00:00Look, I just want to start off first with the, I guess, the operating side of this business,
00:04which is the ad business, did well, Egal, and that was expected here.
00:07But what's the bridge between the ad business that has made meta what it is
00:12and whatever this sort of world of AI that it's trying to insert itself into?
00:18Yeah, right. So I think that's the problem and why we're seeing the share reaction today.
00:23I think the largest factor here on shares post-print is the revenue guidance for 3Q.
00:30Now, we saw CapEx move up a little bit in the guidance, but just on the bottom end,
00:34I think probably less than most people expected, less than we expected,
00:37especially after we saw the numbers from Google last week.
00:41And your question is, I think, exactly the issue is on the ROIC on that spend and the expectations.
00:49Right now, Meta's real only ROIC from the CapEx investment in AI is their ad business.
00:57Now, they have some other things that are earlier on.
01:00Like the subscription tiers for Instagram and Facebook, business AI, which is really centered around WhatsApp,
01:08some other features around the rest of the products as well.
01:12And, you know, things like selling excess compute capacity, cloud business, custom silicon business,
01:19those are in much earlier stages if they're, you know, even really have started at all.
01:24And so that bridge has been more challenging for investors to see.
01:28And if the ad business isn't going to come in ahead of expectations, I think that's going to create a
01:32challenge here.
01:34I just want to ask you about cash flow.
01:35I mean, the expectation it was going to come in negative for the quarter.
01:38It came in at $784 million with an M, which is incredibly low compared to what they had normally been
01:44posting in quarters past.
01:46Are you concerned at all about that or is that just something you can look through?
01:51I mean, I think the free cash flow story for Meta and for all the other hyperscalers goes hand in
01:57hand with the ROIC story.
01:59And investors will be willing to accept the pullback in free cash flow if we're getting negative, obviously only to
02:07a certain point.
02:09But it's the free cash flow pullback, the CapEx spend, debt and equity raises.
02:14Investors will be willing to be patient if they see the story on the ROIC side coming through as well.
02:20And, again, I think we're not necessarily seeing that this quarter.
02:24And we'll wait for the call to get more color on perhaps we'll get some insights into CapEx.
02:29Spend for next year where we are in some of the earlier if we're making enough progress.
02:36So, you know, if that tail on the revenue side isn't catching up and we're seeing real pullbacks on free
02:43cash flow, then, yeah, I think you start to get more concerned.
02:47The ROIC is going to catch up or, you know, it needs to catch up.
02:51It's not going to happen hand in hand with the spend.
02:53But you need to have some visibility in that coming through.
02:57And, again, I don't think we're seeing that just yet.
02:59What do you make of the after hours trading, the stock down about 6.2 percent?
03:04This is somewhat similar to what we saw with Alphabet.
03:08They announced that they were going to be spending more.
03:11Shareholders didn't like that too much.
03:13Is this just part of that trade?
03:17I think that's exactly what it is.
03:19Investors trying to digest what's acceptable and whose position where.
03:24I thought the Alphabet print was actually stronger, right?
03:30And you saw the pullback there.
03:32Maybe the commentary on the CapEx spend was a little bit more.
03:36Google raised the high end of the CapEx spend expectations too versus Meta just on the low end.
03:42But Google had really strong cloud business.
03:46They started selling their TPUs.
03:48And so they have some of those factors outside of the core search business that are really pushing right now
03:54and accelerating.
03:56I think for Meta, those factors aren't there yet.
03:59And investors need to see more from that.
04:02When we talk about this idea of kind of the product lineup, I mean, there's been a lot of talk
04:07about Meta Glasses and who knows what else Zuckerberg might be working on behind the scenes.
04:12Is there a sort of, and not to mention this, you know, whatever, this cloud push that they might actually
04:18go for.
04:19Is there a sense here that Zuckerberg can actually not only grow the company, but more importantly, diversify it away
04:25from just being, you know, 90 percent ads or whatever, whatever the percentage is to that?
04:31I think that's the goal.
04:34On the Meta Glasses, again, it's sort of this big picture flywheel of all the factors together.
04:42And I think one of the things we didn't talk about is the MuSpark model, right, and their efforts to
04:48push that to be a frontier model among the best of them.
04:53And, you know, building a frontier model, you know, getting better adoption of Meta AI, those are also going to
05:00be important factors that drive this entire flywheel together.
05:04So it's not necessarily the glasses on its own, but I think it's how the glasses, or at least what
05:09I think how Zuckerberg's trying to build this, right, how the glasses work with AI and, you know, creating a
05:16new surface for AI.
05:19I think that's how – that has to be the plan here for Zuckerberg.
05:24I think we're starting to see the early steps of it.
05:26The question is how long it takes to play out.
05:28Well, that's what I'm curious about.
05:30I mean, the reality labs, I mean, they lost, you know, four and a half, 4.6 or something billion
05:34dollars in the most recent quarter.
05:36Obviously, that includes the other, you know, virtual reality stuff, including the Meta Ray-Bans and all that.
05:42You know, is this just – you think this could be a business and not just sort of, you know,
05:46a pet project that, you know, at some point just gets cast aside when Mark decides he wants to do
05:52something else?
05:54Well, we've seen that happen before, obviously, with the metaverse.
05:59And, look, there's been some rationalizations in that part of the business as well.
06:06And you've seen some pullbacks in spend, some pullbacks in hiring.
06:11You know, you've seen a couple of rifts there.
06:13So, you know, I don't think it's free spending all the way forever, but I do think if you listen
06:21to what Mark talks about on sort of the future of AI and AI surfaces, I think glasses are expected
06:30to be a big part of that.
06:31So I wouldn't expect that to be put to the side anytime soon.
06:35I think that's a big core focus of how they intend to build out their AI projects.
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