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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, 2021
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
____________________________________________ 
Facebook, 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)
1601 Willow Road, 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, par value $0.000006 FB 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 2,366,277,848  shares outstanding as of October 20, 2021
Class B Common Stock $0.000006 par value 415,481,668  shares outstanding as of October 20, 2021




FACEBOOK, INC.

TABLE OF CONTENTS

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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 "Facebook," "company," "we," "us," and "our" in this document refer to Facebook, Inc., a Delaware corporation, and, where appropriate, its subsidiaries. The term "Facebook" may also refer to our products, regardless of the manner in which they are accessed. The term "Family" refers to our Facebook, Instagram, Messenger, and WhatsApp products. For references to accessing Facebook or our other products on the "web" or via a "website," such terms refer to accessing such products on personal computers. For references to accessing Facebook or our other 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.

3

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 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. Beginning with our Annual Report on Form 10-K for the year ended December 31, 2019, we also 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 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 Facebook metrics and Family metrics estimates will differ from estimates published by third parties due to differences in methodology.

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, limitations while our personnel work remotely during the COVID-19 pandemic, 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 2020, 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 2020, we estimated that false accounts may have represented approximately 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 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
4

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.

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 4% 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, limitations while our personnel work remotely during the COVID-19 pandemic, 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 2020, 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
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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.

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.

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PART I—FINANCIAL INFORMATION
Item 1.Financial Statements
FACEBOOK, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions, except for number of shares and par value)
(Unaudited)
September 30,
2021
December 31,
2020
Assets
Current assets:
Cash and cash equivalents $ 14,496  $ 17,576 
Marketable securities 43,579  44,378 
Accounts receivable, net of allowances of $110 and $114 as of September 30, 2021 and December 31, 2020, respectively
12,088  11,335 
Prepaid expenses and other current assets 5,258  2,381 
Total current assets 75,421  75,670 
Equity investments 6,758  6,234 
Property and equipment, net 53,726  45,633 
Operating lease right-of-use assets, net 11,063  9,348 
Intangible assets, net 365  623 
Goodwill 19,065  19,050 
Other assets 3,187  2,758 
Total assets $ 169,585  $ 159,316 
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 2,195  $ 1,331 
Partners payable 909  1,093 
Operating lease liabilities, current 1,086  1,023 
Accrued expenses and other current liabilities 13,158  11,152 
Deferred revenue and deposits 464  382 
Total current liabilities 17,812  14,981 
Operating lease liabilities, non-current 11,554  9,631 
Other liabilities 6,859  6,414 
Total liabilities 36,225  31,026 
Commitments and contingencies
Stockholders' equity:
Common stock, $0.000006 par value; 5,000 million Class A shares authorized, 2,376 million and 2,406 million shares issued and outstanding, as of September 30, 2021 and December 31, 2020, respectively; 4,141 million Class B shares authorized, 417 million and 443 million shares issued and outstanding, as of September 30, 2021 and December 31, 2020, respectively
—  — 
Additional paid-in capital 54,334  50,018 
Accumulated other comprehensive income (loss) (207) 927 
Retained earnings 79,233  77,345 
Total stockholders' equity 133,360  128,290 
Total liabilities and stockholders' equity $ 169,585  $ 159,316 
See Accompanying Notes to Condensed Consolidated Financial Statements.
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FACEBOOK, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In millions, except per share amounts)
(Unaudited)
 
  Three Months Ended September 30, Nine Months Ended September 30,
  2021 2020 2021 2020
Revenue $ 29,010  $ 21,470  $ 84,258  $ 57,893 
Costs and expenses:
Cost of revenue 5,771  4,194  16,301  11,482 
Research and development 6,316  4,763  17,609  13,240 
Marketing and sales 3,554  2,683  9,656  8,310 
General and administrative 2,946  1,790  6,524  4,965 
Total costs and expenses 18,587  13,430  50,090  37,997 
Income from operations 10,423  8,040  34,168  19,896 
Interest and other income, net 142  93  413  229 
Income before provision for income taxes 10,565  8,133  34,581  20,125 
Provision for income taxes 1,371  287  5,496  2,198 
Net income $ 9,194  $ 7,846  $ 29,085  $ 17,927 
Earnings per share attributable to Class A and Class B common stockholders:
Basic $ 3.27  $ 2.75  $ 10.27  $ 6.29 
Diluted $ 3.22  $ 2.71  $ 10.11  $ 6.22 
Weighted-average shares used to compute earnings per share attributable to Class A and Class B common stockholders:
Basic 2,814  2,850  2,832  2,850 
Diluted 2,859  2,891  2,876  2,883 
Share-based compensation expense included in costs and expenses:
Cost of revenue $ 147  $ 116  $ 428  $ 327 
Research and development 1,849  1,297  5,224  3,557 
Marketing and sales 218  180  631  516 
General and administrative 165  129  474  352 
Total share-based compensation expense $ 2,379  $ 1,722  $ 6,757  $ 4,752 
See Accompanying Notes to Condensed Consolidated Financial Statements.
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FACEBOOK, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In millions)
(Unaudited)
 
  Three Months Ended September 30, Nine Months Ended September 30,
  2021 2020 2021 2020
Net income $ 9,194  $ 7,846  $ 29,085  $ 17,927 
Other comprehensive income (loss):
Change in foreign currency translation adjustment, net of tax (424) 502  (856) 373 
Change in unrealized gain (loss) on available-for-sale investments and other, net of tax (68) (52) (278) 424 
Comprehensive income $ 8,702  $ 8,296  $ 27,951  $ 18,724 
See Accompanying Notes to Condensed Consolidated Financial Statements.
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FACEBOOK, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In millions)
(Unaudited) 
Three Months Ended September 30, 2021 Three Months Ended September 30, 2020
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 Income (Loss) Retained Earnings Total Stockholders' Equity
Shares Par Value Shares Par Value
Balances at beginning of period 2,826  $ —  $ 52,845  $ 285  $ 85,097  $ 138,227  2,850  $ —  $ 47,805  $ (142) $ 62,784  $ 110,447 
Issuance of common stock 11  —  —  —  —  —  10  —  —  —  —  — 
Shares withheld related to net share settlement (4) —  (890) —  (686) (1,576) (3) —  (617) —  (383) (1,000)
Share-based compensation —  —  2,379  —  —  2,379  —  —  1,722  —  —  1,722 
Share repurchases (40) —  —  —  (14,372) (14,372) (7) —  —  —  (1,734) (1,734)
Other comprehensive income (loss) —  —  —  (492) —  (492) —  —  —  450  —  450 
Net income —  —  —  —  9,194  9,194  —  —  —  —  7,846  7,846 
Balances at end of period 2,793  $ —  $ 54,334  $ (207) $ 79,233  $ 133,360  2,850  $ —  $ 48,910  $ 308  $ 68,513  $ 117,731 
Nine Months Ended September 30, 2021 Nine Months Ended September 30, 2020
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 Income (Loss) Retained Earnings Total Stockholders' Equity
Shares Par Value Shares Par Value
Balances at beginning of period 2,849  $ —  $ 50,018  $ 927  $ 77,345  $ 128,290  2,852  $ —  $ 45,851  $ (489) $ 55,692  $ 101,054 
Issuance of common stock 33  —  —  —  —  —  28  —  —  —  —  — 
Shares withheld related to net share settlement (12) —  (2,441) —  (1,566) (4,007) (10) —  (1,693) —  (751) (2,444)
Share-based compensation —  —  6,757  —  —  6,757  —  —  4,752  —  —  4,752 
Share repurchases (77) —  —  —  (25,631) (25,631) (20) —  —  —  (4,355) (4,355)
Other comprehensive income (loss) —  —  —  (1,134) —  (1,134) —  —  —  797  —  797 
Net income —  —  —  —  29,085  29,085  —  —  —  —  17,927  17,927 
Balances at end of period 2,793  $ —  $ 54,334  $ (207) $ 79,233  $ 133,360  2,850  $ —  $ 48,910  $ 308  $ 68,513  $ 117,731 
See Accompanying Notes to Condensed Consolidated Financial Statements.
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FACEBOOK, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
  Nine Months Ended September 30,
  2021 2020
Cash flows from operating activities
Net income $ 29,085  $ 17,927 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 5,953  4,999 
Share-based compensation 6,757  4,752 
Deferred income taxes (139) (816)
Other (161) 56 
Changes in assets and liabilities:
Accounts receivable (1,072) 1,547 
Prepaid expenses and other current assets (2,566) (89)
Other assets (184) (8)
Accounts payable 560  39 
Partners payable (163) (100)
Accrued expenses and other current liabilities 895  (3,273)
Deferred revenue and deposits 87  111 
Other liabilities 527  (438)
Net cash provided by operating activities 39,579  24,707 
Cash flows from investing activities
Purchases of property and equipment (13,198) (10,502)
Purchases of marketable securities (24,314) (28,193)
Sales of marketable securities 15,331  9,779 
Maturities of marketable securities 9,318  10,725 
Purchases of equity investments (46) (6,302)
Acquisitions of businesses, net of cash acquired, and purchases of intangible assets (330) (384)
Other investing activities (160) (9)
Net cash used in investing activities (13,399) (24,886)
Cash flows from financing activities
Taxes paid related to net share settlement of equity awards (4,007) (2,444)
Repurchases of Class A common stock (24,476) (4,343)
Principal payments on finance leases (505) (398)
Net change in overdraft in cash pooling entities 15  (24)
Other financing activities (13) 124 
Net cash used in financing activities (28,986) (7,085)
Effect of exchange rate changes on cash, cash equivalents, and restricted cash (344) (36)
Net decrease in cash, cash equivalents, and restricted cash (3,150) (7,300)
Cash, cash equivalents, and restricted cash at beginning of the period 17,954  19,279 
Cash, cash equivalents, and restricted cash at end of the period $ 14,804  $ 11,979 
Reconciliation of cash, cash equivalents, and restricted cash to the condensed consolidated balance sheets
Cash and cash equivalents $ 14,496  $ 11,617 
Restricted cash, included in prepaid expenses and other current assets 195  222 
Restricted cash, included in other assets 113  140 
Total cash, cash equivalents, and restricted cash $ 14,804  $ 11,979 
See Accompanying Notes to Condensed Consolidated Financial Statements.
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FACEBOOK, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
Nine Months Ended September 30,
2021 2020
Supplemental cash flow data
Cash paid for income taxes $ 7,919  $ 3,122 
Non-cash investing and financing activities:
Property and equipment in accounts payable and accrued expenses and other current liabilities $ 2,635  $ 2,137 
Acquisition of businesses in accrued expenses and other current liabilities and other liabilities $ 73  $ 118 
Other current assets through financing arrangement in accrued expenses and other current liabilities $ 491  $ — 
Repurchases of Class A common stock in accrued expenses and other current liabilities $ 1,223  $ 55 
See Accompanying Notes to Condensed Consolidated Financial Statements.
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FACEBOOK, 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, 2020.
The condensed consolidated balance sheet as of December 31, 2020 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 Facebook, 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, 2021.
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 equity investments, income taxes, loss contingencies, valuation of long-lived assets including goodwill and intangible assets and their associated estimated useful lives, collectibility of accounts receivable, credit losses of available-for-sale debt securities, fair value of financial instruments, and leases. These estimates are based on management's knowledge about current events and expectations about actions we may undertake in the future. Actual results could differ materially from those estimates.
In connection with our periodic reviews of the estimated useful lives of property and equipment and finite-lived intangible assets, we extended the estimated average useful lives of selected cohorts of servers and other network equipment included in our network equipment category from three years to four years in prior years as well as in 2021 as a result of longer refresh cycles in our data centers. Prior year changes individually or in aggregate did not have a material impact to the consolidated financial statements. The effect of the 2021 changes was a reduction in depreciation expense of $390 million and an increase in net income of $316 million, or $0.11 per diluted share for the nine months ended September 30, 2021. The impact from the changes in our estimates was calculated based on the asset bases existing as of the effective dates of the changes and applying the revised estimated useful lives prospectively.
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, 2020.
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Recently Adopted Accounting Pronouncements
On January 1, 2021, we adopted Accounting Standards Update (ASU) No. 2020-01, Investments—Equity Securities (Topic 321), Investments—Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) (ASU 2020-01), which clarifies the interaction of the accounting for equity securities under Topic 321, the accounting for equity method investments in Topic 323, and the accounting for certain forward contracts and purchased options in Topic 815. The adoption of this new standard did not have a material impact on our condensed consolidated financial statements.
Accounting Pronouncements Not Yet Adopted
In August 2020, the Financial Accounting Standards Board (FASB) issued ASU No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity's Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity's Own Equity (ASU 2020-06), which simplifies the accounting for convertible instruments by reducing the number of accounting models available for convertible debt instruments. This guidance also eliminates the treasury stock method to calculate diluted earnings per share for convertible instruments and requires the use of the if-converted method. This guidance will be effective for us in the first quarter of 2022 on a full or modified retrospective basis, with early adoption permitted. We do not expect the adoption of this guidance to have a material impact on our consolidated financial statements.
In July 2021, the FASB issued ASU No. 2021-05, Leases (Topic 842): Lessors – Certain Leases with Variable Lease Payments (ASU 2016-02), which requires a lessor to classify a lease with variable lease payments that do not depend on an index or rate as an operating lease if specified criteria are met. This guidance will be effective for us in the first quarter of 2022 either retrospectively to leases that commenced or were modified on or after our adoption of ASU 2016-02 on January 1, 2019, or on a prospective basis, with early adoption permitted. We are currently evaluating the impact of the new guidance on our consolidated financial statements.

Note 2. Revenue
Revenue disaggregated by revenue source consists of the following (in millions):
  Three Months Ended September 30, Nine Months Ended September 30,
  2021 2020 2021 2020
Advertising $ 28,276  $ 21,221  $ 82,294  $ 56,981 
Other revenue 734  249  1,964  912 
Total revenue $ 29,010  $ 21,470  $ 84,258  $ 57,893 
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,
  2021 2020 2021 2020
United States and Canada(1)
$ 12,668  $ 9,229  $ 36,716  $ 25,534 
Europe(2)
7,018  5,055  20,622  13,453 
Asia-Pacific 6,592  5,311  19,370  13,893 
Rest of World(2)
2,732  1,875  7,550  5,013 
Total revenue $ 29,010  $ 21,470  $ 84,258  $ 57,893 
____________________________________
(1)    United States revenue was $11.88 billion and $8.71 billion for the three months ended September 30, 2021 and 2020, respectively, and $34.45 billion and $24.10 billion for the nine months ended September 30, 2021 and 2020, respectively.
(2)    Europe includes Russia and Turkey, and Rest of World includes Africa, Latin America, and the Middle East.
Our total deferred revenue was $463 million and $371 million as of September 30, 2021 and December 31, 2020, respectively. As of September 30, 2021, we expect $418 million of our deferred revenue to be realized in less than a year.
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Note 3. Earnings per Share
We compute earnings per share (EPS) of Class A and Class B common stock using the two-class method.
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 under our equity compensation plans. 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 attributable to common stockholders is computed by dividing the resulting net income by the weighted-average number of fully diluted common shares outstanding.
Restricted stock units (RSUs) with anti-dilutive effect were excluded from the EPS calculation and they were not material for the three and nine months ended September 30, 2021 and 2020.
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,
  2021 2020 2021 2020
  Class A Class B Class A Class B Class A Class B Class A Class B
Basic EPS:
Numerator
Net income $ 7,782  $ 1,412  $ 6,623  $ 1,223  $ 24,588  $ 4,497  $ 15,133  $ 2,794 
Denominator
Weighted-average shares outstanding 2,382  432  2,406  444  2,394  438  2,406  444 
Basic EPS $ 3.27  $ 3.27  $ 2.75  $ 2.75  $ 10.27  $ 10.27  $ 6.29  $ 6.29 
Diluted EPS:
Numerator
Net income $ 7,782  $ 1,412  $ 6,623  $ 1,223  $ 24,588  $ 4,497  $ 15,133  $ 2,794 
Reallocation of net income as a result of conversion of Class B to Class A common stock 1,412  —  1,223  —  4,497  —  2,794  — 
Reallocation of net income to Class B common stock —  (22) —  (18) —  (69) —  (32)
Net income for diluted EPS $ 9,194  $ 1,390  $ 7,846  $ 1,205  $ 29,085  $ 4,428  $ 17,927  $ 2,762 
Denominator
Number of shares used for basic EPS computation 2,382  432  2,406  444  2,394  438  2,406  444 
Conversion of Class B to Class A common stock 432  —  444  —  438  —  444  — 
Weighted-average effect of dilutive RSUs 45  —  41  —  44  —  33  — 
Number of shares used for diluted EPS computation 2,859  432  2,891  444  2,876  438  2,883  444 
Diluted EPS $ 3.22  $ 3.22  $ 2.71  $ 2.71  $ 10.11  $ 10.11  $ 6.22  $ 6.22 
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Note 4. Cash and Cash Equivalents, and Marketable Securities
The following table sets forth the cash and cash equivalents and marketable securities (in millions):
September 30, 2021 December 31, 2020
Cash and cash equivalents:
Cash $ 6,159  $ 6,488 
Money market funds 7,289  9,755 
U.S. government securities 666  1,016 
Certificate of deposits and time deposits 382  305 
Corporate debt securities —  12 
Total cash and cash equivalents 14,496  17,576 
Marketable securities:
U.S. government securities 18,400  20,921 
U.S. government agency securities 8,795  11,698 
Corporate debt securities 16,384  11,759 
Total marketable securities 43,579  44,378 
Total cash and cash equivalents and marketable securities $ 58,075  $ 61,954 
The gross unrealized gains on our marketable securities were $331 million and $641 million as of September 30, 2021 and December 31, 2020, respectively. The gross unrealized losses on our marketable securities were not material as of September 30, 2021 and December 31, 2020. The allowance for credit losses was not material as of September 30, 2021 and December 31, 2020.
The following table classifies our marketable securities by contractual maturities (in millions):
September 30, 2021
Due within one year $ 9,310 
Due after one year to five years 34,269 
Total $ 43,579 

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Note 5. Equity Investments
Our equity investments are investments in equity securities of privately-held companies without readily determinable market values. The changes in the carrying value of equity investments for the nine months ended September 30, 2021 are as follows (in millions): 
Balance as of December 31, 2020 $ 6,234 
Additions 47 
Adjustments/transfer 500 
Impairments (23)
Balance as of September 30, 2021 $ 6,758 

Note 6. Fair Value Measurement
The following table summarizes our assets measured at fair value and the classification by level of input within the fair value hierarchy (in millions): 
    Fair Value Measurement at Reporting Date Using
Description September 30, 2021 Quoted Prices in Active Markets for Identical Assets
(Level 1)
Significant Other Observable Inputs
 (Level 2)
Cash equivalents:
Money market funds $ 7,289  $ 7,289  $ — 
U.S. government securities 666  666  — 
Certificate of deposits and time deposits 382  —  382 
Marketable securities:
U.S. government securities 18,400  18,400  — 
U.S. government agency securities 8,795  8,795  — 
Corporate debt securities 16,384  —  16,384 
Total cash equivalents and marketable securities $ 51,916  $ 35,150  $ 16,766 
    Fair Value Measurement at Reporting Date Using
Description December 31, 2020 Quoted Prices in Active Markets for Identical Assets
(Level 1)
Significant Other Observable Inputs
 (Level 2)
Cash equivalents:
Money market funds $ 9,755  $ 9,755  $ — 
U.S. government securities 1,016  1,016  — 
Certificate of deposits and time deposits 305  —  305 
Corporate debt securities 12  —  12 
Marketable securities:
U.S. government securities 20,921  20,921  — 
U.S. government agency securities 11,698  11,698  — 
Corporate debt securities 11,759  —  11,759 
Total cash equivalents and marketable securities $ 55,466  $ 43,390  $ 12,076 
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We classify our cash equivalents and marketable 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.
We have other assets and liabilities classified within Level 3 because factors used to develop the estimated fair value are unobservable inputs that are not supported by market activity. These assets and liabilities classified within Level 3 were not material as of September 30, 2021 and December 31, 2020.

Note 7. Property and Equipment
Property and equipment, net consists of the following (in millions): 
September 30, 2021 December 31, 2020
Land $ 1,551  $ 1,326 
Buildings 21,369  17,360 
Leasehold improvements 5,568  4,321 
Network equipment 25,050  22,003 
Computer software, office equipment and other 2,951  2,458 
Finance lease right-of-use assets 2,685  2,295 
Construction in progress 13,201  11,288 
Property and equipment, gross 72,375  61,051 
Less: Accumulated depreciation (18,649) (15,418)
Property and equipment, net $ 53,726  $ 45,633 
Depreciation expense on property and equipment was $1.87 billion and $1.58 billion for the three months ended September 30, 2021 and 2020, respectively, and $5.59 billion and $4.65 billion for the nine months ended September 30, 2021 and 2020, respectively. Construction in progress includes costs mostly related to construction of data centers, network equipment infrastructure, and office buildings.

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Note 8. Leases
We have entered into various non-cancelable operating lease agreements for certain of our offices, data centers, land, colocations, and equipment. We have also entered into various non-cancelable finance lease agreements for certain network equipment. Our leases have original lease periods expiring between the remainder of 2021 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,
2021 2020 2021 2020
Finance lease cost
Amortization of right-of-use assets $ 88  $ 65  $ 252  $ 185 
Interest 11  11 
Operating lease cost 386  352  1,119  1,036 
Variable lease cost and other, net 68  57  194  174 
Total lease cost $ 546  $ 478  $ 1,576  $ 1,406 
Supplemental balance sheet information related to leases is as follows:
September 30, 2021 December 31, 2020
Weighted-average remaining lease term
Operating leases 12.6 years 12.2 years
Finance leases 14.1 years 14.9 years
Weighted-average discount rate
Operating leases 2.8  % 3.1  %
Finance leases 2.8  % 2.9  %
The following is a schedule, by years, of maturities of lease liabilities as of September 30, 2021 (in millions):
Operating Leases Finance Leases
The remainder of 2021 $ 262  $ 41 
2022 1,482  64 
2023 1,501  58 
2024 1,411  45 
2025 1,233  45 
Thereafter 9,672  444 
Total undiscounted cash flows 15,561  697 
Less: Imputed interest (2,921) (118)
Present value of lease liabilities $ 12,640  $ 579 
Lease liabilities, current $ 1,086  $ 72 
Lease liabilities, non-current 11,554  507 
Present value of lease liabilities $ 12,640  $ 579 
The table above does not include lease payments that were not fixed at commencement or lease modification. As of September 30, 2021, we have additional operating and finance leases, that have not yet commenced, with lease obligations of
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approximately $6.39 billion and $956 million, respectively, for offices, data centers and network equipment. These operating and finance leases will commence between the remainder of 2021 and 2025 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,
2021 2020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases $ 1,040  $ 878 
Operating cash flows for finance leases $ 11  $ 11 
Financing cash flows for finance leases $ 505  $ 398 
Lease liabilities arising from obtaining right-of-use assets:
Operating leases $ 2,921  $ 954 
Finance leases $ 124  $ 101 

Note 9. Goodwill and Intangible Assets
During the nine months ended September 30, 2021, we purchased certain intangible assets and completed several business acquisitions that were not material to our condensed consolidated financial statements, either individually or in the aggregate. Accordingly, pro forma historical results of operations related to these business acquisitions during the nine months ended September 30, 2021 have not been presented. We have included the financial results of these business acquisitions in our condensed consolidated financial statements from their respective dates of acquisition.
The changes in the carrying amount of goodwill for the nine months ended September 30, 2021 are as follows (in millions): 
Balance as of December 31, 2020 $ 19,050 
Acquisitions 210 
Adjustments/transfer (191)
Effect of currency translation adjustment (4)
Balance as of September 30, 2021 $ 19,065 
The following table sets forth the major categories of the intangible assets and the weighted‑average remaining useful lives for those assets that are not already fully amortized (in millions):
September 30, 2021 December 31, 2020
Weighted-Average Remaining Useful Lives
(in years)
Gross Carrying Amount Accumulated Amortization Net Carrying Amount Gross Carrying Amount Accumulated Amortization Net Carrying Amount
Acquired users 0.0 $ 2,057  $ (2,057) $ —  $ 2,057  $ (1,840) $ 217 
Acquired technology 2.7 1,379  (1,145) 234  1,297  (1,088) 209 
Acquired patents 3.5 827  (711) 116  805  (677) 128 
Trade names 3.2 644  (632) 12  636  (622) 14 
Other 1.6 161  (158) 223  (168) 55 
Total intangible assets $ 5,068  $ (4,703) $ 365  $ 5,018  $ (4,395) $ 623 
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Amortization expense of intangible assets was $124 million and $123 million for the three months ended September 30, 2021 and 2020, respectively, and $364 million and $352 million for the nine months ended September 30, 2021 and 2020, respectively.
As of September 30, 2021, expected amortization expense for the unamortized acquired intangible assets for the next five years and thereafter is as follows (in millions):
The remainder of 2021 $ 41 
2022 151 
2023 90 
2024 49 
2025 18 
Thereafter 16 
Total $ 365 

Note 10. Commitments and Contingencies
Guarantee
In 2018, we established a multi-currency notional cash pool for certain of our entities with a third-party bank provider. Actual cash balances are not physically converted and are not commingled between participating legal entities. As part of the notional cash pool agreement, the bank extends overdraft credit to our participating entities as needed, provided that the overall notionally pooled balance of all accounts in the pool at the end of each day is at least zero. In the unlikely event of a default by our collective entities participating in the pool, any overdraft balances incurred would be guaranteed by Facebook, Inc.
Other Contractual Commitments
We also have $13.76 billion of non-cancelable contractual commitments as of September 30, 2021, which are primarily related to our investments in network infrastructure, consumer hardware and content costs. These commitments are primarily due within five years.
Subsequent to September 30, 2021, we entered into a purchase commitment for the next two years in the amount of approximately $4.1 billion to support our investments in technical infrastructure.
Legal and Related Matters
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 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. On September 25, 2019, the district court granted our motion to dismiss the consolidated putative securities class action, with leave to amend. On November 15, 2019, a second amended complaint was filed in the consolidated putative securities class action. On August 7, 2020, the district court granted our motion to dismiss the second amended complaint, with leave to amend. On October 16, 2020, a third amended complaint was filed in the consolidated putative securities class action. We believe these lawsuits are without merit, and we are vigorously defending them. 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
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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, which asserts 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 April 1, 2015, a putative class action was filed against us in the U.S. District Court for the Northern District of California by Facebook users alleging that the "tag suggestions" facial recognition feature violates the Illinois Biometric Information Privacy Act, and seeking statutory damages and injunctive relief. On April 16, 2018, the district court certified a class of Illinois residents, and on May 14, 2018, the district court denied both parties' motions for summary judgment. On May 29, 2018, the U.S. Court of Appeals for the Ninth Circuit granted our petition for review of the class certification order and stayed the proceeding. On August 8, 2019, the Ninth Circuit affirmed the class certification order. On December 2, 2019, we filed a petition with the U.S. Supreme Court seeking review of the decision of the Ninth Circuit, which was denied. On January 15, 2020, the parties agreed to a settlement in principle to resolve the lawsuit, which provided for a payment of $550 million by us and was subject to court approval. On or about May 8, 2020, the parties executed a formal settlement agreement, and plaintiffs filed a motion for preliminary approval of the settlement by the district court. On June 4, 2020, the district court denied the plaintiffs' motion without prejudice. On July 22, 2020, the parties executed an amended settlement agreement, which, among other terms, provides for a payment of $650 million by us. On February 26, 2021, the court granted final approval of the settlement, and the payment was made in March 2021. On March 27 and March 29, 2021, objectors filed notices of appeal of the order granting final approval of the settlement. On June 15, 2021, one of the objectors filed a motion to dismiss the appeal voluntarily, and the court entered such dismissal on June 22, 2021.
Beginning on September 28, 2018, multiple putative class actions were filed in state and federal courts in the United States and elsewhere against us alleging violations of consumer protection laws and other causes of action in connection with a third-party cyber-attack that exploited a vulnerability in Facebook's code to steal user access tokens and access certain profile information from user accounts on Facebook, and seeking unspecified damages and injunctive relief. The actions filed in the United States were consolidated in the U.S. District Court for the Northern District of California. On November 26, 2019, the district court certified a class for injunctive relief purposes, but denied certification of a class for purposes of pursuing damages. On January 16, 2020, the parties agreed to a settlement in principle to resolve the lawsuit. On November 15, 2020, the court granted preliminary approval of the settlement. On May 6, 2021, the court granted final approval of the settlement. We believe the remaining lawsuits are without merit, and we are vigorously defending them. In addition, the events surrounding this cyber-attack became the subject of Irish Data Protection Commission (IDPC) and other government inquiries.
From time to time we also notify the IDPC, our designated European privacy regulator under the General Data Protection Regulation, 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. 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 in the aggregate.
From time to time, 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.
In addition, from time to time, 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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With respect to the cases, actions, and inquiries described above, 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 described above 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. For example, from time to time 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. On August 19, 2021, the FTC filed an amended complaint, and on October 4, 2021, we filed a motion to dismiss this amended complaint. Multiple putative class actions have also been filed in state and federal courts in the United States against us alleging violations of antitrust laws and other causes of action in connection with these acquisitions and other alleged anticompetitive conduct, and seeking unspecified damages and injunctive relief. We believe these lawsuits are without merit, and we are vigorously defending them.
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 12 — Income Taxes.
Indemnifications
In the normal course of business, to facilitate transactions of services and products, we have agreed to indemnify certain parties with respect to certain matters. We have agreed to hold certain parties harmless against losses arising from a breach of representations or covenants, or out of intellectual property infringement or other claims made by third parties. These agreements may limit the time within which an indemnification claim can be made and the amount of the claim. In
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addition, we have entered into indemnification agreements with our officers, directors, and certain employees, and our certificate of incorporation and bylaws contain similar indemnification obligations.
It is not possible to determine the maximum potential amount under these indemnification agreements due to the limited history of prior indemnification claims and the unique facts and circumstances involved in each particular agreement. Historically, payments made by us under these agreements have not had a material impact on our consolidated financial statements. In our opinion, as of September 30, 2021, there was not at least a reasonable possibility we had incurred a material loss with respect to indemnification of such parties. We have not recorded any liability for costs related to indemnification through September 30, 2021.

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Note 11. 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, 2020, $8.60 billion remained available and authorized for repurchases under this program. In January 2021, an additional $25.0 billion of repurchases was authorized under this program. During the nine months ended September 30, 2021, we repurchased and subsequently retired 77 million shares of our Class A common stock for an aggregate amount of $25.63 billion. As of September 30, 2021, $7.97 billion remained available and authorized for repurchases. In October 2021, an additional $50.0 billion of repurchases was authorized under this program.
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, and 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 Plans
We maintain one active share-based employee compensation plan, the 2012 Equity Incentive Plan, which was amended in each of June 2016 and February 2018 (Amended 2012 Plan). Our Amended 2012 Plan provides for the issuance of incentive and nonstatutory 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 under our stock plan are added to the reserves of the Amended 2012 Plan. We account for forfeitures as they occur.
Share-based compensation expense consists of the Company's RSUs expense. RSUs granted to employees are measured based on the grant-date fair value. In general, our RSUs vest over a service period of four years. Share-based compensation expense is generally recognized based on the straight-line basis over the requisite service period.
Effective January 1, 2021, there were 145 million shares of our Class A common stock reserved for future issuance under our 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.
The following table summarizes the activities for our unvested RSUs for the nine months ended September 30, 2021:
Unvested RSUs
Number of Shares Weighted-Average Grant Date Fair Value
(in thousands)
Unvested at December 31, 2020 96,733  $ 181.88 
Granted 53,490  $ 302.26 
Vested (33,306) $ 194.36 
Forfeited (9,075) $ 206.66 
Unvested at September 30, 2021 107,842  $ 235.64 
The fair value as of the respective vesting dates of RSUs that vested during the three months ended September 30, 2021 and 2020 was $4.10 billion and $2.65 billion, respectively, and $10.58 billion and $6.48 billion during the nine months ended September 30, 2021 and 2020, respectively.
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As of September 30, 2021, there was $24.04 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.
Note 12. 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 $9.33 billion and $8.69 billion on September 30, 2021 and December 31, 2020, respectively. If the gross unrecognized tax benefits as of September 30, 2021 were realized in a future period, this would result in a tax benefit of $5.28 billion within our provision of income taxes at such time. The amount of interest and penalties accrued was $905 million and $774 million as of September 30, 2021 and December 31, 2020, 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 and by the Irish tax authorities for our 2016 through 2018 tax years. Our 2020 and subsequent tax years remain open to examination by the IRS. Our 2019 and subsequent tax years remain open to examination in Ireland.
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 a second session commenced in October 2021. Based 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 September 30, 2021, 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 taxing 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.
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Note 13. Segment and Geographical Information
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, net (in millions):
September 30, 2021 December 31, 2020
United States $ 50,647  $ 43,128 
Rest of the world (1)
14,142  11,853 
Total long-lived assets $ 64,789  $ 54,981 
____________________________________
(1)    No individual country, other than disclosed above, exceeded 10% of our total long-lived assets for any period presented.

We had a single reportable segment and operating segment structure through the third quarter of 2021. Beginning in the fourth quarter of 2021, our chief operating decision maker, who is our chief executive officer, has received disaggregated information that will allow him to assess performance and allocate resources between two operating segments: Family of Apps and Facebook Reality Labs. As such, we will have two reportable segments and all prior period amounts will be retrospectively adjusted in the Annual Report on Form 10K for the year ending December 31, 2021.

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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, 2020, 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.
Certain revenue information in the section entitled "—Three and Nine Months Ended September 30, 2021 and 2020—RevenueForeign Exchange Impact on Revenue" is presented on a constant currency basis. This information is a non-GAAP financial measure. To calculate revenue on a constant currency basis, we translated revenue for the three and nine months ended September 30, 2021 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 Third Quarter Results

We had a single reportable segment and operating segment structure through the third quarter of 2021. Beginning in the fourth quarter of 2021, we will implement a new financial reporting segment structure. Under this reporting structure, we will provide revenue and operating profit results for two reportable segments: Family of Apps (FoA) and Facebook Reality Labs (FRL). FoA includes Facebook, Instagram, Messenger, WhatsApp, and other services. FRL includes our augmented and virtual reality related consumer hardware, software and content.
Our key community metrics and financial results for the third quarter of 2021 are as follows:
Community growth:
Facebook daily active users (DAUs) were 1.93 billion on average for September 2021, an increase of 6% year-over-year.
Facebook monthly active users (MAUs) were 2.91 billion as of September 30, 2021, an increase of 6% year-over-year.
Family daily active people (DAP) was 2.81 billion on average for September 2021, an increase of 11% year-over-year.
Family monthly active people (MAP) was 3.58 billion as of September 30, 2021, an increase of 12% year-over-year.
Financial results:
Revenue was $29.01 billion, up 35% year-over-year, and advertising revenue was $28.28 billion, up 33% year-over‑year.
Total costs and expenses were $18.59 billion, up 38% year-over-year.
Income from operations was $10.42 billion, and operating margin was 36%.
Net income was $9.19 billion, with diluted earnings per share of $3.22.
Capital expenditures, including principal payments on finance leases, were $4.54 billion.
Effective tax rate was 13%.
Cash and cash equivalents and marketable securities were $58.08 billion as of September 30, 2021.
Headcount was 68,177 as of September 30, 2021, an increase of 20% year-over-year.
Our mission is to give people the power to build community and bring the world closer together.
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In response to the COVID-19 pandemic, we have focused on helping people stay connected, assisting the public health response, and working on the economic recovery. We have also continued to invest based on the following company priorities: (i) continue making progress on the major social issues facing the internet and our company, including privacy, safety, and security; (ii) build new experiences that meaningfully improve people's lives today and set the stage for even bigger improvements in the future; (iii) keep building our business by supporting the millions of businesses that rely on our services to grow and create jobs; and (iv) communicate more transparently about what we're doing and the role our services play in the world.
In the third quarter of 2021, we continued to focus on our main revenue growth priorities: (i) helping marketers use our products to connect with consumers where they are and (ii) making our ads more relevant and effective.
Our advertising revenue growth in the third quarter of 2021 was adversely affected by reduced marketer spending as a result of limitations on our ad targeting and measurement tools arising from changes to the iOS 14 operating system. We expect that future advertising revenue growth will continue to be adversely affected by limitations on our ad targeting and measurement tools arising from changes to the regulatory environment and third-party mobile operating systems and browsers.
Our business and results of operations have been impacted by the COVID-19 pandemic and the preventative measures implemented by authorities from time to time to help limit the spread of the illness, which have caused, and are continuing to cause, business slowdowns or shutdowns in certain affected countries and regions. Beginning in the first quarter of 2020, we experienced significant increases in the size and engagement of our active user base across a number of regions as a result of the COVID-19 pandemic. More recently, we have seen these pandemic-related trends subside, particularly in certain developed markets. We are unable to predict the impact of the pandemic on user growth and engagement with any certainty and these trends may continue to be subject to volatility.
The COVID-19 pandemic has also had a varied impact on the demand for and pricing of our ads from period to period. While we experienced a reduction in demand and a related decline in pricing during the onset of the pandemic, we believe the pandemic subsequently contributed to an acceleration in the growth of online commerce, particularly during the second half of 2020, and we experienced increasing demand for advertising as a result of this trend. More recently, we believe this growth has moderated in many regions, which to some extent adversely affected our advertising revenue growth in the third quarter of 2021. We may experience reduced advertising demand and related declines in pricing in future periods to the extent the effects of the pandemic subside, which could adversely affect our advertising revenue growth. However, the impact of the pandemic on user growth and engagement, the demand for and pricing of our advertising services, as well as on our overall results of operations, remains highly uncertain for the foreseeable future.
User growth and engagement and advertising revenue growth are also impacted by a number of other factors, including competitive products and services that have reduced some users' engagement with our products and services, as well as other global and regional business and macroeconomic conditions.
We intend to continue to invest in our business based on our company priorities, and we anticipate that additional investments in our data center capacity, servers, network infrastructure, and office facilities, as well as scaling our headcount to support our growth, including in our consumer hardware initiatives, will continue to drive expense growth in 2021.
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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, the volume of Payments transactions, 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.
FB-20210930_G1.JPG
DAU/MAU: 66% 66% 67% 66% 66% 66% 66% 66% 66%
FB-20210930_G2.JPG FB-20210930_G3.JPG
DAU/MAU: 77% 77% 77% 77% 77% 76% 75% 75% 75% DAU/MAU: 74% 75% 75% 74% 74% 74% 73% 73% 73%
FB-20210930_G4.JPG FB-20210930_G5.JPG
DAU/MAU: 62% 62% 62% 61% 62% 62% 62% 62% 63% DAU/MAU: 65% 65% 65% 65% 65% 65% 65% 65% 66%

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 6% to 1.93 billion on average during September 2021 from 1.82 billion during September 2020. Users in India, the Philippines, and Bangladesh represented the top three sources of growth in DAUs during September 2021, relative to the same period in 2020.
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.
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FB-20210930_G7.JPG FB-20210930_G8.JPG
FB-20210930_G9.JPG FB-20210930_G10.JPG
As of September 30, 2021, we had 2.91 billion MAUs, an increase of 6% from September 30, 2020. Users in India, Vietnam, and the Philippines represented the top three sources of growth in the third quarter of 2021, relative to the same period in 2020.
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Trends in Our Monetization by Facebook User Geography
We calculate our revenue by Facebook 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. The share of revenue from users who are not also Facebook or Messenger MAUs was not material. 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 third quarter of 2021 in the United States & Canada region was more than 12 times higher than in the Asia-Pacific region.
FB-20210930_G11.JPG
ARPU: $7.26 $8.52 $6.95 $7.05 $7.89 $10.14 $9.27 $10.12 $10.00
FB-20210930_G12.JPG FB-20210930_G13.JPG
ARPU: $34.55 $41.41 $34.18 $36.49 $39.63 $53.56 $48.03 $53.01 $52.34 ARPU: $10.68 $13.21 $10.64 $11.03 $12.41 $16.87 $15.49 $17.23 $16.50
FB-20210930_G14.JPG FB-20210930_G15.JPG
ARPU: $3.24 $3.57 $3.06 $2.99 $3.67 $4.05 $3.94 $4.16 $4.30 ARPU: $2.24 $2.48 $1.99 $1.78 $2.22 $2.77 $2.64 $3.05 $3.14
FB-20210930_G16.JPG
Note: Our revenue by Facebook user geography in the charts above is geographically apportioned based on our estimation of the geographic location of our Facebook users when they perform a revenue-generating activity. This allocation differs from our revenue disaggregated by geography disclosure in our condensed consolidated financial statements where revenue is geographically apportioned based on the addresses of our customers.
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During the third quarter of 2021, worldwide ARPU was $10.00, an increase of 27% from the third quarter of 2020. Over this period, ARPU increased by 41% in Rest of World, 33% in Europe, 32% in United States & Canada, and 17% in Asia-Pacific. In addition, user growth was more rapid in geographies with relatively lower ARPU, such as Asia-Pacific and Rest of World. 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, or potentially decrease even if ARPU increases in each geographic region.
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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 MAP or DAP, 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, the volume of Payments transactions, 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.
FB-20210930_G17.JPG
DAP/MAP: 78% 78% 79% 79% 79% 79% 79% 79% 78%
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 4% 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 second quarter of 2020, we updated our Family metrics calculations to reflect recent data from a periodic WhatsApp user survey and to incorporate certain methodology improvements, and we estimate such updates contributed an aggregate of approximately 40 million DAP to our reported worldwide DAP in June 2020. 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.
Worldwide DAP increased 11% to 2.81 billion on average during September 2021 from 2.54 billion during September 2020.
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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.
FB-20210930_G18.JPG
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 4% 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 second quarter of 2020, we updated our Family metrics calculations to reflect recent data from a periodic WhatsApp user survey and to incorporate certain methodology improvements, and we estimate such updates contributed an aggregate of approximately 50 million MAP to our reported worldwide MAP in June 2020. 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.
As of September 30, 2021, we had 3.58 billion MAP, an increase of 12% from 3.21 billion as of September 30, 2020.
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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. The share of revenue from users who are not also MAP was not material.
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ARPP: $6.33 $7.38 $6.03 $6.10 $6.76 $8.62 $7.75 $8.36 $8.18
FB-20210930_G16.JPG
During the third quarter of 2021, worldwide ARPP was $8.18, an increase of 21% from the third quarter of 2020.
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Components of Results of Operations
Revenue
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 affiliated websites or 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. We calculate price per ad as total ad revenue divided by the number of ads delivered, representing the effective price paid per impression 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 revenue from the delivery of consumer hardware products, net fees we receive from developers using our Payments infrastructure, and revenue from various other sources.
Cost of Revenue and Operating Expenses
Cost of revenue. Our cost of revenue consists primarily 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 facility and server equipment depreciation, salaries, benefits, and 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, as well as cost of consumer hardware products sold and content costs.
Research and development. Research and development expenses consist primarily of salaries and benefits, share-based compensation, and facilities-related costs for employees on our engineering and technical teams who are responsible for building new products as well as improving existing products.
Marketing and sales. Marketing and sales expenses consist of salaries and benefits, and 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 marketing and promotional expenditures and professional services such as content reviewers to support our community and product operations.
General and administrative. General and administrative expenses consist of legal-related costs, which include accruals for estimated fines, settlements, or other losses in connection with legal and related matters, as well as other legal fees; salaries and benefits, and share-based compensation for certain of our executives as well as our legal, finance, human resources, corporate communications and policy, and other administrative employees; other taxes, such as digital services taxes, other tax levies, and gross receipts taxes; and professional services.
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Results of Operations
The following table sets forth our condensed consolidated statements of income data (in millions):
Three Months Ended September 30, Nine Months Ended September 30,
  2021 2020 2021 2020
Revenue $ 29,010  $ 21,470  $ 84,258  $ 57,893 
Costs and expenses:
Cost of revenue 5,771  4,194  16,301  11,482 
Research and development 6,316  4,763  17,609  13,240 
Marketing and sales 3,554  2,683  9,656  8,310 
General and administrative 2,946  1,790  6,524  4,965 
Total costs and expenses 18,587  13,430  50,090  37,997 
Income from operations 10,423  8,040  34,168  19,896 
Interest and other income, net 142  93  413  229 
Income before provision for income taxes 10,565  8,133  34,581  20,125 
Provision for income taxes 1,371  287  5,496  2,198 
Net income $ 9,194  $ 7,846  $ 29,085  $ 17,927 
The following table sets forth our condensed consolidated statements of income data (as a percentage of revenue)(1): 
  Three Months Ended September 30, Nine Months Ended September 30,
  2021 2020 2021 2020
Revenue 100  % 100  % 100  % 100  %
Costs and expenses:
Cost of revenue 20  20  19  20 
Research and development 22  22  21  23 
Marketing and sales 12  12  11  14 
General and administrative 10 
Total costs and expenses 64  63  59  66 
Income from operations 36  37  41  34 
Interest and other income, net —  —  —  — 
Income before provision for income taxes 36  38  41  35 
Provision for income taxes
Net income 32  % 37  % 35  % 31  %
____________________________________
(1)    Percentages have been rounded for presentation purposes and may differ from unrounded results.
Share-based compensation expense included in costs and expenses (in millions):
Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 2021 2020
Cost of revenue $ 147  $ 116  $ 428  $ 327 
Research and development 1,849  1,297  5,224  3,557 
Marketing and sales 218  180  631  516 
General and administrative 165  129  474  352 
Total share-based compensation expense $ 2,379  $ 1,722  $ 6,757  $ 4,752 
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Share-based compensation expense included in costs and expenses (as a percentage of revenue)(1): 
Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 2021 2020
Cost of revenue % % % %
Research and development
Marketing and sales
General and administrative
Total share-based compensation expense % % % %
____________________________________
(1)    Percentages have been rounded for presentation purposes and may differ from unrounded results.
Three and Nine Months Ended September 30, 2021 and 2020
Revenue 
  Three Months Ended September 30,   Nine Months Ended September 30,
  2021 2020 % change 2021 2020 % change
  (in millions, except for percentages)
Advertising $ 28,276  $ 21,221  33  % $ 82,294  $ 56,981  44  %
Other revenue 734  249  195  % 1,964  912  115  %
Total revenue $ 29,010  $ 21,470  35  % $ 84,258  $ 57,893  46  %
Revenue in the three and nine months ended September 30, 2021 increased $7.54 billion, or 35%, and $26.36 billion, or 46%, respectively, compared to the same periods in 2020. The increases were mostly driven by an increase in advertising revenue as a result of increases in both the average price per ad and the number of ads delivered.
During the three and nine months ended September 30, 2021, the average price per ad increased by 22% and 32%, respectively, as compared with decreases of approximately 9% and 16%, respectively, in the same periods in 2020. The increase in average price per ad during the three and nine months ended September 30, 2021 was mainly caused by a recovery from declines in advertising demand due to the onset of the COVID-19 pandemic in 2020. During the three and nine months ended September 30, 2021, the number of ads delivered increased by 9% in both periods as compared with approximately 35% and 38%, respectively, in the same periods in 2020. The increase in the ads delivered was driven by an increase in users and the number and frequency of ads displayed across our products. We anticipate that future advertising revenue growth will be driven by a combination of price and the number of ads delivered.
Other revenue in the three and nine months ended September 30, 2021 increased $485 million, or 195%, and $1.05 billion, or 115%, respectively, compared to the same periods in 2020. These increases in other revenue were almost entirely driven by sales in our consumer hardware products.
Foreign Exchange Impact on Revenue
The general weakening of the U.S. dollar relative to certain foreign currencies in the three and nine months ended September 30, 2021 compared to the same periods in 2020 had a favorable impact on revenue. If we had translated revenue for the three months ended September 30, 2021 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 $28.75 billion and $28.02 billion, respectively. Using these constant rates, total revenue and advertising revenue would have been $259 million and $256 million lower than actual total revenue and advertising revenue, respectively, for the three months ended September 30, 2021. If we had translated revenue for the nine months ended September 30, 2021 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 $82.31 billion and $80.37 billion, respectively. Using these constant rates, total revenue and advertising revenue would have been $1.95 billion and $1.93 billion lower than actual total revenue and advertising revenue, respectively, for the nine months ended September 30, 2021.
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Cost of revenue
  Three Months Ended September 30,   Nine Months Ended September 30,
  2021 2020 % change 2021 2020 % change
  (in millions, except for percentages)
Cost of revenue $ 5,771  $ 4,194  38  % $ 16,301  $ 11,482  42  %
Percentage of revenue 20  % 20  % 19  % 20  %
Cost of revenue in the three and nine months ended September 30, 2021 increased $1.58 billion, or 38%, and $4.82 billion, or 42%, respectively, compared to the same periods in 2020. The increases were mostly due to an increase in cost of consumer hardware products sold and an increase in operational expenses related to our data centers and technical infrastructure, partially offset by a decrease in the depreciation growth rate primarily due to increases in the useful lives of servers and other equipment. To a lesser extent, costs associated with partner arrangements, including traffic acquisition and payment processing costs also increased.
See Note 1 — Summary of Significant Accounting Policies 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 changes in the estimated useful life of our network equipment.
Research and development
  Three Months Ended September 30,   Nine Months Ended September 30,
  2021 2020 % change 2021 2020 % change
  (in millions, except for percentages)
Research and development $ 6,316  $ 4,763  33  % $ 17,609  $ 13,240  33  %
Percentage of revenue 22  % 22  % 21  % 23  %
Research and development expenses in the three and nine months ended September 30, 2021 increased $1.55 billion, or 33%, and $4.37 billion, or 33%, respectively, compared to the same periods in 2020. The increases were mostly due to higher payroll and benefits expenses as a result of a 28% growth in employee headcount from September 30, 2020 to September 30, 2021 in engineering and other technical functions supporting our continued investment in our family of products and consumer hardware products.
Marketing and sales
  Three Months Ended September 30,   Nine Months Ended September 30,
  2021 2020 % change 2021 2020 % change
  (in millions, except for percentages)
Marketing and sales $ 3,554  $ 2,683  32  % $ 9,656  $ 8,310  16  %
Percentage of revenue 12  % 12  % 11  % 14  %
Marketing and sales expenses in the three and nine months ended September 30, 2021 increased $871 million, or 32%, and $1.35 billion, or 16%, respectively, compared to the same periods in 2020. The majority of the increases were due to increases in marketing expenses and payroll and benefits expenses. Our payroll and benefits expenses increased as a result of a 7% increase in employee headcount from September 30, 2020 to September 30, 2021 in our marketing and sales functions.
General and administrative
  Three Months Ended September 30,   Nine Months Ended September 30,
  2021 2020 % change 2021 2020 % change
  (in millions, except for percentages)
General and administrative $ 2,946  $ 1,790  65  % $ 6,524  $ 4,965  31  %
Percentage of revenue 10  % % % %
General and administrative expenses in the three and nine months ended September 30, 2021 increased $1.16 billion, or 65%, and $1.56 billion, or 31%, respectively, compared to the same periods in 2020. The increases were primarily due to increases in legal-related costs and payroll and benefits expenses. Our payroll and benefits expenses increased mainly due to
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an 18% increase in employee headcount from September 30, 2020 to September 30, 2021 in our general and administrative functions.
Interest and other income, net
  Three Months Ended September 30,   Nine Months Ended September 30,
  2021 2020 % change 2021 2020 % change
  (in millions, except for percentages)
Interest income, net $ 120  $ 146  (18) % $ 359  $ 536  (33) %
Foreign currency exchange losses, net (48) (38) 26  % (141) (261) (46) %
Other income (expense), net 70  (15) NM 195  (46) NM
Interest and other income, net $ 142  $ 93  53  % $ 413  $ 229  80  %
Interest and other income, net in the three and nine months ended September 30, 2021 increased $49 million and $184 million, respectively, compared to the same periods in 2020. The increases were due to an increase in other income from net unrealized gains related to our equity investments, partially offset by a decrease in interest income related to lower interest rates compared to the same periods in 2020. In the nine months ended September 30, 2021, the increase was also due to lower foreign currency exchange losses as a result of foreign currency transactions and re‑measurement compared to the same period in 2020.
Provision for income taxes
  Three Months Ended September 30,   Nine Months Ended September 30,
  2021 2020 % change 2021 2020 % change
  (in millions, except for percentages)
Provision for income taxes $ 1,371  $ 287  378  % $ 5,496  $ 2,198  150  %
Effective tax rate 13  % % 16  % 11  %
In the third quarter of 2020, as part of finalizing our U.S. income tax return, we elected to capitalize and amortize certain research and development expenses for U.S. income tax purposes. As a result, we recorded a one-time income tax benefit of $913 million.
Our provision for income taxes in the three months ended September 30, 2021 increased $1.08 billion, or 378%, compared to the same period in 2020, mostly due to the effects of the tax election described above and an increase in income from operations. Our provision for income taxes in the nine months ended September 30, 2021 increased $3.30 billion, or 150%, compared to the same period in 2020, mostly due to an increase in income from operations and the effects of the tax election described above.
Our effective tax rate in the three and nine months ended September 30, 2021 increased compared to the same periods in 2020, mostly due to the effects of the tax election described above.
Effective Tax Rate Items. Our effective tax rate in the future will depend upon the proportion between the following items and income before provision for income taxes: U.S. tax benefits from foreign derived intangible income, tax effects from share-based compensation, tax effects of integrating intellectual property from acquisitions, settlement of tax contingency items, tax effects of changes in our business, and the effects of changes in tax law.
The accounting for share-based compensation may increase or decrease our effective tax rate based upon the di