Meta CFO Susan Li on headcount vs. GPU allocation, “free cash flow” hats, and almost becoming a PM

0:00The joke people have that Instagram with the ads are better than the content. As someone who bought like 25 umbrellas that changed color in the rain off of the ad. They work. They do. They are a source of real delight. Headcuts really easy to account for because you have org charts. GPUs don't have that property. In fact, you often want to build out your infrastructure. You can live shenanigans. For it to be very fungible. Susan and I joined Facebook in 2008. She became CFO in 2022. It's a really interesting time for this discussion because Metta has a core business that's fire in all cylinders.

0:29and students have front row seats for the growth of the company. Cheers!

0:36You went to high school at 11, college at 15, Morgan Stanley at 19, and you're now the youngest safe of a Fortune 100 company. So just what's... what's got like with this U? Is this your parents? What's going on there? Well, you know, some might say, because I started kindergarten when I was four, and I graduated from college when I was 19 that having 15 years of formal education is, you know, I'm woefully undereducated as it were, so I'm really just having to make up for, you know, that rough start. But if I remember right, you are also done with formal education at the age of 19, 20... But that's kind of dropped out.

1:18Like, I wasn't eerily in progressing through the milestones. I just finished, whereas you actually got your... Well, it seems like we shared the same disdain for getting out of the schooling system as soon as possible. I have the furthest you can get out of mind. I was in a school system that identified when kids were bored in school and then just gave you opportunities to keep moving ahead and my parents always always took them when I showed up at Morgan Stanley for my first day. I was on the trading floor in the big Broadway headquarters at 1585 and the equivalent of an HRBP basically got the intention of everyone on the trading floor.

1:53Because his investment banking, which is known for being an inclusive and nurturing culture. Very, very much so. And so she wanted everyone on the floor to stop and look at me and know that no one was to serve me any alcohol and any company gathering. So it was exactly the way you think about sort of beginning your career on Wall Street, you know, by being mortified. And it's just an improvement from there. You worked under Michael Grimes as Morgan Stanley. He, for people who don't know, he's been leading tech investment banking at Morgan Stanley for 20 years, and he's just a phenom. I don't know how to describe me, he's just one of the most energetic people I've ever met.

2:32What did you learn from working with Michael? Grimes is extraordinarily sort of, like you said, very high energy, applies that to a whole host of things. You go talk to Michael about tech companies about banking, about parenting, about why there should be more undergraduate sales programs and colleges in the country. He's got a point of view on everything and he's endlessly curious. He is going to outwork you and out -learn you. And it's actually a pretty spectacular thing as a young person starting in your career to see what really excellence this looks like. You've been at Meta for a very long time.

3:15You joined in 2008. So you joined 2008. One thing I've observed before is just the senior leadership metta are all very tenures and often have done multiple things around the company or grown up around the company. What traits do the successful leaders at Meta have in common? Oh, that's a good question. Infinite patience. It's more than that. So I joined as an IC4 and in finance, so really actually pretty far away from the center of the... A few rungs sound from the CFO. Yes. And also far away from the core of engineers building newsfeed. When you talk to some of the folks now, they've always been at the very heart of what the product was building or doing.

4:03But what I think is unique about Meta is we have a pretty strong culture of internal succession planning and trying to identify people who are talented quite early in their careers actually and think about a many -year runway in which you're going to grow and develop them. How did Meta succession plan you? So I started off my career doing mostly revenue forecasting which was kind of like the a mathiest part of finance. At some point, I had done that probably for about five this years and I was trying to figure out what to do next. The two pads in front of me were, I was talking to some folks actually in news feed about whether I should just go do something totally different and go be a PM in newsfeed.

4:54The other option was to broaden my scope in finance to take on more traditional finance responsibility, is that I really had not that much exposure to. And I remember sitting down with David Ebersman, who was our CFO at the time, and he looked at me and said, look, I know you're considering these options. And I can tell you, I think doing that newsfeed PM Joll would be really fun, and I think it'd be a great learning experience for you. I totally get it. But I also want you to know that I think you could be a CFO of this company someday. And to have someone who I admired as much as David Ebersman say that about me was an extraordinarily confidence building thing.

5:34And I will remember that conversation forever, very viscerally. So I've had managers who I think have really invested in me by pushing me to take on things that I wouldn't have said, oh, I wouldn't have said, hey, can I please go do this thing next? It wouldn't have made obvious intuitive sense to me. But I think they thought it would be a good opportunity and that I was ready for it. and I think they were right. That's really cool. In the 17 years you've been as not a, how has Mark changed the leader? There are ways in which you clearly see someone evolve over 17 years. Mark has done all hands for all of those 17 years and he clearly has become now a truly excellent public speaker.

6:21Mark is really good at giving feedback. like really world class on it. And maybe you should try to get yourself in a position where you can get some feedback. I'm sure Mark already has feedback for me. So you can experience it. But it's very timely. It's very direct. It's very respectful. But the sort of direct and respectful, it's never mean. It's never like a belaboring some point. But you cannot be mistaken after you have received the feedback. Yes. Yes. Yes. He's really good at it. He kind of walks that line between being direct but kind and an extremely good way. One of the things people will often ask me is like, what kind of skills do you need to stay at a company for 17 years or whatever it is?

7:07And when I think about it, I go back to, when I was I see for it and I joined in 2008, I'm building these first revenue models. And I'd gone from banking, which is super organized, super structured. They don't even need to know your name. Like they just train you to immediately figure out how to find the backup to everything. So that two years later, someone else can do this and so on and so forth. There was no infrastructure, right? So I'm like hunting down the exact engineer who has built some ad server so that he can tell me what the parameters mean. And of course, the next time he changes them, he's not going to tell me.

7:40And I have to go find him again. He's like, oh, she's coming. You know, if I don't look her way. But a few months in, I got a meeting invite for power users of SQL. And I thought, my gosh, I've been getting a good amount of feedback about how things could be better. And so here was finally this moment of recognition that like, I didn't even know how to write queries in SQL when I started. And I show up to this meeting in their five other people and the meeting organizer tells us that we have been called because we are the five users of SQL who consume too much power. And we have just been churning with our massive joins, tables through the infrastructure.

8:21Basically, yes. But I often think back to this because this was a data analyst who didn't know any of us that well, but it just generated his reports of like who's using the most infrastructure and looked at the top people on the list and thought, okay, this person of finance that doesn't make sense why she's the third highest person on the list. and called us in and then taught us to write better quiz. And like, no one I think specifically told him to do that. And I think it's a little awkward when you call people in to do this. But he did it because it would make us like all better at our jobs.

8:54And I think for 17 years, I have been the beneficiary of a lot of feedback that has made me better along the way. So when people ask me this question, I always say just be a person who's good at receiving feedback. Yeah. You've mentioned your experience in forecasting. And what I think is the central challenge of a CFO and a large tech company is it's so hard to put numbers around the core thing we do. And what I mean by that is like if you're a bull and you're producing the 787, you're going to have a very clear model that we're going to spend this much, you know, manufacturing the 787 and then each one we're going to make this much gross profit on.

9:29And then at the like component by component level, you know, we're going to change from hydraulic brakes to electric brakes and it'll add this much cost, but we'll save this much feeling. It's all extremely quantified as it remains. Are you trying to bring to the resource allocation questions? Yes. Okay. Here we go. We really think about it as there's stuff that we can rigorously measure. Right. So that's a lot of the core family of apps work in terms of the impact on engagement, the impact on monetization. There's a lot of that stuff that is really finely tuned. Where... And that really does seem extremely finely tuned.

10:01Like I was looking at the numbers and you doubled ARPU between 2015 and 2020 and then 20 and 2025, but like, Meta wasn't bad at monetization in 2020 and it's doubles over that five -year period. No, and you know what? I just, you know, did earnings two, three weeks ago now and was, you know, doing all my investor callbacks. And one of our largest investors on the call, one of the portfolio managers said, feeling pretty good. You guys, you know, the ads are so good. And you know what, five years ago, I would have told you that the ads were really good, and that there was not really room for the ads to get better.

10:42But here we are, you know, five years later, and you know, the ads are, are, you know, are even better. And I mean, the joke people have about Instagram is the ads are better than the content. Well, I have to tell you, and someone who bought like 25 umbrellas that changed color in the rain off of a ad that was not something I knew that I, not that I needed, but that my children and all their friends needed. Do they work? They do. They are a source of real delight. So, you know, when the ads can be that good, that is an extraordinary thing. But getting back to your question. So there's this very sort of measurable part of the company.

11:15And we generally try to trade those things off against each other, you know, when we are thinking, when we're evaluating things within that bucket, and we generally try to fund the things that are positive our life. And I'm usually the person who's, you know, trying to just make sure we understand, like, yes, for every individual experiment, the expected return is something, but that's where we are on the curve today, but what about 50 experiments later? Does the curve still have the same slope? And then there's a set of things, right, which we constrain more in terms of, you know, the, you know, there's some envelope of investment that we're willing to make.

11:49That's not in this really ROI -driven bucket. It is very difficult to pencil out what the annual revenue forecast for reality labs is going to look like over the next 20 years. And so for bets like that, we sort of invert the problem. But when we talk about the return on the investment, the question that we pose as a finance organization to mark is and make sure that Mark and the board understand is what does this have to be worth to pencil out at the end? And does that pass sort of the sanity check, the intuition about what building, about what the size of these markets can be based on maybe some comparisons to markets that exist today.

12:34But of course, in another 10, 20 years, you expect that the world will look different, and maybe those markets should be bigger or smaller for whatever reason. And that's kind of the guide, which is like, hey, for this thing to succeed at the rate at which we're investing, it needs to be worth this at the end. And does that make sense? So in a way, investors may underestimate your ambition in some of these new areas where it's like, this is not a hobby. This is us investing in markets that are worth a huge amount of money if we have a new platform here. But the thing people may miss is thus the upside case you're considering is really serious.

13:15Yes. And we're only building because we think that that sort of it not only exists, but it's compelling. and it's compelling for financial reasons, but also strategic reasons why we want that version of the world to exist. And this is a place where I've got to be honest with you. Like I was one of the last people that come in and hand my blackberry over for an iPhone. So you're maybe not the... I am not a tech visionary.

13:43There are many things I'm good at but sort of envisioning the future of the world and what I wanted to be like is not one of them. I'm a very happy beneficiary of the technology built by the world around me. But Mark very much has a vision for what he wants that world to be. And so I think, and for him, I think the sort of strategic imperative is that we have to be building these sort of next states of the world, you know, for us to again be a good business, but also just be a compelling company that builds technology and puts it out in the world and, you know, builds incredible experiences for people.

14:18I remind people in the finance organization all the time is like, you know, we are very good at skeptically evaluating each bet, right? But the point is not that we have to look at every bet and be like, this bet is going to work. The point is there is a portfolio of bets, right? And some of them are going to pay off massively beyond, in fact, what's sort of the case on paper looks like when you make the bet. And many of them are going to not work out, but the ones that pay off are going to more than sort of justify the overall investment strategy or the overall sort of roadmap that you're building toward.

14:54And if we just allowed ourselves to nicks everything that sort of, you know, the paper case didn't seem high confidence, then we would never make a lot of the important bets that are, I think, that have been really important over the history of the company. When did you take over? Now, November 1st, 2022. Okay, yeah. So the, I think the... Good timing. The day you took over, the market cap troughed us $230 ,000 ,000. real sign of market confidence in me as you can tell. You probably remember the number of us, but it was around $230 billion. That means the day that you took over is CFO. One could have bought Facebook, or sorry, Maddox, as an investor, for three times, 2025, net income.

15:35That's like coal plant territory. That's sort of, it's very easy to make money is to buy good and growing businesses for three times net income. Well, I hope you did. I did not. This is funny. I'm not an interesting business. There was something that people deeply misunderstood at that point about meta. What did they misunderstand so much? Well, there's a bit here, by the way, sometimes I'm going to ask you how you feel about having public market investors someday, and when will that to be. But more to the point, you know, that sort of October 22 moment happened at a like there were multiple things going on.

16:20If you if you kind of rewind the clock, there were sort of two big revenue headwinds. One was that the sort of platform changes with ATT had kind of rolled through from 2021, which is one point. There was a Apple changing their policies around what tracking was permissible inside of Yes, exactly. So that was one thing. And then the second thing was just this sort of COVID fueled e -commerce avalanche was pulling back. And both of the things those things very... We're buying fewer color changing umbrellas. Sadly for the children of the world, yes. And so both of those things had the effect of unfortunately having for us the same time.

16:56So we really like, you know, went from this e -commerce fueled heyday in 2021 to now like negative year -rear growth for the first time, which is obviously very alarming. And so those stars kind of aligned in that stock price low kind of way. In October 2022, and I think what you've seen since then is a few things. One is that yes, there are these two exogenous factors that happen that were bad for revenue at the time, but the fundamental sort of underlying business, which is can we show the best possible ads to the right people at the right time across the surface of consumer experience as we are building, that continued to be very strong.

17:40And then the second thing is I think we demonstrated as a company that we are in fact able to turn the ship on costs in a very, very meaningful and very quick way. Speaking of that, you have to explain the free hash flow hash. And thank you for the hash, by the way. Oh, yes. Well, you're welcome, everyone. Really, should have one, I think they are under worn out in the world. The joke of the story is that Mark at one point gave me an EBITDA hat, which was a very kind gift from him to help me. I think it's a message, like I hope you went and prominently wore it or in many of the budgetary review meetings that you were in.

18:16I did. I did and I just, this is the mark gave me. Yes, and I had it in my background, you know, my zoom background for a long time. But But I realized pretty quickly that we actually, as a combination, be wearing free cashflow hats instead. Because of course, the D of EBITDA is a number of growing importance through our financials. And so I didn't want Mark to misinterpret and feel like EBITDA was going to be the end all, be all financial metric for us. So I'm now, there's only one EBITDA hat. There are many free cashflow hats. I give them out like candy. and try to make sure that people really understand that this is the hat that matters.

18:58You know, Charlie Munger had the joke that at the time you heard Ibedal, you should substitute with bullshit earnings. And so you similarly, for a cat -packs intensive business, you wanna make sure people are not forgetting about the cat -packs. Yes, exactly. Where does cat -packs go for, not just metta, but the tech industry broadly, because all of Microsoft, Google, and Metta have gotten more cat -packs intensive over the past few years, compared to their prior steady states. Like, do we continue spending this fraction of revenues on catbacks over a five or ten -year period? Does this, do we somehow get some kind of amazing computer gains?

19:32Are we ultimately like, we're bottlenecks on power? And so you just can't keep growing catbacks at this rate because you can't plug the data centers into anything. But where does catbacks go on an industry -wide level? That is the question that I assume that all of my counterparts at these companies and I are all thinking about. For us, there are the drivers of the way we're investing in CapEx today. Of course, we have, first of all, just a massively scaled consumer business and core AI infrastructure that powers all the ranking and recommendations work and so on and so forth. So that's always been a reasonably big number for us, but also one because it was getting more mature that we were driving to be more efficient over time.

20:13And then now you have, among many of our peers and ourselves, this big investment to train what we all aspire to be frontier models. And then if you use those models to build great and scaled consumer experiences, then how much inference, you know, computer you need on top of that, if just compute required continues to scale up in this way forever, then you're going to run into some true problems of physics. But hopefully there will be different kinds of research innovations along the way that that will unlock things like being able to distribute the training so you don't need sort of one extreme large cluster somewhere and that will help with a lot of the energy and other challenges.

20:51So there's some question about just what that looks like over time. And then there's this question about, you know, great, you can build all this capacity. And what do you do with them? If it turns out you don't need as much compute for either training or inferences you thought. And I think a lot of us have different backup use cases, right? So up to some point, we would use a lot of compute very happily still, you know, in the core business. and what we expect the core business to be three years from today. But frankly, we'd use more compute in the core business. Now, that doesn't scale forever, right?

21:20So, like, the real question is what happens in like two years, if you've built so much compute that you cannot envision a reasonable ROI on the backup use case if you're what your building doesn't come to fruition. And that's something I think we're all going to learn in the next few years. And, sir, when you say the primer for his backup use case, is the primary use case is new products like Lama and stuff, and the backup use case is ads optimization. Yes, exactly. You mentioned just doing earnings. Is there a specific anecdote that you can or want to discuss? In the October 22, two periods we didn't earnings call, the end of October.

21:58As usual, I'm doing investor callbacks. You know, as a pretty, when the investors were not shy about their feedback. And in fact, one of the calls, you know - Investor callbacks, I don't know what this is, this is where you call the, this is like one on one in space. Yes, it's pretty standard after earnings calls where you touch base with like some number of your largest investors. Sadly, it is not one on one. It's, you know, one of you and many, many people from their teams. Yes. And most of the time, they just ask you to, you know, clarify things. Obviously, everything is, you know, reg FD compliant.

22:33But it mostly takes the form of questions. And in October 2022, for the first time, there were sometimes no questions. I mean, there was a call where basically one of the portfolio managers said, we actually don't have any questions for you today. We just want you to hear feedback from us. Wow. More of a comment than a question. Yes, it was actually very memorable. And one of the things... And it was blunt feedback, I presume. Yes. And one of the things that really stuck with me from one of those conversations is someone said, Look, I get that you're building the next, you know, the future of computing and the next mobile platform and all that.

23:08And that is great. And I am glad someone wants to do it. And I am rooting for you. But why should I invest in your stock today? Like, why don't I just wait for your, you know, your phone equivalent, you know, your scaled consumer product to come out, you know, and invest in you then. And you tell me that that's going to be like years away. And the way that question was framed actually really stuck with me and you know is the way that frankly now Mark and I think about this, which is like, great, we've got a lot of these bets and you know, that bets are technologically exciting, people can get excited about them in the vision of the world.

23:48But as investors, they're like, cool, why don't I just wait for your bets to like, be ready to succeed before I come. We need people to invest with us along the way. And when we think about the financial outlook of the company, a large part of it is not just, okay, cool, you're building the next massive platform out here in some decades. It's why would you hold our shares until then? And what do we need to keep delivering in terms of consolidated results? I've had a really interesting how So when the AI revolution started really ramping up, people realized, oh, we need a ton of GPUs to train leading edge foundation models.

24:31You guys had done a huge GPU scale up because you're just doing a lot of AI in the core feed. And so I think there's some interesting optionality in being a scaled, infra and AI player where we are very good as putting GPUs towards our highest and best use. And you have seen that we're very good as allocating compute, and that is why you should invest. And that's quite different from the pitch maybe 10 years ago where we're good at scaling social products. Yes, I think there's definitely an interesting point there. You know, as part of not wanting to miss the boat, you know, we built out, you know, enough capacity for wheels, but also for like future things.