Letter #153: Susan Li (2023)
Meta CFO | Meta CFO Li on 2Q23Earnings, Generative AI, and Threads
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Today’s letter is a transcript of Meta CFO Susan Li’s interview on Meta’s 2Q23 earnings results, digital ad spending, future investments, AI investments and their impact on Meta's revenue growth, Meta's new app "Threads" and its monetization strategy, innovation, apps, and AI in the tech industry, and investments, priorities, what makes Mark special as a leader, and more!
Susan Li is Chief Financial Officer at Meta, where she leads the finance and facilities teams. Prior to becoming CFO, Susan served as the company’s VP of Finance and led the teams focused on finance, business planning and treasury. She joined the company, then called Facebook, in 2008 when they only had ~400 employees. Prior to Facebook, she was an investment banking analyst at Morgan Stanley.
I hope you enjoy this conversation as much as I did! Since becoming CFO in 2022, Susan has quickly become one of my favorite operators (possibly my favorite since Amazon’s Joy Covey).
[Transcript and any errors are mine.]
Relevant Resources
Company
Meta Podcast (2 hours) [Free]
Meta Deep Dive (Full report: 166 pages)
Meta Business History (~18 pages)
Meta Investors
Peter Thiel Compilation (536 pages)
Marc Andreessen Compilation (1386 pages)
Transcript
Host: It's not just Mark finding things exciting. Investors, analysts upgrading. Exciting economy for the world at large today it feels here, in the United States. How excited, Susan, are your clients right now? How resilient is this digital ad spending?
Susan Li: Well, first of all, thank you and Caroline for having me. It's a pleasure to be with you guys and with your viewers this morning. You noted that we reported really strong Q2 results, we're really happy with all of our execution efforts across our core user and engagement metrics, obviously the reacceleration in our ad revenue, which we've been talking about, which we think is the reflection both of an improvement in the macro economic landscape, which the digital ads market is so closely tied to, along with our own efforts continuing to invest in and execute on quarters and years of work in making sure that our ad systems are performing well, that we're delivering measurable results for our advertisers. And we really have seen those results bear fruit. So that's something we're really excited about in Q2. We also talked about how our year of efficiency work is really setting us up for success going forward, I think it's put us into a place where we have a leaner cost structure, which will serve us well as we plan for the future. And it's also enabling us to move faster, to build more and ship more quickly, new products and experiences in service of our customers. And so, Mark talked about this yesterday on the call, Threads is a really good example of that. It's something that we built with a relatively smaller team on a tighter timeline, and I think is a good reflection of the year of efficiency paying off for us. Finally, the last theme I'd highlight from our earnings call is around 2024. We have, I think, a lot of compelling opportunities to invest in. We talked about our AI investments and how that will flow through into infrastructure costs. We talked about hiring top tier technical talent as we evolve our workforce towards a more technical mix. And then, of course, our longer term ambitions and vision for Reality Labs and for the metaverse.
Host: AI also seems, Susan, too, AI recommendations on the timeline, to have a real impact on engagement, particularly on the core Facebook platform. How much is that a driver behind the forecast for the current period of $34.5bn in sales?
Susan Li: It's a great question. First, I want to say we have been investing in AI for a really long time. We often use the phrase "core AI" to talk about the work that's been powering our ranking and recommendations engines, which are really the foundation of both our organic recommendations for the content that you see, along with the ads work. And in particular, one of the big drivers of growth that's been both strong on our platforms, and increasingly incremental, is around recommending content from accounts that you don't already follow. We often call this unconnected content. And that's been really good for core engagement trends. And then of course, the AI investments, as we've put GPU capacity towards our ads ranking and recommendation systems have really paid off. So I think that's really translating both into the results that you've seen--it's part of what factors into our guidance along with, of course, a big range of possible macroeconomic outcomes. At the same time, we're really excited about a newer opportunity ahead of us in the Gen AI space. And that's really around building compelling new consumer experiences. Mark talked about some of the things we're working on on the call yesterday. Making it easier for people to create better, more individualized content. And then of course, also making it easier for businesses to communicate with the consumers that they want to reach. That is newer for us. That's not factored into our revenue guidance, or a revenue outlook in any meaningful way, but it's something that we're really excited about: the opportunity to build new and compelling experiences. And we think it'll be an important part of our future.
Host: Susan, why did Meta change its mind about charging cloud providers for access to Llama2?
Susan Li: I'm not sure what you mean by changing our mind. We've made Llama2 free and widely accessible. There are a small handful of really large cloud providers that we're working on specific arrangements with, but broadly speaking, we expect this to be free and we want it to be accessible to a really wide range of possible use cases.
Host: Cloud providers. Will they be charged anything?
Susan Li: This is a place where again, with very specific cloud providers who have very large user bases, again, we're working on specific arrangements with them. But it's not something that we broadly anticipate charging for.
Host: And of course, we're all waiting to see when you turn on the money funnel from Threads. I'm interested as to how much inbound you're getting from clients. How many want the capacity to start advertising alongside Threads at the moment?
Susan Li: We're really very pleased with Threads. It's a new standalone app that we released earlier this month. And where it is in both user growth terms, as well as engagement and retention trends is certainly ahead of where we would have expected for a brand new standalone app. But it's incredibly early in its lifecycle. This is not something that we expect that we're going to monetize in the near term. We know when we launch new consumer experiences that there is a playbook around all of the product foundation work that needs to be done around core features that users will ask for, being responsive to things that features or users are looking for in the product, scaling it over time to a much larger user base, focusing on driving increased engagement and retention. Those are all things that we're going to need to do in advance of thinking about monetization. But it's a playbook that we've executed multiple times, and we're excited for the opportunity to do that again here.
Host: Susan, I think I'm right in saying you were Facebook employee number 400 and something, 408. How has the launch of Threads compared, internally, to bringing in Instagram, WhatsApp, the launch of the hardware business, and Quest?
Susan Li: Yeah, so I joined, then Facebook, back in 2008 when there were around 400 people here. And so I've seen us launch a lot of things over the course of that period. Now, some of those examples that you mentioned, like Instagram, obviously, were already popular apps when we acquired them. But I think that over the course of that time, we've learned a lot of things about how to bring products to market, thinking about the trade-offs between standalone apps or features within existing apps. We've learned a lot in our growth playbook and how to drive engagement and retention. And I think we're gonna bring a lot of those lessons to the way that we execute against our vision for Threads.
Host: Caroline asked you about the inbound interest, your existing advertisers saying, Hey Susan, when can I put something on the Threads platform? I know you're being conservative and careful about the development and that Mark emphasizes a lot of product work needs to be done as well. But how do you see the roadmap for Threads going? How do you change the product so it is monetizable?
Susan Li: Well, we're excited, obviously, that there is interest, both in Threads, the consumer product, and of course, the eventual prospect of advertising on it. But it's really just too early, I think, to be very specific about what the ads business on Threads will look like, in detail. We're really focused on executing on the consumer experience first, making it a great and productive and friendly place for people to have public conversations, growing it to scale, investing in the features that people want. And we'll get to monetization at the right time.
Host: Of course, us in the media had a field day thinking about the competitive force that Threads is vis a vis X. And then, we think about the competition more broadly, you versus TikTok, when I'm thinking of the success of Reels of late. When we're actually more broadly thinking about how Meta makes itself not just the money spinner, but a culture spinner here, where people start trends, not just perhaps copy them from TikTok and bring them on to reels. Do you feel you've got that now at Meta?
Susan Li: I think that we've been over the course of the time that I've been here, constantly focused on innovation. And I think that we've brought that to bear with a lot of the experiences in our family of apps. And at the same time, when there are clear secular trends in the industry in terms of formats or experiences that consumers are looking for, we look to integrate those too. And I think we've done a really good job at executing on both of those fronts. And then of course, looking forward, I think we're really excited about the innovation opportunities ahead of us with Gen AI. We think we're industry leading here. And then of course, over the very long term with our vision for reality labs and the metaverse.
Host: We are, of course, with the Meta Chief Financial Officer, Susan Lee. We're welcoming her across TV and radio with our audiences. And Susan, everyone started talking about everything apps. Now I know you're about the money, not always developing the product. But could you think about everything app, is Meta--is there a race on to ensure that we can build that here in the US and you'll be part of it?
Susan Li: It's a great question. I know that there are other regions around the world, in particular Asia, where there are apps that have gone down this model. That's not a model that we have right now. We haven't seen that use case to the same extent, in North America. But, I would say that we're really invested in the opportunities that we have ahead of us across our family of apps right now, including Threads, which is the newest standalone app in our portfolio. And then there's just a lot that we can do to make the experiences across our family of apps richer and more engaging with the investments that we've made already in AI. And especially recommending content that you don't already follow. And we know that that's brought richer content experiences to people, is growing engagement across the apps. And we'll be releasing features over the course of the next years, but we're really excited about what we think that this is going to bring to bear for the consumer experience. And of course, also, eventually, for businesses to connect with consumers across the family of apps too.
Host: Susan, investors were sanguine about the idea that expenses could creep up. I wonder if you could just tell us what your priorities are, where you will invest in talent, in the metaverse, whether your investments will be on the content side or the hardware side?
Susan Li: Great question. We talked about this a little bit on the call yesterday when we gave some color into the 2024 outlook. The three themes that I really want to talk about there are first, we expect that our infrastructure costs are going to grow, because of the investments we've made in AI building GPU capacity that will go towards both the core AI work in the ranking and recommendation engines that I talked about along with the new Gen AI investments. So that's a place where we're investing, certainly, in a lot of hardware, along with the infrastructure, such as data centers and network equipment that you need to support that. The second area that we talked about is, we are evolving our workforce toward a more technical mix. And we want to hire top tier technical talent where we can, towards some of our most compelling opportunities, including AI and machine learning engineers to work on the AI efforts we talked about. And so that's a place where we are going to be investing, but we're going to be doing it in a very thoughtful way, making sure that we're really focusing on the core priorities and making trade-offs where appropriate. The third thing that we talked about is on the Reality Labs side. That's certainly a very long time horizon and ambitious vision. And we're going to be investing and deploying capital toward it.
Host: The capital coming from--that you already have? Are you looking at the bond market? Are you looking at raising more funds?
Susan Li: We certainly generate enough free cash flow right now for us to invest across the organic opportunities ahead of us that we see that are compelling. We have been raising debt--we did earlier this year, just as we're evolving our capital structure going forward. And that's something that we'll continue to look at, and I think do on a measured pace going forward. But in terms of thinking about the capital available to us now, we generate a lot of capital that we're always looking to allocate across the organic opportunities that we have. And we've talked about some of those. And then of course, shareholder returns.
Host: Susan, really quickly before we lose you, how do you and Mark split up responsibilities of the company? What's it like working with Mark?
Susan Li: I've had the privilege of working with and learning from Mark for 15 years here. Obviously as CEO and as a product visionary, he really shepherds the product roadmap and has defined the long term vision for a lot of the things that we're investing in with incredibly ambitious goals. And I think that's a tremendous and powerful motivator for us. And I try to make sure that we have the financial frameworks and targets that are going to enable us to invest against those things. Innovation isn't free. And that's something that we're very mindful of. And we recognize that, especially against some of our longest time horizon ambitions, we have to earn the right to put capital towards those things in the way that we do. What I will say having worked with Mark for such a long time is, he's tremendous at adapting to the time that we're in. And so whether that was leading a 400 person startup when I joined, whether that was overseeing our transition to the public markets, during the shift to mobile, or whether that was this past year, helping us really retool our cost structure in the way we operate and leading on the year of efficiency, I think Mark is tremendously good at making hard decisions and acting on them with conviction and looking forward.
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Wrap-up
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