small test we started in u.s in the last quarter and it enabled people to buy on pages. To be clear you are not buying on Facebook you are buying directly from merchant it’s truly a fnb product to give them capability they never had. We will see what happens and in terms of where people convert on Facebook and we think the opportunity to connect to consumers with the product that they then purchased is a real big one where we play in that most directly is the time and attention consumers have and as well as all of the information to do very relevant advertising and we are going to stay focused there.
Dave
Robert, I think the bulk of investment we are doing is focused on the capital of the opex to deliver against of the coronation of the millions that connect and share so for the most part we are looking at what do we need to deploy against the nation to deliver against the financial results. There are places where we can individually take out the Ajax whether it will be mna or will it be specific capital investment and then we will look at those on a ROI basis for specific projects you have to recognize we are basically one large business and more operating against capital and delivering objectives of that business. So that’s the bulk of spend we do but certainly we do look at things on a ROI basis on an individual and project basis as well.
Operator
Your next question comes from the line of Arwin Bechio, your line is open.
Arwin Bechio
Thanks for taking the questions, just quickly on what staff I know the focus on user growth for while but in the future as you do turn on the monetization engine just curious what are the primary ways that you assuming growth will come from advertising or games perhaps. And also on Whatsapp users growth would you be able to call out from where that’s coming from is there any particular areas that are stronger I’m curious to know how’s that doing in the US, thank you.
Mark
So, you are right that the focus for Whatsapp is on helping to connect a lot more people. So when john and team joined us, one of the first things we agreed on why it made sense for them to join us is now they can focus on the few years they could give 1 billion or more on that and continue the scale and beyond that. SMS incredibly global and universal product and I think Whatsapp has a huge opportunity to serve billions of people. In terms of what business looks like I mean at the end of the day it’s a distribution business like business like Facebook and Instagram how you most effectively convert that into business opportunities for customers whether that’s your payments or ads or other different kinds of structures. We will figure that out what the optimal thing will be but the first thing in order to do is to help continue to increase engagement and when people are spending a lot of time on Whatsapp sending more than 30 billion messages everyday its really crazy when you think of the volume of global SMS overall and I think if we do that there will be number of opportunities.
People ask me this question that how we thought about games on Facebook as well. I always talked about on canvas business on desktop even though it was payment as actually the same thing as our business on mobile around app install and engagement. What developers asked for was distribution and you know whether they were doing that after payments or ads or whatever it is. It kind of is all the same the most important thing is to help people connect and help people and businesses connect, create business opportunities and then you can small amount of value that you are creating upon. So don’t play out of the next set of years and the intellectual challenges I’m really looking for to tap.
Sheryl
Operator, we have time for one last question.
Operator
The last question comes from the line of Mark Mahaney with RBC capital markets.
Mark
Thank you Sheryl, the size of the ad revenue that Facebook is generating is cruel. These are large budgets that are shifting over to Facebook any commentary on where you think these budgets are coming from. What are the source of funds and then engagement level seems to be rising and there seem to be slip in engagement levels DAU or MAU ratio in Asia and rest of the world. Is that a noise or a reason to panic.
Sheryl
I don’t think there’s any single source where the dollars are coming from. Certainly as consumers time and attention in shifting to mobile. You know the marketer time and attention. We pay a lot of attention to the marketers segment to work with. We see strong growth from brands from direct response like e-commerce and SMEs and developer. We stay real focused not really on the source of money where it’s coming from but what are the objective people are spending on Facebook so we can meet the different objectives. We understand that in order to continue to grow we have got to start multiple objectives on Facebook platform and that’s what we are focused on.
Dave
Mark, you know the simple story we are very pleased on how we are exceeding on it on the engagement front you know 64% of people coming to Facebook monthly, on an average day we think it’s a great stat, you I think small changes are pretty much noise, we are really happy with it. We talked about things like video engagement and how much photo sharing is going across our properties. So overall I think engagement is the great story for us and we are really happy with it.
Deborah
Great thank you everyone for joining us today, we appreciate your time and we look forward to speaking with you again.
Operator
This concludes today’s conference call, you may now disconnect.
