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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 September 30, 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.
| | | | | | | | | | | | | | | | | |
Large accelerated filer | | ☒ | Accelerated filer | | ☐ |
Non-accelerated filer | | ☐ | Smaller reporting company | | ☐ |
| | | Emerging growth company | | ☐ |
| | | | | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) 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 | 2,219,607,026 | | shares outstanding as of October 20, 2023 |
Class B Common Stock | $0.000006 par value | 350,255,706 | | shares outstanding as of October 20, 2023 |
Meta Platforms, Inc.
Form 10-Q
For the Quarterly Period Ended September 30, 2023
TABLE OF CONTENTS
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.
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 or other factors such as data limitations or other challenges in measuring large online and mobile populations. For example, our Family metrics estimates in some instances exceed estimates of addressable online and mobile populations that are based on data published by third parties.
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 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 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.
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) | | | | | | | | | | | |
| September 30, 2023 | | December 31, 2022 |
Assets | | | |
Current assets: | | | |
Cash and cash equivalents | $ | 36,890 | | | $ | 14,681 | |
Marketable securities | 24,233 | | | 26,057 | |
Accounts receivable, net | 12,944 | | | 13,466 | |
Prepaid expenses and other current assets | 4,311 | | | 5,345 | |
Total current assets | 78,378 | | | 59,549 | |
Non-marketable equity securities | 6,142 | | | 6,201 | |
Property and equipment, net | 91,772 | | | 79,518 | |
Operating lease right-of-use assets | 13,033 | | | 12,673 | |
Intangible assets, net | 813 | | | 897 | |
Goodwill | 20,668 | | | 20,306 | |
Other assets | 5,468 | | | 6,583 | |
Total assets | $ | 216,274 | | | $ | 185,727 | |
| | | |
Liabilities and stockholders' equity | | | |
Current liabilities: | | | |
Accounts payable | $ | 4,372 | | | $ | 4,990 | |
Partners payable | 770 | | | 1,117 | |
Operating lease liabilities, current | 1,460 | | | 1,367 | |
Accrued expenses and other current liabilities | 23,929 | | | 19,552 | |
Total current liabilities | 30,531 | | | 27,026 | |
Operating lease liabilities, non-current | 16,374 | | | 15,301 | |
Long-term debt | 18,383 | | | 9,923 | |
Other liabilities | 8,113 | | | 7,764 | |
Total liabilities | 73,401 | | | 60,014 | |
Commitments and contingencies | | | |
Stockholders' equity: | | | |
Common stock, $0.000006 par value; 5,000 million Class A shares authorized, 2,221 million and 2,247 million shares issued and outstanding, as of September 30, 2023 and December 31, 2022, respectively; 4,141 million Class B shares authorized, 350 million and 367 million shares issued and outstanding, as of September 30, 2023 and December 31, 2022, respectively | — | | | — | |
Additional paid-in capital | 71,224 | | | 64,444 | |
Accumulated other comprehensive loss | (3,556) | | | (3,530) | |
Retained earnings | 75,205 | | | 64,799 | |
Total stockholders' equity | 142,873 | | | 125,713 | |
Total liabilities and stockholders' equity | $ | 216,274 | | | $ | 185,727 | |
See Accompanying Notes to Condensed Consolidated Financial Statements.
META PLATFORMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In millions, except per share amounts)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
Revenue | $ | 34,146 | | | $ | 27,714 | | | $ | 94,791 | | | $ | 84,444 | |
Costs and expenses: | | | | | | | |
Cost of revenue | 6,210 | | | 5,716 | | | 18,264 | | | 16,913 | |
Research and development | 9,241 | | | 9,170 | | | 27,966 | | | 25,567 | |
Marketing and sales | 2,877 | | | 3,780 | | | 9,075 | | | 10,688 | |
General and administrative | 2,070 | | | 3,384 | | | 9,119 | | | 8,731 | |
Total costs and expenses | 20,398 | | | 22,050 | | | 64,424 | | | 61,899 | |
Income from operations | 13,748 | | | 5,664 | | | 30,367 | | | 22,545 | |
Interest and other income (expense), net | 272 | | | (88) | | | 254 | | | 125 | |
Income before provision for income taxes | 14,020 | | | 5,576 | | | 30,621 | | | 22,670 | |
Provision for income taxes | 2,437 | | | 1,181 | | | 5,540 | | | 4,123 | |
Net income | $ | 11,583 | | | $ | 4,395 | | | $ | 25,081 | | | $ | 18,547 | |
Earnings per share attributable to Class A and Class B common stockholders: | | | | | | | |
Basic | $ | 4.50 | | | $ | 1.64 | | | $ | 9.73 | | | $ | 6.86 | |
Diluted | $ | 4.39 | | | $ | 1.64 | | | $ | 9.56 | | | $ | 6.82 | |
Weighted-average shares used to compute earnings per share attributable to Class A and Class B common stockholders: | | | | | | | |
Basic | 2,576 | | | 2,682 | | | 2,577 | | | 2,703 | |
Diluted | 2,641 | | | 2,687 | | | 2,623 | | | 2,718 | |
See Accompanying Notes to Condensed Consolidated Financial Statements.
META PLATFORMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In millions)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
Net income | $ | 11,583 | | | $ | 4,395 | | | $ | 25,081 | | | $ | 18,547 | |
Other comprehensive income (loss): | | | | | | | |
Change in foreign currency translation adjustment, net of tax | (533) | | | (1,037) | | | (322) | | | (2,472) | |
Change in unrealized gain (loss) on available-for-sale investments and other, net of tax | 83 | | | (606) | | | 296 | | | (1,889) | |
Comprehensive income | $ | 11,133 | | | $ | 2,752 | | | $ | 25,055 | | | $ | 14,186 | |
See Accompanying Notes to Condensed Consolidated Financial Statements.
META PLATFORMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In millions)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, 2023 | | Three Months Ended September 30, 2022 |
| Class A and Class B Common Stock | | Additional Paid-In Capital | | Accumulated Other Comprehensive 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 | 2,573 | | | $ | — | | | $ | 69,159 | | | $ | (3,106) | | | $ | 67,980 | | | $ | 134,033 | | | 2,697 | | | $ | — | | | $ | 59,929 | | | $ | (3,411) | | | $ | 69,249 | | | $ | 125,767 | |
Issuance of common stock | 17 | | | — | | | — | | | — | | | — | | | — | | | 14 | | | — | | | — | | | — | | | — | | | — | |
Shares withheld related to net share settlement | (7) | | | — | | | (1,427) | | | — | | | (660) | | | (2,087) | | | (5) | | | — | | | (971) | | | — | | | (40) | | | (1,011) | |
Share-based compensation | — | | | — | | | 3,492 | | | — | | | — | | | 3,492 | | | — | | | — | | | 3,134 | | | — | | | — | | | 3,134 | |
Share repurchases | (12) | | | — | | | — | | | — | | | (3,698) | | | (3,698) | | | (41) | | | — | | | — | | | — | | | (6,548) | | | (6,548) | |
Other comprehensive loss | — | | | — | | | — | | | (450) | | | — | | | (450) | | | — | | | — | | | — | | | (1,643) | | | — | | | (1,643) | |
Net income | — | | | — | | | — | | | — | | | 11,583 | | | 11,583 | | | — | | | — | | | — | | | — | | | 4,395 | | | 4,395 | |
Balances at end of period | 2,571 | | | $ | — | | | $ | 71,224 | | | $ | (3,556) | | | $ | 75,205 | | | $ | 142,873 | | | 2,665 | | | $ | — | | | $ | 62,092 | | | $ | (5,054) | | | $ | 67,056 | | | $ | 124,094 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2023 | | Nine Months Ended September 30, 2022 |
| Class A and Class B Common Stock | | Additional Paid-In Capital | | Accumulated Other Comprehensive 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 | 49 | | | — | | | — | | | — | | | — | | | — | | | 39 | | | — | | | — | | | — | | | — | | | — | |
Shares withheld related to net share settlement | (20) | | | — | | | (3,823) | | | — | | | (966) | | | (4,789) | | | (14) | | | — | | | (2,703) | | | — | | | (235) | | | (2,938) | |
Share-based compensation | — | | | — | | | 10,603 | | | — | | | — | | | 10,603 | | | — | | | — | | | 8,984 | | | — | | | — | | | 8,984 | |
Share repurchases | (72) | | | — | | | — | | | — | | | (13,709) | | | (13,709) | | | (101) | | | — | | | — | | | — | | | (21,017) | | | (21,017) | |
Other comprehensive loss | — | | | — | | | — | | | (26) | | | — | | | (26) | | | — | | | — | | | — | | | (4,361) | | | — | | | (4,361) | |
Net income | — | | | — | | | — | | | — | | | 25,081 | | | 25,081 | | | — | | | — | | | — | | | — | | | 18,547 | | | 18,547 | |
Balances at end of period | 2,571 | | | $ | — | | | $ | 71,224 | | | $ | (3,556) | | | $ | 75,205 | | | $ | 142,873 | | | 2,665 | | | $ | — | | | $ | 62,092 | | | $ | (5,054) | | | $ | 67,056 | | | $ | 124,094 | |
See Accompanying Notes to Condensed Consolidated Financial Statements.
META PLATFORMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited) | | | | | | | | | | | |
| Nine Months Ended September 30, |
| 2023 | | 2022 |
Cash flows from operating activities | | | |
Net income | $ | 25,081 | | | $ | 18,547 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | |
Depreciation and amortization | 8,006 | | | 6,310 | |
Share-based compensation | 10,603 | | | 8,984 | |
Deferred income taxes | 1,292 | | | (2,113) | |
Impairment charges for facilities consolidation, net | 1,342 | | | 413 | |
| | | |
| | | |
Other | 278 | | | 71 | |
Changes in assets and liabilities: | | | |
Accounts receivable | 444 | | | 1,930 | |
Prepaid expenses and other current assets | (141) | | | (693) | |
Other assets | 31 | | | (160) | |
Accounts payable | (543) | | | (666) | |
Partners payable | (347) | | | (12) | |
Accrued expenses and other current liabilities | 5,702 | | | 2,942 | |
Other liabilities | (39) | | | 411 | |
Net cash provided by operating activities | 51,709 | | | 35,964 | |
Cash flows from investing activities | | | |
Purchases of property and equipment | (19,601) | | | (22,388) | |
Proceeds relating to property and equipment | 148 | | | 190 | |
Purchases of marketable debt securities | (1,810) | | | (8,885) | |
| | | |
Maturities and sales of marketable debt securities | 3,825 | | | 10,895 | |
| | | |
Acquisitions of businesses and intangible assets | (565) | | | (1,250) | |
Other investing activities | (20) | | | (1) | |
Net cash used in investing activities | (18,023) | | | (21,439) | |
Cash flows from financing activities | | | |
Taxes paid related to net share settlement of equity awards | (4,789) | | | (2,938) | |
Repurchases of Class A common stock | (13,832) | | | (21,093) | |
Proceeds from issuance of long-term debt, net | 8,455 | | | 9,921 | |
Principal payments on finance leases | (751) | | | (615) | |
Other financing activities | (182) | | | (351) | |
Net cash used in financing activities | (11,099) | | | (15,076) | |
Effect of exchange rate changes on cash, cash equivalents, and restricted cash | (283) | | | (1,063) | |
Net increase (decrease) in cash, cash equivalents, and restricted cash | 22,304 | | | (1,614) | |
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 | $ | 37,900 | | | $ | 15,251 | |
| | | |
Reconciliation of cash, cash equivalents, and restricted cash to the condensed consolidated balance sheets | | | |
Cash and cash equivalents | $ | 36,890 | | | $ | 14,308 | |
Restricted cash, included in prepaid expenses and other current assets | 152 | | | 232 | |
Restricted cash, included in other assets | 858 | | | 711 | |
Total cash, cash equivalents, and restricted cash | $ | 37,900 | | | $ | 15,251 | |
See Accompanying Notes to Condensed Consolidated Financial Statements.
META PLATFORMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited) | | | | | | | | | | | |
| Nine Months Ended September 30, |
| 2023 | | 2022 |
Supplemental cash flow data | | | |
Cash paid for income taxes, net | $ | 2,016 | | | $ | 4,647 | |
Cash paid for interest, net of amounts capitalized | $ | 302 | | | $ | — | |
Non-cash investing and financing activities: | | | |
Property and equipment in accounts payable and accrued expenses and other current liabilities | $ | 4,506 | | | $ | 4,130 | |
Acquisition of businesses in accrued expenses and other current liabilities and other liabilities | $ | 182 | | | $ | 294 | |
| | | |
| | | |
Repurchases of Class A common stock in accrued expenses and other current liabilities | $ | 122 | | | $ | 265 | |
See Accompanying Notes to Condensed Consolidated Financial Statements.
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.
Recently Adopted Accounting Pronouncements
On April 1, 2023 we early adopted Accounting Standards Update (ASU) No. 2023-01, Leases (Topic 842): Common Control Arrangements (ASU 2023-01), which requires leasehold improvements associated with common control leases to be amortized over the useful life to the common control group. The adoption of this new standard did not have a material impact on our condensed consolidated financial statements.
Note 2. Revenue
Revenue disaggregated by revenue source and by segment consists of the following (in millions):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
Advertising | $ | 33,643 | | | $ | 27,237 | | | $ | 93,242 | | | $ | 82,387 | |
Other revenue | 293 | | | 192 | | | 724 | | | 624 | |
Family of Apps | 33,936 | | | 27,429 | | | 93,966 | | | 83,011 | |
Reality Labs | 210 | | | 285 | | | 825 | | | 1,433 | |
Total revenue | $ | 34,146 | | | $ | 27,714 | | | $ | 94,791 | | | $ | 84,444 | |
Revenue disaggregated by geography, based on the addresses of our customers, consists of the following (in millions):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
United States and Canada (1) | $ | 12,908 | | | $ | 11,966 | | | $ | 36,761 | | | $ | 35,931 | |
Europe (2) | 7,578 | | | 5,996 | | | 21,852 | | | 19,284 | |
Asia-Pacific | 9,790 | | | 6,797 | | | 25,634 | | | 20,480 | |
Rest of World (2) | 3,870 | | | 2,955 | | | 10,544 | | | 8,749 | |
Total revenue | $ | 34,146 | | | $ | 27,714 | | | $ | 94,791 | | | $ | 84,444 | |
____________________________________(1) United States revenue was $12.16 billion and $11.29 billion for the three months ended September 30, 2023 and 2022, respectively, and $34.60 billion and $33.81 billion for the nine months ended September 30, 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 $526 million as of September 30, 2023 and December 31, 2022. As of September 30, 2023, we expect $509 million of our deferred revenue to be realized in less than a year.
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, technology, and business groups were notified during March 2023 to May 2023. In certain regions, it may take through the end of 2023 or longer to complete these layoffs. We expect total pre-tax severance and related personnel costs to be approximately $1.2 billion across the FoA and RL segments, of which $1.16 billion was recognized during the nine months ended September 30, 2023 in accordance with Accounting Standards Codification (ASC) Topic 420, Exit or Disposal Cost Obligations, where applicable.
A summary of our 2023 Restructuring pre-tax charges, including subsequent adjustments, recorded for severance and related personnel costs in the three and nine months ended September 30, 2023 is as follows (in millions):
| | | | | | | | | | | |
| Three Months Ended September 30, 2023 | | Nine Months Ended September 30, 2023 |
Research and development | $ | (72) | | | $ | 394 | |
Marketing and sales | 69 | | | 291 | |
General and administrative | 39 | | | 470 | |
Total (1) | $ | 36 | | | $ | 1,155 | |
____________________________________(1) Total severance and related personnel costs include $99 million expense for share-based compensation recognized for the layoffs during the nine months ended September 30, 2023.
During the three and nine months ended September 30, 2023, total restructuring charges recorded under our FoA segment were $37 million and $1.07 billion, respectively, and the remainder was recorded under our RL segment.
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 | 1,056 | |
Cash payments | (944) | |
Balance as of September 30, 2023 | $ | 112 | |
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 September 30, 2023, we have completed the 2022 employee layoff while continuing to assess facilities consolidation and data center restructuring initiatives.
A summary of our 2022 Restructuring pre-tax charges, including subsequent adjustments, is as follows (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, 2023 | | Nine Months Ended September 30, 2023 |
| Facilities Consolidation | | Severance and Other Personnel Costs | | Data Center Assets (1) | | Total | | Facilities Consolidation | | Severance and Other Personnel Costs | | Data Center Assets (1) | | Total |
Cost of revenue | $ | 25 | | | $ | — | | | $ | (12) | | | $ | 13 | | | $ | 92 | | | $ | — | | | $ | (232) | | | $ | (140) | |
Research and development | 228 | | | 2 | | | — | | | 230 | | | 871 | | | (9) | | | — | | | 862 | |
Marketing and sales | 54 | | | 1 | | | — | | | 55 | | | 233 | | | (1) | | | — | | | 232 | |
General and administrative | 45 | | | 1 | | | — | | | 46 | | | 210 | | | (16) | | | — | | | 194 | |
Total | $ | 352 | | | $ | 4 | | | $ | (12) | | | $ | 344 | | | $ | 1,406 | | | $ | (26) | | | $ | (232) | | | $ | 1,148 | |
____________________________________(1)Relates to changes in estimates in our data center restructuring charges recorded during 2022.
The 2022 Restructuring charges recorded to date were $5.76 billion, of which $3.70 billion were related to facilities consolidation, $1.11 billion were related to data center assets, and $949 million were related to severance and other personnel costs. These charges recorded under our FoA and RL segments were $4.96 billion and $794 million, respectively.
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 | (35) | |
Cash payments | (737) | |
Balance as of September 30, 2023 | $ | — | |
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 and nine months ended September 30, 2023, 5 million and 21 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. RSUs with anti-dilutive effect were 119 million and 93 million shares for the three and nine months ended September 30, 2022, respectively.
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 September 30, | | Nine Months Ended September 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
| Class A | | Class B | | Class A | | Class B | | Class A | | Class B | | Class A | | Class B |
Basic EPS: | | | | | | | | | | | | | | | |
Numerator | | | | | | | | | | | | | | | |
Net income | $ | 10,007 | | | $ | 1,576 | | | $ | 3,729 | | | $ | 666 | | | $ | 21,626 | | | $ | 3,455 | | | $ | 15,736 | | | $ | 2,811 | |
Denominator | | | | | | | | | | | | | | | |
Shares used in computation of basic earnings per share | 2,226 | | | 350 | | | 2,276 | | | 406 | | | 2,222 | | | 355 | | | 2,293 | | | 410 | |
Basic EPS | $ | 4.50 | | | $ | 4.50 | | | $ | 1.64 | | | $ | 1.64 | | | $ | 9.73 | | | $ | 9.73 | | | $ | 6.86 | | | $ | 6.86 | |
Diluted EPS: | | | | | | | | | | | | | | | |
Numerator | | | | | | | | | | | | | | | |
Net income | $ | 10,007 | | | $ | 1,576 | | | $ | 3,729 | | | $ | 666 | | | $ | 21,626 | | | $ | 3,455 | | | $ | 15,736 | | | $ | 2,811 | |
Reallocation of net income as a result of conversion of Class B to Class A common stock | 1,576 | | | — | | | 666 | | | — | | | 3,455 | | | — | | | 2,811 | | | — | |
Reallocation of net income to Class B common stock | — | | | (38) | | | — | | | (1) | | | — | | | (60) | | | — | | | (16) | |
Net income for diluted EPS | $ | 11,583 | | | $ | 1,538 | | | $ | 4,395 | | | $ | 665 | | | $ | 25,081 | | | $ | 3,395 | | | $ | 18,547 | | | $ | 2,795 | |
Denominator | | | | | | | | | | | | | | | |
Shares used in computation of basic earnings per share | 2,226 | | | 350 | | | 2,276 | | | 406 | | | 2,222 | | | 355 | | | 2,293 | | | 410 | |
Conversion of Class B to Class A common stock | 350 | | | — | | | 406 | | | — | | | 355 | | | — | | | 410 | | | — | |
Weighted-average effect of dilutive RSUs | 65 | | | — | | | 5 | | | — | | | 46 | | | — | | | 15 | | | — | |
Shares used in computation of diluted earnings per share | 2,641 | | | 350 | | | 2,687 | | | 406 | | | 2,623 | | | 355 | | | 2,718 | | | 410 | |
Diluted EPS | $ | 4.39 | | | $ | 4.39 | | | $ | 1.64 | | | $ | 1.64 | | | $ | 9.56 | | | $ | 9.56 | | | $ | 6.82 | | | $ | 6.82 | |
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 | | September 30, 2023 | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
Cash | | $ | 5,333 | | | | | | | |
Cash equivalents: | | | | | | | | |
Money market funds | | 29,639 | | | $ | 29,639 | | | $ | — | | | $ | — | |
U.S. government and agency securities | | 1,445 | | | 1,445 | | | — | | | — | |
| | | | | | | | |
Time deposits | | 350 | | | — | | | 350 | | | — | |
Corporate debt securities | | 123 | | | — | | | 123 | | | — | |
Total cash and cash equivalents | | 36,890 | | | 31,084 | | | 473 | | | — | |
Marketable securities: | | | | | | | | |
U.S. government securities | | 8,741 | | | 8,741 | | | — | | | — | |
U.S. government agency securities | | 4,028 | | | 4,028 | | | — | | | — | |
Corporate debt securities | | 11,464 | | | — | | | 11,464 | | | — | |
| | | | | | | | |
Total marketable securities | | 24,233 | | | 12,769 | | | 11,464 | | | — | |
Restricted cash equivalents | | 836 | | | 836 | | | — | | | — | |
Other assets | | 96 | | | — | | | — | | | 96 | |
Total | | $ | 62,055 | | | $ | 44,689 | | | $ | 11,937 | | | $ | 96 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | 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 September 30, 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):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 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 | $ | 567 | | | $ | (7) | | | $ | 7,235 | | | $ | (424) | | | $ | 7,802 | | | $ | (431) | |
U.S. government agency securities | 252 | | | (1) | | | 3,673 | | | (230) | | | 3,925 | | | (231) | |
Corporate debt securities | 660 | | | (10) | | | 10,196 | | | (715) | | | 10,856 | | | (725) | |
Total | $ | 1,479 | | | $ | (18) | | | $ | 21,104 | | | $ | (1,369) | | | $ | 22,583 | | | $ | (1,387) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 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 nine months ended September 30, 2023 is due to a shorter average portfolio duration. The allowance for credit losses and the gross unrealized gains on our marketable debt securities were not material as of September 30, 2023 and December 31, 2022.
Contractual Maturities
The following table classifies our marketable debt securities by contractual maturities (in millions):
| | | | | |
| September 30, 2023 |
Due within one year | $ | 7,167 | |
Due after one year to five years | 17,066 | |
Total | $ | 24,233 | |
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 nine months ended September 30, 2023 and 2022 were $53 million and $182 million, 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):
| | | | | | | | | | | |
| September 30, 2023 | | December 31, 2022 |
Non-marketable equity securities under measurement alternative: | | | |
Initial cost | $ | 6,389 | | | $ | 6,388 | |
Cumulative upward adjustments | 293 | | | 293 | |
Cumulative impairment/downward adjustments | (599) | | | (497) | |
Carrying value | 6,083 | | | 6,184 | |
Non-marketable equity securities under equity method | 59 | | | 17 | |
Total | $ | 6,142 | | | $ | 6,201 | |
Note 7. Property and Equipment
Property and equipment, net consists of the following (in millions):
| | | | | | | | | | | |
| September 30, 2023 | | December 31, 2022 |
Land | $ | 1,900 | | | $ | 1,874 | |
Servers and network assets | 44,662 | | | 34,330 | |
Buildings | 35,422 | | | 27,720 | |
Leasehold improvements | 6,841 | | | 6,522 | |
Equipment and other | 7,056 | | | 5,642 | |
Finance lease right-of-use assets | 3,794 | | | 3,353 | |
Construction in progress | 22,945 | | | 25,052 | |
Property and equipment, gross | 122,620 | | | 104,493 | |
Less: Accumulated depreciation | (30,848) | | | (24,975) | |
Property and equipment, net | $ | 91,772 | | | $ | 79,518 | |
Construction in progress includes costs mostly related to construction of data centers, network infrastructure and servers. As of September 30, 2023, construction in progress also includes $1.51 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 $2.83 billion and $2.13 billion for the three months ended September 30, 2023 and 2022, respectively, and $7.88 billion and $6.17 billion for the nine months ended September 30, 2023 and 2022, respectively. Within property and equipment, our servers and network assets depreciation expenses were $1.94 billion and $1.36 billion for the three months ended September 30, 2023 and 2022, respectively, and $5.16 billion and $3.92 billion for the nine months ended September 30, 2023 and 2022, respectively. During the three and nine months ended September 30, 2023, we capitalized $82 million and $198 million of interest expense, respectively, related to certain eligible construction in progress assets.
During the three and nine months ended September 30, 2023, we recorded $161 million and $352 million, respectively, of impairment loss mostly for leasehold improvements assets as a part of our facilities consolidation restructuring efforts. For additional information, see Note 3 — Restructuring.
Note 8. Leases
We have entered into various non-cancelable operating lease agreements mostly for our offices, data centers, and colocations. 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 September 30, | | Nine Months Ended September 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
Finance lease cost: | | | | | | | |
Amortization of right-of-use assets | $ | 80 | | | $ | 92 | | | $ | 264 | | | $ | 285 | |
Interest | 5 | | | 4 | | | 15 | | | 12 | |
Operating lease cost | 487 | | | 480 | | | 1,560 | | | 1,326 | |
Variable lease cost and other, net | 163 | | | 87 | | | 399 | | | 263 | |
Total lease cost | $ | 735 | | | $ | 663 | | | $ | 2,238 | | | $ | 1,886 | |
We also recorded net impairment losses for operating lease right-of-use assets as a part of our facilities consolidation restructuring efforts of $179 million and $990 million for the three and nine months ended September 30, 2023, respectively, and $353 million for the three and nine months ended September 30, 2022. For additional information, see Note 3 — Restructuring.
Supplemental balance sheet information related to lease liabilities is as follows:
| | | | | | | | | | | |
| September 30, 2023 | | December 31, 2022 |
Weighted-average remaining lease term: | | | |
Finance leases | 13.9 years | | 14.4 years |
Operating leases | 11.9 years | | 12.5 years |
Weighted-average discount rate: | | | |
Finance leases | 3.3 | % | | 3.1 | % |
Operating leases | 3.5 | % | | 3.2 | % |
The following is a schedule, by years, of maturities of lease liabilities as of September 30, 2023 (in millions):
| | | | | | | | | | | |
| Operating Leases | | Finance Leases |
The remainder of 2023 | $ | 387 | | | $ | 61 | |
2024 | 2,291 | | | 60 | |
2025 | 2,073 | | | 61 | |
2026 | 2,021 | | | 60 | |
2027 | 2,007 | | | 57 | |
Thereafter | 13,562 | | | 505 | |
Total undiscounted cash flows | 22,341 | | | 804 | |
Less: Imputed interest | (4,507) | | | (145) | |
Present value of lease liabilities (1) | $ | 17,834 | | | $ | 659 | |
| | | |
Lease liabilities, current | $ | 1,460 | | | $ | 85 | |
Lease liabilities, non-current | 16,374 | | | 574 | |
Present value of lease liabilities (1) | $ | 17,834 | | | $ | 659 | |
____________________________________(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 September 30, 2023, we have additional operating and finance leases, that have not yet commenced, with lease obligations of approximately $7.51 billion and $1.23 billion, respectively, primarily for data centers, colocations, 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):
| | | | | | | | | | | |
| Nine Months Ended September 30, |
| 2023 | | 2022 |
Cash paid for amounts included in the measurement of lease liabilities: | | | |
Operating cash flows for operating leases (1) | $ | 1,685 | | | $ | 1,197 | |
Operating cash flows for finance leases | $ | 15 | | | $ | 11 | |
Financing cash flows for finance leases | $ | 751 | | | $ | 615 | |
Lease liabilities arising from obtaining right-of-use assets: | | | |
Operating leases | $ | 3,042 | | | $ | 3,565 | |
Finance leases | $ | 460 | | | $ | 114 | |
____________________________________(1)Cash flows for operating leases during the nine months ended September 30, 2023 include cash paid for terminations of certain operating leases.
Note 9. Acquisitions, Goodwill, and Intangible Assets
During the nine months ended September 30, 2023, we completed business acquisitions with total purchase consideration of $467 million in cash. Substantially all of the total consideration was allocated to $88 million of intangible assets and $366 million of goodwill. Goodwill generated from these business acquisitions 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 these business acquisitions have not been presented because they are not significant to our condensed consolidated financial statements, either individually or in aggregate. We have included the financial results of these acquired businesses in our condensed consolidated financial statements from their respective dates of acquisition.
Changes in the carrying amount of goodwill by reportable segment for the nine months ended September 30, 2023 are as follows (in millions):
| | | | | | | | | | | | | | | | | |
| Family of Apps | | Reality Labs | | Total |
Goodwill at December 31, 2022 | $ | 19,250 | | | $ | 1,056 | | | $ | 20,306 | |
Acquisitions | — | | | 357 | | | 357 | |
Adjustments | (4) | | | 9 | | | 5 | |
Goodwill at September 30, 2023 | $ | 19,246 | | | $ | 1,422 | | | $ | 20,668 | |
The following table sets forth the major categories of the intangible assets and their weighted‑average remaining useful lives (in millions):