UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________________________________
FORM 10-Q
____________________________________________
(Mark One)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2023
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 001-35551
____________________________________________
Meta Platforms, Inc.
(Exact name of registrant as specified in its charter)
____________________________________________
| Delaware | 20-1665019 | ||||
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification Number) | ||||
1 Meta Way, Menlo Park, California 94025
(Address of principal executive offices and Zip Code)
(650) 543-4800
(Registrant's telephone number, including area code)
____________________________________________
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading symbol(s) | Name of each exchange on which registered | |||||||||
| Class A Common Stock, $0.000006 par value | META | The Nasdaq Stock Market LLC | |||||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 (Exchange Act) during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Indicate the number of shares outstanding of each of the issuer's classes of Common Stock, as of the latest practicable date.
| Class | Number of Shares Outstanding | ||||||||||
| Class A Common Stock | $0.000006 par value | 2,212,153,203 | shares outstanding as of April 21, 2023 | ||||||||
| Class B Common Stock | $0.000006 par value | 350,578,831 | shares outstanding as of April 21, 2023 | ||||||||
Meta Platforms, Inc.
Form 10-Q
For the Quarterly Period Ended March 31, 2023
TABLE OF CONTENTS
| Page | ||||||||
2
NOTE ABOUT FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements. All statements contained in this Quarterly Report on Form 10-Q other than statements of historical fact, including statements regarding our future results of operations and financial position, our business strategy and plans, and our objectives for future operations, are forward-looking statements. The words "believe," "may," "will," "estimate," "continue," "anticipate," "intend," "expect," and similar expressions are intended to identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and trends that we believe may affect our financial condition, results of operations, business strategy, short-term and long-term business operations and objectives, and financial needs. These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those described in Part II, Item 1A, "Risk Factors" in this Quarterly Report on Form 10-Q. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the future events and trends discussed in this Quarterly Report on Form 10-Q may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward‑looking statements.
We undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements, except as required by law. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward‑looking statements.
Unless expressly indicated or the context requires otherwise, the terms "Meta," "company," "we," "us," and "our" in this document refer to Meta Platforms, Inc., a Delaware corporation, and, where appropriate, its subsidiaries. The term "Family" refers to our Facebook, Instagram, Messenger, and WhatsApp products. For references to accessing Meta's products on the "web" or via a "website," such terms refer to accessing such products on personal computers. For references to accessing Meta's products on "mobile," such term refers to accessing such products via a mobile application or via a mobile-optimized version of our websites such as m.facebook.com, whether on a mobile phone or tablet.
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LIMITATIONS OF KEY METRICS AND OTHER DATA
The numbers for our key metrics are calculated using internal company data based on the activity of user accounts. We report our estimates of the numbers of our daily active people (DAP), monthly active people (MAP), and average revenue per person (ARPP) (collectively, our "Family metrics") based on the activity of users who visited at least one of Facebook, Instagram, Messenger, and WhatsApp (collectively, our "Family" of products) during the applicable period of measurement. We have historically reported the numbers of our daily active users (DAUs), monthly active users (MAUs), and average revenue per user (ARPU) (collectively, our "Facebook metrics") based on user activity only on Facebook and Messenger and not on our other products. We believe our Family metrics better reflect the size of our community and the fact that many people are using more than one of our products. As a result, over time we intend to report our Family metrics as key metrics in place of DAUs, MAUs, and ARPU in our periodic reports filed with the Securities and Exchange Commission.
While these numbers are based on what we believe to be reasonable estimates of our user base for the applicable period of measurement, there are inherent challenges in measuring usage of our products across large online and mobile populations around the world. The methodologies used to measure these metrics require significant judgment and are also susceptible to algorithm or other technical errors. In addition, we are continually seeking to improve our estimates of our user base, and such estimates may change due to improvements or changes in our methodology. We regularly review our processes for calculating these metrics, and from time to time we discover inaccuracies in our metrics or make adjustments to improve their accuracy, which can result in adjustments to our historical metrics. Our ability to recalculate our historical metrics may be impacted by data limitations or other factors that require us to apply different methodologies for such adjustments. We generally do not intend to update previously disclosed Family metrics for any such inaccuracies or adjustments that are within the error margins disclosed below.
In addition, our Family metrics and Facebook metrics estimates will differ from estimates published by third parties due to differences in methodology.
Family Metrics
Many people in our community have user accounts on more than one of our products, and some people have multiple user accounts within an individual product. Accordingly, for our Family metrics, we do not seek to count the total number of user accounts across our products because we believe that would not reflect the actual size of our community. Rather, our Family metrics represent our estimates of the number of unique people using at least one of Facebook, Instagram, Messenger, and WhatsApp. We do not require people to use a common identifier or link their accounts to use multiple products in our Family, and therefore must seek to attribute multiple user accounts within and across products to individual people. To calculate these metrics, we rely upon complex techniques, algorithms and machine learning models that seek to count the individual people behind user accounts, including by matching multiple user accounts within an individual product and across multiple products when we believe they are attributable to a single person, and counting such group of accounts as one person. These techniques and models require significant judgment, are subject to data and other limitations discussed below, and inherently are subject to statistical variances and uncertainties. We estimate the potential error in our Family metrics primarily based on user survey data, which itself is subject to error as well. While we expect the error margin for our Family metrics to vary from period to period, we estimate that such margin generally will be approximately 3% of our worldwide MAP. At our scale, it is very difficult to attribute multiple user accounts within and across products to individual people, and it is possible that the actual numbers of unique people using our products may vary significantly from our estimates, potentially beyond our estimated error margins. As a result, it is also possible that our Family metrics may indicate changes or trends in user numbers that do not match actual changes or trends.
To calculate our estimates of Family DAP and MAP, we currently use a series of machine learning models that are developed based on internal reviews of limited samples of user accounts and calibrated against user survey data. We apply significant judgment in designing these models and calculating these estimates. For example, to match user accounts within individual products and across multiple products, we use data signals such as similar device information, IP addresses, and user names. We also calibrate our models against data from periodic user surveys of varying sizes and frequency across our products, which are inherently subject to error. The timing and results of such user surveys have in the past contributed, and may in the future contribute, to changes in our reported Family metrics from period to period. In addition, our data limitations may affect our understanding of certain details of our business and increase the risk of error for our Family metrics estimates. Our techniques and models rely on a variety of data signals from different products, and we rely on more limited data signals
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for some products compared to others. For example, as a result of limited visibility into encrypted products, we have fewer data signals from WhatsApp user accounts and primarily rely on phone numbers and device information to match WhatsApp user accounts with accounts on our other products. Similarly, although Messenger Kids users are included in our Family metrics, we do not seek to match their accounts with accounts on our other applications for purposes of calculating DAP and MAP. Any loss of access to data signals we use in our process for calculating Family metrics, whether as a result of our own product decisions, actions by third-party browser or mobile platforms, regulatory or legislative requirements, or other factors, also may impact the stability or accuracy of our reported Family metrics, as well as our ability to report these metrics at all. Our estimates of Family metrics also may change as our methodologies evolve, including through the application of new data signals or technologies, product changes, or other improvements in our user surveys, algorithms, or machine learning that may improve our ability to match accounts within and across our products or otherwise evaluate the broad population of our users. In addition, such evolution may allow us to identify previously undetected violating accounts (as defined below).
We regularly evaluate our Family metrics to estimate the percentage of our MAP consisting solely of "violating" accounts. We define "violating" accounts as accounts which we believe are intended to be used for purposes that violate our terms of service, including bots and spam. In the fourth quarter of 2022, we estimated that approximately 3% of our worldwide MAP consisted solely of violating accounts. Such estimation is based on an internal review of a limited sample of accounts, and we apply significant judgment in making this determination. For example, we look for account information and behaviors associated with Facebook and Instagram accounts that appear to be inauthentic to the reviewers, but we have limited visibility into WhatsApp user activity due to encryption. In addition, if we believe an individual person has one or more violating accounts, we do not include such person in our violating accounts estimation as long as we believe they have one account that does not constitute a violating account. From time to time, we disable certain user accounts, make product changes, or take other actions to reduce the number of violating accounts among our users, which may also reduce our DAP and MAP estimates in a particular period. We intend to disclose our estimates of the percentage of our MAP consisting solely of violating accounts on an annual basis. Violating accounts are very difficult to measure at our scale, and it is possible that the actual number of violating accounts may vary significantly from our estimates.
The numbers of Family DAP and MAP discussed in this Quarterly Report on Form 10-Q, as well as ARPP, do not include users on our other products, unless they would otherwise qualify as DAP or MAP, respectively, based on their other activities on our Family products.
Facebook Metrics
We regularly evaluate our Facebook metrics to estimate the number of "duplicate" and "false" accounts among our MAUs. A duplicate account is one that a user maintains in addition to his or her principal account. We divide "false" accounts into two categories: (1) user-misclassified accounts, where users have created personal profiles for a business, organization, or non-human entity such as a pet (such entities are permitted on Facebook using a Page rather than a personal profile under our terms of service); and (2) violating accounts, which represent user profiles that we believe are intended to be used for purposes that violate our terms of service, such as bots and spam. The estimates of duplicate and false accounts are based on an internal review of a limited sample of accounts, and we apply significant judgment in making this determination. For example, to identify duplicate accounts we use data signals such as identical IP addresses and similar user names, and to identify false accounts we look for names that appear to be fake or other behavior that appears inauthentic to the reviewers. Any loss of access to data signals we use in this process, whether as a result of our own product decisions, actions by third-party browser or mobile platforms, regulatory or legislative requirements, or other factors, also may impact the stability or accuracy of our estimates of duplicate and false accounts. Our estimates also may change as our methodologies evolve, including through the application of new data signals or technologies or product changes that may allow us to identify previously undetected duplicate or false accounts and may improve our ability to evaluate a broader population of our users. Duplicate and false accounts are very difficult to measure at our scale, and it is possible that the actual number of duplicate and false accounts may vary significantly from our estimates.
In the fourth quarter of 2022, we estimated that duplicate accounts may have represented approximately 11% of our worldwide MAUs. We believe the percentage of duplicate accounts is meaningfully higher in developing markets such as the Philippines and Vietnam, as compared to more developed markets. In the fourth quarter of 2022, we estimated that false accounts may have represented approximately 4-5% of our worldwide MAUs. Our estimation of false accounts can vary as a result of episodic spikes in the creation of such accounts, which we have seen originate more frequently in specific countries such as Indonesia, Nigeria, and Vietnam. From time to time, we disable certain user accounts, make product changes, or take
5
other actions to reduce the number of duplicate or false accounts among our users, which may also reduce our DAU and MAU estimates in a particular period. We intend to disclose our estimates of the number of duplicate and false accounts among our MAUs on an annual basis.
The numbers of DAUs and MAUs discussed in this Quarterly Report on Form 10-Q, as well as ARPU, do not include users on Instagram, WhatsApp, or our other products, unless they would otherwise qualify as DAUs or MAUs, respectively, based on their other activities on Facebook.
User Geography
Our data regarding the geographic location of our users is estimated based on a number of factors, such as the user's IP address and self-disclosed location. These factors may not always accurately reflect the user's actual location. For example, a user may appear to be accessing Facebook from the location of the proxy server that the user connects to rather than from the user's actual location. The methodologies used to measure our metrics are also susceptible to algorithm or other technical errors, and our estimates for revenue by user location and revenue by user device are also affected by these factors.
6
PART I—FINANCIAL INFORMATION
Item 1.Financial Statements
META PLATFORMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions, except for number of shares and par value)
(Unaudited)
| March 31, 2023 | December 31, 2022 | ||||||||||
| Assets | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | 11,551 | $ | 14,681 | |||||||
| Marketable securities | 25,888 | 26,057 | |||||||||
| Accounts receivable, net | 11,044 | 13,466 | |||||||||
| Prepaid expenses and other current assets | 4,000 | 5,345 | |||||||||
| Total current assets | 52,483 | 59,549 | |||||||||
| Non-marketable equity securities | 6,167 | 6,201 | |||||||||
| Property and equipment, net | 84,156 | 79,518 | |||||||||
| Operating lease right-of-use assets | 12,899 | 12,673 | |||||||||
| Intangible assets, net | 949 | 897 | |||||||||
| Goodwill | 20,649 | 20,306 | |||||||||
| Other assets | 7,188 | 6,583 | |||||||||
| Total assets | $ | 184,491 | $ | 185,727 | |||||||
| Liabilities and stockholders' equity | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable | $ | 3,672 | $ | 4,990 | |||||||
| Partners payable | 885 | 1,117 | |||||||||
| Operating lease liabilities, current | 1,479 | 1,367 | |||||||||
| Accrued expenses and other current liabilities | 19,345 | 19,552 | |||||||||
| Total current liabilities | 25,381 | 27,026 | |||||||||
| Operating lease liabilities, non-current | 16,171 | 15,301 | |||||||||
| Long-term debt | 9,925 | 9,923 | |||||||||
| Other liabilities | 8,219 | 7,764 | |||||||||
| Total liabilities | 59,696 | 60,014 | |||||||||
| Commitments and contingencies | |||||||||||
| Stockholders' equity: | |||||||||||
Common stock, $0.000006 par value; 5,000 million Class A shares authorized, 2,215 million and 2,247 million shares issued and outstanding, as of March 31, 2023 and December 31, 2022, respectively; 4,141 million Class B shares authorized, 351 million and 367 million shares issued and outstanding, as of March 31, 2023 and December 31, 2022, respectively | — | — | |||||||||
| Additional paid-in capital | 66,535 | 64,444 | |||||||||
| Accumulated other comprehensive loss | (2,981) | (3,530) | |||||||||
| Retained earnings | 61,241 | 64,799 | |||||||||
| Total stockholders' equity | 124,795 | 125,713 | |||||||||
| Total liabilities and stockholders' equity | $ | 184,491 | $ | 185,727 | |||||||
See Accompanying Notes to Condensed Consolidated Financial Statements.
7
META PLATFORMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In millions, except per share amounts)
(Unaudited)
| Three Months Ended March 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Revenue | $ | 28,645 | $ | 27,908 | |||||||
| Costs and expenses: | |||||||||||
| Cost of revenue | 6,108 | 6,005 | |||||||||
| Research and development | 9,381 | 7,707 | |||||||||
| Marketing and sales | 3,044 | 3,312 | |||||||||
| General and administrative | 2,885 | 2,360 | |||||||||
| Total costs and expenses | 21,418 | 19,384 | |||||||||
| Income from operations | 7,227 | 8,524 | |||||||||
| Interest and other income, net | 80 | 384 | |||||||||
| Income before provision for income taxes | 7,307 | 8,908 | |||||||||
| Provision for income taxes | 1,598 | 1,443 | |||||||||
| Net income | $ | 5,709 | $ | 7,465 | |||||||
| Earnings per share attributable to Class A and Class B common stockholders: | |||||||||||
| Basic | $ | 2.21 | $ | 2.74 | |||||||
| Diluted | $ | 2.20 | $ | 2.72 | |||||||
| Weighted-average shares used to compute earnings per share attributable to Class A and Class B common stockholders: | |||||||||||
| Basic | 2,587 | 2,725 | |||||||||
| Diluted | 2,596 | 2,742 | |||||||||
See Accompanying Notes to Condensed Consolidated Financial Statements.
8
META PLATFORMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In millions)
(Unaudited)
| Three Months Ended March 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Net income | $ | 5,709 | $ | 7,465 | |||||||
| Other comprehensive income (loss): | |||||||||||
| Change in foreign currency translation adjustment, net of tax | 248 | (359) | |||||||||
| Change in unrealized gain (loss) on available-for-sale investments and other, net of tax | 301 | (944) | |||||||||
| Comprehensive income | $ | 6,258 | $ | 6,162 | |||||||
See Accompanying Notes to Condensed Consolidated Financial Statements.
9
META PLATFORMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In millions)
(Unaudited)
| Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Class A and Class B Common Stock | Additional Paid-In Capital | Accumulated Other Comprehensive Income (Loss) | Retained Earnings | Total Stockholders' Equity | Class A and Class B Common Stock | Additional Paid-In Capital | Accumulated Other Comprehensive Loss | Retained Earnings | Total Stockholders' Equity | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Par Value | Shares | Par Value | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balances at beginning of period | 2,614 | $ | — | $ | 64,444 | $ | (3,530) | $ | 64,799 | $ | 125,713 | 2,741 | $ | — | $ | 55,811 | $ | (693) | $ | 69,761 | $ | 124,879 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock | 14 | — | — | — | — | — | 11 | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares withheld related to net share settlement | (6) | — | (960) | — | (49) | (1,009) | (4) | — | (797) | — | (128) | (925) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Share-based compensation | — | — | 3,051 | — | — | 3,051 | — | — | 2,498 | — | — | 2,498 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Share repurchases | (56) | — | — | — | (9,218) | (9,218) | (34) | — | — | — | (9,386) | (9,386) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss) | — | — | — | 549 | — | 549 | — | — | — | (1,303) | — | (1,303) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | 5,709 | 5,709 | — | — | — | — | 7,465 | 7,465 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balances at end of period | 2,566 | $ | — | $ | 66,535 | $ | (2,981) | $ | 61,241 | $ | 124,795 | 2,714 | $ | — | $ | 57,512 | $ | (1,996) | $ | 67,712 | $ | 123,228 | |||||||||||||||||||||||||||||||||||||||||||||||||
See Accompanying Notes to Condensed Consolidated Financial Statements.
10
META PLATFORMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
| Three Months Ended March 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Cash flows from operating activities | |||||||||||
| Net income | $ | 5,709 | $ | 7,465 | |||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
| Depreciation and amortization | 2,524 | 2,156 | |||||||||
| Share-based compensation | 3,051 | 2,498 | |||||||||
| Deferred income taxes | (620) | (563) | |||||||||
| Impairment charges for facilities consolidation | 770 | — | |||||||||
| Other | (7) | (221) | |||||||||
| Changes in assets and liabilities: | |||||||||||
| Accounts receivable | 2,546 | 2,557 | |||||||||
| Prepaid expenses and other current assets | 821 | 573 | |||||||||
| Other assets | 30 | (108) | |||||||||
| Accounts payable | (1,104) | (882) | |||||||||
| Partners payable | (240) | (105) | |||||||||
| Accrued expenses and other current liabilities | 334 | 763 | |||||||||
| Other liabilities | 184 | (57) | |||||||||
| Net cash provided by operating activities | 13,998 | 14,076 | |||||||||
| Cash flows from investing activities | |||||||||||
| Purchases of property and equipment | (6,842) | (5,441) | |||||||||
| Proceeds relating to property and equipment | 19 | 126 | |||||||||
| Purchases of marketable debt securities | (85) | (4,068) | |||||||||
| Maturities and sales of marketable debt securities | 534 | 5,467 | |||||||||
| Acquisitions of businesses and intangible assets | (444) | (853) | |||||||||
| Other investing activities | 75 | (10) | |||||||||
| Net cash used in investing activities | (6,743) | (4,779) | |||||||||
| Cash flows from financing activities | |||||||||||
| Taxes paid related to net share settlement of equity awards | (1,009) | (925) | |||||||||
| Repurchases of Class A common stock | (9,365) | (9,506) | |||||||||
| Principal payments on finance leases | (264) | (233) | |||||||||
| Other financing activities | 122 | 4 | |||||||||
| Net cash used in financing activities | (10,516) | (10,660) | |||||||||
| Effect of exchange rate changes on cash, cash equivalents, and restricted cash | 85 | (149) | |||||||||
| Net decrease in cash, cash equivalents, and restricted cash | (3,176) | (1,512) | |||||||||
| Cash, cash equivalents, and restricted cash at beginning of the period | 15,596 | 16,865 | |||||||||
| Cash, cash equivalents, and restricted cash at end of the period | $ | 12,420 | $ | 15,353 | |||||||
| Reconciliation of cash, cash equivalents, and restricted cash to the condensed consolidated balance sheets | |||||||||||
| Cash and cash equivalents | $ | 11,551 | $ | 14,886 | |||||||
| Restricted cash, included in prepaid expenses and other current assets | 224 | 294 | |||||||||
| Restricted cash, included in other assets | 645 | 173 | |||||||||
| Total cash, cash equivalents, and restricted cash | $ | 12,420 | $ | 15,353 | |||||||
See Accompanying Notes to Condensed Consolidated Financial Statements.
11
META PLATFORMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
| Three Months Ended March 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Supplemental cash flow data | |||||||||||
| Cash paid for income taxes, net | $ | 405 | $ | 502 | |||||||
| Cash paid for interest, net of amounts capitalized | $ | 182 | $ | — | |||||||
| Non-cash investing and financing activities: | |||||||||||
| Property and equipment in accounts payable and accrued expenses and other current liabilities | $ | 4,466 | $ | 3,709 | |||||||
| Acquisition of businesses in accrued expenses and other current liabilities and other liabilities | $ | 263 | $ | 73 | |||||||
| Settlement of convertible notes in exchange of equity securities in other current assets | $ | — | $ | 131 | |||||||
| Other current assets through financing arrangement in accrued expenses and other current liabilities | $ | 11 | $ | 659 | |||||||
| Repurchases of Class A common stock in accrued expenses and other current liabilities | $ | 86 | $ | 221 | |||||||
See Accompanying Notes to Condensed Consolidated Financial Statements.
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META PLATFORMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (GAAP) and applicable rules and regulations of the Securities and Exchange Commission regarding interim financial reporting. Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. As such, the information included in this quarterly report on Form 10-Q should be read in conjunction with the consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the year ended December 31, 2022.
The condensed consolidated balance sheet as of December 31, 2022 included herein was derived from the audited financial statements as of that date, but does not include all disclosures including notes required by GAAP.
The condensed consolidated financial statements include the accounts of Meta Platforms, Inc., its subsidiaries where we have controlling financial interests, and any variable interest entities for which we are deemed to be the primary beneficiary. All intercompany balances and transactions have been eliminated.
The accompanying condensed consolidated financial statements reflect all normal recurring adjustments that are necessary to present fairly the results for the interim periods presented. Interim results are not necessarily indicative of the results for the full year ending December 31, 2023.
Use of Estimates
Preparation of condensed consolidated financial statements in conformity with GAAP requires the use of estimates and judgments that affect the reported amounts in the condensed consolidated financial statements and accompanying notes. These estimates form the basis for judgments we make about the carrying values of our assets and liabilities, which are not readily apparent from other sources. We base our estimates and judgments on historical information and on various other assumptions that we believe are reasonable under the circumstances. GAAP requires us to make estimates and judgments in several areas, including, but not limited to, those related to revenue recognition, valuation of non-marketable equity securities, income taxes, loss contingencies, including the ultimate resolution of litigation, regulatory matters, and asserted and unasserted claims, valuation of long-lived assets including goodwill, intangible assets, and property and equipment, and their associated estimated useful lives, valuation of purchase commitments, credit losses of available-for-sale debt securities and accounts receivable, fair value of financial instruments, and fair value of leases. These estimates are based on management's knowledge about current events, interpretation of regulations, and expectations about actions we may undertake in the future. Actual results could differ materially from those estimates.
Significant Accounting Policies
There have been no material changes to our significant accounting policies from our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.
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Note 2. Revenue
Revenue disaggregated by revenue source and by segment consists of the following (in millions):
| Three Months Ended March 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Advertising | $ | 28,101 | $ | 26,998 | |||||||
| Other revenue | 205 | 215 | |||||||||
| Family of Apps | 28,306 | 27,213 | |||||||||
| Reality Labs | 339 | 695 | |||||||||
| Total revenue | $ | 28,645 | $ | 27,908 | |||||||
Revenue disaggregated by geography, based on the addresses of our customers, consists of the following (in millions):
| Three Months Ended March 31, | |||||||||||
| 2023 | 2022 | ||||||||||
United States and Canada (1) | $ | 11,449 | $ | 11,780 | |||||||
Europe (2) | 6,759 | 6,638 | |||||||||
| Asia-Pacific | 7,292 | 6,722 | |||||||||
Rest of World (2) | 3,145 | 2,768 | |||||||||
| Total revenue | $ | 28,645 | $ | 27,908 | |||||||
(1) United States revenue was $10.79 billion and $11.10 billion for the three months ended March 31, 2023 and 2022, respectively.
(2) Europe includes Russia and Turkey, and Rest of World includes Africa, Latin America, and the Middle East.
Our total deferred revenue was $492 million and $526 million as of March 31, 2023 and December 31, 2022, respectively. As of March 31, 2023, we expect $460 million of our deferred revenue to be realized in less than a year.
14
Note 3. Restructuring
2023 Restructuring
In March 2023, we announced three rounds of planned layoffs to further reduce our company size by approximately 10,000 employees across the Family of Apps (FoA) and Reality Labs (RL) segments (the “2023 Restructuring”). Impacted employees in our recruiting and technology teams were notified in March 2023 and April 2023, respectively. We expect to notify employees in our business groups and remaining technology teams in May 2023. In certain regions, it may take through the end of 2023 or longer to complete these layoffs. In connection with these layoffs, we expect to incur total pre-tax severance and related personnel costs of approximately $1 billion across the FoA and RL segments. We began recording these restructuring charges in the first quarter of 2023 and expect that the remaining charges will be substantially recognized by the end of 2023 in accordance with the Accounting Standards Codification (ASC) Topic 420, Exit or Disposal Cost Obligations.
A summary of our 2023 Restructuring pre-tax charges recorded for severance and related personnel costs in the three months ended March 31, 2023 is as follows (in millions):
| Three Months Ended March 31, 2023 | |||||
| Research and development | $ | 324 | |||
| Marketing and sales | 5 | ||||
| General and administrative | 194 | ||||
Total (1) | $ | 523 | |||
(1) Total severance and related personnel costs include $61 million of share-based compensation expense recognized for the 2023 layoffs.
Total restructuring charges recorded under our FoA segment were $468 million and RL segment were $55 million for the three months ended March 31, 2023.
The following is a summary of changes in the accrued severance and other personnel liabilities related to 2023 layoff activities, included within accrued expenses and other current liabilities on the condensed consolidated balance sheets (in millions):
| Severance Liabilities | |||||
| Balance as of January 1, 2023 | $ | — | |||
| Severance and other personnel costs | 462 | ||||
| Cash payments | (9) | ||||
| Balance as of March 31, 2023 | $ | 453 | |||
We expect the liabilities as of March 31, 2023 to be substantially paid out in cash by the end of third quarter of 2023.
2022 Restructuring
In 2022, we initiated several measures to pursue greater efficiency and to realign our business and strategic priorities. This includes a facilities consolidation strategy to sublease, early terminate, or abandon several office buildings under operating leases, a layoff of approximately 11,000 employees across the FoA and RL segments, and a pivot towards a next generation data center design, including cancellation of multiple data center projects (the “2022 Restructuring”). As of March 31, 2023, we have substantially completed the 2022 employee layoff while continuing to assess facilities consolidation and data center restructuring initiatives. The 2022 Restructuring charges recorded to date were $5.23 billion, with $4.56 billion in FoA and the remainder in RL.
15
A summary of our 2022 Restructuring pre-tax charges, including subsequent adjustments, is as follows (in millions):
| 2022 | Three Months Ended March 31, 2023 | Plan to Date | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Facilities Consolidation | Severance and Other Personnel Costs | Data Center Assets | Total | Facilities Consolidation | Severance and Other Personnel Costs | Data Center Assets (1) | Total | Total | |||||||||||||||||||||||||||||||||||||||||||||
| Cost of revenue | $ | 154 | $ | — | $ | 1,341 | $ | 1,495 | $ | 58 | $ | — | $ | (168) | $ | (110) | $ | 1,385 | |||||||||||||||||||||||||||||||||||
| Research and development | 1,311 | 408 | — | 1,719 | 484 | (4) | — | 480 | 2,199 | ||||||||||||||||||||||||||||||||||||||||||||
| Marketing and sales | 404 | 234 | — | 638 | 136 | (2) | — | 134 | 772 | ||||||||||||||||||||||||||||||||||||||||||||
| General and administrative | 426 | 333 | — | 759 | 129 | (12) | — | 117 | 876 | ||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | 2,295 | $ | 975 | $ | 1,341 | $ | 4,611 | $ | 807 | $ | (18) | $ | (168) | $ | 621 | $ | 5,232 | |||||||||||||||||||||||||||||||||||
(1)Relates to a change in estimates in our data center restructuring charges recorded during the three months ended December 31, 2022.
The following is a summary of changes in the severance and other personnel liabilities related to the 2022 layoff activities, included within accrued expenses and other current liabilities on the condensed consolidated balance sheets (in millions):
| Severance Liabilities | |||||
| Balance as of January 1, 2022 | $ | — | |||
| Severance and other personnel costs | 975 | ||||
| Cash payments | (203) | ||||
| Balance as of December 31, 2022 | 772 | ||||
| Adjustments and foreign exchange | (27) | ||||
| Cash payments | (675) | ||||
| Balance as of March 31, 2023 | $ | 70 | |||
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Note 4. Earnings per Share
We compute earnings per share (EPS) of Class A and Class B common stock using the two-class method. As the liquidation and dividend rights for both Class A and Class B common stock are identical, the undistributed earnings are allocated on a proportionate basis to the weighted-average number of common shares outstanding for the period.
Basic EPS is computed by dividing net income by the weighted-average number of shares of our Class A and Class B common stock outstanding. For the calculation of diluted EPS, net income for basic EPS is adjusted by the effect of dilutive securities, including awards under our equity compensation plan.
In addition, the computation of the diluted EPS of Class A common stock assumes the conversion of our Class B common stock to Class A common stock, while the diluted EPS of Class B common stock does not assume the conversion of those shares to Class A common stock. Diluted EPS is computed by dividing the resulting net income by the weighted-average number of fully diluted common shares outstanding.
For the three months ended March 31, 2023 and 2022, approximately 86 million and 48 million shares of Class A common stock equivalents of restricted stock units (RSUs), respectively, were excluded from the diluted EPS calculation as including them would have an anti-dilutive effect.
Basic and diluted EPS are the same for each class of common stock because they are entitled to the same liquidation and dividend rights.
The numerators and denominators of the basic and diluted EPS computations for our common stock are calculated as follows (in millions, except per share amounts):
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2023 | 2022 | ||||||||||||||||||||||
| Class A | Class B | Class A | Class B | ||||||||||||||||||||
| Basic EPS: | |||||||||||||||||||||||
| Numerator | |||||||||||||||||||||||
| Net income | $ | 4,905 | $ | 804 | $ | 6,334 | $ | 1,131 | |||||||||||||||
| Denominator | |||||||||||||||||||||||
| Shares used in computation of basic earnings per share | 2,223 | 364 | 2,312 | 413 | |||||||||||||||||||
| Basic EPS | $ | 2.21 | $ | 2.21 | $ | 2.74 | $ | 2.74 | |||||||||||||||
| Diluted EPS: | |||||||||||||||||||||||
| Numerator | |||||||||||||||||||||||
| Net income | $ | 4,905 | $ | 804 | $ | 6,334 | $ | 1,131 | |||||||||||||||
| Reallocation of net income as a result of conversion of Class B to Class A common stock | 804 | — | 1,131 | — | |||||||||||||||||||
| Reallocation of net income to Class B common stock | — | (3) | — | (7) | |||||||||||||||||||
| Net income for diluted EPS | $ | 5,709 | $ | 801 | $ | 7,465 | $ | 1,124 | |||||||||||||||
| Denominator | |||||||||||||||||||||||
| Shares used in computation of basic earnings per share | 2,223 | 364 | 2,312 | 413 | |||||||||||||||||||
| Conversion of Class B to Class A common stock | 364 | — | 413 | — | |||||||||||||||||||
| Weighted-average effect of dilutive RSUs | 9 | — | 17 | — | |||||||||||||||||||
| Shares used in computation of diluted earnings per share | 2,596 | 364 | 2,742 | 413 | |||||||||||||||||||
| Diluted EPS | $ | 2.20 | $ | 2.20 | $ | 2.72 | $ | 2.72 | |||||||||||||||
17
Note 5. Financial Instruments
We have cash deposits with financial institutions globally. As part of our cash management strategy, we concentrate cash deposits with large financial institutions subject to the strictest regulations and our marketable securities are held in diversified highly rated securities.
Instruments Measured at Fair Value
We classify our cash equivalents and marketable debt securities within Level 1 or Level 2 because we use quoted market prices or alternative pricing sources and models utilizing market observable inputs to determine their fair value. Our marketable equity securities are publicly traded stocks measured at fair value and classified within Level 1 in the fair value hierarchy because we use quoted prices for identical assets in active markets to estimate their fair value. Certain other assets are classified within Level 3 because factors used to develop the estimated fair value are unobservable inputs that are not supported by market activity.
The following tables summarize our assets measured at fair value on a recurring basis and the classification by level of input within the fair value hierarchy (in millions):
| Fair Value Measurement at Reporting Date Using | ||||||||||||||||||||||||||
| Description | March 31, 2023 | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | ||||||||||||||||||||||
| Cash | $ | 5,680 | ||||||||||||||||||||||||
| Cash equivalents: | ||||||||||||||||||||||||||
| Money market funds | 5,384 | $ | 5,384 | $ | — | $ | — | |||||||||||||||||||
| U.S. government and agency securities | 50 | 50 | — | — | ||||||||||||||||||||||
| Time deposits | 424 | — | 424 | — | ||||||||||||||||||||||
| Corporate debt securities | 13 | — | 13 | — | ||||||||||||||||||||||
| Total cash and cash equivalents | 11,551 | 5,434 | 437 | — | ||||||||||||||||||||||
| Marketable securities: | ||||||||||||||||||||||||||
| U.S. government securities | 8,706 | 8,706 | — | — | ||||||||||||||||||||||
| U.S. government agency securities | 4,997 | 4,997 | — | — | ||||||||||||||||||||||
| Corporate debt securities | 12,185 | — | 12,185 | — | ||||||||||||||||||||||
| Total marketable securities | 25,888 | 13,703 | 12,185 | — | ||||||||||||||||||||||
| Restricted cash equivalents | 579 | 579 | — | — | ||||||||||||||||||||||
| Other assets | 93 | — | — | 93 | ||||||||||||||||||||||
| Total | $ | 38,111 | $ | 19,716 | $ | 12,622 | $ | 93 | ||||||||||||||||||
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| Fair Value Measurement at Reporting Date Using | ||||||||||||||||||||||||||
| Description | December 31, 2022 | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | ||||||||||||||||||||||
| Cash | $ | 6,176 | ||||||||||||||||||||||||
| Cash equivalents: | ||||||||||||||||||||||||||
| Money market funds | 8,305 | $ | 8,305 | $ | — | $ | — | |||||||||||||||||||
| U.S. government and agency securities | 16 | 16 | — | — | ||||||||||||||||||||||
| Time deposits | 156 | — | 156 | — | ||||||||||||||||||||||
| Corporate debt securities | 28 | — | 28 | — | ||||||||||||||||||||||
| Total cash and cash equivalents | 14,681 | 8,321 | 184 | — | ||||||||||||||||||||||
| Marketable securities: | ||||||||||||||||||||||||||
| U.S. government securities | 8,708 | 8,708 | — | — | ||||||||||||||||||||||
| U.S. government agency securities | 4,989 | 4,989 | — | — | ||||||||||||||||||||||
| Corporate debt securities | 12,335 | — | 12,335 | — | ||||||||||||||||||||||
| Marketable equity securities | 25 | 25 | — | — | ||||||||||||||||||||||
| Total marketable securities | 26,057 | 13,722 | 12,335 | — | ||||||||||||||||||||||
| Restricted cash equivalents | 583 | 583 | — | — | ||||||||||||||||||||||
| Other assets | 157 | — | — | 157 | ||||||||||||||||||||||
| Total | $ | 41,478 | $ | 22,626 | $ | 12,519 | $ | 157 | ||||||||||||||||||
Unrealized Losses on Marketable Debt Securities
The following tables summarize our available-for-sale marketable debt securities with unrealized losses as of March 31, 2023 and December 31, 2022, aggregated by major security type and the length of time that individual securities have been in a continuous loss position (in millions):
| March 31, 2023 | |||||||||||||||||||||||||||||||||||
| Less than 12 months | 12 months or greater | Total | |||||||||||||||||||||||||||||||||
| Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | ||||||||||||||||||||||||||||||
| U.S. government securities | $ | 2,338 | $ | (59) | $ | 6,061 | $ | (311) | $ | 8,399 | $ | (370) | |||||||||||||||||||||||
| U.S. government agency securities | 130 | (2) | 4,769 | (260) | 4,899 | (262) | |||||||||||||||||||||||||||||
| Corporate debt securities | 1,685 | (25) | 10,194 | (735) | 11,879 | (760) | |||||||||||||||||||||||||||||
| Total | $ | 4,153 | $ | (86) | $ | 21,024 | $ | (1,306) | $ | 25,177 | $ | (1,392) | |||||||||||||||||||||||
| December 31, 2022 | |||||||||||||||||||||||||||||||||||
| Less than 12 months | 12 months or greater | Total | |||||||||||||||||||||||||||||||||
| Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | ||||||||||||||||||||||||||||||
| U.S. government securities | $ | 5,008 | $ | (234) | $ | 3,499 | $ | (247) | $ | 8,507 | $ | (481) | |||||||||||||||||||||||
| U.S. government agency securities | 524 | (17) | 4,415 | (308) | 4,939 | (325) | |||||||||||||||||||||||||||||
| Corporate debt securities | 4,555 | (249) | 7,256 | (634) | 11,811 | (883) | |||||||||||||||||||||||||||||
| Total | $ | 10,087 | $ | (500) | $ | 15,170 | $ | (1,189) | $ | 25,257 | $ | (1,689) | |||||||||||||||||||||||
The decrease in the gross unrealized losses for the three months ended March 31, 2023 is due to changes in interest rates. The allowance for credit losses and the gross unrealized gains on our marketable debt securities were not material as of March 31, 2023 and December 31, 2022.
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Contractual Maturities
The following table classifies our marketable debt securities by contractual maturities (in millions):
| March 31, 2023 | |||||
| Due within one year | $ | 5,163 | |||
| Due after one year to five years | 20,725 | ||||
| Total | $ | 25,888 | |||
Instruments Measured at Fair Value on Non-recurring Basis
Our non-marketable equity securities accounted for using the measurement alternative are measured at fair value on a non-recurring basis and are classified within Level 3 of the fair value hierarchy because we use significant unobservable inputs to estimate their fair value. Assets remeasured at fair value on a non-recurring basis within Level 3 during the three months ended March 31, 2023 and 2022 were $119 million and immaterial, respectively. For additional information, see Note 6 — Non-marketable Equity Securities.
Note 6. Non-marketable Equity Securities
Our non-marketable equity securities are investments in privately-held companies without readily determinable fair values. The following table summarizes our non-marketable equity securities that were measured using measurement alternative and equity method (in millions):
| March 31, 2023 | December 31, 2022 | ||||||||||
| Non-marketable equity securities under measurement alternative: | |||||||||||
| Initial cost | $ | 6,388 | $ | 6,388 | |||||||
| Cumulative upward adjustments | 293 | 293 | |||||||||
| Cumulative impairment/downward adjustments | (532) | (497) | |||||||||
| Carrying value | 6,149 | 6,184 | |||||||||
| Non-marketable equity securities under equity method | 18 | 17 | |||||||||
| Total | $ | 6,167 | $ | 6,201 | |||||||
Note 7. Property and Equipment
Property and equipment, net consists of the following (in millions):
| March 31, 2023 | December 31, 2022 | ||||||||||
| Land | $ | 1,874 | $ | 1,874 | |||||||
| Servers and network assets | 37,282 | 34,330 | |||||||||
| Buildings | 30,882 | 27,720 | |||||||||
| Leasehold improvements | 6,654 | 6,522 | |||||||||
| Equipment and other | 5,831 | 5,642 | |||||||||
| Finance lease right-of-use assets | 3,573 | 3,353 | |||||||||
| Construction in progress | 25,039 | 25,052 | |||||||||
| Property and equipment, gross | 111,135 | 104,493 | |||||||||
| Less: Accumulated depreciation | (26,979) | (24,975) | |||||||||
| Property and equipment, net | $ | 84,156 | $ | 79,518 | |||||||
20
Construction in progress includes costs mostly related to construction of data centers, network infrastructure, servers, and office facilities. As of March 31, 2023, construction in progress also includes $1.64 billion of servers and network assets components stored by our suppliers until required by our design manufacturers to fulfill certain purchase orders.
Depreciation expense on property and equipment was $2.48 billion and $2.12 billion for the three months ended March 31, 2023 and 2022, respectively. The majority of the property and equipment depreciation expense was from servers and network assets depreciation of $1.51 billion and $1.36 billion for the three months ended March 31, 2023 and 2022, respectively. During the three months ended March 31, 2023, we capitalized $53 million of interest expense related to certain eligible construction in progress assets.
During the three months ended March 31, 2023, we recorded a $97 million impairment loss for leasehold improvements assets, as a part of our facilities consolidation restructuring efforts, see Note 3 — Restructuring.
Note 8. Leases
We have entered into various non-cancelable operating lease agreements mostly for certain of our offices, data centers, colocations, and land. We have also entered into various non-cancelable finance lease agreements for certain network infrastructure. Our leases have original lease periods expiring between the remainder of 2023 and 2093. Many leases include one or more options to renew. We do not assume renewals in our determination of the lease term unless the renewals are deemed to be reasonably assured. Our lease agreements generally do not contain any material residual value guarantees or material restrictive covenants.
The components of lease costs are as follows (in millions):
| Three Months Ended March 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Finance lease cost: | |||||||||||
| Amortization of right-of-use assets | $ | 104 | $ | 98 | |||||||
| Interest | 5 | 4 | |||||||||
| Operating lease cost | 557 | 411 | |||||||||
| Variable lease cost and other, net | 124 | 90 | |||||||||
| Total lease cost | $ | 790 | $ | 603 | |||||||
During the three months ended March 31, 2023, we also recorded a $673 million impairment loss for operating lease right-of-use assets as a part of our facilities consolidation restructuring efforts. For additional information, see Note 3 — Restructuring.
Supplemental balance sheet information related to lease liabilities is as follows:
| March 31, 2023 | December 31, 2022 | ||||||||||
| Weighted-average remaining lease term: | |||||||||||
| Finance leases | 14.3 years | 14.4 years | |||||||||
| Operating leases | 12.2 years | 12.5 years | |||||||||
| Weighted-average discount rate: | |||||||||||
| Finance leases | 3.2 | % | 3.1 | % | |||||||
| Operating leases | 3.3 | % | 3.2 | % | |||||||
21
The following is a schedule, by years, of maturities of lease liabilities as of March 31, 2023 (in millions):
| Operating Leases | Finance Leases | ||||||||||
| The remainder of 2023 | $ | 1,362 | $ | 115 | |||||||
| 2024 | 2,208 | 60 | |||||||||
| 2025 | 2,049 | 60 | |||||||||
| 2026 | 1,859 | 56 | |||||||||
| 2027 | 1,834 | 54 | |||||||||
| Thereafter | 12,729 | 491 | |||||||||
| Total undiscounted cash flows | 22,041 | 836 | |||||||||
| Less: Imputed interest | (4,391) | (149) | |||||||||
Present value of lease liabilities (1) | $ | 17,650 | $ | 687 | |||||||
| $ | 1,479 | $ | 114 | ||||||||
| 16,171 | 573 | ||||||||||
Present value of lease liabilities (1) | $ | 17,650 | $ | 687 | |||||||
(1) Lease liabilities include those operating leases that we plan to sublease or abandon as a part of our facilities consolidation restructuring efforts. For additional information, see Note 3 — Restructuring.
The table above does not include lease payments that were not fixed at commencement or lease modification. As of March 31, 2023, we have additional operating and finance leases, that have not yet commenced, with lease obligations of approximately $10.26 billion and $1.33 billion, respectively, for data centers, colocations, offices, and network infrastructure. These operating and finance leases will commence between the remainder of 2023 and 2028 with lease terms of greater than one year to 30 years.
Supplemental cash flow information related to leases is as follows (in millions):
| Three Months Ended March 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Cash paid for amounts included in the measurement of lease liabilities: | |||||||||||
| Operating cash flows for operating leases | $ | 478 | $ | 389 | |||||||
| Operating cash flows for finance leases | $ | 5 | $ | 4 | |||||||
| Financing cash flows for finance leases | $ | 264 | $ | 233 | |||||||
| Lease liabilities arising from obtaining right-of-use assets: | |||||||||||
| Operating leases | $ | 1,282 | $ | 539 | |||||||
| Finance leases | $ | 70 | $ | 52 | |||||||
Note 9. Acquisitions, Goodwill, and Intangible Assets
During the three months ended March 31, 2023, we completed a business acquisition with total purchase consideration of $430 million in cash. Substantially all of the total consideration was allocated to $88 million of intangible assets and $343 million of goodwill. Goodwill generated from the business acquisition completed was primarily attributable to expected synergies and potential monetization opportunities. The amount of goodwill generated that was deductible for tax purposes was not material. Acquisition-related costs were immaterial and were expensed as incurred. Pro forma historical results of operations related to this business acquisition have not been presented because they are not significant to our condensed consolidated financial statements. We have included the financial results of this acquired business in our condensed consolidated financial statements from the date of acquisition.
22
Changes in the carrying amount of goodwill by reportable segment for the three months ended March 31, 2023 are as follows (in millions):
| Family of Apps | Reality Labs | Total | |||||||||||||||
| Goodwill at December 31, 2022 | $ | 19,250 | $ | 1,056 | $ | 20,306 | |||||||||||
| Acquisitions | — | 343 | 343 | ||||||||||||||
| Goodwill at March 31, 2023 | $ | 19,250 | $ | 1,399 | $ | 20,649 | |||||||||||
The following table sets forth the major categories of the intangible assets and their weighted‑average remaining useful lives (in millions):
| March 31, 2023 | December 31, 2022 | ||||||||||||||||||||||||||||||||||||||||
| Weighted-Average Remaining Useful Lives (in years) | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | |||||||||||||||||||||||||||||||||||
| Acquired technology | 5.0 | $ | 513 | $ | (154) | $ | 359 | $ | 507 | $ | (144) | $ | 363 | ||||||||||||||||||||||||||||
| Acquired patents | 2.8 | 365 | (284) | 81 | 380 | (289) | 91 | ||||||||||||||||||||||||||||||||||
| Other | 1.9 | 60 | (25) | 35 | 86 | (25) | 61 | ||||||||||||||||||||||||||||||||||
| Total finite-lived assets | 938 | (463) | 475 | 973 | (458) | 515 | |||||||||||||||||||||||||||||||||||
| Total indefinite-lived assets | N/A | 474 | — | 474 | 382 | — | 382 | ||||||||||||||||||||||||||||||||||
| Total intangible assets | $ | 1,412 | $ | (463) | $ | 949 | $ | 1,355 | $ | (458) | $ | 897 | |||||||||||||||||||||||||||||
Amortization expense of intangible assets was $47 million and $40 million for the three months ended March 31, 2023 and 2022, respectively.
As of March 31, 2023, expected amortization expense for the unamortized finite-lived intangible assets for the next five years and thereafter is as follows (in millions):
| The remainder of 2023 | $ | 132 | |||
| 2024 | 132 | ||||
| 2025 | 86 | ||||
| 2026 | 41 | ||||
| 2027 | 24 | ||||
| Thereafter | 60 | ||||
| Total | $ | 475 | |||
23
Note 10. Long-term Debt
In August 2022, we issued $10.0 billion of fixed-rate senior unsecured notes (the "Notes"). The following table summarizes the Notes and the carrying amount of our debt (in millions, except percentages):
| Maturity | Stated Interest Rate | Effective Interest Rate | March 31, 2023 | December 31, 2022 | |||||||||||||||||||||||||
| 2027 Notes | 2027 | 3.50% | 3.63% | $ | 2,750 | $ | 2,750 | ||||||||||||||||||||||
| 2032 Notes | 2032 | 3.85% | 3.92% | 3,000 | 3,000 | ||||||||||||||||||||||||
| 2052 Notes | 2052 | 4.45% | 4.51% | 2,750 | 2,750 | ||||||||||||||||||||||||
| 2062 Notes | 2062 | 4.65% | 4.71% | 1,500 | 1,500 | ||||||||||||||||||||||||
| Total face amount of long-term debt | 10,000 | 10,000 | |||||||||||||||||||||||||||
| Unamortized discount and issuance costs, net | (75) | (77) | |||||||||||||||||||||||||||
| Long-term debt | $ | 9,925 | $ | 9,923 | |||||||||||||||||||||||||
Each series of the Notes in the table above rank equally with each other. Interest on the Notes is payable semi-annually in arrears. We may redeem the Notes at any time, in whole or in part, at specified redemption prices. We are not subject to any financial covenants under the Notes. For the three months ended March 31, 2023, interest expense, net of capitalized interest, recognized on the debt was $49 million.
The total estimated fair value of our outstanding debt was $9.19 billion as of March 31, 2023. The fair value was determined based on the closing trading price per $100 of the Notes as of March 31, 2023 and is categorized accordingly as Level 2 in the fair value hierarchy.
As of March 31, 2023, future principal payments for the Notes, by year, are as follows (in millions):
| Remainder of 2023 through 2026 | $ | — | |||
| 2027 | 2,750 | ||||
| Thereafter | 7,250 | ||||
| Total outstanding debt | $ | 10,000 | |||
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Note 11. Liabilities
The components of accrued expenses and other current liabilities are as follows (in millions):
| March 31, 2023 | December 31, 2022 | ||||||||||
Legal-related accruals (1) | $ | 5,474 | $ | 4,795 | |||||||
| Accrued compensation and benefits | 3,392 | 4,591 | |||||||||
| Accrued property and equipment | 2,561 | 2,921 | |||||||||
| Accrued taxes | 3,589 | 2,339 | |||||||||
| Other current liabilities | 4,329 | 4,906 | |||||||||
| Accrued expenses and other current liabilities | $ | 19,345 | $ | 19,552 | |||||||
(1)Includes accruals for estimated fines, settlements, or other losses in connection with legal and related matters, as well as other legal fees. For further information, see Legal and Related Matters in Note 12 — Commitments and Contingencies.
The components of other liabilities are as follows (in millions):
| March 31, 2023 | December 31, 2022 | ||||||||||
| Income tax payable | $ | 6,946 | $ | 6,645 | |||||||
| Other non-current liabilities | 1,273 | 1,119 | |||||||||
| Other liabilities | $ | 8,219 | $ | 7,764 | |||||||
Note 12. Commitments and Contingencies
Contractual Commitments
We have $17.48 billion of non-cancelable contractual commitments as of March 31, 2023, which are primarily related to our investments in network infrastructure, servers, and consumer hardware products in Reality Labs. The following is a schedule, by years, of non-cancelable contractual commitments as of March 31, 2023 (in millions):
| The remainder of 2023 | $ | 10,745 | |||
| 2024 | 2,222 | ||||
| 2025 | 1,500 | ||||
| 2026 | 264 | ||||
| 2027 | 210 | ||||
| Thereafter | 2,536 | ||||
| Total | $ | 17,477 | |||
Additionally, as part of the normal course of business, we have entered into multi-year agreements to purchase renewable energy that do not specify a fixed or minimum volume commitment or to purchase certain server components that do not specify a fixed or minimum price commitment. We enter into these agreements in order to secure either volume or price. Using the projected market prices or expected volume consumption, the total estimated spend as of March 31, 2023 is approximately $12.22 billion, a majority of which is due beyond five years. The ultimate spend under these agreements may vary and will be based on prevailing market prices or actual volume purchased.
Legal and Related Matters
With respect to the cases, actions, and inquiries described below, we evaluate the associated developments on a regular basis and accrue a liability when we believe a loss is probable and the amount can be reasonably estimated. In addition, we believe there is a reasonable possibility that we may incur a loss in some of these matters. With respect to the matters
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described below that do not include an estimate of the amount of loss or range of possible loss, such losses or range of possible losses either cannot be estimated or are not individually material, but we believe there is a reasonable possibility that they may be material in the aggregate.
We are also party to various other legal proceedings, claims, and regulatory, tax or government inquiries and investigations that arise in the ordinary course of business. Additionally, we are required to comply with various legal and regulatory obligations around the world. The requirements for complying with these obligations may be uncertain and subject to interpretation and enforcement by regulatory and other authorities, and any failure to comply with such obligations could eventually lead to asserted legal or regulatory action. With respect to these other legal proceedings, claims, regulatory, tax, or government inquiries and investigations, and other matters, asserted and unasserted, we evaluate the associated developments on a regular basis and accrue a liability when we believe a loss is probable and the amount can be reasonably estimated. In addition, we believe there is a reasonable possibility that we may incur a loss in some of these other matters. We believe that the amount of losses or any estimable range of possible losses with respect to these other matters will not, either individually or in the aggregate, have a material adverse effect on our business and condensed consolidated financial statements.
The ultimate outcome of the legal and related matters described in this section, such as whether the likelihood of loss is remote, reasonably possible, or probable, or if and when the reasonably possible range of loss is estimable, is inherently uncertain. Therefore, if one or more of these matters were resolved against us for amounts in excess of management's estimates of loss, our results of operations and financial condition, including in a particular reporting period in which any such outcome becomes probable and estimable, could be materially adversely affected.
For information regarding income tax contingencies, see Note 14 — Income Taxes.
Privacy and Related Matters
Beginning on March 20, 2018, multiple putative class actions were filed in state and federal courts in the United States and elsewhere against us and certain of our directors and officers alleging various causes of action in connection with our platform and user data practices as well as the misuse of certain data by a developer that shared such data with third parties in violation of our terms and policies, and seeking unspecified damages and injunctive relief. With respect to the putative class actions alleging fraud and violations of consumer protection, privacy, and other laws in connection with the same matters, several of the cases brought on behalf of consumers in the United States were consolidated in the U.S. District Court for the Northern District of California. On September 9, 2019, the court granted, in part, and denied, in part, our motion to dismiss the consolidated putative consumer class action. On December 22, 2022, the parties entered into a settlement agreement to resolve the lawsuit, which provides for a payment of $725 million by us and is subject to court approval. In addition, our platform and user data practices, as well as the events surrounding the misuse of certain data by a developer, became the subject of U.S. Federal Trade Commission (FTC), state attorneys general, and other government inquiries in the United States, Europe, and other jurisdictions. We entered into a settlement and modified consent order to resolve the FTC inquiry, which took effect in April 2020. Among other matters, our settlement with the FTC required us to pay a penalty of $5.0 billion which was paid in April 2020 upon the effectiveness of the modified consent order. The state attorneys general inquiry and certain government inquiries in other jurisdictions remain ongoing. On July 16, 2021, a stockholder derivative action was filed in Delaware Chancery Court against certain of our directors and officers asserting breach of fiduciary duty and related claims relating to our historical platform and user data practices, as well as our settlement with the FTC. On July 20, 2021, other stockholders filed an amended derivative complaint in a related Delaware Chancery Court action, asserting breach of fiduciary duty and related claims against certain of our current and former directors and officers in connection with our historical platform and user data practices. On November 4, 2021, the lead plaintiffs filed a second amended and consolidated complaint in the stockholder derivative action. We believe the lawsuits described above are without merit, and we are vigorously defending them.
We also notify the Irish Data Protection Commission (IDPC), our lead European Union privacy regulator under the General Data Protection Regulation (GDPR), of certain other personal data breaches and privacy issues, and are subject to inquiries and investigations by the IDPC and other European regulators regarding various aspects of our regulatory compliance. For example, we are currently subject to an IDPC inquiry regarding Meta Platforms Ireland's ability to transfer European Economic Area Facebook user data to the United States, which is described further in "Legal Proceedings" contained in Part II, Item 1 of this Quarterly Report on Form 10-Q. The interpretation of the GDPR is still evolving and draft decisions in investigations by the IDPC are subject to review by other European privacy regulators as part of the GDPR's
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cooperation and consistency mechanisms, which may lead to significant changes in the final outcome of such investigations. As a result, the interpretation and enforcement of the GDPR, as well as the imposition and amount of penalties for non-compliance, are subject to significant uncertainty. Although we are vigorously defending our regulatory compliance, we have accrued significant amounts for loss contingencies related to these inquiries and investigations in Europe, and we believe there is a reasonable possibility that additional accruals for losses related to these matters could be material individually or in the aggregate.
On February 14, 2022, the State of Texas filed a lawsuit against us in Texas state court alleging that "tag suggestions" and other uses of facial recognition technology violated the Texas Capture or Use of Biometric Identifiers Act and the Texas Deceptive Trade Practices-Consumer Protection Act, and seeking statutory damages and injunctive relief. The case is currently scheduled for trial in January 2024. We believe this lawsuit is without merit, and we are vigorously defending it.
Beginning on June 7, 2021, multiple putative class actions were filed against us alleging that we improperly received individuals' information from third-party websites or apps via our business tools in violation of our terms and various state and federal laws and seeking unspecified damages and injunctive relief. We believe these lawsuits are without merit, and we are vigorously defending them.
Competition
We are subject to various litigation and government inquiries and investigations, formal or informal, by competition authorities in the United States, Europe, and other jurisdictions. Such investigations, inquiries, and lawsuits concern, among other things, our business practices in the areas of social networking or social media services, digital advertising, and/or mobile or online applications, as well as our acquisitions. For example, in June 2019 we were informed by the FTC that it had opened an antitrust investigation of our company. On December 9, 2020, the FTC filed a complaint against us in the U.S. District Court for the District of Columbia alleging that we engaged in anticompetitive conduct and unfair methods of competition in violation of Section 5 of the Federal Trade Commission Act and Section 2 of the Sherman Act, including by acquiring Instagram in 2012 and WhatsApp in 2014 and by maintaining conditions on access to our platform. In addition, beginning in the third quarter of 2019, we became the subject of antitrust investigations by the U.S. Department of Justice and state attorneys general. On December 9, 2020, the attorneys general from 46 states, the territory of Guam, and the District of Columbia filed a complaint against us in the U.S. District Court for the District of Columbia alleging that we engaged in anticompetitive conduct in violation of Section 2 of the Sherman Act, including by acquiring Instagram in 2012 and WhatsApp in 2014 and by maintaining conditions on access to our platform. The complaint also alleged that we violated Section 7 of the Clayton Act by acquiring Instagram and WhatsApp. The complaints of the FTC and attorneys general both sought a permanent injunction against our company's alleged violations of the antitrust laws, and other equitable relief, including divestiture or reconstruction of Instagram and WhatsApp. On June 28, 2021, the court granted our motions to dismiss the complaints filed by the FTC and attorneys general, dismissing the FTC's complaint with leave to amend and dismissing the attorneys general's case without prejudice. On July 28, 2021, the attorneys general filed a notice of appeal of the order dismissing their case and that appeal is now pending before the U.S. Court of Appeals for the District of Columbia Circuit. On August 19, 2021, the FTC filed an amended complaint, and on October 4, 2021, we filed a motion to dismiss this amended complaint. On January 11, 2022, the court denied our motion to dismiss the FTC's amended complaint. Multiple putative class actions have also been filed in state and federal courts in the United States and in the United Kingdom against us alleging violations of antitrust laws and other causes of action in connection with these acquisitions and/or other alleged anticompetitive conduct, and seeking damages and injunctive relief. Several of the cases brought on behalf of certain advertisers and users in the United States were consolidated in the U.S. District Court for the Northern District of California. On January 14, 2022, the court granted, in part, and denied, in part, our motion to dismiss the consolidated actions. On March 1, 2022, a first amended consolidated complaint was filed in the putative class action brought on behalf of certain advertisers. On December 6, 2022, the court denied our motion to dismiss the first amended consolidated complaint filed in the putative class action brought on behalf of certain advertisers. We believe these lawsuits are without merit, and we are vigorously defending them. In December 2022, the European Commission issued a Statement of Objections alleging that we tie Facebook Marketplace to Facebook and use data in a manner that infringes European Union competition rules.
Securities and Other Actions
Beginning on March 20, 2018, multiple putative class actions and derivative actions were filed in state and federal courts in the United States and elsewhere against us and certain of our directors and officers alleging violations of securities
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laws, breach of fiduciary duties, and other causes of action in connection with our platform and user data practices as well as the misuse of certain data by a developer that shared such data with third parties in violation of our terms and policies, and seeking unspecified damages and injunctive relief. Beginning on July 27, 2018, two putative class actions were filed in federal court in the United States against us and certain of our directors and officers alleging violations of securities laws in connection with the disclosure of our earnings results for the second quarter of 2018 and seeking unspecified damages. These two actions subsequently were transferred and consolidated in the U.S. District Court for the Northern District of California with the putative securities class action described above relating to our platform and user data practices. In a series of orders in 2019 and 2020, the district court granted our motions to dismiss the plaintiffs' claims. On January 17, 2022, the plaintiffs filed a notice of appeal of the order dismissing their case, and the appeal is now pending before the U.S. Court of Appeals for the Ninth Circuit. We believe the lawsuits described above are without merit, and we are vigorously defending them.
Beginning on August 15, 2018, multiple putative class actions were filed against us alleging that we inflated our estimates of the potential audience size for advertisements, resulting in artificially increased demand and higher prices. The cases were consolidated in the U.S. District Court for the Northern District of California and seek unspecified damages and injunctive relief. In a series of rulings in 2019, 2021, and 2022, the court dismissed certain of the plaintiffs' claims, but permitted their fraud and unfair competition claims to proceed. On March 29, 2022, the court granted the plaintiffs' motion for class certification. On June 21, 2022, the U.S. Court of Appeals for the Ninth Circuit granted our petition for permission to appeal the district court's class certification order, and the district court subsequently stayed the case. We believe this lawsuit is without merit, and we are vigorously defending it.
We are also subject to other government inquiries and investigations relating to our business activities and disclosure practices. For example, beginning in September 2021, we became subject to government investigations and requests relating to a former employee's allegations and release of internal company documents concerning, among other things, our algorithms, advertising and user metrics, and content enforcement practices, as well as misinformation and other undesirable activity on our platform, and user well-being. We have since received additional requests relating to these and other topics. Beginning on October 27, 2021, multiple putative class actions and derivative actions were filed in the U.S. District Court for the Northern District of California against us and certain of our directors and officers alleging violations of securities laws, breach of fiduciary duties, and other causes of action in connection with the same matters, and seeking unspecified damages. We believe these lawsuits are without merit, and we are vigorously defending them.
Beginning in January 2022, we became subject to litigation and other proceedings that were filed in various federal and state courts alleging that Facebook and Instagram cause "social media addiction" in teenage users, resulting in various mental health and other harms. A putative class action was also filed in U.S. state court on behalf of users under the age of 13, several class actions have been filed in Canada on behalf of Canadian users, and multiple school districts and one state in the U.S. have filed public nuisance claims based on similar allegations. On October 6, 2022, the federal cases were consolidated in the U.S. District Court for the Northern District of California. The California state court proceedings are now pending before a trial judge from Los Angeles County Superior Court. We believe these lawsuits are without merit, and we are vigorously defending them. We are also subject to government investigations and requests from multiple regulators concerning the use of our products, and the related mental and physical health and safety impacts on teenage users.
On March 8, 2022, a putative class action was filed in the U.S. District Court for the Northern District of California against us and certain of our directors and officers alleging violations of securities laws in connection with the disclosure of our earnings results for the fourth quarter of 2021 and seeking unspecified damages. We believe this lawsuit is without merit, and we are vigorously defending it.
In addition, we are subject to litigation and other proceedings involving law enforcement and other regulatory agencies, including in particular in Brazil, Russia, and other countries in Europe, in order to ascertain the precise scope of our legal obligations to comply with the requests of those agencies, including our obligation to disclose user information in particular circumstances. A number of such instances have resulted in the assessment of fines and penalties against us. We believe we have multiple legal grounds to satisfy these requests or prevail against associated fines and penalties, and we intend to vigorously defend such fines and penalties.
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Note 13. Stockholders' Equity
Share Repurchase Program
Our board of directors has authorized a share repurchase program of our Class A common stock, which commenced in January 2017 and does not have an expiration date. As of December 31, 2022, $10.87 billion remained available and authorized for repurchases under this program. In January 2023, an additional $40 billion of repurchases was authorized under this program. During the three months ended March 31, 2023, we repurchased and subsequently retired 56 million shares of our Class A common stock for an aggregate amount of $9.22 billion, including $77 million related to the 1% excise tax on net share repurchases as a result of the Inflation Reduction Act of 2022. As of March 31, 2023, $41.73 billion remained available and authorized for repurchases.
The timing and actual number of shares repurchased under the repurchase program depend on a variety of factors, including price, general business and market conditions, and other investment opportunities. Shares may be repurchased through open market purchases or privately negotiated transactions, including through the use of trading plans intended to qualify under Rule 10b5-1 under the Securities Exchange Act of 1934, as amended.
Share-based Compensation Plan
We have one active share-based employee compensation plan, the 2012 Equity Incentive Plan (Amended 2012 Plan), which was amended in each of June 2016, February 2018, and December 2022. Our Amended 2012 Plan provides for the issuance of incentive and nonqualified stock options, restricted stock awards, stock appreciation rights, RSUs, performance shares, and stock bonuses to qualified employees, directors, and consultants. Shares that are withheld in connection with the net settlement of RSUs or forfeited are added to the reserves of the Amended 2012 Plan.
Pursuant to the automatic increase provision under our Amended 2012 Plan, the number of shares reserved for issuance increases automatically on January 1 of each of the calendar years during the term of the Amended 2012 Plan, which will continue through April 2026, by a number of shares of Class A common stock equal to the lesser of (i) 2.5% of the total issued and outstanding shares of our Class A common stock as of the immediately preceding December 31st or (ii) a number of shares determined by our board of directors. Pursuant to this automatic increase provision, our board of directors approved an increase of 56 million shares of Class A common stock reserved for issuance, effective January 1, 2023.
In December 2022, our board of directors approved an amendment to our Amended 2012 Plan to increase the number of shares reserved for issuance under the Amended 2012 Plan by 425 million shares, effective March 1, 2023 (Plan Amendment). The Plan Amendment was also approved by holders of a majority of the voting power of our outstanding capital stock in December 2022. As of March 31, 2023, there were 458 million shares of our Class A common stock reserved for future issuance under our Amended 2012 Plan.
The following table summarizes our share-based compensation expense, which consists of the company's RSU expense, by line item in our condensed consolidated statements of income (in millions):
| Three Months Ended March 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Cost of revenue | $ | 160 | $ | 160 | |||||||
| Research and development | 2,449 | 1,941 | |||||||||
| Marketing and sales | 219 | 216 | |||||||||
| General and administrative | 223 | 181 | |||||||||
| Total share-based compensation expense | $ | 3,051 | $ | 2,498 | |||||||
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The following table summarizes the activities for our unvested RSUs for the three months ended March 31, 2023:
| Number of Shares | Weighted-Average Grant Date Fair Value Per Share | ||||||||||
| (in thousands) | |||||||||||
| Unvested at December 31, 2022 | 127,110 | $ | 216.93 | ||||||||
| Granted | 105,156 | $ | 196.27 | ||||||||
| Vested | (13,612) | $ | 211.80 | ||||||||
| Forfeited | (3,262) | $ | 229.43 | ||||||||
| Unvested at March 31, 2023 | 215,392 | $ | 206.98 | ||||||||
The fair value as of the respective vesting dates of RSUs that vested during the three months ended March 31, 2023 and 2022 was $2.44 billion and $2.43 billion, respectively. The income tax benefit recognized related to awards vested during the three months ended March 31, 2023 and 2022 was $519 million and $514 million, respectively.
As of March 31, 2023, there was $42.84 billion of unrecognized share-based compensation expense related to RSU awards. This unrecognized compensation expense is expected to be recognized over a weighted-average period of approximately three years based on vesting under the award service conditions. As a result of the 2023 Restructuring related to employees notified in April 2023, approximately 8 million of unvested RSUs as of March 31, 2023, are expected to be forfeited, and $1.57 billion of unrecognized share-based compensation expense related to these RSUs awards is not expected to be recognized.
Note 14. Income Taxes
Our tax provision for interim periods is determined using an estimated annual effective tax rate, adjusted for discrete items arising in that quarter. In each quarter, we update the estimated annual effective tax rate and make a year-to-date adjustment to the provision. The estimated annual effective tax rate is subject to significant volatility due to several factors, including our ability to accurately predict the proportion of our income (loss) before provision for income taxes in multiple jurisdictions, the U.S. tax benefits from foreign derived intangible income, the effects of tax law changes, the effects of acquisitions, and the integration of those acquisitions.
Our gross unrecognized tax benefits were $10.93 billion and $10.76 billion on March 31, 2023 and December 31, 2022, respectively. These unrecognized tax benefits were primarily accrued for the uncertainties related to transfer pricing with our foreign subsidiaries, which include licensing of intellectual property, providing services and other transactions, as well as for uncertainties with our research tax credits. If the gross unrecognized tax benefits as of March 31, 2023 were realized in a future period, this would result in a tax benefit of $6.62 billion within our provision for income taxes at such time. The amount of interest and penalties accrued was $1.18 billion and $1.07 billion as of March 31, 2023 and December 31, 2022, respectively. We expect to continue to accrue unrecognized tax benefits for certain recurring tax positions.
We are subject to taxation in the United States and various other state and foreign jurisdictions. The material jurisdictions in which we are subject to potential examination include the United States and Ireland. We are under examination by the Internal Revenue Service (IRS) for our 2014 through 2019 tax years. Our 2020 and subsequent tax years remain open to examination by the IRS and the Irish Revenue Commissioners.
In July 2016, we received a Statutory Notice of Deficiency (Notice) from the IRS related to transfer pricing with our foreign subsidiaries in conjunction with the examination of the 2010 tax year. While the Notice applies only to the 2010 tax year, the IRS stated that it will also apply its position for tax years subsequent to 2010 and has done so in years covered by the second Notice described below. We do not agree with the position of the IRS and have filed a petition in the Tax Court challenging the Notice. On January 15, 2020, the IRS's amendment to answer was filed stating that it planned to assert at trial an adjustment that is higher than the adjustment stated in the Notice. The first session of the trial was completed in March 2020 and the final trial session was completed in August 2022. We expect the Tax Court to issue an opinion in 2024. Based
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on the information provided, we believe that, if the IRS prevails in its updated position, this could result in an additional federal tax liability of an estimated, aggregate amount of up to approximately $9.0 billion in excess of the amounts in our originally filed U.S. return, plus interest and any penalties asserted.
In March 2018, we received a second Notice from the IRS in conjunction with the examination of our 2011 through 2013 tax years. The IRS applied its position from the 2010 tax year to each of these years and also proposed new adjustments related to other transfer pricing with our foreign subsidiaries and certain tax credits that we claimed. If the IRS prevails in its position for these new adjustments, this could result in an additional federal tax liability of up to approximately $680 million in excess of the amounts in our originally filed U.S. returns, plus interest and any penalties asserted. We do not agree with the positions of the IRS in the second Notice and have filed a petition in the Tax Court challenging the second Notice.
We have previously accrued an estimated unrecognized tax benefit consistent with the guidance in ASC 740, Income Taxes (ASC 740), that is lower than the potential additional federal tax liability from the positions taken by the IRS in the two Notices and its Pretrial Memorandum. In addition, if the IRS prevails in its positions related to transfer pricing with our foreign subsidiaries, the additional tax that we would owe would be partially offset by a reduction in the tax that we owe under the mandatory transition tax on accumulated foreign earnings from the 2017 Tax Cuts and Jobs Act. As of March 31, 2023, we have not resolved these matters and proceedings continue in the Tax Court.
We believe that adequate amounts have been reserved in accordance with ASC 740 for any adjustments to the provision for income taxes or other tax items that may ultimately result from these examinations. The timing of the resolution, settlement, and closure of any audits is highly uncertain, and it is reasonably possible that the balance of gross unrecognized tax benefits could significantly change in the next 12 months. Given the number of years remaining that are subject to examination, we are unable to estimate the full range of possible adjustments to the balance of gross unrecognized tax benefits. If the tax authorities prevail in the assessment of additional tax due, the assessed tax, interest, and penalties, if any, could have a material adverse impact on our financial position, results of operations, and cash flows.
Note 15. Segment and Geographical Information
We report our financial results for our two reportable segments: Family of Apps (FoA) and Reality Labs (RL). FoA includes Facebook, Instagram, Messenger, WhatsApp, and other services. RL includes augmented and virtual reality related consumer hardware, software, and content. Our operating segments are the same as our reportable segments.
Revenue and costs and expenses are generally directly attributed to our segments. These costs and expenses include certain product development related operating expenses, costs associated with partnership arrangements, consumer hardware product costs, content costs, and legal-related costs. Indirect costs are allocated to segments based on a reasonable allocation methodology, when such costs are significant to the performance measures of the operating segments. Indirect cost of revenue is allocated to our segments based on usage, such as costs related to the operation of our data centers and technical infrastructure. Indirect operating expenses, such as facilities, information technology, certain shared research and development activities, recruiting, and physical security expenses, are mostly allocated based on headcount.
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The following table sets forth our segment information of revenue and income (loss) from operations (in millions):
| Three Months Ended March 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Revenue: | |||||||||||
| Family of Apps | $ | 28,306 | $ | 27,213 | |||||||
| Reality Labs | 339 | 695 | |||||||||
| Total revenue | $ | 28,645 | $ | 27,908 | |||||||
| Income (loss) from operations: | |||||||||||
| Family of Apps | $ | 11,219 | $ | 11,484 | |||||||
| Reality Labs | (3,992) | (2,960) | |||||||||
| Total income from operations | $ | 7,227 | $ | 8,524 | |||||||
For information regarding revenue disaggregated by geography, see Note 2 — Revenue.
The following table sets forth our long-lived assets by geographic area, which consist of property and equipment, net and operating lease right-of-use assets (in millions):
| March 31, 2023 | December 31, 2022 | ||||||||||
| United States | $ | 80,214 | $ | 76,334 | |||||||
Rest of the world (1) | 16,841 | 15,857 | |||||||||
| Total long-lived assets | $ | 97,055 | $ | 92,191 | |||||||
(1) No individual country, other than disclosed above, exceeded 10% of our total long-lived assets for any period presented.
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Item 2.Management's Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion of our financial condition and results of operations in conjunction with our condensed consolidated financial statements and the related notes included elsewhere in this Quarterly Report on Form 10-Q and with our audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2022, as filed with the Securities and Exchange Commission. In addition to our historical condensed consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates, and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Quarterly Report on Form 10-Q, particularly in Part II, Item 1A, "Risk Factors." For a discussion of limitations in the measurement of certain of our community metrics, see the section entitled "Limitations of Key Metrics and Other Data" in this Quarterly Report on Form 10-Q.
To supplement our condensed consolidated financial statements, which are prepared and presented in accordance with generally accepted accounting principles in the United States (GAAP), we present revenue on a constant currency basis, which is a non-GAAP financial measure. Revenue on a constant currency basis is presented in the section entitled "—Revenue—Foreign Exchange Impact on Revenue." To calculate revenue on a constant currency basis, we translated revenue for the three months ended March 31, 2023 using the prior year's monthly exchange rates for our settlement or billing currencies other than the U.S. dollar.
This non-GAAP financial measure is not intended to be considered in isolation or as a substitute for, or superior to, financial information prepared and presented in accordance with GAAP. This measure may be different from non-GAAP financial measures used by other companies, limiting its usefulness for comparison purposes. Moreover, presentation of revenue on a constant currency basis is provided for year-over-year comparison purposes, and investors should be cautioned that the effect of changing foreign currency exchange rates has an actual effect on our operating results. We believe this non-GAAP financial measure provides investors with useful supplemental information about the financial performance of our business, enables comparison of financial results between periods where certain items may vary independent of business performance, and allows for greater transparency with respect to key metrics used by management in operating our business.
Executive Overview of First Quarter Results
Our mission is to give people the power to build community and bring the world closer together.
Our financial results and key community metrics for the first quarter of 2023 are set forth below. Our total revenue for the first quarter of 2023 was $28.65 billion, an increase of 3% compared to the first quarter of 2022, due to an increase in advertising revenue. Revenue on a constant currency basis was $29.46 billion for the first quarter of 2023, an increase of 6% compared to the first quarter of 2022. Ad impressions delivered across our Family of Apps increased 26% year-over-year in the first quarter of 2023, partially offset by a 17% year-over-year decrease in our average price per ad. We believe that advertising demand during the first quarter of 2023 continued to be impacted by a more challenging macroeconomic environment, as well as limitations on our ad targeting and measurement tools arising from changes to iOS and the regulatory environment. While overall pricing remains under pressure from these factors, we believe our ongoing improvements to ad targeting and measurement are continuing to drive improved results for advertisers.
Income from operations for the first quarter of 2023 was $7.23 billion, a decrease of $1.30 billion, or 15%, compared to the first quarter of 2022, due to an increase in cost and expenses, including $1.14 billion restructuring charges, an increase in operational expenses related to our data centers and technical infrastructure, and higher payroll and related expenses. The increase in cost and expenses was partially offset by an increase in advertising revenue.
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Consolidated and Segment Results
We report our financial results for our two reportable segments: Family of Apps (FoA) and Reality Labs (RL). FoA includes Facebook, Instagram, Messenger, WhatsApp, and other services. RL includes our augmented and virtual reality related consumer hardware, software, and content.
| Family of Apps | Reality Labs | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Three Months Ended March 31, | % change | Three Months Ended March 31, | % change | Three Months Ended March 31, | % change | ||||||||||||||||||||||||||||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||
| (in millions, except percentages) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Revenue | $ | 28,306 | $ | 27,213 | 4% | $ | 339 | $ | 695 | (51)% | $ | 28,645 | $ | 27,908 | 3% | ||||||||||||||||||||||||||||||||||||||
| Costs and expenses | $ | 17,087 | $ | 15,729 | 9% | $ | 4,331 | $ | 3,655 | 18% | $ | 21,418 | $ | 19,384 | 10% | ||||||||||||||||||||||||||||||||||||||
| Income (loss) from operations | $ | 11,219 | $ | 11,484 | (2)% | $ | (3,992) | $ | (2,960) | (35)% | $ | 7,227 | $ | 8,524 | (15)% | ||||||||||||||||||||||||||||||||||||||
| Operating margin | 40 | % | 42 | % | (1,178) | % | (426) | % | 25 | % | 31 | % | |||||||||||||||||||||||||||||||||||||||||
•Net income was $5.71 billion, with diluted earnings per share (EPS) of $2.20 for the three months ended March 31, 2023.
•Capital expenditures, including principal payments on finance leases, were $7.09 billion for the three months ended March 31, 2023.
•Effective tax rate was 22% for the three months ended March 31, 2023.
•Cash, cash equivalents, and marketable securities were $37.44 billion as of March 31, 2023.
•Long-term debt was $9.92 billion as of March 31, 2023.
•Headcount was 77,114 as of March 31, 2023, a decrease of 1% year-over-year. Substantially all employees impacted by the 2022 layoff are no longer reflected in our reported headcount as of March 31, 2023. Further, the employees that would be impacted by the 2023 layoffs are included in our reported headcount as of March 31, 2023.
Restructuring
In 2022, we initiated several measures to pursue greater efficiency and to realign our business and strategic priorities. This includes a facilities consolidation strategy to sublease, early terminate, or abandon several office buildings under operating leases, a layoff of our employees across the FoA and RL segments, and a pivot towards a next generation data center design, including cancellation of multiple data center projects. As of March 31, 2023, we have substantially completed the 2022 employee layoff while continuing to assess facilities consolidation and data center restructuring initiatives. We incurred additional pre-tax restructuring charges of $621 million in the first quarter of 2023.
In March 2023, we announced three rounds of planned layoffs to further reduce our company size by approximately 10,000 employees across the FoA and RL segments. In connection with these layoffs, we expect to incur total pre-tax severance and related personnel costs of approximately $1 billion, of which $523 million was recognized during the first quarter of 2023 and the remaining charges will be substantially recorded by the end of 2023.
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A summary of our restructuring charges for the three months ended March 31, 2023 by major activity type is as follows (in millions):
| Three Months Ended March 31, 2023 | |||||||||||||||||||||||
Severance and Other Personnel Costs (1) | Facilities Consolidation | Data Center Assets(2) | Total | ||||||||||||||||||||
| Cost of revenue | $ | — | $ | 58 | $ | (168) | $ | (110) | |||||||||||||||
| Research and development | 320 | 484 | — | 804 | |||||||||||||||||||
| Marketing and sales | 3 | 136 | — | 139 | |||||||||||||||||||
| General and administrative | 182 | 129 | — | 311 | |||||||||||||||||||
| Total | $ | 505 | $ | 807 | $ | (168) | $ | 1,144 | |||||||||||||||
(1) Includes severance and personnel costs of $523 million related to the 2023 layoffs and $18 million reduction in severance estimates related to the 2022 layoff.
(2) Relates to a change in estimates in our data center restructuring charges recorded during the three months ended December 31, 2022.
Total restructuring charges recorded under our FoA segment were $934 million and RL segment were $210 million for the three months ended March 31, 2023. These charges lowered our operating margin by four percentage points and diluted EPS by $0.44.
We expect to incur total pre-tax restructuring charges of approximately $3 billion to $5 billion during the full-year 2023, of which $1.14 billion was recognized during the three months ended March 31, 2023.
See Note 3 — Restructuring in the notes to the condensed consolidated financial statements included in Part I, Item 1, of this Quarterly Report on Form 10-Q for additional information regarding restructuring charges.
Family of Apps Metrics
•Family daily active people (DAP) was 3.02 billion on average for March 2023, an increase of 5% year-over-year.
•Family monthly active people (MAP) was 3.81 billion as of March 31, 2023, an increase of 5% year-over-year.
•Facebook daily active users (DAUs) were 2.04 billion on average for March 2023, an increase of 4% year-over-year.
•Facebook monthly active users (MAUs) were 2.99 billion as of March 31, 2023, an increase of 2% year-over-year.
•Ad impressions delivered across our Family of Apps in the first quarter of 2023 increased by 26% year-over-year, and the average price per ad in the first quarter of 2023 decreased by 17% year-over-year.
Developments in Advertising
Substantially all of our revenue is currently generated from advertising on Facebook and Instagram. We rely on targeting and measurement tools that incorporate data signals from user activity on websites and services that we do not control in order to deliver relevant and effective ads to our users. Our advertising revenue has been, and we expect will continue to be, adversely affected by reduced marketer spending as a result of limitations on our ad targeting and measurement tools arising from changes to the regulatory environment and third-party mobile operating systems and browsers.
In particular, legislative and regulatory developments such as the General Data Protection Regulation, ePrivacy Directive, and California Privacy Rights Act have impacted our ability to use data signals in our ad products, and we expect these and other developments such as the Digital Markets Act will have further impact in the future. As a result, we have implemented, and we will continue to implement, changes to our products and user data practices, which reduce our ability to effectively target and measure ads. In addition, mobile operating system and browser providers, such as Apple and Google, have implemented product changes and/or announced future plans to limit the ability of websites and application developers to collect and use these signals to target and measure advertising. For example, in 2021, Apple made certain changes to its products and data use policies in connection with changes to its iOS operating system that reduce our and other iOS developers' ability to target and measure advertising, which has negatively impacted, and we expect will continue to negatively impact, the size of the budgets marketers are willing to commit to us and other advertising platforms.
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To mitigate these developments, we are working to evolve our advertising systems to improve the performance of our ad products. We are developing privacy enhancing technologies to deliver relevant ads and measurement capabilities while reducing the amount of personal information we process, including by relying more on anonymized or aggregated third-party data. In addition, we are developing tools that enable marketers to share their data into our systems, as well as ad products that generate more valuable signals within our apps. More broadly, we also continue to innovate our advertising tools to help marketers prepare campaigns and connect with consumers, including developing growing formats such as Reels ads and our business messaging ad products. Across all of these efforts, we are making significant investments in artificial intelligence (AI) and machine learning to improve our delivery, targeting, and measurement capabilities. We are also engaging with others across our industry to explore the possibility of new open standards for the private and secure processing of data for advertising purposes. We believe our ongoing improvements to ad targeting and measurement are continuing to drive improved results for advertisers. However, we expect that some of these efforts will be long-term initiatives, and that the regulatory and platform developments described above will continue to adversely impact our advertising revenue for the foreseeable future.
Other Business and Macroeconomic Conditions
Other global and regional business, macroeconomic, and geopolitical conditions also have had, and we believe will continue to have, an impact on our user growth and engagement and advertising revenue. In particular, we believe advertising budgets have been pressured by factors such as inflation, rising interest rates, and related market uncertainty, which has led to reduced marketer spending. In addition, competitive products and services have reduced some users' engagement with our products and services. In response to competitive pressures, we are investing in Reels and in AI initiatives across our products, including our AI-powered discovery engine to recommend relevant unconnected content. While Reels is growing in usage, it monetizes at a lower rate than our feed and Stories products and we expect it will continue to monetize at a lower rate for the foreseeable future. We also have seen fluctuations and declines in the size of our active user base in one or more markets from time to time. For example, in connection with the war in Ukraine, access to Facebook and Instagram was restricted in Russia and the services were then prohibited by the Russian government, which continued to adversely affect user growth and engagement in the first quarter of 2023. These trends adversely affected advertising revenue in the first quarter of 2023, and we expect will continue to affect our advertising revenue in the foreseeable future.
Although we regularly evaluate a variety of sources to understand trends in our advertising revenue, we do not have perfect visibility into the factors driving advertiser spending decisions and our assessments involve complex judgments about what is driving advertising decisions across a large and diversified advertiser base across the globe. Trends impacting advertising spend are also dynamic and interrelated. As a result, it is difficult to identify with precision which advertiser spending decisions are attributable to which trends, and we are unable to quantify the exact impact that each trend had on our advertising revenue during the periods presented.
Investment Philosophy
We expect our total expenses in 2023 to be driven by headcount-related expenses and investments in our data center capacity, servers, and network infrastructure. The majority of our investments are directed toward developing our family of apps. In the three months ended March 31, 2023, 80% of our total costs and expenses were recognized in FoA and 20% were recognized in RL. Our FoA investments include expenses relating to headcount, data centers, and technical infrastructure as part of our efforts to develop our apps and our advertising services. These efforts include significant investments in AI initiatives, including to recommend relevant unconnected content across our products, enhance our advertising tools, and develop new product features using generative AI.
We are also making significant investments in our metaverse efforts, including developing virtual and augmented reality devices, software for social platforms, neural interfaces, and other foundational technologies for the metaverse. Our RL investments include expenses relating to headcount and technology development across these efforts. Many of our RL investments are directed toward long-term, cutting-edge research and development for products for the metaverse that are not on the market today and may only be fully realized in the next decade. Our RL segment reduced our 2022 overall operating profit by approximately $13.72 billion, and we expect our RL operating losses to increase in 2023 and beyond. We expect this will be a complex, evolving, and long-term initiative, and our ability to support our metaverse efforts is dependent on generating sufficient profits from other areas of our business. We are investing now because we believe this is the next chapter of the internet and will unlock monetization opportunities for businesses, developers, and creators, including around advertising, hardware, and digital goods.
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Trends in Our Family Metrics
The numbers for our key Family metrics, our DAP, MAP, and average revenue per person (ARPP), do not include users on our other products unless they would otherwise qualify as DAP or MAP, respectively, based on their other activities on our Family products.
Trends in the number of people in our community affect our revenue and financial results by influencing the number of ads we are able to show, the value of our ads to marketers, as well as our expenses and capital expenditures. Substantially all of our daily and monthly active people (as defined below) access our Family products on mobile devices.
•Daily Active People (DAP). We define a daily active person as a registered and logged-in user of Facebook, Instagram, Messenger, and/or WhatsApp (collectively, our "Family" of products) who visited at least one of these Family products through a mobile device application or using a web or mobile browser on a given day. We do not require people to use a common identifier or link their accounts to use multiple products in our Family, and therefore must seek to attribute multiple user accounts within and across products to individual people. Our calculations of DAP rely upon complex techniques, algorithms, and machine learning models that seek to estimate the underlying number of unique people using one or more of these products, including by matching user accounts within an individual product and across multiple products when we believe they are attributable to a single person, and counting such group of accounts as one person. As these techniques and models require significant judgment, are developed based on internal reviews of limited samples of user accounts, and are calibrated against user survey data, there is necessarily some margin of error in our estimates. We view DAP, and DAP as a percentage of MAP, as measures of engagement across our products. For additional information, see the section entitled "Limitations of Key Metrics and Other Data" in this Quarterly Report on Form 10-Q.
| DAP/MAP: | 79% | 79% | 78% | 79% | 79% | 79% | 79% | 79% | 79% | ||||||||||||||||||||
Note: We report the numbers of DAP and MAP as specific amounts, but these numbers are estimates of the numbers of unique people using our products and are subject to statistical variances and errors. While we expect the error margin for these estimates to vary from period to period, we estimate that such margin generally will be approximately 3% of our worldwide MAP. At our scale, it is very difficult to attribute multiple user accounts within and across products to individual people, and it is possible that the actual numbers of unique people using our products may vary significantly from our estimates, potentially beyond our estimated error margins. For additional information, see the section entitled "Limitations of Key Metrics and Other Data" in this Quarterly Report on Form 10-Q. In the first quarter of 2021, we updated our Family metrics calculations to maintain calibration of our models against recent user survey data, and we estimate such update contributed an aggregate of approximately 60 million DAP to our reported worldwide DAP in March 2021. In the third quarter of 2022, we updated our Family metrics calculations to maintain calibration of our models against recent user survey data, and we estimate such update contributed an aggregate of approximately 30 million DAP to our reported worldwide DAP in September 2022.
Worldwide DAP increased 5% to 3.02 billion on average during March 2023 from 2.87 billion during March 2022.
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•Monthly Active People (MAP). We define a monthly active person as a registered and logged-in user of one or more Family products who visited at least one of these Family products through a mobile device application or using a web or mobile browser in the last 30 days as of the date of measurement. We do not require people to use a common identifier or link their accounts to use multiple products in our Family, and therefore must seek to attribute multiple user accounts within and across products to individual people. Our calculations of MAP rely upon complex techniques, algorithms, and machine learning models that seek to estimate the underlying number of unique people using one or more of these products, including by matching user accounts within an individual product and across multiple products when we believe they are attributable to a single person, and counting such group of accounts as one person. As these techniques and models require significant judgment, are developed based on internal reviews of limited samples of user accounts, and are calibrated against user survey data, there is necessarily some margin of error in our estimates. We view MAP as a measure of the size of our global active community of people using our products. For additional information, see the section entitled "Limitations of Key Metrics and Other Data" in this Quarterly Report on Form 10-Q.
Note: We report the numbers of DAP and MAP as specific amounts, but these numbers are estimates of the numbers of unique people using our products and are subject to statistical variances and errors. While we expect the error margin for these estimates to vary from period to period, we estimate that such margin generally will be approximately 3% of our worldwide MAP. At our scale, it is very difficult to attribute multiple user accounts within and across products to individual people, and it is possible that the actual numbers of unique people using our products may vary significantly from our estimates, potentially beyond our estimated error margins. For additional information, see the section entitled "Limitations of Key Metrics and Other Data" in this Quarterly Report on Form 10-Q. In the first quarter of 2021, we updated our Family metrics calculations to maintain calibration of our models against recent user survey data, and we estimate such update contributed an aggregate of approximately 70 million MAP to our reported worldwide MAP in March 2021. In the third quarter of 2022, we updated our Family metrics calculations to maintain calibration of our models against recent user survey data, and we estimate such update contributed an aggregate of approximately 40 million MAP to our reported worldwide MAP in September 2022.
As of March 31, 2023, we had 3.81 billion MAP, an increase of 5% from 3.64 billion as of March 31, 2022.
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•Average Revenue Per Person (ARPP). We define ARPP as our total revenue during a given quarter, divided by the average of the number of MAP at the beginning and end of the quarter. While ARPP includes all sources of revenue, the number of MAP used in this calculation only includes users of our Family products as described in the definition of MAP above. We estimate that the share of revenue from users who are not also MAP was not material.
| ARPP: | $7.75 | $8.36 | $8.18 | $9.39 | $7.72 | $7.91 | $7.53 | $8.63 | $7.59 | ||||||||||||||||||||
 | Ad Revenue |  | Non-Ad Revenue | ||||||||||||||||||||||||||
Note: Non-advertising revenue includes RL revenue generated from the delivery of consumer hardware products and FoA Other revenue, which consists of net fees we receive from developers using our Payments infrastructure and revenue from various other sources.
During the first quarter of 2023, worldwide ARPP was $7.59, a decrease of 2% from the first quarter of 2022.
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Trends in Our Facebook User Metrics
The numbers for our key Facebook metrics, our DAUs, MAUs, and average revenue per user (ARPU), do not include users on Instagram, WhatsApp, or our other products, unless they would otherwise qualify as DAUs or MAUs, respectively, based on their other activities on Facebook.
Trends in the number of users affect our revenue and financial results by influencing the number of ads we are able to show, the value of our ads to marketers, as well as our expenses and capital expenditures. Substantially all of our daily and monthly active users (as defined below) access Facebook on mobile devices.
•Daily Active Users (DAUs). We define a daily active user as a registered and logged-in Facebook user who visited Facebook through our website or a mobile device, or used our Messenger application (and is also a registered Facebook user), on a given day. We view DAUs, and DAUs as a percentage of MAUs, as measures of user engagement on Facebook.
----
DAU/MAU:--66%------66%------66%------66%------67%------67%------67%------67%------68%-
-
-
-DAU/MAU:--75%-----75%------75%------74%------75%-----75%------74%------75%------74%----DAU/MAU:-73%------73%------73%-----72%------73%------74%------74%------75%------75%---
-
-
-DAU/MAU:--62%-----62%------63%------63%------64%-----64%------64%------65%------66%----DAU/MAU:-65%------65%------66%-----65%------66%------66%------66%------66%------67%---
Note: For purposes of reporting DAUs, MAUs, and ARPU by geographic region, Europe includes all users in Russia and Turkey and Rest of World includes all users in Africa, Latin America, and the Middle East.
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Worldwide DAUs increased 4% to 2.04 billion on average during March 2023 from 1.96 billion during March 2022. Users in India, Bangladesh, and Nigeria represented the top three sources of growth in DAUs during March 2023, relative to the same period in 2022.
•Monthly Active Users (MAUs). We define a monthly active user as a registered and logged-in Facebook user who visited Facebook through our website or a mobile device, or used our Messenger application (and is also a registered Facebook user), in the last 30 days as of the date of measurement. MAUs are a measure of the size of our global active user community on Facebook.
As of March 31, 2023, we had 2.99 billion MAUs, an increase of 2% from March 31, 2022. Users in India, Nigeria, and Vietnam represented the top three sources of growth in the first quarter of 2023, relative to the same period in 2022.
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Trends in Our Monetization by Facebook User Geography
We calculate our revenue by user geography based on our estimate of the geography in which ad impressions are delivered, virtual and digital goods are purchased, or consumer hardware products are shipped. We define ARPU as our total revenue in a given geography during a given quarter, divided by the average of the number of MAUs in the geography at the beginning and end of the quarter. While ARPU includes all sources of revenue, the number of MAUs used in this calculation only includes users of Facebook and Messenger as described in the definition of MAU above. While the share of revenue from users who are not also Facebook or Messenger MAUs has grown over time, we estimate that revenue from users who are Facebook or Messenger MAUs represents the substantial majority of our total revenue. See "Average Revenue Per Person (ARPP)" above for our estimates of trends in our monetization of our Family products. The geography of our users affects our revenue and financial results because we currently monetize users in different geographies at different average rates. Our revenue and ARPU in regions such as United States & Canada and Europe are relatively higher primarily due to the size and maturity of those online and mobile advertising markets. For example, ARPU in the first quarter of 2023 in the United States & Canada region was more than 10 times higher than in the Asia-Pacific region.
---ARPU:--$9.27---$10.12---$10.00---$11.57---$9.54----$9.82----$9.41----$10.86---$9.62-
-
--ARPU:--$48.03--$53.01--$52.34--$60.57---$48.29--$50.25---$49.13---$58.77---$48.85--------ARPU:--$15.49--$17.23--$16.50--$19.68--$15.35---$15.64--$14.23--$17.29---$15.51
-ARPU:--$3.94----$4.16----$4.30----$4.89----$4.47----$4.54----$4.42-----$4.61----$4.52-------ARPU:--$2.64-----$3.05----$3.14----$3.43----$3.14----$3.35----$3.21-----$3.52----$3.35
| Ad Revenue | | Non-Ad Revenue | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Note: Non-advertising revenue includes RL revenue generated from the delivery of consumer hardware products and FoA Other revenue, which consists of net fees we receive from developers using our Payments infrastructure and revenue from various other sources.
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Our revenue by user geography in the charts above is geographically apportioned based on our estimation of the geographic location of our users when they perform a revenue-generating activity. This allocation differs from our revenue disaggregated by geography disclosure in Note 2 — Revenue in our condensed consolidated financial statements included in Part I, Item 1, "Financial Statements" where revenue is geographically apportioned based on the addresses of our customers.
During the first quarter of 2023, worldwide ARPU was $9.62, an increase of 1% from the first quarter of 2022. Over this period, ARPU increased by 7% in Rest of World and by 1% in Europe, United States & Canada, and Asia-Pacific. User growth was mostly in geographies with relatively lower ARPU, such as Rest of World and Asia-Pacific. We expect that user growth in the future will be primarily concentrated in those regions where ARPU is relatively lower, such that worldwide ARPU may continue to increase at a slower rate relative to ARPU in any geographic region in a particular period, or potentially decrease even if ARPU increases in each geographic region.
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Components of Results of Operations
Revenue
Family of Apps (FoA)
Advertising. We generate substantially all of our revenue from advertising. Our advertising revenue is generated by displaying ad products on Facebook, Instagram, Messenger, and third-party mobile applications. Marketers pay for ad products either directly or through their relationships with advertising agencies or resellers, based on the number of impressions delivered or the number of actions, such as clicks, taken by users.
We recognize revenue from the display of impression-based ads in the contracted period in which the impressions are delivered. Impressions are considered delivered when an ad is displayed to a user. We recognize revenue from the delivery of action-based ads in the period in which a user takes the action the marketer contracted for. The number of ads we show is subject to methodological changes as we continue to evolve our ads business and the structure of our ads products. In particular, the number of ads we show may vary by product (for example, our video and Reels products are monetized at a lower rate than our feed or Stories products), and from time to time we increase or decrease the number or frequency of ads we show as part of our product and monetization strategies. We calculate average price per ad as total advertising revenue divided by the number of ads delivered, representing the average price paid per ad by a marketer regardless of their desired objective such as impression or action. For advertising revenue arrangements where we are not the principal, we recognize revenue on a net basis.
Other revenue. Other revenue consists of net fees we receive from developers using our Payments infrastructure and revenue from WhatsApp Business Platform and various other sources.
Reality Labs (RL)
RL revenue is generated from the delivery of consumer hardware products, such as Meta Quest, wearables, and related software and content.
Cost of Revenue and Operating Expenses
Cost of revenue. Our cost of revenue consists mostly of expenses associated with the delivery and distribution of our products. These include expenses related to the operation of our data centers and technical infrastructure, such as depreciation expense from servers, network infrastructure and buildings, as well as payroll and related expenses which include share-based compensation for employees on our operations teams, and energy and bandwidth costs. Cost of revenue also includes costs associated with partner arrangements, including traffic acquisition costs and credit card and other fees related to processing customer transactions, and content costs. Additionally, cost of revenue includes RL inventory costs, which consist of cost of products sold and estimated losses on non-cancelable contractual commitments.
Research and development. Research and development expenses consist primarily of payroll and related expenses which include share-based compensation, facilities-related costs for employees on our engineering and technical teams who are responsible for developing new products as well as improving existing products, RL technology development costs, and professional services.
Marketing and sales. Marketing and sales expenses consist mostly of marketing and promotional expenses as well as payroll and related expenses, which include share-based compensation, for our employees engaged in sales, sales support, marketing, business development, and customer service functions. Our marketing and sales expenses also include professional services such as content reviewers to support our community and product operations.
General and administrative. General and administrative expenses consist primarily of payroll and related expenses which include share-based compensation for certain of our executives as well as our legal, finance, human resources, corporate communications and policy, and other administrative employees; legal-related costs, which include estimated fines, settlements, or other losses in connection with legal and related matters, as well as other legal fees; professional services, and other taxes, such as digital services taxes, other tax levies.
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Results of Operations
The following table sets forth our condensed consolidated statements of income data (in millions):
| Three Months Ended March 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Revenue | $ | 28,645 | $ | 27,908 | |||||||
| Costs and expenses: | |||||||||||
| Cost of revenue | 6,108 | 6,005 | |||||||||
| Research and development | 9,381 | 7,707 | |||||||||
| Marketing and sales | 3,044 | 3,312 | |||||||||
| General and administrative | 2,885 | 2,360 | |||||||||
| Total costs and expenses | 21,418 | 19,384 | |||||||||
| Income from operations | 7,227 | 8,524 | |||||||||
| Interest and other income, net | 80 | 384 | |||||||||
| Income before provision for income taxes | 7,307 | 8,908 | |||||||||
| Provision for income taxes | 1,598 | 1,443 | |||||||||
| Net income | $ | 5,709 | $ | 7,465 | |||||||
The following table sets forth our condensed consolidated statements of income data (as a percentage of revenue)(1):
| Three Months Ended March 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Revenue | 100 | % | 100 | % | |||||||
| Costs and expenses: | |||||||||||
| Cost of revenue | 21 | 22 | |||||||||
| Research and development | 33 | 28 | |||||||||
| Marketing and sales | 11 | 12 | |||||||||
| General and administrative | 10 | 8 | |||||||||
| Total costs and expenses | 75 | 69 | |||||||||
| Income from operations | 25 | 31 | |||||||||
| Interest and other income, net | — | 1 | |||||||||
| Income before provision for income taxes | 26 | 32 | |||||||||
| Provision for income taxes | 6 | 5 | |||||||||
| Net income | 20 | % | 27 | % | |||||||
____________________________________
(1) Percentages have been rounded for presentation purposes and may differ from unrounded results.
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Revenue
The following table sets forth our revenue by source and by segment:
| Three Months Ended March 31, | |||||||||||||||||
| 2023 | 2022 | % change | |||||||||||||||
| (in millions, except percentages) | |||||||||||||||||
| Advertising | $ | 28,101 | $ | 26,998 | 4 | % | |||||||||||
| Other revenue | 205 | 215 | (5) | % | |||||||||||||
| Family of Apps | 28,306 | 27,213 | 4 | % | |||||||||||||
| Reality Labs | 339 | 695 | (51) | % | |||||||||||||
| Total revenue | $ | 28,645 | $ | 27,908 | 3 | % | |||||||||||
Family of Apps
FoA revenue in the three months ended March 31, 2023 increased $1.09 billion, or 4%, compared to the same period in 2022. The increase was driven by advertising revenue.
Advertising
Advertising revenue in the three months ended March 31, 2023 increased $1.10 billion, or 4%, compared to the same period in 2022 due to an increase in the number of ads delivered, partially offset by a decrease in the average price per ad. During the three months ended March 31, 2023, the number of ads delivered increased by 26% year-over-year as compared with an increase of 15% in the same period in 2022. Ad impressions grew in all regions during the three months ended March 31, 2023 as compared to the same period in 2022, primarily driven by an increase in ads delivered in Asia-Pacific and Rest of World. The increase in ads delivered during the three months ended March 31, 2023 was driven by increases in the number and frequency of ads displayed across our products and an increase in users. During the three months ended March 31, 2023, the average price per ad decreased by 17% year-over-year, as compared with a decrease of 8% in the same period in 2022. The decrease in average price per ad was driven by an increase in the number of ads delivered, especially in geographies and in products such as video and Reels that monetize at lower rates, an unfavorable foreign exchange impact, and lower advertising demand, which we believe continued to be impacted by a more challenging macroeconomic environment, as well as, to a lesser extent, the other factors discussed in the section entitled "—Executive Overview of First Quarter Results." In addition, year-over-year advertising revenue growth was driven mostly by marketer spending in the online commerce, healthcare, and entertainment and media industries. We anticipate that future advertising revenue will be driven by a combination of price and the number of ads delivered.
Reality Labs
RL revenue in the three months ended March 31, 2023 decreased $356 million, or 51%, compared to the same period in 2022. The decrease in RL revenue was primarily driven by a decrease in the volume of Meta Quest sales.
Foreign Exchange Impact on Revenue
The general strengthening of the U.S. dollar relative to certain foreign currencies for the three months ended March 31, 2023 compared to the same period in 2022 had an unfavorable impact on revenue. If we had translated revenue for the three months ended March 31, 2023 using the prior year's monthly exchange rates for our settlement or billing currencies other than the U.S. dollar, our total revenue and advertising revenue would have been $29.46 billion and $28.91 billion, respectively. Using these constant rates, total revenue and advertising revenue would have been $816 million and $806 million higher than actual total revenue and advertising revenue, respectively, for the three months ended March 31, 2023.
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Cost of revenue
| Three Months Ended March 31, | |||||||||||||||||
| 2023 | 2022 | % change | |||||||||||||||
| (in millions, except percentages) | |||||||||||||||||
| Cost of revenue | $ | 6,108 | $ | 6,005 | 2 | % | |||||||||||
| Percentage of revenue | 21 | % | |||||||||||||||