SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)☒
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| ☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31,
20182021
OR☐
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| ☐ | 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 001-36164
________________________________________________________
(Exact name of registrant as specified in its charter)
________________________________________________________Delaware
| | 20-8913779
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Delaware | | 20-8913779 |
(State or other jurisdiction of incorporation or organization) | | Identification No.) |
1355 Market Street, Suite 900
San Francisco, California 94103
(Address of principal executive offices and Zip Code)
(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 |
Common Stock, Par Valuepar value $0.000005 Per Share per share | TWTR | New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
YES Yes ☒ NO No ☐Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.
YES Yes ☐ NO No ☒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 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 Yes ☒ NO 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
fi les)files).
YES Yes ☒ NO No ☐Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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.
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| 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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES
☐ NO
☒The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant, based on the closing price of a share of the registrant’s common stock on June 30,
20182021 as reported by the New York Stock Exchange on such date was approximately
$31.2$53.55 billion.
The number of shares of the registrant’s common stock outstanding as of February
7, 201910, 2022 was
766,824,550.800,641,166.
Portions of the registrant’s Definitive Proxy Statement relating to the Annual Meeting of Stockholders are incorporated by reference into Part III of this Annual Report on Form 10-K where indicated. Such Definitive Proxy Statement will be filed with the Securities and Exchange Commission within 120 days after the end of the registrant’s fiscal year ended December 31,
2018.2021.
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which statements involve substantial risks and uncertainties. Forward-looking statements generally relate to future events or our future financial or operating performance. In some cases, you can identify forward-looking statements because they contain words such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans or intentions. Forward-looking statements contained in this Annual Report on Form 10-K include, but are not limited to, statements about:
•our ability to attract and retain userspeople on Twitter and increase thetheir level of engagement, including ad engagement, of our users and its impact on revenue;
•our expectations regarding our revenue growth, including the impact of COVID-19 and Apple’s App Tracking Transparency policy, and our cost and expenses growth;
•our expectations regarding our monetizable daily active usage or users (mDAU), mDAU growth and growth rates and related opportunities, as well as the continued usage of our website and mobile applications, including the impact of seasonality;
•our plans regarding health and user safety and our other top priorities, including our expectations regarding the impact on our reported metrics, policies, enforcement and preventing manipulation of our platform;
•the impact of the COVID-19 pandemic and related responses of businesses and governments to the pandemic on our expectations regarding monetizable DAUs (mDAUs), MAUs, changes in cost per ad engagementoperations and changes in ad engagements;
•our ability to develop or acquire new products, product features and services, improve our existing products and services, including with respect to Promoted Tweet product features,Products, video and performance advertising, and increase the value of our products and services;
•our business strategies, plans and priorities, including our plans for headcount growth, and hiring, investment in our research and development efforts, investment in capital expenditures, and our plans to scale capacity and enhance capability and reliability of our infrastructure including capital expenditures relating to infrastructure;
•our ability to provide new content from third parties, including our ability to secure live streaming video content on terms that are acceptable to us;
•our ability to attract advertisers to our platforms, products and services and increase the amount that advertisers spend with us;
our expectations regarding our user growth and growth rates and related opportunities as well as the continued usage of our mobile applications, including the impact of seasonality;
our ability to increase our revenue and our revenue growth rate, including advertising and data licensing and other revenue;
•our ability to improve user monetization;
•our future financial performance, including trends in ad engagements and cost per ad engagement, revenue, costs and expenses (including data licensing revenue), cost of revenue, operating expenses, including stock-based compensationcompensation) and income taxes;
•our expectations and plans related to the sale of our MoPub business, as well as the expected timing for us to recoup the revenue impact from the sale;
•our expectations regarding certain deferred tax assets and fluctuations in our tax expense and cash taxes;
•the impact of the General Data Protection Regulation (GDPR)laws and otherregulations relating to privacy, data and privacy regulation;
•our expectations regarding outstanding litigation or the decisions of the courts;
courts and the results of the draft complaint we received from the Federal Trade Commission;
•the effects of seasonal trends on our results of operations;
•the impact of our recent financial resultsfuture transactions and corporate structuring on our valuation allowance for federalincome and state deferred tax assets;
•our expectations regarding our future share repurchases;
•the sufficiency of our cash and cash equivalents, short-term investment balance and credit facility together with cash generated from operations and continued access to capital markets to meet our working capital, and capital expenditure, requirements;
•our ability to timely and effectively develop, invest in, scale and adapt our existing technology and network infrastructure;
•our ability to successfully acquire and integrate companies and assets; and
•our expectations regarding international operations and foreign exchange gains and losses.
We caution you that the foregoing list may not contain all of the forward-looking statements made in this Annual Report on Form 10-K.
You should not rely upon forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this Annual Report on Form 10-K primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, operating results, cash flows or prospects. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties and other factors described in the section titled “Risk Factors” and elsewhere in this Annual Report on Form 10-K. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Annual Report on Form 10-K. We cannot assure you that the results, events and circumstances reflected in the forward-looking statements will be achieved or occur, and actual results, events or circumstances could differ materially from those described in the forward-looking statements.
The forward-looking statements made in this Annual Report on Form 10-K relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this Annual Report on Form 10-K to reflect events or circumstances after the date of this Annual Report on Form 10-K or to reflect new information or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may make.
NOTE REGARDING KEY METRICS
We review a number of metrics, including monetizable daily active usage or users, or
mDAUs, monthly active usage or users, or MAUs,mDAU, changes in ad engagements and changes in cost per ad engagement, to evaluate our business, measure our performance, identify trends affecting our business, formulate business plans and make strategic decisions. See the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Metrics” for a discussion of how we calculate
mDAUs, MAUs,mDAU, changes in ad engagements and changes in cost per ad engagement.
We define monetizable daily active usagemDAU as people, organizations, or users (mDAU) as Twitter usersother accounts who logged in or were otherwise authenticated and accessed Twitter on any given day through Twitter.com ortwitter.com, Twitter applications that are able to show ads. Our definition and calculation of mDAU is the same as that of the DAU data presented since the first quarter of 2016. The calculation of mDAU is not based on any standardized industry methodology and is not necessarily calculated in the same mannerads, or comparable to similarly-titled measures presented by other companies.paid Twitter products, including subscriptions(1). Average mDAU for a period represents the number of mDAU on each day of such period divided by the number of days for such period. Changes in mDAU are a measure of changes in the size of our daily logged in or otherwise authenticated active user base.total accounts. To calculate the year-over-year change in mDAU, we subtract the average mDAU for the three months ended in the previous year from the average mDAU for the same three months ended in the current year and divide the result by the average mDAU for the three months ended in the previous year.We define monthly active usage or users (MAU) as Twitter users who logged in or were otherwise authenticated Additionally, our calculation of mDAU is not based on any standardized industry methodology and accessed Twitter through our website, mobile website, desktop or mobile applications, SMS or registered third-party applications or websitesis not necessarily calculated in the 30-day period ending on the datesame manner or comparable to similarly titled measures presented by other companies. Similarly, our measures of measurement. Average MAU for a period represent the average of the MAU at the end of each month during the period. We believe that mDAU growth and its related growth, are the best ways to measure our success against our objectives and to show the sizeengagement may differ from estimates published by third parties or from similarly-titled metrics of our audience and engagement going forward, so we will discontinue disclosing MAU after the first quarter of 2019.
Certain metrics also include users that access Twitter through applications that automatically contact our servers for regular updates with no discernible user-initiated action involved, which we refercompetitors due to as third-party auto-polling MAU. This activity causes our system to count MAUs associated with such applications as active users on the day or days such contact occurs. As of December 31, 2018, fewer than 8.5% of MAUs may have been third-party auto-polling MAU. Third-party auto-polling does not apply to mDAU as mDAU does not include users accessing Twitter through third-party applications.
differences in methodology.
The numbers of active usersmDAU presented in this Annual Report on Form 10-K are based on internal company data. While these numbers are based on what we believe to be reasonable estimates for the applicable period of measurement, there are inherent challenges in measuring usage and user engagement across our large user basenumber of total accounts around the world. Furthermore, our metrics may be impacted by our information quality efforts, which are our overall efforts to reduce malicious activity on the service, inclusive of spam, malicious automation, and fake accounts. For example, there are a number of false or spam accounts in existence on our platform. We have performed an internal review of a sample of accounts and estimate that the average of false or spam accounts during the fourth quarter of 20182021 represented fewer than 5% of our MAU and mDAU during the quarter. The false or spam accounts for a period represents the average of false or spam accounts in the samples during each monthly analysis period during the quarter. In making this determination, we applied significant judgment, so our estimation of false or spam accounts may not accurately represent the actual number of such accounts, and the actual number of false or spam accounts could be higher than we have estimated. We are continually seeking to improve our ability to estimate the total number of spam accounts and eliminate them from the calculation of our active users,mDAU, and have made improvements in our spam detection capabilities that have resulted in the suspension of a large number of spam, malicious automation, and fake accounts. We intend to continue to make such improvements. After we determine an account is spam, malicious automation, or fake, we stop counting it in our MAU, mDAU, or other related metrics. Additionally, we rely on third-party SMS aggregators and mobile carriers to deliver SMS messages to certain of our users when we send our SMS messages to such accounts. If, however, we are notified of material deliverability issues because of, for example, infrastructure issues at the service-provider level or governmental restrictions based on content, we do not include the affected users in MAUs. We also treat multiple accounts held by a single person or organization as multiple users for purposes of calculating our active usersmDAU because we permit people and organizations to have more than one account. Additionally, some accounts used by organizations are used by many people within the organization. As such, the calculations of our active usersmDAU may not accurately reflect the actual number of people or organizations using our platform.
In addition,
ourgeographic location data
regarding user geographic locationcollected for purposes of reporting the geographic location of our
MAU and mDAU is based on the IP address or phone number associated with the account when
a useran account is initially registered
the account on Twitter. The IP address or phone number may not always accurately reflect a
user’sperson’s actual location at the time
such userthey engaged with our platform. For example,
a mobile user may appear to besomeone accessing Twitter from the location of the proxy server that the
userperson connects to rather than from
a user’sthe person’s actual location.
We regularly review and may adjust our processes for calculating our internal metrics to improve their accuracy. Our measures
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(1) We have updated our mDAU definition in the fourth quarter of 2021 to also include "paid Twitter products, including subscriptions," so this key metric continues to accurately reflect our audience as our products evolve. This change had no material impact on the number of mDAU reported in the fourth quarter of 2021, and is unlikely to do so in the near future. This change is effective for the fourth quarter of 2021 and for future periods, and it did not affect prior periods. |
PART I
PART I
Twitter is what’s happening in the world and what people are talking about right now.
From breaking news and entertainment, to sports, politics, and everyday interests, Twitter shows every side of the story. On Twitter you can join the open conversation and watch highlights, clips, or live-streaming events. Twitter is available in more than 40 languages around the world. The service can be accessed via twitter.com, an array of mobile devices via Twitter owned and operated mobile applications (e.g. Twitter for iPhone and Twitter for Android), and SMS.In 2018, we took important steps to increase the collective health, openness, and civility of the public conversation on Twitter, helping people see high-quality information, strengthening our sign-up and account verification processes, and preventing the abuse of Twitter data. Specific actions we took in 2018 included: strengthening account security, updating our rules to more clearly address specific types of hateful conduct, taking new behavior-based signals into account when presenting and organizing Tweets, making it easier to see when a Tweet was removed for breaking our rules, and expanding our team through increased hiring and acquisition. In 2018, our machine learning efforts continued to improve, making it harder for malicious accounts to manipulate our service through multiple accounts and evading suspension, resulting in the suspension of millions of spammy and suspicious accounts. We also continued our work to make it easier to follow and discuss events as they are unfolding with expanded coverage of sports, entertainment, news, elections, and other topics and events.
Products and Services for Users
Our primary product, Twitter, is a global platform for public self-expression and conversation in real time.
Twitter allowsWe have democratized content creation and distribution so people
tocan consume, create, distribute and discover content
about the topics and
has democratized content creationevents they care about most. Through Topics, Interests, and
distribution. Periscope is a mobile application that lets anyone broadcast and watch video live with others. Periscope broadcasts can also be viewed through Twitter and on desktop or mobile web browsers. We continue to implement live broadcasts across Twitter, including trends and moments, toTrends, we help people discover what’s happening
live.The reach of Twitterthrough text, images, on demand and live video, and audio from people, content is not limited to our logged-in users on the Twitter platform, but rather extends to a much larger global audience. The public nature of the Twitter platform allows uspartners, media organizations, advertisers and others toothers. Media outlets, websites, and other partners extend the reach of Twitter content beyond our properties. Over 1 million media outlets and our platform partners distributeby distributing Tweets beyond our propertiesapp and website.
In 2021, we continued our work to serve the public conversation by helping people find trusted sources of information and by better organizing and surfacing the many topics and interests that bring people to Twitter, with a focus on personalization and selection. We launched products to continue helping people stay informed and discuss what matters to them such as Twitter Spaces, a new way to have live audio conversations on Twitter, and Communities, a new way to easily find and connect with people who have similar interests. We also worked to help people and businesses get paid on Twitter by introducing Ticketed Spaces, Super Follows, and Tips, which give people the ability to pay creators using a variety of payment methods to send currency or Bitcoin to creators. We also introduced Twitter Blue, Twitter’s first-ever consumer subscription offering. Twitter Blue allows our most passionate and engaged accounts to pay for exclusive features and perks that enhance and complement their content byexisting Twitter experience.
We are making it easier to follow and participate in healthier conversations by rolling out new conversation settings globally, and giving people everywhere more timely, relevant and comprehensive. These outlets and partners also add valuecontrol over the conversations they start on Twitter. We have furthered our efforts to our user experience by contributing content to our platform. Manyimprove the health of the world’s most trusted media outletsplatform, as we work to make sure that people and publishers regularly use Twitter asadvertisers feel safe being a platformpart of the conversation and can find credible information on our service. Major areas of focus within health include reducing abuse, providing more context around misinformation, and protecting the integrity of civic-related conversations.
In addition, we have made significant progress on our brand and direct response offerings with updated ad formats, improved targeting, and better measurement. We have also continued to refine our Mobile Application Promotion (MAP) and Website Traffic offerings.
On January 1, 2022, we closed the sale of our MoPub business to AppLovin Corporation. The sale of MoPub enables us to concentrate more of our efforts on the significant opportunity for
content distribution.performance-based advertising, small and medium-sized business (SMB) offerings, and commerce initiatives on Twitter.
Products and Services for Advertisers
Our Promoted Products enable
our advertisers to
launch products and services and promote their brands,
amplify their visibility and
reach,products and
connect with our audience, while extending the conversation around their advertising campaigns.services. We enable
our advertisers to target an audience based on a variety of factors, including
a user’s interest graph. The interest graph maps, among other things, interests based on users followedwho an account follows and actions taken on our platform, such as Tweets created and engagement with Tweets. We believe
a user’s interest graphthis data produces a clear and real-time signal of
a user’s interests,what is relevant to that account, greatly enhancing the
relevanceperformance of the ads we can
display for users and enhancing our targeting capabilities forserve on behalf of advertisers. Our Promoted Products are incorporated into our platform as native advertising and are designed to be as compelling and useful
to our users as organic content on our platform.
Currently, our Promoted Products consist of:
•Promoted Tweets. Ads and Twitter Amplify. Promoted TweetsAds (previously branded as Promoted Tweets), which are labeled as “promoted,” appear within a user’s timeline, search results, or profile pages, just like an ordinaryand Tweet regardless of device. Promoted Tweets often include images and videos, such as App Cards and Website Cards.conversations. Using our proprietary algorithmalgorithms and understanding ofwhat is relevant to each user’s interest graph,account, we can deliver Promoted TweetsAds that are intended to be relevant to a particular user. Our goalachieve the outcome that the advertiser is toseeking. We enable our advertisers to create andtarget an audience based on many criteria. Our Promoted Ads are pay-for-performance or pay-for-impression delivered advertising that are priced through an auction. Our Promoted Ads include objective-based features that allow advertisers to optimize successful marketing campaigns — and pay either on impressions delivered or pay only for the user actions that are aligned with their marketing objectives. As a result, we have added product features to Promoted Tweets based on advertiser objectives, which may includegoal selected by the advertisers, such as Tweet engagements (e.g., retweets,Retweets, replies and likes), website clicks or conversions,traffic, mobile application installs or engagements, obtaining new followers, or video views.
•Follower Ads. Follower Ads (previously branded as Promoted Accounts. Promoted Accounts appear in the same format and placeAccounts), which are labeled as accounts suggested by our Who to Follow recommendation engine, or in some cases, in Tweets in a user’s timeline. Promoted Accounts“promoted,” provide a way for our advertisers to build and grow a community of users who arean audience that is interested in their business, productsproduct or services.
•Twitter Takeover. Twitter Takeover (previously branded as Promoted Trends. Promoted TrendsTrends), which are labeled as “promoted,” appear at the top of the list of trending topics or timeline for an entire day in a particular country orcountry. We sell our Twitter Takeover on a globalfixed-fee-per-day basis. When a user clicks on a Promoted Trend, search results for that trend are shown in a timeline and a Promoted Tweet created by our advertisers is displayed to the user at the top
Advertisers can also run short video ads, such as In-Stream video ads either before or around premium video content, such as duringbefore live premium video content from publishing partners or clips from a variety of interest categories such as news, sports and entertainment. Our technology dynamically inserts those advertisers' ads into the relevant videos and delivers the ads to the audience targeted by those advertisers. We may pay content partners a portion of our advertising revenue for the right to use and distribute their content on our platform. In addition, In-Stream VideoAmplify Sponsorships allow advertisers to build brand association by sponsoring premium video content from a single publishing partner, including livepartner.
We recently redesigned our Amplify pre-roll video
video clips, and other storytelling formats like Sponsored Moments.ads, designed to drive better brand lift with more ways to match content with ads. We continue to focus our investment inon features that differentiate Twitter and capitalize on our value proposition for advertisers, including videoadvertisers. We have made progress on our brand and more organicdirect response offerings, with updated ad formats, such as Video Website Card.
improved targeting, and better measurement for both MAP and website traffic (formerly named website clicks).
Our
technology platform
and information database enableenables us to provide targeting capabilities based on audience attributes like geography, interests, keyword,
television conversation, content, and events that make it possible for advertisers to promote their brands, products and services, amplify their visibility and reach, and complement and extend the conversation around their advertising campaigns.
Our platform also enables customers to advertise across the mobile ecosystem, both on
Twitter’sTwitter's owned and operated properties as well as off Twitter on third-party publishers’ websites, applications and other
offerings, across the full user lifecycle — from acquiring new users to engaging existing users.offerings. We enable advertisers to extend their reach beyond Twitter
through:MoPub, our mobile-focused advertising exchange, which combines ad serving, ad network mediation and a real-time bidding exchange into one comprehensive monetization platform.
through the Twitter Audience Platform, an advertising offering that enables advertisers to extend their advertising campaigns with Twitter Promoted Products to audiences off Twitter while retaining access to Twitter’sTwitter's measurement, targeting and creative tools.
Video is an important way to stay informed, enabling people on Twitter enabling usersand our premium content ownerspartners to better share experiences, engage in events, and converse with broader audiences. We continue to improve the conversation around global events and to increase reach, engagement, and engagementmonetization for content ownerspartners and advertisers around the world through brand safe live-streaming, highlight video clips,, and video-on-demand agreements signeddesigned to complement the user generated and licensed live and on-demand video content already availablefrom people on Twitter across a number of verticals including sports, news, gaming and entertainment. These partnerships enable content publishers and advertisers to reach fans where it all happens, when it’s happening.
Creator Monetization
Creators drive conversations, shape culture, and are some of the most engaging voices on Twitter. By helping them make money, we provide a clear and direct incentive for them to invest more of their time and money into our platform. To that end, in 2021 we launched three new monetization products for creators:
•Tips. Tips are a way to directly send small one-time payments to anyone on Twitter using a variety of payment methods, including bitcoin.
•Super Follows. Super Follows is a paid monthly subscription that offers bonus content, exclusive previews, and perks as a way to support and connect with creators on Twitter.
•Ticketed Spaces. Ticketed Spaces is a way to support creators on Twitter for their time and effort in hosting, speaking, and moderating the public conversation on Twitter Spaces. Creators can earn a share of revenue from tickets purchased to their Ticketed Spaces.
We've also built an earnings dashboard for creators to see a unified view of what they're making over their monetized products and for customers to see their purchase history.
Products for Developers and Data Partners
The Twitter Developer Platform (formerly Developer and Enterprise Solutions) empowers developers around the world to build tools for people and businesses using our public application programming interface (API), or in simpler terms, it gives people more ways to interact with what’s happening on Twitter. This includes data and insights from Tweets, Spaces, polls, and other features that help make Twitter more useful to more people in more places. The Twitter Developer Platform serves commercial and non-commercial developers including businesses, academics, and consumer developers, among others. We
provide a setbelieve this work has the potential to help us with our efforts to improve the health of
tools,and participation in the public
APIsconversation. Developers use Twitter’s platform to build apps and
embeddable widgetswebsites that
developers can use to contribute their content to our platform, syndicate and distribute Twitter content across their properties and enhance their websites and applications with Twitter content. Websites and applications integrating with Twitter add value to our user experience. Many applications have been registered by developers to enable them to integrate with our
platform,publicly available APIs to improve people’s experience on Twitter by connecting them with the conversations they care about. They also help brands and
leverage Twitter content to enhancepublishers engage with what’s happening and
extend their applications in new and creative ways. The goal of our platform product development is to make it easy for developers to integrate seamlessly with Twitter, while keeping this process safer and more secure for Twitter users.gain insights from the public conversation.
We also offer
subscriptionpaid access to
our publicTwitter data
feed for partners
with commercial use cases and those who wish to access
more data beyond
what is available for free through our public
API, which offers a limited amountAPIs. Paying developers typically sign subscriptions, or enterprise agreements, based on the type and volume of
our public data for free.usage. Our
enterprisecommercial data products and services offer
more sophisticated
data setsAPIs and
better data enrichmentsother services to
allow developers and businesses to utilize our public content to derive business insights and build products using the unique content that is shared on Twitter. We have grown our data licensing revenue with a moresupport developers. Our customer-centric
approach to channels, markets, products, and pricing. We believe this approach positions both Twitter and our key
channel partners for greater growth and monetization, and we are investing in deeper partnerships with
a few select solution providers to help businesses and organizations realize greater value from our
dataplatform. A goal of our platform is to make it easy for developers to integrate seamlessly with Twitter, while protecting the privacy and
platform.safety of the people who use Twitter.
Our business is characterized by rapid technological change, frequent product innovation and
the continuously evolving
user, advertiser, content partner, platform partner and developer preferences and
expectations.expectations of people on Twitter, advertisers, content partners, platform partners and developers. We face significant competition in every aspect of our business, including from companies that provide tools to facilitate communications and the sharing of information, companies that enable marketers to display advertising, and other online ad networks, exchanges and platforms. We also compete to attract, engage, and retain people who use our products,
and to attract and retain marketers,
content and
to attractplatform partners, and
retain developers to build compelling mobile and web applications that integrate with our products.developers. We have seen escalating competition for digital ad spending and expect this trend to continue. We also compete to attract and retain employees, especially software engineers, designers, and product managers.
We compete with the following companies for users’people’s attention and for advertisers’ budgets:
•Companies that offer products that enable everyonepeople to create and share ideas, videos, and other content and information. These offerings include, for example, Meta (including Facebook, (including Instagram and WhatsApp) and, Alphabet (including Google and YouTube), Microsoft (including LinkedIn), Snap,Snapchat, TikTok, Pinterest, and Verizon Media Group,Yahoo, as well as largely regional social media and messaging companies that have strong positions in particular countries (including WeChat, Kakao, and Line). Although we often seek differentiated content from other licensors, we face competition for live premium video content rights from other digital distributors and traditional television providers, which may limit our ability to secure such content on economic and other terms that are acceptable to us in the future.
•Companies that offer advertising inventory and opportunities to advertisers.
•Companies that develop applications, particularly mobile applications, that create, syndicate and distribute content across internet properties.
•Traditional, online, and mobile businesses and media companies that enable userspeople to consume content or marketers to reach their audiences and/or develop tools and systems for managing and optimizing advertising campaigns.
As we introduce new products, as our existing products evolve, or as other companies introduce new products and services, we may become subject to additional competition.
Our industry is evolving rapidly and is becoming increasinglyhighly competitive. See the sections titled “Risk Factors—If we are unable to compete effectively for userspeople to use our platform, and advertiserfor content and data partners, our business and operating results could be harmed.”, “Risk Factors—If we are unable to compete effectively for advertising spend, our business and operating results could be harmed”harmed.” and “Risk Factors—We depend on highly skilled personnel to grow and operate our business, and ifbusiness. If we are unable to hire, retain and motivate our personnel, we may not be able to grow effectively.” "
Technology, Research and Development
Twitter is composed of a set of core, scalable and distributed services that are built from proprietary and open source technologies. These systems are capable of delivering billions of messages, including images and video, to hundreds of millions of people a day in an efficient and reliable way. We continue to invest in our existing products and services as well as develop new products and services through research and product development. We also continue to invest in protecting the safety, security and integrity of our platform by investing in both people and technology, including machine learning.
We have a global sales force and sales support staff that is focused on attracting and retaining advertisers while certain advertisers use our self-serve advertising platform to launch and manage their advertising campaigns. Our sales force and sales support staff assist advertisers throughout the advertising campaign cycle, from pre-purchase decision making to real-time optimizations as they utilize our campaign management tools, and to post-campaign analytics reports to assess the effectiveness of their advertising campaigns.
Since our inception, our user base has grown primarily organically, complemented with targeted campaigns to drive new user acquisition. In 2018, we set out to clearly define who we are and express the uniqueness and power of our brand through
We use marketing campaigns to
help drive
awarenessaudiences to our platform. In 2021, we continued to deliver marketing campaigns focused on celebrating and highlighting the voices of
Twitter’s unique positioning.the people who make Twitter unique. We also
solidified continued to highlight our value proposition for advertisers, including how brands turn to Twitter to launch something new, and connect with
our “Start With Them” campaign, which highlights that Twitter connects advertisers with the most valuable audiences when they are most receptive.what’s happening.
We seek to protect our intellectual property rights by relying on federal, state and common law rights in the United States and other countries, as well as contractual restrictions. We generally enter into confidentiality and invention assignment agreements with our employees and contractors, and confidentiality agreements with other third parties, in order to limit access to, and disclosure and use of, our confidential information and proprietary technology. In addition to these contractual arrangements, we also rely on a combination of trademarks, trade dress, domain names, copyrights, trade secrets and patents to help protect our brand and our other intellectual property.
In May 2013, we implemented our Innovator’s Patent Agreement, or IPA, which we enter into with our employees and consultants, including our founders. The IPA which applies to our current and future patents, allows us to assert our patents defensively. The IPA also allows us to assert our patents offensively with the permission of the inventors of the applicable patent. The IPA can limit our ability to prevent infringement of our patents. See the section titled “Risk Factors—Our intellectual property rights are valuable, and any inability to protect them could reduce the value of our products, services and brand” for a further discussion of the IPA.
We are subject to a number of U.S. federal and state and foreign laws and regulations that involve matters central to our business. These laws and regulations may involve privacy,
data protection, cybersecurity, rights of publicity,
data protection, content regulation,
data localization, intellectual property, competition, protection of minors, consumer protection,
credit card processing, taxation or other subjects. Many
of these laws and regulations
impacting our business are being proposed, are still evolving
andor are being tested in courts and could be interpreted
and applied in a manner that is inconsistent from country to country and inconsistent with our current policies and practices and in ways that could harm our business. In addition, the application and interpretation of these laws and regulations often are uncertain, particularly in the new and rapidly evolving industry in which we operate.
We
With regard to privacy, data protection and cybersecurity, we are also subject to a variety of federal, state and foreign laws regarding privacy and regulations. For example, the protectionCalifornia Consumer Privacy Act (CCPA) requires covered companies to, among other things, provide disclosures to California consumers, and afford such consumers the ability to opt-out of user data.certain sales of personal information. Similar legislation has been proposed or adopted in other states. Additionally, the California Privacy Rights Act (CPRA) created obligations relating to consumer data beginning on January 1, 2022, with implementing regulations expected on or before July 1, 2022, and enforcement beginning July 1, 2023. Aspects of the CCPA, the CPRA and these other state laws and regulations, as well as their interpretation and enforcement, remain unclear, and we may be required to modify our practices in an effort to comply with them. Foreign data protection, privacy, cybersecurity, consumer protection, content regulation and other laws and regulations are often more restrictive or burdensome than those in the United States. For example, the General Data Protection Regulation, or the GDPR, which was effective from May 2018. The GDPR also includes moreimposes stringent operational requirements for entities processing personal information and significant penalties for non-compliance. There are also a number of legislative proposals pending before the U.S. Congress, various state legislative bodies and foreign governments concerning content regulation and data protection that could affect us, including the California Consumer Privacy Act.us.
In March 2011, to resolve an investigation into various incidents, we entered into a settlement agreement with the Federal Trade Commission, or FTC, that, among other things, requires us to establish an information security program designed to protect non-public consumer information and also requires that we obtain biennial independent security assessments. The FTC investigation was the result of two separate incidents in which unauthorized intruders obtained administrative passwords of certain Twitter employees. In one of the incidents, the intruder accessed the employee’s administrative capabilities to fraudulently reset various user passwords and post unauthorized Tweets. The obligations under the settlement agreement remain in effect until the later of March 2, 2031, or the date 20 years after the date, if any, on which the U.S. government or the FTC files a complaint in federal court alleging any violation of the order. On July 28, 2020, we received a draft complaint from the FTC alleging violation of the order and the Federal Trade Commission Act (FTC Act). The allegations relate to our use of phone number and/or email address data provided for safety and security purposes for targeted advertising during periods between 2013 and 2019. The matter remains unresolved, and there can be no assurance as to the timing or the terms of any final outcome. Violation of other existing or future regulatory orders, settlements, or consent decrees could subject us to substantial monetary fines and other penalties that could negatively affect our financial condition and results of operations.
Twitter users
People may be restricted from accessing Twitter from certain countries, and other countries have intermittently restricted access to Twitter. For example, Twitter is not directly accessible in China and has been
intermittently blocked in the past in Turkey. It is possible that other governments may seek to restrict access to or block our website or mobile applications, censor content available through our products or impose other restrictions that may affect the accessibility or usability of Twitter for an extended period of time or
indefinitely.indefinitely, including because of our decisions with respect to the enforcement of our rules. For instance, some countries have enacted laws that allow websites to be blocked for hosting certain types of content.
For additional information, see the section titled “Risk Factors—Our business is subject to complex and evolving U.S. and foreign laws and regulations. These laws and regulations are subject to change and uncertain interpretation, and could result in claims, changes to our business practices, monetary penalties, increased cost of operations or declines in
usermDAU growth,
usermDAU engagement or ad engagement, or otherwise harm our business.”
Advertising spending is traditionally strongest in the fourth quarter of each year. Historically, this seasonality in advertising spending has affected our quarterly results, with higher sequential advertising revenue growth from the third quarter to the fourth quarter compared to sequential advertising revenue from the fourth quarter to the subsequent first quarter.
Backlog
Human Capital
We believe the strength of our workforce is critical to our success as we strive to become a more inclusive, diverse, and accessible technology company. Our key human capital management objectives are to attract, retain, and develop the talent we need to deliver on our commitment to serve the public conversation in a safe and responsible way by offering exceptional products and services. Examples of our key programs and initiatives that are focused to achieve these objectives include:
Inclusion, Diversity, Equity, and Accessibility (IDEA). People come to Twitter to freely express themselves. Just as inclusion lives on our platform, we are working to ensure our workplace reflects our service. In 2020, we introduced our vision for our workforce representation: an objective that by 2025, we aspire to have at least half of our global workforce represented by women and at least a quarter of our U.S. workforce represented by historically-excluded and/or under-represented communities. We accompanied our vision with a strategy to help drive progress, including:
•A company-wide three-year objective focused on diversity and decentralization;
•Clearly-defined targets for workforce representation and inclusion metrics across every executive leader;
•An internal dashboard accessible to all employees to track progress against our objective;
•An expanded team of Inclusion, Diversity, Equity, and Accessibility leaders across our business;
•Refreshing our hiring practices to require diverse slates for all open roles and put inclusive hiring principles at the forefront;
•A Consistency & Fairness Taskforce to review our employee promotions process;
•Investing in our employee Business Resource Group leaders, who foster a culture of inclusivity and belonging within our company, including introducing a formal compensation program.
We have made significant progress towards our inclusion, diversity, equity, and accessibility objectives through leadership, transparency and accountability. In 2021, we focused on equity across every stage of our employee lifecycle: recruitment and hiring, onboarding, compensation and pay transparency, learning and development, and our work cultivating an inclusive environment across teams and regional geographies with our Business Resource Groups at the center. As we continue to learn, we also evolved our vision to more impactfully integrate accessibility and equity into our work and merged the Inclusion and Diversity (I&D) and Accessibility teams into a new Inclusion, Diversity, Equity, & Accessibility team to reflect this commitment.
Flexibility and Decentralization. Even before the COVID-19 pandemic drove a shift to remote work, we recognized the need to evolve our workforce to achieve our purpose. We designed a workplace strategy to provide more flexible work options and to build more distributed teams who work effectively without the need to be co-located. In 2020 we announced that most employees will be able to work where they feel most productive, whether that is working full-time from home, from a Twitter office or splitting their time between their home and a Twitter office. Recent employee surveys show that the future of work at Twitter is hybrid, with a substantial majority of our workforce planning to work from home full time or a combination of home and a Twitter office.
Pay. Our primary compensation strategy is to promote a pay-for-performance culture. Our guiding principles are anchored on the goals of being able to attract, incentivize, and retain talented employees who can develop, implement, and deliver on long-term value creation strategies; promote a healthy approach to risk by reinforcing our values which serve to motivate our employees; and provide competitive compensation that is aligned with the market and fair relative to our peers. We are committed to both pay equity and transparency.
Health and Wellness. Beyond the fundamental needs of health, welfare and retirement programs, we are focused on the specific needs of our individual employees. Over the past two years, our employees adapted to an unprecedented amount of change and uncertainty driven by the COVID-19 pandemic, including an abrupt shift to working from home, rescheduled work priorities, and closure of schools and daycare facilities. We continued to provide resources and ongoing support to employees facing these challenges throughout 2021, such as a wellness reimbursement, home office setup allowance, expanded health coverage, and flexible work schedules.
As of December 31,
2018, our backlog primarily consists of long-term data licensing contracts. We generate the substantial majority of our revenue from our advertising services. As such,2021, we
do not believe that our backlog, as of any particular date, is necessarily indicative of actual revenue for any future period. Refer to Note 3 of the Notes to Consolidated Financial Statements under Part II, Item 8 of this Annual Report on Form 10-K regarding the amount of remaining performance obligations, which represents the significant majority of our contracted backlog.Employees
As of December 31, 2018, we had 3,920employed over 7,500 full-time employees.
We were incorporated in Delaware in April 2007. Our principal executive offices are located at 1355 Market Street, Suite 900, San Francisco, California 94103, and our telephone number is (415) 222-9670. We completed our initial public offering in November 2013 and our common stock is listed on the New York Stock Exchange under the symbol “TWTR.” Unless the context requires otherwise, the words “Twitter,” “we,” “Company,” “us” and “our” refer to Twitter, Inc. and our wholly ownedwholly-owned subsidiaries.
Available Information
Our website is located at
https://www.twitter.com, and our investor relations website is located at
http:https://
investor.twitterinc.com/.investor.twitterinc.com. Copies of our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, are available, free of charge, on our investor relations website as soon as reasonably practicable after we file such material electronically with or furnish it to the Securities and Exchange Commission, or the SEC. The SEC also maintains a website that contains our SEC filings. The address of the
siteSEC website is
https://www.sec.gov.
We webcast our earnings calls and certain events we participate in or host with members of the investment community on our investor relations website. Additionally, we provide notifications of news or announcements regarding our financial performance, including SEC filings, investor events, press and earnings releases, and blogs as part of our investor relations website. We have used, and intend to continue to use, our investor relations website, as well as certain Twitter accounts (@jack,(@paraga, @nedsegal, @twitter and @twitterIR), as means of disclosing material non-public information and for complying with our disclosure obligations under Regulation FD. Further corporate governance information, including our certificate of incorporation, bylaws, corporate governance guidelines, board committee charters, and code of business conduct and ethics, is also available on our investor relations website under the heading “Corporate governance.” The contents of our websites are not intended to be incorporated by reference into this Annual Report on Form 10-K or in any other report or document we file with the SEC, and any references to our websites are intended to be inactive textual references only.
Investing in our common stock involves a high degree of risk. You should carefully consider the risks and uncertainties described below, together with all of the other information in this Annual Report on Form 10-K, including the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes, before making a decision to invest in our common stock. The risks and uncertainties described below may not be the only ones we face. If any of the risks actually occurs, our business, financial condition, operating results, cash flows and prospects could be materially and adversely affected. In that event, the market price of our common stock could decline, and you could lose part or all of your investment.
Risks Related
Risk Factor Summary
Our business operations are subject to Our numerous risks and uncertainties, including those outside of our control, that could cause our business, financial condition or operating results to be harmed, including risks regarding the following:
Business and
Our IndustryOperational Factors
•our ability to increase our mDAU, ad engagement or other general engagement on our platform;
•the loss of advertising revenue;
•competition for people to use our platform and for content and data partners;
•competition for advertising spend;
•our prioritization of the long-term health of our service;
•our prioritization of product innovation;
•our ability to maintain and promote our brand;
•our ability to hire, retain and motivate highly skilled personnel;
•the interoperability of our products and services across third-party services and systems;
•the impact of spam and fake accounts on our platform experience;
•actual or perceived security breaches or incidents, as well as errors, vulnerabilities or defects in our software and in products of third-party providers;
•our international operations;
•the impact of the COVID-19 pandemic and responsive measures;
•our significant past operating losses and any inability to maintain profitability or accurately predict fluctuations in the future;
•our reliance on assumptions and estimates to calculate certain key metrics;
•catastrophic events and interruptions by man-made problems;
Intellectual Property and Technology
•our ability to scale our existing technology and infrastructure;
•our failure to protect our intellectual property rights;
•our use of open source software;
•current and future litigation related to intellectual property rights;
Regulatory and Legal
•complex and evolving U.S. and foreign laws and regulations;
•regulatory investigations and adverse settlements;
•lawsuits or liability as a result of content published through our products and services;
•our ability to maintain an effective system of disclosure controls and internal control over financial reporting;
•our ability to obtain adequate insurance coverage or self-insure for potential exposures;
Financial and Transactional Risks
•our ability to make and successfully integrate acquisitions and investments or complete divestitures;
•our debt obligations;
•our tax liabilities;
•our ability to realize the anticipated benefits of our share repurchase programs;
•our ability to use our net operating loss carryforwards;
•the impairment of our goodwill or intangible assets;
Governance Risks and Risks related to Ownership of our Capital Stock
•provisions of Delaware law and our certificate of incorporation and bylaws could impair a takeover attempt if deemed undesirable by our board of directors;
•the volatility of the trading price of our common stock; and
•our note hedge and warrant transactions.
Business and Operational Factors
If we fail to increase our
mDAUs,mDAU, ad engagement or other general engagement on our platform, our revenue, business and operating results may be harmed.
The size of our mDAUs
Our mDAU and those daily users’their level of engagement with advertising are critical to our success. mDAUs for the three months ended December 31, 2018 were 126 million, an increase of 9% year-over-year. Oursuccess and our long-term financial performance will continue to be significantly determined by our success in increasing the growth rate of our mDAUsmDAU as well as the number of ad engagements. Our mDAU growth rate has fluctuated over time, and it may slow or decline.decline in general or in certain geographies or among certain groups. To the extent our mDAU growth rate slows or the absolute number of mDAU declines, our revenue growth will become dependent on our ability to increase levels of user engagement on Twitter, generate advertiser demand, and increase revenue growth from third-party publishers’ websites and applications, data licensing and other offerings. To the extent our mDAU growth rate slows, our success will become increasingly dependent on our ability to increase levels of ad engagement on Twitter. We generate a substantial majority of our revenue based upon engagement by our users with the ads that we display. If people do not perceive our products and services to be useful, reliable and trustworthy, we may not be able to attract users or increase the frequency of their engagement with our platform and the ads that we display. A number of factors have affected and could potentially negatively affect usermDAU growth and engagement, including if:
users,•accounts, including influential users,accounts, such as those of world leaders, government officials, celebrities, athletes, journalists, sports teams, media outlets and brands or certain age demographics, do not contribute unique or engaging content, or engage with other products, services or activities as an alternative to ours;
•we are unable to convince potential or new userspeople of the value and usefulness of our products and services;
•there is a decrease in the perceived quantity, quality, usefulness, trustworthiness or relevance of the content generated by people on Twitter or by our users or content partners;
there could also be a perception that•the actions we take to better foster a healthy conversation or to improve relevancy negatively impact, or are perceived to negatively impact, people’s experiences on the platform negatively impact the content or ranking of content posted by certain users;
| •
| our content partners terminate their relationships with us or do not renew their agreements on economic or other terms that are favorable to us;
|
•there are user concerns related to communication, privacy, and communication,data protection, safety, security,cybersecurity, spam, manipulation or other hostile or inappropriate usage or other factors, or our health efforts result in the removal of certain accounts;
•we fail to introduce new and improved productsremove certain influential accounts from our platform for violations of our terms of service or servicesotherwise;
•our content partners terminate their relationships with us or if we introduce newdo not renew their agreements on economic or improved products or servicesother terms that are not favorably received or that negatively affect user engagement;
favorable to us;•technical or other problems prevent us from delivering our products or services in a rapid and reliable manner or otherwise affect the user experience, including issues with connecting to the Internet;
people’s experiences on Twitter;
users•people have difficulty installing, updating, or otherwise accessing our products or services on mobile devices as a result of actions by us or third parties that we rely on to distribute our products and deliver our services;
we are unable to manage and prioritize information to ensure users are presented with content that is interesting, useful and relevant to them;
users believe that their experience is diminished as a result of the decisions we make with respect to the frequency, format, relevance and prominence of ads or other content that we display;
•changes in our products or services that are mandated by, or that we elect to make to address, laws (such as the General Data Protection Regulation or(GDPR) and the GDPR)California Consumer Protection Act (CCPA)) or legislation, inquiries from legislative bodies, regulatory authorities or litigation (including settlements or consent decrees) adversely affect our products or users;
•we fail to provide adequate customer service to users;service; or
•we do not maintain our brand image or reputation.
We have made certain projections regarding our reputation is damaged.
We believe that meaningful improvement in audience growth rate and engagement is dependent on improving our product and feature offerings to demonstrate our value proposition to a larger audience.mDAU growth. If we are unable to achieve these projections, or to generally increase our user base, user growth ratemDAU or user engagement, or if these metrics decline, our products and services could be less attractive to potential or new users,people on Twitter, as well as to advertisers, content partners and platform partners, which would have a material and adverse impact on our business, financial condition and operating results.
If the people who use our service or our content partners do not continue to contribute content or such content is not viewed as unique or engaging by other users, we may experience a decline in users accessing our products and services and their engagement, which could result in the loss of content partners, advertisers, platform partners, and revenue.
Our success depends on our ability to provide users of our products and services with unique and engaging content, which in turn depends on the content contributed by our users. We believe that one of our competitive advantages is the quality, quantity and real-time nature of the content on Twitter, and that access to unique or real-time content is one of the main reasons users visit Twitter. We seek to foster a broad and engaged user community, and we encourage world leaders, government officials, celebrities, athletes, journalists, sports teams, media outlets and brands to use our products and services to express their views to broad audiences. We also encourage media outlets to use our products and services to distribute their content. In addition, we license our premium live streaming video content from a variety of content providers. If these content providers are no longer willing or able to license us content upon economic and other terms that are acceptable to us, our ability to stream such content will be adversely affected and/or our costs could increase. If users, including influential users, do not continue to contribute content or content providers do not license content to Twitter, and we are unable to provide users with unique, engaging and timely content, our user base and engagement may decline. Additionally, if we are not able to address user concerns regarding the safety and security of our products and services or if we are unable to successfully prevent or mitigate spammy, abusive or other disruptive or detracting behavior on our platform, the size of our engaged user base may decline. We rely on the sale of advertising services for the substantial majority of our revenue. We believe advertisers come to Twitter because we have one of the most valuable audiences when they are most receptive, and we generate a high return on investment against their campaign objectives whether they are launching a new product or connecting with what's happening on Twitter. However, a decline in the number of users, user growth rate, or user engagement, including as a result of the loss of world leaders, government officials, celebrities, athletes, journalists, sports teams, media outlets and brands who generate content on Twitter, may deter advertisers from using our products or services or cause current advertisers to reduce their spending with us or cease doing business with us, which would harm our business and operating results.
We generate the substantial majority of our revenue from advertising. The loss of advertising revenue could harm our business.
The substantial majority of our revenue is currently generated from third parties advertising on Twitter. We generated approximately 86% of our revenue from advertising in each of the years ended December 31, 2017 and 2018. We generate substantially all of our advertising revenue through the sale of our Promoted Products: Promoted Tweets, Promoted AccountsAds, Twitter Amplify, Follower Ads and Promoted Trends.Twitter Takeover. As is common in our industry, our advertisers do not have long-term advertising commitments with us.
In addition, many of our advertisers purchase our advertising services through one of several large advertising agencyagencies' holding companies. To sustain or increase our revenue, we must add new advertisers and encourage existing advertisers to maintain or increase the amount of advertising inventory purchased through our platform and adopt new features and functionalities that we add to our platform. However, advertising agencies and potential new advertisers may view our Promoted Products or any new products or services we offer as experimental and unproven, and we may need to devote additional time and resources to educate them about our products and services. Further, our advertisers’ ability to effectively target their advertising to our audience’s interests may be impacted by the degree to which people on Twitter agree in our settings to certain types of personalization or ad targeting, which could have an impact on our revenue. People that already have accounts may change their choices as a result of changes to our privacy control settings that we have implemented or may implement in the future, and people new to Twitter may choose varied levels of personalization, whether in connection with future changes we make to product privacy settings, regulations, regulatory actions, the customer experience, or otherwise.
Changes to operating systems’ practices and policies, such as Apple’s changes related to its App Tracking Transparency policy, have reduced and may continue to reduce the quantity and quality of the data and metrics that can be collected or used by us and our partners or harm our ability to target advertising. These limitations have affected and may continue to adversely affect both our and our advertisers' ability to effectively target advertisements and measure their performance, thereby reducing the demand and pricing for our advertising products and harming our business, and have led to us to retool some of our revenue products and adjust our product roadmap in light of Apple’s changes. The impact of these changes on the overall mobile advertising ecosystem, our business, and the developers, partners, and advertisers in the ecosystem are evolving and their ultimate impact is not yet clear. Over time, personalization rates will impact our ability to grow our performance advertising business. Advertisers also may choose to reach users throughuse our free products and services instead of our Promoted Products. Advertisers will not continue to do business with us, or they will reduce the prices they are willing to pay to advertise with us, if we do not deliver ads in an effective manner, or if they do not believe that their investment in advertising with us will generate a competitive return on investment relative to alternatives, including online, mobile and traditional advertising platforms. In addition, competition for advertising is becoming increasingly more intense, and our advertising revenue could be further impacted by escalating competition for digital ad spending as well as the re-evaluation of our revenue product feature portfolio, which could result in the de-emphasis of certain product features. spending.
Our
advertising revenue growth is primarily driven by increases in
the number of our mDAUs,mDAU, increases in ad pricing or number of ads shown
driven by strong advertiser demand,and increases in our clickthrough
rate, as well as other factors.rate. To date, our available advertising inventory has been greater than demand. Our future revenue growth, however, may be limited by available advertising inventory for specific ad types on certain days if we do not increase our mDAU or monetize our larger global audience. Our advertising revenue also could be
adversely affected by a number of other factors,
including:decreases in user engagement with the adsincluding advertiser reaction to content published on our platform or our policies and thoseresponses thereto, bugs or other product issues that we serve off ofmay impact our platform;
decreases in the size of our mDAUs or the growth rate of mDAUs;
if we are unable to demonstrate the value of our Promoted Products to advertisers and advertising agencies or if we are unable to measure the value of our Promoted Products in a manner which advertisers and advertising agencies find useful or reliable;
if we are perceived as not safe for brand advertisers;
if we are unable to demonstrate the value of, or attract video and video advertisements to, our platform;
decreases in the perceived quantity, quality, usefulness or relevance of our users or the content generated by our users or content partners;
if our Promoted Products are not cost effective or not valued by certain types of advertisers or if we are unable to develop cost effective or valuable advertising services for different types of advertisers;
if we are unable to convince advertisers and brands to invest resources in learning to use our products and services and maintaining a brand presence on Twitter;
our advertisers’ ability to optimize their campaigns or effectively and reliably measure the results of their campaigns;
product or service changes we may make that change the frequency or relative prominence of ads displayed on Twitter or that detrimentally impact revenue in the near term with the goal of achieving long -term benefits;
our inability to increase advertiser demand and spend from new and existing advertisers as well as advertising inventory;
our inability to increase the relevance of ads shown to users;
our inability to help advertisers effectively target ads including as a result of the fact that we do not collect extensive personal information fromor share data with our usersmeasurement and that we do not have real-time geographic information for all of our users particularly for ads served through our app mobile-focused advertising exchange;
decreases in the cost per ad engagement;
failure to effectively monetize our growing international user base, our logged-out audience or our syndicated audience;
| •
| loss of advertising market share to our competitors;
|
the degree to which users access Twitter content through applications that do not contain our ads;
any arrangements or other partnerships with third parties to share our revenue;
if our new advertising strategies do not gain traction;
the impact of new technologies that could block or obscure the display of our ads;
adverse legal developments relating to advertising or measurement tools related to our metrics or the effectiveness of advertising, including legislative and regulatory developments,partners. In addition, macroeconomic factors, such as GDPRsupply chain disruptions and other privacy regulations,inflation, have caused advertisers to reduce or delay ad spending and developments in litigation;
our inabilitymay continue to create new products, product features and services that sustain or increase the value of our advertising services to both our advertisers and our users;
changes to our products or development of new products or product features that decrease users’ ad engagements or limit the types of user interactions that we count as ad engagements;
the impact of fraudulent clicks or spam on our Promoted Products and our users;
changes in the way our advertising is priced; and
the impact of macroeconomic conditions and conditions in the advertising industry in general.
do so. The occurrence of any of these or other factors could result in a reduction in demand for our ads, which may reduce the prices we receive for our ads, either of which would negatively affectadversely impact our revenue, business, financial condition and operating results.
If we are unable to compete effectively for
userspeople to use our platform, and
advertiser spend,for content and data partners, our business and operating results could be harmed.
Competition
We face intense competition for users ofpeople to use our productsplatform, and services is intense. Although we have developed a global platform that we believe is the bestfor content and fastest place to see what’s happening and what people are talking about all around the world, we face strong competition in our business.data partners. We compete for our audience against manya variety of social networking platforms, messaging companies to attract and engage users every day, includingmedia companies, some of which have greater financial resources, and substantially larger user bases,audiences or more established relationships with advertisers, such as Meta (including Facebook, (including Instagram and WhatsApp), Alphabet (including Google and YouTube), Microsoft (including LinkedIn), Snap,Snapchat, TikTok, Pinterest and Verizon Media Group, which offer a variety of InternetYahoo, or in certain regions WeChat, Kakao and mobile device-based products, services and content. For example, Facebook operates a social networking site with significantly more users than Twitter and has been introducing features similar to those of Twitter. In addition, Alphabet may use its strong position in oneLine. New or more markets to gain a competitive advantage over us in areas in which we operate, including by integrating competing features into products or services they control. As a result, ourexisting competitors may draw userspeople towards their products or services and away from ours. Thisours by introducing new product features, including features similar to those we offer, investing their greater resources in audience acquisition efforts or otherwise developing products or services that audiences choose to engage with rather than Twitter, any of which could decrease themDAU growth or engagement of our user base, which, in turn, wouldand negatively affect our business.
We also compete
against largely regional social mediawith respect to content generated by our content partners and
messaging companiesthe availability of applications developed by platform partners. We may not establish and maintain relationships with content partners who publish on our platform or platform partners who develop applications that
have strong positions in particular countries such as WeChat, Kakaointegrate with our platform. Our content and
Line.platform partners may choose to publish content on, or develop applications for, other platforms, and if they cease to utilize our platform or decrease their use of our platform, then mDAU, engagement, and advertising revenue may decline.
We believe that our ability to compete effectively for usersaudiences and content partners depends upon many factors both within and beyond our control, including:
•the popularity, usefulness, ease of use, performance and reliability of our products and services compared to those of our competitors;
•the amount, quality and timeliness of content generated byon our users and content partners;
•the timing and market acceptance of our products and services;
•the prominence of our applications in application marketplaces and of our content in search engine results, as well as those of our competitors;
•our ability, in and of itself, and in comparison to the ability of our competitors, to develop new products and services and enhancements to existing products and services;
services, and to maintain the frequencyreliability and relative prominence of the ads displayed by us or our competitors;
our ability to establish and maintain relationships with content partners;
our ability to develop a reliable, scalable, secure, high-performance technology infrastructure that can efficiently handle increased usage globally;
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| changes mandated by, or that we elect to make to address, legislation, regulatory authorities or litigation, including settlements, consent decrees and the GDPR, some of which may have a disproportionate effect on us;
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the application of antitrust laws both in the United States and internationally;
the continued adoptionsecurity of our products and services internationally;
our ability•changes mandated by, or that we elect to establishmake to address legislation, regulatory authorities or litigation, including settlements, antitrust matters, consent decrees and maintain relationships with platform partners that integrate with our platform;
acquisitions or consolidation within our industry,privacy, data protection and cybersecurity laws and regulations, some of which may result in more formidablehave a disproportionate effect on us compared to our competitors; and
our reputation•the continued adoption and brand strength relative to our competitors.
We also face significant competition for advertiser spend. The substantial majoritymonetization of our revenue is currently generated through third parties advertising on Twitter, and we compete against online and mobile businesses, including those referenced above, and traditional media outlets, such as television, radio and print, for advertising budgets. In addition, many advertisers, particularly branded advertisers, use marketing mix analyses to determine how to allocate their advertising budgets on an annual or bi-annual basis. Accordingly, if we fail to demonstrate to such advertisers during the appropriate time period that we provide a better return on investment than our competitors do, we may lose the opportunity to secure, increase or sustain our share of the advertising budget allocated for a significant portion of the year until the next budget cycle.
We also compete with advertising networks, exchanges, demand side platforms and other platforms, such as Google AdSense, DoubleClick Ad Exchange, Nexage and Brightroll Ad Exchanges, Verizon Media Group, and Microsoft Media Network, for marketing budgets and in the development of the tools and systems for managing and optimizing advertising campaigns. In order to grow our revenue and improve our operating results, we must increase our share of spending on advertising relative to our competitors, many of which are larger companies that offer more traditional and widely accepted advertising products. In addition, some of our larger competitors have substantially broader product or service offerings and leverage their relationships based on other products or services to gain additional share of advertising budgets.
We believe that our ability to compete effectively for advertiser spend depends upon many factors both within and beyond our control, including:
the size and composition of our user base relative to those of our competitors;
our ad targeting and measurement capabilities, and those of our competitors;
the timing and market acceptance of our advertising services, and those of our competitors;
our marketing and selling efforts, and those of our competitors;
the pricing of our advertising products and services relative to those of our competitors;
the actual or perceived return our advertisers receive from our advertising services, and those of our competitors; and
our reputation and the strength of our brand relative to our competitors.
In recent years,Additionally, there have been significant acquisitions and consolidation by and among our actual and potential competitors. We anticipate this trend of consolidation will continue, which will present heightened competitive challenges for our business. Acquisitions by our competitors may result in reduced functionality of our products and services. For example, following Facebook’s acquisition of Instagram, Facebook disabled Instagram’s photo integration with Twitter such that Instagram photos were no longer viewable within Tweets and userspeople are instead re-directed to Instagram to view Instagram photos through a link within a Tweet. As a result, our userspeople who use Twitter may be less likely to click on links to Instagram photos in Tweets, and people who use Instagram users may be less likely to Tweet or remain active users ofon Twitter. Any similar elimination of integration with Twitter in the future, whether by Facebook or others,other competitors, may adversely impact our business and operating results.
Consolidation may also enable our larger competitors to offer bundled or integrated products that feature alternatives to our platform. Reduced functionality of our productsplatform and services, or our competitors’ ability to offer bundled or integrated products that compete directly with us, may cause our users, user growth rate, and ad engagement to decline and advertisers to reduce their spend with us.
provide alternative opportunities for advertisers.
If we are not able to compete effectively for
usersaudience, content and
advertiser spendplatform partners, our mDAU and engagement would decline and our business and operating results would be materially and adversely
affected.Our priorityimpacted.
If we are unable to compete effectively for advertising spend, our business and operating results could be harmed.
We face significant competition for advertiser spend. We compete against online and mobile businesses and traditional media outlets, such as a company istelevision, radio and print, for advertising budgets. In order to grow our revenue and improve our operating results, we must increase our share of spending on advertising relative to our competitors, many of which are larger companies that offer more traditional and widely accepted advertising products. In addition, some of our larger competitors have substantially broader product or service offerings and leverage their relationships based on other products or services to gain additional share of advertising budgets.
We believe that our ability to compete effectively for advertiser spend depends upon many factors both within and beyond our control, including:
•the size and composition of our audience relative to those of our competitors;
•our ad targeting and measurement capabilities, and those of our competitors;
•the timing and market acceptance of our advertising services, and those of our competitors, including our ability to demonstrate to advertisers the value of our advertising services, particularly during the periods in which they are determining their budgets, which may be annually or biannually;
•our marketing and selling efforts, and those of our competitors;
•the pricing of our advertising services, including the actual or perceived return our advertisers receive from our advertising services, and those of our competitors; and
•our reputation and the strength of our brand relative to our competitors, including advertisers' perception of the health and safety of our platform.
If we are not able to compete effectively for advertiser spend, our mDAU and engagement would decline and our business and operating results would be materially and adversely impacted.
Our prioritization of the
public conversation on Twitter. Focusinglong-term health of our
efforts on this priorityservice may
negativelyadversely impact our
business operations in the short term.short-term operating results.
We believe that our long-term success depends on our ability to improve the health of the public conversation on Twitter. We have made this one of our prioritytop priorities and have focused our efforts on improving the quality of that conversation, including by devoting substantial internal resources to our strategy. These efforts include the reduction of abuse, harassment, spam, manipulation and malicious automation on the platform, as well as a focus on improving information quality (including information around elections and the COVID-19 pandemic), and the health of conversation on Twitter. For example, we recently announced that we were removing certain locked accounts from follower counts across profiles globally. While that specific change did not affect our previously-disclosed MAU or DAU metrics, someSome of the health initiatives that we have implemented as part of our ongoing commitment to a healthy public conversation have negatively impacted, and may in the future negatively impact, our publicly reported metrics in a few ways.
First, our health efforts include the removal of accounts pursuant to our terms and services that are abusive, spammy, fake or malicious, and these accounts may be monthly active or daily active users,have been included in our mDAU, as well as actions taken to detect and challenge potentially automated, spammy or malicious accounts during the sign-up process. For example,If we make a sudden improvement to one of the algorithms we use to detect spammy or suspicious behavior, we may remove a larger number of accounts as a result and impact the year-over-year average of mDAU growth. Additionally, we may remove certain influential accounts for violations of our terms of service and the removal of such accounts has in the thirdpast reduced and fourth quarters of 2018, year-over-year averagemay in the future reduce our mDAU growth was impacted by ongoing health efforts, both due to how we resourced and prioritized our work and the impact from ongoing success removing spammy and suspicious accounts. engagement.
Second, we are also making active decisions to prioritize
health relatedcertain health-related initiatives over other near-term product improvements that may drive more usage of Twitter as a daily utility. These decisions may not be consistent with the short-term expectations of our advertising customers or investors and may not produce the long-term benefits that we expect, in which case our
usermDAU growth and
user engagement, our relationships with advertisers and our business and operating results could be harmed.
Our decision to invest in the long-term health of our service may not produce the long-term benefits that we expect, in which case our mDAU growth and engagement, our relationships with advertisers and our business and operating results would be adversely impacted, and may fluctuate from quarternot be consistent with the expectations of investors, which could have a negative effect on the trading price of our common stock.
Our prioritization of innovations to
quarter, which makes them difficult to predict.Our quarterlyimprove the experience of people using our products and services and performance for advertisers in the long term may adversely impact our short-term operating results have fluctuatedand our new or enhanced products, product features or services may fail to increase engagement on our platform or generate revenue.
We encourage employees to quickly develop and help us launch new and innovative features. We focus on improving the experience for people using our products and services, which includes measures to help protect the privacy of people on Twitter. Similarly, we prioritize developing new and improved products and services for advertisers on our platform. We frequently make product, product feature and service decisions that may reduce our short-term operating results if we believe that the decisions are consistent with our goals to improve the long-term experience for people on Twitter and/or performance for advertisers, which we believe will improve our operating results over the long term. For example, in January 2022, we completed the pastsale of our MoPub business. The sale of MoPub enables us to accelerate the development of our core revenue products and drive growth across key areas of the business, including performance-based advertising, small and medium-sized business (SMB) offerings, and commerce initiatives on Twitter. While the product, engineering, and go-to-market teams associated with MoPub began to shift over to these key focus areas immediately upon the closing of the transaction, it will fluctuate in the future.take time for their work to deliver results. As a result, we do not expect to recoup the full revenue loss associated with the sale of MoPub in 2022, but there are no changes to our past quarterlylong-term goals with an increased focus and additional resources working on increasing our market share within the addressable market for ads on our website and apps. However, we can provide no assurance that we will recoup the revenue impact from MoPub on the expected timeline, or at all.
Our industry is subject to rapid and frequent changes in technology, evolving customer needs and the frequent introduction by our competitors of new and enhanced offerings. We must constantly assess the playing field and determine whether we need to improve or re-allocate resources amongst our existing products and services or create new ones (independently or in conjunction with third parties). Our ability to increase mDAU and engagement, attract content partners, advertisers and platform partners and generate revenue will depend on those decisions. We may introduce significant changes to our existing products and services or develop and introduce new and unproven products and services, including technologies with which we have little or no prior development or operating experience. For example, we are in the early stages of exploring additional potential revenue product opportunities that could, if successful, complement our advertising business in the future, although we do not expect any significant revenue attributable to these opportunities in the near-term and these opportunities may not prove successful at all. We are also continuing our work to increase the stability, performance and scale of our ads platform and our Mobile Application Promotion (MAP) product, and such work will take place over multiple quarters, and any positive revenue impact will be gradual in its impact.
If our decisions to invest in product innovations rather than short-term results do not produce the long-term benefits that we expect, and if our new or enhanced products, product features or services fail to engage people on Twitter, content partners and advertisers, we may fail to attract or retain mDAU or to generate sufficient revenue or operating profit to justify our investments, and our business, financial condition and operating results are not necessarily indicators of future performance. Our operating results in any given quarter canwould be influenced by numerous factors, many of whichadversely impacted.
If we are unable to predict or are outside ofmaintain and promote our control, including:brand, our business and operating results may be harmed.
We believe that maintaining and promoting our brand is critical to increasing mDAU, content partners and advertiser spend. Maintaining and promoting our brand will depend largely on our ability to continue to provide something valuable totimely, useful, reliable and innovative products and services with a focus on a positive experience on Twitter, which we may not do successfully. We may introduce new features, products, services or terms of service that people on Twitter, every day and grow our mDAU;
our ability to attract and retain advertisers, content partners, advertisers or platform partners do not like, which may negatively affect our brand. Additionally, the actions of content partners may affect our brand if people do not have a positive experience using third-party applications or websites integrated with Twitter or that make use of Twitter content. We will also continue to experience media, legislative or regulatory scrutiny of our decisions regarding privacy, data protection, cybersecurity, content (including our removal of certain influential accounts for violations of our terms of service) and other issues, which may adversely affect our reputation and brand. Our brand may also be negatively affected by the actions of people that are hostile or inappropriate to other people, by accounts impersonating other people, by accounts identified as spam, by use or perceived use, directly or indirectly, of our products or services by people (including governments and government-sponsored actors) to disseminate information that may be viewed as misleading (or intended to manipulate people's opinions), by accounts introducing excessive amounts of spam on our platform, partners;
the occurrence of planned significant events,by third parties obtaining control over people's accounts, such as the World Cup, Super Bowl, Champions League Final, World Series, Olympicssecurity breach in July 2020 whereby attackers gained control of certain highly-visible accounts, or by other security or cybersecurity incidents. Maintaining and enhancing our brand may require us to make substantial investments and these investments may not achieve the Oscars,desired goals.
Additionally, we and our executive leadership receive a high degree of media coverage around the world. Negative publicity about our company or unplanned significant events, such as natural disastersexecutives, including about the quality and political revolutions;
the pricingreliability of our products and services;
the development and introductionor of new products or services,content shared on our platform, changes in features of existing products or services or de-emphasis or termination of existing products, product features or services;
the impact of competitors or competitive products and services;
our ability to maintain or increase revenue;
our ability to maintain or improve gross margins and operating margins;
increases in research and development, marketing and sales and other operating expenses that we may incur to grow and expand our operations and to remain competitive;
stock-based compensation expense;
costs related to the acquisition of businesses, talent, technologies or intellectual property, including potentially significant amortization costs;
system failures resulting in the inaccessibility of our products, policies and services;
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| breaches of security or privacy, and the costs associated with remediating any such breaches;
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adverse litigation judgments, settlementsservices, our privacy, data protection, policy enforcement and cybersecurity practices (including actions taken or other litigation-related costs, and the fees associated with investigating and defending claims;
changes in the legislative or regulatory environment, includingnot taken with respect to security, tax, privacy, data protection,certain accounts or content,reports regarding government surveillance or enforcementcompliance with government legal requests), litigation, regulatory activity, the actions of certain accounts (including actions taken by government regulators, including fines, ordersprominent accounts on our platform or consent decrees;
changesthe dissemination of information that may be viewed as misleading or manipulative), even if inaccurate, could adversely affect our reputation. Such negative publicity and reputational harm could adversely affect mDAU and their confidence in reserves or other non-cash credits or charges, such as releases of deferred tax asset valuation allowances, impairment charges or purchase accounting adjustments;
changes in our expected estimated useful life of property and equipment and intangible assets;
fluctuations in currency exchange rates and changes in the proportion of our revenue and expenses denominated in foreign currencies;
changes in U.S. generally accepted accounting principles; and
changes in global business or macroeconomic conditions.
Given our limited operating history and the rapidly evolving markets in which we compete, our historical operating results may not be useful to you in predicting our future operating results. If our revenue growth rate slows, we expect that the seasonality in our business may become more pronounced and may in the future cause our operating results to fluctuate. For example, advertising spending is traditionally seasonally strong in the fourth quarter of each year and we believe that this seasonality affects our quarterly results, which generally reflect higher sequential advertising revenue growth from the third to fourth quarter compared to sequential advertising revenue growth from the fourth quarter to the subsequent first quarter. In addition, global economic concerns continue to create uncertainty and unpredictability and add riskloyalty to our future outlook. An economic downturn in any particular region in which we do business or globallyplatform and could result in reductions in advertisingdecreased revenue asor increased costs to reestablish our advertisers reduce their advertising budgets,brand, which would adversely impact our business, financial condition and other adverse effects that could harm our operating results.
We depend on highly skilled personnel to grow and operate our
business, and have seen high levels of attrition.business. If we are unable to hire, retain and motivate our personnel, we may not be able to grow effectively.
Our future success and strategy will depend upon our continued ability to identify, hire, develop, motivate and retain highly skilled personnel, including senior management, engineers, designers and product managers.personnel. We depend on contributions from our employees, and, in particular, our senior management team, to execute efficiently and effectively. We do not have employment agreements other than offer letters with any member of our senior management or other key employee,employees, and we do not maintain key person life insurance for any employee. We also face significant competition for experienced employees, particularlywhose talents are in the San Francisco Bay Area (where our headquarters is located) and other key markets, for engineers, designers and product managers from other Internet and high-growth companies, which include both publicly-traded and privately-held companies.high demand. As a result, we may not be able to retain our existing employees or hire new employees quickly enough to meet our needs.
From time to time, we have also experienced high voluntary attrition, and in those times, the resulting influx of new leaders and other employees has required us to expend time, attention and resources to recruit and retain talent, restructure parts of our organization and train and integrate new employees. In addition, to attract
highly and retain skilled personnel, we have had to offer, and believe we will need to continue to offer, highly competitive compensation packages. We may need to invest significant amounts of cash and equity to attract and retain
new employees and we may not realize sufficient return on these investments. In addition, changes to U.S. immigration and work authorization laws and regulations can be significantly affected by political forces and levels of economic activity. Our business may be materially
and adversely affected if legislative or administrative changes to immigration or visa laws and regulations impair our hiring processes or projects involving personnel who are not citizens of the country where the work is to be performed. If we are not able to effectively attract and retain employees, we may not be able to innovate or execute quickly on our strategy and our ability to achieve our strategic objectives will be adversely impacted, and our business will be harmed.
We also believe that our culture and core values have been, and will continue to be, a key contributor to our success and our ability to foster the innovation, creativity and teamwork we believe we need to support our operations. We allow most of our employees to work where they feel most productive, whether that is working full-time from home, from a Twitter office or splitting their time between their home and a Twitter office. If we fail to effectively manage our hiring needs and successfully integrate our new hires, our efficiency and ability to meet our forecasts, andas well as our culture, employee morale, productivity and retention, could suffer, and our business and operating results couldwould be adversely affected.impacted.
If we fail to monetize effectively in international markets, our revenue and our business will be harmed.
We may not be able to monetize our products and services internationally as effectively as in the United States as a result of competition, advertiser demand, differences in the digital advertising market and digital advertising conventions, as well as differences in the way that users in different countries access or utilize our products and services. For example, a significant portion of users in emerging markets like India and Pakistan use feature phones and communicate via SMS messaging, both of which have limited functionality and neither of which may be able to take full advantage of our products and services offered on smartphone or our website or desktop applications. Users who access Twitter through SMS messaging may monetize at lower rates than other users. Differences in the competitive landscape in international markets may impact our ability to monetize our products and services. For example, in South Korea we face intense competition from a messaging service offered by Kakao, which offers some of the same communication features as Twitter. The existence of a well-established competitor in an international market may adversely affect our ability to increase our user base, attract content partners, advertisers and platform partners and monetize our products in such market. We may also experience differences in advertiser demand in international markets. For example, during times of political upheaval, advertisers may choose not to advertise on Twitter. Certain international markets are also not as familiar with digital advertising in general, or in new forms of digital advertising such as our Promoted Products. Further, we face challenges in providing certain advertising products, features or analytics in certain international markets, such as the European Union, due to government regulation. Our products, and services may also be used differently abroad than in the United States. In particular, in certain international markets where Internet access is not as rapid or reliable as in the United States, users tend not to take advantage of certain features of our products and services, such as rich media included in Tweets, video or live streaming video. The limitation of mobile devices of users in emerging and other markets limits our ability to deliver certain features to those users and may limit the ability of advertisers to deliver compelling advertisements to users in these markets, which may result in reduced ad engagements, which would adversely affect our business and operating results.
If our revenue from our international operations, and particularly from our operations in the countries and regions where we have focused our spending, does not exceed the expense of establishing and maintaining these operations, our business and operating results will suffer. In addition, our user base may expand more rapidly in international regions where we are less successful in monetizing our products and services. As our user base continues to expand internationally, we will need to increase revenue from the activity generated by our international users in order to grow our business. For example, average mDAUs outside the United States constituted 79% of our average mDAUs in the three months ended December 31, 2018, but our international revenue, as determined based on the billing location of our customers, was only 44% of our consolidated revenue in the three months ended December 31, 2018. Our inability to successfully expand our business internationally could adversely affect our business, financial condition and operating results.
UsermDAU growth, and engagement depend upon the availability of a variety of third-party services and systems and the effective interoperation with operating systems, networks, devices, web browsers and standards that we do not control.
standards. We make our products and services available across a variety of operating systems and through websites. We are dependent on the interoperability of our products and services with popular devices, desktop and mobile operating systems and web browsers that we do not control such as Mac OS, iOS, Windows, Android, Chromeall of these systems and Firefox. Any changes, bugs or technical issues in such systems, devices or web browsers or changes in our relationships with mobile operating system partners or mobile carriers, or incannot guarantee their terms of service or policiesavailability, and we cannot guarantee that diminish the functionality of our products and services, make it difficult for our users to access our content, limit our ability to target or measure the effectiveness of ads, impose fees related tothird parties will not take actions that harm our products or services or give preferential treatmentprofitability.
One of the reasons people come to
competitive products or services could adversely affect usage ofTwitter every day is for real-time information, and our products and
services. For example, many of our relationships with our mobile carriers to deliver our SMS messages were originally negotiated as free or low-cost connections, but recently some of the mobile carriers have been proposing fee increases for these arrangements, which may not be cost-effective for us. This may, in turn, adversely affect the number of users who receive our SMS messages. Additionally, some of our mobile carriers have experienced infrastructure issues due to natural disasters, which have caused deliverability errors or poor quality communications with our products. Any such errors, regardless of whether caused by our infrastructure or that of the service provider, may result in the loss of our existing users or may make it difficult to attract new users. Further, if the number of platforms for which we develop our product expands, it will result in an increase in our operating expenses. In order to deliver high quality products and services, it is important that our products and services work well with a range of operating systems, networks, devices, web browsers and standards that we do not control. In addition, because a majority of our users access our products and services through mobile devices, we are particularly dependent on the interoperability of our products and services with mobile devices and operating systems in order to deliver our products and services. We also may not be successful in developing relationships with key participants in the mobile industry or in developing products or services that operate effectively with these operating systems, networks, devices, web browsers and standards. In the event that it is difficult for our users to access and use our products and services, particularly on their mobile devices, our mDAU could be harmed, and our business and operating results could be adversely affected.Our products and services may contain undetected software errors, which could harm our business and operating results.
Our products and services incorporate complex software and we encourage employees to quickly develop and help us launch new and innovative features. Our software, including any open source software that is incorporated into our code, has contained, and may now or in the future contain, errors, bugs or vulnerabilities. For example, in May 2018, we announced that an internal bug had resulted in the storage of passwords unmasked in an internal log. When users set a password for their Twitter accounts, we secure those passwords in a format that prevents anyone at Twitter from seeing or knowing the actual password through a password hashing function, which replaces the actual password with a random set of numbers and letters that are stored in Twitter’s system. Due to a bug, passwords were written to a service log before completing the hashing process. We found this error ourselves, removed the passwords from the logs, and are implementing plans to prevent this bug from happening again. Our investigation shows no indication of breach or misuse by anyone. In September 2018, we announced an internal bug related to our Account Activity API, which allows registered developers to build customer support and engagement tools for businesses and others on Twitter. This bug may have caused some of the customer communications and engagements with businesses and others on Twitter to be unintentionally sent to another registered developer. Although our initial analysis indicates that a complex series of technical circumstances had to occur at the same time for this bug to have resulted in account information definitively being shared with the wrong recipient, we contacted our developer partners to ensure that they are complying with their obligations to delete information they should not have in their possession. As was the case with these errors, errors in our software code may only be discovered after the product or service has been released. Errors, vulnerabilities, or other design defects within the software on which we rely may result in a negative experience for users, partners and advertisers who use our products, delay product introductions or enhancements, result in targeting, measurement, or billing errors, compromise our ability to protect the data of our users and/or our intellectual property or lead to reductions in our ability to provide some or all of our services. Any errors, bugs or vulnerabilities discovered in our code after release could result in damage to our reputation, loss of users, loss of content or platform partners, loss of advertisers or advertising revenue or liability for damages or other relief sought in lawsuits, regulatory inquiries or other proceedings, any of which could adversely affect our business and operating results.
Our ability to convince potential and new users of the value of our products and services is critical to increasing our user base and to the success of our business.
We have developed a global platform thatbusiness is dependent upon the ability of people to access the Internet and the proper functioning of the various operating systems, platforms, and services upon which we believe is the bestrely. These systems are provided and fastest place to see what’s happening and what people are talking about all around the world, but the market forcontrolled by factors outside of our control, including nation-state actors who may suppress or censor our products, and services is relatively new and may not develop as expected, if at all. Despite our efforts to reduce barriers to consumption, people who are not our users may not understand the value of our products and services and new users may initially find our products confusing, which may make retention of such users more difficult. There may be a perception that our products and services are only useful to users who Tweet, or to influential users with large audiences. Convincing potential and new users of the value of our products and services is critical to increasing our user base, user engagement and to the success of our business.
If we fail to educate potential users and potential advertisers about the value of our products and services, if the market for our platform does not develop as we expect or if we fail to address the needs of this market, our business will be harmed. Failure to adequately address these risks and challenges could harm our business and cause our operating results to suffer.
Our business depends on continued and unimpeded access to our products and services on the Internet by our users, content partners, advertisers, and platform partners. If we or our users experience disruptions in Internet service or if Internet service providers are able to block, degrade or charge for access to our products and services, we could incur additional expenses and the loss of users and advertisers.
We depend on the ability of our users, content partners, advertisers and platform partners to access the Internet. Currently, this access is provided by companies that have significant market power in the broadband and Internet access marketplace, including incumbent telephone companies, cable companies, mobile communications companies, government-owned service providers, device manufacturers and operating system providers, anyproviders. Any of whomthese actors could take actions that degrade, disrupt or increase the cost of user access to our products or services, which would, in turn, negatively impact our business. The adoption or repeal of any laws or regulations that adversely affect the growth, popularity or use of the Internet, including laws or practices limiting Internet neutrality, could decrease the demand for, or the usage of, our products and services, increase our cost of doing business and adversely affect our operating results. For example, access to Twitter is blocked in China and has been intermittently blocked in Turkey in the past and certain of our SMS messages have been blocked in Saudi Arabia. past.
We also rely on other companies to maintain reliable network systems that provide adequate speed, data capacity and security to ussecurity. We utilize third-party cloud computing services in connection with certain aspects of our business and operations, and any disruption of, or interference with, our users.use of such cloud services could adversely impact our business and operations. As the Internet continues to experience growth in the number of users,consumers, frequency of use and amount of data transmitted, the Internet infrastructure that we and our users rely on may be unable to support the demands placed upon it. The failure of the Internet infrastructure that we or our users rely on, even for a short period of time, could undermine our operations and harm our operating results.
Our new products, product features,Furthermore, these systems, devices or software or services and initiatives andmay experience changes, to existing products, services and initiatives could fail to attract users, content partners, advertisers and platform partnersbugs or generate revenue.
Our industry is subject to rapid and frequent changes in technology, evolving customer needs andtechnical issues that may affect the frequent introduction by our competitorsavailability of new and enhanced offerings. We must constantly assess the playing field and determine whether we need to improve or re-allocate resources amongst our existing products and services or create new ones (independently or in conjunction with third parties). Our ability to increase the size and engagementaccessibility of our user base, attract content partners, advertisers and platform partners and generate revenue will depend on those decisions. We may introduce significant changes to our existing products and services or develop and introduce new and unproven products and services, including technologies with which we have little or no prior development or operating experience. For example, in 2015, we introduced Periscope, a mobile application that lets users share and experience live video from their mobile phones and in 2013, we introduced Vine, a mobile application that enabled users to create and distribute videos that are up to six seconds in length, which we discontinued in January 2017. Also, we introduced new features to Twitter such as “Moments”, a curated collection of Tweets, photos, videos, and Periscope broadcasts about current news stories or events; “In Case You Missed It,” which surfaces Tweets a logged-in user may have missed since last accessing Twitter; expanding our character limit to 280 characters for more people around the world; and “Threads,” a new feature that allows people to more easily thread Tweets together. If new or enhanced products, product features or services fail to engage users, content partners and advertisers, we may fail to attract or retain users or to generate sufficient revenue or operating profit to justify our investments, and our business and operating results could be adversely affected. In addition, we have launched and expect to continue to launch strategic initiatives that do not directly generate revenue but which we believe will enhance our attractiveness to users, content partners and advertisers, such as our investments in the health of public conversation on Twitter. In the future, we may invest in new products, product features, services and initiatives to generate revenue, but there is no guarantee these approaches will be successful. We may not be successful in future efforts to generate revenue from our new products or services. If our strategic initiatives do not enhance our ability to monetize our existing products and services, enable us to develop new approaches to monetization or meet the expectations of our users or third-party business partners, we may not be able to maintain or grow our revenue or recover any associated development costs and our operating results could be adversely affected.
If we fail to effectively manage changes to our business and operations, our business and operating results could be harmed.
Providing our products and services to our users is costly and we expect certain of our expenses to continue to increase in the future as we broaden our user base and increase user engagement, as users increase the amount of content they contribute, and as we develop and implement new features, products and services that require more infrastructure, in particular our video product features. Historically, our operating expenses, such as our research and development expenses and sales and marketing expenses, have grown each year as we have expanded our business. As a result, our costs have increased each year due to these factors and we expect to continue to incur increasing costs to support our operations. We expect to continue to invest in our infrastructure so that we can provide our products and services rapidly and reliably to users around the world, including in countries where we do not expect significant near-term monetization.
We intend to fully invest in our highest priorities, while eliminating investment in noncore areas. Finding and maintaining the appropriate balance will require significant expenditures and allocation of valuable management resources. If we fail to achieve the necessary level of efficiency in our organization, our business, operating results and financial condition would be harmed.
We focus on the long-term health of our platform, product innovation, and providing something valuable to people on Twitter every day, rather than short-term operating results.
We encourage employees to quickly develop and help us launch new and innovative features. We focus on improving the user experience for our products and services, which includes protecting user privacy, and on developing new and improved products and services for the advertisers on our platform. For example, we are making investments in improving the health of the public conversation on Twitter, focusing on the long-term health of the platform over near-term metrics. We prioritize innovation and the experience for users and advertisers on our platform over short-term operating results. We frequently make product, product feature and service decisions that may reduce our short-term operating results if we believe that the decisions are consistent with our goals to improve the user experience and performance for advertisers, which we believe will improve our operating results over the long term. For example, we are investing in our live-streaming video experiences, and we may not successfully monetize such experiences. These decisions may not be consistent with the short-term expectations of investors and may not produce the long-term benefits that we expect, in which case our user growth and user engagement, our relationships with advertisers and our business and operating results could be harmed. In addition, our focus on the user experience may negatively impact our relationships with our existing or prospective advertisers. This could result in a loss of advertisers, which could harm our revenue and operating results.
Our business and operating results may be harmed by a disruption in our service, or by our failure to timely and effectively scale and adapt our existing technology and infrastructure.
One of the reasons people come to Twitter every day is for real-time information.products. We have experienced, and may in the future experience, service disruptions, outages and other performance problems due to a variety of factors, including infrastructure changes, human or software errors, hardware failure, capacity constraints due to an overwhelming number of people accessing our products and services simultaneously, computer viruses and denial of service or fraud or security attacks. For instance, inIn the past, we have experienced brief service outages during which Twitter.com and Twitter mobile clients were inaccessible as a result, in part, of software misconfigurations. Additionally, although we are investing significantly to improve the capacity, capability and reliability of our infrastructure, we are not currently serving traffic equally through our co-located data centers that support our platform. Accordingly, in the event of a significant issue at the data center supporting most of our network traffic, some of our products and services may become inaccessible to the public or the public may experience difficulties accessing our products and services. Any disruption or failure in our infrastructure could hinder our ability to handle existing or increased traffic on our platform, which could significantly harm our business.
We utilize third-party cloud computing
The availability of these services
in connectionare also dependent upon our relationships with
certain aspectsthird parties, which may change, including if they change their terms of
our business and operations, and any disruption of,service or
interference with, our use of such cloud services could adversely impact our business and operations.As our user base expands and our users generate more content, including photos and videos hosted by Twitter, we may be required to expand and adapt our technology and infrastructure to continue to reliably store, serve and analyze this content. It may become increasingly difficult to maintain and improvepolicies that diminish the performancefunctionality of our products and services, especially during peakmake it difficult for people to access our content, limit our ability to target or measure the effectiveness of ads, impose fees related to our products or services or give preferential treatment to competitive products or services could adversely affect usage times, asof our products and services. Additionally, some of our mobile carriers have experienced infrastructure issues due to natural disasters, which have caused deliverability errors or poor quality communications with our products. Because a majority of people on Twitter access our products and services become more complex and our user traffic increases. In addition, because we lease our data center facilities, we cannot be assured that we will be able to expand our data center infrastructure to meet user demand in a timely manner, or on favorable economic terms. If our users are unable to access Twitter orthrough mobile devices, we are not ableparticularly dependent on the interoperability of our products and services with mobile devices and operating systems in order to make information available rapidly on Twitter, users may seek other channels to obtain the information,deliver our products and services. We also may not return to Twitter or use Twitter as oftenbe successful in developing relationships with key participants in the future,mobile industry or at all. This would negatively impactin developing products or services that operate effectively with these operating systems, networks, devices, web browsers and standards. Further, if the number of platforms for which we develop our abilityproduct expands, it will result in an increase in our operating expenses. In order to attract users, content partnersdeliver high quality products and advertisersservices, it is important that our products and increase the frequencyservices work well with a range of users returning to Twitter. We expect to continue to make significant investments to maintainoperating systems, networks, devices, web browsers and improve the capacity, capability and reliability of our infrastructure. To the extentstandards that we do not effectively address capacity constraints, upgrade our systems as neededcontrol. In the event that it is difficult for people to access and continually develop our technology and infrastructure to accommodate actual and anticipated changes in technology, our business and operating results may be harmed.
We continue to scale the capacity of, and enhance the capability and reliability of, our infrastructure to support user growth and increased activity on our platform. As our user base and the activity on our platform grow, we expect that investments and expenses associated with our infrastructure will continue to grow. These investments and expenses include the expansion and improvement of our data center operations and related operating costs, additional servers and networking equipment to increase the capacity of our infrastructure, increased utilization of third-party cloud computing and associated costs thereof, increased bandwidth costs, and costs to secure our customers’ data. The improvement of our infrastructure requires a significant investment of our management’s time and our financial resources.
We have incurred significant operating losses in the past, and we may not be able to maintain profitability.
Since our inception, we have incurred significant operating losses, and, as of December 31, 2018, we had an accumulated deficit of $1.45 billion. Our revenue has grown from $664.9 million in 2013 to $3.04 billion in 2018. While we were profitable on a GAAP basis in 2018, we believe that our future revenue growth and our ability to maintain profitability will depend on, among other factors, our ability to attract new users, increase user engagement and ad engagement, increase our brand awareness, compete effectively, maximize our sales efforts, demonstrate a positive return on investment for advertisers, and successfully develop new products and services. Accordingly, you should not rely on the revenue growth of any prior quarterly or annual period as an indication of our future performance. Our costs may increase in future periods as we continue to expend substantial financial resources on:
our technology infrastructure;
research and development foruse our products and services;
attracting and retaining talented employees;
strategic opportunities, including commercial relationships and acquisitions; and
general administration, including personnel costs and legal and accounting expenses related to being a public company.
These investments may not result in increased revenue or growth inservices, particularly on their mobile devices, our business. Additionally, certain new revenue products or product features may carry higher costs relative to our other products, which may decrease our margins. If we are unable to generate adequate revenuemDAU growth and to manage our expenses, we may incur significant losses in the futureengagement could be harmed, and may not be able to maintain profitability.
If we are unable to maintain and promote our brand, our business and operating results may be harmed.
We believe that maintaining and promoting our brand is critical to expanding our base of users, content partners and advertisers. Maintaining and promoting our brand will depend largely on our ability to continue to provide useful, reliable and innovative products and services with a focus on a positive user experience, which we may not do successfully. We may introduce new features, products, services or terms of service that users, content partners, advertisers or platform partners do not like, which may negatively affect our brand. Additionally, the actions of content partners may affect our brand if users do not have a positive experience using third-party applications or websites integrated with Twitter or that make use of Twitter content. We will also continue to experience media, legislative or regulatory scrutiny of our decisions regarding user privacy, security, content and other issues, which may adversely affect our reputation and brand. For example, we previously announced our discovery of content (including some advertisements) displayed on our products that may be relevant to government investigations relating to Russian interference in the 2016 U.S. presidential election, which continues to draw media and regulatory scrutiny of our actions with respect to such content. Our brand may also be negatively affected by the actions of users that are hostile or inappropriate to other people, by users impersonating other people, by users identified as spam, by use or perceived use, directly or indirectly, of our products or services by users (including governments and government-sponsored actors) to disseminate information that may be viewed as misleading (or intended to manipulate the opinions of our users), by users introducing excessive amounts of spam on our platform, by third parties obtaining control over users’ accounts or by other security or cybersecurity incidents. For example, certain actions taken by a social media marketing company in the past to sell followers and engagement, which were in violation of our policies, but that drew media and regulatory scrutiny on us. Maintaining and enhancing our brand may require us to make substantial investments and these investments may not achieve the desired goals. If we fail to successfully promote and maintain our brand or if we incur excessive expenses in this effort, our business and operating results could be adversely affected.
impacted.
Negative publicity couldOur release of new products, product features and services on mobile devices is dependent upon and can be impacted by digital storefront operators, such as the Apple App Store and Google Play Store review teams, which decide what guidelines applications must operate under and how to enforce such guidelines. Such review processes can be difficult to predict and certain decisions may harm our business. Additionally, changes to operating systems’ practices and policies, such as Apple’s changes related to its App Tracking Transparency policy, have reduced and may continue to reduce the quantity and quality of the data and metrics that can be collected or used by us and our partners or our ability to target advertising. These limitations have affected and may continue to adversely affect both our business and operating results.
We receive a high degree of media coverage aroundour advertisers' ability to effectively target advertisements and measure their performance, thereby reducing the world. Negative publicity aboutdemand and pricing for our company, including about the quality and reliability of our products or of content shared on our platform, changes to ouradvertising products and services,harming our privacy and security practices (including actions taken with respect to certain users or accounts or reports regarding government surveillance), litigation, regulatory activity, the actions of our users (including actions taken by prominent users on our platform or the dissemination of information that may be viewed as misleading or as intended to manipulate the opinions of our users), or user experience with our products and services, even if inaccurate, could adversely affect our reputation and the confidence in and the use of our products and services. Such negative publicity could also have an adverse effect on the size, engagement and loyalty of our user base and result in decreased revenue, which could adversely affect our business and operating results.
business.
Spam and fake accounts could diminish the
user experience on our platform, which could damage our reputation and deter
our current and potential userspeople from using our products and services.
“Spam” on Twitter refers to a range of abusive activities that are prohibited by our terms of service and is generally defined as unsolicited, repeated actions that negatively impact other userspeople with the general goal of drawing user attention to a given account, site, product or idea. This includes posting large numbers of unsolicited mentions of a user,an account, duplicate Tweets, malicious automation, misleading links (e.g., to malware or “click-jacking” pages) or other false or misleading content, and aggressively following and un-followingunfollowing accounts, adding usersaccounts to lists, sending invitations, Retweeting and liking Tweets to inappropriately attract attention. Our terms of service also prohibit the creation of serial or bulk accounts, both manually or using automation, for disruptive or abusive purposes, such as to Tweet spam or to artificially inflate the popularity of usersaccounts seeking to promote themselves on Twitter. Although we continue to invest resources to reduce spam and fake accounts on Twitter, which includes our investments to improve the health of the public conversation on Twitter, we expect spammers will continue to seek ways to act inappropriately on our platform. In addition, we expect that increases in the number of usersaccounts on our platform will result in increased efforts by spammers to misuse our platform. We continuously combat spam and fake accounts, including by suspending or terminating accounts we believe to be spammers and launching algorithmic changes focused on curbing abusive activities. Our actions to combat spam and fake accounts require significant resources and time. If spam and fake accounts increase on Twitter, this could hurt our reputation for delivering relevant content or reduce usermDAU growth rate and usermDAU engagement and result in continuing operational cost to us.
Action by governments to restrict access toOur products may contain errors or our security measures may be breached, resulting in the exposure of private information. Our products and services or censor Twitter content could harm our business and operating results.
Governments have sought, and may in the future seek, to censor content available through our products and services, restrict access to our products and services from their country entirely or impose other restrictions that may affect the accessibility of our products and services for an extended period of time or indefinitely. For example, domestic Internet service providers in China have blocked access to Twitter, and other countries, including Iran, Libya, Pakistan, Turkey and Syria, have intermittently restricted access to Twitter, and we believe that access to Twitter has been blocked in these countries primarily for political reasons. In addition, governments in these or other countries may seek to restrict access to our products and services based on our decisions around user content, providing user information in response to governmental requests, or other matters. In the event that access to our products and services is restricted, in whole or in part, in one or more countries or our competitors are able to successfully penetrate geographic markets that we cannot access, our ability to retain or increase our user base and user engagement may be adversely affected, and our operating results may be harmed.
If our security measures are breached, or if our products and services are subject to attacks that degrade or deny the ability of userspeople to access our products and services,services. These issues may result in the perception that our products and services may be perceived asare not being secure, usersand people on Twitter and advertisers may curtail or stop using our products and services and our business and operating results could be harmed.
Our products and services involve the storage and transmission of users’people's and advertisers’ information, and security breachesincidents, including those caused by unintentional errors and those intentionally caused by third parties, may expose us to a risk of loss of this information, litigation, increased security costs and potential liability. We also work with third-party vendors to process credit card payments by our customers and are subject to payment card association operating rules. We and our third-party service providers experience cyber-attacks of varying degrees on a regular basis. We expect to incur significant costs in an effort to detect and prevent security breaches and other security-related incidents, including those that our third-party suppliers and service providers may suffer, and we may face increased costs in the event of an actual or perceived security breach or other security-related incident. In particular, the COVID-19 pandemic has increased the opportunities available to criminals, as more companies and individuals work online, and as such, the risk of a cybersecurity incident potentially occurring has increased. We cannot provide assurances that our preventative efforts will be successful. If an actual or perceived breach of our security occurs, the market perception of the effectiveness of our security measures could be harmed, people on Twitter and our advertisers may be harmed, lose trust and confidence in us, decrease the use of our products and services or stop using our products and services in their entirety. We may also incur significant legal and financial exposure, including legal claims, higher transaction fees and regulatory fines and penalties. Any of these actions could have a material and adverse effect on our business, reputation and operating results. While our insurance policies include liability coverage for certain of these matters, if we experienced a significant security incident, we could be subject to liability or other damages that exceed our insurance coverage.
Our products and services incorporate complex software and we encourage employees to quickly develop and help us launch new and innovative features. Our software, including any open source software that is incorporated into our code, has contained, and may now or in the future contain, errors, bugs or vulnerabilities. For example, in
October 2016,2019, we
experienceddiscovered, and took steps to remediate, bugs that primarily affected our legacy MAP product, impacting our ability to target ads and share data with our measurement and ad partners. We also discovered that certain personalization and data settings were not operating as expected. As was the case with these errors, errors in our software code may only be discovered after the product or service has been released. Errors, vulnerabilities, or other design defects within the software on which we rely may result in a
service outagenegative experience for people on Twitter, partners and advertisers who use our products, delay product introductions or enhancements, result in targeting, measurement, or billing errors, compromise our ability to protect the data of the people on Twitter and/or our intellectual property or lead to reductions in our ability to provide some or all of our services. We have policies and procedures in place to address security as
part of our software development, testing, evaluation, and deployment process. Additionally, we have implemented and maintain vulnerability scanning and management policies and procedures, including a
bug bounty program. However, these measures may not be sufficient in all cases. Any errors, bugs or vulnerabilities discovered in our code after release could result
in damage to our reputation, loss of
several distributed denialaccounts, loss of
service attacks oncontent or platform partners, loss of advertisers or advertising revenue or liability for damages or other relief sought in lawsuits, regulatory inquiries or other proceedings, any of which could adversely impact our
domain name service provider, Dyn.business and operating results.
Our products operate in conjunction with, and we are dependent upon, third-party products and components across a broad ecosystem.
Additionally,There have been and may continue to be significant attacks on certain third-party providers, and we cannot guarantee that our or our third-party providers’ systems and networks have not been breached or that they do not contain exploitable defects or bugs that could result in a breach of or disruption to our systems and networks or the
systems and networks of third parties that support us and our services. If there is a security vulnerability, error, or other bug in one of these third-party products or components and if there is a security exploit targeting them, we could face increased costs, liability claims, reduced revenue, or harm to our reputation or competitive position. The natural sunsetting of third-party products and operating systems that we use requires that our infrastructure teams reallocate time and attention to migration and updates, during which period potential security vulnerabilities could be exploited.
If there is a security vulnerability (such as the Spectre and Meltdown vulnerabilities) in one of these components and if there is a security exploit targeting it, we could face increased costs, liability claims, reduced revenue, or harm to our reputation or competitive position. Third
Unauthorized parties may also gain access to Twitter
user nameshandles and passwords without attacking Twitter directly
and, instead, access people’s accounts by
combiningusing credential information from other recent breaches, using malware on victim machines that are stealing passwords for all sites, or a combination of both. In addition, some of our developers or other partners, such as third-party applications to which
our userspeople have given permission to Tweet on their behalf, may receive or store information provided by us or by
our userspeople on Twitter through mobile or web applications integrated with us. If these third parties or developers fail to adopt or adhere to adequate data security practices, or in the event of a breach of their networks, our data or
our users' data
of people on Twitter may be improperly accessed, used or disclosed.
As a result, unauthorized Unauthorized parties have obtained, and may in the future obtain, access to our data, data of people on Twitter or our users’ or advertisers’ data. In addition, a breach of a third-party application that has been trusted by a user could result in the account issuing Tweets, Likes, Retweets, or Direct Messages without such user’s knowledge or consent. Any systems failure or actual or perceived compromise of our security that results in the unauthorized access to or release of data of people on Twitter or our users’ or advertisers’ data, such as credit card data, could significantly limit the adoption of our products and services, as well as harm our reputation and brand and, therefore, our business.
Our security measures may also be breached due to employee error, malfeasance or otherwise. Additionally, outside parties may attempt to fraudulently induce employees, userspeople on Twitter, or advertisers to disclose sensitive information in order to gain access to our data, or our users’data of people on Twitter or advertisers’ data, or accounts, or may otherwise obtain access to such data or accounts. Since people on Twitter and our users and advertisers may use their Twitter accounts to establish and maintain online identities, unauthorized communications from Twitter accounts that have been compromised may damage their personal security, reputations and brands as well as our reputation and brand. Because the techniques used to obtain unauthorized access, disable or degrade service or sabotage systems change frequently and often are not recognized until launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures. We expectFor example, in July 2020, we became aware of what we believe to
incur significant costs in an effortbe a coordinated social engineering attack by people who successfully targeted one or more of our employees with access to
detectinternal systems and
prevent security breachestools. The attackers used this access to target a small group of accounts (130) and
other security-related incidents,to gain control of a subset of these accounts and
we may face increased costs in the eventsend Tweets from those accounts and access non-public information relating to at least some of
an actual or perceivedthose accounts. This security breach
or other security-related incident. If an actual or perceived breach of our security occurs,may have harmed the people and accounts affected by it. It may also impact the market perception of the effectiveness of our security measures,
could be harmed, our users and
advertiserspeople may
be harmed, lose trust and confidence in us, decrease the use of our products and services or stop using our products and services in their entirety.
WeIt may also
incur significantresult in damage to our reputation, loss of accounts, loss of content or platform partners, loss of advertisers or advertising revenue, or legal and financial exposure, including legal claims,
higher transaction fees and regulatory
fines and penalties.inquiries or other proceedings. Any of these
actionseffects could have a material and adverse
effectimpact on our business, reputation and operating results.
While our insurance policies include liability coverage for certain
Our international operations are subject to increased challenges and risks.
We have offices and employees around the world and our products and services are available in multiple languages. However, our ability to manage our business, monetize our products and services and conduct our operations internationally requires considerable management attention and resources and is subject to the particular challenges of supporting a rapidly growing business in an environment of multiple languages, cultures, customs, legal and regulatory systems, alternative dispute systems and commercial markets. Our international operations have required and will continue to require us to invest significant funds and other resources. Operating internationally subjects us to new risks and may increase risks that we currently face, including risks associated with:
•recruiting and retaining talented and capable employees in foreign countries and maintaining our company culture across all of our offices;
•providing our products and services and operating across a significant distance, in different languages and among different cultures, including the potential need to modify our products, services, content and features to ensure that they are culturally relevant in different countries;
•increased competition from largely regional websites, mobile applications and services that provide real-time communications and have strong positions in particular countries, which have expanded and may continue to expand their geographic footprint;
•differing and potentially lower levels of usermDAU growth, user engagement and ad engagement in new and emerging geographies;
•different levels of advertiser demand;
•greater difficulty in monetizing our products and services;
•compliance with applicable foreign laws and regulations, including laws and regulations with respect to privacy, data security,protection, data localization, cybersecurity, taxation, consumer protection, copyright, fake news, hate speech, spam and content, as well as laws regarding the environment and climate change, and the risk of penalties to the people who use our usersproducts and services and individual members of management if our practices are deemed to be out of compliance;
•actions by governments or others to restrict access to Twitter or censor content on Twitter, such as how domestic Internet service providers in China have blocked access to Twitter and other countries, including Iran, Libya, Pakistan, Turkey, Syria and Nigeria, have intermittently restricted access to Twitter, whether these actions are taken for political reasons, in response to decisions we make regarding governmental requests or content generated by people on Twitter, or otherwise;
| •
| burdens of complying with various foreign laws, including laws related to taxation, content removal, data localization, and regulatory oversight;
|
•actions by governments or others that may result in Twitter being unable or unwilling to continue to operate in a particular country or jurisdiction;•longer payment cycles in some countries;
•credit risk and higher levels of payment fraud;
•operating in jurisdictions that do not protect intellectual property rights to the same extent as the United States;
•compliance with anti-bribery laws including, without limitation, compliance with the Foreign Corrupt Practices Act and the U.K. Bribery Act, including by our business partners;
•currency exchange rate fluctuations, as we conduct business in currencies other than U.S. dollars but report our operating results in U.S. dollars and any foreign currency forward contracts into which we enter may not mitigate the impact of exchange rate fluctuations;
•foreign exchange controls that might require significant lead time in setting up operations in certain geographic territories and might prevent us from repatriating cash earned outside the United States;
•political and economic instability in some countries;
•double taxation of our international earnings and potentially adverse tax consequences due to changes in the tax laws of the United States or the foreign jurisdictions in which we operate; and
•higher costs of doing business internationally, including increased accounting, travel, infrastructure and legal compliance costs.
If our revenue from our international operations, and particularly from our operations in the countries and regions where we have focused our spending, does not exceed the expense of establishing and maintaining these operations, our business and operating results will suffer. In addition, mDAU may grow more rapidly than revenue in international regions where our monetization of our products and services is not as developed. If we are unable to successfully expand our business, manage the complexity of our global operations successfully,or monetize our products and services internationally, it could adversely impact our business, financial condition and operating results.
The COVID-19 pandemic has disrupted and harmed, and may in the future disrupt and harm, our business, financial condition and operating results. We are unable to predict the extent to which it may impact our business, financial condition and operating results
could be adversely affected.and the achievement of our strategic objectives in the future.
Our business,
is subject to complexoperations and
evolving U.S.financial performance have been, and
foreign laws and regulations. These laws and regulations are subject to change and uncertain interpretation, and could result in claims, changes to our business practices, monetary penalties, increased cost of operations or declines in user growth, user engagement or ad engagement, or otherwise harm our business.We are subject to a variety of laws and regulationsmay in the United Statesfuture be, negatively impacted by the COVID-19 pandemic and abroad that involve matters central to our business, including privacy, security, rights of publicity, data protection, content regulation, intellectual property, competition, protection of minors, consumer protection, credit card processingrelated public health responses, such as travel bans, restrictions, social distancing requirements and taxation. Many ofshelter-in-place orders. The pandemic and these lawsrelated responses have caused, and regulations are still evolving and being tested in courts. As a result, it is possible that these laws and regulations may be interpreted and applied in a manner that is inconsistent from country to country and inconsistent with our current policies and practices and in ways that could harm our business, particularly in the newfuture cause, decreased advertiser demand for our platform, global slowdown of economic activity, disruptions of major events, volatility and rapidly evolving industrydisruption of financial markets, and changes in which we operate. Additionally, the introductionconsumer behavior.
Our past results may not be indicative of
new products or servicesour future performance, and historical trends in revenue, income (loss) from operations, net income (loss), and net income (loss) per share may
subject us to additional laws and regulations.
From time to time, governments, regulators and others have expressed concerns about whether our products, services or practices compromise the privacy of users and others. While we strive to comply with applicable data protection laws and regulations, as well as our own posted privacy policies and other obligations we may have with respect to privacy and data protection, the failure or perceived failure to so comply may result, and in some cases has resulted, in inquiries and other proceedings or actions against us by governments, regulators or others. A number of proposals have recently been adopted or are currently pending before federal, state and foreign legislative and regulatory bodies that could significantly affect our business.differ materially. For example, in June 2018 California recently enacted legislation,to the California Consumer Privacy Act, or CCPA, that will, among other things, require covered companiesextent the pandemic continues to provide new disclosures to California consumers, and afford such consumers new abilities to opt-out of certain sales of personal information, whendisrupt economic activity globally, it goes into effect on January 1, 2020. The CCPA was amended in September 2018, and it remains unclear what, if any, modifications will be made to this legislation or how it will be interpreted. Moreover, foreign data protection, privacy, consumer protection, content regulation and other laws and regulations are often more restrictive than those in the United States. In particular, the European Union, or EU, and its member states traditionally have taken broader views as to types of data that are subject to privacy and data protection, and have imposed greater legal obligations on companies in this regard. For example, the GDPR has been adopted and went into effect in May 2018. The GDPR includes more stringent operational requirements for entities processing personal information and significant penalties for non-compliance, including fines of up to €20 million or 4% of total worldwide revenue, whichever is higher. Additionally, we rely on a variety of legal bases to transfer certain personal information outside of the European Economic Area, including the EU-U.S. Privacy Shield Framework, the Swiss-U.S. Privacy Shield Framework, and EU Standard Contractual Clauses, or SCCs. The EU-U.S. Privacy Shield Framework is currently under review by regulatory authorities and it and the SCCs are both the subject of legal challenges in European courts, and they may be modified or invalidated. The absence of successor legal bases for continued data transfer could require us to create duplicative, and potentially expensive, information technology infrastructure and business operations in Europe or limit our ability to collect and use personal information collected in Europe. Any of these changes with respect to EU data protection law could disrupt our business.
Further, following a referendum in June 2016 in which voters in the United Kingdom approved an exit from the EU, the United Kingdom government has initiated a process to leave the EU (often referred to as “Brexit”). Without further agreement between the United Kingdom and the EU, the United Kingdom will formally leave the EU in March 2019. Brexit could lead to economic and legal uncertainty in the region and could adversely affect the tax, currency, operational, legal and regulatory regimes to which our business is subject. Brexit may adversely affect our revenues and subject us to new regulatory costs and challenges, in addition to other adverse effects that we are unable effectively to anticipate.
The United Kingdom recently implemented a Data Protection Bill that substantially implements the GDPR, which became law in May 2018. Brexit has created uncertainty with regard to whether the EU will view the UK data protection regulation as adequate under GDPR. Until that is resolved, the requirements for data transfers between the United Kingdom and the EU are unclear.
Legislative changes in the United States, at both the federal and state level, that could impose new obligations in areas such as privacy and liability for copyright infringement or content by third parties such as various Congressional efforts to restrict the scope of the protections available to online platforms under Section 230 of the Communications Decency Act, and our current protections from liability for third-party content in the United States could decrease or change. Additionally, recent amendments to U.S. patent laws may affect the ability of companies, including us, to protect their innovations and defend against claims of patent infringement.
Similarly, the EU’s proposed Directive on Copyright in the Digital Single Market (the EU Copyright Directive), if enacted as currently proposed, would expand the liability of online platforms for user-generated content and would obligate platforms to negotiate licenses with rightsholders and ensure that unauthorized copyrighted material is not available on their platforms. The EU Copyright Directive would also give publishers rights over snippets of news content displayed online and restrict platforms’ ability to display such material. If enacted, the EU Copyright Directive would increase our costs of operations and increase our liability for user-generated content.
Additionally, we have relationships with third parties that perform a variety of functions such as payments processing, tokenization, vaulting, currency conversion, fraud prevention and data security audits. The laws and regulations related to online payments are complex, subject to change, and vary across different jurisdictions in the United States and globally. As a result, we may be required to spend significant time, effort and expense to comply with applicable laws and regulations. Any failure or claim of our failure to comply, or any failure or claim of failure by the above-mentioned third parties to comply, could increase our costs or could result in liabilities. Additionally, because Twitter accepts payment via credit cards and is certified as a PCI Level 1 service provider, we are subject to payment card association operating rules and certification requirements, including the Payment Card Industry Data Security Standard.
We currently allow use of our platform without the collection of extensive personal information, such as age. We may experience additional pressure to expand our collection of personal information in order to comply with new and additional regulatory demands or we may independently decide to do so. If we obtain such additional personal information, we may be subject to additional regulation.
Regulatory investigations and settlements could cause us to incur additional expenses or change our business practices in a manner materially adverse to our business.
We are currently the subject of inquiries by the Irish Data Protection Commission with respect to our compliance with the GDPR and expect to continue to be subject to regulatory scrutiny as our business grows and awareness of our brand increases, In the past, we have been subject to regulatory investigations, and expect to continue to be subject to regulatory scrutiny as our business grows and awareness of our brand increases. In March 2011, to resolve an investigation into various incidents, we entered into a settlement agreement with the FTC that, among other things, required us to establish an information security program designed to protect non-public consumer information and also requires that we obtain biennial independent security assessments. The obligations under the settlement agreement remain in effect until the later of March 2, 2031, or the date 20 years after the date, if any, on which the U.S. government or the FTC files a complaint in federal court alleging any violation of the order. We expect to continue to be the subject of regulatory inquiries, investigations and audits in the future by the FTC and other regulators around the world.
It is possible that a regulatory inquiry, investigation or audit might result in changes to our policies or practices, and may cause us to incur substantial costs or could result in reputational harm, prevent us from offering certain products, services, features or functionalities, cause us to incur substantial costs or require us to change our business practices in a manner materially adverse to our business. Violation of existing or future regulatory orders, settlements or consent decrees could subject us to substantial monetary fines and other penalties that could negatively affect our financial condition and operating results.
We may face lawsuits or incur liability as a result of content published or made available through our products and services.
We have faced and will continue to face claims relating to content that is published or made available through our products and services or third-party products or services. In particular, the nature of our business exposes us to claims related to defamation, intellectual property rights, rights of publicity and privacy, illegal content, misinformation, content regulation and personal injury torts. The laws relating to the liability of providers of online products or services for activities of their users remains somewhat unsettled, both within the United States and internationally. This risk may be enhanced in certain jurisdictions outside the United States where we may be less protected under local laws than we are in the United States. For example, we are subject to legislation in Germany that may impose significant fines for failure to comply with certain content removal and disclosure obligations. In addition, the public nature of communications on our network exposes us to risks arising from the creation of impersonation accounts intended to be attributed to our users or advertisers. We could incur significant costs investigating and defending these claims. If we incur material costs or liability as a result of these occurrences, our business, financial condition and operating results through prolonged decreases in advertising spend, credit deterioration of our customers, depressed economic activity, or declines in capital markets. The impacts of the COVID-19 pandemic, including supply chain constraints, labor shortages and inflation, have caused advertisers in a variety of industries to be cautious in their spending, and in 2021 had a modest negative impact on, and may negatively impact in future periods, our advertising revenue. While the economy is reopening in various parts of the world, some countries and locations are reinstating lockdowns and other restrictions that make a full recovery difficult to predict. We continue to monitor the evolving situation and guidance from international and domestic authorities, including federal, state and local public health authorities, and there may be developments outside our control requiring us to adjust our operating plan.
We have incurred significant operating losses in the past, and we may not be able to maintain profitability or accurately predict fluctuations in our operating results from quarter to quarter.
While we have been profitable on a generally accepted accounting principles in the United States (GAAP) basis at times, our quarterly operating results have fluctuated in the past and will fluctuate in the future. As a result, our past quarterly operating results are not necessarily indicators of future performance. Our operating results in any given quarter have been and can be influenced by numerous factors, many of which we are unable to predict or are outside of our control, including:
•our ability to attract and retain mDAU, advertisers, content partners and platform partners;
•the occurrence of planned significant events or changes to the timing of events, such as major sporting events, political elections, or awards shows, or unplanned significant events, such as natural disasters and political revolutions, as well as seasonality which may differ from our expectations;
•the impacts of the COVID-19 pandemic and governmental and business actions in response thereto on the global economy;
•the pricing of our advertising services or data licensing, and our ability to maintain or improve revenue and margins;
•the development and introduction of new products or services, changes in features of existing products or services or de-emphasis or termination of existing products, product features or services;
•the actions of our competitors;
•increases in research and development, marketing and sales and other operating expenses that we may incur to grow and expand our operations and to remain competitive, including stock-based compensation expense and costs related to our technology infrastructure;
•costs related to the acquisition or divestiture of businesses, talent, technologies or intellectual property, including potentially significant amortization costs;
•changes as a result of acquisitions or dispositions of assets or businesses;
•system failures resulting in the inaccessibility of our products and services;
•actual or perceived privacy or cybersecurity breaches or incidents, and the costs associated with remediating any such breaches or incidents;
•adverse litigation judgments, settlements or other litigation-related costs, and the fees associated with investigating and defending claims;
•changes in the legislative or regulatory environment, including with respect to security, tax, privacy, data protection, or content, or enforcement by government regulators, including fines, orders or consent decrees;
•changes in reserves or other non-cash credits or charges, such as establishment or releases of deferred tax assets valuation allowance, impairment charges or purchase accounting adjustments;
•changes in our expected estimated useful life of property and equipment and intangible assets;
•fluctuations in currency exchange rates and changes in the proportion of our revenue and expenses denominated in foreign currencies;
•changes in U.S. generally accepted accounting principles; and
•changes in global or regional business or macroeconomic conditions.
In January 2022, we completed the sale of our MoPub business. The sale of MoPub enables us to concentrate more of our efforts on the significant opportunity for performance-based advertising, SMB offerings, and commerce initiatives on Twitter. While the product, engineering, and go-to-market teams associated with MoPub largely began to shift over to these key focus areas immediately upon the closing of the transaction, it will take time for their work to deliver results. As a result, we do not expect to recoup the full revenue loss associated with the sale of MoPub in 2022, but there are no changes to our long-term goals with an increased focus and additional resources working on increasing our market share within the addressable market for ads on our website and apps. However, we can provide no assurance that we will recoup the revenue impact from MoPub on the expected timeline, or at all.
Given the rapidly evolving markets in which we compete, our historical operating results may not be useful to you in predicting our future operating results. If our revenue growth rate slows, we expect that the seasonality in our business may become more pronounced and may in the future cause our operating results to fluctuate. For example, advertising spending is traditionally seasonally strong in the fourth quarter of each year, and we believe that this seasonality affects our quarterly results, which generally reflect higher sequential advertising revenue growth from the third to fourth quarter compared to sequential advertising revenue growth from the fourth quarter to the subsequent first quarter. Additionally, certain new revenue products or product features may carry higher costs relative to our other products, which may decrease our margins, and we may incur increased costs to scale our operations if mDAU and engagement on our platform increase. If we are unable to generate adequate revenue growth and to manage our expenses, we may incur significant losses in future periods and may not be able to maintain profitability.
We rely on assumptions and estimates to calculate certain of our key metrics, and real or perceived inaccuracies in such metrics may harm our reputation and negatively affect our business.
We calculate our mDAU using internal company data that has not been independently verified. While these numbers are based on what we believe to be reasonable calculations for the applicable period of measurement, there are inherent challenges in measuring mDAU and mDAU engagement. For example, there are a number of false or spam accounts in existence on our platform. We estimate that the average of false or spam accounts during the fourth quarter of 2021 continued to represent fewer than 5% of our mDAU during the quarter. However, this estimate is based on an internal review of a sample of accounts and we apply significant judgment in making this determination. As such, our estimation of false or spam accounts may not accurately represent the actual number of such accounts, and the actual number of false or spam accounts could be higher than we have currently estimated. We are continually seeking to improve our ability to estimate the total number of spam accounts and eliminate them from the calculation of our mDAU, but we otherwise treat multiple accounts held by a single person or organization as multiple accounts for purposes of calculating our mDAU because we permit people and organizations to have more than one account. Additionally, some accounts used by organizations are used by many people within the organization. As such, the calculations of our mDAU may not accurately reflect the actual number of people or organizations using our platform. We regularly review and may adjust our processes for calculating our internal metrics to improve their accuracy. Our measures of mDAU growth and engagement may differ from estimates published by third parties or from similarly-titled metrics of our competitors due to differences in methodology. If advertisers, content or platform partners or investors do not perceive our metrics to be accurate representations of our total accounts or mDAU engagement, or if we discover material inaccuracies in our metrics, our reputation may be harmed and content partners, advertisers and platform partners may be less willing to allocate their budgets or resources to our products and services, which could negatively affect our business and operating results. Further, as our business develops, we may revise or cease reporting metrics if we determine that such metrics are no longer accurate or appropriate measures of our performance. If investors, analysts or customers do not believe our reported measures, such as mDAU, are sufficient or accurately reflect our business, we may receive negative publicity and our operating results may be adversely affected.impacted.
Our business is subject to the risks of earthquakes, fire, power outages, floods and other catastrophic events, and to interruption by man-made problems such as terrorism.
A significant natural disaster, such as the COVID-19 pandemic or an earthquake, fire, flood or significant power outage could have a material adverse impact on our business, operating results, and financial condition. For example, the COVID-19 pandemic led to certain business disruptions, including travel bans and restrictions, shelter-in-place orders and the postponement or cancellation of major events, which adversely affected demand for our advertising products and the economy as a whole, and which may have an adverse effect on our business, financial condition and operating results in the future. We have offices and a significant number of employees in the San Francisco Bay Area, a region known for seismic activity. Additionally, despite any precautions we may take, the occurrence of a natural disaster or other unanticipated problems at our data centers could result in lengthy interruptions in our services. In addition, our employees, offices, and infrastructure have recently been the subject of increased threats by extremists. Acts of terrorism and other geo-political unrest could cause disruptions in our business. All of the aforementioned risks may be further increased if our disaster recovery plans prove to be inadequate. We have implemented a disaster recovery program, which allows us to move production to a back-up data center in the event of a catastrophe. Although this program is functional, we do not currently serve network traffic equally from each data center, so if our primary data center shuts down, there will be a period of time that our products or services, or certain of our products or services, will remain inaccessible or people may experience severe issues accessing our products and services. We do not carry business interruption insurance sufficient to compensate us for the potentially significant losses, including the potential harm to our business that may result from interruptions in our ability to provide our products and services. Any such natural disaster or man-made problem could adversely impact our business, financial condition and operating results.
Intellectual Property and Technology
Our business and operating results may be harmed by our failure to timely and effectively scale and adapt our existing technology and infrastructure.
As accounts generate more content, including photos and videos hosted by Twitter, we may be required to expand and adapt our technology and infrastructure to continue to reliably store, serve and analyze this content. It may become increasingly difficult to maintain and improve the performance of our products and services, especially during peak usage times, as our products and services become more complex and our account traffic increases. In addition, because we lease our data center facilities, we cannot be assured that we will be able to expand our data center infrastructure to meet demand in a timely manner, or on favorable economic terms. If people are unable to access Twitter or we are not able to make information available rapidly on Twitter, people may seek other channels to obtain the information, and may not return to Twitter or use Twitter as often in the future, or at all. This would negatively impact our ability to attract new people to Twitter, content partners and advertisers and increase the frequency of people returning to Twitter. We expect to continue to make significant investments to maintain and improve the capacity, capability and reliability of our infrastructure. To the extent that we do not effectively address capacity constraints, upgrade our systems as needed and continually develop our technology and infrastructure to accommodate actual and anticipated changes in technology, our business and operating results may be harmed.
We continue to scale the capacity of, and enhance the capability and reliability of, our infrastructure to support mDAU growth and increased activity on our platform. We expect that investments and expenses associated with our infrastructure will continue to grow, including the expansion and improvement of our data center operations and related operating costs, additional servers and networking equipment to increase the capacity of our infrastructure, increased utilization of third-party cloud computing and associated costs thereof, increased bandwidth costs and costs to secure our customers’ data. The improvement of our infrastructure requires a significant investment of our management’s time and our financial resources. If we fail to efficiently scale and manage our infrastructure, our business, financial condition and operating results would be adversely impacted.
Our intellectual property rights are valuable, and any inability to protect them could reduce the value of our products, services and brand.
Our
Intellectual property rights are important assets of our business and we seek protection for such rights as appropriate. To establish and protect our trade secrets, trademarks, copyrights,
and patents
as well as restrictions in confidentiality, license and
other intellectual property
rights are important assets. We rely on, and expect to continue to rely on, a combination of confidentiality and licenseassignment agreements
we enter into with our employees, consultants and third
parties with whom we have relationships, as well as trademark, trade dress, domain name, copyright, trade secretparties. Various circumstances and
patent laws, to protect our brand and other intellectual property rights. However, various events outside of our control,
however, pose
a threatthreats to our intellectual property
rights, as well as to our products, services and technologies. For example, werights. We may fail to obtain effective intellectual property protection,
or effective intellectual property protection may not be available in every country in which our products and services are
available.available, or such laws may provide only limited protection. Also, the efforts we have taken to protect our intellectual property rights may not be sufficient or effective, and any of our intellectual property rights may be challenged,
circumvented, infringed or misappropriated which could result in them being narrowed in scope or declared invalid or unenforceable. There can be no assurance our intellectual property rights will be sufficient to protect against others offering products or services that are substantially similar to ours and compete with our business.
We rely on
non-patented proprietary information and technology, such as trade secrets, confidential information, know-how and technical information. While in certain cases we have agreements in place with employees and third parties that place restrictions on the use and disclosure of
this intellectual property, theseour trade secrets and other proprietary information contained in agreements we sign with our employees, contractors, and other third parties to limit and control access to and disclosure of our trade secrets and confidential information. These agreements may be breached, or this intellectual property may otherwise be disclosed or become known to our competitors, including through hacking or theft, which could cause us to lose any competitive advantage resulting from
this intellectual property.these trade secrets and proprietary information.
We are pursuing registration of trademarks and domain names in the United States and in certain jurisdictions outside of the United States. Effective protection of trademarks and domain names is expensive and difficult to maintain, both in terms of application and registration costs as well as the costs of defending and enforcing those rights. We may be required to protect our rights in an increasing number of countries, a process that is expensive and may not be successful or which we may not pursue in every country in which our products and services are distributed or made available.
We are party to numerous agreements that grant licenses to third parties to use our intellectual
property, including our trademarks.property. For example, many third parties distribute their content through Twitter, or embed Twitter content in their applications or on their websites, and make use of our trademarks in connection with their services.
If the licensees of our trademarks are not using our trademarks properly, it may limit our ability to protect our trademarks and could ultimately result in our trademarks being declared invalid or unenforceable. We have a policy designed to assist third parties in the proper use of our
brand, trademarks, and
other assets, and we have an internal team dedicated to enforcing
ourthis policy and protecting our brand.
Our brand protectionThis team routinely
receives and reviews reports of improper and unauthorized use of the Twitter
brand, trademarks
or assets and issues takedown notices or initiates discussions with the third parties to correct the issues. However, there can be no assurance that we will be able to protect against the unauthorized use of our brand
or trademarks. If the licensees of our trademarks
or other assets. Ifare not using our trademarks properly and we fail to maintain and enforce our trademark rights,
we may limit our ability to protect our trademarks which could result in diminishing the value of our brand
could be diminished.or in our trademarks being declared invalid or unenforceable. There is also a risk that one or more of our trademarks could become generic, which could result in
themsuch trademark being declared invalid or unenforceable. For example, there is a risk that the word “Tweet” could become so commonly used that it becomes synonymous with any short comment posted publicly on the Internet, and if this happens, we could lose protection of this trademark.
We also seek to obtain patent protection for some of our technology. We may be unable to obtain patent protection for our technologies, andtechnologies. Even if patents are issued from our patent applications, which is not certain, our existing patents, and any patents that may be issued in the future, may not provide us with competitive advantages or distinguish our products and services from those of our competitors. In addition, any patents may be contested, circumvented, or found unenforceable or invalid, and we may not be able to prevent third parties from infringing or otherwise violating them. Effective protection of patent rights is expensive and difficult to maintain, both in terms of application and maintenance costs, as well as the costs of defending and enforcing those rights.
Our Innovator’s Patent Agreement, or IPA, also can limit our ability to prevent infringement of our patents. In May 2013, we implemented the IPA, which we enter into with our employees and consultants, including our founders. The IPA, which applies to our current and future patents, allows us to assert our patents defensively. The IPA also allows us to assert our patents offensively with the permission of the inventors of the applicable patent. Under the IPA, an assertion of claims is considered
to be for a defensive purpose if the claims are asserted: (i) against an entity that has filed, maintained, threatened or voluntarily participated in a patent infringement lawsuit against us or any
people on Twitter, or any of our
users, affiliates, customers, suppliers or distributors; (ii) against an entity that has used its patents offensively against any other party in the past ten years, so long as the entity has not instituted the patent infringement lawsuit defensively in response to a patent litigation threat against the entity; or (iii) otherwise to deter a patent litigation threat against us or
people on Twitter, or any of our
users, affiliates, customers, suppliers or distributors. In addition, the IPA provides that the above limitations apply to any future owner or exclusive licensee of any of our patents, which could limit our ability to sell or license our patents to third parties.
WhileIn this case, while we may be able to claim protection of our intellectual property under other rights
such(such as trade secrets or contractual obligations with our employees not to disclose or use confidential
information,information), we may be unable to assert our patent rights against third parties that we believe are infringing our patents, even if such third parties are developing products and services that compete with our products and services. For example, in the event that an inventor of one of our patents
leaves usgoes to work for another company and
that company uses
ourthe inventor’s patented
technologyinvention to compete with us, we would not be able to assert that patent against such other company unless the assertion of the patent right is for a defensive
purpose.purpose since it would be unlikely the employee would consent to offensive use of the patent against his or her current employer. In such event, we
may be limited in our ability to assert a patent right against another company, and instead would need to rely on trade secret protection or the contractual obligation of the inventor to us not to disclose or use our confidential information. In addition, the terms of the IPA could affect our ability to monetize our intellectual property portfolio.
Significant impairments of our intellectual property rights, and limitations on our ability to assert our intellectual property rights against others, could harm our business and our ability to compete.
Also, obtaining, maintaining and enforcing our intellectual property rights is costly and time consuming. Any increase in the unauthorized use of our intellectual property
could make it more expensive to dowould adversely impact our business,
financial condition and
harm our operating results.
Many of our products and services contain open source software, and we license some of our software through open source projects, which may pose particular risks to our proprietary software, products, and services in a manner that could adversely impact our business.
We use open source software in our products and services and will use open source software in the future. In addition, we regularly contribute software source code to open source projects under open source licenses or release internal software projects under open source licenses, and anticipate doing so in the future. The terms of many open source licenses to which we are subject have not been interpreted by U.S. or foreign courts, and there is a risk that open source software licenses could be construed in a manner that imposes unanticipated conditions or restrictions on our ability to provide or distribute our products or services. Additionally, under some open source licenses, if we combine our proprietary software with open source software in a certain manner, third parties may claim ownership of, or demand release of, the open source software or derivative works that we developed using such software, which could include our proprietary source code. Such third parties may also seek to enforce the terms of the applicable open source license through litigation which, if successful, could require us to make our proprietary software source code freely available, purchase a costly license or cease offering the implicated products or services unless and until we can re-engineer them to avoid infringement. This re-engineering process could require significant additional research and development resources, and we may not be able to complete it successfully. In addition to risks related to open source license requirements, use of certain open source software may pose greater risks than use of third-party commercial software, since open source licensors generally do not provide warranties or controls on the origin of software. Any of these risks could be difficult to eliminate or manage, and, if not addressed, could adversely impact our business, financial condition and operating results.
We are currently, and expect to be in the future, party to intellectual property rights claims that are expensive and time consuming to defend, and, if resolved adversely,
could have a significantwould adversely impact
on our business, financial condition
orand operating results.
Companies in the internet, technology and media industries are subject to litigation based on allegations of infringement, misappropriation or other violations of intellectual property or other rights. Many companies in these industries, including many of our competitors, have substantially larger patent and intellectual property portfolios than we do, which could make us a target for litigation as we may not be able to assert counterclaims against parties that sue us for patent, or other intellectual property infringement. In addition, various “non-practicing entities” that own patents and other intellectual property rights often attempt to assert claims in order to extract value from technology companies. From time to time we receive claims from third parties which allege that we have infringed upon their intellectual property rights. Further, from time to time we may introduce new products, product features and services, including in areas where we currently do not have an offering, which could increase our exposure to patent and other intellectual property claims from competitors and non-practicing entities. In addition, although our standard terms and conditions for our Promoted Products and public APIs do not provide advertisers and platform partners with indemnification for intellectual property claims against them, some of our agreements with advertisers, content partners, platform partners and data partners require us to indemnify them for certain intellectual property claims against them, which could require us to incur considerable costs in defending such claims, and may require us to pay significant damages in the event of an adverse ruling. Such advertisers, content partners, platform partners and data partners may also discontinue use of our products, services and technologies as a result of injunctions or otherwise, which could result in loss of revenue and adversely impact our business.
We presently are involved in a number of intellectual property lawsuits, and as we face increasing competition and develop new products, we expect the number of patent and other intellectual property claims against us may grow. There may be intellectual property or other rights held by others, including issued or pending patents, that cover significant aspects of our products and services, and we cannot be sure that we are not infringing or violating, and have not infringed or violated, any third-party intellectual property rights or that we will not be held to have done so or be accused of doing so in the future. Any claim or litigation alleging that we have infringed or otherwise violated intellectual property or other rights of third parties, with or without merit, and whether or not settled out of court or determined in our favor, could be time-consuming and costly to address and resolve, and could divert the time and attention of our management and technical personnel. Some of our competitors have substantially greater resources than we do and are able to sustain the costs of complex intellectual property litigation to a greater degree and for longer periods of time than we could. The outcome of any litigation is inherently uncertain, and there can be no assurances that favorable final outcomes will be obtained in all cases. In addition, plaintiffs may seek, and we may become subject to, preliminary or provisional rulings in the course of any such litigation, including potential preliminary injunctions requiring us to cease some or all of our operations. We may decide to settle such lawsuits and disputes on terms that are unfavorable to us. Similarly, if any litigation to which we are a party is resolved adversely, we may be subject to an unfavorable judgment that may not be reversed upon appeal. The terms of such a settlement or judgment may require us to cease some or all of our operations or pay substantial amounts to the other party. In addition, we may have to seek a license to continue practices found to be in violation of a third-party’s rights. If we are required, or choose to enter into royalty or licensing arrangements, such arrangements may not be available on reasonable terms, or at all, and may significantly increase our operating costs and expenses. As a result, we may also be required to develop or procure alternative non-infringing technology, which could require significant effort and expense or discontinue use of the technology. An unfavorable resolution of the disputes and litigation referred to above couldwould adversely affectimpact our business, financial condition and operating results.
Regulatory and Legal
Our business is subject to complex and evolving U.S. and foreign laws and regulations. These laws and regulations are subject to change and uncertain interpretation, and could result in claims, changes to our business practices, monetary penalties, increased cost of operations or declines in mDAU growth, mDAU engagement or ad engagement, or otherwise harm our business.
We are subject to a variety of laws and regulations in the United States and abroad that involve matters central to our business, including privacy, data protection, cybersecurity, advertising, rights of publicity, content regulation, intellectual property, competition, protection of minors, consumer protection, provision of online payment services and credit card processing, securities law compliance, and taxation, as well as laws and regulations regarding the environment and climate change. For example, new content regulation laws may affect our ability to operate in certain markets and/or subject us to significant fines or penalties. Compliance with these laws may be onerous and/or inconsistent with our work to serve the public conversation. Many of our productsthese laws and services contain open source software,regulations are still evolving and we license some of our software through open source projects, whichbeing tested in courts and new laws and regulations are being proposed. As a result, it is possible that these laws and regulations may pose particular risks to our proprietary software, products,be interpreted and servicesapplied in a manner that is inconsistent from country to country and inconsistent with our current policies and practices and in ways that could harm our business, particularly in the new and rapidly evolving industry in which we operate. Additionally, the introduction of new products or services may subject us to additional laws and regulations.
From time to time, governments, regulators and others have
expressed concerns about whether our products, services or practices compromise the privacy or data protection rights of the people on Twitter and others. While we strive to comply with applicable laws and regulations relating to privacy, data protection and cybersecurity, our privacy policies and other obligations we may have with respect to privacy, data protection and cybersecurity, the failure or perceived failure to comply may result, and in some cases has resulted, in inquiries and other proceedings or actions against us by governments, regulators or others. A number of proposals have recently been adopted or are currently pending before federal, state and foreign legislative and regulatory bodies that could significantly affect our business. For example, the California Consumer Privacy Act (CCPA) requires, among other things, covered companies to provide disclosures to California consumers and afford such consumers the ability to opt-out of certain sales of personal information. Similar legislation has been proposed or adopted in other states. Additionally, the California Privacy Rights Act (CPRA) created obligations relating to consumer data beginning on January 1, 2022, with implementing regulations expected on or before July 1, 2022, and enforcement beginning July 1, 2023. On March 2, 2021, Virginia enacted the Virginia Consumer Data Protection Act, or CDPA, a
negativecomprehensive privacy statute that becomes effective on January 1, 2023, and on June 8, 2021, Colorado enacted the Colorado Privacy Act, or CPA, which takes effect on
July 1, 2023. The CDPA and CPA share similarities with the CCPA, CPRA, and legislation proposed in other states. Aspects of the CCPA, the CPRA and these other state laws and regulations, as well as their enforcement, remain unclear, and we may be required to modify our
business.We use open source softwarepractices in our productsan effort to comply with them. Moreover, foreign data protection, privacy, cybersecurity, and servicesother laws and will use open source softwareregulations are often more restrictive or burdensome than those in the future. In addition,United States. For example, the GDPR imposes stringent operational requirements for entities processing personal information and significant penalties for non-compliance, including fines of up to €20 million or 4% of total worldwide revenue, whichever is higher. Additionally, we regularly contribute software source codehave historically relied upon a variety of legal bases to open source projects under open source licensestransfer certain personal information outside of the European Economic Area (EEA), including the EU-U.S. Privacy Shield Framework, the Swiss-U.S. Privacy Shield Framework, and EU Standard Contractual Clauses (SCCs). These legal bases all have been, and may be, the subject of legal challenges and on July 16, 2020, the Court of Justice of the European Union (CJEU) invalidated the U.S.-EU Privacy Shield framework and imposed additional obligations on companies when relying on the SCCs. The Swiss-U.S. Privacy Shield framework subsequently was invalidated by the Swiss Federal Data Protection and Information Commissioner. These developments may result in different EEA data protection regulators applying differing standards for, or release internal software projects under open source licenses,require ad hoc verification of measures taken with respect to, certain data flows. The CJEU’s decision, the European Commission’s issuance of new SCCs in June 2021, the use of which was required in connection with new contracts and anticipate doing sonew personal data processing operations as of September 27, 2021, continued guidance from the European Commission and European Data Protection Board (EDPB) , and other developments with regard to cross-border data transfers may require us to take additional steps to legitimize impacted personal data transfers, and we may find it necessary or desirable to modify our data handling practices in the future. The termsconnection with these or future legal challenges or other developments relating to cross-border data transfers. This could result in additional contractual negotiations and increased costs of many open source licensescompliance and limitations on our customers, vendors, and us. This CJEU decision and related developments, or future legal challenges or other developments, also could result in us being required to which we are subject have not been interpreted by U.S.implement duplicative, and potentially expensive, information technology infrastructure and business operations in Europe or foreign courts, and there is a risk that open source software licenses could be construed in a manner that imposes unanticipated conditions or restrictions onlimit our ability to providecollect or distributeprocess personal information in Europe, and may serve as a basis for our productspersonal data handling practices, or services. Additionally, we maythose of our customers and vendors, to be challenged. Moreover, the GDPR and other similar regulations require companies to give specific types of notice and in some cases seek consent from time to time face claims from third parties claiming ownership of,consumers and other data subjects before collecting or demanding release of, the open source software or derivative works that we developed using such software, which could include our proprietary source code, or otherwise seeking to enforce the terms of the applicable open source license. These claims could result in litigation and could require us to make our software source code freely available, purchase a costly license or cease offering the implicated products or services unless and until we can re-engineer them to avoid infringement. This re-engineering process could require significant additional research and development resources, and we may not be able to complete it successfully.their data for certain purposes, including some marketing activities. In addition to risks relatedthe GDPR, the European Commission has another draft regulation in the approval process that focuses on a person’s right to license requirements,conduct a private life. The proposed legislation, known as the Regulation of Privacy and Electronic Communications (ePrivacy Regulation), would replace the current ePrivacy Directive. Originally planned to be adopted and implemented at the same time as the GDPR, the ePrivacy Regulation is still being negotiated. Most recently, on February 10, 2021, the Council of the EU agreed on its version of the draft ePrivacy Regulation. If adopted, the earliest date for entry into force is in 2023, with broad potential impacts on the use of certain open source software may pose greater risks than useinternet-based services and tracking technologies, such as cookies. Aspects of third-party commercial software, as open source licensors generally do not provide warranties or controls on the origin of software.ePrivacy Regulation remain for negotiation between the European Commission and the Council. Any of these riskschanges or other developments with respect to EU data protection law could be difficult to eliminate or manage,disrupt our business and if not addressed, could have a negative effect onotherwise adversely impact our business, financial condition and operating results.
Further, the UK officially left the EU in 2020 (often referred to as Brexit). The full effect of Brexit remains uncertain, but Brexit creates economic and legal uncertainty in the region and could adversely affect the tax, currency, operational, legal and regulatory regimes to which our business is subject, including with respect to privacy and data protection. Brexit may adversely affect our revenues and subject us to new regulatory costs and challenges, in addition to other adverse effects that we are unable effectively to anticipate. The UK has implemented a Data Protection Act, and legislation referred to as the UK GDPR, that substantially implement the GDPR, with penalties for noncompliance of up to the greater of £17.5 million or four percent of worldwide revenues. On June 28, 2021, the European Commission adopted an adequacy decision with respect to the UK, which allows cross-border data transfers from the EEA to the UK for a four-year period, subject to renewal and the potential for earlier modification or termination. Nevertheless, substantial uncertainty remains regarding future regulation of data protection in the UK, and we may face challenges and significant costs and expenses in addressing applicable requirements and making necessary changes to our policies and practices.
Legislative changes in the United States, at both the federal and state level, could impose new obligations in areas such as moderation of content posted on assumptionsour platform by third parties, including with respect to requests for removal based on claims of copyright. Further, there are various Executive and estimatesCongressional efforts to calculate certainrestrict the scope of the protections from legal liability for content moderation decisions and third-party content posted on online platforms that are currently available to online platforms under Section 230 of the Communications Decency Act, and our current protections from liability for content moderation decisions and third-party content posted on our platform in the United States could decrease or change, potentially resulting in increased liability for content moderation decisions and third-party content posted on our platform and higher litigation costs. Additionally, recent amendments to U.S. patent laws may affect the ability of companies, including us, to protect their innovations and defend against claims of patent infringement.
In April 2019, the EU passed the Directive on Copyright in the Digital Single Market (the EU Copyright Directive), which expands the liability of online platforms for third-party content posted on the platform. Each EU member state had two years to implement it, with a deadline of June 7, 2021, though implementation has been delayed in several EU member states. The EU Copyright Directive may increase our costs of operations, our liability for third-party content posted on our platform, and our litigation costs.
Additionally, we have relationships with third parties that perform a variety of functions such as payments processing, tokenization, vaulting, currency conversion, fraud prevention and cybersecurity audits. The laws and regulations related to online payments and other activities of these third parties, including those relating to the processing of data, are complex, subject to change, and vary across different jurisdictions in the United States and globally. As a result, we may be required to spend significant time, effort and expense to comply with applicable laws and regulations. Any failure or claim of our
key metrics,failure to comply, or any failure or claim of failure by the above-mentioned third parties to comply, could increase our costs or could result in liabilities. Additionally, because we accept payment via credit cards, we are subject to global payments industry operating rules and
real or perceived inaccuraciescertification requirements governed by the PCI Security Standards Council, including the Payment Card Industry Data Security Standard. Any failure by us to comply with these operating rules and certification requirements also may result in
such metricscosts and liabilities and may
harm our reputation and negatively affect our business.The number of our active users is calculated using internal company data that has not been independently verified. While these numbers are based on what we believe to be reasonable calculations for the applicable period of measurement, there are inherent challengesresult in measuring usage and user engagement across our large user base around the world. For example, there are a number of false or spam accounts in existence on our platform. We estimate that the average of false or spam accounts during the fourth quarter of 2018 continued to represent fewer than 5% of our MAUs and mDAUs during the quarter. However, this estimate is based on an internal review of a sample of accounts and we apply significant judgment in making this determination. As such, our estimation of false or spam accounts may not accurately represent the actual number of such accounts, and the actual number of false or spam accounts could be higher than we have currently estimated. We are continually seeking to improveus losing our ability to estimate the total number of spam accountsaccept certain payment cards. We recently announced new subscription and eliminate them from the calculation of our active users, butpaid features on Twitter. Depending on how these products and features evolve, we otherwise treat multiple accounts held by a single person or organization as multiple users for purposes of calculating our active users because we permit people and organizations to have more than one account. Additionally, some accounts used by organizations are used by many people within the organization. As such, the calculations of our active users may not accurately reflect the actual number of people or organizations using our platform. Further, we rely on third-party SMS aggregators and mobile carriers to deliver SMS messages to certain of our MAUs. If, however, we are notified of material deliverability issues because of, for example, infrastructure issues at the service-provider level or governmental restrictions based on content, we do not include the affected users in MAUs. We may also discover unexpected errors in our internal data that resulted from technicalbe subject to other laws and regulations related to online payments, money transmission, prepaid access, electronic fund transfers or other errors. For example, in 2017,financial laws or regulations, and we discovered that sincemay need to register as a money services business with the fourth quarter of 2014 we had included users of certain third-party applications as Twitter MAUs that should not have been considered MAUs. These third-party applications used Digits, a software development kit of our now-divested Fabric platform that allowed third-party applications to send authentication messages via SMS through our systems, which did not relate to activity on the Twitter platform. Although the changeU.S. Treasury Department and obtain state money transmitter licenses in the MAUs was relatively smallUnited States and an Electronic Money (E-money) license in relationthe EEA to permit us to conduct certain activities. These licenses and other legal requirements will generally require us to demonstrate compliance with many domestic and foreign laws in these areas, including anti-money laundering, counter-terrorist financing, government sanctions, cybersecurity, privacy, and consumer protection laws, and failure to do so may limit our overall MAU numbers, we may face increased scrutiny on the calculation of our key metricsability to offer these products and features as a result of the error.
Our calculations of MAUthey evolve.
The U.S. and foreign laws and regulations described above, as well as any associated inquiries or investigations or any other regulatory actions, may be
affected by mobile applications that automatically contact our servers for regular updatesonerous and costly to comply with
no discernable user-initiated action involved, and this activity can cause our system to count the user associated with such a device as an active user on the day such contact occurs. The impact of this automatic activity on MAU varies by geography because mobile application usage varies in different regions of the world. In addition, our data regarding user geographic location is based on the IP address or phone number associated with the account when a user initially registered the account on Twitter. That IP address or phone number may not always accurately reflect a user’s actual location at the time of such user’s engagement on our platform.We regularly review and may adjust our processes for calculating our internal metricsbe inconsistent from jurisdiction to improve their accuracy. Our measuresjurisdiction, further increasing the cost of user growthcompliance and user engagementdoing business. Any such costs may differ from estimates published by third partiesdelay or from similarly-titled metricsimpede the development of our competitors due to differences in methodology. If advertisers, content or platform partners or investors do not perceive our user metrics to be accurate representations of our user base or user engagement, or if we discover material inaccuracies in our user metrics, our reputation may be harmed and content partners, advertisers and platform partners may be less willing to allocate their budgets or resources to ournew products and services, which could negatively affectresult in negative publicity, increase our operating costs, require significant management time and attention, and subject us to remedies that may result in a loss of mDAU or advertisers and otherwise harm our business, including fines or demands or orders that we modify or cease existing business practices.
We currently allow use of our platform without the collection of extensive personal information. We may experience additional pressure to expand our collection of personal information in order to comply with new and operating results. Further, asadditional legal or regulatory demands or we may independently decide to do so. If we obtain such additional personal information, we may be subject to additional legal or regulatory obligations.
Regulatory investigations and settlements could cause us to incur additional expenses or change our business develops,practices in a manner material and adverse to our business.
From time to time we may revisenotify the Irish Data Protection Commission and other regulators of certain personal data breaches and privacy, cybersecurity or cease reporting metrics if we determine that such metricsdata protection issues, and are no longer accurate or appropriate measuressubject to inquiries and investigations regarding various aspects of our performance. For example, we believe that mDAU, and its related growth,regulatory compliance. We are currently the best wayssubject of inquiries by the Irish Data Protection Commission with respect to measure our success against our objectives and to showcompliance with the size of our audience and engagement going forward, so we will discontinue disclosing MAU after the first quarter of 2019.GDPR. In the past, we also stopped disclosing timeline viewshave been subject to regulatory investigations and orders, and we expect to continue to be subject to regulatory scrutiny as we no longer believed that metric was helpful in measuring engagement on our platform. If investors, analysts or customers do not believe our reported measures, such as mDAU, are sufficient or accurately reflect our business grows and awareness of our brand increases.
In March 2011, to resolve an investigation into various incidents, we
may receive negative publicityentered into a consent order with the FTC that, among other things, required us to establish an information security program designed to protect non-public consumer information and
our operating results mayalso requires that we obtain biennial independent security assessments. The obligations under the consent order remain in effect until the later of March 2, 2031, or the date 20 years after the date, if any, on which the U.S. government or the FTC files a complaint in federal court alleging any violation of the order. We expect to continue to be
harmed.
We rely in part on application marketplacesthe subject of regulatory inquiries, investigations and Internet search engines to drive traffic to our products and services, and if we fail to appear high upaudits in the search resultsfuture by the FTC and other regulators around the world. Violation of existing or rankings, trafficfuture regulatory orders, settlements or consent decrees could subject us to our platform could declinesubstantial fines, penalties and our business and operating results could be adversely affected.
We rely on application marketplaces, such as Apple’s App Store and Google’s Play, to drive downloads of our mobile applications. In the future, Apple, Google or other operators of application marketplaces may make changes to their marketplaces which make access to our products and services more difficult or limit our use of data to provide targeted advertising. We also depend in part on Internet search engines, such as Google, Apple Spotlight, Bing and Yahoo, to drive traffic to our website. For example, when a user types an inquiry into a search engine, we rely on a high organic search result ranking of our webpages in these search results to refer the user to our website. However, our ability to maintain high organic search result rankings is not within our control. Our competitors’ search engine optimization, or SEO, efforts may result in their websites receiving a higher search result page ranking than ours, or Internet search engines could revise their methodologies in a waycosts that would adversely affect our search result rankings. If internet search engines modify their search algorithms in ways that are detrimental to us, or if our competitors’ SEO efforts are more successful than ours, the growth in our user base could slow. Our website has experienced fluctuations in search result rankings in the past, and we anticipate similar fluctuations in the future. Any reduction in the number of users directed to our mobile applications or website through application marketplaces and search engines could harm our business and operating results.
Users increasingly access our products and services through mobile and alternative devices, and we need to continue to promote the adoption of our mobile applications, and our business and operating results may be harmed if we are unable to do so.
In the three months ended December 31, 2018, 93% of our advertising revenue was generated from mobile devices. Since we generate a majority of our advertising revenue through users on mobile devices, we must continue to drive adoption of our mobile applications. However, in emerging markets like India and Pakistan, a significant portion of users use feature phones and communicate via SMS messaging, both of which have limited functionality and neither of which may be able to take full advantage of our products and services offered on smartphone or our website or desktop applications. In addition, mobile users frequently change or upgrade their mobile devices. Our business and operating results may be harmed if our users do not install our mobile application when they change or upgrade their mobile device. Although we generate the majority of our advertising revenue from ad engagements on mobile devices, certain of our products and services, including Promoted Trends and Promoted Accounts, receive less prominence on our mobile applications than they do on our desktop applications. This has in the past reduced, and may in the future continue to reduce, the amount of revenue we are able to generate from these products and services as users increasingly access our products and services through mobile and alternative devices. In addition, as new devices and platforms are continually being released, users may consume content in a manner that is more difficult to monetize. If we are unable to develop products and services that are compatible with new devices and platforms, or if we are unable to drive continued adoption of our mobile applications, our business and operating results may be harmed.
Acquisitions, divestitures and investments could disrupt our business and harmimpact our financial condition and operating results.
Our success will depend, For example, on July 28, 2020, we received a draft complaint from the FTC alleging violations of the 2011 consent order with the FTC and the FTC Act. The allegations relate to our use of phone number and/or email address data provided for safety and security purposes for targeted advertising during periods between 2013 and 2019. We estimate that the range of probable loss in part, onthis matter is $150.0 million to $250.0 million. The matter remains unresolved, and there can be no assurance as to the timing or the terms of any final outcome.
It is possible that a regulatory inquiry, investigation or audit could cause us to incur substantial fines and costs, result in reputational harm, prevent us from offering certain products, services, features or functionalities, require us to change our ability to expandpolicies or practices, divert management and other resources from our business, or otherwise materially and adversely impact our business, financial condition and operating results.
We may face lawsuits or incur liability as a result of content published or made available through our products product featuresand services.
We have faced and will continue to face claims relating to content that is published or made available through our products and services
and growor third-party products or services. In particular, the nature of our business
in responseexposes us to
changing technologies, userclaims related to defamation, intellectual property rights, rights of publicity and
advertiser demands,privacy, illegal content, misinformation, content regulation and
competitive pressures. In some circumstances, we may determinepersonal injury torts. The laws relating to
do so through the
acquisitionliability of
complementary businesses and technologies rather than through internal development, including, for example, our acquisitionsproviders of
Periscope, a live-streaming video mobile application, and MoPub, a mobile-focused advertising exchange. The identification of suitable acquisition candidates can be difficult, time-consuming and costly, and we may not be able to successfully complete identified acquisitions. The risks we face in connection with acquisitions include:diversion of management time and focus from operating our business to addressing acquisition integration challenges;
retention of key employees from the acquired company;
cultural challenges associated with integrating employees from the acquired company into our organization;
integration of the acquired company’s accounting, management information, human resources and other administrative systems and processes;
| •
| the need to implement or improve controls, procedures, and policies at a business that prior to the acquisition may have lacked effective controls, procedures and policies;
|
liabilityonline products or services for activities of the acquired company beforepeople who use them remains somewhat unsettled, both within the acquisition, including intellectual property infringement claims, violationsUnited States and internationally. For example, there are various Executive and Congressional efforts to restrict the scope of the protections from legal liability for content moderation decisions and third-party content posted on online platforms that are currently available to online platforms under Section 230 of the Communications Decency Act, and our current protections from liability for content moderation decisions and third-party content posted on our platform in the United States could decrease or change, potentially resulting in increased liability for content moderation decisions and third-party content posted on our platform and higher litigation costs. This risk may be enhanced in certain jurisdictions outside the United States where we may be less protected under local laws commercial disputes, tax liabilities and other known and unknown liabilities;
unanticipated write-offs or charges; and
litigation or other claimsthan we are in connection with the acquired company, including claims from terminated employees, users, former stockholders or other third parties.
OurUnited States. For example, we are subject to legislation in Germany that may impose significant fines for failure to address these riskscomply with certain content removal and disclosure obligations. Other countries, including Brazil, Turkey, Singapore, India, Australia, and the United Kingdom, have implemented or other problems encountered in connection withare considering similar legislation imposing penalties for failure to remove certain types of content. In addition, the public nature of communications on our past or future acquisitions and investments could causeplatform exposes us to failrisks arising from the creation of impersonation accounts intended to realize the anticipated benefitsbe attributed to people on Twitter or our advertisers. We could incur significant costs investigating and defending these claims. If we incur material costs or liability as a result of these acquisitions or investments, cause us to incur unanticipated liabilities, and harmoccurrences, our business, generally. Future acquisitions could also result in dilutive issuances of our equity securities, the incurrence of debt, contingent liabilities, amortization expenses, incremental operating expenses or the impairment of goodwill, any of which could harm our financial condition orand operating results.
We also make investments in privately-held companies in furtherance of our strategic objectives. We may not realize a return and may recognize a loss on such investments. Many of the instruments in which we invest are non-marketable at the time of our initial investment. Companies in which we invest range from early-stage companies still defining their strategic direction to more mature companies with established revenue streams and business models. The success of our investment in any company is typically dependent on the availability to the company of additional funding on favorable terms, or a liquidity event, such as a public offering or acquisition. If any of the companies in which we invest decrease in value, we could lose all or part of our investment. For example, in the year ended December 31, 2017, we recorded a $62.4 million impairment charge relating to an investment in a privately-held company.
In certain cases, we have also divested or stopped investing in certain products, including products that we acquired. For instance, in January 2017, we divested certain assets related to our Fabric platform. In 2017, we also deprecated certain of our revenue products, including TellApart, which was acquired in 2015. In these cases, we have needed to and may, in the future, need to restructure operations, terminate employees and/or incur other expenses. We may not realize the expected benefits and cost savings of these actions and our results maywould be harmed.
adversely impacted.
If we fail to maintain an effective system of disclosure controls and internal control over financial reporting, our ability to produce timely and accurate financial statements or comply with applicable regulations could be impaired.
As a public company, we are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act, the Sarbanes-Oxley Act of 2002, as amended, or the Sarbanes-Oxley Act, and the listing standards of the New York Stock Exchange. The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting. In order to maintain and improve the effectiveness of our disclosure controls and procedures and internal control over financial reporting, we have expended, and anticipate that we will continue to expend, significant resources, including accounting-related costs and significant management oversight.
Any failure to develop or maintain effective controls, or any difficulties encountered in their implementation or improvement, could cause us to be subject to one or more investigations or enforcement actions by state or federal regulatory agencies, stockholder lawsuits or other adverse actions requiring us to incur defense costs, pay fines, settlements or judgments. Any such failures could also cause investors to lose confidence in our reported financial and other information, which would likely have a negative effect on the trading price of our common stock. In addition, if we are unable to continue to meet these requirements, we may not be able to remain listed on the New York Stock Exchange.
Our inability to obtain insurance at acceptable rates fluctuate substantiallyor our failure to adequately reserve for self-insured exposures may negatively impact our business, financial condition and operating results.
We maintain insurance coverage, but these policies do not cover all of our potential losses, costs, or liabilities. Our ability to purchase and maintain insurance policies for various aspects of our business may be affected by conditions in the insurance market or other factors over which we have no control. Costs and premiums for insurance have increased over time, and insurance coverage for all types of risk is becoming more restrictive, and, in many cases, subject to higher deductibles or retentions. It has and may continue to become more difficult to maintain insurance coverage at historic levels, and at reasonable costs. Accordingly, we may determine that we cannot obtain insurance at acceptable rates, or at all. In some cases, we have chosen, and may in the future choose, to forego or limit our purchase of insurance for certain business risks, electing instead to self-insure for all or a portion of potential liabilities. We record reserves for potential liability based on historical experience. However, if a significant loss, judgment, claim or other event is not covered by insurance or exceeds our self-insurance reserves, the loss and related expenses could harm our business, financial condition and operating results,results.
Financial and Transactional Risks
Acquisitions, divestitures and investments could disrupt our business and harm our financial condition and operating results.
Our success will depend, in part, on our ability to expand our products, product features and services, and grow our business in response to changing technologies, demands of people on Twitter and our advertisers and competitive pressures. In some circumstances, we may determine to do so through the acquisition of complementary businesses and technologies rather than through internal development. The identification of suitable acquisition candidates can be difficult, time-consuming and costly, and we may not be able to successfully complete identified acquisitions. The risks we face in connection with acquisitions include:
•diversion of management time and focus from operating our business to addressing acquisition integration challenges;
•retention of key employees from the acquired company;
•cultural challenges associated with integrating employees from the acquired company into our organization;
•integration of the acquired company’s accounting, management information, human resources and other administrative systems and processes;
•the need to implement or improve controls, procedures, and policies at a business that prior to the acquisition may have lacked effective controls, procedures and policies;
•liability for activities of the acquired company before the acquisition, including intellectual property infringement claims, violations of laws, commercial disputes, tax liabilities and other known and unknown liabilities;
•unanticipated write-offs or charges; and
•litigation or other claims in connection with the acquired company, including claims from terminated employees, former stockholders or other third parties.
Our failure to address these risks or other problems encountered in connection with our past or future acquisitions and investments could cause us to fail to realize the anticipated benefits of these acquisitions or investments, cause us to incur unanticipated liabilities, and harm our business generally. Future acquisitions could also result in dilutive issuances of our equity securities, the incurrence of debt, contingent liabilities, amortization expenses, incremental operating expenses or the impairment of assets, any of which could adversely impact our financial condition and operating results.
We also make investments in privately-held companies in furtherance of our strategic objectives. Many of the instruments in which we invest are reportednon-marketable at the time of our initial investment. We may not realize a return and may recognize a loss on such investments.
In certain cases, we have also divested or stopped investing in
U.S. dollars,certain businesses or products, including products that we acquired, and we may continue to do so. For example, in January 2022, we completed the sale of our MoPub business. The sale of a business or product line may require us to restructure operations and/or terminate employees, and could
be adversely affected.Our international operations expose us to unanticipated ongoing obligations and liabilities, including as a result of our indemnification obligations. Additionally, such transactions could disrupt our customer, supplier and/or employee relationships and divert management and our employees’ time and attention. During the effectspendency of fluctuations in currency exchange rates. We incur expenses for employee compensation and other operating expenses at our international locationsa divestiture, we may be subject to risks related to a decline in the local currency,business, loss of employees, customers, or suppliers, and accept payment from advertisers or data partners in currencies other thanthat the U.S. dollar. Since we conduct business in currencies other than U.S. dollars but report our operating results in U.S. dollars, we face exposure to fluctuations in currency exchange rates. While we enter into foreign currency forward contracts with financial institutions to reduce the risk that our earningstransaction may be adversely affected by the impact of exchange rate fluctuations on monetary assets or liabilities denominated in currencies other than the functional currency of a subsidiary, exchange rate fluctuations between the U.S. dollar and other currenciesnot close, which could have a material and adverse effect on the business to be divested and on us. If a divestiture is not completed for any reason, we may not be able to find a buyer on the same terms. If we decide to sell a business or product line, we may experience difficulty separating out portions of or entire businesses, incur additional expenses and potential loss of revenue or experience a negative impact on margins. Ultimately, we may experience harm to our financial results, including loss of revenue, and we may not realize the expected benefits and cost savings of these actions and our operating results.
Weresults may not have sufficient cash on hand or the ability to raise the funds necessary for cash settlement upon conversion ofbe adversely impacted.
Our debt obligations could adversely affect our
convertible senior notes, to repurchase such notes for cash upon a fundamental change, or repay the Notes at their maturity, and our future debt may contain limitations on our ability to pay cash upon conversion or repurchase of such notes.financial condition.
In
2014, we issued $935.0 million in aggregate principal amount of 0.25% convertible senior notes due 2019, or the 2019 Notes, and $954.0 million in aggregate principal amount of 1.00% convertible senior notes due 2021, or the 2021 Notes, in private placements to qualified institutional buyers. In June 2018, we issued
an additional $1.15 billion in aggregate principal amount of 0.25% convertible senior notes due 2024,
whichor the 2024 Notes. In 2019, we issued $700.0 million in aggregate principal amount of 3.875% senior notes due 2027, or the 2027 Notes. In 2020, we issued $1.0 billion in aggregate principal amount of 0.375% convertible senior notes due 2025, or the 2025 Notes. In March 2021, we issued $1.44 billion in aggregate principal amount of 0% convertible senior notes due 2026, or the 2026 Notes. We refer to the 2024 Notes, the 2025 Notes, and the 2026 Notes as the Convertible Notes, and we refer to
as the
Notes when taken together with the 2019Convertible Notes and the
20212027 Notes
in a private placement to qualified institutional buyers.as the Notes. As of December 31,
2018,2021, we had
a total par value$4.29 billion in aggregate principal amount of
$3.04 billionNotes outstanding and an undrawn unsecured revolving credit facility providing for loans in the aggregate principal amount of
outstanding Notes.Holders of the Notes will have the right under the relevant indenture governing the Notes to $500.0 million.
Our debt obligations could adversely impact us. For example, these obligations could:
•require us to repurchase all oruse a substantial portion of theirour cash flow from operations to pay principal and interest on debt, including the Notes, or to repurchase our Notes when required upon the occurrence of a fundamentalcertain change beforeof control events or otherwise pursuant to the relevant maturity date, in each case at a repurchase price equal to 100% ofterms thereof, which will reduce the principal amount of the respective services of Notes, plus accruedcash flow available to fund working capital, capital expenditures, acquisitions, and unpaid interest, if any,other business activities;
•require us to the fundamental change repurchase date. In addition, upon conversion of the Notes, unless we elect to deliver solelyuse cash and/or issue shares of our common stock to settle suchany conversion (other than paying cashobligations of the Convertible Notes;
•result in lieucertain of delivering any fractional shares), we will be required to make cash payments in respect ofour debt instruments, including the Notes, being converted. Moreover, weaccelerated or being deemed to be in default if certain terms of default are triggered, such as applicable cross payment default and/or cross-acceleration provisions;
•adversely impact our credit rating, which could increase future borrowing costs;
•limit our future ability to raise funds for capital expenditures, strategic acquisitions or business opportunities, and other general corporate requirements;
•restrict our ability to create or incur liens and enter into sale-leaseback financing transactions;
•increase our vulnerability to adverse economic and industry conditions;
•with respect to indebtedness other than the Notes, increase our exposure to interest rate risk from variable rate indebtedness;
•dilute our earnings per share as a result of the conversion provisions in the Convertible Notes; and
•place us at a competitive disadvantage compared to our less leveraged competitors.
Our ability to meet our payment obligations under our debt instruments depends on our ability to generate significant cash flows in the future. This, to some extent, is subject to market, economic, financial, competitive, legislative, and regulatory factors as well as other factors that are beyond our control. There can be no assurance that our business will generate cash flow from operations, or that additional capital will be
requiredavailable to
repay the Notesus, in
cash at their maturity, unless earlier converted or repurchased. However, weamounts sufficient to enable us to meet our debt payment obligations and to fund other liquidity needs. Additionally, events and circumstances may
occur which would cause us to not
have sufficient available cash on hand or be able to
obtain financing at the timesatisfy applicable draw-down conditions and utilize our revolving credit facility. If we are
requiredunable to
makegenerate sufficient cash
settlement upon conversion of the Notes, repurchase the Notes upon a fundamental change, or repay the Notes at their maturity. In addition,flows to service our
ability to repurchase the Notes or pay cash due upon conversions of the Notesdebt payment obligations, we may
be limited by law, regulatory authority or agreements governing our future indebtedness.Our abilityneed to refinance the Notes, make cash payments in connection with conversionsor restructure our debt, sell assets, reduce or delay capital investments, or seek to raise additional capital. If we are unable to implement one or more of the Notes, repurchase the Notes in the event of a fundamental change, or repay the Notes at their maturity will depend on market conditions and our future performance, which is subject to economic, financial, competitive and other factors beyond our control. We also may not use the cash we have raised through the issuance of the Notes in an optimally productive and profitable manner. Since inception we have incurred significant operating losses and we historically had not been cash flow positive and may not be in the future. As a result, we may not have enough available cash or be able to obtain financingthese alternatives on commercially reasonable terms or at all, at the time we are required to make repurchases of notes surrendered therefor or pay cash with respect to notes being converted or at their maturity and our level of indebtedness could adversely affect our future operations by increasing our vulnerability to adverse changes in general economic and industry conditions and by limiting or prohibiting our ability to obtain additional financing for future capital expenditures, acquisitions and general corporate and other purposes. In addition, if we aremay be unable to make cash payments upon conversion of the Notes we would be required to issue significant amounts ofmeet our common stock,debt payment obligations, which would be dilutive to existing stockholders. If we do not have sufficient cash to repurchase the Notes following a fundamental change or repay the Notes at their maturity, we would be in default under the terms of the Notes, which could seriously harm our business. In addition, the terms of the Notes do not limit the amount of future indebtedness we may incur. If we incur significantly more debt, this could intensify the risks described above.
Our business is subject to the risks of earthquakes, fire, power outages, floodsmaterially and other catastrophic events, and to interruption by man-made problems such as terrorism.
A significant natural disaster, such as an earthquake, fire, flood or significant power outage could have a material adverseadversely impact on our business, financial condition and operating results, and financial condition. Our headquarters and certainresults.
Table of our co-located data center facilities are located in the San Francisco Bay Area, a region known for seismic activity. Despite any precautions we may take, the occurrence of a natural disaster or other unanticipated problems at our data centers could result in lengthy interruptions in our services. In addition, acts of terrorism and other geo-political unrest could cause disruptions in our business. All of the aforementioned risks may be further increased if our disaster recovery plans prove to be inadequate. We have implemented a disaster recovery program, which allows us to move production to a back-up data center in the event of a catastrophe. Although this program is functional, we do not currently serve network traffic equally from each data center, so if our primary data center shuts down, there will be a period of time that our products or services, or certain of our products or services, will remain inaccessible to our users or our users may experience severe issues accessing our products and services.We do not carry business interruption insurance sufficient to compensate us for the potentially significant losses, including the potential harm to our business that may result from interruptions in our ability to provide our products and services.
Contents
We may have exposure to greater than anticipated tax liabilities, which could adversely impact our operating results.
Our income tax obligations are based in part on our corporate operating structure, including the manner in which we develop, value, manage, protect and use our intellectual property and the scope of our international operations. The tax laws applicable to our international business activities, including the laws of the United States and other jurisdictions, are subject to interpretation. The taxing authorities of the jurisdictions in which we operate may challenge our methodologies for valuing developed technology (or other intangible assets) or intercompany arrangements, which could increase our worldwide effective tax rate and harm our financial condition and operating results. On October 5, 2015, the Organization for Economic Cooperation and Development (OECD), an international association of 34 countries, including the U.S., Ireland, and UK, released the final reports from its Base Erosion and Profit Shifting (BEPS) Action Plans. The BEPS recommendations covered a number of issues, including country-by-country reporting, permanent establishment rules, transfer pricing rules and tax treaties. Future tax reform resulting from this development may result in changes to long-standing tax principles, which could adversely affect our effective tax rate or result in higher cash tax liabilities. We are subject to review and audit by U.S. federaltax authorities in the United States (federal and statestate), Ireland, and other foreign tax authorities.jurisdictions and the laws in those jurisdictions are subject to interpretation. Tax authorities may disagree with certainand challenge some of the positions we have taken and any adverse outcome of such a review oran audit could have a negative effect on our financial position and operating results. In addition, our future income taxes could be adversely affected by earnings being lower than anticipated in jurisdictions that have lower statutory tax rates and higher than anticipated in jurisdictions that have higher statutory tax rates, by changes in the valuation of our deferred tax assets and liabilities, or by changes in tax laws, regulations or accounting principles, as well as certain discrete items. Furthermore, changes to the taxation of undistributed foreign earnings could change our future intentions regarding reinvestment of such earnings. Greater than anticipated tax expenses, or disputes with tax authorities, could adversely impact our operating results.
In addition,
many countries in Europe, as well asthe Organization for Economic Cooperation and Development (OECD) has published proposals covering a number of
otherissues, including country-by-country reporting, permanent establishment rules, transfer pricing rules, tax treaties and taxation of the digital economy. A significant majority of countries
and organizations,in the OECD's Inclusive Framework have
recentlyagreed in principle to a proposed
solution to address the tax challenges arising from the digitalization of the economy. Future tax reform resulting from these developments may result in changes to
long-standing tax principles, which could adversely affect our effective tax rate or result in higher cash tax liabilities. Nearly 140 countries have signed up or agreed to sign up on a plan that would be implemented in 2023, setting a 15% minimum tax rate on corporations and a plan to reallocate part of the profits from the largest and most profitable businesses to countries where they make sales. The OECD's proposed solution envisages new international tax rules and the removal of all Digital Services Taxes (DST). The European Union has also published its proposal for a directive aimed at implementing the OECD rules on a 15% minimum effective tax rate in the European Union Member States. Notwithstanding this, some countries, in the European Union and beyond, continue to operate a DST regime to capture tax revenue on digital services more immediately. Overall, future tax laws
regarding digital services that could significantlymay increase our tax obligations in
manythose countries
where we do business or
require us to change the manner in which we operate our business.
On August 7, 2018,
We may not realize the Ninth Circuit Courtanticipated long-term stockholder value of Appeals withdrew its July 24, 2018 opinion in Altera Corp. v. Commissionerour share repurchase programs and any failure to repurchase our common stock after we have announced our intention to do so may negatively impact our stock price.
In February 2022, we announced that our board of directors authorized the repurchase of up to $4.0 billion of our common stock, replacing our previously authorized $2.0 billion program from 2020, of which required related parties in an intercompany cost-sharing arrangement to share expenses related to share-based compensation and reversed the prior decisionapproximately $819 million remained. As part of the United States Tax Court. We will continuenew program, we entered into a $2.0 billion accelerated share repurchase on February 10, 2022 and may repurchase the remaining $2.0 billion over time.
Under this or any other future share repurchase programs, we may make share repurchases through a variety of methods, including open share market purchases, block transactions or privately negotiated transactions, in accordance with applicable federal securities laws. Future share repurchase programs may have no time limit, may not obligate us to monitor the potential effectsrepurchase any specific number of shares and may be suspended at any time at our discretion and without prior notice. The timing and amount of any future developmentsrepurchases, if any, will be subject to liquidity, stock price, market and economic conditions, compliance with applicable legal requirements such as Delaware surplus and solvency tests and other relevant factors. Any failure to repurchase stock after we have announced our intention to do so may negatively impact our reputation and investor confidence in this caseus and related matters. Wemay negatively impact our stock price.
The existence of these share repurchase programs could cause our stock price to be higher than it otherwise would be and could potentially reduce the market liquidity for our stock. Although these programs are intended to enhance long-term stockholder value, there is no assurance they will do so because the market price of our common stock may decline below the levels at which we repurchased shares and short-term stock price fluctuations could reduce the effectiveness of the programs.
Repurchasing our common stock will reduce the amount of cash we have available to fund working capital, capital expenditures, strategic acquisitions or business opportunities, and other general corporate requirements, and we may fail to realize the anticipated long-term stockholder value of these share repurchase programs.
Our ability to use our net operating loss carryforwards and certain other tax attributes may be limited.
As of December 31, 2021, we had U.S. federal and state net operating loss carryforwards of $2.39 billion and $1.36 billion, respectively, and we had U.S. federal and state research and development credit carryforwards of $494.8 million and $349.4 million, respectively. A portion of the U.S. net operating loss carryforwards and tax credit carryforwards could be
negatively impactedsubject to ownership change limitations governed by
an adverse ruling in the case.
Uncertainties in the interpretation and applicationSection 382 or 383 of the 2017 Tax CutsInternal Revenue Code and Jobs Actsimilar provisions of state law, or other limitations imposed under state law. Any such limitations on the ability to use our net operating loss carryforwards and other tax assets could materially affect our tax obligations and effective tax rate.
The 2017 Tax Cuts and Jobs Act (the “Tax Act”) significantly affected U.S. tax law by changing how U.S. income tax is assessed on multinational corporations. The Tax Act requires complex computations not previously provided for in U.S. tax law and the U.S. Department of Treasury has issued and will continue to issue regulations and interpretive guidance that may significantly impact how we will apply the law andadversely impact our results of operations. As additional regulatorybusiness, financial condition and interpretive guidance is issued, we may refine our analysis and make adjustments that differ from amounts initially recorded, which could materially affect our tax obligations and effective tax rate.
operating results.
If our goodwill or intangible assets become impaired, we may be required to record a significant charge to earnings.
Under
generally accepted accounting principles in the United States, or GAAP, we review our intangible assets for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. Goodwill is required to be tested for impairment at least annually.
As of December 31, 2018, we had recorded a total of $1.27 billion of goodwill and intangible assets. An adverse change in market conditions or financial results, particularly if such change has the effect of changing one of our critical assumptions or estimates, could result in a change to the estimation of fair value that could result in an impairment charge to our goodwill or intangible assets. Any such material charges may have a material
negativeand adverse impact on our operating results.
Our ability to use our net operating loss carryforwards
Governance Risks and
certain other tax attributes may be limited.As of December 31, 2018, we had U.S. federal net operating loss carryforwards of approximately $2.85 billion and state net operating loss carryforwards of approximately $1.30 billion. As of December 31, 2018, we had federal R&D credits of $300.4 million and state credits of $236.2 million. Under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, or the Code, if a corporation undergoes an “ownership change,” the corporation’s ability to use its pre-change net operating loss carryforwards and other pre-change tax attributes, such as research tax credits, to offset its post-change income and taxes may be limited. In general, an “ownership change” occurs if there is a cumulative change in our ownership by “5% shareholders” that exceeds 50 percentage points over a rolling three-year period. Similar rules may apply under state tax laws. In the event that it is determined that we have in the past experienced an ownership change, or if we experience one or more ownership changes as a result of future transactions in our stock, then we may be limited in our ability to use our net operating loss carryforwards and other tax assets to reduce taxes owed on the net taxable income that we earn. Any such limitations on the ability to use our net operating loss carryforwards and other tax assets could adversely impact our business, financial condition and operating results.
We may require additional capital to support our operations or the growth of our business, and we cannot be certain that this capital will be available on reasonable terms when required, or at all.
From time to time, we may need additional financing to operate or grow our business. Our ability to obtain additional financing, if and when required, will depend on investor and lender demand, our operating performance, the condition of the capital markets and other factors, and we cannot assure you that additional financing will be available to us on favorable terms when required, or at all. If we raise additional funds through the issuance of equity, equity-linked or debt securities, those securities may have rights, preferences or privileges senior to the rights of our common stock, and our existing stockholders may experience dilution. If we are unable to obtain adequate financing or financing on terms satisfactory to us when we require it, our ability to continue to support the operation or growth of our business could be significantly impaired and our operating results may be harmed.
Risks Relatedrelated to Ownership of Our Commonour Capital Stock
Anti-takeover provisions contained in our amended and restated certificate of incorporation and amended and restated bylaws, as well as provisions of Delaware law, could impair a takeover attempt.
Our amended and restated certificate of incorporation, amended and restated bylaws and Delaware law contain provisions which could have the effect of rendering more difficult, delaying, or preventing an acquisition deemed undesirable by our board of directors. Among other things, our amended and restated certificate of incorporation and amended and restated bylaws include provisions:
creating•providing for a classified board of directors whose members serve staggered three-year terms;
•authorizing “blank check” preferred stock, which could be issued by our board of directors without stockholder approval and may contain voting, liquidation, dividend and other rights superior to our common stock;
•limiting the liability of, and providing indemnification to, our directors and officers;
•limiting the ability of our stockholders to call and bring business before special meetings;
•requiring advance notice of stockholder proposals for business to be conducted at meetings of our stockholders and for nominations of candidates for election to our board of directors; and
•controlling the procedures for the conduct and scheduling of stockholder meetings.
These provisions, alone or together, could delay or prevent hostile takeovers and changes in control or changes in our
management.management, and amendment of our amended and restated certificate of incorporation to change or modify certain of these provisions requires approval of a super-majority of our stockholders, which we may not be able to obtain.
As a Delaware corporation, we are also subject to provisions of Delaware law, including Section 203 of the Delaware General Corporation law, which prevents certain stockholders holding more than 15% of our outstanding common stock from engaging in certain business combinations without approval of the holders of at least two-thirds of our outstanding common stock not held by such 15% or greater stockholder.
Any provision of our amended and restated certificate of incorporation, amended and restated bylaws or Delaware law that has the effect of delaying, preventing or deterring a change in control could limit the opportunity for our stockholders to receive a premium for their shares of our common stock, and could also affect the price that some investors are willing to pay for our common stock.
The market price of our common stock has been and will likely continue to be volatile, and you could lose all or part of your investment.
The market price of our common stock has been and may continue to be highly volatile in response to various factors, some of which are beyond our control. From January 1, 2017 to December 31, 2018, the reported high and low sales prices of our common stock has ranged from $47.79 to $14.12. In addition to the factors discussed in this “Risk Factors” section and elsewhere in this Annual Report on Form 10-K,report, factors that could cause fluctuations in the market price of our common stock include the following:
•price and volume fluctuations in the overall stock market from time to time;
•volatility in the market prices and trading volumes of technology stocks;
•changes in operating performance and stock market valuations of other technology companies generally, or those in our industry in particular;
| •
| changes in operating performance and stock market valuations of other technology companies generally, or those in our industry in particular;
|
•sales of shares of our common stock by us or our stockholders;
•rumors and market speculation involving us or other companies in our industry;
failure•changes in the recommendations of securities analysts to maintain coverage of us,regarding our common stock, changes in financial estimates by securities analysts who follow our company, or our failure to meet these estimates or the expectations of investors;
•the financial or non-financial metric projections we may provide to the public, any changes in those projections or our failure to meet those projections;
•announcements by us or our competitors of new products or services;
•the public’s reaction to our press releases, other public announcements and filings with the SEC;
•actual or anticipated changes in our operating results or fluctuations in our operating results;
•actual or anticipated developments in our business, our competitors’ businesses or the competitive landscape generally;
•our issuance of shares of our common stock, whether in connection with an acquisition or upon conversion of some or all of our outstanding Convertible Notes;
•litigation or regulatory action involving us, our industry or both, or investigations by regulators into our operations or those of our competitors;
•developments or disputes concerning our intellectual property or other proprietary rights;
•announced or completed acquisitions of businesses or technologies by us or our competitors;
•new laws or regulations or new interpretations of existing laws or regulations applicable to our business;
•changes in accounting standards, policies, guidelines, interpretations or principles;
•any significant change in our management; and
•general economic conditions and slow or negative growth of our markets.
In addition, in the past, following periods of volatility in the overall market and the market price of a particular company’s securities, securities class action litigation has often been instituted against these companies. Any securities litigation can result in substantial costs and a diversion of our management’s attention and resources. We are currently subject to securities litigation and
in September 2021, we entered into a binding agreement to settle a shareholder class action lawsuit. The proposed settlement resolves all claims asserted against us and the other named defendants in the shareholder class action lawsuit without any liability or wrongdoing attributed to them personally or to us. Under the terms of the proposed settlement, we paid $809.5 million from cash on hand in the fourth quarter of 2021. The settlement agreement is subject to final approval by the U.S. District Court for the Northern District of California. We may experience more such litigation following any future periods of volatility.
The note hedge and warrant transactions may affect the value of our common stock.
Concurrent with the issuance of the
2024 Notes and 2026 Notes we entered into note hedge transactions with certain financial institutions, which we refer to as the option counterparties. The note hedge transactions are generally expected to reduce the potential dilution upon any conversion of the
2024 Notes and 2026 Notes and/or offset any cash payments we are required to make in excess of the principal amount
of converted
with respect to the 2024 Notes or 2026 Notes as the case may be. We also entered into warrant transactions with the option counterparties. However, the warrant transactions could separately have a dilutive effect to the extent that the market price of our common stock exceeds the applicable strike price of the warrants.
The option counterparties or their respective affiliates may modify their initial hedge positions by entering into or unwinding various derivatives contracts with respect to our common stock and/or purchasing or selling our common stock or other securities of ours in secondary market transactions prior to the maturity of the
2024 Notes
and 2026 Notes, as applicable (and are likely to do so during any
applicable observation period related to a conversion of
the 2024 Notes
and 2026 Notes as applicable, or following any repurchase of
the 2024 Notes
and 2026 Notes, as applicable, by us on any fundamental change repurchase date or otherwise). This activity could cause or avoid an increase or a decrease in the market price of our common stock.
In addition, if any such convertible
Additionally, we entered into similar note hedge
transactions and warrant transactions
fail to become effective,in connection with the
option counterparties or their respective affiliates may unwind their hedge positions with respect to our common stock, which could adversely affect the valueissuance of our
common stock.
If securities or industry analysts cease publishing research or reports about us, our business or our2021 Notes which matured on September 15, 2021. The note hedge transactions entered into in connection with the 2021 Notes expired on September 15, 2021 and the warrant transactions in connection with the 2021 Notes expire over a 60 trading day settlement period commencing 90 days after the maturity of the 2021 Notes and scheduled to end on March 11, 2022. These warrant transactions could also have a dilutive effect to the extent that the market or if they change their recommendations regarding our common stock adversely, the price of our common stock and trading volume could decline.
The trading market for our common stock is influenced, to some extent, byexceeds the research and reports that securities or industry analysts publish about us, our business, our industry, our market or our competitors. If any of the analysts who cover us change their recommendation regarding our common stock adversely, or provide more favorable relative recommendations about our competitors, thestrike price of our common stock would likely decline. If any analysts who cover us were to cease coverage of our company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause the price of our common stock or trading volume to decline.
We do not expect to declare any dividends in the foreseeable future.
We do not anticipate declaring any cash dividends to holders of our common stock in the foreseeable future. In addition, our credit facility contains restrictions on payments including payments of cash dividends. Consequently, investors may need to rely on sales of our common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investment.
such warrants.
Item 1B. UNRESOLVED STAFF COMMENTS
None.
As of December 31, 2018,2021, we leased office facilities around the world totaling approximately 1,561,0001,700,000 square feet, including approximately 749,000700,000 square feet for our corporate headquarterslargest office in San Francisco, California. We also lease data center facilities in the United States pursuant to various lease agreements and co-location arrangements with data center operators. We believe our facilities are sufficient for our current needs.
Item 3. LEGAL PROCEEDINGS
Legal Proceedings
Beginning in September 2016, multiple putative class actions and derivative actions were filed in state and federal courts in the United States against Twitter, Twitter’s directors, and/or certain former officers alleging false and misleading statements in violation of securities laws and breach of fiduciary duty. The putative class actions were consolidated in the U.S. District Court for the Northern District of California. On October 16, 2017, the court granted in part and denied in part the Company’s motion to dismiss. On July 17, 2018, the court granted plaintiffs' motion for class certification in the consolidated securities action. The Company disputes the claims and continues to defend the lawsuits vigorously.
We are
also currently involved in, and may in the future be involved in, legal proceedings, claims, investigations, and government inquiries
and investigations arising in the ordinary course of business. These proceedings, which include both individual and class action litigation and administrative proceedings, have included, but are not limited to matters involving content on the platform
or our actions related thereto, intellectual property, privacy,
data protection, cybersecurity, consumer protection, securities, employment and contractual rights. Legal risk may be enhanced in jurisdictions outside the United States where our protection from liability for content published on our platform by third parties may be unclear and where we may be less protected under local laws than we are in the United States. Future litigation may be necessary, among other things, to defend ourselves, and
our usersthe people on Twitter or to establish our rights.
Although the results of the For information regarding legal proceedings claims, investigations, and government inquiries in which we are involved, cannot be predicted with certainty, we do not believe that there is a reasonable possibility that the final outcome of these matters will have a material adverse effect on our business, financial condition, operating results, or prospects. However, the final results of any current or future proceeding cannot be predicted with certainty, and until there is final resolution on any such matter that we may be required to accrue for, we may be exposed to losssee “Legal Proceedings” in excessNote 16 of the amount accrued. RegardlessNotes to Consolidated Financial Statements included in Part II, Item 8 of the outcome, litigation can have an adverse impactthis Annual Report on us because of defense and settlement costs, diversion of management resources, and other factors.
Form 10-K, which is incorporated herein by reference.
ItemItem 4. MINE SAFETY DISCLOSURE
PART II
Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information for Common Stock
Our common stock has been listed on the New York Stock Exchange under the symbol “TWTR”
since November 7, 2013. Prior to that date, there was no public trading market for our common stock..
As of February
7, 2019,10, 2022, there were
876802 holders of record of our common stock. Because many of our shares of common stock are held by brokers and other institutions on behalf of stockholders, we are unable to estimate the total number of stockholders represented by these record holders.
We have never declared or paid any cash dividends on our capital stock. We intend to retain any future earnings and do not expect to pay any dividends in the foreseeable future. Any future determination to declare cash dividends will be made at the discretion of our board of directors, subject to applicable laws, and will depend on a number of factors, including our financial condition, results of operations, capital requirements, contractual restrictions, general business conditions and other factors that our board of directors may deem relevant. In addition, the credit facility contains restrictions on payments including cash payments of dividends.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
The following table summarizes the share repurchase activity for the three months ended December 31, 2021: | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Period | | Total Number of Shares Purchased (in thousands) (1) | | Average Price Paid Per Share (2) | | Total Number of Shares Purchased as Part of Publicly Announced Programs (in thousands) (1) | | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Program (in millions) (1) |
| October 1 - 31 | | 905 | | $ | 61.44 | | | 905 | | 1,029 | |
| November 1 - 30 | | 230 | | | $ | 54.10 | | | 230 | | | 1,016 | |
| December 1 - 31 | | 4,589 | | $ | 43.08 | | | 4,589 | | 819 | |
| Total | | 5,724 | | | | | 5,724 | | | |
(1)In March 2020, our board of directors authorized a program to repurchase up to $2.0 billion of our common stock over time. Repurchases may be made from time to time through open market purchases or through privately negotiated transactions, under trading plans complying with Rules 10b5-1 and 10b-18 under the Exchange Act, subject to market conditions, applicable legal requirements and other relevant factors. The repurchase program does not obligate us to acquire any particular amount of our common stock, and may be suspended at any time at our discretion. The program does not have an expiration date. In February 2022, our board of directors authorized a new $4.0 billion share repurchase program. The program became effective immediately, and replaced the previously authorized $2.0 billion program authorized in March 2020. Please refer to Notes 14 and 20 of the Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K for additional information.
(2)Average price paid per share includes costs associated with the repurchases.
Unregistered Sales of Equity Securities
During
2018,the three months ended December 31, 2021, we issued a total of
773,950512,460 shares of our common stock in connection with the acquisition of one
company to certain former shareholders of the acquired company.
The foregoing transaction did not involve any underwriters, any underwriting discounts or commissions, or any public offering. We believe the
offers, sales,offer, sale, and
issuancesissuance of the above securities
werewas exempt from registration under the Securities Act of 1933, as amended (the
“Act”)Act) by virtue of Section 4(a)(2) of the Act, because the issuance of securities to the recipients did not involve a public offering. The recipients of the securities in this transaction represented their intentions to acquire the securities for investment only and not with a view to or for sale in connection with any distribution thereof, and appropriate legends were placed upon the stock certificates issued in
these transactions.this transaction. All recipients had adequate access, through their relationships with us or otherwise, to information about us. The
issuancesissuance of these securities
werewas made without any general solicitation or advertising.
This performance graph shall not be deemed “soliciting material” or to be “filed” with the SEC for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (Exchange Act), or otherwise subject to the liabilities under that Section, and shall not be deemed to be incorporated by reference into any filing of Twitter, Inc. under the Securities Act of 1933, as amended, or the Exchange Act.
The following graph compares the cumulative 5-year total return to stockholders on our common stock relative to the cumulative total returns of the Standard & Poor’s 500 Index, or S&P 500, and the Dow Jones Internet Composite Index, or DJ Internet Composite. An investment of $100 (with reinvestment of all dividends) is assumed to have been made in our common stock and in each index on November 7, 2013,at the date our common stock began tradingmarket close on the NYSE,last trading day for the fiscal year ended December 31, 2016 and its relative performance is tracked through December 31, 2018.2021. The returns shown are based on historical results and are not intended to suggest future performance.
ItemItem 6.
SELECTED FINANCIAL DATAThe following selected historical consolidated financial data should be read in conjunction with Part II, Item 7, “Management’s Discussion and Analysis[RESERVED]
Table of Financial Condition and Results of Operations”, our consolidated financial statements and the related notes included in Item 8, “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K.The consolidated statements of operations data for the years ended December 31, 2018, 2017 and 2016 and the consolidated balance sheet data as of December 31, 2018 and 2017 are derived from our audited consolidated financial statements included in Part II, Item 8, “Financial Statements and Supplementary Data” in this Annual Report on Form 10‑K. The consolidated statements of operations data for the years ended December 31, 2015 and 2014 and the consolidated balance sheet data as of December 31, 2016, 2015 and 2014 are derived from our audited consolidated financial statements not included in this Annual Report on Form 10-K. Our historical results are not necessarily indicative of the results that may be expected in the future.
| | Year Ended December 31, | |
| | 2018 | | | 2017 | | | 2016 | | | 2015 | | | 2014 | |
| | (In thousands, except per share data) | |
Consolidated Statement of Operations Data: | | | | | | | | | | | | | | | | | | | | |
Revenue(1) | | $ | 3,042,359 | | | $ | 2,443,299 | | | $ | 2,529,619 | | | $ | 2,218,032 | | | $ | 1,403,002 | |
Costs and expenses(2) | | | | | | | | | | | | | | | | | | | | |
Cost of revenue | | | 964,997 | | | | 861,242 | | | | 932,240 | | | | 729,256 | | | | 446,309 | |
Research and development | | | 553,858 | | | | 542,010 | | | | 713,482 | | | | 806,648 | | | | 691,543 | |
Sales and marketing | | | 771,361 | | | | 717,419 | | | | 957,829 | | | | 871,491 | | | | 614,110 | |
General and administrative | | | 298,818 | | | | 283,888 | | | | 293,276 | | | | 260,673 | | | | 189,906 | |
Total costs and expenses | | | 2,589,034 | | | | 2,404,559 | | | | 2,896,827 | | | | 2,668,068 | | | | 1,941,868 | |
Income (loss) from operations | | | 453,325 | | | | 38,740 | | | | (367,208 | ) | | | (450,036 | ) | | | (538,866 | ) |
Interest expense | | | (132,606 | ) | | | (105,237 | ) | | | (99,968 | ) | | | (98,178 | ) | | | (35,918 | ) |
Interest income | | | 111,221 | | | | 44,383 | | | | 24,277 | | | | 9,073 | | | | 1,933 | |
Other income (expense), net | | | (8,396 | ) | | | (73,304 | ) | | | 2,065 | | | | 5,836 | | | | (5,500 | ) |
Income (loss) before income taxes | | | 423,544 | | | | (95,418 | ) | | | (440,834 | ) | | | (533,305 | ) | | | (578,351 | ) |
Provision (benefit) for income taxes(3) | | | (782,052 | ) | | | 12,645 | | | | 16,039 | | | | (12,274 | ) | | | (531 | ) |
Net income (loss) | | $ | 1,205,596 | | | $ | (108,063 | ) | | $ | (456,873 | ) | | $ | (521,031 | ) | | $ | (577,820 | ) |
Net income (loss) per share attributable to common stockholders: | | | | | | | | | | | | | | | | | | | | |
Basic | | $ | 1.60 | | | $ | (0.15 | ) | | $ | (0.65 | ) | | $ | (0.79 | ) | | $ | (0.96 | ) |
Diluted | | $ | 1.56 | | | $ | (0.15 | ) | | $ | (0.65 | ) | | $ | (0.79 | ) | | $ | (0.96 | ) |
Weighted-average shares used to compute net income (loss) per share attributable to common stockholders: | | | | | | | | | | | | | | | | | | | | |
Basic | | | 754,326 | | | | 732,702 | | | | 702,135 | | | | 662,424 | | | | 604,990 | |
Diluted | | | 772,686 | | | | 732,702 | | | | 702,135 | | | | 662,424 | | | | 604,990 | |
Other Financial Information:(4) | | | | | | | | | | | | | | | | | | | | |
Adjusted EBITDA | | $ | 1,200,796 | | | $ | 862,986 | | | $ | 751,493 | | | $ | 557,807 | | | $ | 300,896 | |
Non-GAAP net income | | $ | 663,804 | | | $ | 328,859 | | | $ | 264,406 | | | $ | 180,486 | | | $ | 68,438 | |
(1)
| We adopted the new revenue standard on January 1, 2018 using the modified retrospective method. Revenue for the year ended December 31, 2018 was not materially impacted by the application of the new revenue standard.
|
(2)
| Costs and expenses include stock-based compensation expense as follows:
|
| | Year Ended December 31, | |
| | 2018 | | | 2017 | | | 2016 | | | 2015 | | | 2014 | |
| | (In thousands) | |
Cost of revenue | | $ | 17,289 | | | $ | 23,849 | | | $ | 29,502 | | | $ | 40,705 | | | $ | 50,536 | |
Research and development | | | 183,799 | | | | 240,833 | | | | 335,498 | | | | 401,537 | | | | 360,726 | |
Sales and marketing | | | 71,305 | | | | 94,135 | | | | 160,935 | | | | 156,904 | | | | 157,263 | |
General and administrative | | | 53,835 | | | | 74,989 | | | | 89,298 | | | | 82,972 | | | | 63,072 | |
Total stock-based compensation | | $ | 326,228 | | | $ | 433,806 | | | $ | 615,233 | | | $ | 682,118 | | | $ | 631,597 | |
(3)
| Provision (benefit) for income taxes includes the impact of the Tax Act. Refer to Note 14 of the Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K for further information. In the year ended December 31, 2018, we recorded a net benefit to tax expense of $845.1 million associated with the release of the valuation allowance related to Brazil and most of the United States federal and all states deferred tax assets with the exception of California and Massachusetts.
|
(4)
| See the section titled “Non-GAAP Financial Measures” below for additional information and a reconciliation of net income (loss) to Adjusted EBITDA and net income (loss) to non-GAAP net income.
|
| | As of December 31, | |
| | 2018 | | | 2017 | | | 2016 | | | 2015 | | | 2014 | |
| | (In thousands) | |
Consolidated Balance Sheet Data: | | | | | | | | | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 1,894,444 | | | $ | 1,638,413 | | | $ | 988,598 | | | $ | 911,471 | | | $ | 1,510,724 | |
Short-term investments | | | 4,314,957 | | | | 2,764,689 | | | | 2,785,981 | | | | 2,583,877 | | | | 2,111,154 | |
Property and equipment, net | | | 885,078 | | | | 773,715 | | | | 783,901 | | | | 735,299 | | | | 557,019 | |
Total assets | | | 10,162,572 | | | | 7,412,477 | | | | 6,870,365 | | | | 6,442,439 | | | | 5,583,082 | |
Convertible notes | | | 2,628,250 | | | | 1,627,460 | | | | 1,538,967 | | | | 1,455,095 | | | | 1,376,020 | |
Total liabilities | | | 3,356,978 | | | | 2,365,259 | | | | 2,265,430 | | | | 2,074,392 | | | | 1,956,679 | |
Total stockholders' equity | | | 6,805,594 | | | | 5,047,218 | | | | 4,604,935 | | | | 4,368,047 | | | | 3,626,403 | |
Non-GAAP Financial Measures
To supplement our consolidated financial statements presented in accordance with generally accepted accounting principles in the United States, or GAAP, we consider certain financial measures that are not prepared in accordance with GAAP, including Adjusted EBITDA, non-GAAP income before income taxes, non-GAAP provision for income taxes as it relates to the calculation of non-GAAP net income, and non-GAAP net income. These non-GAAP financial measures are not based on any standardized methodology prescribed by GAAP and are not necessarily comparable to similarly-titled measures presented by other companies.
ContentsAdjusted EBITDA
We define Adjusted EBITDA as net income (loss) adjusted to exclude stock-based compensation expense, depreciation and amortization expense, interest and other expenses, net, provision (benefit) for income taxes, restructuring charges and one-time nonrecurring gain, if any.
The following table presents a reconciliation of net income (loss) to Adjusted EBITDA for each of the periods indicated:
| | Year Ended December 31, | |
| | 2018 | | | 2017 | | | 2016 | | | 2015 | | | 2014 | |
| | (in thousands) | |
Reconciliation of Net Income (Loss) to Adjusted EBITDA | | | | | | | | | | | | | | | | | | | | |
Net income (loss) | | $ | 1,205,596 | | | $ | (108,063 | ) | | $ | (456,873 | ) | | $ | (521,031 | ) | | $ | (577,820 | ) |
Stock-based compensation expense | | | 326,228 | | | | 433,806 | | | | 615,233 | | | | 682,118 | | | | 631,597 | |
Depreciation and amortization expense | | | 425,498 | | | | 395,867 | | | | 402,172 | | | | 312,823 | | | | 208,165 | |
Interest and other expense, net | | | 29,781 | | | | 134,158 | | | | 73,626 | | | | 83,269 | | | | 39,485 | |
Provision (benefit) for income taxes | | | (782,052 | ) | | | 12,645 | | | | 16,039 | | | | (12,274 | ) | | | (531 | ) |
Restructuring charges and one-time nonrecurring gain | | | (4,255 | ) | | | (5,427 | ) | | | 101,296 | | | | 12,902 | | | | — | |
Adjusted EBITDA | | $ | 1,200,796 | | | $ | 862,986 | | | $ | 751,493 | | | $ | 557,807 | | | $ | 300,896 | |
Non-GAAP Net Income
We define non-GAAP net income as net income (loss) adjusted to exclude stock-based compensation expense, amortization of acquired intangible assets, non-cash interest expense related to convertible notes, non-cash expense related to acquisitions, impairment of investments in privately-held companies, restructuring charges and one-time nonrecurring gain, and adjustment to income tax expense based on the non-GAAP measure of profitability using our blended U.S. statutory tax rate, which was 24% for 2018 as a result of the Tax Act and 37% for all other historical periods presented.
Non-GAAP Income before Income Taxes. We define non-GAAP income before income taxes as income (loss) before income taxes adjusted to exclude stock-based compensation expense, amortization of acquired intangible assets, non-cash interest expense related to convertible notes, non-cash expense related to acquisitions, impairment of investments in privately-held companies, and restructuring charges and one-time nonrecurring gain.
Non-GAAP Provision for Income Taxes. We define non-GAAP provision for income taxes as the current and deferred income tax expense commensurate with the non-GAAP measure of profitability using our blended U.S. statutory tax rate.
The following table presents a reconciliation of net income (loss) to non-GAAP net income for each of the periods indicated:
| | Year Ended December 31, | |
| | 2018 | | | 2017 | | | 2016 | | | 2015 | | | 2014 | |
| | (in thousands) | |
Reconciliation of Net Income (Loss) to Non-GAAP Net Income | | | | | | | | | | | | | | | | | | | | |
Net income (loss) | | $ | 1,205,596 | | | $ | (108,063 | ) | | $ | (456,873 | ) | | $ | (521,031 | ) | | $ | (577,820 | ) |
Exclude: Provision (benefit) for income taxes | | | (782,052 | ) | | | 12,645 | | | | 16,039 | | | | (12,274 | ) | | | (531 | ) |
Income (loss) before income taxes | | | 423,544 | | | | (95,418 | ) | | | (440,834 | ) | | | (533,305 | ) | | | (578,351 | ) |
Stock-based compensation expense | | | 326,228 | | | | 433,806 | | | | 615,233 | | | | 682,118 | | | | 631,597 | |
Amortization of acquired intangible assets | | | 18,984 | | | | 46,537 | | | | 69,338 | | | | 54,659 | | | | 36,563 | |
Non-cash interest expense related to convertible notes | | | 105,926 | | | | 80,061 | | | | 74,660 | | | | 69,185 | | | | 18,823 | |
Non-cash expense related to acquisition | | | — | | | | — | | | | — | | | | 926 | | | | — | |
Impairment of investments in privately-held companies | | | 3,000 | | | | 62,439 | | | | — | | | | — | | | | — | |
Restructuring charges and one-time nonrecurring gain | | | (4,255 | ) | | | (5,427 | ) | | | 101,296 | | | | 12,902 | | | | — | |
Non-GAAP income before income taxes | | | 873,427 | | | | 521,998 | | | | 419,693 | | | | 286,485 | | | | 108,632 | |
Non-GAAP provision for income taxes | | | 209,623 | | | | 193,139 | | | | 155,287 | | | | 105,999 | | | | 40,194 | |
Non-GAAP net income | | $ | 663,804 | | | $ | 328,859 | | | $ | 264,406 | | | $ | 180,486 | | | $ | 68,438 | |
We use non-GAAP financial measures of Adjusted EBITDA, non-GAAP income before income taxes, non-GAAP provision for income taxes, and non-GAAP net income in evaluating our operating results and for financial and operational decision-making purposes. We believe that Adjusted EBITDA, non-GAAP income before income taxes and non-GAAP net income help identify underlying trends in our business that could otherwise be masked by the effect of the expenses that we exclude in Adjusted EBITDA, non-GAAP income before income taxes and non-GAAP net income. We believe that Adjusted EBITDA, non-GAAP income before income taxes and non-GAAP net income provide useful information about our operating results, enhance the overall understanding of our past performance and future prospects and allow for greater transparency with respect to key metrics used by our management in its financial and operational decision-making. We also use these measures to establish budgets and operational goals for managing our business and evaluating our performance.
These non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. There are a number of limitations related to the use of these non-GAAP financial measures rather than net income (loss), which is the nearest GAAP equivalent of these financial measures. Some of these limitations are:
Adjusted EBITDA, non-GAAP income before income taxes, non-GAAP provision for income taxes as it relates to the calculation of non-GAAP net income and non-GAAP net income exclude restructuring charges, one-time nonrecurring gain and certain recurring non-cash charges, such as stock-based compensation expense, amortization of acquired intangible assets, non-cash interest expense related to convertible notes and impairment of investments in privately-held companies;
Stock-based compensation expense has been, and will continue to be for the foreseeable future, a significant recurring expense in our business and an important part of our compensation strategy;
Adjusted EBITDA and non-GAAP income before income taxes do not reflect tax payments that reduce cash available to us;
Non-GAAP net income reflects an estimate of taxes calculated in accordance with the SEC’s Non-GAAP Financial Measures Compliance and Disclosure Interpretation, not actual taxes due or payable;
Adjusted EBITDA excludes depreciation and amortization expense and although these are non-cash charges, the property and equipment being depreciated and amortized may have to be replaced in the future; and
The expenses that we exclude in our calculation of these non-GAAP financial measures may differ from the expenses, if any, that our peer companies may exclude from similarly-titled non-GAAP measures when they report their results of operations.
ItemItem 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and related notes thereto included in Item 8 “Financial Statements and Supplementary Data” in this Annual Report on Form 10-K.
This section of this Form 10-K generally discusses 2021 and 2020 items and year-to-year comparisons between 2021 and 2020. Discussions of 2019 items and year-to-year comparisons between 2020 and 2019 are not included in this Form 10-K, and can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Form 10-K for the fiscal year ended December 31, 2020. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussed below. Factors that could cause or contribute to such differences include, but are not limited to, those identified below and those discussed in the section titled “Risk Factors” included elsewhere in this Annual Report on Form 10-K.
FY
2018 Overview and2021 Highlights
Total revenue was $3.04$5.08 billion, an increase of 25%37%, compared to 2017.2020.
•Advertising revenue totaled $2.62$4.51 billion, an increase of 24%40%, compared to 2017.
•Data licensing and other revenue totaled $425.0$571.8 million, an increase of 27%12%, compared to 2017.
•U.S. revenue totaled $1.64$2.84 billion, an increase of 16%36%, compared to 2017.
•International revenue totaled $1.40$2.24 billion, an increase of 36%37%, compared to 2017.
•Total ad engagements increased 55% year-over-year.
•Cost per engagement decreased 20% year-over-year.
Net income was $1.21 billion,increased 32% compared to 2020.
Average monetizable daily active usage (mDAU) was 217 million for the three months ended December 31, 2021, an increase of 13% year over year.
Loss from operations was $492.7 million, or 10% of total revenue, in 2021, compared to income from operations of $26.7 million, or 1% of total revenue, in 2020. Loss from operations in 2021 includes a one-time litigation-related net charge of $765.7 million(1).
Net loss was $221.4 million in 2021, compared to net loss of
$108.1 million$1.14 billion in
2017.Non-GAAP net2020, which was inclusive of a $1.10 billion provision for income was $663.8 million, an increasetaxes related to the establishment of 102% compared to 2017.
Adjusted EBITDA was $1.20 billion, an increase of 39% compared to 2017.
Stock-based compensation for the year was $326.2 million, or 11% of revenue, representing a decrease of 25% compared to 2017.
valuation allowance against deferred tax assets.
Cash, cash equivalents and short-term investments in marketable securities totaled
$6.21$6.39 billion as of December 31,
2018.Average monetizable daily active users (mDAU) were 1262021.
| | | | | | | | |
| | |
| | |
(1) Includes a charge of $809.5 million partially offset by the recognition of an insurance recovery of $5.8 million in the third quarter of 2021. In addition, during the third quarter of 2021, we recorded a benefit for insurance proceeds of $38.0 million related to the settlement of separate shareholder derivative lawsuits. |
FY 2021 Overview
In 2021, we continued to make progress on our brand and direct response offerings, with updated ad formats, improved targeting, and better measurement. Our strategy is designed to help advertisers achieve their goals at every stage of the marketing funnel -- from awareness and consideration, all the way through to conversion. We are focused on improving both our suite of performance ad products and improving our tools to drive awareness and consideration.
We continue to see opportunities around personalization on Twitter as we better leverage our unique signal to improve people’s experience on Twitter and show them more effective ads across both brand and direct response. The overall impact associated with Apple's App Tracking Transparency (ATT) policy to our revenue in 2021 was modest, and is likely to vary across our ad platforms given the unique mix of ad formats, signal, and remediations on each, as well as other factors. Although retooling some of our revenue products in light of Apple’s privacy-related iOS changes will continue to take additional time, energy and resources, we believe that our product improvements to date have reduced the impact on Twitter -- and looking ahead, we are confident that have a roadmap in place that can allow us to continue improving our product performance and navigate future potential changes, while growing our ads business and achieving our revenue goals.
On January 1, 2022 we closed the sale of our MoPub business to AppLovin Corporation for $1.05 billion in cash. The sale of MoPub enables us to concentrate more of our efforts on the three months ended December 31, 2018, an increasesignificant opportunity for performance-based advertising, small and medium-sized business (SMB) offerings, and commerce initiatives on Twitter.
Looking ahead, there are no changes to our long-term goals for revenue or mDAU as we leverage the investments made in 2021.
In February 2022, our board of
9% year-over-year.Average monthly active users (MAU) were 321 million fordirectors authorized a new $4.0 billion share repurchase program. The program is effective immediately, and replaces the three months ended December 31, 2018,previously authorized $2.0 billion program from 2020. As part of the new program, we entered into a decrease$2.0 billion accelerated share repurchase on February 10, 2022 and may repurchase the remaining $2.0 billion over time. We will continuously evaluate efficient alternatives to using cash on hand to fund the program, including accessing the capital markets, subject to market conditions.
COVID-19 Update
The COVID-19 pandemic has had, and continues to have, a significant impact around the world and has impacted our business, operations, and financial performance in different ways. The impacts of
3% comparedthe COVID-19 pandemic, including supply chain constraints, labor shortages, and inflation, have caused advertisers in a variety of industries to be cautious in their spending, and in 2021 had a modest negative impact on, and may negatively impact in future periods, our advertising revenue. The extent of the ongoing impact of the COVID-19 pandemic on our business and on global economic activity is uncertain and may again in the future adversely affect our business, operations and financial results. Our past results may not be indicative of our future performance, and historical trends in revenue, income (loss) from operations, net income (loss), and net income (loss) per share may differ materially. The risks related to the
three months ended December 31, 2017.
COVID-19 pandemic on our business are further described in Part I, Item 1A - Risk Factors of this Annual Report on Form 10-K.
We review a number of metrics, including the following key metrics discussed below, to evaluate our business, measure our performance, identify trends affecting our business, formulate business plans and make strategic decisions.
Monetizable Daily Active Usage or Users (mDAU). We define mDAU as people, organizations, or other accounts who logged in or were otherwise authenticated and accessed Twitter on any given day through twitter.com, Twitter applications that are able to show ads, or paid Twitter products, including subscriptions(2).
We believe that mDAU, and its related growth,
areis the best
waysway to measure our success against our objectives and to show the size of our audience and
engagement going forward, so we will discontinue disclosing MAU after the first quarter of 2019.Monetizable Daily Active Usage (monetizable DAU or mDAU). We define monetizable daily active usage or users (mDAU) as Twitter users who logged in and accessed Twitter on any given day through a client capable of displaying ads (e.g., Twitter.com or the Twitter App). Our definition and calculation of mDAU is the same as that of the DAU data presented since the first quarter of 2016. Additionally, our calculation of mDAU is not based on any standardized industry methodology and is not necessarily calculated in the same manner or comparable to similarly-titled measures presented by other companies.engagement. Average mDAU for a period represents the number of mDAU on each day of such period divided by the number of days for such period. Changes in mDAU are a measure of changes in the size of our daily logged in or otherwise authenticated active user base.total accounts. To calculate the year-over-year change in mDAU, we subtract the average mDAU for the three months ended in the previous year from the average mDAU for the same three months ended in the current year and divide the result by the average mDAU for the three months ended in the previous year.
Additionally, our calculation of mDAU is not based on any standardized industry methodology and is not necessarily calculated in the same manner or comparable to similarly titled measures presented by other companies.
In the three months ended December 31,
2018,2021, we had
126217 million average
mDAUs,mDAU, which represents an increase of
9%13% from the three months ended December 31,
2017.2020. The increase was driven by
a combination of organic growth, marketing, and product
improvements.improvements, as well as global conversation around current events. In the three months ended December 31,
2018,2021, we had
2738 million average
mDAUsmDAU in the United States and
99179 million average
mDAUsmDAU in the rest of the world, which represent increases of
5%2% and
11%15%, respectively, from the three months ended December 31,
2017.2020.
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| | |
(2) We have updated our mDAU definition in the fourth quarter of 2021 to also include "paid Twitter products, including subscriptions", so this key metric continues to accurately reflect our audience as our products evolve. This change had no material impact on the number of mDAU reported in the fourth quarter of 2021, and is unlikely to do so in the near future. This change is effective for the fourth quarter of 2021 and for future periods, and it did not affect prior periods. |
For additional information on how we calculate changes in
mDAUsmDAU and factors that can affect this metric, see the section titled “Note Regarding Key Metrics.”
Monthly Active Users (MAUs). We define MAUs as Twitter users who logged in or were otherwise authenticated and accessed Twitter through our website, mobile website, desktop or mobile applications, SMS or registered third-party applications or websites in
* Please note the
30-day period ending on the datesum of
measurement. Average MAUs for a period represent the average
of the MAUs at the end of each month during the period. MAUs are a measure of the size of our logged in or otherwise authenticated active user base. In the three months ended December 31, 2018, we had 321 million average MAUs, which represents a decrease of 3% from the three months ended December 31, 2017. MAU growth is historically seasonally weak in the fourth quarter. The decrease in average MAUs was driven by a number of factors, including product changes that reduced the number of email notifications sent, as well as decisions we have made to prioritize the health of the service and not to move to paid SMS carrier relationships in certain markets, and, to a lesser extent, changes we made to comply with the General Data Protection Regulation (GDPR). In the three months ended December 31, 2018, we had66 million average MAUsmDAU in the United States and255 million average MAUsmDAU in the rest of the world which each represent decreases of 3%, frommay not equal the three months ended December 31, 2017. For additional information on how we calculate MAUs and factors that can affect this metric, see the section titled “Note Regarding Key Metrics.” As we announced on February 7, 2019,total average mDAU will be the metric we use to show the size of our audience and engagement going forward, so we will discontinue disclosing MAU after the first quarter of 2019.
(1) Reported average Monthly Active Users reflects adjustments for approximately 1-2 million users per quarter of certain third-party applications that were included as Twitter MAUs that should not have been considered MAUs in certain prior periods. Daily Active Usage was not affected. Further details regarding the adjustment can be found in the section titled "Note About Our MAU Adjustment."
(2)In the three months ended March 31, 2018, we discovered that a software change made in the second quarter of 2017 resulted in a non-material overstatement of our historical MAU in 2017. The differences were between 30,000 and 400,000 in each period presented for total MAU. After rounding, the only impact to our prior disclosures was to reduce international MAU from 261 million to 260 million in the third quarter of 2017indicated due to a changerounding.
Changes in Ad Engagements and Changes in Cost per Ad Engagement. We define an ad engagement as a useran interaction with one of our pay-for-performance advertising products. Ad engagements with our advertising products are based on a user completingthe completion of an objective set out by an advertiser such as expanding, Retweeting, liking or replying to a Promoted Tweet,Ad (previously branded as Promoted Tweet), viewing an embedded video, downloading or engaging with a promoted mobile application, clicking on a website link, signing up for marketing emails from advertisers, following the account that tweetsTweets a Promoted Tweet,Ad, or completing a transaction on an external website. We believe changes in ad engagements is one way to measure user engagement with our advertising products. We believe changes in costCost per ad engagement is an output of our ads auction process and will vary from one wayperiod to measure demand.
another based on geographic performance, auction dynamics, the strength of demand for various ad formats, and campaign objectives.
In the three months ended December 31,
2018,2021, ad engagements
increased 33%decreased 12% from the three months ended December 31,
2017. The increase was2020, driven by
increased demanda mix shift toward lower funnel ad formats and
improved clickthrough rates (CTR),15-second video views, which,
grew on a year-over-year basis across the majority ofalthough they have higher cost per ad
types as our ad prediction models and video ad product performance continues to improve.engagement, generally have lower engagement rates. In the three months ended December 31,
2018,2021, cost per ad engagement
decreased 7% fromincreased by 39% compared to the three months ended December 31,
2017. The decrease in cost per2020, primarily driven by like-for-like price increases across most ad
engagement reflects higher CTR from improved relevance, an ongoing shiftformats due to
video ads, which carry higher CTR and lower CPE, and slight compression in like for like pricing. With improved CTR, advertisers are able to get the
same amountimpact of
engagements (or more) at a lower (or similar) price.
Factors Affecting Our Future Performance
User Growth and Monetization. User growth trends reflected in the growth rate of mDAUs and monetization trends reflected in advertising engagements are key factors that affect our revenue. As our user base and the level of engagement of our users grow, we believe the potential to increase our revenue grows.
User Growth. We have generally experienced growth in our number of mDAU over theCOVID last several years. In general, a higher proportion of Internet users in the United States and Japan use Twitter than Internet users in other countries. Accordingly, in the future we expect our user growth rate in certain international markets to continue to be higher than our user growth rate in the United States. However, we expect to face challenges in entering some markets, such as China, where access to Twitter is blocked,year, as well as certain other countries that have intermittently restricted access to Twitter. Restrictions or limitations on access to Twitter may adversely impact our ability to increase the size of our user base and generate additional revenue in certain markets.
We intend to grow mDAU by building and shipping product changes more rapidly to make Twitter safer and investing in our core use case and in new product areas that further strengthen our unique position as the best and fastest place to see and talk about what’s happening in the world. Our mDAU growth rate has fluctuated over time, and it may slow or decline. To the extent our mDAU growth or growth rate slows or the absolute number of mDAU declines, our revenue growth will become dependent on our ability to increase levels of user engagement on Twitter and increasing revenue growth from third-party publishers’ websites and applications, data licensing and other offerings.
Monetization. There are many variables that impact the monetization of our platform, such as the number of users, our users’ level of engagement with our platform, ad load (which is a function of the amount of advertising we choose to display), our users’ engagement with our Promoted Products, advertiser demand and cost per ad engagement. Generally, we design our algorithms for our pay-for-performance Promoted Products on Twitter to optimize the overall user experience and the value we deliver to advertisers. Advertising revenue growth may be impacted by escalating competition for digital ad spending and the reevaluation of our revenue product feature portfolio, which could result in the de-emphasis of certain product features. Furthermore, we may see a decline in the number of advertisers on a year-over-year basis, which may also impact overall demand for our ads products. We have, and may in the future, increase ad load to the extent that we are able to continue to reach the right balance of advertiser value and the overall user experience. In order to improve monetization, we plan to increase the value of our advertising services by continuing to increase the size and engagement of our user base as well as improve our ability to target advertising to our users’ interests and the ability of our advertisers to optimize their campaigns and measure the results of their campaigns.
Although the majority of the Promoted Products we sell to our advertisers are placed on Twitter, we have augmented our advertising revenue by selling products that we place on third-party publishers’ websites, applications or other offerings. When we place ads off our owned and operated properties, we incur additional costs, particularly traffic acquisition costs, to fulfill our services to advertisers.
We intend to continue to increase the monetization of our platform by improving the targeting capabilities of our advertising services to enhance the value of our Promoted Products for advertisers, delivering differentiated products to advertisers, and developing newmix shift toward lower funnel ad formats for advertisers.
Effectivenessand 15-second video views.
Table of Our Advertising Services. Advertisers can use Twitter to communicate directly with their followers for free, but many choose to purchase our advertising services to reach a broader audience and further promote their brands, products and services. We believe that increasing the effectiveness of our Promoted Products for advertisers, as well as providing better measurement tools and improving creative capabilities, will increase the amount that advertisers spend with us. We aim to increase the value of our Promoted Products by increasing the size and engagement of our user base, improving our ability to target advertising to our users’ interests and improving the ability of our advertisers to optimize their campaigns and measure the results of their campaigns. We may also develop new advertising products and services.Investment in International Operations. We intend to strategically invest in our international operations in order to expand our user base and advertiser base and increase user engagement and monetization internationally. In the three months ended December 31, 2018, we had 99 million average mDAUs internationally compared to 27 million average mDAUs in the United States. In the three months ended December 31, 2018, we had 255 million average MAUs internationally compared to 66 million average MAUs in the United States. International growth of mDAUs has been faster than growth in the United States; however, we derive approximately half of our advertising revenue from advertisers in the United States.
We face challenges in increasing our advertising revenue internationally, including local competition, differences in advertiser demand, differences in the digital advertising market and conventions, and differences in the manner in which Twitter is accessed and used internationally. We face competition from well-established competitors in certain international markets. In addition, certain international markets are not as familiar with digital advertising in general, or with new forms of digital advertising, such as our Promoted Products. In these jurisdictions we are investing to educate advertisers about the benefits of our advertising services. However, we expect that it may require a significant investment of time and resources to educate advertisers in many international markets. We also face challenges in providing certain advertising products, features or analytics in certain international markets, such as the European Union, due to government regulation.
Contents
Competition. We face competition for users and advertisers. We compete against many companies to attract and engage users and for advertiser spend, including companies with greater financial resources and substantially larger user bases which offer a variety of Internet and mobile device-based products, services and content. In recent years there has been a significant number of acquisitions and consolidation activity by and among our actual and potential competitors. We must compete effectively for users and advertisers in order to grow our business and increase our revenue. We believe that our ability to compete effectively for users depends upon a number of factors, including the quality of our products and services and the actual or perceived return our advertisers receive on their investment in our products and services. Our ability to compete effectively for advertisers also depends upon a number of factors, including our ability to offer attractive advertising products with unique targeting capabilities, the size of our active user base, and our ability to have the most valuable audience when they are most receptive. We have seen competition for digital ad spending and expect this trend to continue. In addition, many advertisers, particularly branded advertisers use marketing mix analyses to determine how to allocate their advertising budgets on an annual or bi-annual basis. As a result, we need to demonstrate to those advertisers during the appropriate time period that we provide a better return on investment than our competitors do in order to secure, increase or sustain our share of the advertising budget allocated for a significant portion of the year until the next budget cycle. We intend to continue to invest in research and development to improve our products and services for users and advertisers and to grow our active user base in order to address the competitive challenges in our industry. As part of our strategy to improve our products and services, we may acquire other companies to add engineering talent or complementary products and technologies.
Investment in Infrastructure. We strive to optimize the capacity and enhance the capability and reliability of our infrastructure. Our infrastructure is critical to providing users, platform partners, advertisers and data partners access to our platform, particularly during major planned and unplanned events, such as elections, sporting events or natural disasters, when activity on our platform increases dramatically. As our user base and the activity on our platform grow, we expect that investments and expenses associated with our infrastructure will continue to grow. These investments and expenses include the expansion and improvement of our data center operations and related operating costs, additional servers and networking equipment to increase the capacity of our infrastructure, increased bandwidth costs, and costs to secure our customers’ data.
Products and Services Innovation. Our ability to increase the size and engagement of our user base, attract advertisers and increase our revenue will depend, in part, on our ability to improve existing products and services and to successfully develop or acquire new products and services. We will continue to invest in revenue products as we work to improve our ads platform and ad formats to help our ad partners launch new products and services and connect with what’s happening on Twitter. We plan to continue to make significant investments in research and development and, from time to time, we may acquire companies to enhance our products, services and technical capabilities. In addition, we continue to invest in health as we continue our work to help people find credible information on our service and feel safe participating in the conversation on Twitter.
Investment in Talent. We intend to invest in hiring key engineering roles and retaining talented employees to grow our business. We have seen reduced levels of attrition in 2018, but we need to continue to focus on hiring and employee retention to be successful. We have also made, and intend to continue to make, acquisitions that add engineers, designers, product managers and other personnel with specific technology expertise. In addition, we must retain our high-performing personnel in order to continue to develop, sell and market our products and services and manage our business.
Seasonality. Advertising spending is traditionally strongest in the fourth quarter of each year. Historically, this seasonality in advertising spending has affected our quarterly results, with higher sequential advertising revenue growth from the third quarter to the fourth quarter compared to sequential advertising revenue growth from the fourth quarter to the subsequent first quarter. For example, our advertising revenue increased 17%, 28% and 22% between the third and fourth quarters of 2016, 2017 and 2018, respectively, while advertising revenue for the first quarter of 2017 and 2018 decreased 26% and 11% compared to the fourth quarter of 2016 and 2017, respectively.
Stock-Based Compensation Expense. We have historically utilized, and intend to continue to utilize, various forms of stock-based awards in order to hire and retain talented employees. During the years ended December 31, 2018 and 2017, we recognized $326.2 million and $433.8 million of expense related to stock-based compensation, respectively. As of December 31, 2018, we had unrecognized stock-based compensation expense of approximately $715.0 million related to outstanding equity awards, which we expect to recognize over a weighted-average period of approximately three years. The stock-based compensation expenses related to our outstanding equity awards have a significant impact on the amount of net income we generate on a GAAP basis. We made significant progress in reducing our annual stock-based compensation expense on both an absolute basis and as a percentage of revenue, down to 11% in 2018, from 18% and 24% in 2017 and 2016, respectively. We remain committed to maintaining stock-based compensation as a percentage of revenue in line with our peers.
Results of Operations
The following tables set forth our consolidated
statementstatements of operations data for each of the periods presented (in thousands):
| | | Year Ended December 31, | | | Year Ended December 31, |
| | 2018 | | | 2017 | | | 2016 | | | 2021 | | 2020 | |
Revenue | | | | | | | | | | | | | Revenue | | | | |
Advertising services | | $ | 2,617,397 | | | $ | 2,109,987 | | | $ | 2,248,052 | | Advertising services | $ | 4,505,692 | | | $ | 3,207,392 | | |
Data licensing and other | | | 424,962 | | | | 333,312 | | | | 281,567 | | Data licensing and other | 571,790 | | | 508,957 | | |
Total revenue | | | 3,042,359 | | | | 2,443,299 | | | | 2,529,619 | | Total revenue | 5,077,482 | | | 3,716,349 | | |
Costs and expenses (1) | | | | | | | | | | | | | Costs and expenses (1) | | |
Cost of revenue | | | 964,997 | | | | 861,242 | | | | 932,240 | | Cost of revenue | 1,797,510 | | | 1,366,388 | | |
Research and development | | | 553,858 | | | | 542,010 | | | | 713,482 | | |
Research and development (2) | | Research and development (2) | 1,246,704 | | | 873,011 | | |
Sales and marketing | | | 771,361 | | | | 717,419 | | | | 957,829 | | Sales and marketing | 1,175,970 | | | 887,860 | | |
General and administrative | | | 298,818 | | | | 283,888 | | | | 293,276 | | General and administrative | 584,336 | | | 562,432 | | |
Litigation settlement, net (3) | | Litigation settlement, net (3) | 765,701 | | | — | | |
Total costs and expenses | | | 2,589,034 | | | | 2,404,559 | | | | 2,896,827 | | Total costs and expenses | 5,570,221 | | | 3,689,691 | | |
Income (loss) from operations | | | 453,325 | | | | 38,740 | | | | (367,208 | ) | Income (loss) from operations | (492,739) | | | 26,658 | | |
Interest expense | | | (132,606 | ) | | | (105,237 | ) | | | (99,968 | ) | Interest expense | (51,186) | | | (152,878) | | |
Interest income | | | 111,221 | | | | 44,383 | | | | 24,277 | | Interest income | 35,683 | | | 88,178 | | |
Other income (expense), net | | | (8,396 | ) | | | (73,304 | ) | | | 2,065 | | Other income (expense), net | 97,129 | | | (12,897) | | |
Income (loss) before income taxes | | | 423,544 | | | | (95,418 | ) | | | (440,834 | ) | Income (loss) before income taxes | (411,113) | | | (50,939) | | |
Provision (benefit) for income taxes | | | (782,052 | ) | | | 12,645 | | | | 16,039 | | |
Provision (benefit) for income taxes (4) | | Provision (benefit) for income taxes (4) | (189,704) | | | 1,084,687 | | |
Net income (loss) | | $ | 1,205,596 | | | $ | (108,063 | ) | | $ | (456,873 | ) | Net income (loss) | $ | (221,409) | | | $ | (1,135,626) | | |
| | | | | | | | | | | | | |
(1)
| Costs and expenses include stock-based compensation expense as follows (in thousands):
|
(1)Costs and expenses include stock-based compensation expense as follows (in thousands): | | | Year Ended December 31, | | | Year Ended December 31, |
| | 2018 | | | 2017 | | | 2016 | | | 2021 | | 2020 | |
Cost of revenue | | $ | 17,289 | | | $ | 23,849 | | | $ | 29,502 | | Cost of revenue | $ | 45,203 | | | $ | 32,020 | | |
Research and development | | | 183,799 | | | | 240,833 | | | | 335,498 | | Research and development | 381,961 | | | 281,092 | | |
Sales and marketing | | | 71,305 | | | | 94,135 | | | | 160,935 | | Sales and marketing | 112,990 | | | 98,748 | | |
General and administrative | | | 53,835 | | | | 74,989 | | | | 89,298 | | General and administrative | 89,747 | | | 63,072 | | |
Total stock-based compensation expense | | $ | 326,228 | | | $ | 433,806 | | | $ | 615,233 | | Total stock-based compensation expense | $ | 629,901 | | | $ | 474,932 | | |
(2)In the second quarter of 2020, we recorded $150.0 million in general and administrative expenses in the consolidated statements of operations related to a draft complaint from the Federal Trade Commission. Refer to Note 16of the Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K for further information.
(3)In the third quarter of 2021, we entered into an agreement to settle a shareholder class action lawsuit and recorded a charge of $809.5 million partially offset by the recognition of an insurance recovery of $5.8 million. In addition, during the third quarter of 2021, we recorded a benefit for insurance proceeds of $38.0 million related to the settlement of separate shareholder derivative lawsuits. Refer to Note 16 of the Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K for further information.
(4)In 2020, we recognized a provision for income taxes of $1.10 billion related to the establishment of a valuation allowance against deferred tax assets of a foreign subsidiary. Refer to Note 15 of the Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K for further information.
The following table sets forth our consolidated statement of operations data for each of the periods presented as a percentage of revenue: | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 | | |
| Revenue | | | | | |
| Advertising services | 89 | % | | 86 | % | | |
| Data licensing and other | 11 | | | 14 | | | |
| Total revenue | 100 | | | 100 | | | |
| Costs and expenses | | | | | |
| Cost of revenue | 35 | | | 37 | | | |
| Research and development | 25 | | | 23 | | | |
| Sales and marketing | 23 | | | 24 | | | |
| General and administrative | 12 | | | 15 | | | |
| Litigation settlement, net | 15 | | | — | | | |
| Total costs and expenses | 110 | | | 99 | | | |
| Income (loss) from operations | (10) | | | 1 | | | |
| Interest expense | (1) | | | (4) | | | |
| Interest income | 1 | | | 2 | | | |
| Other income (expense), net | 2 | | | 0 | | | |
| Income (loss) before income taxes | (8) | | | (1) | | | |
| Provision (benefit) for income taxes | (4) | | | 29 | | | |
| Net income (loss) | (4) | % | | (31) | % | | |
| | Year Ended December 31, | |
| | 2018 | | | 2017 | | | 2016 | |
Revenue | | | | | | | | | | | | |
Advertising services | | | 86 | % | | | 86 | % | | | 89 | % |
Data licensing and other | | | 14 | | | | 14 | | | | 11 | |
Total revenue | | | 100 | | | | 100 | | | | 100 | |
Costs and expenses | | | | | | | | | | | | |
Cost of revenue | | | 32 | | | | 35 | | | | 37 | |
Research and development | | | 18 | | | | 22 | | | | 28 | |
Sales and marketing | | | 25 | | | | 29 | | | | 38 | |
General and administrative | | | 10 | | | | 12 | | | | 12 | |
Total costs and expenses | | | 85 | | | | 98 | | | | 115 | |
Income (loss) from operations | | | 15 | | | | 2 | | | | (15 | ) |
Interest expense | | | (4 | ) | | | (4 | ) | | | (4 | ) |
Interest income | | | 4 | | | | 2 | | | | 1 | |
Other income (expense), net | | | (0 | ) | | | (3 | ) | | | 0 | |
Income (loss) before income taxes | | | 14 | | | | (4 | ) | | | (17 | ) |
Provision (benefit) for income taxes | | | (26 | ) | | | 1 | | | | 1 | |
Net income (loss) | | | 40 | % | | | (4 | )% | | | (18 | )% |
| | | | | | | | | | | | |
Years Ended December 31, 2018, 20172021 and 2016
2020
We generate
the substantial majoritymost of our revenue from the sale of advertising services. We also generate revenue by licensing our data to third parties and providing mobile advertising exchange services.
We generate most of our advertising revenue by selling our Promoted Products. Currently, our Promoted Products consist of the following:
•Promoted TweetsAds and Twitter Amplify. Promoted Tweets,Ads (previously branded as Promoted Tweets), which are labeled as “promoted,” appear within a user’s timeline, search results, or profile pages, just like an ordinaryand Tweet regardless of device, whether it be desktop or mobile.conversations. Using our proprietary algorithms and understanding of the interests ofwhat is relevant to each user,account, we can deliver Promoted TweetsAds that are intended to be relevant to a particular user.achieve the outcome that the advertiser is seeking. We enable our advertisers to target an audience based on our users’ interest graphs.many criteria. Our Promoted TweetsAds are pay-for-performance or pay-for-impression delivered advertising that are priced through an auction. Our Promoted TweetsAds include objective-based features that allow advertisers to pay onlyoptimize for the types of engagementgoal selected by the advertisers, such as Tweet engagements (e.g., Retweets, replies and likes), website clicks or conversions,traffic, mobile application installs or engagements, obtaining new followers, or video views.
•Follower Ads. Follower Ads (previously branded as Promoted Accounts. Promoted Accounts,Accounts), which are labeled as “promoted,” provide a way for our advertisers to build and grow a community of users who arean audience that is interested in their business, productsproduct or services.service. Our Promoted AccountsFollower Ads are pay-for-performance advertising that is priced through an auction.
•Twitter Takeover. Twitter Takeover (previously branded as Promoted Trends. Promoted Trends,Trends), which are labeled as “promoted,” appear at the top of the list of trending topics or timeline for an entire day in a particular country or on a global basis.country. We sell our Promoted TrendsTwitter Takeover on a fixed-fee-per-day basis.
While the majority of the Promoted Products we sell to our advertisers are placed on Twitter, we also generate advertising revenue by placing advertising products that we sell to advertisers on third-party publishers’ websites, applications or other offerings.
We generate data licensing and other revenue by (i) offering data products and data licenses that allow our data partners to access, search and analyze historical and real-time data on our platform
which data(which consists of public Tweets and their
content,content), and (ii)
until the completion of its sale on January 1, 2022, providing mobile advertising exchange services through our MoPub exchange. Our data partners generally purchase licenses to access all or a portion of our data for a fixed period. We recognize data licensing revenue as our data partners consume and benefit from their
continuous use of the licensed
data over time.data. In addition,
through December 31, 2021, we
operateoperated a mobile ad exchange and
receivereceived service fees from transactions completed on the exchange. Our mobile ad exchange
enablesenabled buyers and sellers to purchase and sell advertising inventory and
matchesmatched buyers and sellers. We have determined we
arewere not the principal as it relates to
our performance obligation of providing an ad exchange service in the purchase and sale of advertising inventory in transactions between third-party buyers and sellers on the exchange. Therefore, we report revenue related to our ad exchange services on a net basis.
| | | Year Ended December 31, | | | 2017 to 2018 | | | 2016 to 2017 | | | Year Ended December 31, | | | | |
| | 2018 | | | 2017 | | | 2016 | | | % Change | | | % Change | | | 2021 | | 2020 | | | $ Change | | % Change | |
| | (in thousands) | | | | | | | | | | | (in thousands) | | | | | | |
Advertising services | | $ | 2,617,397 | | | $ | 2,109,987 | | | $ | 2,248,052 | | | | 24 | % | | | (6 | )% | Advertising services | $ | 4,505,692 | | | $ | 3,207,392 | | | | $ | 1,298,300 | | | 40 | % | |
Data licensing and other | | | 424,962 | | | | 333,312 | | | | 281,567 | | | | 27 | % | | | 18 | % | Data licensing and other | 571,790 | | | 508,957 | | | | $ | 62,833 | | | 12 | % | |
Total revenue | | $ | 3,042,359 | | | $ | 2,443,299 | | | $ | 2,529,619 | | | | 25 | % | | | (3 | )% | Total revenue | $ | 5,077,482 | | | $ | 3,716,349 | | | | $ | 1,361,133 | | | 37 | % | |
2018
2021 Compared to 20172020. Revenue in 20182021 increased by $599.1 million$1.36 billion or 37% compared to 2017.2020.
In
2018,2021, advertising revenue increased by
24%$1.30 billion or 40% compared to
2017. The substantial majority of our advertising revenue was generated from our owned and operated platform. Advertising revenue generated from the sale of our advertising products on our owned and operated platform in 2018 was $2.46 billion as compared to $1.90 billion in 2017. Advertising revenue generated from the sale of our advertising products placed on third-party publishers’ websites, applications and other offerings in 2018 was $154.4 million as compared to $211.2 million in 2017.2020. The overall increase in advertising revenue was primarily attributable to a 55%reflects an increase in the number of ad engagements offsetadvertiser demand driven by revenue product improvements, strong sales execution, and a 20% decrease in cost per ad engagement in 2018 compared to 2017. Thebroad increase in ad engagements was driven by increased demand and improved clickthrough rates. advertiser demand.
The
decrease in cost per ad engagement reflects the ongoing mix shift to video ad engagements (which have overall lower cost per ad engagement compared to other ad formats), higher clickthrough rates, and a slight compression in like for like pricing.The decrease in advertising revenue from the sale of our advertising products placed on third-party publishers’ websites, applications and other offerings in 2018 was driven primarily by the lack of contribution from TellApart (which was deprecated in 2017). TellApart revenue contributed $44.6 million in revenue in 2017, mainly in the first half of 2017, and was fully deprecated in the fourth quarter of 2017.
Advertising revenue continued to be driven by continued sales momentum with advertisers, built around our differentiated ad formats, better relevance, and improved ROI. As our user base and the level of engagement of our users grow, we believe the potential to increase our revenue grows.
In 2018, data licensing and other revenue increased by 27% compared to 2017. A majority of the increase was attributable to expanded and new partnerships.
Looking ahead, while data licensing and other revenue continues to benefit from customers developing new use cases and smaller customers adopting self-service APIs, we are now largely through our multi-year enterprise renewal cycle. As a result, with many of our largest partners now at market pricing, revenue growth is likely to moderate in 2019.
2017 Compared to 2016. Revenue in 2017 decreased by $86.3 million compared to 2016.
In 2017, advertising revenue decreased by 6% compared to 2016. The substantial majority of our advertising revenue was generated from our owned and operated platform. Advertising revenue generated from the sale of our advertising products on our owned and operated platform in 2017 was $1.90 billion as compared to $1.99 billion in 2016. Advertising revenue generated from the sale of our advertising products placed on third-party publishers’ websites, applications and other offerings in 2017 was $211.2 million as compared to $260.2 million in 2016. The decrease in advertising revenue from the sale of our advertising products placed on third-party publishers’ websites, applications and other offerings in 2017 was driven by significantly lower contribution from TellApart (which was deprecated in 2017), which was offset by strong performance from Twitter Audience Platform. TellApart revenue was $44.6 million in 2017, mainly in the first half of 2017, compared to $126.4 million in 2016.
The overall decrease in advertising revenue was primarily attributable to a 52% decrease in cost per ad engagement offset by a 96%7% increase in the number of ad engagements in 2017 compared to 2016. The decrease2021 and a 32% increase in cost per ad engagement reflects a higher mix of video ad engagements (which have overall lower cost per ad engagement compared to other ad formats) and lower cost per ad engagement across the majority of ad formats compared to the fourth quarter of 2016.2020. The increase in ad engagements was drivendue to our growing audience and increased demand for ads on a year-over-year basis, offset in part by a continuing mix shift toward lower funnel ad formats and 15-second video views which, although they have higher cost per ad impressionsengagement, generally have lower engagement rates. The increase in cost per ad engagement was primarily driven by like-for-like price increases across most ad formats due to the impact of COVID last year, as well as higher clickthrough rates.
Advertising revenue continued to be driven by strong growth in our videoa mix shift toward lower funnel ad formats offset by declines in traditional Promoted Tweet and direct response ad formats.
15-second video views.
In 2017,2021, data licensing and other revenue increased by 18%$62.8 million or 12% compared to 2016. A majority of the2020. The increase was attributable to growth in data licensing feesMoPub and to Twitter Development Platform (formerly known as Developer and Enterprise Solutions) revenue attributed to contract renewals with higher fees. In December 2021, we completed the wind down of MoPub Acquire (formerly known as CrossInstall) and on January 1, 2022, we closed the sale of MoPub. MoPub and MoPub Acquire generated approximately $217.9 million in revenue in 2021, the significant majority of which was reflected in "Data Licensing and Other" revenue.
To better reflect our business opportunities, including the sale of MoPub and the launch of Twitter Blue in 2022, we will update the name of “Data Licensing and Other Revenue” to “Subscription and Other Revenue” starting in the first quarter of 2022. This revenue line will include subscription revenue from the offeringTwitter Development Platform, Twitter Blue, and other subscription-related offerings.
Cost of revenue includes infrastructure costs,
other direct costs including content costs,revenue share expenses, amortization of acquired intangible assets,
and amortization of capitalized labor costs for internally developed software, allocated facilities costs, as well as traffic acquisition costs
or TAC.(TAC). Infrastructure costs consist primarily of data center costs related to our co-located facilities, which include lease and hosting costs, related support and maintenance costs and energy and bandwidth
costs;costs, public cloud hosting costs, as well as depreciation of servers and networking equipment; and personnel-related costs, including salaries, benefits and stock-based compensation, for our operations teams. TAC consists of costs we incur with third parties in connection with the sale to advertisers of our advertising products that we place on third-party publishers’ websites,
and applications or other offerings collectively resulting from
acquisitions, and from our organically-built advertising network, Twitter Audience Platform.acquisitions. Certain
of the elements of our cost of revenue are fixed and cannot be
quickly reduced in the near
term.term in response to market conditions. | | | Year Ended December 31, | | | 2017 to 2018 | | | 2016 to 2017 | | | Year Ended December 31, | | | |
| | 2018 | | | 2017 | | | 2016 | | | % Change | | | % Change | | | 2021 | | 2020 | | $ Change | | | % Change | |
| | (in thousands) | | | | | | | | | | | (in thousands) | | | | | | |
Cost of revenue | | $ | 964,997 | | | $ | 861,242 | | | $ | 932,240 | | | | 12 | % | | | (8 | )% | Cost of revenue | $ | 1,797,510 | | | $ | 1,366,388 | | | $ | 431,122 | | | | 32 | % | |
Cost of revenue as a percentage of revenue | | | 32 | % | | | 35 | % | | | 37 | % | | | | | | | | | Cost of revenue as a percentage of revenue | 35 | % | | 37 | % | | | | |
2018
2021 Compared to 20172020. In 2018,2021, cost of revenue increased by $103.8$431.1 million compared to 2017.2020. The increase was attributable to an $89.3a $264.7 million increase primarily from a combination of revenue share expenses and personnel-related costs due to growth in employee headcount and a $166.4 million increase in direct costs, primarily driven by an increase in content costs and a $50.4 million increase in depreciation and amortization expense primarily related to additional internally developed software, server and networking equipment. These increases were offset by a $35.3 million decrease in TAC substantially due to the lack of advertising revenue generated from TellApart (which we deprecated in 2017), and a $0.6 million decrease in other expenses.2017 Compared to 2016. In 2017, cost of revenue decreased by $71.0 million compared to 2016. The decrease was attributable to a $48.6 million decrease in restructuring expenses, a $45.3 million decrease in infrastructure costs, a $42.7 million decrease in TAC substantially due to the decrease in advertising revenue generated from TellApart (which we deprecated in 2017), and a $3.5 million decrease in personnel-related costs. These decreases were offset by a $55.5 million increase in other direct costs that is primarily driven by an increase in content costs, and a $13.6 million increase in depreciation and amortization expense primarily related to additional internally developed software, server and networking equipment.
We plan to continue to scale the capacity and enhance the capability and reliability of our infrastructure to support usermDAU growth and increased activity on our platform. We expect that cost of revenue will increase in absolute dollar amounts and vary as a percentage of revenue.
revenue over time.
Research and development expenses consist primarily of personnel-related costs, including salaries, benefits and stock-based compensation, for our engineers and other employees engaged in the research and development of our products and services. In addition, research and development expenses include amortization of acquired intangible assets, allocated facilities costs, and other supporting overhead costs. | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, | | | | |
| 2021 | | 2020 | | $ Change | | | % Change | | |
| (in thousands) | | | | | | | |
| Research and development | $ | 1,246,704 | | | $ | 873,011 | | | $ | 373,693 | | | | 43 | % | | |
| Research and development as a percentage of revenue | 25 | % | | 23 | % | | | | | | | |
| | Year Ended December 31, | | | 2017 to 2018 | | | 2016 to 2017 | |
| | 2018 | | | 2017 | | | 2016 | | | % Change | | | % Change | |
| | (in thousands) | | | | | | | | | |
Research and development | | $ | 553,858 | | | $ | 542,010 | | | $ | 713,482 | | | | 2 | % | | | (24 | )% |
Research and development as a percentage of revenue | | | 18 | % | | | 22 | % | | | 28 | % | | | | | | | | |
20182021 Compared to 20172020. In 2018,2021, research and development expenses increased by $11.8$373.7 million compared to 2017.2020. The increase was attributable to a $15.4$432.5 million net increase in allocated facilities costs, other supporting overhead expenses, and other expenses, and the absence of a $12.1 million one-time nonrecurring gain on sale of assets that occurred in the year ended December 31, 2017. These increases were offset by a $8.7 million net decrease in personnel-related costs mainly driven by a decrease in stock-based compensation expense due partially to forfeitures offset in part by an increase in average employee headcount as we continue to focus investments in engineering, product, design, and research, and a $7.0$100.5 million increase in facilities costs and other administrative expenses, offset by a $159.3 million increase in the capitalization of costs associated with developing software for internal use.
2017 Compared to 2016. In 2017, research and development expenses decreased by $171.5 million compared to 2016. The decrease was attributable to a $141.6 million decrease in personnel-related costs, mainly driven by a decrease in stock-based compensation expense, a $25.9 million decrease in restructuring charges net of a one-time nonrecurring gain on sale of assets in 2017, a $23.7 million decrease in allocated facilities and other supporting overhead expenses due to a decrease in overall total expenses, a $2.6 million decrease in other expenses, and a $2.5 million decrease in depreciation and amortization expense, offset by a $24.8 million decrease in the capitalization of costs associated with developing software for internal use.
We plan to continue to invest in key areas of our business to ensure that we have
the rightan appropriate level of engineering, product management and design personnel and related resources to support our research and development
efforts.efforts on key priorities. We expect that research and development
costsexpenses will increase in absolute dollar amounts and vary as a percentage of
revenue.revenue over time.
Sales and marketing expenses consist primarily of personnel-related costs, including salaries, commissions, benefits and stock-based compensation for our employees engaged in sales, sales support, business development and media, marketing, corporate communications and customer service functions. In addition, marketing and sales-related expenses also include advertising costs, market research, tradeshows,trade shows, branding, marketing, public relations costs, amortization of acquired intangible assets, allocated facilities costs, and other supporting overhead costs. | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, | | | | |
| 2021 | | 2020 | | $ Change | | | | % Change | | |
| (in thousands) | | | | | | | | |
| Sales and marketing | $ | 1,175,970 | | | $ | 887,860 | | | $ | 288,110 | | | | | 32 | % | | |
| Sales and marketing as a percentage of revenue | 23 | % | | 24 | % | | | | | | | | |
| | Year Ended December 31, | | | 2017 to 2018 | | | 2016 to 2017 | |
| | 2018 | | | 2017 | | | 2016 | | | % Change | | | % Change | |
| | (in thousands) | | | | | | | | | |
Sales and marketing | | $ | 771,361 | | | $ | 717,419 | | | $ | 957,829 | | | | 8 | % | | | (25 | )% |
Sales and marketing as a percentage of revenue | | | 25 | % | | | 29 | % | | | 38 | % | | | | | | | | |
20182021 Compared to 20172020. In 2018,2021, sales and marketing expensesincreased by $53.9$288.1 million compared to 2017. 2020.Theincrease was attributable to a $36.2 million net increase in allocated facilities costs and other supporting overhead expenses, a $9.3$148.9 million increase in sales related expenses due to higher revenue as well as in marketing and sales-related expenses, and a $23.9$95.0 million net increase in personnel-related costs mainly driven by an increase in average employee headcount, offsetand a $44.2 million net increase in part by a decrease in stock-based compensation expense. These increases were offset by a $15.5 million decrease in amortization of acquired intangible assets due to certain intangible assets becoming fully amortized.
2017 Compared to 2016. In 2017, sales and marketing expenses decreased by $240.4 million compared to 2016. The decrease was attributable to a $116.0 million decrease in personnel-relatedfacilities costs driven by a decrease in average employee headcount mainly as a result of our 2016 restructuring plan, a $54.0 million decrease in marketing and sales-related expenses, a $28.0 million decrease in allocated facilities and other supporting overhead expenses due to a decrease in overall total expenses, a $27.4 million decrease in restructuring expenses, and a $15.0 million decrease in amortization of acquired intangible assets.
administrative expenses.
We continue to evaluate key areas in our business to ensure we have
the rightan appropriate level of sales and marketing
expenses to execute on our key priorities and objectives. We expect that sales and marketing
costsexpenses will increase in absolute dollar amounts and vary as a percentage of
revenue.revenue over time.
General and Administrative
General and administrative expenses consist primarily of personnel-related costs, including salaries, benefits and stock-based compensation, for our executive, finance, legal, information technology, human resources and other administrative employees. In addition, general and administrative expenses include fees and costs for professional services, including consulting, third-party legal and accounting services and facilities costs and other supporting overhead costs that are not allocated to other departments.
| | | Year Ended December 31, | | | 2017 to 2018 | | | 2016 to 2017 | | | Year Ended December 31, | | | |
| | 2018 | | | 2017 | | | 2016 | | | % Change | | | % Change | | | 2021 | | 2020 | | $ Change | | | % Change | |
| | (in thousands) | | | | | | | | | | | (in thousands) | | | | | | |
General and administrative | | $ | 298,818 | | | $ | 283,888 | | | $ | 293,276 | | | | 5 | % | | | (3 | )% | General and administrative | $ | 584,336 | | | $ | 562,432 | | | $ | 21,904 | | | | 4 | % | |
General and administrative as a percentage of revenue | | | 10 | % | | | 12 | % | | | 12 | % | | | | | | | | | General and administrative as a percentage of revenue | 12 | % | | 15 | % | | | | |
2018
2021 Compared to 20172020. In 2018,2021, general and administrative expenseexpenses increased by $14.9$21.9 million compared to 2017.2020. The increase was attributable to a $24.6$205.7 million net increase inprimarily from a combination of personnel-related costs driven by an increasedue to growth in average employee headcount and higher professional service fees, offset by the non-recurrence of a $150.0 million expense related to an ongoing FTC matter recorded in part by a decrease in stock-based compensation expense,2020 and a $7.9net decrease of $33.8 million increase in professional service fees. These increases were offset by a $17.6 million decrease in allocated facilities costs other supporting overhead expenses, and other expenses.2017 Compared to 2016. In 2017, general and administrative expense decreased by $9.4 million compared to 2016. The decrease was attributable to a $9.2 million decrease in personnel-related costs, mainly driven by a decrease in stock-based compensation expense, a $4.9 million decrease in facilities and supporting costs, and a $4.8 million decrease in restructuring charges. The decreases were offset by a $9.0 million increase in fees and costs for professional services, and a $0.5 million increase in other expenses.
We plan to continue to invest in
key areas of our business and ensure that we have the right level of general and administrative
functions to ensure we have an appropriate level of support
onfor our key
priorities and objectives. We expect that general and administrative expenses will increase in absolute dollar amounts and vary as a percentage of
revenue.revenue over time.
Litigation Settlement, Net
In September 2021, we entered into a binding agreement to settle a shareholder class action lawsuit. The proposed settlement resolves all claims asserted against us and the other named defendants in the shareholder class action lawsuit without any liability or wrongdoing attributed to them personally or to us. In the third quarter of 2021, we recorded a charge of $809.5 million for the settlement in the consolidated statement of operations, partially offset by the recognition of an insurance recovery of $5.8 million. In addition, in the third quarter of 2021, we recorded a benefit for insurance proceeds of $38.0 million related to the settlement of separate shareholder derivative lawsuits. We paid the settlement amount of $809.5 million from cash on hand in the fourth quarter of 2021.
Interest expense consists primarily of interest expense incurred in connection with the $935.0 million principal amount of 0.25% convertible senior notes due 2019, or the 2019 Notes, $954.0 million principal amount of 1.00% convertible senior notes due in 2021, or the 2021 Notes, andwhich we repaid at maturity in September 2021, the $1.15 billion principal amount of 0.25% convertible senior notes due in 2024, or the 2024 Notes, and together with the 2019$1.44 billion principal amount of 0% convertible senior notes due 2026, or the 2026 Notes, the $700.0 million principal amount of 3.875% senior notes due in 2027, or the 2027 Notes, and 2021 Notes, the $1.0 billion principal amount of 0.375% convertible senior notes due in 2025, or the 2025 Notes, and interest expense related to capitalfinance leases and other financing facilities. | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 | | |
| (in thousands) |
| Interest expense | $ | 51,186 | | | $ | 152,878 | | | |
| | Year Ended December 31, | |
| | 2018 | | | 2017 | | | 2016 | |
| | (in thousands) | |
Interest expense | | $ | 132,606 | | | $ | 105,237 | | | $ | 99,968 | |
20182021 Compared to 2017. 2020. In 2018,2021, interest expense increaseddecreased by $27.4$101.7 million compared to 20172020 primarily due to the issuanceour adoption of the 2024 Notes in June 2018. Interest expense in 2018 was comprisedaccounting standard update to simplify the accounting for convertible debt on January 1, 2021. Refer to Note 1 of $127.7 million of total interest expense related to the Notes as well as our credit facility (described below) and $4.9 million related to capital leasesConsolidated Financial Statements included in Part II, Item 8 of equipment.
2017 Compared to 2016. In 2017, interest expense increased by $5.3 million compared to 2016. Interest expense in 2017 was comprised of $99.6 million of total interest expense related to the Notes as well as our credit facility (described below) and $5.6 million related to capital leases of equipment.
this Annual Report on Form 10-K for further information.
Interest income is generated from our cash equivalents and short-term investments net of the related amortization of premium paid on such investments. | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 | | |
| (in thousands) |
| Interest income | $ | 35,683 | | | $ | 88,178 | | | |
| | Year Ended December 31, | |
| | 2018 | | | 2017 | | | 2016 | |
| | (in thousands) | |
Interest income | | $ | 111,221 | | | $ | 44,383 | | | $ | 24,277 | |
20182021 Compared to 2017. 2020. In 2018,2021, interest income increaseddecreased by $66.8$52.5 million compared to 2017.2020. The increasedecrease was primarily attributable to higher invested cash balances and higherlower interest rates.
2017 Compared to 2016. In 2017, interest income increased by $20.1 million compared to 2016. The increase was primarily attributable to higher invested cash balances and higher interest rates.
Other Income (Expense), Net
Other income (expense), net, consists primarily of unrealized foreign exchange gains and losses due to re-measurement of monetary assets and liabilities denominated in non-functional currencies and realized foreign exchange gains and losses on foreign exchange transactions, and gains and losses on investments in privately-held companies. We expect our foreign exchange gains and losses will vary depending upon movements in the underlying exchange rates. | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 | | |
| (in thousands) |
| Other income (expense), net | $ | 97,129 | | | $ | (12,897) | | | |
| | Year Ended December 31, | |
| | 2018 | | | 2017 | | | 2016 | |
| | (in thousands) | |
Other income (expense), net | | $ | (8,396 | ) | | $ | (73,304 | ) | | $ | 2,065 | |
20182021 Compared to 2017. 2020. In 2018,2021, other expense,income, net, was $8.4$97.1 million compared to other expense, net, of $73.3$12.9 million in 2017.2020. The change was primarily attributable to a $3.0gains of $84.7 million impairment charge in the year ended December 31, 2018, compared to a $62.4 million impairment charge in the year ended December 31, 2017, and the more favorable foreign currency exchange impacts from foreign currency-denominated assets and liabilities as well as derivative financial instruments.
2017 Compared to 2016. In 2017, other expense, net, was $73.3 million compared to other income, net, of $2.1 million in 2016. The change was primarily attributable to the recording of an impairment charge on an investment in a privately-held company in 2021 compared to impairment charges of $62.4$8.8 million on investments in 2017 and less favorable foreign currency exchange impacts from foreign currency-denominated assets and liabilities as well as derivative financial instruments.
privately-held companies in 2020.
Provision (Benefit) for Income Taxes
Our provision (benefit) for income taxes consists of federal and state income taxes in the United States and income taxes in certain foreign jurisdictions. | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 | | |
| (in thousands) |
| Provision (benefit) for income taxes | $ | (189,704) | | | $ | 1,084,687 | | | |
2021 Compared to 2020. In 2021, our benefit from income taxes was $189.7 million, compared to a net provision for income taxes of $1.08 billion in 2020. The change was primarily due to a provision from income taxes related to the establishment of a valuation allowance against deferred tax assets of $1.10 billion in 2020, and in 2021, a tax benefit from the litigation settlement described in Note 16 - Commitments and Contingencies, increased excess tax benefits from stock-based compensation, and increased research and development credits.
Our effective tax rate could be affected by our jurisdictional mix of income (loss) before taxes, including our allocation of centrally incurred costs to foreign jurisdictions, changes in tax rates and tax regulations, the impact of tax examinations, the impact of business combinations, changes in our corporate structure, changes in the geographic location of business functions or assets, tax effects of stock-based compensation, and changes in management's assessment of the ability to realize deferred tax assets. In addition, the provision is impacted by deferred income taxes
and changes in the related valuation allowance reflecting the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.
In December 2017, the Tax Act was enacted into law and the new legislation contains several key tax provisions that affected us, including a reduction
Table of the federal corporate income tax rate to 21% effective January 1, 2018. We are required to recognize the effect of the tax law changes in the period of enactment, such as re-measuring our U.S. deferred tax assets and liabilities as well as our valuation allowance against our net U.S. deferred tax assets. Also in December 2017, the SEC staff issued Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the 2017 Tax Cuts and Jobs Act (SAB 118), which allows us to record provisional amounts during a measurement period not to extend beyond one year of the enactment date. We completed our accounting for the Tax Act in the fourth quarter of 2018, within the one-year measurement period from the enactment. Please refer to Note 14 of the Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K for further information. | | Year Ended December 31, | |
| | 2018 | | | 2017 | | | 2016 | |
| | (in thousands) | |
Provision (benefit) for income taxes | | $ | (782,052 | ) | | $ | 12,645 | | | $ | 16,039 | |
2018 Compared to 2017. Our benefit for income taxes in the twelve months ended December 31, 2018 was $782.1 million, compared to a provision for income taxes of $12.6 million in 2017. Our current provision for income taxes in the twelve months ended December 31, 2018 was $19.7 million, compared to a current provision of $19.1 million for the twelve months ended December 31, 2017. Our deferred benefit for income taxes in the twelve months ended December 31, 2018 was $801.7 million, compared to a deferred benefit for income taxes of $6.4 million in the twelve months ended December 31, 2017. The change is due to the release of our valuation allowance of $845.1 million related to Brazil and most of the United States federal and all states deferred tax assets with the exception of California and Massachusetts, offset by our current year income tax expense of $63.0 million, compared to a provision of $12.6 million in 2017. Excluding the release of our deferred tax asset valuation allowance, the change was primarily due to the increase in pre-tax profitability offset by an increase to the benefit of share-based compensation.
2017 Compared to 2016. Our provision for income taxes in 2017 decreased by $3.4 million compared to 2016 primarily due to an increase in the income tax benefit arising from intraperiod allocation and partial release of valuation allowance attributable to the Tax Act related to alternative minimum tax (AMT) credits.
We anticipate that going forward we will have income tax expense, which amounts could be affected by our jurisdictional mix of profit before taxes, the extent foreign earnings are taxed in the United States through new provisions under the Tax Act, changes in tax rates and tax regulations, the impact of tax examinations, the impact of business combinations, tax effects of share based compensation, and changes in the remaining valuation allowances.
Quarterly Results of Operations
The following table sets forth our unaudited consolidated statement of operations data for each of the eight quarters in the period ended December 31, 2018. The unaudited quarterly statement of operations data set forth below have been prepared on a basis consistent with our audited annual consolidated financial statements in this Annual Report on Form 10-K and include, in our opinion, all normal recurring adjustments necessary for a fair statement of the financial information contained in those statements. Our historical results are not necessarily indicative of the results that may be expected in the future. The following quarterly financial data should be read in conjunction with our audited consolidated financial statements and the related notes included elsewhere in this Annual Report on Form 10-K.
| Three Months Ended | |
| Dec. 31, | | | Sep. 30, | | | Jun. 30, | | | Mar. 31, | | | Dec. 31, | | | Sep. 30, | | | Jun. 30, | | | Mar. 31, | |
| 2018 | | | 2018 | | | 2018 | | | 2018 | | | 2017 | | | 2017 | | | 2017 | | | 2017 | |
| (Unaudited, in thousands, except per share data) | |
Consolidated Statement of Operations Data: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Revenue(1) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Advertising services | $ | 791,365 | | | $ | 649,816 | | | $ | 601,060 | | | $ | 575,156 | | | $ | 644,257 | | | $ | 502,802 | | | $ | 489,148 | | | $ | 473,780 | |
Data licensing and other | | 117,471 | | | | 108,295 | | | | 109,481 | | | | 89,715 | | | | 87,303 | | | | 86,831 | | | | 84,707 | | | | 74,471 | |
Total revenue | | 908,836 | | | | 758,111 | | | | 710,541 | | | | 664,871 | | | | 731,560 | | | | 589,633 | | | | 573,855 | | | | 548,251 | |
Costs and expenses(2) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Cost of revenue | | 268,345 | | | | 243,644 | | | | 230,185 | | | | 222,823 | | | | 217,979 | | | | 210,016 | | | | 212,908 | | | | 220,339 | |
Research and development | | 141,174 | | | | 150,764 | | | | 138,574 | | | | 123,346 | | | | 133,996 | | | | 136,115 | | | | 143,171 | | | | 128,728 | |
Sales and marketing | | 211,774 | | | | 193,496 | | | | 188,032 | | | | 178,059 | | | | 189,572 | | | | 172,957 | | | | 185,296 | | | | 169,594 | |
General and administrative | | 80,635 | | | | 78,339 | | | | 74,126 | | | | 65,718 | | | | 79,915 | | | | 63,266 | | | | 70,839 | | | | 69,868 | |
Total costs and expenses | | 701,928 | | | | 666,243 | | | | 630,917 | | | | 589,946 | | | | 621,462 | | | | 582,354 | | | | 612,214 | | | | 588,529 | |
Income (loss) from operations | | 206,908 | | | | 91,868 | | | | 79,624 | | | | 74,925 | | | | 110,098 | | | | 7,279 | | | | (38,359 | ) | | | (40,278 | ) |
Interest expense | | (37,273 | ) | | | (38,336 | ) | | | (29,982 | ) | | | (27,015 | ) | | | (26,700 | ) | | | (26,732 | ) | | | (26,396 | ) | | | (25,409 | ) |
Interest income | | 37,013 | | | | 36,067 | | | | 21,960 | | | | 16,181 | | | | 13,349 | | | | 12,028 | | | | 10,486 | | | | 8,520 | |
Other expense, net (3) | | (111 | ) | | | (2,341 | ) | | | (5,735 | ) | | | (209 | ) | | | (3,194 | ) | | | (10,106 | ) | | | (58,806 | ) | | | (1,198 | ) |
Income (loss) before income taxes | | 206,537 | | | | 87,258 | | | | 65,867 | | | | 63,882 | | | | 93,553 | | | | (17,531 | ) | | | (113,075 | ) | | | (58,365 | ) |
Provision (benefit) for income taxes (4) | | (48,766 | ) | | | (701,921 | ) | | | (34,250 | ) | | | 2,885 | | | | 2,474 | | | | 3,564 | | | | 3,413 | | | | 3,194 | |
Net income (loss) | $ | 255,303 | | | $ | 789,179 | | | $ | 100,117 | | | $ | 60,997 | | | $ | 91,079 | | | $ | (21,095 | ) | | $ | (116,488 | ) | | $ | (61,559 | ) |
Net income (loss) per share attributable to common stockholders: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Basic | $ | 0.34 | | | $ | 1.04 | | | $ | 0.13 | | | $ | 0.08 | | | $ | 0.12 | | | $ | (0.03 | ) | | $ | (0.16 | ) | | $ | (0.09 | ) |
Diluted | $ | 0.33 | | | $ | 1.02 | | | $ | 0.13 | | | $ | 0.08 | | | $ | 0.12 | | | $ | (0.03 | ) | | $ | (0.16 | ) | | $ | (0.09 | ) |
Other Financial Information: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Adjusted EBITDA(5) | $ | 396,529 | | | $ | 295,403 | | | $ | 264,810 | | | $ | 244,054 | | | $ | 308,174 | | | $ | 206,999 | | | $ | 177,874 | | | $ | 169,939 | |
Non-GAAP net income(6) | $ | 244,141 | | | $ | 162,718 | | | $ | 133,955 | | | $ | 122,990 | | | $ | 141,407 | | | $ | 77,848 | | | $ | 56,370 | | | $ | 53,234 | |
(1)
| We adopted the new revenue standard on January 1, 2018 using the modified retrospective method. Revenue was not materially impacted by the application of the new revenue standard in any of the quarters in 2018.
|
(2)
| Costs and expenses include stock-based compensation expense as follows:
|
| Three Months Ended | |
| Dec. 31, | | | Sep. 30, | | | Jun. 30, | | | Mar. 31, | | | Dec. 31, | | | Sep. 30, | | | Jun. 30, | | | Mar. 31, | |
| 2018 | | | 2018 | | | 2018 | | | 2018 | | | 2017 | | | 2017 | | | 2017 | | | 2017 | |
| (Unaudited, in thousands) | |
Cost of revenue | $ | 4,905 | | | $ | 4,247 | | | $ | 3,338 | | | $ | 4,799 | | | $ | 6,019 | | | $ | 5,625 | | | $ | 6,253 | | | $ | 5,952 | |
Research and development | | 43,589 | | | | 53,195 | | | | 45,069 | | | | 41,946 | | | | 55,648 | | | | 57,174 | | | | 63,625 | | | | 64,386 | |
Sales and marketing | | 18,624 | | | | 19,634 | | | | 18,225 | | | | 14,822 | | | | 25,919 | | | | 22,433 | | | | 20,694 | | | | 25,089 | |
General and administrative | | 14,769 | | | | 14,530 | | | | 12,837 | | | | 11,699 | | | | 14,868 | | | | 15,727 | | | | 22,824 | | | | 21,570 | |
Total stock-based compensation expense | $ | 81,887 | | | $ | 91,606 | | | $ | 79,469 | | | $ | 73,266 | | | $ | 102,454 | | | $ | 100,959 | | | $ | 113,396 | | | $ | 116,997 | |
(3)
| In the second and third quarter of 2017, we incurred $55.0 million and $7.4 million, respectively, of impairment charges on an investment in a privately-held company.
|
(4)
| In the second quarter of 2018, we recorded a net benefit to tax expense of $43.4 million associated with the release of the valuation allowance related to deferred tax assets of our Brazil operations. In the third quarter of 2018, we recorded a net benefit to tax expense of $683.3 million associated with the release of the valuation allowance related to most of the United States federal and all states deferred tax assets with the exception of California and Massachusetts.
|
(5)
| The following table presents a reconciliation of net income (loss) to Adjusted EBITDA for each of the periods indicated:
|
| Three Months Ended | |
| Dec. 31, | | | Sep. 30, | | | Jun. 30, | | | Mar. 31, | | | Dec. 31, | | | Sep. 30, | | | Jun. 30, | | | Mar. 31, | |
| 2018 | | | 2018 | | | 2018 | | | 2018 | | | 2017 | | | 2017 | | | 2017 | | | 2017 | |
| (Unaudited, in thousands) | |
Reconciliation of Net Income (Loss) to Adjusted EBITDA: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net income (loss) | $ | 255,303 | | | $ | 789,179 | | | $ | 100,117 | | | $ | 60,997 | | | $ | 91,079 | | | $ | (21,095 | ) | | $ | (116,488 | ) | | $ | (61,559 | ) |
Stock-based compensation expense | | 81,887 | | | | 91,606 | | | | 79,469 | | | | 73,266 | | | | 102,454 | | | | 100,959 | | | | 113,396 | | | | 116,997 | |
Depreciation and amortization expense | | 110,723 | | | | 111,947 | | | | 105,982 | | | | 96,846 | | | | 92,520 | | | | 97,492 | | | | 103,063 | | | | 102,792 | |
Interest and other expense, net | | 371 | | | | 4,610 | | | | 13,757 | | | | 11,043 | | | | 16,545 | | | | 24,810 | | | | 74,716 | | | | 18,087 | |
Provision (benefit) for income taxes | | (48,766 | ) | | | (701,921 | ) | | | (34,250 | ) | | | 2,885 | | | | 2,474 | | | | 3,564 | | | | 3,413 | | | | 3,194 | |
Restructuring charges and one-time nonrecurring gain | | (2,989 | ) | | | (18 | ) | | | (265 | ) | | | (983 | ) | | | 3,102 | | | | 1,269 | | | | (226 | ) | | | (9,572 | ) |
Adjusted EBITDA | $ | 396,529 | | | $ | 295,403 | | | $ | 264,810 | | | $ | 244,054 | | | $ | 308,174 | | | $ | 206,999 | | | $ | 177,874 | | | $ | 169,939 | |
(6)
| The following table presents a reconciliation of net income (loss) to non-GAAP net income for each of the periods indicated:
|
| Three Months Ended | |
| Dec. 31, | | | Sep. 30, | | | Jun. 30, | | | Mar. 31, | | | Dec. 31, | | | Sep. 30, | | | Jun. 30, | | | Mar. 31, | |
| 2018 | | | 2018 | | | 2018 | | | 2018 | | | 2017 | | | 2017 | | | 2017 | | | 2017 | |
| (Unaudited, in thousands) | |
Reconciliation of Net Income (Loss) to Non-GAAP Net Income: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net income (loss) | $ | 255,303 | | | $ | 789,179 | | | $ | 100,117 | | | $ | 60,997 | | | $ | 91,079 | | | $ | (21,095 | ) | | $ | (116,488 | ) | | $ | (61,559 | ) |
Exclude: Provision (benefit) for income taxes | | (48,766 | ) | | | (701,921 | ) | | | (34,250 | ) | | | 2,885 | | | | 2,474 | | | | 3,564 | | | | 3,413 | | | | 3,194 | |
Income (loss) before income taxes | | 206,537 | | | | 87,258 | | | | 65,867 | | | | 63,882 | | | | 93,553 | | | | (17,531 | ) | | | (113,075 | ) | | | (58,365 | ) |
Stock-based compensation expense | | 81,887 | | | | 91,606 | | | | 79,469 | | | | 73,266 | | | | 102,454 | | | | 100,959 | | | | 113,396 | | | | 116,997 | |
Amortization of acquired intangible assets | | 4,786 | | | | 4,380 | | | | 4,876 | | | | 4,942 | | | | 4,929 | | | | 11,077 | | | | 14,340 | | | | 16,191 | |
Non-cash interest expense related to convertible notes | | 31,017 | | | | 30,878 | | | | 23,309 | | | | 20,722 | | | | 20,417 | | | | 20,355 | | | | 20,041 | | | | 19,248 | |
Impairment of investments in privately-held companies | | — | | | | 0 | | | | 3,000 | | | | — | | | | — | | | | 7,439 | | | | 55,000 | | | | — | |
Restructuring charges and one-time nonrecurring gain | | (2,989 | ) | | | (18 | ) | | | (265 | ) | | | (983 | ) | | | 3,102 | | | | 1,269 | | | | (226 | ) | | | (9,572 | ) |
Non-GAAP income before income taxes | | 321,238 | | | | 214,104 | | | | 176,256 | | | | 161,829 | | | | 224,455 | | | | 123,568 | | | | 89,476 | | | | 84,499 | |
Non-GAAP provision for income taxes | | 77,097 | | | | 51,386 | | | | 42,301 | | | | 38,839 | | | | 83,048 | | | | 45,720 | | | | 33,106 | | | | 31,265 | |
Non-GAAP net income | $ | 244,141 | | | $ | 162,718 | | | $ | 133,955 | | | $ | 122,990 | | | $ | 141,407 | | | $ | 77,848 | | | $ | 56,370 | | | $ | 53,234 | |
Credit Facility
In August 2018, we entered into a revolving credit agreement with certain lenders which provides for a $500.0 million revolving unsecured credit facility maturing on August 7, 2023. In connection with entering into the $500.0 million credit facility, we also terminated our $1.0 billion unsecured revolving credit facility. We are obligated to pay interest on loans under the new credit facility and other customary fees for a credit facility of this size and type, including an upfront fee and an unused commitment fee. The interest rate for the new credit facility is determined based on calculations using certain market rates as set forth in the credit agreement. As of December 31, 2018, no amounts had been drawn under the credit facility.
Liquidity and Capital Resources
| | | | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 | | |
| (in thousands) |
| Consolidated Statements of Cash Flows Data: | | | | | |
| Net loss | $ | (221,409) | | | $ | (1,135,626) | | | |
| Net cash provided by operating activities | $ | 632,689 | | | $ | 992,870 | | | |
| Net cash provided by (used in) investing activities | $ | 52,623 | | | $ | (1,560,565) | | | |
| Net cash provided by (used in) financing activities | $ | (472,823) | | | $ | 755,310 | | | |
| Year Ended December 31, | |
| 2018 | | | 2017 | | | 2016 | |
| (In thousands) | |
Consolidated Statements of Cash Flows Data: | | | | | | | | | | | |
Net income (loss) | $ | 1,205,596 | | | $ | (108,063 | ) | | $ | (456,873 | ) |
Net cash provided by operating activities | | 1,339,711 | | | | 831,209 | | | | 763,055 | |
Net cash provided used in investing activities | | (2,055,513 | ) | | | (116,526 | ) | | | (593,248 | ) |
Net cash provided by (used in) financing activities | | 978,116 | | | | (78,373 | ) | | | (83,975 | ) |
Our principal sources of liquidity are our cash, cash equivalents, and short-term investments in marketable securities. Our cash equivalents and marketable securities are invested primarily in short-term fixed income securities, including government and investment-grade debt securities and money market funds. In June 2018,March 2021, we also received net proceeds of approximately $1.14$1.42 billion from the issuance of the 20242026 Notes, after deducting the debt issuance costs. ConcurrentIn September 2021, we repaid at maturity the $954.0 million of principal balance associated with the salesour 2021 Notes.
In March 2020, our Board of
the 2024 Notes, we entered into privately-negotiated convertible note hedge transactions with respectDirectors authorized a program to
repurchase up to $2.0 billion of our common stock
over time. Repurchases may be made from time to time through open market purchases or through privately negotiated transactions subject to market conditions, applicable legal requirements and other relevant factors. The repurchase program does not obligate us to acquire any particular amount of our common stock and may be suspended at any time at our discretion. In the year ended December 31, 2021, we repurchased 16.9 million shares for
which we paid approximately $268.0an aggregate amount of $930.5 million. The repurchases include 120,000 shares for $5.3 million
and sold warrants for which we received approximately $186.8 million.that were not settled as of December 31, 2021 that are presented as treasury stock on the consolidated balance sheets as of such date.
As of December 31, 2018,2021, we had $6.21$6.39 billion of cash, cash equivalents and short-term investments in marketable securities, of which $210.0$279.6 million was held by our foreign subsidiaries. During the SAB 118 period relatedWe do not plan to the Tax Act, we re-assessed our intentions related to certain ofindefinitely reinvest these funds held by our foreign subsidiaries in light of the reduced tax associated with repatriation. Weand have determined that we will no longer be indefinitely reinvested related to these funds and accrued the incremental foreign withholding taxes.taxes due as part of repatriation. In addition,October 2021 we have a revolving unsecured credit facility availablepaid the $809.5 million settlement related to borrow up to $500.0 million. the shareholder class action lawsuit discussed in Note 16 – Commitments and Contingencies.
We believe that our existing cash, cash equivalents and short-term investment balance,balances, and our credit facility, together with cash generated from operations and continued access to capital markets, will be sufficient to meet our working capital, capital expenditure, and other cash requirements for at leastincluding authorized share repurchases over the next 12 months and beyond. From time to repaytime, we may need or choose to seek additional financing through the $936.2issuance of equity, equity-linked or debt securities to operate or grow our business. Our ability to obtain additional financing, if and when required, will depend on investor and lender demand, our operating performance, the condition of the capital markets, and other factors.
Credit Facility
We have a revolving credit agreement with certain lenders which provides for a $500.0 million
revolving unsecured credit facility maturing on August 7, 2023. We are obligated to pay interest on loans under the credit facility and other customary fees for a credit facility of
principalthis size and
coupontype, including an upfront fee and an unused commitment fee. The interest
rate for the credit facility is determined based on calculations using certain market rates as set forth in the credit agreement. In addition, the credit facility contains restrictions on payments including cash payments of dividends. In March 2021, we entered into an amendment to the revolving credit agreement to increase the amount of indebtedness we may incur from $4.5 billion to $6.0 billion and to permit the convertible note issuance and hedge transactions associated with
the 2026 Notes. In February 2022, we amended our
2019 Notes dueexisting revolving credit agreement to permit our repurchases of our common stock in
September 2019.an aggregate amount not to exceed $4.0 billion. As of December 31, 2021, no amounts had been drawn under the credit facility.
Cash provided by operating activities consists of net income (loss) adjusted for certain non-cash items including depreciation and amortization, stock-based compensation, amortization of discount on our Notes, deferred income taxes, impairment of
(gain on) investments in privately-held companies, non-cash restructuring charges, as well as the effect of changes in working capital and other activities. We expect that cash provided by operating activities will fluctuate in future periods as a result of a number of factors, including fluctuations in our revenue, increases in operating expenses and costs related to acquisitions. For additional discussion, see Part I, Item 1A,
”Risk ”Risk Factors.”
Cash provided by operating activities in
20182021 was
$1.34 billion, an increase$632.7 million, a decrease in cash inflow of
$508.5$360.2 million compared to
2017.2020. Cash provided by operating activities was driven by net
income of $1.21 billion, as adjusted for the exclusion of non-cash expenses and other adjustments totaling $44.8 million, of which the most significant items were a $845.1 million net benefit to tax expense associated with the release of the valuation allowance related to deferred tax assets, $425.5 million of depreciation and amortization expense, and $326.2 million of stock-based compensation expense, and the effect of changes in working capital and other carrying balances that resulted in cash inflows of $89.3 million, which was in part driven by a one-time refund of prepaid employment taxes of $147.5 million.Cash provided by operating activities in 2017 was $831.2 million, an increase in cash inflow of $68.2 million compared to 2016. Cash provided by operating activities was driven by a net loss of $108.1$221.4 million, as adjusted for the exclusion of non-cash expenses and other adjustments totaling $971.5$849.1 million, of which the most significant items were $433.8including $629.9 million of stock-based compensation expense, $395.9$544.8 million of depreciation and amortization expense, and $62.4$228.8 million of impairment chargesdeferred income taxes, and $101.4 million of net gains on an investmentinvestments in a privately-held company, andcompanies. Cash provided by operating activities also reflects the effect of changes in working capitalassets and other carrying balances that resultedliabilities, net of assets acquired and liabilities assumed from acquisitions, including an $809.5 million payment we made to settle a shareholder class action lawsuit in the fourth quarter of 2021, resulting in net cash outflowsinflows of $32.2$5.0 million.
Cash provided by operating activities in 2016 was $763.1 million, an increase in cash inflow of $380.0 million compared to 2015. Cash provided by operating activities was driven by a net loss of $456.9 million, as adjusted for the exclusion of non-cash expenses and other adjustments totaling $1.14 billion, of which the most significant items were $615.2 million of stock-based compensation expense, and the effect of changes in working capital and other carrying balances that resulted in cash outflow of $82.6 million.
Investing Activities
Our primary investing activities consist of purchases of property and equipment, particularly purchases of servers and networking equipment, leasehold improvements for our facilities, purchases and disposal of marketable securities, strategic investments in privately-held companies, acquisitions of businesses and other activities.
Cash
provided by investing activities in 2021 was $52.6 million, compared to cash used in investing activities
of $1.56 billion in
2018 was $2.06 billion, an increase in cash outflow of $1.94 billion compared to 2017. 2020. The change was primarily due to a $2.65$2.54 billion increasedecrease in purchases of marketable securities, a $323.2$79.9 million increase in purchases of property and equipment, an absence of $35.0 million in proceeds from salesales of long-lived assets,marketable securities, and a net increase of $33.6$15.3 million decrease in cash used in business combinations, offset by a $1.09 billion net increase$742.5 million decrease in proceeds from sales and maturities of marketable securities, a $2.6$138.2 million decreaseincrease in expenditures onpurchases of property and equipment, $69.5 million of investments in the Finance Justice Fund, a socially responsible investment that aims to bring capital from corporate and philanthropic partners to individuals and communities in America most underestimated by mainstream finance, a $39.0 million increase in cash used in other investing activities, a $27.8 million increase in purchases of investments in privately-held companies, and a $10.3$0.7 million increasedecrease in proceeds from sales of property and equipment.Cash used in investing activities in 2017 was $116.5 million, a decrease in cash outflow of $476.7 million compared to 2016. The change was primarily due to a $221.4 million decrease in the purchases of marketable securities, a $80.7 million decrease in purchases of investments in privately-held companies, a net $85.1 million decrease in cash used in business combinations, a $57.9 million decrease in purchases of property and equipment, a $35.0 million increase in proceeds from sale of long-lived assets, a $2.8 million increase in net proceeds from sales and maturities of marketable securities, and a $2.8 million increase in proceeds from sales of property and equipment, offset by a $8.9 million increase in expenditures on other investing activities.
Cash used in investing activities in 2016 was $593.2 million, a decrease in cash outflow of $305.6 million compared to 2015. The decrease in cash outflow was due to decreased purchases of marketable securities of $774.9 million, property and equipment of $128.6 million and other investments of $9.9 million, offset by a decrease in sales and maturities of marketable securities of $503.4 million, an increase in purchase of investments in privately-held companies of $71.0 million, and an increase in use of cash as acquisition consideration of $33.4 million.
We anticipate making capital expenditures in
20192022 of approximately
$550$900 million to
$600$950 million as we
continue to expandsupport our
co-locatedexisting data
centers.centers and infrastructure needs.
Our primary financing activities consist of issuances of securities, including common stock issued under our employee stock purchase plan
capitaland issuance of our Notes, repurchases of common stock under our share repurchase program, repayment of Convertible Notes, payments of finance lease
financingobligations, and stock option exercises by employees and other service providers.
Cash
used in financing activities in 2021 was $472.8 million, compared to $755.3 million of cash provided by financing activities in
2018 was $978.1 million, compared to $78.4 million cash used in financing activities in 2017.2020. The change was due to
net proceedsa $954.0 million repayment of
$1.14 billion from the
issuance of convertible notes net of issuance costs, reduced by the net cash outflow of $81.2 million from the purchase of convertible note hedges and sale of warrants closed in connection with the issuance of convertible notes,2021 Notes at maturity, a
$12.4 million decrease in payments of capital lease obligations, and a $5.4$685.2 million increase in
proceeds from the issuancerepurchases of
shares ofcommon stock,
from the ESPP, offset by a
$10.3$4.4 million increase in tax payments related to net share settlements of equity awards, and a
$6.0$3.4 million decrease in proceeds from option
exercises.Cash used in financing activities in 2017exercises, offset by $1.42 billion of net proceeds from the issuance of the 2026 Notes net of issuance costs, which was $78.4 million,reduced by a decrease innet cash outflow of $5.6$52.3 million for the purchase of convertible note hedges and sale of warrants entered into in connection with the issuance of the 2026 Notes in 2021, compared to 2016. The decrease$985.3 million of net proceeds from the issuance of the 2025 Notes net of issuance costs in cash outflow was due to2020, a $6.4$22.5 million decrease in taxes paid related to net share settlement of equity awards and other activities and a $1.9 million increase in proceeds from option exercises. These decreases were offset by a $2.2 million increase in payments of capitalfinance lease obligations, and a $0.5$13.3 million decreaseincrease in proceeds from the issuance of shares of stock from ESPP.
Cash used in financing activities in 2016 was $84.0 million, an increase in cash outflow of $21.0 million compared to 2015. The increase in cash outflow was due to a $14.9 million decrease in proceeds from the issuance of shares ofemployee stock from ESPP, a net $13.3 million increase in tax payments related to net share settlements of equity awards and other activities, and a net $9.8 million decrease in proceeds from option exercises, offset by a reduction in repayments of capital lease obligations of $17.0 million.
purchase plan (ESPP).
Off Balance Sheet Arrangements
We do not have any off-balance sheet arrangements and did not have any such arrangements in 2018, 2017 or 2016.
Contractual Obligations
Our principal commitments consist of obligations under the Notes (including principal and coupon interest), capitalfinance and operating leases for equipment, office space and co-located data center facilities, as well as non-cancellablenon-cancelable contractual commitments. The following table summarizes our commitmentsRefer to settle contractual obligations in cash asNote 6, Operating and Finance Leases; Note 11, Convertible Notes and Senior Notes; and Note 16, Commitments and Contingencies, of December 31, 2018.the Notes to Consolidated Financial Statements under Part II, Item 8 of this Annual Report on Form 10-K for more details. | Payments Due by Year | |
| Total | | | 2019 | | | 2020-2021 | | | 2022-2023 | | | Thereafter | |
| (In thousands) | |
2019 Notes | $ | 937,338 | | | $ | 937,338 | | | $ | — | | | $ | — | | | $ | — | |
2021 Notes | | 982,646 | | | | 9,540 | | | | 973,106 | | | | — | | | | — | |
2024 Notes | | 1,165,781 | | | | 2,867 | | | | 5,742 | | | | 5,734 | | | | 1,151,438 | |
Operating lease obligations (1) | | 839,512 | | | | 161,932 | | | | 262,604 | | | | 151,535 | | | | 263,441 | |
Capital lease obligations | | 94,920 | | | | 70,506 | | | | 24,414 | | | | — | | | | — | |
Other contractual commitments (2) | | 346,922 | | | | 65,768 | | | | 135,205 | | | | 134,404 | | | | 11,545 | |
Total contractual obligations | $ | 4,367,119 | | | $ | 1,247,951 | | | $ | 1,401,071 | | | $ | 291,673 | | | $ | 1,426,424 | |
(1)
| We have entered into several sublease agreements for office space that we are not fully utilizing. Under the sublease agreements, we will receive approximately $52.5 million in sublease income over the next four years.
|
(2)
| Other contractual commitments are non-cancelable contractual commitments primarily related to our infrastructure services, bandwidth and other services arrangements.
|
As of December 31, 2018,2021, we had recorded liabilities of $17.9$39.7 million related to uncertain tax positions. Due to uncertainties in the timing of potential tax audits, the timing of the resolution of these positions is uncertain and we are unable to make a reasonably reliable estimate of the timing of payments in individual years beyond 12 months. As a result, this amount is not included in the above table.
contractual obligation table in Note 16.
Critical Accounting Policies and Estimates
We prepare our consolidated financial statements
and related notes in accordance with GAAP. In doing so, we have to make estimates and assumptions that affect our reported amounts of assets, liabilities, revenue and expenses, as well as related disclosure of contingent assets and liabilities. To the extent that there are material differences between these estimates and actual results, our financial condition or operating results would be affected. We base our estimates on past experience and other assumptions that we believe are reasonable under the circumstances, and we evaluate these estimates on an ongoing basis. We refer to accounting estimates of this type as critical accounting policies and estimates, which we discuss further below.
We generate the substantial majority of our revenue from the sale of advertising services with the
remaining balance from data licensing and other arrangements.
We generate our advertising revenue primarily from the sale of our Promoted Products: (i) Promoted Tweets,Ads, (ii) Promoted AccountsFollower Ads and (iii) Twitter Takeover. Promoted Trends. Promoted TweetsAds and Promoted AccountsFollower Ads are pay-for-performance advertising products or pay on impressionspay-for-impressions delivered, each priced through an auction. Promoted Trends areTwitter Takeover is featured by geography and offered on a fixed-fee-per-day basis. Advertisers are obligated to pay when a userperson engages with a Promoted Tweet,Ads, follows a Promoted Account,Follower Ads, when an impression is delivered, or when a Promoted TrendTwitter Takeover is displayed.displayed for an entire day in a particular country. These advertising services may be sold in combination as a bundled arrangement or separately on a stand-alone basis.
For our Promoted Product arrangements, significant judgments are (i) identifying the performance obligations in the contract, (ii) determining the basis for allocating contract consideration to performance obligations, (iii) determining whether we are the principal or the agent in arrangements where another party is involved in providing specified services to a customer, and (iv) estimating the transaction price to be allocated for contracts with tiered rebate provisions.
We may generate revenue from the sale of certain Promoted
TweetsAds through placement by Twitter of advertiser ads against third-party publisher content. We will pay the third-party publisher a revenue share fee for our right to monetize their content. In such transactions, advertisers are contracting to obtain a single integrated advertising service, the Promoted
TweetAd combined with the third-party publisher content, and we obtain control of the third-party publisher content displayed on Twitter that we then combine with the advertiser ads within the Promoted
Tweet.Ad. Therefore, we report advertising revenue generated from these transactions on a gross basis and record the related third-party content monetization fees as cost of revenue.
We also generate advertising revenue by selling services in which we place ads on third-party publishers’ websites, applications or other offerings. To fulfill these transactions, we purchase advertising inventory from third-party publishers’ websites and applications where we have identified the advertisers’ targeted audience and therefore incur traffic acquisition costs prior to transferring the advertising service to our customers. At such point, we have the sole ability to monetize the third-party publishers advertising inventory. In such transactions, we obtain control of a right to a service to be performed by the third-party publishers, which gives us the ability to direct those publishers to provide the services to our customers on our behalf. Therefore, we report advertising revenue generated from these transactions on a gross basis, and we record the related traffic acquisition costs as cost of revenue.
Fees for the advertising services above are recognized in the period when advertising is delivered as evidenced by a
userperson engaging with a Promoted
TweetAd or an ad on a third-party publisher website or application in a manner satisfying the types of engagement selected by the advertisers, such as Tweet engagements (e.g.,
retweets,Retweets, replies and likes), website clicks, mobile application installs or engagements, obtaining new followers, or video views, following a
Promoted Account,Follower Ad, delivery of impressions, or through the display of a
Promoted TrendTwitter Takeover on our platform.
We have concluded that our data licensing arrangements, which grant customers a right to
Twitter’sour intellectual property
(“IP”)(IP) for a defined period of time, may contain a single performance obligation satisfied at a point in time
(“Historical IP”)(Historical IP) or over time
(“Future IP”)(Future IP), or may contain two or more performance obligations satisfied separately at a point in time (Historical IP) and over time (Future IP). In some of our data licensing arrangements, pricing is a fixed monthly fee over a specified term. In arrangements with a single performance obligation satisfied over time, data licensing revenue is recognized on a straight-line basis over the period in which we provide data as the customer consumes and benefits from the continuous data available on an ongoing basis. In arrangements with at least two performance obligations, we allocate revenue on a relative basis between the performance obligations based on standalone selling price
(“SSP”)(SSP) and recognize revenue as the performance obligations are satisfied.
In other data licensing arrangements, we charge customers based on the amount of sales they generate from downstream customers using Twitter data. Certain of those royalty-based data licensing arrangements are subject to minimum guarantees. For such arrangements with a minimum guarantee and a single Future IP performance obligation, we recognize revenue for minimum guarantees on a straight-line basis over the period in which we provide data. For such arrangements with a minimum guarantee and two or more performance obligations, we allocate revenue on a relative basis between the performance obligations based on SSP and recognize revenue as the performance obligations are satisfied. Royalties in excess of minimum guarantees, if any, are recognized as revenue
inover the
period thatcontract term, on a straight-line, cumulative catch-up basis. This reflects the
related downstream customer sales using our licensed data occur, and such amounts have been immaterial to date.nature of the Company’s performance obligation, which is a series of distinct monthly periods of providing a license of IP.
For data licensing arrangements involving two or more performance obligations, we use directly observable standalone transactions to determine SSP of Historical IP. We use standalone transactions and consider all other reasonably available observable evidence to estimate SSP of Future IP.
Other revenue is primarily generated from service fees from transactions completed on our mobile ad exchange. Our mobile ad exchange enables buyers and sellers to purchase and sell advertising inventory by matching them in the exchange. We have determined we are not the principal in the purchase and sale of advertising inventory in transactions between third-party buyers and sellers on the exchange because we do not obtain control of the advertising inventory. We report revenue related to our ad exchange services on a net basis for the fees paid by buyers, net of costs related to acquiring the advertising inventory paid to sellers.
Arrangements involving multiple performance obligations primarily consist of combinations of our pay-for-performance products, Promoted TweetsAds and Promoted Accounts,Follower Ads, which are priced through an auction, and Promoted Trends,Twitter Takeovers, which are priced on a fixed-fee-per day, per geography basis. For arrangements that include a combination of these products, we develop an estimate of the standalone selling price for these products in order to allocate any potential discount to all performance obligations in the arrangement. The estimate of standalone selling price for pay-for-performance auction based products is determined based on the winning bid price. The estimate of standalone selling price for Promoted TrendsTwitter Takeovers is based on Promoted TrendsTwitter Takeovers sold on a standalone basis and/or separately priced in a bundled arrangement by reference to a list price by geography, which is typically updated and approved periodically.annually. For other arrangements involving multiple performance obligations where neither auction pricing nor standalone sales provide sufficient evidence of standalone selling price, we estimate standalone selling price using either an adjusted market assessment approach or an expected cost plus margin approach. We believe the use of our estimation approach and allocation of the transaction price on a relative standalone selling price basis to each performance obligation results in revenue recognition in a manner consistent with the underlying economics of the transaction and the allocation principle included in Topic 606.principles of the revenue recognition guidance. We have elected to exclude certain sales and indirect taxes from the determination of the transaction price.
We expense sales commissions as incurred when the amortization period is one year or less. Sales commission expenses are recorded within sales and marketing in the consolidated statements of operations.
We are subject to income taxes in the United States and several foreign jurisdictions. Significant judgment is required in determining our provision (benefit) for income taxes and income tax assets and liabilities, including evaluating uncertainties in the application of accounting principles and complex tax laws.
We record a provision (benefit) for income taxes for the anticipated tax consequences of the reported results of operations using the asset and liability method. Under this method, we recognize deferred income tax assets and liabilities for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities, as well as for loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using the tax rates that are expected to apply to taxable income for the years in which those tax assets and liabilities are expected to be realized or settled. We recognize the deferred income tax effects of a change in tax rates in the period of the enactment. We record a valuation allowance to reduce our deferred tax assets to the net amount that we believe is more likely than not to be realized.
We recognize tax benefits from uncertain tax positions if we believe that it is more likely than not that the tax position will be sustained
onupon examination by the taxing authorities based on the technical merits of the position. Although we believe we have adequately reserved for our uncertain tax positions (including net interest and penalties), we can provide no assurance that the final tax outcome of these matters will not be different. We make adjustments to these reserves in accordance with income tax accounting guidance when facts and circumstances change, such as the closing of a tax audit. To the extent that the final tax outcome of these matters is different from the amounts recorded, such differences may impact the provision (benefit) for income taxes in the period in which such determination is made. We record interest and penalties related to our uncertain tax positions in our provision (benefit) for income taxes.
The Tax Act contains several key tax provisions that affected us, including a reductionestablishment of the federal corporate income tax rate to 21% effective January 1, 2018. We are required to recognize the effect of the tax law changes in the period of enactment, such as re-measuring our U.S. deferred tax assets from intra-entity transfers of intangible assets requires management to make significant estimates and liabilities as well as our valuation allowance against our net U.S. deferred taxassumptions to determine the fair value of such intangible assets. In December 2017,Critical estimates in valuing the SEC staff issued Staff Accounting Bulletin No. 118, Income Tax Accounting Implicationsintangible assets include, but are not limited to, internal revenue and expense forecasts, the estimated life of the 2017 Tax Cutsintangible assets, and Jobs Act (SAB 118), which allowed us to record provisional amounts during a measurement period not to extend beyond one year of the enactment date. We completed our accounting for the Tax Actdiscount rates. The discount rates used in the fourth quarterincome method to discount expected future cash flows to present value are adjusted to reflect the inherent risks related to the cash flow. Although we believe the assumptions and estimates we have made are reasonable and appropriate, they are based, in part, on historical experience and are inherently uncertain. Unanticipated events and circumstances may occur that could affect either the accuracy or validity of 2018, within the one year-measurement period from the enactment date. We elected to account for Global Intangible Low-Taxed Income (GILTI) under the Tax Act as a period cost when the expense is incurred and apply the approachsuch assumptions, estimates or actual results.
We are currently involved in, various lawsuits,and may in the future be involved in, legal proceedings, claims, investigations, and proceedings that arisegovernment inquiries and investigations arising in the ordinary course of business. Certain of these matters include speculative claims for substantial or indeterminate amounts of damages. We record a liability when we believe that it is both probable that a loss has been incurred and the amount or range can be reasonably estimated. If we determine there is a reasonable possibility that we may incur a loss and the loss or range of loss can be estimated, we disclose the possible loss to the extent material. Significant judgment is required to determine boththe probability of loss and the estimated amount.amount of loss, including when and if the probability and estimate has changed. We review these provisions on a quarterlyregular basis and adjust these provisions accordingly to reflect the impact of negotiations, settlements, rulings, advice of legal counsel, and updated information.
We believe thatThe outcomes of the amountlegal matters, such as whether the likelihood of loss is remote, reasonably possible, or estimableprobable, or if and when the reasonably possible range of reasonably possible loss will not, either individually or in the aggregate, have a material adverse effect on our business, consolidated financial position, results of operations, or cash flows with respect to loss contingencies for legal and other contingencies as of December 31, 2018. However, the outcome of litigation is estimable, are inherently uncertain. Therefore, ifIf one or more of these legal matters were resolved against us for amounts in excess ofabove management's expectations,estimates, our financial condition and 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.
We
account for acquisitions of entities that include inputs and processes and haveallocate the
ability to create outputs as business combinations. The purchase price of the acquisition
is allocated to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values at the acquisition dates. The excess of the purchase price over those fair values is recorded as goodwill. During the measurement period, which may be up to one year from the acquisition date, we may record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to the consolidated statements of operations.
Accounting for business combinations requires our management to make significant estimates and assumptions at the acquisition date, including estimated fair value of acquired intangible assets, estimated fair value of stock awards assumed from the acquirees that are included in the purchase price, estimated income tax assets and liabilities assumed from the acquirees, and determination of the fair value of contractual obligations, where applicable. The estimates of fair value require management to also make estimates of, among other things, future expected cash flows, discount rates or expected costs to reproduce an asset. Although we believe the assumptions and estimates we made at the time were reasonable and appropriate, these estimates are based on historical experience and information obtained from the management of the acquired companies and are inherently uncertain.
Impact of Recently Issued Accounting Standards
The impact of recently issued accounting standards is set forth in Note 2,1, Summary of Significant Accounting Policies, of the Notes to Consolidated Financial Statements under Part II, Item 8 of this Annual Report on Form 10-K.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We have operations both within the United States and internationally, and we are exposed to market risks in the ordinary course of our business. These risks include primarily interest rate and foreign exchange risks.
Interest Rate Fluctuation Risk
Our investment portfolio mainly consists of short-term fixed income securities, including government and investment-grade debt securities and money market funds. These securities are classified as available-for-sale and, consequently, are recorded
inon the consolidated balance sheets at fair value with unrealized gains or losses, net of tax reported as a separate component of accumulated other comprehensive loss. Our investment policy and strategy is focused on the preservation of capital and supporting our liquidity requirements. We do not enter into investments for trading or speculative purposes.
A rise in interest rates could have a material adverse impact on the fair value of our investment portfolio. Based on our investment portfolio balance as of December 31,
2018,2021, a hypothetical increase in interest rates of 100 basis points would result in a decrease of approximately
$17.7$35.6 million in the fair value of our available-for-sale securities. We currently do not hedge these interest rate exposures.
In 2014 and 2018,
As of December 31, 2021, we issued convertible senior notes with inhad $3.59 billion aggregate principal amount of $1.89 billionConvertible Notes outstanding and $1.15 billion, respectively.$700.0 million aggregate principal amount of 2027 Notes outstanding. We carry the Notes at face value less amortized discount on the consolidated balance sheet.sheets. Since the Notes bear interest at fixed rates, we have no financial statement risk associated with changes in interest rates. However, the fair value of the Notes changes when the market price of our stock fluctuates or interest rates change.
Foreign Currency Exchange Risk
We transact business in various foreign currencies and have international revenue, as well as costs denominated in foreign currencies, primarily the Euro, British Pound, Singapore Dollar and Japanese Yen. This exposes us to the risk of fluctuations in foreign currency exchange rates. Accordingly, changes in exchange rates, and in particular a continuing strengthening of the U.S. dollar, would negatively affect our revenue and other operating results as expressed in U.S. dollars.
We have experienced and will continue to experience fluctuations in our net
lossincome (loss) as a result of transaction gains or losses related to revaluing and ultimately settling certain asset and liability balances that are denominated in currencies other than the functional currency of the entities in which they are recorded. Foreign currency
netgains and losses were
$4.6 million in 2018.immaterial for 2021 and 2020. We currently utilize foreign currency forward contracts with financial institutions to reduce the risk that our earnings may be adversely affected by the impact of exchange rate fluctuations on monetary assets or liabilities denominated in currencies other than the local currency of a subsidiary. These contracts are not designated as hedging instruments. We may in the future enter into other derivative financial instruments if it is determined that such hedging activities are appropriate to further reduce our foreign currency exchange risk. Based on our foreign currency exposures from monetary assets and liabilities net of our open hedge position, we estimated that a 10% change in exchange rates against the U.S. dollar would have resulted in a gain or loss of approximately
$5.6$11.3 million as of December 31,
2018.2021.
We are also exposed to foreign exchange rate fluctuations as we translate the financial statements of our foreign subsidiaries into U.S. dollars in consolidation. If there is a change in foreign currency exchange rates, the translating adjustments resulting from the conversion of our foreign subsidiaries’ financial statements into U.S. dollars would result in a gain or loss recorded as a component of accumulated other comprehensive loss which is part of stockholders’ equity.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTSThe supplementary financial information required by this Item 8 is included in Item 7 under the caption “Quarterly Results
REPORTREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of Twitter, Inc.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Twitter, Inc. and its subsidiaries (the “Company”) as of December 31,
20182021 and
2017,2020, and the related consolidated statements of operations, of comprehensive income
(loss), of stockholders’ equity and of cash flows for each of the three years in the period ended December 31,
2018,2021, including the related notes and financial statement schedule listed in the index appearing under Item
15.215 (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31,
2018,2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31,
20182021 and
2017,2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31,
20182021 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31,
2018,2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.
Change in Accounting Principle
As discussed in Note 1 to the consolidated financial statements, the Company changed the manner in which it accounts for convertible debt in 2021.
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in
Management'sManagement’s Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Revenue Recognition – identification of performance obligations
As described in Notes 1 and 2 to the consolidated financial statements, the Company generated $4.5 billion of its revenue from the sale of advertising services, with $0.6 billion from data licensing and other arrangements, for the year ended December 31, 2021. Significant judgments made by management are (i) identifying the performance obligations in the contract, (ii) determining the basis for allocating contract consideration to performance obligations, (iii) determining whether the Company is the principal or the agent in arrangements where another party is involved in providing specified services to a customer, and (iv) estimating the transaction price to be allocated for contracts with tiered rebate provisions.
The principal considerations for our determination that performing procedures relating to revenue recognition, specifically related to the identification of performance obligations, is a critical audit matter are the significant amount of judgment by management in identifying performance obligations. This in turn resulted in significant audit effort and a high degree of subjectivity in performing procedures and evaluating audit evidence.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the revenue recognition process, including controls over the identification of performance obligations. These procedures also included, among others, examining revenue arrangements on a test basis and testing management’s process for (i) determining whether the criteria for revenue recognition have been met based on the terms and performance under the arrangement, and (ii) identifying performance obligations and, where applicable, determining whether the Company is the principal or agent for the performance obligation identified.
/s/ PricewaterhouseCoopers LLP
San Francisco, California
February
20, 201916, 2022
We have served as the Company’s auditor since 2009.
CONSOLIDATED BALANCE SHEETS
(In thousands, except par value) | | | | | | | | | | | |
| December 31,
2021 | | December 31,
2020 |
| Assets | | | |
| Current assets: | | | |
| Cash and cash equivalents | $ | 2,186,549 | | | $ | 1,988,429 | |
| Short-term investments | 4,207,133 | | | 5,483,873 | |
| Accounts receivable, net of allowance for doubtful accounts of $15,278 and $16,946 | 1,217,404 | | | 1,041,743 | |
| Prepaid expenses and other current assets | 266,484 | | | 123,063 | |
| Assets held for sale | 40,800 | | | — | |
| Total current assets | 7,918,370 | | | 8,637,108 | |
| Property and equipment, net | 2,082,160 | | | 1,493,794 | |
| Operating lease right-of-use assets | 1,195,124 | | | 930,139 | |
| Intangible assets, net | 69,324 | | | 58,338 | |
| Goodwill | 1,301,520 | | | 1,312,346 | |
| Deferred tax assets, net | 1,148,573 | | | 796,326 | |
| Other assets | 344,445 | | | 151,039 | |
| Total assets | $ | 14,059,516 | | | $ | 13,379,090 | |
| Liabilities and stockholders' equity | | | |
| Current liabilities: | | | |
| Accounts payable | $ | 203,171 | | | $ | 194,281 | |
| Accrued and other current liabilities | 918,350 | | | 663,532 | |
| Convertible notes, short-term | — | | | 917,866 | |
| Operating lease liabilities, short-term | 222,346 | | | 177,147 | |
| | | |
| | | |
| Total current liabilities | 1,343,867 | | | 1,952,826 | |
| Convertible notes, long-term | 3,559,023 | | | 1,875,878 | |
| Senior notes, long-term | 693,996 | | | 692,994 | |
| Operating lease liabilities, long-term | 1,071,209 | | | 819,748 | |
| | | |
| Deferred and other long-term tax liabilities, net | 40,691 | | | 31,463 | |
| Other long-term liabilities | 43,531 | | | 36,099 | |
| Total liabilities | 6,752,317 | | | 5,409,008 | |
| Commitments and contingencies (Note 16) | 0 | | 0 |
| Stockholders' equity: | | | |
| Preferred stock, $0.000005 par value-- 200,000 shares authorized; none issued and outstanding | — | | | — | |
| Common stock, $0.000005 par value-- 5,000,000 shares authorized; 799,384 and 796,000 shares issued and outstanding | 4 | | | 4 | |
| Additional paid-in capital | 8,432,112 | | | 9,167,138 | |
| Treasury stock, at cost-- 120 and 98 shares | (5,295) | | | (5,297) | |
| Accumulated other comprehensive loss | (117,320) | | | (66,094) | |
| Accumulated deficit | (1,002,302) | | | (1,125,669) | |
| Total stockholders' equity | 7,307,199 | | | 7,970,082 | |
| Total liabilities and stockholders' equity | $ | 14,059,516 | | | $ | 13,379,090 | |
| | December 31, | | | December 31, | |
| | 2018 | | | 2017 | |
Assets | | | | | | | | |
Current assets: | | | | | | | | |
Cash and cash equivalents | | $ | 1,894,444 | | | $ | 1,638,413 | |
Short-term investments | | | 4,314,957 | | | | 2,764,689 | |
Accounts receivable, net of allowance for doubtful accounts of $3,559 and $5,430 | | | 788,700 | | | | 664,268 | |
Prepaid expenses and other current assets | | | 112,935 | | | | 254,514 | |
Total current assets | | | 7,111,036 | | | | 5,321,884 | |
Property and equipment, net | | | 885,078 | | | | 773,715 | |
Intangible assets, net | | | 45,025 | | | | 49,654 | |
Goodwill | | | 1,227,269 | | | | 1,188,935 | |
Deferred tax assets, net | | | 808,459 | | | | 10,455 | |
Other assets | | | 85,705 | | | | 67,834 | |
Total assets | | $ | 10,162,572 | | | $ | 7,412,477 | |
Liabilities and stockholders' equity | | | | | | | | |
Current liabilities: | | | | | | | | |
Accounts payable | | $ | 145,186 | | | $ | 170,969 | |
Accrued and other current liabilities | | | 405,751 | | | | 327,333 | |
Convertible notes, short-term | | | 897,328 | | | | — | |
Capital leases, short-term | | | 68,046 | | | | 84,976 | |
Total current liabilities | | | 1,516,311 | | | | 583,278 | |
Convertible notes, long-term | | | 1,730,922 | | | | 1,627,460 | |
Capital leases, long-term | | | 24,394 | | | | 81,308 | |
Deferred and other long-term tax liabilities, net | | | 17,849 | | | | 13,240 | |
Other long-term liabilities | | | 67,502 | | | | 59,973 | |
Total liabilities | | | 3,356,978 | | | | 2,365,259 | |
Commitments and contingencies (Note 15) | | | | | | | | |
Stockholders' equity: | | | | | | | | |
Preferred stock, $0.000005 par value-- 200,000 shares authorized; none issued and outstanding | | | — | | | | — | |
Common stock, $0.000005 par value-- 5,000,000 shares authorized; 764,257 and 746,902 shares issued and outstanding | | | 4 | | | | 4 | |
Additional paid-in capital | | | 8,324,974 | | | | 7,750,522 | |
Accumulated other comprehensive loss | | | (65,311 | ) | | | (31,579 | ) |
Accumulated deficit | | | (1,454,073 | ) | | | (2,671,729 | ) |
Total stockholders' equity | | | 6,805,594 | | | | 5,047,218 | |
Total liabilities and stockholders' equity | | $ | 10,162,572 | | | $ | 7,412,477 | |
The accompanying notes are an integral part of these consolidated financial statements.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data) | | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 | | 2019 |
| Revenue | $ | 5,077,482 | | | $ | 3,716,349 | | | $ | 3,459,329 | |
| Costs and expenses | | | | | |
| Cost of revenue | 1,797,510 | | | 1,366,388 | | | 1,137,041 | |
| Research and development | 1,246,704 | | | 873,011 | | | 682,281 | |
| Sales and marketing | 1,175,970 | | | 887,860 | | | 913,813 | |
| General and administrative | 584,336 | | | 562,432 | | | 359,821 | |
| Litigation settlement, net | 765,701 | | | — | | | — | |
| Total costs and expenses | 5,570,221 | | | 3,689,691 | | | 3,092,956 | |
| Income (loss) from operations | (492,739) | | | 26,658 | | | 366,373 | |
| Interest expense | (51,186) | | | (152,878) | | | (138,180) | |
| Interest income | 35,683 | | | 88,178 | | | 157,703 | |
| Other income (expense), net | 97,129 | | | (12,897) | | | 4,243 | |
| Income (loss) before income taxes | (411,113) | | | (50,939) | | | 390,139 | |
| Provision (benefit) for income taxes | (189,704) | | | 1,084,687 | | | (1,075,520) | |
| Net income (loss) | $ | (221,409) | | | $ | (1,135,626) | | | $ | 1,465,659 | |
| Net income (loss) per share: | | | | | |
| Basic | $ | (0.28) | | | $ | (1.44) | | | $ | 1.90 | |
| Diluted | $ | (0.28) | | | $ | (1.44) | | | $ | 1.87 | |
| Weighted-average shares used to compute net income (loss) per share: | | | | | |
| Basic | 797,573 | | | 787,861 | | | 770,729 | |
| Diluted | 797,573 | | | 787,861 | | | 785,531 | |
| | | | | | | | | | | | |
| | Year Ended December 31, | |
| | 2018 | | | 2017 | | | 2016 | |
Revenue | | $ | 3,042,359 | | | $ | 2,443,299 | | | $ | 2,529,619 | |
Costs and expenses | | | | | | | | | | | | |
Cost of revenue | | | 964,997 | | | | 861,242 | | | | 932,240 | |
Research and development | | | 553,858 | | | | 542,010 | | | | 713,482 | |
Sales and marketing | | | 771,361 | | | | 717,419 | | | | 957,829 | |
General and administrative | | | 298,818 | | | | 283,888 | | | | 293,276 | |
Total costs and expenses | | | 2,589,034 | | | | 2,404,559 | | | | 2,896,827 | |
Income (loss) from operations | | | 453,325 | | | | 38,740 | | | | (367,208 | ) |
Interest expense | | | (132,606 | ) | | | (105,237 | ) | | | (99,968 | ) |
Interest income | | | 111,221 | | | | 44,383 | | | | 24,277 | |
Other income (expense), net | | | (8,396 | ) | | | (73,304 | ) | | | 2,065 | |
Income (loss) before income taxes | | | 423,544 | | | | (95,418 | ) | | | (440,834 | ) |
Provision (benefit) for income taxes | | | (782,052 | ) | | | 12,645 | | | | 16,039 | |
Net income (loss) | | $ | 1,205,596 | | | $ | (108,063 | ) | | $ | (456,873 | ) |
Net income (loss) per share attributable to common stockholders: | | | | | | | | | | | | |
Basic | | $ | 1.60 | | | $ | (0.15 | ) | | $ | (0.65 | ) |
Diluted | | $ | 1.56 | | | $ | (0.15 | ) | | $ | (0.65 | ) |
Weighted-average shares used to compute net income (loss) per share attributable to common stockholders: | | | | | | | | | | | | |
Basic | | | 754,326 | | | | 732,702 | | | | 702,135 | |
Diluted | | | 772,686 | | | | 732,702 | | | | 702,135 | |
The accompanying notes are an integral part of these consolidated financial statements.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands) | | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 | | 2019 |
| Net income (loss) | $ | (221,409) | | | $ | (1,135,626) | | | $ | 1,465,659 | |
| Other comprehensive income (loss), net of tax: | | | | | |
| Change in unrealized gain (loss) on investments in available-for-sale securities | (25,917) | | | 11,318 | | | 13,785 | |
| Change in foreign currency translation adjustment | (25,309) | | | (6,878) | | | (19,008) | |
| Net change in accumulated other comprehensive income (loss) | (51,226) | | | 4,440 | | | (5,223) | |
| Comprehensive income (loss) | $ | (272,635) | | | $ | (1,131,186) | | | $ | 1,460,436 | |
| | | |
| | Year Ended December 31, | |
| | 2018 | | | 2017 | | | 2016 | |
Net income (loss) | | $ | 1,205,596 | | | $ | (108,063 | ) | | $ | (456,873 | ) |
Other comprehensive income (loss), net of tax: | | | | | | | | | | | | |
Change in unrealized gain (loss) on investments in available-for-sale securities | | | (393 | ) | | | (1,325 | ) | | | 1,685 | |
Change in foreign currency translation adjustment | | | (33,339 | ) | | | 38,999 | | | | (25,372 | ) |
Net change in accumulated other comprehensive income (loss) | | | (33,732 | ) | | | 37,674 | | | | (23,687 | ) |
Comprehensive income (loss) | | $ | 1,171,864 | | | $ | (70,389 | ) | | $ | (480,560 | ) |
The accompanying notes are an integral part of these consolidated financial statements.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 | | 2019 |
| Shares | | Amount | | Shares | | Amount | | Shares | | Amount |
| Common stock | | | | | | | | | | | |
| Balance, beginning of period | 796,000 | | | $ | 4 | | | 779,619 | | | $ | 4 | | | 764,257 | | | $ | 4 | |
| Issuance of common stock in connection with RSU vesting | 17,423 | | | — | | | 16,795 | | | — | | | 13,519 | | | — | |
| Issuance of common stock in connection with acquisitions | 194 | | | — | | | 168 | | | — | | | — | | | — | |
| | | | | | | | | | | |
| Issuance of restricted stock in connection with acquisitions accounted for as stock-based compensation | 388 | | | — | | | 1,509 | | | — | | | 471 | | | — | |
| Exercise of stock options | 532 | | | — | | | 1,882 | | | — | | | 361 | | | — | |
| Issuance of common stock upon purchases under employee stock purchase plan | 2,214 | | | — | | | 2,250 | | | — | | | 1,592 | | | — | |
| Shares withheld related to net share settlement of equity awards | (442) | | | — | | | (639) | | | — | | | (579) | | | — | |
| Repurchases of common stock | (16,860) | | | — | | | (5,584) | | | — | | | — | | | — | |
| Other activities | (65) | | | — | | | — | | | — | | | (2) | | | — | |
| Balance, end of period | 799,384 | | | $ | 4 | | | 796,000 | | | $ | 4 | | | 779,619 | | | $ | 4 | |
| Additional paid-in capital | | | | | | | | | | | |
| Balance, beginning of period | — | | | $ | 9,167,138 | | | — | | | $ | 8,763,330 | | | — | | | $ | 8,324,974 | |
| | | | | | | | | | | |
| Issuance of common stock in connection with acquisitions | — | | | 12,640 | | | — | | | 8,311 | | | — | | | — | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Exercise of stock options | — | | | 2,056 | | | — | | | 5,441 | | | — | | | 788 | |
| Issuance of common stock upon purchases under employee stock purchase plan | — | | | 68,792 | | | — | | | 55,470 | | | — | | | 42,378 | |
| Shares withheld related to net share settlement of equity awards | — | | | (26,982) | | | — | | | (22,585) | | | — | | | (19,594) | |
| Stock-based compensation | — | | | 709,608 | | | — | | | 510,254 | | | — | | | 414,784 | |
| Equity component of the convertible note issuance, net | — | | | — | | | — | | | 92,209 | | | — | | | — | |
| Purchase of convertible note hedge | — | | | (213,469) | | | — | | | — | | | — | | | — | |
| Tax related to purchase of convertible note hedge | — | | | 49,262 | | | — | | | — | | | — | | | — | |
| Issuance of warrants | — | | | 161,144 | | | — | | | — | | | — | | | — | |
| Repurchases of common stock | — | | | (930,530) | | | — | | | (245,292) | | | — | | | — | |
| Cumulative-effect adjustment from adoption of new accounting standard | — | | | (567,547) | | | — | | | — | | | — | | | — | |
| | | | | | | | | | | |
| Balance, end of period | — | | | $ | 8,432,112 | | | — | | | $ | 9,167,138 | | | — | | | $ | 8,763,330 | |
| Treasury stock | | | | | | | | | | | |
| Balance, beginning of period | — | | | $ | (5,297) | | | — | | | $ | — | | | — | | | $ | — | |
| Retirement of treasury stock | — | | | 21,183 | | | — | | | — | | | — | | | — | |
| Repurchases of common stock | — | | | (21,181) | | | — | | | (5,297) | | | — | | | — | |
| Balance, end of period | — | | | $ | (5,295) | | | — | | | $ | (5,297) | | | — | | | $ | — | |
| Accumulated other comprehensive loss | | | | | | | | | | | |
| Balance, beginning of period | — | | | $ | (66,094) | | | — | | | $ | (70,534) | | | — | | | $ | (65,311) | |
| Other comprehensive income (loss) | — | | | (51,226) | | | — | | | 4,440 | | | — | | | (5,223) | |
| Balance, end of period | — | | | $ | (117,320) | | | — | | | $ | (66,094) | | | — | | | $ | (70,534) | |
| Retained earnings (accumulated deficit) | | | | | | | | | | | |
| Balance, beginning of period | — | | | $ | (1,125,669) | | | — | | | $ | 11,586 | | | — | | | $ | (1,454,073) | |
| Cumulative-effect adjustment from adoption of new accounting standards | — | | | 344,776 | | | — | | | (1,629) | | | — | | | — | |
| Net income (loss) | — | | | (221,409) | | | — | | | (1,135,626) | | | — | | | 1,465,659 | |
| Balance, end of period | — | | | $ | (1,002,302) | | | — | | | $ | (1,125,669) | | | — | | | $ | 11,586 | |
| Total stockholders' equity | 799,384 | | | $ | 7,307,199 | | | 796,000 | | | $ | 7,970,082 | | | 779,619 | | | $ | 8,704,386 | |
| | Year Ended December 31, | |
| | 2018 | | | 2017 | | | 2016 | |
| | Shares | | | Amount | | | Shares | | | Amount | | | Shares | | | Amount | |
Common stock | | | | | | | | | | | | | | | | | | | | | | | | |
Balance, beginning of period | | | 746,902 | | | $ | 4 | | | | 721,572 | | | $ | 4 | | | | 694,132 | | | $ | 3 | |
Issuance of common stock in connection with RSU vesting | | | 15,026 | | | | — | | | | 20,855 | | | | — | | | | 26,909 | | | | 1 | |
Issuance of common stock in connection with acquisitions | | | 119 | | | | — | | | | — | | | | — | | | | 41 | | | | — | |
Issuance of restricted stock in connection with acquisitions accounted for as stock-based compensation | | | 655 | | | | — | | | | — | | | | — | | | | 3,364 | | | | — | |
Exercise of stock options | | | 634 | | | | — | | | | 3,733 | | | | — | | | | 2,864 | | | | — | |
Issuance of common stock upon purchases under employee stock purchase plan | | | 1,539 | | | | — | | | | 1,735 | | | | — | | | | 2,039 | | | | — | |
Shares withheld related to net share settlement of equity awards | | | (610 | ) | | | — | | | | (531 | ) | | | — | | | | (878 | ) | | | — | |
Cancellation of shares contributed by the CEO | | | — | | | | — | | | | — | | | | — | | | | (6,814 | ) | | | — | |
Other activities | | | (8 | ) | | | — | | | | (462 | ) | | | — | | | | (85 | ) | | | — | |
Balance, end of period | | | 764,257 | | | $ | 4 | | | | 746,902 | | | $ | 4 | | | | 721,572 | | | $ | 4 | |
Additional paid-in capital | | | | | | | | | | | | | | | | | | | | | | | | |
Balance, beginning of period | | | — | | | $ | 7,750,522 | | | | — | | | $ | 7,224,534 | | | | — | | | $ | 6,507,087 | |
Cumulative-effect adjustment from adoption of stock-based compensation expense simplification rule | | | — | | | | — | | | | — | | | | 13,316 | | | | — | | | | — | |
Issuance of common stock in connection with acquisitions | | | — | | | | 5,405 | | | | — | | | | — | | | | — | | | | 735 | |
Issuance of stock options in connection with acquisitions | | | — | | | | 917 | | | | — | | | | — | | | | — | | | | — | |
Issuance of restricted stock in connection with acquisitions | | | — | | | | 12,843 | | | | — | | | | — | | | | — | | | | — | |
Exercise of stock options | | | — | | | | 3,442 | | | | — | | | | 9,515 | | | | — | | | | 7,714 | |
Issuance of common stock upon purchases under employee stock purchase plan | | | — | | | | 29,288 | | | | — | | | | 23,920 | | | | — | | | | 24,431 | |
Shares withheld related to net share settlement of equity awards | | | — | | | | (19,256 | ) | | | — | | | | (8,962 | ) | | | — | | | | (15,598 | ) |
Stock-based compensation | | | — | | | | 367,668 | | | | — | | | | 488,123 | | | | — | | | | 695,525 | |
Equity component of the convertible note issuance, net | | | — | | | | 252,248 | | | | — | | | | — | | | | — | | | | — | |
Purchase of convertible note hedge | | | — | | | | (267,950 | ) | | | — | | | | — | | | | — | | | | — | |
Issuance of warrants | | | — | | | | 186,760 | | | | — | | | | — | | | | — | | | | — | |
Other activities | | | — | | | | 3,087 | | | | — | | | | 76 | | | | — | | | | 4,640 | |
Balance, end of period | | | — | | | $ | 8,324,974 | | | | — | | | $ | 7,750,522 | | | | — | | | $ | 7,224,534 | |
Accumulated other comprehensive loss | | | | | | | | | | | | | | | | | | | | | | | | |
Balance, beginning of period | | | — | | | $ | (31,579 | ) | | | — | | | $ | (69,253 | ) | | | — | | | $ | (45,566 | ) |
Other comprehensive income (loss) | | | — | | | | (33,732 | ) | | | — | | | | 37,674 | | | | — | | | | (23,687 | ) |
Balance, end of period | | | — | | | $ | (65,311 | ) | | | — | | | $ | (31,579 | ) | | | — | | | $ | (69,253 | ) |
Accumulated deficit | | | | | | | | | | | | | | | | | | | | | | | | |
Balance, beginning of period | | | — | | | $ | (2,671,729 | ) | | | — | | | $ | (2,550,350 | ) | | | — | | | $ | (2,093,477 | ) |
Cumulative-effect adjustment from adoption of revenue recognition rule | | | — | | | $ | 12,060 | | | | — | | | | — | | | | — | | | | — | |
Cumulative-effect adjustment from adoption of stock-based compensation expense simplification rule | | | — | | | | — | | | | — | | | | (13,316 | ) | | | — | | | | — | |
Net income (loss) | | | — | | | | 1,205,596 | | | | — | | | | (108,063 | ) | | | — | | | | (456,873 | ) |
Balance, end of period | | | — | | | $ | (1,454,073 | ) | | | — | | | $ | (2,671,729 | ) | | | — | | | $ | (2,550,350 | ) |
Total stockholders' equity | | | 764,257 | | | $ | 6,805,594 | | | | 746,902 | | | $ | 5,047,218 | | | | 721,572 | | | $ | 4,604,935 | |
The accompanying notes are an integral part of these consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
| | | Year Ended December 31, | | | Year Ended December 31, |
| | 2018 | | | 2017 | | | 2016 | | | 2021 | | 2020 | | 2019 |
Cash flows from operating activities | | | | | | | | | | | | | Cash flows from operating activities | | | | | |
Net income (loss) | | $ | 1,205,596 | | | $ | (108,063 | ) | | $ | (456,873 | ) | Net income (loss) | $ | (221,409) | | | $ | (1,135,626) | | | $ | 1,465,659 | |
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | | | | | | | | | | | | Adjustments to reconcile net income (loss) to net cash provided by operating activities: | |
Depreciation and amortization expense | | | 425,498 | | | | 395,867 | | | | 402,172 | | Depreciation and amortization expense | 544,848 | | | 495,177 | | | 465,549 | |
Stock-based compensation expense | | | 326,228 | | | | 433,806 | | | | 615,233 | | Stock-based compensation expense | 629,901 | | | 474,932 | | | 378,025 | |
Amortization of discount on convertible notes | | | 105,926 | | | | 80,061 | | | | 74,660 | | Amortization of discount on convertible notes | — | | | 101,733 | | | 113,298 | |
| Bad debt expense | | Bad debt expense | 1,560 | | | 18,775 | | | 3,083 | |
Deferred income taxes | | | (801,720 | ) | | | (6,415 | ) | | | (4,775 | ) | Deferred income taxes | (228,774) | | | (36,978) | | | 84,369 | |
Impairment of investments in privately-held companies | | | 3,000 | | | | 62,439 | | | | 4,000 | | |
| | Deferred tax assets establishment related to intra-entity transfers of intangible assets | | Deferred tax assets establishment related to intra-entity transfers of intangible assets | — | | | — | | | (1,206,880) | |
| Deferred tax assets valuation allowance establishment | | Deferred tax assets valuation allowance establishment | — | | | 1,101,374 | | | — | |
| Impairment (gain) on investments in privately-held companies | | Impairment (gain) on investments in privately-held companies | (101,445) | | | 8,842 | | | 1,550 | |
Other adjustments | | | (14,139 | ) | | | 5,753 | | | | 46,042 | | Other adjustments | 2,975 | | | (10,764) | | | (19,989) | |
Changes in assets and liabilities, net of assets acquired and liabilities assumed from acquisitions: | | | | | | | | | | | | | Changes in assets and liabilities, net of assets acquired and liabilities assumed from acquisitions: | |
Accounts receivable | | | (130,871 | ) | | | 2,668 | | | | (22,969 | ) | Accounts receivable | (189,946) | | | (188,039) | | | (67,000) | |
Prepaid expenses and other assets | | | 126,470 | | | | (13,974 | ) | | | 7,101 | | Prepaid expenses and other assets | (121,501) | | | 6,398 | | | (29,602) | |
| Operating lease right-of-use assets | | Operating lease right-of-use assets | 219,287 | | | 168,000 | | | 149,880 | |
Accounts payable | | | (1,533 | ) | | | 8,371 | | | | (7,112 | ) | Accounts payable | 20,869 | | | 18,232 | | | 2,946 | |
Accrued and other liabilities | | | 95,256 | | | | (29,304 | ) | | | 105,576 | | Accrued and other liabilities | 260,475 | | | 123,345 | | | 92,681 | |
| Operating lease liabilities | | Operating lease liabilities | (184,151) | | | (152,531) | | | (130,205) | |
Net cash provided by operating activities | | | 1,339,711 | | | | 831,209 | | | | 763,055 | | Net cash provided by operating activities | 632,689 | | | 992,870 | | | 1,303,364 | |
Cash flows from investing activities | | | | | | | | | | | | | Cash flows from investing activities | | | | | |
Purchases of property and equipment | | | (483,934 | ) | | | (160,742 | ) | | | (218,657 | ) | Purchases of property and equipment | (1,011,546) | | | (873,354) | | | (540,688) | |
Proceeds from sales of property and equipment | | | 13,070 | | | | 2,783 | | | | — | | Proceeds from sales of property and equipment | 8,462 | | | 9,170 | | | 6,158 | |
Purchases of marketable securities | | | (5,334,396 | ) | | | (2,687,214 | ) | | | (2,908,611 | ) | Purchases of marketable securities | (3,736,659) | | | (6,272,395) | | | (5,798,111) | |
Proceeds from maturities of marketable securities | | | 3,732,973 | | | | 2,579,747 | | | | 2,518,631 | | Proceeds from maturities of marketable securities | 3,811,768 | | | 4,554,238 | | | 4,928,097 | |
Proceeds from sales of marketable securities | | | 58,721 | | | | 124,826 | | | | 183,154 | | Proceeds from sales of marketable securities | 1,172,626 | | | 1,092,754 | | | 367,116 | |
Proceeds from sales of long-lived assets | | | — | | | | 35,000 | | | | — | | |
Purchases of investments in privately-held companies | | | (3,375 | ) | | | (825 | ) | | | (81,502 | ) | Purchases of investments in privately-held companies | (39,761) | | | (11,912) | | | (51,163) | |
| Investments in Finance Justice Fund | | Investments in Finance Justice Fund | (69,500) | | | — | | | — | |
Business combinations, net of cash acquired | | | (33,572 | ) | | | — | | | | (85,082 | ) | Business combinations, net of cash acquired | (32,702) | | | (48,016) | | | (29,664) | |
Other investing activities | | | (5,000 | ) | | | (10,101 | ) | | | (1,181 | ) | Other investing activities | (50,065) | | | (11,050) | | | 2,281 | |
Net cash used in investing activities | | | (2,055,513 | ) | | | (116,526 | ) | | | (593,248 | ) | |
| Net cash provided by (used in) investing activities | | Net cash provided by (used in) investing activities | 52,623 | | | (1,560,565) | | | (1,115,974) | |
Cash flows from financing activities | | | | | | | | | | | | | Cash flows from financing activities | | | | | |
Proceeds from issuance of convertible notes | | | 1,150,000 | | | | — | | | | — | | Proceeds from issuance of convertible notes | 1,437,500 | | | 1,000,000 | | | — | |
| Proceeds from issuance of senior notes | | Proceeds from issuance of senior notes | — | | | — | | | 700,000 | |
Purchases of convertible note hedges | | | (267,950 | ) | | | — | | | | — | | Purchases of convertible note hedges | (213,469) | | | — | | | — | |
Proceeds from issuance of warrants concurrent with note hedges | | | 186,760 | | | | — | | | | — | | Proceeds from issuance of warrants concurrent with note hedges | 161,144 | | | — | | | — | |
Debt issuance costs | | | (13,783 | ) | | | — | | | | — | | Debt issuance costs | (16,769) | | | (14,662) | | | (8,070) | |
| Repayment of convertible notes | | Repayment of convertible notes | (954,000) | | | — | | | (935,000) | |
| Repurchases of common stock | | Repurchases of common stock | (930,530) | | | (245,292) | | | — | |
Taxes paid related to net share settlement of equity awards | | | (19,263 | ) | | | (8,962 | ) | | | (15,598 | ) | Taxes paid related to net share settlement of equity awards | (26,982) | | | (22,587) | | | (19,594) | |
Payments of capital lease obligations | | | (90,351 | ) | | | (102,775 | ) | | | (100,558 | ) | |
| Payments of finance lease obligations | | Payments of finance lease obligations | (565) | | | (23,062) | | | (66,677) | |
Proceeds from exercise of stock options | | | 3,415 | | | | 9,444 | | | | 7,540 | | Proceeds from exercise of stock options | 2,056 | | | 5,442 | | | 788 | |
Proceeds from issuances of common stock under employee stock purchase plan | | | 29,288 | | | | 23,920 | | | | 24,641 | | Proceeds from issuances of common stock under employee stock purchase plan | 68,792 | | | 55,471 | | | 42,378 | |
Net cash provided by (used in) financing activities | | | 978,116 | | | | (78,373 | ) | | | (83,975 | ) | Net cash provided by (used in) financing activities | (472,823) | | | 755,310 | | | (286,175) | |
Net increase in cash, cash equivalents and restricted cash | | | 262,314 | | | | 636,310 | | | | 85,832 | | |
| Net increase (decrease) in cash, cash equivalents and restricted cash | | Net increase (decrease) in cash, cash equivalents and restricted cash | 212,489 | | | 187,615 | | | (98,785) | |
Foreign exchange effect on cash, cash equivalents and restricted cash | | | (14,296 | ) | | | 9,914 | | | | (3,754 | ) | Foreign exchange effect on cash, cash equivalents and restricted cash | (13,080) | | | (4,005) | | | 4,576 | |
Cash, cash equivalents and restricted cash at beginning of period | | | 1,673,857 | | | | 1,027,633 | | | | 945,555 | | Cash, cash equivalents and restricted cash at beginning of period | 2,011,276 | | | 1,827,666 | | | 1,921,875 | |
Cash, cash equivalents and restricted cash at end of period | | $ | 1,921,875 | | | $ | 1,673,857 | | | $ | 1,027,633 | | Cash, cash equivalents and restricted cash at end of period | $ | 2,210,685 | | | $ | 2,011,276 | | | $ | 1,827,666 | |
Supplemental cash flow data | | | | | | | | | | | | | Supplemental cash flow data | | | | | |
Interest paid in cash | | $ | 14,547 | | | $ | 13,990 | | | $ | 12,953 | | Interest paid in cash | $ | 41,754 | | | $ | 38,510 | | | $ | 12,236 | |
Taxes paid in cash | | $ | 33,065 | | | $ | 16,216 | | | $ | 14,532 | | |
| Income taxes paid in cash | | Income taxes paid in cash | $ | 113,525 | | | $ | 11,480 | | | $ | 20,144 | |
Supplemental disclosures of non-cash investing and financing activities | | | | | | | | | | | | | Supplemental disclosures of non-cash investing and financing activities | |
Common stock issued in connection with acquisitions | | $ | 19,165 | | | $ | — | | | $ | 1,341 | | Common stock issued in connection with acquisitions | $ | 12,640 | | | $ | 8,311 | | | $ | — | |
Equipment purchases under capital leases | | $ | 16,086 | | | $ | 123,235 | | | $ | 100,281 | | |
| Changes in accrued property and equipment purchases | | $ | (23,469 | ) | | $ | 16,387 | | | $ | 5,738 | | Changes in accrued property and equipment purchases | $ | (12,149) | | | $ | 24,882 | | | $ | 14,985 | |
Reconciliation of cash, cash equivalents and restricted cash as shown in the consolidated statements of cash flows | | | | | | | | | | | | | Reconciliation of cash, cash equivalents and restricted cash as shown in the consolidated statements of cash flows | |
Cash and cash equivalents | | $ | 1,894,444 | | | $ | 1,638,413 | | | $ | 988,598 | | Cash and cash equivalents | $ | 2,186,549 | | | $ | 1,988,429 | | | $ | 1,799,082 | |
Restricted cash included in prepaid expenses and other current assets | | | 1,698 | | | | 8,289 | | | | 9,449 | | Restricted cash included in prepaid expenses and other current assets | 8,140 | | | 2,287 | | | 1,862 | |
Restricted cash included in other assets | | | 25,733 | | | | 27,155 | | | | 29,586 | | Restricted cash included in other assets | 15,996 | | | 20,560 | | | 26,722 | |
Total cash, cash equivalents and restricted cash | | $ | 1,921,875 | | | $ | 1,673,857 | | | $ | 1,027,633 | | Total cash, cash equivalents and restricted cash | $ | 2,210,685 | | | $ | 2,011,276 | | | $ | 1,827,666 | |
The accompanying notes are an integral part of these consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. The Company
Twitter, Inc. (“Twitter” or the “Company”) was incorporated in Delaware in April 2007, and is headquartered in San Francisco, California. Twitter offers products and services for users, advertisers, developers and platform and data partners.
Note
2.1. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of
the CompanyTwitter, Inc. and its wholly-owned
subsidiaries.subsidiaries (collectively, "Twitter", or the "Company"). All
significant intercompany accounts and transactions have been eliminated in consolidation.
Prior Period Reclassifications
Certain prior period amounts have been reclassified to conform to the current period presentation.
The preparation of the Company’s consolidated financial statements in conformity with generally accepted accounting principles in the United States of America
(“GAAP”)(GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, as well as related disclosure of contingent assets and liabilities. Actual results could differ materially from the Company’s
estimates.estimates due to risks and uncertainties, including uncertainty in the current economic environment due to the global impact of the COVID-19 pandemic. To the extent that there are material differences between these estimates and actual results, the Company’s financial condition or operating results will be affected. The Company bases its estimates on past experience and other assumptions that
managementthe Company believes are reasonable
based on its knowledge of current events, as well as its expectations about actions it may take inunder the
future,circumstances, and
the Company evaluates these estimates on an ongoing basis.
The Company generates the substantial majority of its revenue from the sale of advertising services with the
remaining balance from data licensing and other arrangements.
The Company generates its advertising revenue primarily from the sale of its Promoted Products: (i) Promoted
Tweets,Ads, (ii)
Promoted AccountsFollower Ads and (iii)
Twitter Takeover. Promoted
Trends. Promoted TweetsAds and
Promoted AccountsFollower Ads are pay-for-performance advertising products or pay on impressions delivered, each priced through an auction.
Promoted Trends areTwitter Takeover is featured by geography and offered on a fixed-fee-per-day basis. Advertisers are obligated to pay when a
userperson engages with a Promoted
Tweet,Ad, follows a
Promoted Account,Follower Ad, when an impression is delivered, or when a
Promoted TrendTwitter Takeover is
displayed.displayed for an entire day in a particular country. These advertising services may be sold in combination as a bundled arrangement or separately on a stand-alone basis.
For the Company's Promoted Product arrangements, significant judgments are (i) identifying the performance obligations in the contract, (ii) determining the basis for allocating contract consideration to performance obligations, (iii) determining whether the Company is the principal or the agent in arrangements where another party is involved in providing specified services to a customer, and (iv) estimating the transaction price to be allocated for contracts with tiered rebate provisions.
The Company may generate revenue from the sale of certain Promoted TweetsAds through placement by Twitter of advertiser ads against third-party publisher content. The Company will pay the third-party publisher a revenue share fee for its right to monetize their content. In such transactions, advertisers are contracting to obtain a single integrated advertising service, the Promoted TweetAd combined with the third-party publisher content, and the Company obtains control of the third-party publisher content displayed on Twitter that it then combines with the advertiser ads within the Promoted Tweet.Ad. Therefore, the Company reports advertising revenue generated from these transactions on a gross basis and records the related third-party content monetization fees as cost of revenue.
The Company also generates advertising revenue by selling services in which the Company places ads on third-party publishers’ websites, applications or other offerings. To fulfill these transactions, the Company purchases advertising inventory from third-party publishers’ websites and applications where the Company has identified the advertisers’ targeted audience and therefore incurs traffic acquisition costs prior to transferring the advertising service to its customers. At such point, the Company has the sole ability to monetize the third-party publishers advertising inventory. In such transactions, the Company obtains control of a right to a service to be performed by the third-party publishers, which gives the Company the ability to direct those publishers to provide the services to the Company's customers on the Company's behalf. Therefore, the Company reports advertising revenue generated from these transactions on a gross basis and records the related traffic acquisition costs as cost of revenue.
Fees for the advertising services above are recognized in the period when advertising is delivered as evidenced by a
userperson engaging with a Promoted
TweetAd or an ad on a third-party publisher website or application in a manner satisfying the types of engagement selected by the advertisers, such as Tweet engagements (e.g.,
retweets,Retweets, replies and likes), website clicks, mobile application installs or engagements, obtaining new followers, or video views, following a
Promoted Account,Follower Ad, delivery of impressions, or through the display of a
Promoted TrendTwitter Takeover on the Company's platform.
The Company has concluded that its data licensing arrangements, which grant customers a right to
Twitter’sits intellectual property
(“IP”)(IP) for a defined period of time, may contain a single performance obligation satisfied at a point in time
(“Historical IP”)(Historical IP) or over time
(“Future IP”)(Future IP), or may contain two or more performance obligations satisfied separately at a point in time (Historical IP) and over time (Future IP). In some of the Company's data licensing arrangements, pricing is a fixed monthly fee over a specified term. In arrangements with a single performance obligation satisfied over time, data licensing revenue is recognized on a straight-line basis over the period in which the Company provides data as the customer consumes and benefits from the continuous data available on an ongoing basis. In arrangements with at least two performance obligations, the Company allocates revenue on a relative basis between the performance obligations based on standalone selling price
(“SSP”)(SSP) and recognizes revenue as the performance obligations are satisfied.
In other data licensing arrangements, the Company charges customers based on the amount of sales they generate from downstream customers using Twitter data. Certain of those royalty-based data licensing arrangements are subject to minimum guarantees. For such arrangements with a minimum guarantee and a single Future IP performance obligation, the Company recognizes revenue for minimum guarantees on a straight-line basis over the period in which the Company provides data. For such arrangements with a minimum guarantee and two or more performance obligations, the Company allocates revenue on a relative basis between the performance obligations based on SSP and recognizes revenue as the performance obligations are satisfied. Royalties in excess of minimum guarantees, if any, are recognized as revenue
inover the
period thatcontract term, on a straight-line, cumulative catch-up basis. This reflects the
related downstream customer sales usingnature of the Company’s
licensed data occur, and such amounts have been immaterial to date.performance obligation, which is a series of distinct monthly periods of providing a license of IP.
For data licensing arrangements involving two or more performance obligations, the Company uses directly observable standalone transactions to determine SSP of Historical IP. The Company uses standalone transactions and considers all other reasonably available observable evidence to estimate SSP of Future IP.
Other revenue is primarily generated from service fees from transactions completed on the Company's mobile ad exchange. The Company's mobile ad exchange enables buyers and sellers to purchase and sell advertising inventory by matching them in the exchange. The Company has determined it is not the principal in the purchase and sale of advertising inventory in transactions between third-party buyers and sellers on the exchange because the Company does not obtain control of the advertising inventory. The Company reports revenue related to its ad exchange services on a net basis for the fees paid by buyers, net of costs related to acquiring the advertising inventory paid to sellers.
Arrangements involving multiple performance obligations primarily consist of combinations of the Company's pay-for-performance products, Promoted TweetsAds and Promoted Accounts,Follower Ads, which are priced through an auction, and Promoted Trends,Twitter Takeover, which areis priced on a fixed-fee-per day, per geography basis. For arrangements that include a combination of these products, the Company develops an estimate of the standalone selling price for these products in order to allocate any potential discount to all performance obligations in the arrangement. The estimate of standalone selling price for pay-for-performance auction based products is determined based on the winning bid price. The estimate of standalone selling price for Promoted TrendsTwitter Takeover is based on Promoted TrendsTwitter Takeover sold on a standalone basis and/or separately priced in a bundled arrangement by reference to a list price by geography, which is typically updated and approved periodically.annually. For other arrangements involving multiple performance obligations where neither auction pricing nor standalone sales provide sufficient evidence of standalone selling price, the Company estimates standalone selling price using either an adjusted market assessment approach or an expected cost plus margin approach. The Company believes the use of its estimation approach and allocation of the transaction price on a relative standalone selling price basis to each performance obligation results in revenue recognition in a manner consistent with the underlying economics of the transaction and the allocation principle included in Topic 606.principles of the revenue recognition guidance. The Company has elected to exclude certain sales and indirect taxes from the determination of the transaction price.
The Company expenses sales commissions as incurred when the amortization period is one year or less. Sales commission expenses are recorded within sales and marketing in the consolidated statements of operations.
Cost of revenue includes infrastructure costs, other direct costs including
content costs,revenue share expenses, amortization expense of technology acquired through acquisitions and amortization of capitalized labor costs for internally developed software, allocated facilities costs, as well as traffic acquisition costs
(“TAC”)(TAC). Infrastructure costs consist primarily of data center costs related to the Company’s co-located facilities, which include lease and hosting costs, related support and maintenance costs and energy and bandwidth costs,
public cloud hosting costs, as well as depreciation of servers and networking equipment, and personnel-related costs, including salaries, benefits and stock-based compensation, for its operations teams.
Content costsRevenue share expenses are primarily related to payments to providers from whom the Company licenses content, in order to increase engagement on the platform. The fees paid to these content providers may be based on revenues generated, or a minimum guaranteed fee. TAC consists of costs incurred with third parties in connection with the sale to advertisers of advertising products that the Company places on third-party publishers’ websites, applications or other offerings collectively resulting from
acquisitions and from the Company’s organically-built advertising network, Twitter Audience Platform.acquisitions.
Stock-Based Compensation Expense
The Company accounts for stock-based compensation expense under the fair value recognition and measurement provisions of GAAP. Stock-based awards granted to employees are measured based on the grant-date fair value.
For service-based restricted stock awards and performance-based restricted stock awards,
without market conditions, the Company recognizes the compensation expense only for those awards expected to meet the performance and service vesting
conditionconditions. For service-based restricted stock awards, expense is recognized on a straight-line basis over the requisite service
period whichperiod. The service condition for restricted stock awards is generally
one year for performance vesting condition awards and satisfied over four years, but has been up to
five years for service vesting condition awards.in certain circumstances. For performance-based restricted stock awards, with market conditions,expense is recognized on a graded basis over the requisite service period. For market-based restricted stock awards, the Company recognizes the compensation expense on a straight-linegraded basis over the requisite service period
regardless of whether the market condition is satisfied, provided that the requisite service has been provided. Starting in 2017, theThe requisite service period for performance-based and market-based restricted stock awards is generally up to six years. The Company accounts for forfeitures as they occur.
The Company estimates the fair value of stock options granted and stock purchase rights provided under the Company’s employee stock purchase plan using the Black-Scholes option pricing model on the dates of grant. The compensation expense related to stock options and employee stock purchase rights is recognized on a straight-line basis over the requisite service period.
The fair value of
performance-basedmarket-based restricted stock awards
with market conditions is determined using a Monte Carlo simulation to estimate the grant date fair value.
The Company issues restricted stock subject to a lapsing right of repurchase to continuing employees of certain acquired companies. Since theseFor such restricted stock issuances are subject to post-acquisitionpost acquisition employment, the Company accounts for them as post-acquisition stock-based compensation expense. Therecognizes the grant-date fair value of restricted stock granted in connection with acquisitions is recognized as post-acquisition stock-based compensation expense on a straight-line basis over the requisite service period.
Business Combinations
Acquisitions
The Company
accounts for acquisitions of entities that include inputs and processes and haveallocates the
ability to create outputs as business combinations. The purchase price of the acquisition
is allocated to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values at the acquisition dates. The excess of the purchase price over those fair values is recorded as goodwill. During the measurement period, which may be up to one year from the acquisition date, the Company may record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to the consolidated statements of operations.
Investments in Privately-Held Companies
The Company makes strategic investments in privately-held companies. The Company
also evaluates each investee to determine if the investee is a variable interest entity and, if so, whether the Company is the primary beneficiary of the variable interest entity. The
Company has determined, as of December 31, 2021, there were no variable interest entities required to be consolidated in the Company’s consolidated financial statements. The Company’s investments in privately-held companies are primarily non-marketable equity securities without readily determinable fair values.
Prior to January 1, 2018, theThe Company
accountedaccounts for its
non-marketableinvestments in privately-held companies either under equity
securities at cost less impairment. Realized gains and losses on non-marketable securities soldmethod accounting or
impaired were recognized in other income (expense), net. On January 1, 2018, the Company adopted the new standard which changed the way it accounts for non-marketable securities. The Company now adjustsby adjusting the carrying value of its non-marketable equity securities to fair value upon observable transactions for identical or similar investments of the same issuer or upon impairment (referred to as the measurement alternative).
The investments in privately-held companies are included within other assets on the consolidated balance sheets. All gains and losses on non-marketable equity securities, realized and unrealized, are recognized in other income (expense), net. net in the consolidated statements of operations.
The Company periodically evaluates the carrying value of the investments in privately-held companies when events and circumstances indicate that the carrying amount of the investment may not be recovered. The Company estimates the fair value of the investments to assess whether impairment losses shall be recorded using Level 3 inputs. These investments include the Company’s holdings in privately-held companies that are not exchange traded and therefore not supported with observable market prices; hence, the Company may determine the fair value by reviewing equity valuation reports, current financial results, long-term plans of the
privateprivately-held companies, the amount of cash that the privately-held companies have on-hand, the ability to obtain additional financing and overall market conditions in which the
privateprivately-held companies operate or based on the price observed from the most recent completed financing.
The Company is
currently involved in,
various lawsuits,and may in the future be involved in, legal proceedings, claims, investigations, and
proceedings that arisegovernment inquiries and investigations arising in the ordinary course of business. The Company records a liability when it believes that it is both probable that a loss has been incurred and the amount or range can be reasonably estimated.
If the Company determines there is a reasonable possibility that it may incur a loss and the loss or range of loss can be estimated, it discloses the possible loss to the extent material. Significant judgment is required to determine both probability and the estimated amount. The Company reviews these provisions on a
quarterlyregular basis and
adjustadjusts these provisions accordingly to reflect the impact of negotiations, settlements, rulings, advice of legal counsel, and updated information.
Restructuring
Operating and
Other ChargesFinance Leases
The Company
records charges associated with management-approved restructuring plans to reduce headcount andhas operating leases primarily for
leases. Restructuring costs are recognized when the related liability is incurred and measured at fair value. The Company records a liability for employee terminations when all of the following conditions have been met: management, having the authority to approve the action, commits to a plan of termination; the plan identifies the number of employees to be terminated, their job classifications and their locations, and the expected completion date; the plan establishes the terms of the benefit arrangement in sufficient detail to enable employees to determine the type and amount of benefits they will receive if they are involuntarily terminated; and actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn.The Company accrues for costs to terminate an operating lease or other contract when it terminates the contract in accordance with the contract terms.
A liability for costs that will continue to be incurred under a contract for the remaining term without economic benefits to the Company is recognized and measured when the entity meets the cease-use date. In recording liabilities for cease-use facilities, the Company makes various assumptions, including the time period over which the facilities are expected to be vacant, expected sublease terms and expected sublease rates. The estimates involve a number of risks and uncertainties, some of which are beyond the Company’s control, including future real estate market conditions and the Company’s ability to successfully enter into sublease agreements with terms as favorable as those assumed when arriving at the estimates. The Company regularly evaluates a number of factors to determine the appropriateness and reasonableness of the restructuring and lease loss accruals including the various assumptions noted above. If actual results differed significantly from its estimates, the Company may be required to adjust the restructuring and lease loss accruals in the future.
Operating and Capital Leases
The Company leases office space and data center facilities underfacilities. The determination of whether an arrangement is a lease or contains a lease is made at inception by evaluating whether the arrangement conveys the right to use an identified asset and whether the Company obtains substantially all of the economic benefits from and has the ability to direct the use of the asset. Operating leases are included in operating leases. lease right-of-use assets, operating lease liabilities, short-term, and operating lease liabilities, long-term on the Company’s consolidated balance sheets.
With the exception of initial adoption of the new lease standard, where the Company’s incremental borrowing rate used was the rate on the adoption date (January 1, 2019), operating lease ROU assets and operating lease liabilities are recognized based on the present value of lease payments over the lease term at the lease commencement date. To determine the incremental borrowing rate used to calculate the present value of future lease payments, the Company uses information including the Company’s credit rating, interest rates of similar debt instruments of entities with comparable credit ratings, the Company's recent debt issuances, and Twitter, Inc.’s guarantee of certain leases in foreign jurisdictions, as applicable.
Certain lease agreements contain
freeoptions for the Company to renew or
escalating rent payment provisions.early terminate a lease. The Company considers these options, which may be elected at the Company’s sole discretion, in determining the lease term on a lease-by-lease basis. Leases with an initial term of twelve months or less are not recognized on the consolidated balance sheets. The Company recognizes
rentlease expense
under suchfor these leases on a straight-line basis over the term of the lease.
Lease renewal periods are considered on a lease-by-lease basis in determining the lease term.The Company also has entered into server and networking equipment lease arrangements with original lease terms upranging from three to four years. The Company’s server and networking equipment leases typically are accounted for as capitalfinance leases as they meet one or more of the four capitalfive finance lease classification criteria. Assets acquired under capitalfinance leases are amortizedincluded in property and equipment, net, finance lease liabilities, short-term, and finance lease liabilities, long-term on the Company’s consolidated balance sheets and are depreciated to operating expenses on a straight-line basis over their estimated useful life.lives. There were no finance lease liabilities as of December 31, 2021.
The Company’s lease agreements generally do not contain any material residual value guarantees or material restrictive covenants. Certain of the Company’s leases contain free or escalating rent payment terms. Additionally, certain lease agreements contain lease components (for example, fixed payments such as rent) and non-lease components such as common-area maintenance costs. For each asset class of the Company’s leases—real estate offices, data centers, and equipment—the Company has elected to account for both of these provisions as a single lease component. For arrangements accounted for as a single lease component, there may be variability in future lease payments as the amount of the non-lease components is typically revised from one period to the next. These variable lease payments, which are primarily comprised of common-area maintenance, utilities, and real estate taxes that are passed on from the lessor in proportion to the space leased by the Company, are recognized in operating expenses in the period in which the obligation for those payments was incurred. The Company recognizes lease expense for its operating leases in operating expenses on a straight-line basis over the term of the lease.
The Company records a liability for the estimated cost of any asset retirement obligation (ARO) associated with its leases, which are incurred as a result of the acquisition, construction or development, and/or normal operation of a long-lived asset. In the determination of the fair value of AROs, the Company uses various assumptions and judgments, including factors such as the estimated amounts and timing of restoration costs, and discount and inflation rates. As of December 31, 20182021 and 2017,2020, the Company had capital lease obligations included in short-term and long-term capital lease obligations in the consolidated balance sheetsAROs of $92.4$34.2 million and $166.3 million, respectively. In the years ended December 31, 2018, 2017 and 2016, the Company recorded approximately $4.9 million, $5.6 million and $5.5$19.9 million, respectively, in other long-term liabilities on the consolidation balance sheets.
The Company subleases certain leased office space to third parties when it determines there is excess leased capacity. Certain of
interestthese subleases contain both lease and non-lease components. The Company has elected to account for both of these provisions as a single lease component. Sublease rent income is recognized as an offset to operating expense
on a straight-line basis over the lease term. In addition to sublease rent, variable non-lease costs such as common-area maintenance, utilities, and real estate taxes are charged to subtenants over the duration of the lease for their proportionate share of these costs. These variable non-lease income receipts are recognized in operating expenses as a reduction to costs incurred by the Company in relation to
these capital lease arrangements.the head lease.
Cash, Cash Equivalents and Investments
The Company invests its excess cash primarily in short-term fixed income securities, including government and investment-grade debt securities and money market funds. The Company classifies all liquid investments with stated maturities of three months or less from date of purchase as cash equivalents. The Company classifies all marketable securities for use in current operations, even if the security matures beyond 12 months, and presents them as short-term investments
inon the consolidated balance sheets.
As of December 31,
20182021 and
2017,2020, the Company has restricted cash balances of
$1.7$8.1 million and
$8.3$2.3 million, respectively, within prepaid expenses and other current assets and
$25.7$16.0 million and
$27.1$20.6 million, respectively, in other assets on the
accompanying consolidated balance sheets based upon the term of the remaining restrictions. These restricted cash balances are primarily cash deposits to back letters of credit related to certain property leases.
The Company determines the appropriate classification of its investments in marketable securities at the time of purchase and reevaluates such designation at each balance sheet date. The Company has classified and accounted for its marketable securities as available-for-sale. After considering the Company’s capital preservation objectives, as well as its liquidity requirements, the Company may sell securities prior to their stated maturities. The Company carries its available-for-sale securities at fair
value, andvalue. The Company reports the unrealized gains and losses, net of taxes, as a component of stockholders’ equity, except for unrealized losses determined to be
other-than-temporarycredit-related, which are recorded as other income (expense),
net.net in the consolidated statements of operations and reports an allowance for credit losses in short-term investments on the balance sheet, if any. The Company determines any realized gains or losses on the sale of marketable securities on a specific identification method and records such gains and losses as a component of other income (expense), net. Interest earned on cash, cash equivalents, and marketable securities was
$111.2$35.7 million,
$44.4$88.2 million, and
$24.3$157.7 million during the years ended December 31,
2018, 20172021, 2020 and
2016,2019, respectively. These
balancesamounts are recorded in interest income in the
accompanying consolidated statements of operations.
The Company's investment policy only allows purchases of investment-grade notes and provides guidelines on concentrations to ensure minimum risk of loss. The Company evaluates whether the investments periodically for possible other-than-temporary impairment. A decline in fair value below the amortized costs ofunrealized loss on available-for-sale debt securities is considered an other-than-temporary impairment if the result of the credit worthiness of the corporate notes it held, or other non-credit-related factors such as liquidity by reviewing a number of factors such as the implied yield of the corporate note based on the market price, the nature of the invested entity's business or industry, market capitalization relative to debt, changes in credit ratings, and the market prices of the corporate notes subsequent to period end. As of December 31, 2021, the gross unrealized loss on available-for-sale debt securities was immaterial and there were no expected credit losses related to the Company's available-for-sale debt securities. The Company has the intentdoes not intend to sell the security orthese investments and it is not more likely than not that the Company will be required to sell the securitythese investments before recovery of the entiretheir amortized cost basis. In those instances, an impairment charge equal to the difference between the fair value and the amortized cost basis is recognizedbases. As of December 31, 2021, no allowance for credit losses in earnings. Regardless of the Company’s intent or requirement to sell a debt security, impairment is considered other-than-temporary if the Company does not expect to recover the entire amortized cost basis.short-term investments was recorded.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to significant concentration of credit risk consist primarily of cash, cash equivalents, short-term investments and accounts receivable. The primary focus of the Company’s investment strategy is to preserve capital and meet liquidity requirements. The Company’s investment policy addresses the level of credit exposure by limiting the concentration in any one corporate issuer or sector and establishing a minimum allowable credit rating. To manage the risk exposure, the Company invests cash equivalents and short-term investments in a variety of fixed income securities, including government and investment-grade debt securities and money market funds. The Company places its cash primarily in checking and money market accounts with reputable financial institutions. Deposits held with these financial institutions may exceed the amount of insurance provided on such deposits, if any.
The Company’s accounts receivable are typically unsecured and are derived from customers around the world in different industries. The Company includes terms in its contracts providing the ability to stop transferring promised goods or services, performs ongoing credit evaluations of its customers, and maintains allowances for potential credit losses. Historically, such losses have been within management’s expectations. As of December 31,
20182021 and
2017,2020, no single customer accounted for more than 10% of the Company’s net accounts receivable
balance.balances. No single customer accounted for more than 10% of the Company’s revenue in the years ended December 31,
2018, 20172021, 2020 and
2016.2019.
The Company’s note hedge transactions, entered into in connection with the
Convertible Notes, as defined and further described in Note
54 – Fair Value Measurements, and its derivative financial instruments expose the Company to credit risk to the extent that its counterparties may be unable to meet the terms of the transactions. The Company mitigates this risk by limiting its counterparties to major financial institutions and using multiple financial institutions as counterparties in its hedge transactions.
The Company records accounts receivable at the invoiced amount. The Company maintains an allowance for doubtful accounts to reserve for potentially uncollectible receivable amounts. In evaluating the Company’s ability to collect outstanding receivable balances, the Company considers various factors including the age of the balance, the creditworthiness of the customer, which is assessed based on ongoing credit evaluations and payment history,
and the customer’s current financial
condition.condition, and considers macroeconomic factors to estimate expected future credit losses. In the year ended December 31, 2021, the Company recorded an immaterial increase in the allowance for doubtful accounts.
Unbilled Revenue (Contract Assets)
The Company evaluates whether its unbilled revenue is exposed to potential credit losses by considering factors such as the creditworthiness of its customers, the term over which unbilled revenue will be recognized, historical impairment of unbilled revenue, and contemplation of projected macroeconomic factors. As of December 31, 2021, the Company recorded an immaterial amount of allowance for credit losses on unbilled revenue.
Property and Equipment, Net
Property and equipment are stated at cost and depreciated using the straight-line method over the estimated useful lives of the assets. Leasehold improvements are amortized using the straight-line method over the shorter of the lease term or the estimated useful life. The estimated useful lives of property and equipment are described below:
| | | | | | | | |
| Property and Equipment | | Estimated Useful Life |
Computer hardware, networking and office equipment | | Three to five years |
Computer software | | Up to fourfive years |
Furniture and fixtures | | Five years |
Leasehold improvements | | Lesser of estimated useful life or remaining lease term |
The Company reviews the remaining estimated useful lives of its property and equipment on an ongoing basis. Management is required to use judgment in determining the estimated useful lives of such assets. Changes in circumstances such as technological advances, changes to the Company’s business model, changes in the Company’s business strategy, or changes in the planned use of property and equipment could result in the actual useful lives differing from the Company’s current estimates. In cases where the Company determines that the estimated useful life of property and equipment should be shortened or extended, the Company would apply the new estimated useful life prospectively. The Company reviews property and equipment for impairment when events or
changescircumstances indicate the carrying amount may not be recoverable.
Costs of maintenance and repairs that do not improve or extend the lives of the respective assets are expensed as incurred. Upon retirement or sale, the cost and related accumulated depreciation are removed from the balance sheet and the resulting gain or loss is reflected in operating expenses.
Capitalization of Interest
Interest costs are capitalized for assets that are constructed for the Company’s own internal use, including internally developed software and property and equipment, for the period of time to get them ready for their intended use. During the years ended December 31,
2018, 20172021, 2020 and
2016,2019, the Company capitalized
$3.7$1.5 million,
$3.6$3.8 million, and
$4.3$4.6 million of interest expense, respectively.
Goodwill represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired in a business combination. Goodwill is not amortized, but
rather is tested for impairment at least annually or more frequently if events or changes in circumstances indicate that the asset may be impaired. The Company’s impairment tests are based on a single operating segment and reporting unit structure. If the carrying value of the reporting unit exceeds its fair value, an impairment charge is recognized for the excess of the carrying value of the reporting unit over its fair value.
The Company conducted its annual goodwill impairment test during the fourth quarter of
20182021 and determined that the fair value of the reporting unit significantly exceeded its carrying value. As such, goodwill was not impaired. No impairment charge was recorded in any of the periods presented in the
accompanying consolidated financial statements.
Intangible assets are carried at cost and amortized on a straight-line basis over their estimated useful lives of up to eleven years. The Company reviews identifiable amortizable intangible assets to be held and used for impairment whenever events or changes in circumstances indicate that the carrying value of the assets may not be recoverable. Determination of recoverability is based on the lowest level of identifiable estimated undiscounted cash flows resulting from use of the asset and its eventual disposition. Measurement of any impairment loss is based on the excess of the carrying value of the asset over its fair value. There have been no impairment charges recorded in any of the periods presented in the
accompanying consolidated financial statements.
The Company classifies and discloses assets and liabilities measured at fair value on a recurring basis, as well as fair value measurements of assets and liabilities measured on a nonrecurring basis in periods subsequent to initial measurement, in a three-tier fair value hierarchy as described below. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs that may be used to measure fair value are as follows:
Level 1—Observable inputs, such as quoted prices in active markets for identical assets or liabilities.
Level 2—Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
Internal Use Software and Website Development Costs
The Company capitalizes certain costs incurred in developing software programs or websites for internal use.
The Company capitalizes these costs once the preliminary project stage is complete, and it is probable that the project will be completed and the software will be used to perform the function intended. In the years ended December 31,
2018, 20172021, 2020 and
2016,2019, the Company capitalized costs totaling approximately
$121.0$265.3 million,
$113.9$109.3 million and
$139.0$127.5 million, respectively. Capitalized internal use software development costs are included in property and equipment, net. Included in the capitalized amounts above are
$41.4$79.7 million,
$51.8$34.6 million and
$73.9$37.5 million of stock-based compensation expense in the years ended December 31,
2018, 20172021, 2020 and
2016,2019, respectively.
The estimated useful life of costs capitalized is evaluated for each specific project and is up to fourfive years. In the years ended December 31, 2018, 20172021, 2020 and 2016,2019, the amortization of capitalized costs totaled approximately $111.8$120.5 million, $96.5$109.6 million and $74.6$116.0 million, respectively.
Income Taxes
The Company is subject to income taxes in the United States and several foreign jurisdictions. Significant judgment is required in determining its provision (benefit) for income taxes and income tax assets and liabilities, including evaluating uncertainties in the application of accounting principles and complex tax laws.
The Company records a provision (benefit) for income taxes for the anticipated tax consequences of the reported results of operations using the asset and liability method. Under this method, the Company recognizes deferred income tax assets and liabilities for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities, as well as for loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using the tax rates that are expected to apply to taxable income for the years in which those tax assets and liabilities are expected to be realized or settled. The Company recognizes the deferred income tax effects of a change in tax rates in the period of the enactment. The Company records a valuation allowance to reduce its deferred tax assets to the net amount that it believes is more likely than not to be realized.
The Company recognizes tax benefits from uncertain tax positions only if it believes that it is more likely than not that the tax position will be sustained on examination by the taxing authorities based on the technical merits of the position. Although the Company believes it has adequately reserved for its uncertain tax positions (including net interest and penalties), it can provide no assurance that the final tax outcome of these matters will not be different. The Company makes adjustments to these reserves in accordance with income tax accounting guidance when facts and circumstances change, such as the closing of a tax audit. To the extent that the final tax outcome of these matters is different from the amounts recorded, such differences may impact the provision (benefit) for income taxes in the period in which such determination is made. The Company records interest and penalties related to
ourits uncertain tax positions in
the provision (benefit) for income taxes.
The
Tax Cuts and Jobs Act (the “Tax Act”) contains several key tax provisions that affected the Company, including a reductionestablishment of
the federal corporate income tax rate to 21% effective January 1, 2018. The Company is required to recognize the effect of the tax law changes in the period of enactment, such as re-measuring its U.S. deferred tax assets
from intra-entity transfers of intangible assets requires management to make significant estimates and
liabilities as well as its valuation allowance against its net U.S. deferred taxassumptions to determine the fair value of such intangible assets.
In December 2017,Critical estimates in valuing the
SEC staff issued Staff Accounting Bulletin No. 118, Income Tax Accounting Implicationsintangible assets include, but are not limited to, internal revenue and expense forecasts, the estimated life of the 2017 Tax Cutsintangible assets, and Jobs Act (SAB 118), which alloweddiscount rates. The discount rates used in the income method to discount expected future cash flows to present value are adjusted to reflect the inherent risks related to the cash flow. Although the Company
to record provisional amounts during a measurement period not to extend beyond one yearbelieves the assumptions and estimates it has made are reasonable and appropriate, they are based, in part, on historical experience and are inherently uncertain. Unanticipated events and circumstances may occur that could affect either the accuracy or validity of
the enactment date. The Company completed its accounting for the Tax Act in the fourth quarter of 2018, within the one-year measurement period from the enactment date. The Company elected to account for Global Intangible Low-Taxed Income (GILTI) under the Tax Act as a period cost when the expense is incurred, and apply the approach of tax law ordering for reflecting the realization of loss carryforwards expected to offset future GILTI.such assumptions, estimates or actual results.
The functional currency of the Company's foreign subsidiaries is generally the local currency. The financial statements of these subsidiaries are translated into U.S. dollars using period-end rates of exchange for assets and liabilities, historical rates of exchange for equity, and average rates of exchange for revenue and expenses. Translation gains (losses) are recorded in accumulated other comprehensive income (loss) as a component of stockholders’ equity. Unrealized foreign exchange gains and losses due to re-measurement of monetary assets and liabilities denominated in non-functional currencies as well as realized foreign exchange gains and losses on foreign exchange transactions are recorded in other income (expense), net in the
accompanying consolidated statements of operations.
Advertising costs are expensed when incurred and are included in sales and marketing expense in the
accompanying consolidated statements of operations. Advertising expense totaled
$78.1$167.1 million,
$70.2$56.1 million, and
$114.3$81.3 million for the years ended December 31,
2018, 20172021, 2020, and
2016,2019, respectively.
Comprehensive Income (Loss)
Comprehensive income (loss) consists of two components, net income (loss) and other comprehensive income (loss). Other comprehensive income (loss) refers to gains and losses that are recorded as an element of stockholders’ equity and are excluded from net income (loss). The Company’s other comprehensive income (loss) is comprised of unrealized gains or losses on available-for-sale securities, net of tax, and foreign currency translation adjustments.
Recent Accounting Pronouncements
Recently adopted accounting pronouncements
In
May 2014,August 2020, the Financial Accounting Standards Board (FASB) issued a new accounting standard update
on revenue recognition from contracts with customers (“Topic 606”).to simplify the accounting for convertible debt and other equity-linked instruments. The new guidance
replaces all current GAAPsimplifies the accounting for convertible instruments by eliminating the cash conversion and beneficial conversion feature models used to separately account for embedded conversion features as a component of equity. Instead, the entity will account for the convertible debt or convertible preferred stock securities as a single unit of account, unless the conversion feature requires bifurcation and recognition as derivatives. Additionally, the guidance
on this topic and requires entities to
recognize revenue when controluse the if-converted method for all convertible instruments in the diluted earnings per share calculation and include the effect of
the promised goodspotential share settlement for instruments that may be settled in cash or
services is transferred to customers at an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services.shares. The Company
early adopted this new
accounting standard on January 1, 2018guidance using the modified retrospective
method. See Note 3 – Revenuemethod as of January 1, 2021. The adoption of this new guidance resulted in an increase of $254.6 million and $34.7 million to "Convertible notes, long-term" and "Convertible notes, short-term", respectively, to reflect the full principal amount of the Convertible Notes (as defined below) outstanding, net of issuance costs, a reduction of $567.5 million to additional paid-in capital, net of estimated income tax effects, to remove the equity component separately recorded for
further details.the conversion features associated with the Convertible Notes, an increase to deferred tax assets, net of $66.6 million, and a cumulative-effect adjustment of $344.8 million, net of estimated income tax effects, reducing the beginning balance of accumulated deficit as of January 1, 2021. The adoption of this new guidance reduced interest expense by $99.5 million in the year ended December 31, 2021. In January 2016,addition, the adoption requires the use of the if-converted method for all convertible notes in the diluted net income (loss) per share calculation and the inclusion of the effect of potential share settlement of the convertible notes, if the effect is more dilutive. There was no impact to the number of potentially dilutive shares in each of the periods presented.
Recently issued accounting pronouncements not yet adopted
In October 2021, the FASB issued a new accounting standard
updaterequiring contract assets and contract liabilities acquired in a business combination to be recognized and measured by the acquirer on the
classification and measurement of financial instruments. The new guidance principally affects accounting standards for equity investments, financial liabilities whereacquisition date in accordance with the
fair value option has been elected, and the presentation and disclosure requirements for financial instruments. The Company adopted this new accounting standard
prospectively for
its non-marketable equity securities on January 1, 2018. The Company has elected to userevenue recognition for contracts with customers, as if it had originated the measurement alternative for its non-marketable equity securities, defined as cost adjusted for changes from observable transactions for identical or similar investments of the same issuer, less impairment. The Company’s investments in privately-held companies are non-marketable equity securities without readily determinable fair values and there was no upward adjustment during the twelve months ended December 31, 2018. See Note 9 – Acquisitions and Other Investments for further details.In August 2016, the FASB issued a new accounting standard update on the statement of cash flows. The new guidance clarifies classification of certain cash receipts and cash payments in the statement of cash flows. The Company adopted this new accounting standard retrospectively on January 1, 2018, and the adoption did not have a material impact on the Company’s financial statements.
In October 2016, the FASB issued a new accounting standard update on simplifying the accounting for income taxes related to intra-entity asset transfers. The new guidance requires an entity to recognize the tax expense from the sale of an asset in the seller’s tax jurisdiction when the transfers occurs, even though the pre-tax effects of that transaction are eliminated in consolidation. The Company adopted this new accounting standard on January 1, 2018 using the modified retrospective method. Upon adoption, the Company recognized an additional deferred tax asset of $29.5 million related to a prior period intra-entity transfer, which was offset by a full valuation allowance. Therefore, the recognition of the deferred tax asset upon adoption did not have an impact on the Company’s accumulated deficit. See Note 14 – Income Taxes for further details.
In November 2016, the FASB issued a new accounting standard update on the presentation of restricted cash in the statement of cash flows. The new guidance requires an entity to show the changes in the total of cash, cash equivalents, restricted cash and restricted cash equivalents in the statement of cash flows, and an entity will no longer present transfers between cash and cash equivalents and restricted cash and restricted cash equivalents in the statement of cash flows. The Company adopted this new accounting standard retrospectively on January 1, 2018. As a result of the adoption, net cash used in investing activities was adjusted to exclude the changes in restricted cash, resulting in an increase of $3.6 million in the previously-reported amount for the twelve months ended December 31, 2017 and a $4.8 million decrease in the previously-reported amount for the twelve months ended December 31, 2016. Restricted cash balances are primarily cash deposits secured against letters of credit related to certain property leases.
In January 2017, the FASB issued a new accounting standard update on narrowing the definition of a business. The new guidance requires an entity to evaluate if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets; if so, the set of transferred assets and activities is not a business.contracts. The guidance also requires a business to include at least one substantive process and narrows the definition of outputs. The Company adopted this new accounting standard retrospectively on January 1, 2018 and the adoption did not have a material impact on the Company’s financial statements.
Recently issued accounting pronouncements not yet adopted
In February 2016, the FASB issued a new accounting standard update on leases. The new guidance requires lessees to recognize right-of-use (“ROU”) assets and lease liabilities for operating leases, initially measured at the present value of the lease payments, on the balance sheet. In addition, it requires lessees to recognize a single lease cost, calculated so that the cost of the lease is allocated over the lease term, generally on a straight-line basis. This guidance will be effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. In July 2018, the FASB issued updated guidance which allows an additional transition method to adopt the new lease standard at the adoption date, as compared to the beginning of the earliest period presented, and recognize a cumulative-effect adjustment to the beginning balance of retained earnings in the period of adoption. The Company will adopt the new lease standard effective January 1, 2019 and will elect to apply all relevant practical expedients permitted under the transition guidance within the new lease standard with the exception of the practical expedient allowing the use of hindsight in determining the lease term and in assessing impairment. The standard will have a material impact on the Company’s consolidated balance sheets, but it will not have a material impact on its consolidated statements of operations, its consolidated statements of stockholders’ equity, or its consolidated statements of cash flows. The most significant impact will be the recognition of ROU assets and lease liabilities for operating leases. The accounting for capital leases remains substantially unchanged. The adoption of the new lease standard on January 1, 2019 is anticipated to result in the recognition of ROU assets and lease liabilities of approximately $700 million to $800 million.
In June 2016, the FASB issued a new accounting standard update on the measurement of credit losses on financial instruments. The new guidance requires financial assets measured at amortized cost to be presented at the net amount expected to be collected and available-for-sale debt securities to record credit losses through an allowance for credit losses. This guidance will be effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted as early as the fiscal years beginning after December 15, 2018. The Company is evaluating the impact of adopting this new accounting standard update on the financial statements and related disclosures.
In March 2017, the FASB issued a new accounting standard update on shortening the premium amortization period for purchased non-contingently callable debt securities. The new guidance shortens the amortization period for the premium on purchased non-contingently callable debt securities to the earliest call date. Currently, entities generally amortize the premium as a yield adjustment over the contractual life of the security. This guidance will be effective for fiscal years, and interim periods within those years, beginning after December 15, 2018. Adoption is not expected to have a material impact on the Company’s financial statements and related disclosures.
In February 2018, the FASB issued a new accounting standard update to give entities the option to reclassify tax effects stranded in accumulated other comprehensive income as a result of tax reform to retained earnings (accumulated deficits). The new guidance also requires entities to make additional disclosures, regardless of whether reclassification of tax effects is elected. This guidance will be effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The Company will not elect the option to reclassify tax effects as a result of tax reform and as such, adoption is not expected to have a material impact on the Company’s financial statements and related disclosures.
In August 2018, the FASB issued a new accounting standard update which eliminates, adds and modifies certain disclosure requirements for fair value measurements. The update eliminates the requirement to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, and introduces a requirement to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. This guidance will be effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Adoption is not expected to have a material impact on the Company’s financial statements and related disclosures.
In August 2018, the FASB issued a new accounting standard update requiring a customer in a cloud computing arrangement (i.e., hosting arrangement) that is a service contract to capitalize certain implementation costs as if the arrangement was an internal-use software project. Capitalized implementation costs related to a hosting arrangement that is a service contract will be amortized over the term of the hosting arrangement, beginning when the module or component of the hosting arrangement is ready for its intended use. This guidance will be effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019.2022. Early adoption is permitted. The Company is evaluatingwill adopt the impactguidance prospectively to business combinations after the date of adopting this new accounting standard update on its financial statements and related disclosures.
adoption.
Note
3.2. Revenue
Adoption of ASC Topic 606, "Revenue from Contracts with Customers"
On January 1, 2018, the Company adopted Topic 606 using the modified retrospective method applied to those contracts not yet substantially completed as of January 1, 2018. Results for reporting periods beginning after January 1, 2018 are presented under the new revenue standard, while prior period amounts are not adjusted and continue to be reported in accordance with the Company's historical accounting policies and practices.
Revenue is recognized when the control of promised goods or services is transferred to customers at an amount that reflects the consideration to which the Company expects to be entitled to in exchange for those goods or services. The Company identifies its contracts with customers and all performance obligations within those contracts. The Company then determines the transaction price and allocates the transaction price to the performance obligations within the Company's contracts with customers, recognizing revenue when, or as the Company satisfies its performance obligations. While the majority of the Company's revenue transactions are based on standard business terms and conditions, the Company also enters into sales agreements with advertisers and data partners that sometimes involve multiple performance obligations and occasionally include non-standard terms or conditions.
Revenue by geography is based on the billing addressesaddress of the customers. The following table setstables set forth revenue by services and revenue by geographic area (in thousands): | | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 | | 2019 |
| Revenue by services: | | | | | |
| Advertising services | $ | 4,505,692 | | | $ | 3,207,392 | | | $ | 2,993,392 | |
| Data licensing and other | 571,790 | | | 508,957 | | | 465,937 | |
| Total revenue | $ | 5,077,482 | | | $ | 3,716,349 | | | $ | 3,459,329 | |
| | Year Ended December 31, | |
| | 2018 | | | 2017 (1) | | | 2016 (1) | |
Revenue by services: | | | | | | | | | | | | |
Advertising services | | $ | 2,617,397 | | | $ | 2,109,987 | | | $ | 2,248,052 | |
Data licensing and other | | | 424,962 | | | | 333,312 | | | | 281,567 | |
Total revenue | | $ | 3,042,359 | | | $ | 2,443,299 | | | $ | 2,529,619 | |
| | | | | | | | | | | | |
| | Year Ended December 31, | |
| | 2018 | | | 2017 (1) | | | 2016 (1) | |
Revenue by geographic area: | | | | | | | | | | | | |
United States | | $ | 1,642,259 | | | $ | 1,413,614 | | | $ | 1,564,776 | |
Japan | | | 507,970 | | | | 343,741 | | | | 268,496 | |
Rest of World | | | 892,130 | | | | 685,944 | | | | 696,347 | |
Total revenue | | $ | 3,042,359 | | | $ | 2,443,299 | | | $ | 2,529,619 | |
| | | | | | | | | | | | |
(1) Prior period amounts have not been adjusted due to adoption of the new revenue standard under the modified retrospective method. | |
Revenue Recognition Accounting Policy
See Note 2 – Summary of Significant Accounting Policies.
Impact of Adoption
The Company recorded a net reduction to opening accumulated deficit of $12.1 million, an increase to unbilled revenue of $8.0 million, and a reduction to deferred revenue of $4.1 million as of January 1, 2018 due to the cumulative impact of adopting Topic 606, with the impact primarily related to its data licensing arrangements.
As a result of applying the new standard, the impact for the twelve months ended December 31, 2018 was an increase to revenue of $16.1 million, an increase to unbilled revenue of $12.6 million, and a reduction to deferred revenue of $3.5 million, with the impact primarily related to the Company’s data licensing arrangements.
Practical Expedients and Exemptions
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 | | 2019 |
| Revenue by geographic area: | | | | | |
| United States | $ | 2,835,760 | | | $ | 2,078,836 | | | $ | 1,944,022 | |
| Japan | 675,022 | | | 547,862 | | | 537,021 | |
| Rest of World | 1,566,700 | | | 1,089,651 | | | 978,286 | |
| Total revenue | $ | 5,077,482 | | | $ | 3,716,349 | | | $ | 3,459,329 | |
The Company expenses sales commissions as incurred when the amortization period is one year or less. Sales commission expenses are recorded within sales and marketing in the consolidated statements of operations.
The Company applied the practical expedient to not disclose the value of remaining performance obligations not yet satisfied as of period end for contracts with an original expected duration of one year or less.
The Company applied the practical expedient to not disclose the value of remaining performance obligations not yet satisfied as of period end for variable consideration in the form of sales-based royalties promised in exchange for licenses to its intellectual property in data licensing contracts.
The Company enters into contracts with its customers, which may give rise to contract liabilities (deferred revenue) and contract assets (unbilled revenue). The payment terms and conditions within the Company’s contracts vary by the type and location of its customer and products or services purchased, the substantial majority of which are due in less than one year. When the timing of revenue recognition differs from the timing of payments made by customers, the Company recognizes either unbilled revenue (its performance precedes
the billing date) or deferred revenue (customer payment is received in advance of performance).
Unbilled Revenue (Contract Assets)
The Company presents unbilled revenue on the consolidated balance sheets within prepaid expenses and other current assets and within other assets. The Company’s contracts do not contain material financing components. The Company's unbilled revenue primarily consists of amounts that have yet to be billed under contracts with escalating fee structures. Specifically, because the Company generally recognizes revenue on a straight-line basis for data licensing arrangements with escalating fee structures, revenue recognized represents amounts to which the Company is contractually entitled; however, the revenue recognized exceeds the amounts the Company has a right to bill as of the period end, thus resulting in unbilled revenue.
Deferred Revenue (Contract Liabilities)
The Company
recordspresents deferred revenue
primarily within accrued and other current liabilities
inon the consolidated balance
sheets.sheets and there is not expected to be any material non-current contract liabilities given the Company's contracting provisions. The Company's deferred revenue balance primarily consists of cash payments due in advance of satisfying its performance obligations relating to data licensing contracts and performance obligations given to customers based on their spend relating to advertising contracts, for which the Company defers, as they represent material rights. The Company recognizes deferred revenue relating to its data licensing contracts on a straight-line basis over the period in which the Company provides data. The Company recognizes deferred revenue relating to its advertising contracts based on the amount of customer spend and the relative standalone selling price of the material rights.
Unbilled Revenue (Contract Assets)
The Company records unbilled revenue within prepaid expenses and other current assets and other assets in the consolidated balance sheets. The Company's unbilled revenue primarily consists of amounts that have yet to be billed under contracts with escalating fee structures. Specifically, because the Company generally recognizes revenue on a straight-line basis for data licensing arrangements with escalating fee structures, revenue recognized exceeds amounts the Company has a right to bill during early portions of such contracts, resulting in unbilled revenue.
The following table presents contract balances (in thousands): | | | | | | | | | | | |
| December 31,
2021 | | December 31,
2020 |
| Unbilled Revenue | $ | 44,880 | | | $ | 44,063 | |
| Deferred Revenue | $ | 79,414 | | | $ | 62,191 | |
| | December 31, | | | January 1, | |
| | 2018 | | | 2018 | |
Unbilled Revenue | | $ | 20,786 | | | $ | 7,980 | |
Deferred Revenue | | $ | 38,949 | | | $ | 25,869 | |
| | | | | | | | |
The amount of revenue recognized in the twelve monthsyear ended December 31, 20182021 that was included in the opening deferred revenue balance as of December 31, 2020 was $25.9$61.9 million. The amount of revenue recognized in the year ended December 31, 2020 that was included in the deferred revenue balance as of December 31, 2019 was $69.0 million. This revenue consists primarily of revenue recognized as a result of the utilization of bonus mediaads inventory earned by and material rights provided to customers in prior periods.
periods and the satisfaction of the Company’s performance obligations relating to data licensing contracts with advance cash payments or material rights.
The amount of revenue recognized from obligations satisfied (or partially satisfied) in prior periods was not material.
The increase in the unbilled revenue balance from January 1, 2018December 31, 2020 to December 31, 20182021 was primarily attributable to differences between revenue recognized and amounts billed in the Company's data licensing arrangements with escalating fee structures due to recognizing such fees as revenue on a straight-line basis.
The increase in the deferred revenue balance from January 1, 2018December 31, 2020 to December 31, 20182021 was primarily due to cash payments due in advance of satisfying the Company’s performance obligations relating to data licensing contracts and bonus and make good mediaads inventory offered to customers during the period for meeting certain spending targets, offset by the utilizationdelivery of such media inventory issued.
bonus ads inventory.
Remaining Performance Obligations
As of December 31, 2018,2021, the aggregate amount of the transaction price allocated to remaining performance obligations in contracts with an original expected duration exceeding one year is $494.8$587.2 million. This total amount primarily consists of long-term data licensing contracts and excludes deferred revenue related to the Company’s short-term advertising service arrangements. The Company expects to recognize this amount as revenue over the following time periods (in thousands):
| | Remaining Performance Obligations | |
| | | | | | | | | | | | | | 2021 and | |
| | Total | | | 2019 | | | 2020 | | | Thereafter | |
Revenue expected to be recognized on remaining performance obligations | | $ | 494,845 | | | $ | 201,546 | | | $ | 146,612 | | | $ | 146,687 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Remaining Performance Obligations |
| Total | | 2022 | | 2023 | | 2024 and Thereafter |
| Revenue expected to be recognized on remaining performance obligations | $ | 587,198 | | | $ | 237,036 | | | $ | 163,645 | | | $ | 186,517 | |
Note
4.3. Cash, Cash Equivalents and Short-term Investments
Cash, cash equivalents and short-term investments consist of the following (in thousands): | | | | | | | | | | | |
| December 31,
2021 | | December 31,
2020 |
| Cash and cash equivalents: | | | |
| Cash | $ | 336,958 | | | $ | 285,002 | |
| Money market funds | 1,000,671 | | | 1,158,927 | |
| Corporate notes, commercial paper and certificates of deposit | 848,920 | | | 544,500 | |
| Total cash and cash equivalents | $ | 2,186,549 | | | $ | 1,988,429 | |
| Short-term investments: | | | |
| U.S. government and agency securities | $ | 374,868 | | | $ | 910,259 | |
| Corporate notes, commercial paper and certificates of deposit | 3,829,123 | | | 4,572,394 | |
| Marketable equity securities | 3,142 | | | 1,220 | |
| Total short-term investments | $ | 4,207,133 | | | $ | 5,483,873 | |
| | December 31, | | | December 31, | |
| | 2018 | | | 2017 | |
Cash and cash equivalents: | | | | | | | | |
Cash | | $ | 229,924 | | | $ | 301,684 | |
Money market funds | | | 861,206 | | | | 981,681 | |
Corporate notes, commercial paper and certificates of deposit | | | 803,314 | | | | 355,048 | |
Total cash and cash equivalents | | $ | 1,894,444 | | | $ | 1,638,413 | |
Short-term investments: | | | | | | | | |
U.S. government and agency securities including treasury bills | | $ | 1,053,408 | | | $ | 1,064,957 | |
Corporate notes, commercial paper and certificates of deposit | | | 3,261,549 | | | | 1,699,732 | |
Total short-term investments | | $ | 4,314,957 | | | $ | 2,764,689 | |
| | | | | |
| December 31,
2021 |
| Due within one year | $ | 2,208,362 | |
| Due after one year through five years | 1,995,629 | |
| Total | $ | 4,203,991 | |
The following tables summarize unrealized gains and losses related to available-for-sale debt securities classified as short-term investments on the Company’s consolidated balance sheets as of December 31, 2018 and 2017 (in thousands): | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 |
| Gross
Amortized
Cost | | Gross
Unrealized
Gains | | Gross
Unrealized
Losses | | Aggregated
Estimated
Fair Value |
| U.S. government and agency securities | $ | 376,966 | | | $ | 12 | | | $ | (2,110) | | | $ | 374,868 | |
| Corporate notes, commercial paper and certificates of deposit | 3,832,983 | | | 4,873 | | | (8,733) | | | 3,829,123 | |
| Total available-for-sale debt securities classified as short-term investments | $ | 4,209,949 | | | $ | 4,885 | | | $ | (10,843) | | | $ | 4,203,991 | |
| | December 31, 2018 | |
| | Gross | | | Gross | | | Gross | | | Aggregated | |
| | Amortized | | | Unrealized | | | Unrealized | | | Estimated | |
| | Costs | | | Gains | | | Losses | | | Fair Value | |
U.S. government and agency securities including treasury bills | | $ | 1,053,988 | | | $ | 41 | | | $ | (621 | ) | | $ | 1,053,408 | |
Corporate notes, commercial paper and certificates of deposit | | | 3,265,012 | | | | 713 | | | | (4,176 | ) | | | 3,261,549 | |
Total available-for-sale securities classified as short-term investments | | $ | 4,319,000 | | | $ | 754 | | | $ | (4,797 | ) | | $ | 4,314,957 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | December 31, 2017 | |
| | Gross | | | Gross | | | Gross | | | Aggregated | |
| | Amortized | | | Unrealized | | | Unrealized | | | Estimated | |
| | Costs | | | Gains | | | Losses | | | Fair Value | |
U.S. government and agency securities including treasury bills | | $ | 1,067,047 | | | $ | 133 | | | $ | (2,223 | ) | | $ | 1,064,957 | |
Corporate notes, commercial paper and certificates of deposit | | | 1,701,168 | | | | 72 | | | | (1,508 | ) | | | 1,699,732 | |
Total available-for-sale securities classified as short-term investments | | $ | 2,768,215 | | | $ | 205 | | | $ | (3,731 | ) | | $ | 2,764,689 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2020 |
| Gross
Amortized
Cost | | Gross
Unrealized
Gains | | Gross
Unrealized
Losses | | Aggregated
Estimated
Fair Value |
| U.S. government and agency securities | $ | 909,092 | | | $ | 1,177 | | | $ | (10) | | | $ | 910,259 | |
| Corporate notes, commercial paper and certificates of deposit | 4,545,687 | | | 26,939 | | | (232) | | | 4,572,394 | |
| Total available-for-sale debt securities classified as short-term investments | $ | 5,454,779 | | | $ | 28,116 | | | $ | (242) | | | $ | 5,482,653 | |
The available-for-sale
debt securities classified as cash and cash equivalents on the consolidated balance sheets are not included in the tables above as the gross unrealized gains and losses were immaterial for each period. Their carrying value approximates fair value because of the short maturity period of these instruments.
The contractual maturities of securities classified as available-for-sale as of December 31, 2018 were as follows (in thousands):
| | December 31, | |
| | 2018 | |
Due within one year | | $ | 3,262,976 | |
Due after one year through five years | | | 1,051,981 | |
Total | | $ | 4,314,957 | |
The gross unrealized loss on available-for-sale debt securities in a continuous loss position for 12 months or longer was not material as of December 31, 20182021 and 2017.
Investments are reviewed periodically to identify possible other-than-temporary impairments. No impairment loss has been recorded on the securities included in the tables above as the Company believes that the decrease in fair value2020.
Note
5.4. Fair Value Measurements
The Company measures its cash equivalents, short-term investments and derivative financial instruments at fair value. The Company classifies its cash equivalents, short-term investments and derivative financial instruments within Level 1 or Level 2 because the Company values these investments using quoted market prices or alternative pricing sources and models utilizing market observable inputs. The fair value of the Company’s Level 1 financial assets is based on quoted market prices of the identical underlying security. The fair value of the Company’s Level 2 financial assets is based on inputs that are directly or indirectly observable in the market, including the readily-available pricing sources for the identical underlying security that may not be actively traded.
The following tables set forth the fair value of the Company’s financial assets and liabilities measured at fair value on a recurring basis as of December 31, 20182021 and 20172020 based on the three-tier fair value hierarchy (in thousands):
| | December 31, 2018 | | | December 31, 2021 |
| Level 1 | | | Level 2 | | | Total | | Level 1 | | Level 2 | | Total |
Assets | | | | | | | | | | | | Assets | | | | | |
Cash equivalents: | | | | | | | | | | | | Cash equivalents: | |
Money market funds | $ | 861,206 | | | $ | — | | | $ | 861,206 | | Money market funds | $ | 1,000,671 | | | $ | — | | | $ | 1,000,671 | |
Corporate notes | | | | | | 24,537 | | | | 24,537 | | |
| Commercial paper | | — | | | | 778,777 | | | | 778,777 | | Commercial paper | — | | | 843,919 | | | 843,919 | |
| Certificates of deposit | | Certificates of deposit | — | | | 5,001 | | | 5,001 | |
Short-term investments: | | | | | | | | | | | | Short-term investments: | |
Treasury bills | | — | | | | 294,128 | | | | 294,128 | | |
| U.S. government and agency securities | | — | | | | 759,280 | | | | 759,280 | | U.S. government and agency securities | — | | | 374,868 | | | 374,868 | |
Corporate notes | | — | | | | 1,713,835 | | | | 1,713,835 | | Corporate notes | — | | | 2,633,777 | | | 2,633,777 | |
Commercial paper | | — | | | | 733,999 | | | | 733,999 | | Commercial paper | — | | | 953,103 | | | 953,103 | |
Certificates of deposit | | — | | | | 813,715 | | | | 813,715 | | Certificates of deposit | — | | | 242,243 | | | 242,243 | |
| Marketable equity securities | | Marketable equity securities | 3,142 | | | — | | | 3,142 | |
Other current assets: | | | | | | | | | | | | Other current assets: | |
Foreign currency contracts | | — | | | | 1,343 | | | | 1,343 | | Foreign currency contracts | — | | | 7,849 | | | 7,849 | |
Total | $ | 861,206 | | | $ | 5,119,614 | | | $ | 5,980,820 | | Total | $ | 1,003,813 | | | $ | 5,060,760 | | | $ | 6,064,573 | |
Liabilities | | | | | | | | | | | | Liabilities | | | | | |
Other current liabilities: | | | | | | | | | | | | Other current liabilities: | |
Foreign currency contracts | | — | | | | 3,826 | | | | 3,826 | | Foreign currency contracts | $ | — | | | $ | 2,125 | | | $ | 2,125 | |
Total | $ | — | | | $ | 3,826 | | | $ | 3,826 | | Total | $ | — | | | $ | 2,125 | | | $ | 2,125 | |
| December 31, 2017 | |
| Level 1 | | | Level 2 | | | Total | |
Assets | | | | | | | | | | | |
Cash equivalents: | | | | | | | | | | | |
Money market funds | $ | 981,681 | | | $ | — | | | $ | 981,681 | |
Commercial paper | | — | | | | 346,968 | | | | 346,968 | |
Certificates of deposit | | — | | | | 8,080 | | | | 8,080 | |
Short-term investments: | | | | | | | | | | | |
U.S. government and agency securities | | — | | | | 1,064,957 | | | | 1,064,957 | |
Corporate notes | | — | | | | 745,915 | | | | 745,915 | |
Commercial paper | | — | | | | 299,675 | | | | 299,675 | |
Certificates of deposit | | — | | | | 654,142 | | | | 654,142 | |
Other current assets: | | | | | | | | | | | |
Foreign currency contracts | | — | | | | 2,237 | | | | 2,237 | |
Total | $ | 981,681 | | | $ | 3,121,974 | | | $ | 4,103,655 | |
Liabilities | | | | | | | | | | | |
Other current liabilities: | | | | | | | | | | | |
Foreign currency contracts | | — | | | | 601 | | | | 601 | |
Total | $ | — | | | $ | 601 | | | $ | 601 | |
| | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| December 31, 2020 |
| Level 1 | | Level 2 | | Total |
| Assets | | | | | |
| Cash equivalents: | | | | | |
| Money market funds | $ | 1,158,927 | | | $ | — | | | $ | 1,158,927 | |
| Corporate notes | — | | | 1,347 | | | 1,347 | |
| Commercial paper | — | | | 543,153 | | | 543,153 | |
| | | | | |
| Short-term investments: | | | | | |
| | | | | |
| U.S. government and agency securities | — | | | 910,259 | | | 910,259 | |
| Corporate notes | — | | | 2,829,521 | | | 2,829,521 | |
| Commercial paper | — | | | 1,240,670 | | | 1,240,670 | |
| Certificates of deposit | — | | | 502,203 | | | 502,203 | |
| Marketable equity securities | 1,220 | | | — | | | 1,220 | |
| Other current assets: | | | | | |
| Foreign currency contracts | — | | | 5,529 | | | 5,529 | |
| Total | $ | 1,160,147 | | | $ | 6,032,682 | | | $ | 7,192,829 | |
| Liabilities | | | | | |
| Other current liabilities: | | | | | |
| Foreign currency contracts | $ | — | | | $ | 1,028 | | | $ | 1,028 | |
| Total | $ | — | | | $ | 1,028 | | | $ | 1,028 | |
In June 2018, the Companywe issued $1.15 billion in aggregate principal amount of 0.25% convertible senior notes due in 2024, (the “2024 Notes”) in a private placement to qualified institutional buyers pursuant to Rule144A underor the Securities Act of 1933, as amended. 2024 Notes. In 2014, the Company2019, we issued $935.0$700.0 million in aggregate principal amount of 0.25% convertible3.875% senior notes due in 2019 (the “2019 Notes”) and $954.0 million2027, or the 2027 Notes. In 2020, we issued $1.0 billion in aggregate principal amount of 1.00%0.375% convertible senior notes due 2025, or the 2025 Notes. In March 2021, we issued $1.44 billion in 2021 (the “2021 Notes” and together withaggregate principal amount of 0% convertible senior notes due 2026, or the 2019 Notes and2026 Notes. We refer to the 2024 Notes, the “Notes”) in a private placement to qualified institutional buyers pursuant to Rule 144A under2025 Notes, and the Securities Act of 1933,2026 Notes as amended. Refer to Note 10 –the Convertible Notes, for further detailsand we refer to the Convertible Notes and the 2027 Notes as the Notes.
The following table sets forth the estimated fair value of the Company's convertible and senior notes outstanding as of December 31, 2021 based on the Notes.three-tier fair value hierarchy (in thousands): | | | | | | | | | | | | | | | | | |
| December 31, 2021 |
| Level 2 | | Level 3 | | Total |
| $1.15 billion in aggregate principal amount of 0.25% convertible senior notes due in 2024 (the 2024 Notes) | 1,244,760 | | — | | 1,244,760 |
| $1.0 billion in aggregate principal amount of 0.375% convertible senior notes due in 2025 (the 2025 Notes) | — | | 1,206,210 | | 1,206,210 |
| $1.44 billion in aggregate principal amount of 0% convertible senior notes due in 2026 (the 2026 Notes) | 1,297,200 | | — | | 1,297,200 |
| $700.0 million in aggregate principal amount of 3.875% senior notes due in 2027 (the 2027 Notes) | 728,756 | | — | | 728,756 |
| Total | 3,270,716 | | 1,206,210 | | 4,476,926 |
The estimated fair value of the 20192024 Notes, 2021the 2026 Notes, and 2024the 2027 Notes is determined based on a market approach, as of December 31, 2018, was approximately $909.2 million, $872.6 million, and $1.01 billion, respectively, which represents a Level 2 valuation. The estimated fair value was determined based onusing the estimated or actual bids and offers of the Notesrespective notes in an over-the-counter market on the last business day of the period.
The estimated fair value of the 2025 Notes is determined based on a binomial model, using inputs including risk free rate, volatility and discount yield. Refer to Note 11 – Convertible Notes and Senior Notes for further details on the Notes.
Derivative Financial Instruments
The Company enters into foreign currency forward contracts with financial institutions to reduce the risk that its earnings may be adversely affected by the impact of exchange rate fluctuations on monetary assets or liabilities denominated in currencies other than the functional currency of a subsidiary. These contracts do not subject the Company to material balance sheet risk due to exchange rate movements because gains and losses on these derivatives are intended to offset gains and losses on the hedged foreign currency denominated assets and liabilities. These foreign currency forward contracts are not designated as hedging instruments.
The Company recognizes these derivative instruments as either assets or liabilities
inon the consolidated balance sheets at fair value based on a Level 2 valuation. The Company records changes in the fair value (i.e., gains or losses) of the derivatives
asin other income (expense), net in the consolidated statements of operations. The notional principal of foreign currency contracts outstanding was equivalent to
$545.3$910.5 million and
$326.1$729.8 million at December 31,
20182021 and
2017,2020, respectively.
The fair values of outstanding derivative instruments for the periods presented on a gross basis are as follows (in thousands): | | | | | | | | | | | | | | | | | |
| Balance Sheet Location | | December 31,
2021 | | December 31,
2020 |
| Assets | | | | | |
| Foreign currency contracts not designated as hedging instruments | Other current assets | | $ | 7,849 | | | $ | 5,529 | |
| Liabilities | | | | | |
| Foreign currency contracts not designated as hedging instruments | Other current liabilities | | $ | 2,125 | | | $ | 1,028 | |
| | | | December 31, | | | December 31, | |
| | Balance Sheet Location | | 2018 | | | 2017 | |
Assets | | | | | | | | | | |
Foreign currency contracts not designated as hedging instruments | | Other current assets | | $ | 1,343 | | | $ | 2,237 | |
Liabilities | | | | | | | | | | |
Foreign currency contracts not designated as hedging instruments | | Other current liabilities | | $ | 3,826 | | | $ | 601 | |
The Company recognized $11.6 million of net losses, $8.3 million of net gains, and $1.6$4.0 million of net gains on theits foreign currency contracts in the year ended December 31, 2018, 20172021 and 2016,$8.1 million and $7.2 million of net losses on its foreign currency contracts in the years ended December 31, 2020 and 2019, respectively.
Note
6.5. Property and Equipment, Net
The following table presents the detail oftables set forth property and equipment, net by type and by geographic area for the periods presented (in thousands): | | | | | | | | | | | |
| December 31,
2021 | | December 31,
2020 |
| Property and equipment, net | | | |
| Equipment | $ | 2,603,304 | | | $ | 1,830,459 | |
| Furniture and leasehold improvements | 470,678 | | | 362,766 | |
| Capitalized software | 948,710 | | | 811,371 | |
| Construction in progress | 261,267 | | | 349,935 | |
| Total | 4,283,959 | | | 3,354,531 | |
| Less: Accumulated depreciation and amortization | (2,201,799) | | | (1,860,737) | |
| Property and equipment, net | $ | 2,082,160 | | | $ | 1,493,794 | |
| | December 31, | | | December 31, | |
| | 2018 | | | 2017 | |
Property and equipment, net | | | | | | | | |
Equipment | | $ | 1,185,270 | | | $ | 1,091,672 | |
Furniture and leasehold improvements | | | 328,532 | | | | 314,852 | |
Capitalized software | | | 554,962 | | | | 472,147 | |
Construction in progress | | | 96,488 | | | | 49,417 | |
Total | | | 2,165,252 | | | | 1,928,088 | |
Less: Accumulated depreciation and amortization | | | (1,280,174 | ) | | | (1,154,373 | ) |
Property and equipment, net | | $ | 885,078 | | | $ | 773,715 | |
| | | | | | | | | | | |
| December 31,
2021 | | December 31,
2020 |
| Property and equipment, net: | | | |
| United States | $ | 2,038,597 | | | $ | 1,460,163 | |
| International | 43,563 | | | 33,631 | |
| Total property and equipment, net | $ | 2,082,160 | | | $ | 1,493,794 | |
The gross carrying amount of property and equipment includes $241.4 million and $284.0 million of server and networking equipment acquired under capital leases as of December 31, 2018 and 2017, respectively. The accumulated depreciation of the equipment under capital leases totaled $154.0 million and $123.4 million as of December 31, 2018 and 2017, respectively.
Depreciation expense totaled $406.5$503.6 million, $349.3$471.6 million, and $332.8$449.0 million for the years ended December 31, 2018, 20172021, 2020, and 2016,2019, respectively. Included in these amounts were depreciation expense for server and networking equipment acquired under capitalfinance leases in the amount of $84.2$0.4 million, $93.6$20.5 million, and $100.8$63.7 million for the years ended December 31, 2018, 20172021, 2020, and 2016,2019, respectively.
Note 6. Operating and Finance Leases
The Company’s leases have remaining lease terms from less than one year up to approximately ten years.
The components of lease cost for the year ended December 31, 2021 were as follows (in thousands): | | | | | | | | | | | | | | | | | | | | | |
| | | Year Ended December 31, |
| | | | | 2021 | | 2020 | | 2019 |
| Operating lease cost | | | | | $ | 256,388 | | | $ | 201,386 | | | 173,005 | |
| Finance lease cost | | | | | | | | | |
| Depreciation expense | | | | | 435 | | | 20,527 | | | 63,674 | |
| Interest on lease liabilities | | | | | 2 | | | 369 | | | 2,125 | |
| Total finance lease cost | | | | | 437 | | | 20,896 | | | 65,799 | |
| Short-term lease cost | | | | | 5,411 | | | 5,603 | | | 3,000 | |
| Variable lease cost | | | | | 81,387 | | | 52,476 | | | 49,456 | |
| Sublease income | | | | | (9,660) | | | (9,626) | | | (22,326) | |
| Total lease cost | | | | | $ | 333,963 | | | $ | 270,735 | | | 268,934 | |
Other information related to leases was as follows (in thousands): | | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 | | 2019 |
| Supplemental Cash Flows Information | | | | | |
| Cash paid for amounts included in the measurement of lease liabilities: | | | | | |
| Operating cash flows from operating leases | $ | 231,643 | | | $ | 183,033 | | | $ | 165,093 | |
| Operating cash flows from finance leases | $ | 2 | | | $ | 369 | | | $ | 2,125 | |
| Financing cash flows from finance leases | $ | 565 | | | $ | 23,062 | | | $ | 66,677 | |
| Right-of-use assets obtained in exchange for lease obligations: | | | | | |
| Operating leases | $ | 491,996 | | | $ | 398,480 | | | $ | 110,522 | |
| | | | | |
| | | | | | | | | | | |
| December 31,
2021 | | December 31,
2020 |
| Lease Term and Discount Rate | | | |
| Weighted-average remaining lease term (years): | | | |
| Operating leases | 7.2 | | 6.8 |
| Finance leases | — | | 0.1 |
| Weighted-average discount rate: | | | |
| Operating leases | 3.4 | % | | 3.8 | % |
| Finance leases | — | % | | 3.9 | % |
Future lease payments under leases and sublease income as of December 31, 2021 were as follows (in thousands): | | | | | | | | | | | | | | | |
| Operating
Leases | | | | | | Sublease
Income |
| Year Ending December 31, | | | | | | | |
| 2022 | $ | 277,260 | | | | | | | $ | (4,685) | |
| 2023 | 235,742 | | | | | | | (3,187) | |
| 2024 | 235,777 | | | | | | | (1,725) | |
| 2025 | 230,193 | | | | | | | (120) | |
| 2026 | 207,828 | | | | | | | — | |
| Thereafter | 687,226 | | | | | | | — | |
| Total future lease payments (receipts) | 1,874,026 | | | | | | | $ | (9,717) | |
| Less: leases not yet commenced | (409,380) | | | | | | | |
| Less: imputed interest | (171,091) | | | | | | | |
| Total lease liabilities | $ | 1,293,555 | | | | | | | |
| Reconciliation of lease liabilities as shown on the consolidated balance sheets | | | | | | | |
| Operating lease liabilities, short-term | $ | 222,346 | | | | | | | |
| Operating lease liabilities, long-term | 1,071,209 | | | | | | | |
| | | | | | | |
| | | | | | | |
| Total operating lease liabilities | $ | 1,293,555 | | | | | | | |
Note 7. Goodwill and Intangible Assets
The following table presents the goodwill activities for the periods presented (in thousands):
Goodwill | | | | |
Balance as of December 31, 2017 | | $ | 1,188,935 | |
Acquisition | | | 44,014 | |
Foreign currency translation adjustment and other | | | (5,680 | ) |
Balance as of December 31, 2018 | | $ | 1,227,269 | |
| | | | | |
| Goodwill | |
| Balance as of December 31, 2020 | $ | 1,312,346 | |
| Acquisitions | 34,143 | |
Reclassified to assets held for sale (1) | (40,800) | |
| Other | (4,169) | |
| Balance as of December 31, 2021 | $ | 1,301,520 | |
(1) On October 6, 2021, the Company announced that it entered into a definitive agreement to sell its MoPub business. The Company reclassified $40.8 million of goodwill to assets held for sale on the consolidated balance sheet as of December 31, 2021. Refer to Note 10 - Assets Held for Sale for further details on the transaction.For each of the periods presented,
the gross goodwill balance equaled the net balance since no impairment charges have been recorded.
Refer to Note 9 – Acquisitions and Other Investments for further details about goodwill.The following table presents the detail of intangible assets for the periods presented (in thousands):
| | Gross Carrying | | | Accumulated | | | Net Carrying | | | | | | | | | | | | | | | | | |
| | Value | | | Amortization | | | Value | | | | Gross Carrying
Value | | Accumulated
Amortization | | Net Carrying
Value |
December 31, 2018: | | | | | | | | | | | | | |
| December 31, 2021: | | December 31, 2021: | | | | | | |
Patents and developed technologies | | $ | 93,211 | | | $ | (48,806 | ) | | $ | 44,405 | | Patents and developed technologies | | $ | 106,261 | | | $ | (57,988) | | | $ | 48,273 | |
Publisher and advertiser relationships | | | 9,300 | | | | (8,680 | ) | | | 620 | | |
| | Assembled workforce | | Assembled workforce | | 23,500 | | | (2,449) | | | 21,051 | |
Total | | $ | 102,511 | | | $ | (57,486 | ) | | $ | 45,025 | | Total | | $ | 129,761 | | | $ | (60,437) | | | $ | 69,324 | |
December 31, 2017: | | | | | | | | | | | | | |
| December 31, 2020: | | December 31, 2020: | | | | | | |
Patents and developed technologies | | $ | 93,511 | | | $ | (46,337 | ) | | $ | 47,174 | | Patents and developed technologies | | $ | 110,153 | | | $ | (53,265) | | | $ | 56,888 | |
Publisher and advertiser relationships | | | 9,300 | | | | (6,820 | ) | | | 2,480 | | |
| Other | | Other | | 1,800 | | | (350) | | | 1,450 | |
Total | | $ | 102,811 | | | $ | (53,157 | ) | | $ | 49,654 | | Total | | $ | 111,953 | | | $ | (53,615) | | | $ | 58,338 | |
|
Patents and developed technologies
Intangible assets are amortized over a period of up to eleven years from the respective purchase
dates,dates. The weighted-average amortization period for intangible assets acquired during the year ended December 31, 2021 is 2.7 years, with a weighted-average amortization period by asset class of 3.6 years for patents and
publisherdeveloped technologies and
advertiser relationships are amortized over a period of five years.2.0 years for assembled workforce. Amortization expense associated with intangible assets for the years ended December 31,
2018, 20172021, 2020, and
20162019 was
$19.0$41.2 million,
$46.5$23.6 million, and
$69.3$16.5 million, respectively. During the year ended December 31,
2018, $13.92021, $34.1 million in gross carrying value and accumulated amortization related to fully-amortized intangible assets was eliminated.
Estimated future amortization expense as of December 31,
20182021 is as follows (in thousands):
Years ending December 31, | | | | | |
2019 | | $ | 14,808 | | |
2020 | | | 10,081 | | |
2021 | | | 7,218 | | |
| 2022 | | | 4,290 | | 2022 | $ | 31,266 | |
2023 | | | 4,264 | | 2023 | 19,467 | |
| 2024 | | 2024 | 6,673 | |
| 2025 | | 2025 | 2,510 | |
| 2026 | | 2026 | 2,410 | |
Thereafter | | | 4,364 | | Thereafter | 6,998 | |
Total | | $ | 45,025 | | Total | $ | 69,324 | |
Note 8. Accrued and other current liabilities
The following table presents the detail of accrued and other current liabilities for the periods presented (in thousands): | | | | | | | | | | | |
| December 31,
2021 | | December 31,
2020 |
| | | |
| Accrued compensation | 325,113 | | | 171,681 | |
| Federal Trade Commission accrual (see Note 16) | 150,000 | | | 150,000 | |
| Deferred revenue | 78,541 | | | 58,976 | |
| Accrued tax liabilities | 47,830 | | | 40,384 | |
| Accrued publisher, content and ad network costs | 45,025 | | | 42,541 | |
| Accrued professional services | 41,321 | | | 27,404 | |
| Accrued other | 230,520 | | | 172,546 | |
| Total | $ | 918,350 | | | $ | 663,532 | |
| | December 31, | | | December 31, | |
| | 2018 | | | 2017 | |
Accrued compensation | | $ | 155,830 | | | $ | 98,553 | |
Accrued tax liabilities | | | 39,729 | | | | 36,097 | |
Accrued publisher, content and ad network costs | | | 33,014 | | | | 32,462 | |
Deferred revenue | | | 38,949 | | | | 27,824 | |
Accrued other | | | 138,229 | | | | 132,397 | |
Total | | $ | 405,751 | | | $ | 327,333 | |
Note 9. Acquisitions and Other Investments
2018 Acquisition
2021 Acquisitions
During the year ended
2018,December 31, 2021, the Company
acquiredmade a
company, which wasnumber of acquisitions that were accounted for as
a business
combination.combinations. The
total purchase price
of $53.7for these acquisitions was $56.6 million,
(paid in shares of the Company’s common stock having a total fair value of $19.1 million and cash of $34.6 million) for this acquisitionwhich was allocated as follows:
$9.3$13.9 million to developed
technology, $0.4technologies and other acquired intangible assets, $8.6 million to net
tangible assets
acquiredassumed based on their estimated fair value on the acquisition date, and the excess
$44.0$34.1 million of the purchase price over the fair value of net assets acquired to goodwill.
The goodwill from the acquisitionacquisitions is mainly attributable to assembled workforce, expected synergies and other benefits. The goodwill is not tax deductible for U.S. income tax purposes. The developed technology is amortized on a straight-line basis over its estimated useful life of 24 months.The results of operations for this acquisition have been included in the Company’s consolidated statements of operations since the date of acquisition. Actual and pro forma revenue and results of operations for this acquisition have not been presented because they do not have a material impact on the consolidated revenue and results of operations.
2017 Acquisitions
The Company did not complete any acquisitions during the year ended December 31, 2017.
2016 Acquisitions
During the year ended December 31, 2016, the Company acquired several companies, each of which was accounted for as a business combination. The total purchase price of $91.4 million (paid in shares of the Company’s common stock having a total fair value of $1.3 million and cash of $90.1 million) for these acquisitions was allocated as follows: $14.4 million to developed technologies, $5.0 million to cash acquired, $0.2 million to net tangible assets acquired based on their estimated fair value on the acquisition date, $2.4 million to deferred tax liability, and the excess $74.2$2.1 million of the purchase price over the fair value of net assets acquired to goodwill. The goodwill from the acquisitions are mainly attributable to assembled workforce, expected synergies and other benefits. Tax deductible goodwill resulting from certain of these acquisitions was $63.8 million. The remaining goodwill is not tax deductible for U.S. income tax purposes.deductible. Developed technologies will be amortized on a straight-line basis over their estimated useful lives of up to 24 months.
two years.
During the year ended December 31, 2021, the Company also made a number of acquisitions that were accounted for as asset acquisitions, with a total purchase price of $32.6 million, which was all allocated to assembled workforce intangible assets. Assembled workforce intangible assets are amortized on a straight-line basis over their estimated useful lives of up to two years.
The results of operations for these acquisitions have been included in the Company’s consolidated statements of operations since the date of each respective acquisition. Actual and pro forma revenue and results of operations for these acquisitions have not been presented because they do not have a material impact on the consolidated results of operations.
2020 Acquisitions
During the year ended December 31, 2020, the Company made a number of acquisitions, which were accounted for as business combinations. The total purchase price for these acquisitions was $69.7 million, which was allocated as follows: $13.8 million to developed technologies and other acquired intangible assets, $4.9 million to net assets assumed based on their estimated fair value on the acquisition date, and the excess $51.0 million of the purchase price over the fair value of net assets acquired to goodwill. The goodwill from the acquisitions is mainly attributable to assembled workforce, expected synergies and other benefits. The goodwill is not tax deductible. Developed technologies and other acquired intangible assets will be amortized on a straight-line basis over their estimated useful lives of up to three years.
The results of operations for these acquisitions have been included in the Company’s consolidated statement of operations since the date of each respective acquisition. Actual and pro forma revenue and results of operations for these acquisitions have not been presented because they do not have a material impact on the consolidated results of operations.
2019 Acquisitions
During the year ended December 31, 2019, the Company made a number of acquisitions, which were accounted for as business combinations. The total purchase price of $34.5 million (paid in cash of $29.9 million and indemnification holdback of $4.6 million) for these acquisitions was allocated as follows: $9.0 million to developed technology, $1.9 million to net liabilities assumed based on their estimated fair value on the acquisition date, and the excess $27.4 million of the purchase price over the fair value of net assets acquired to goodwill. The goodwill from the acquisitions are mainly attributable to assembled workforce, expected synergies and other benefits. The goodwill is not tax deductible. Developed technologies are amortized on a straight-line basis over their estimated useful lives of up to three years.
The results of operations for these acquisitions have been included in the Company’s consolidated statements of operations since the date of acquisition. Actual and pro forma revenue and results of operations for these acquisitions have not been presented because they do not have a material impact on the consolidated
revenue and results of
operations, either individually or in the aggregate.
operations.
Investments in Privately-Held Companies
The Company makes strategic investments in privately-held companies. The Company also evaluates each investee to determine if the investee is a variable interest entity and, if so, whether the Company is the primary beneficiarycompanies that primarily consist of the variable interest entity. The Company has determined, as of December 31, 2018 there were no variable interest entities required to be consolidated in the Company’s consolidated financial statements. The Company’s investments in privately-held companies are primarily non-marketable equity securities without readily determinable fair values. Prior to January 1, 2018, the Company accounted for its non-marketable equity securities at cost less impairment. Realized gains and losses on non-marketable securities sold or impaired were recognized in other income (expense), net. On January 1, 2018, the Company adopted the new standard which changed the way it accounts for non-marketable securities. The Company now adjusts the carrying value of its non-marketable equity securities to fair value upon observable transactions for identical or similar investments of the same issuer or upon impairment (referred to as the measurement alternative). All gains and losses on non-marketable equity securities, realized and unrealized, are recognized in other income (expense), net. The Company’s non-marketable equity securities had a combined carrying value of $25.8$207.4 million and $27.6$85.8 million as of December 31, 20182021 and 2017,2020, respectively. The maximum loss the Company can incur for its investments is their carrying value. These investments
In 2021, the Company funded $60.0 million of bridge financing in
the form of convertible loans to a privately-held
companies arecompany in which it had an existing investment. Subsequently, the Company converted $30.0 million of the $60.0 million of the convertible loans into preferred stock, and sold the remaining $30.0 million of the convertible loans at face value to an unaffiliated third party. As of December 31, 2021, the $30.0 million of the preferred stock is included within other assets on the consolidated balance
sheets.sheet. In the year ended December 31, 2021, the Company recorded upward adjustments (unrealized gain) of $84.7 million on its investment in this privately-held company in other income (expense), net in the consolidated statements of operations. The upward adjustments represent the difference between the fair value and carrying value of the investment, resulting from observable price changes in orderly transactions for similar investments related to subsequent rounds of financing from new and existing investors completed by the privately-held company. The estimated fair value of the preferred stock is determined based on an option pricing model, which represents a Level 3 valuation. The option pricing model allocates equity value to individual securities within the investees’ capital structure based on contractual rights and preferences. The inputs in the option pricing model are transaction price per share of those similar securities along with time to liquidity and volatility. In the year ended December 31, 2021, 2 of the Company's investments in privately-held companies completed their initial public offerings. The Company recorded upward adjustments (unrealized gains) of $16.9 million on its investments in these companies in other income (expense), net in the consolidated statement of operations in the year ended December 31, 2021 to reflect the market value of these investments. The investments were each reclassified to marketable equity securities following the initial public offering of the respective issuer. No upward adjustments were recorded in the year ended December 31, 2020.
The Company periodically evaluates the carrying value of the investments in privately-held companies when events and circumstances indicate that the carrying amount of the investment may not be recovered.
The Company estimatesNo impairment charge was recorded in the
fair value of the investments to assess whether impairment losses shall be recorded using Level 3 inputs. These investments include the Company’s holdings in privately-held companies that are not exchange traded and therefore not supported with observable market prices; hence, the Company may determine the fair value by reviewing equity valuation reports, current financial results, long-term plans of the privately-held companies, the amount of cash that the privately-held companies have on-hand, the ability to obtain additional financing and overall market conditions in which the privately-held companies operate or based on the price observed from the most recent completed financing.year ended December 31, 2021. In the years ended December 31,
2018, 2017,2020 and
2016,2019, the Company recorded
$8.8 million and $1.6 million of impairment charges,
of $3.0 million, $62.4 million, and $4.0 million, respectively, within other income (expense), net in the consolidated statements of operations.
The Company also recorded a gain of $10.2 million from the sale of an investment in a privately-held company in the year ended December 31, 2019 within other income (expense), net in the consolidated statement of operations. No such gains were recorded in the years ended December 31, 2021 and 2020.
Note 10. Assets Held for Sale
On October 6, 2021, the Company entered into a definitive agreement to sell its MoPub business to AppLovin Corporation for $1.05 billion in cash. The Company closed the transaction on January 1, 2022 and expects to record a pre-tax gain after closing costs of approximately $1.0 billion as non-operating income in the consolidated statements of operations in the first quarter of 2022. The sale of MoPub enables the Company to concentrate more of its efforts on the significant opportunity for performance-based advertising, SMB offerings, and commerce initiatives on Twitter.
The Company concluded that the sale of the MoPub business meets the criteria to be classified as assets held for sale as of December 31, 2021. The held for sale assets on the consolidated balance sheet as of December 31, 2021 consist only of goodwill. No liabilities were transferred in the transaction. No impairment charges were required for the held for sale assets in the year ended December 31, 2021. The sale does not represent a strategic shift that would have a major effect on the Company's operations and financial results, and therefore does not qualify for reporting as a discontinued operation for financial statement purposes.
Note 11. Convertible Notes
2024 and Senior Notes
Convertible Notes
2026 Notes
In
June 2018,March 2021, the Company issued
$1.15$1.44 billion in aggregate principal amount of
0% fixed-rate convertible senior notes due 2026 (or the
2024 Notes2026 Notes) in a private placement to qualified institutional buyers pursuant to
Rule144ARule 144A under the Securities Act of 1933, as amended. The total net proceeds from this offering,
were approximately $1.14 billion, after deducting
$12.3 million of debt issuance costs,
in connection with the 2024 Notes.were approximately $1.42 billion.
The
20242026 Notes represent senior unsecured obligations of the Company. The
2026 Notes do not bear interest
rate is fixed at 0.25% per annumexcept in special circumstances described below, and
is payable semi-annually in arrearsthe principal amount of the 2026 Notes does not accrete. The 2026 Notes mature on
JuneMarch 15,
and December 15 of each year, which commenced on December 15, 2018.
2026.
Each $1,000 of principal of the 2024 Notesnotes will initially be convertible into 17.50017.6905 shares of the Company’s common stock, which is equivalent to an initial conversion price of approximately $57.14$130.03 per share, subject to adjustment upon the occurrence of certain specified events. events set forth in the indenture governing the 2026 Notes. Holders of the 20242026 Notes may convert the 2024their 2026 Notes at their option at any time on or after MarchDecember 15, 20242025 until close of business on the second scheduled trading day immediately preceding the maturity date of JuneMarch 15, 2024.2026. Further, holders of the 20242026 Notes may convert all or any portion of their 20242026 Notes at their option prior to the close of business on the business day immediately preceding MarchDecember 15, 2024,2025, only under the following circumstances:
| 1)
| during any calendar quarter commencing after the calendar quarter ending on September 30, 2018 (and only during such calendar quarter), if the last reported sale price of the common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price for the notes on each applicable trading day;
|
| 2)
| during the five business day period after any five consecutive trading day period (as used in this paragraph, the “measurement period”) in which the trading price (as defined in the Indenture governing the 2024 Notes) per $1,000 principal amount of 2024 Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of Twitter’s common stock and the conversion rate for the 2024 Notes on each such trading day; or
|
1)during any calendar quarter commencing after June 30, 2021 (and only during such calendar quarter), if the last reported sale price of the common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day; | 3)
| upon the occurrence of certain specified corporate events.
|
2)during the 5 business day period after any 5 consecutive trading day period (the measurement period) in which the trading price (as defined in the indenture governing the 2026 Notes) per $1,000 principal amount of the 2026 Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of the Company’s common stock and the conversion rate on each such trading day; or3)upon the occurrence of certain specified corporate events.
Upon conversion of the
20242026 Notes, the Company will pay or deliver, as the case may be, cash, shares of its common stock or a combination of cash and shares of its common stock, at the Company’s election. If the Company satisfies its conversion obligation solely in cash or through payment and delivery, as the case may be, of a combination of cash and shares of its common stock, the amount of cash and shares of common stock, if any, due upon conversion will be based on a daily conversion value (as set forth in the indenture governing the
20242026 Notes) calculated on a proportionate basis for each trading day in a 30 trading day observation period.
The Company may not redeem the 2026 Notes prior to the maturity date and no sinking fund is provided for the 2026 Notes. If a fundamental change (as defined in the indenture governing the
20242026 Notes) occurs prior to the maturity date, holders of the
20242026 Notes may require the Company to repurchase all or a portion of their
2024 Notesnotes for cash at a repurchase price equal to 100% of the principal amount of the
20242026 Notes, plus any accrued and unpaid interest to, but excluding, the repurchase date. In addition, if specific corporate events occur prior to the maturity date of the
20242026 Notes, the Company will be required to increase the conversion rate for holders who elect to convert their
20242026 Notes in
certain circumstances.In accordanceconnection with accounting guidance on embedded conversion features, the Company valued and bifurcated the conversion option associated with the 2024 Notes from the respective host debt instrument, which is referred to as debt discount, and initially recorded the conversion option of $255.0 million for the 2024 Note in stockholders’ equity. The resulting debt discount on the 2024 Notes is amortized to interest expense at an effective interest rate of 4.46% over the contractual terms of the 2024 Notes. The Company allocated $2.7 million of debt issuance costs to the equity component and the remaining debt issuance costs of $9.6 million are amortized to interest expense under the effective interest rate method over the contractual terms of the 2024 Notes.
such corporate events.
Concurrent with the offering of the 20242026 Notes, in June 2018, the Company entered into convertible note hedge transactions with certain bank counterparties whereby the Company has the option to purchase initially (subject to adjustment for certain specified events) a total of approximately 20.111.1 million shares of its common stock at a price of approximately $130.03 per share. The total cost of such convertible note hedge transactions was $213.5 million. In addition, the Company sold warrants to certain bank counterparties whereby the holders of the warrants have the option to purchase initially (subject to adjustment for certain specified events) a total of approximately 11.1 million shares of the Company’s common stock at a price of $163.02 per share. The Company received $161.1 million in cash proceeds from the sale of these warrants.
Taken together, the purchase of such convertible note hedges and the sale of such warrants are intended to offset any actual dilution from the conversion of the 2026 Notes and to effectively increase the overall conversion price from $130.03 to $163.02 per share. As these transactions meet certain accounting criteria, such convertible note hedges and warrants are recorded in stockholders’ equity and are not accounted for as derivatives. The net cost incurred in connection with such convertible note hedge and warrant transactions was recorded as a reduction to additional paid-in capital on the consolidated balance sheet as of December 31, 2021.
2021 Notes, 2024 Notes, and 2025 Notes
In 2014, the Company issued $954.0 million in aggregate principal amount of the 1.00% convertible senior notes due 2021, or the 2021 Notes, in a private placement to qualified institutional buyers pursuant to Rule 144A of the Securities Act of 1933, as amended. The total net proceeds from this offering were approximately $939.5 million, after deducting $14.3 million of debt discount and $0.2 million of debt issuance costs in connection with the issuance of the 2021 Notes. On September 15, 2021, the Company repaid at maturity the $954.0 million of aggregate principal amount associated with its 2021 Notes.
In 2018, the Company issued $1.15 billion aggregate principal amount of the 0.25% convertible senior notes due 2024, or the 2024 Notes, in a private placement to qualified institutional buyers pursuant to Rule144A under the Securities Act of 1933, as amended. The total net proceeds from this offering were approximately $1.14 billion, after deducting $12.3 million of debt issuance costs in connection with the 2024 Notes.
In 2020, the Company entered into an investment agreement (the Investment Agreement) with Silver Lake Partners V DE (AIV), L.P. (Silver Lake) relating to the issuance and sale to Silver Lake of $1.0 billion in aggregate principal amount of the Company's 0.375% convertible senior notes due 2025, or the 2025 Notes. The total net proceeds from this offering were approximately $985.3 million, after deducting $14.7 million of debt issuance costs in connection with the 2025 Notes.
The 2024 Notes and 2025 Notes are senior unsecured obligations of the Company. The interest rate of the 2024 Notes is fixed at 0.25% per annum and interest is payable semi-annually in arrears on June 15 and December 15 of each year. The interest rate of the 2025 Notes is fixed at 0.375% per annum and interest is payable semi-annually in arrears on March 15 and September 15 of each year. The 2024 Notes and 2025 Notes mature on June 15, 2024 and March 15, 2025, respectively.
Each $1,000 of principal of the 2024 Notes and 2025 Notes will initially be convertible into 17.5001 and 24.0964 shares, respectively, of the Company’s common stock, which is equivalent to an initial conversion price of approximately $57.14, and $41.50 per share, respectively, in each case, subject to adjustment upon the occurrence of specified events set forth in the indenture governing such series of Convertible Notes.
Holders of the 2024 Notes may convert their 2024 Notes at their option at any time on or after March 15, 2024 until close of business on the second scheduled trading day immediately preceding the maturity date of June 15, 2024.
Further, holders of the 2024 Notes may convert all or any portion of the notes at the option of such holder prior to March 15, 2024 only under the following circumstances:
1)during any calendar quarter, if the last reported sale price of the common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price for the applicable series of Convertible Notes on each applicable trading day;
2)during the 5 business day period after any 5 consecutive trading day period (the measurement period) in which the trading price (as defined in the indenture governing the applicable series of Convertible Notes) per $1,000 principal amount of such series of Convertible Notes for each trading day of the applicable measurement period was less than 98% of the product of the last reported sale price of Twitter’s common stock and the conversion rate for the applicable series of Convertible Notes on each such trading day; or
3)upon the occurrence of certain specified corporate events.
Upon conversion of the 2024 Notes and 2025 Notes, the Company will pay or deliver, as the case may be, cash, shares of its common stock or a combination of cash and shares of its common stock, at the Company’s election. If the Company satisfies its conversion obligation solely in cash or through payment and delivery of a combination of cash and shares of its common stock, the amount of cash and shares of common stock, if any, due upon conversion, will be based on a daily conversion value (as defined in the indenture governing the applicable series of Convertible Notes) calculated on a proportionate basis for each trading day in the applicable 30 trading day observation period.
If a fundamental change (as defined in the indenture governing the applicable series of Convertible Notes) occurs prior to the applicable maturity date, holders of the 2024 Notes or 2025 Notes, as applicable, may require the Company to repurchase all or a portion of their notes for cash at a repurchase price equal to 100% of the principal amount of such notes, plus any accrued and unpaid interest to, but excluding, the repurchase date of such series of notes. In addition, if specific corporate events occur prior to the applicable maturity date of the 2024 Notes or 2025 Notes, the Company will be required to increase the conversion rate for holders who elect to convert their notes in connection with such corporate events.
On or after March 20, 2022, the 2025 Notes will be redeemable by the Company in the event that the closing sale price of the Company’s common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on, and including, the trading day immediately preceding the date on which the Company provides the redemption notice at a redemption price of 100% of the principal amount of such 2025 Notes, plus accrued and unpaid interest to, but excluding, the redemption date.
The 2025 Notes are convertible at the option of the holder at any time until the scheduled trading day prior to the maturity date, including in connection with a redemption by the Company. Pursuant to the Investment Agreement related to the 2025 Notes, and subject to certain exceptions, Silver Lake will be restricted from transferring or entering into an agreement that transfers the economic consequences of ownership of the 2025 Notes or converting the 2025 Notes prior to the earlier of (i) the two year anniversary of the original issue date of the 2025 Notes or (ii) immediately prior to the consummation of a change of control of the Company. Exceptions to such restrictions on transfer include, among others: a) transfers to affiliates of Silver Lake, b) transfers to the Company or any of its subsidiaries, c) transfers to a third party where the net proceeds of such sale are solely used to satisfy a margin call or repay a permitted loan or d) transfers in connection with certain merger and acquisition events.
Concurrent with the offering of the 2021 Notes and the 2024 Notes, the Company entered into convertible note hedge transactions with certain bank counterparties whereby the Company has the option to purchase initially (subject to adjustment for certain specified events) a total of approximately 12.3 million and 20.1 million shares, respectively, of its common stock at a price of approximately $77.64 and $57.14 per share.
The note hedge transactions in connection with the 2021 Notes expired on September 15, 2021. The total cost of the convertible note hedge transactions
associated with the 2024 Notes was $268.0 million. In addition, the Company sold warrants to certain bank counterparties whereby the holders of the warrants have the option to purchase initially (subject to adjustment for certain specified events) a total of approximately
12.3 million and 20.1 million shares,
respectively, of the Company’s common stock at an initial strike price of
$80.20.$105.28 and $80.20 per share, respectively. The Company received
$172.9 million and $186.8 million in cash proceeds from the sale of these
warrants.
warrants, respectively. The warrant transactions in connection with the 2021 Notes expire over a 60 trading day settlement period scheduled to end on March 11, 2022.
Taken together, the purchase of the convertible note hedges and the sale of warrants in connection with the issuance of the 2024 Notes are intended to offset any actual dilution from the conversion of thesethe 2024 Notes and to effectively increase the overall conversion price from approximately $57.14 to $80.20 per share. As these transactions meet certain accounting criteria, the convertible note hedges and warrants are recorded in stockholders’ equity and are not accounted for as derivatives. The net cost incurred in connection with the convertible note hedge and warrant transactions was recorded as a reduction to additional paid-in capital inon the consolidated balance sheet as of December 31, 2018.
20192021.
Senior Notes and 2021
In
2014,2019, the Company issued
$935.0$700.0 million
in aggregate principal amount of
2019 Notes and $954.0 million in aggregate principal amount of 2021the 3.875% senior notes due 2027, or the 2027 Notes, in a private placement to qualified institutional buyers pursuant to
Rule 144A ofRule144A under the Securities Act of 1933, as
amended.amended, and outside the United States pursuant to Regulation S under the Securities Act of 1933. The total net proceeds from this offering were approximately
$1.86 billion,$691.9 million, after deducting
$28.3$8.1 million of
debt discount and $0.5 million debt issuance costs in connection with the
2019 Notes andissuance of the
20212027 Notes.
The
2019 Notes and 20212027 Notes represent senior unsecured obligations of the Company. The interest
rates arerate is fixed at
0.25% and 1.00%3.875% per annum
for the 2019 Notes and
the 2021 Notes, respectively, and areinterest is payable semi-annually in arrears on
MarchJune 15 and
SeptemberDecember 15 of each year, which commenced on
MarchJune 15,
2015. Each $1,000 of principal of these2020. The 2027 Notes will initially be convertible into 12.8793 shares ofmature on December 15, 2027.
The Company may redeem the
Company’s common stock, which is equivalent to an initial conversion price of approximately $77.64 per share, subject to adjustment upon the occurrence of specified events. Holders of these notes may convert their notes at their option2027 Notes, in whole or in part, at any time
until close of business on the second scheduled trading day immediately preceding the relevant maturity date which is March 15, 2019 for the 2019 Notes and March 15, 2021 for the 2021 Notes. Further, holders of each of these notes may convert their notes at their option prior to
the respective dates above, only under the following circumstances: | 1)
| during any calendar quarter commencing after the calendar quarter ending on December 31, 2014 (and only during such calendar quarters), if the last reported sale price of Twitter’s common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price for the relevant series of notes on each applicable trading day;
|
| 2)
| during the five business day period after any five consecutive trading day period (the “measurement period”) in which the trading price (as defined in the related Indenture) per $1,000 principal amount of 2019 notes or 2021 notes, as applicable, for each trading day of the measurement period was less than 98% of the product of the last reported sale price of Twitter’s common stock and the conversion rate for the notes of the relevant series on each such trading day; or
|
| 3)
| upon the occurrence of certain specified corporate events.
|
Upon conversion of the 2019 Notes and 2021 Notes, the Company will pay or deliver, as the case may be, cash, shares of its common stock or a combination of cash and shares of its common stock, at the Company’s election. If the Company satisfies its conversion obligation solely in cash or through payment and delivery, as the case may be, of a combination of cash and shares of its common stock, the amount of cash and shares of common stock, if any, due upon conversion will be based on a daily conversion value (as described herein) calculated on a proportionate basis for each trading day in a 30 trading day observation period.
If a fundamental change (as defined in the relevant indenture governing the applicable series of Notes) occurs prior to the maturity date, holders of the 2019 Notes and 2021 Notes may require the Company to repurchase all or a portion of their notes for cashSeptember 15, 2027 at a repurchase price equal to 100% of the principal amount of the notes,2027 Notes plus anya “make-whole” premium and accrued and unpaid interest, if any. On and after September 15, 2027, the Company may redeem the 2027 Notes at 100% of the principal amount plus accrued and unpaid interest, if any, to, but excluding, the redemption date. If the Company experiences a change of control triggering event (as defined in the Indenture), the Company must offer to repurchase date. In addition,the 2027 Notes at a repurchase price equal to 101% of the principal amount of the 2027 Notes to be repurchased, plus accrued and unpaid interest, if specific corporate events occur priorany, to the applicable maturity date, the Company will be required to increase the conversion rate for holders who elect to convert their notes in certain circumstances.
repurchase date.
In accordance with accounting guidance on embedded conversion features, the Company valued and bifurcated the conversion option associated with the 2019Convertible Notes and 2021Senior Notes from the respective host debt instrument, which is referred to as debt discount, and initially recorded the conversion option of $222.8 million for the 2019 Notes and $283.3 million for the 2021 Notes in stockholders’ equity. The resulting debt discounts on the 2019 Notes and 2021 Notes are being amortized to interest expense at an effective interest rate of 5.75% and 6.25%, respectively, over the contractual terms of the notes. The Company allocated $0.1 million of debt issuance costs to the equity component, and the remaining debt issuance costs of $0.4 million are being amortized to interest expense.
Concurrently with the offering of these Notes in September and October 2014, the Company entered into convertible note hedge transactions with certain bank counterparties whereby the Company has the option to purchase initially (subject to adjustment for certain specified events) a total of approximately 24.3 million shares of its common stock at a price of approximately $77.64 per share. The total cost of the convertible note hedge transactions was $407.2 million. In addition, the Company sold warrants to certain bank counterparties whereby the holders of the warrants have the option to purchase initially (subject to adjustment for certain specified events) a total of approximately 24.3 million shares of the Company’s common stock at a price of $105.28. The Company received $289.3 million in cash proceeds from the sale of these warrants.
Taken together, the purchase of the convertible note hedges and the sale of warrants are intended to offset any actual dilution from the conversion of these notes and to effectively increase the overall conversion price from $77.64 to $105.28 per share. As these transactions meet certain accounting criteria, the convertible note hedges and warrants are recorded in stockholders’ equity and are not accounted for as derivatives. The net cost incurred in connection with the convertible note hedge and warrant transactions was recorded as a reduction to additional paid-in capital in 2014.
The Notes consisted of the following (in thousands): | | December 31, 2018 | | | December 31, 2017 | |
| | 2019 Notes | | | 2021 Notes | | | 2024 Notes | | | 2019 Notes | | | 2021 Notes | |
Principal amounts: | | | | | | | | | | | | | | | | | | | | |
Principal | | $ | 935,000 | | | $ | 954,000 | | | $ | 1,150,000 | | | $ | 935,000 | | | $ | 954,000 | |
Unamortized debt discount and issuance costs (1) | | | (37,672 | ) | | | (130,232 | ) | | | (242,846 | ) | | | (88,359 | ) | | | (173,181 | ) |
Net carrying amount | | $ | 897,328 | | | $ | 823,768 | | | $ | 907,154 | | | $ | 846,641 | | | $ | 780,819 | |
Carrying amount of the equity component (2) | | $ | 222,826 | | | $ | 283,283 | | | $ | 254,981 | | | $ | 222,826 | | | $ | 283,283 | |
(1)
| Included in the consolidated balance sheets within convertible notes and amortized over the remaining lives of the Notes.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 | | |
| | 2024 Notes | | 2025 Notes | | 2026 Notes | | 2027 Notes | | | | | | | | |
| Principal amounts: | | | | | | | | | | | | | | | | |
| Principal | | $ | 1,150,000 | | | $ | 1,000,000 | | | $ | 1,437,500 | | | $ | 700,000 | | | | | | | | | |
Unamortized debt discount and issuance costs (1) | | (5,052) | | | (9,399) | | | (14,026) | | | (6,004) | | | | | | | | | |
| Net carrying amount | | $ | 1,144,948 | | | $ | 990,601 | | | $ | 1,423,474 | | | $ | 693,996 | | | | | | | | | |
Carrying amount of the equity component (2) | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | | | | | | | |
(2)
| Included in the consolidated balance sheets within additional paid-in capital.
|
During
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | December 31, 2020 |
| | | | | | | | | | | | 2021 Notes | | 2024 Notes | | 2025 Notes | | 2027 Notes |
| Principal amounts: | | | | | | | | | | | | | | | | | | |
| Principal | | | | | | | | | | | | $ | 954,000 | | | $ | 1,150,000 | | | $ | 1,000,000 | | | $ | 700,000 | |
Unamortized debt discount and issuance costs (1) | | | | | | | | | | | | (36,134) | | | (160,297) | | | (113,825) | | | (7,006) | |
| Net carrying amount | | | | | | | | | | | | $ | 917,866 | | | $ | 989,703 | | | $ | 886,175 | | | $ | 692,994 | |
Carrying amount of the equity component (2) | | | | | | | | | | | | $ | 283,283 | | | $ | 254,981 | | | $ | 121,413 | | | $ | — | |
(1)Included on the twelve monthsconsolidated balance sheets within "convertible notes, short-term"; "convertible notes, long-term"; and "senior notes, long-term", and amortized over the remaining lives of the Notes. The decrease of unamortized debt discount and issuance costs balance as of December 31, 2021 compared to December 31, 2020 was mainly due to the adoption of the new convertible debt standard on January 1, 2021.
(2)The Company adopted the new accounting standard update which simplifies the accounting for convertible debt and other equity-linked instruments on January 1, 2021 using the modified retrospective method. The adoption eliminates the cash conversion and beneficial conversion feature models used to separately account for embedded conversion features as a component of equity. As of December 31, 2020, these amounts were included on the consolidated balance sheet within additional paid-in capital.
In the year ended December 31,
2018, 2017,2021, the effective interest rate for the 2024 Notes, 2025 Notes, and
2016,2027 Notes was 0.25%, 0.375%, and 3.875%, respectively. The 2026 Notes do not bear regular interest. In the year ended December 31, 2020 the effective interest rate for the 2024 Notes, 2025 Notes, and 2027 Notes was 4.46%, 2.99%, and 3.875%, respectively. During the years ended December 31, 2021, 2020, and 2019, the Company recognized
$115.4$10.2 million,
$88.5$112.2 million, and
$83.9$123.6 million respectively, of interest expense related to the amortization of debt discount and issuance costs prior to capitalization of interest. The
Company recognized $13.4 million of coupondecreases in the effective interest rate and interest expense
inare due to the
year ended December 31, 2018, and $11.9 millionelimination of
coupon interest expense
in eachrelated to the conversion features of
the Convertible Notes as a result of the adoption of the new accounting standard update to simplify the accounting for convertible debt on January 1, 2021. Refer to Note 1 - Summary of Significant Accounting Policies for more detail. During the years ended December 31,
20172021, 2020, and
2016.2019, the Company recognized $40.6 million, $42.6 million, and $15.7 million, respectively, of coupon interest expense. Future interest payments associated with the Notes total $183.0 million, with $33.7 million payable within the next 12 months.
As of December 31,
2018,2021, the remaining
lifelives of the
20192024 Notes,
2021the 2025 Notes, the 2026 Notes, and
2024the 2027 Notes
isare approximately
829 months,
3238 months, 50 months, and
6571 months, respectively.
The following table summarizes the aggregate future principal payments on the Company’s Notes as of December 31, 2021 (in thousands):
| | | | | | | | | | | |
| Convertible Notes | | Senior Notes |
| 2022 | $ | — | | | $ | — | |
| 2023 | — | | | — | |
| 2024 | 1,150,000 | | | — | |
2025 (1) | 1,000,000 | | | — | |
| 2026 | 1,437,500 | | | — | |
| Thereafter | — | | | 700,000 | |
| Total | $ | 3,587,500 | | | $ | 700,000 | |
(1)The 2025 Notes are convertible at the option of the holder at any time until the scheduled trading day prior to the maturity date, including in connection with a redemption by the Company.
Note
11.12. Net Income (Loss) per Share
Basic net income (loss) per share is computed by dividing total net income (loss) attributable to common stockholders by the weighted-average common shares outstanding.outstanding during the period. The weighted-average common shares outstanding is adjusted for shares subject to repurchase such as unvested restricted stock granted to employees in connection with acquisitions, contingently returnable shares and escrowed shares supporting indemnification obligations that are issued in connection with acquisitions and unvested stock options exercised.
Diluted net income (loss) per share is computed by dividing the net income (loss) attributable to common stockholders by the weighted-average number of common shares outstanding during the period, including potential dilutive securities. When the convertible notes are dilutive, interest expense, net of tax, is added back to net income to calculate diluted net income per share.
The following table presents the calculation of basic and diluted net income (loss) per share for periods presented (in thousands, except per share data). | | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 | | 2019 |
| Basic net income (loss) per share: | | | | | |
| Numerator | | | | | |
| Net income (loss) | $ | (221,409) | | | $ | (1,135,626) | | | $ | 1,465,659 | |
| Denominator | | | | | |
| Weighted-average common shares outstanding | 799,198 | | | 789,887 | | | 772,663 | |
| Weighted-average restricted stock subject to repurchase | (1,625) | | | (2,026) | | | (1,934) | |
| Weighted-average shares used to compute basic net income (loss) per share | 797,573 | | | 787,861 | | | 770,729 | |
| Basic net income (loss) per share | $ | (0.28) | | | $ | (1.44) | | | $ | 1.90 | |
| Diluted net income (loss) per share: | | | | | |
| Numerator | | | | | |
| Net income (loss) | $ | (221,409) | | | $ | (1,135,626) | | | $ | 1,465,659 | |
| Denominator | | | | | |
| Number of shares used in basic computation | 797,573 | | | 787,861 | | | 770,729 | |
| Weighted-average effect of dilutive securities: | | | | | |
| RSUs | — | | | — | | | 10,468 | |
| Stock options | — | | | — | | | 2,496 | |
| Other | — | | | — | | | 1,838 | |
| Weighted-average shares used to compute diluted net income (loss) per share | 797,573 | | | 787,861 | | | 785,531 | |
| Diluted net income (loss) per share | $ | (0.28) | | | $ | (1.44) | | | $ | 1.87 | |
The following numbers of potential common shares at the end of each period were excluded from the calculation of diluted net income (loss) per share because their effect would have been anti-dilutive for the periods presented (in thousands): | | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 | | 2019 |
| Convertible Notes | 62,084 | | — | | — |
| Warrants | 41,010 | | | 32,412 | | | 42,246 | |
| RSUs | 37,394 | | | 36,611 | | | 12,117 | |
| Shares subject to repurchase and others | 7,612 | | | 5,668 | | | 1,284 | |
| Stock options | 965 | | | 1,436 | | | 3 | |
Prior to January 1, 2021, the Company used the treasury stock
instruments.method for calculating any potential dilutive effect of the conversion spread on diluted net income (loss) per share, if applicable. In the
yearsyear ended December 31,
2017 and 2016,2020, the Company’s potential common stock instruments such as stock options, RSUs, shares to be purchased under the 2013 Employee Stock Purchase Plan, shares subject to repurchases,
conversion feature of the
Convertible Notes and the warrants were not included in the computation of diluted
net loss per share as the effect of including these shares in the calculation would have been anti-dilutive.
The following table presents In the calculationyear ended December 31, 2019, since the average market price of basic and diluted net loss per share for periods presented (in thousands, except per share data).
| | Year Ended December 31, | |
| | 2018 | | | 2017 | | | 2016 | |
Basic net income (loss) per share: | | | | | | | | | | | | |
Numerator | | | | | | | | | | | | |
Net income (loss) | | $ | 1,205,596 | | | $ | (108,063 | ) | | $ | (456,873 | ) |
Denominator | | | | | | | | | | | | |
Weighted-average common shares outstanding | | | 756,916 | | | | 736,607 | | | | 708,010 | |
Weighted-average restricted stock subject to repurchase | | | (2,590 | ) | | | (3,905 | ) | | | (5,875 | ) |
Weighted-average shares used to compute basic net income (loss) per share | | | 754,326 | | | | 732,702 | | | | 702,135 | |
Basic net income (loss) per share attributable to common stockholders | | $ | 1.60 | | | $ | (0.15 | ) | | $ | (0.65 | ) |
Diluted net income (loss) per share: | | | | | | | | | | | | |
Numerator | | | | | | | | | | | | |
Net income (loss) | | $ | 1,205,596 | | | $ | (108,063 | ) | | $ | (456,873 | ) |
Denominator | | | | | | | | | | | | |
Number of shares used in basic computation | | | 754,326 | | | | 732,702 | | | | 702,135 | |
Weighted-average effect of dilutive securities: | | | | | | | | | | | | |
RSUs | | | 13,285 | | | | — | | | | — | |
Stock options | | | 2,686 | | | | — | | | | — | |
Other | | | 2,389 | | | | — | | | | — | |
Weighted-average shares used to compute diluted net income (loss) per share | | | 772,686 | | | | 732,702 | | | | 702,135 | |
Diluted net income (loss) per share attributable to common stockholders | | $ | 1.56 | | | $ | (0.15 | ) | | $ | (0.65 | ) |
| | | | | | | | | | | | |
The following number of potentialthe common shares atstock was below both the endconversion price of each period were excluded from the calculation of diluted net loss per share attributable to common stockholders because their effect would have been anti-dilutive for the periods presented (in thousands):
| | Year Ended December 31, | |
| | 2018 | | | 2017 | | | 2016 | |
RSUs | | | 14,949 | | | | 33,123 | | | | 48,069 | |
Warrants | | | 44,454 | | | | 24,329 | | | | 24,329 | |
Stock options | | | 837 | | | | 4,793 | | | | 8,723 | |
Shares subject to repurchase and others | | | 1,951 | | | | 5,879 | | | | 6,637 | |
Since the Company expects to settle the principal amount of the Convertible Notes outstanding Notes in cash, the Company usesperiod and the treasury stock method for calculating any potential dilutive effectexercise price of each of the conversion spread on diluted net income per share, if applicable. Forwarrants in the 2019period, the Convertible Notes and 2021 Notes, the conversion spread of 24.3 million shares willdid not have a dilutive impact on diluted net income per share, of common stock whenand the average market price ofwarrants were anti-dilutive.
On January 1, 2021, the Company’s common stockCompany adopted the accounting standard update to simplify the accounting for a given period exceeds the conversion price of $77.64 per share.convertible debt instruments. For the 2024year ended December 31, 2021, the Company uses the if-converted method for all Convertible Notes in the conversion spread of 20.1 million shares will have a dilutive impact on diluted net income (loss) per share calculation and includes the effect of common stock whenpotential share settlement for the average market priceConvertible Notes, if the effect is more dilutive. In the year ended December 31, 2021, the Convertible Notes were not included in the computation of diluted net loss per share as the effect of including these shares in the calculation would have been anti-dilutive. The use of the Company’s common stockif-converted method had no impact on the diluted net income (loss) per share amount for a given period exceeds the conversion price of $57.14 per share.year ended December 31, 2021.
If the average market price of the common stock exceeds the exercise price of the warrants, $105.28 for the 2019 Notes and 2021 Notes, and $80.20 for the 2024 Notes, and $163.02 for the 2026 Notes, the warrants will have a dilutive effect on the earnings per share assuming that the Company is profitable. Since the average market price of the common stock is below $80.20 for all periods presented, the warrants are anti-dilutive.
Note
12.13. Preferred Stock
The Company has the authority to issue up to 200,000,000 shares of preferred stock and to determine the price, rights, preferences, privileges and restrictions, including voting rights, of those shares without any further vote or action by the stockholders. As of December 31, 20182021 and 2017,2020, there was no preferred stock outstanding.
Note
13.14. Common Stock and Stockholders’ Equity
As of December 31,
2018,2021, the Company is authorized to issue 5.0 billion shares of $0.000005 par value common stock in accordance with the Certificate of Incorporation, as amended and restated.
Each share of common stock is entitled to one vote. The holders of common stock are also entitled to receive dividends whenever funds are legally available and when and if declared by the Board of Directors, subject to the prior rights of holders of all classes of stock outstanding. As of December 31,
2018,2021, no dividends have been declared.
The Company’s 2013 Equity Incentive Plan
serves as the successor to the 2007 Equity Incentive Plan.became effective upon its initial public offering. Initially, 68.3 million shares were reserved
under the 2013 Equity Incentive Plan and any shares subject to options or other similar awards granted under the 2007 Equity Incentive Plan that expire, are forfeited, are repurchased by the Company or otherwise terminate unexercised will become available under the 2013 Equity Incentive Plan. The number of shares of the Company’s common stock available for issuance under the 2013 Equity Incentive Plan were and will be increased on the first day of each fiscal year beginning with the 2014 fiscal year, in an amount equal to the least of (i) 60,000,000 Shares, (ii) 5% of the outstanding Shares on the last day of the immediately preceding fiscal year or (iii) such number of Shares determined by the Company’s Board of Directors. As of December 31, 2018,2021, the total number of options, RSUs,restricted stock units (RSUs), and PRSUsperformance-based restricted stock units (PRSUs) outstanding under the 2013 Equity Incentive Plan was 32.541.7 million shares, and 176.0231.0 million shares were available for future issuance. There were 2.5In addition, a total of 6.8 million shares of options outstandingwere reserved and are available for grants under the 2007Company's 2016 Equity Incentive Plan asPlan. As of December 31, 2018. No additional2021, no shares have been issued under the 20072016 Equity Incentive Plan since 2013.Plan. Options granted under the Company’s Equity Incentive Plans generally expire 10 years after the grant date. The Company issues new shares to satisfy stock option exercises.On May 25, 2016, the Company’s stockholders approved the 2016 Equity Incentive Plan. A total
Table of 6,814,085 shares were reserved under the 2016 Equity Incentive Plan, which equals the number of shares that the Jack Dorsey Revocable Trust dated December 8, 2010 (the “Jack Dorsey Trust”), for which Jack Dorsey, the Company’s Chief Executive Officer, serves as trustee, gave back and contributed to the Company without any cost or charge to the Company. All such shares have been retired and cancelled by the Company. A maximum aggregate number of 6,814,085 shares were reserved under the 2016 Equity Incentive Plan and are available for grants.Contents
The Company also assumed stock options of acquired entities in connection with certain acquisitions. While the respective stock plans were terminated on the closing of each acquisition, they continue to govern the terms of stock options assumed in the respective acquisition.
Share Repurchases
In March 2020, the Company's Board of Directors authorized a program to repurchase up to $2.0 billion of the Company's common stock over time. Repurchases may be made from time to time through open market purchases or through privately negotiated transactions subject to market conditions, applicable legal requirements and other relevant factors. The repurchase program does not obligate the Company to acquire any particular amount of its common stock, and may be suspended at any time at the Company’s discretion. The Company repurchased 16.9 million shares for an aggregate amount of $930.5 million and 5.7 million shares for an aggregate amount of $250.6 million in the years ended December 31, 2021 and 2020, respectively. The repurchases include approximately 120,000 shares for $5.3 million and 98,000 shares for $5.3 million that were not settled and that are presented as treasury stock on the consolidated balance sheets as of December 31, 2021 and 2020, respectively.
The Company has granted restricted common stock to certain continuing employees in connection with
thecertain of its acquisitions. Vesting of this stock is dependent on the respective employee’s continued employment at the Company during the requisite service period, which is
generally up to four years from the issuance date, and the Company has the right to repurchase the unvested shares upon termination of employment. The fair value of the restricted common stock issued to employees
that is subject to post-acquisition employment is recorded as compensation expense on a straight-line basis over the requisite service period.
The activities for the restricted common stock issued to employees for the year ended December 31, 20182021 are summarized as follows (in thousands, except per share data): | | | | | | | | | | | |
| Number of
Shares | | Weighted-Average
Grant-Date Fair
Value Per Share |
| Unvested restricted common stock at December 31, 2020 | 1,998 | | | $ | 34.00 | |
Granted (1) | 582 | | | $ | 24.50 | |
| Vested | (950) | | | $ | 26.23 | |
| Canceled | (65) | | | $ | 31.86 | |
| Unvested restricted common stock at December 31, 2021 | 1,565 | | | $ | 35.28 | |
| | | | | | Weighted-Average | |
| | Number of | | | Grant-Date Fair | |
| | Shares | | | Value Per Share | |
Unvested restricted common stock at December 31, 2017 | | | 2,764 | | | $ | 19.60 | |
Granted | | | 654 | | | $ | 25.62 | |
Vested | | | (1,173 | ) | | $ | 23.05 | |
Canceled | | | (7 | ) | | $ | 36.44 | |
Unvested restricted common stock at December 31, 2018 | | | 2,238 | | | $ | 19.50 | |
Employee Stock Purchase Plan
On November 7, 2013, the
The Company’s 2013 Employee Stock Purchase Plan
(the “ESPP”) became effective. The ESPP(ESPP) allows eligible employees to purchase shares of the Company’s common stock at a discount through payroll deductions of up to 15% of their eligible compensation, subject to any plan limitations. The ESPP provides for twelve-month offering periods, and each offering period will include
2 successive six-month purchase periods,
which will be the approximately six-month period commencing with one exercise date andeach ending with the
next exercise date. Employees are able to purchase shares at 85% of the lower of the fair market value of the Company’s common stock on the first trading day of the offering period or on the
applicable exercise date. The number of shares available for sale under the ESPP were and will be increased annually on the first day of each fiscal year, equal to the least of i) 11.3 million shares; ii) 1% of the outstanding shares of the Company’s common stock as of the last day of the immediately preceding fiscal year; or iii) such other amount as determined by the Board of Directors.
During the years ended December 31,
20182021 and
2017,2020, employees purchased an aggregate of
1.52.2 million and
1.72.3 million shares, respectively, under this plan at a weighted average price of
$19.03$31.07 and
$13.79$24.65 per share, respectively.
Stock Option Activity
A summary of stock option activity for the year ended December 31, 20182021 is as follows (in thousands, except years and per share data): | | | | | | | | | | | | | | | | | | | | | | | |
| Options Outstanding |
| Number of
Shares | | Weighted-
Average
Exercise
Price Per Share | | Weighted-
Average
Remaining
Contractual Life
(in years) | | Aggregate
Intrinsic Value |
| Outstanding at December 31, 2020 | 1,436 | | | $ | 18.97 | | | 3.39 | | $ | 50,534 | |
| Options granted and assumed in connection with acquisitions | 64 | | | $ | 16.56 | | | | | |
| Options exercised | (532) | | | $ | 3.87 | | | | | |
| Options canceled | (3) | | | $ | 26.71 | | | | | |
| Outstanding at December 31, 2021 | 965 | | | $ | 27.11 | | | 4.20 | | $ | 15,550 | |
| Exercisable at December 31, 2021 | 934 | | | $ | 27.34 | | | 4.06 | | $ | 14,828 | |
| | Options Outstanding | |
| | | | | | | | | | Weighted- | | | | | |
| | | | | | Weighted- | | | Average | | | | | |
| | | | | | Average | | | Remaining | | | | | |
| | Number of | | | Exercise | | | Contractual Life | | | Aggregate | |
| | Shares | | | Price Per Share | | | (in years) | | | Intrinsic Value | |
Outstanding at December 31, 2017 | | | 4,793 | | | $ | 11.94 | | | | 4.84 | | | $ | 70,932 | |
Options granted and assumed in connection with acquisitions | | | 46 | | | $ | 2.00 | | | | | | | | | |
Options exercised | | | (634 | ) | | $ | 5.43 | | | | | | | | | |
Options canceled | | | (513 | ) | | $ | 41.11 | | | | | | | | | |
Outstanding at December 31, 2018 | | | 3,692 | | | $ | 8.88 | | | | 3.64 | | | $ | 73,581 | |
Exercisable at December 31, 2018 | | | 3,363 | | | $ | 7.84 | | | | 3.32 | | | $ | 70,468 | |
The aggregate intrinsic value in the table above represents the difference between the fair value of common stock and the exercise price of outstanding, in-the-money stock options.
The total intrinsic values of stock options exercised in the years ended December 31,
2018, 20172021, 2020 and
20162019 were
$16.9$36.0 million,
$51.6$78.5 million and
$41.4$13.1 million, respectively.
Performance Restricted Stock Units Activity
The Company grants restricted stock units to certain of its executive officers periodically that vest based on the Company’s attainment of the annual financial performance goals and the executives’ continued employment through the vesting date
approximately one year (“PRSUs”)(PRSUs). These PRSUs are granted when the annual performance targets are set
and the awards are approved by the Compensation Committee of the Board of Directors, generally in the first
quarterhalf of each financial year.
The Company granted PRSUs with a vesting period of one year prior to 2020, and three years since 2020.
The following table summarizes the activity related to the Company’s PRSUs for the year ended December 31, 20182021 (in thousands, except per share data): | | PRSUs Outstanding | |
| | | | | | Weighted- | |
| | | | | | Average Grant- | |
| | | | | | Date Fair Value | |
| | Shares | | | Per Share | |
Unvested and outstanding at December 31, 2017 | | | 346 | | | $ | 15.39 | |
Granted (100% target level) | | | 519 | | | $ | 35.25 | |
Additional earned performance shares related to 2017 grants | | | 300 | | | $ | 15.39 | |
Vested (187% target level) | | | (646 | ) | | $ | 15.39 | |
Canceled | | | (129 | ) | | $ | 34.36 | |
Unvested and outstanding at December 31, 2018 (1) | | | 390 | | | $ | 35.55 | |
| | | | | | | | | | | |
| PRSUs Outstanding |
| Shares | | Weighted-
Average Grant-
Date Fair Value
Per Share |
| Unvested and outstanding at December 31, 2020 | 729 | | | $ | 27.77 | |
| Granted (100% target level) | 348 | | | $ | 71.22 | |
| Unearned performance shares canceled related to 2020 grants | (365) | | | $ | 27.77 | |
| Vested | (137) | | | $ | 30.63 | |
| | | |
| Forfeited or cancelled | (119) | | | $ | 54.97 | |
| Unvested and outstanding at December 31, 2021 | 456 | | | $ | 52.89 | |
(1)
| The PRSUs unvested and outstanding at December 31, 2018 represent performance based awards for the 2018 performance period and given financial results for the financial year will vest at 193% of target, or approximately 752,000 RSUs.
|
The PRSUs unvested and outstanding at December 31, 2021 include approximately 243,000 shares of performance-based awards for the 2021 performance period, which are expected to vest at 102% of target, or approximately 248,000 PRSUs, over three years, based on the financial results of the 2021 financial year. The remaining PRSUs unvested and outstanding primarily relate to the required service periods associated with prior grants.
The total fair value of PRSUs vested during the
yearyears ended December 31,
2018 was $20.4 million.2021, 2020, and 2019 were $10.0 million, $22.7 million, and $23.2 million, respectively.
The Company also grants market-based restricted stock units to certain of its executive officers that vest based on Twitter stock price performance relative to a broad-market index or upon achievement of certain Twitter stock price targets over a performance period of two calendarup to five years and the executivesexecutives’ continued employment through the vesting date (“TSR RSUs”).
date. The Company granted market-based RSUs with a vesting period of three to six years.
The following table summarizes the activity related to the Company’s TSR RSUsmarket-based restricted stock units for the year ended December 31, 20182021 (in thousands, except per share data):
| | TSR RSUs Outstanding | |
| | | | | | Weighted- | |
| | | | | | Average Grant- | |
| | | | | | Date Fair Value | |
| | Shares | | | Per Share | |
Unvested and outstanding at December 31, 2017 | | | 146 | | | $ | 13.02 | |
Granted (100% target level) | | | 414 | | | $ | 53.71 | |
Canceled | | | (140 | ) | | $ | 35.05 | |
Unvested and outstanding at December 31, 2018 (1) | | | 420 | | | $ | 45.78 | |
| | | | | | | | | | | |
| Market-based RSUs Outstanding |
| Shares | | Weighted-
Average Grant-
Date Fair Value
Per Share |
| Unvested and outstanding at December 31, 2020 | 917 | | | $ | 30.90 | |
| Granted (100% target level) | 3,371 | | | $ | 32.92 | |
| Unearned performance shares canceled related to 2019 grants | (207) | | | $ | 30.60 | |
| Vested | (302) | | | $ | 32.03 | |
| | | |
| Forfeited or cancelled | (858) | | | $ | 35.96 | |
| Unvested and outstanding at December 31, 2021 | 2,921 | | | $ | 31.64 | |
(1)
| The TSR
The 2.9 million shares of market-based RSUs unvested and outstanding at December 31, 2018 include performance based awards for the 2017 to 2018 performance period, and given financial results for the 2017 and 2018 financial years will vest at 132% of target, or approximately 121,500 RSUs. |
In addition, there are 1,148,311 additional PRSUs and TSRoutstanding at December 31, 2021 represent the awards at the target level of achievement for the respective performance periods.
The total fair value of market-based RSUs
that will vest based on performance goalsvested during the years ended December 31, 2021, 2020, and
Total Shareholder Return (“TSR”) targets, respectively, to be granted in 2019
was $20.7 million, $13.4 million, and
2020 at target levels from 0% to 200%.$3.7 million, respectively.
The following table summarizes the activity related to the Company’s RSUs, excluding PRSUs and market-based RSUs, for the year ended December 31, 2018.2021. For purposes of this table, vested RSUs represent the shares for which the service condition had been fulfilled as of each respective date (in thousands, except per share data): | | | | | | | | | | | |
| RSUs Outstanding |
| Shares | | Weighted-
Average Grant-
Date Fair Value
Per Share |
| Unvested and outstanding at December 31, 2020 | 36,611 | | | $ | 32.28 | |
| Granted | 24,507 | | | $ | 61.67 | |
| Vested | (16,984) | | | $ | 36.64 | |
| Canceled | (6,740) | | | $ | 40.16 | |
| Unvested and outstanding at December 31, 2021 | 37,394 | | | $ | 48.14 | |
| | RSUs Outstanding | |
| | | | | | Weighted- | |
| | | | | | Average Grant- | |
| | | | | | Date Fair Value | |
| | Shares | | | Per Share | |
Unvested and outstanding at December 31, 2017 | | | 33,123 | | | $ | 19.80 | |
Granted | | | 19,101 | | | $ | 30.73 | |
Vested | | | (14,379 | ) | | $ | 21.64 | |
Canceled | | | (7,458 | ) | | $ | 23.17 | |
Unvested and outstanding at December 31, 2018 | | | 30,387 | | | $ | 24.97 | |
The total fair value of RSUs vested during the years ended December 31,
2018, 2017,2021, 2020, and
20162019 was
approximately $445.7$993.0 million,
$358.7$557.1 million, and
$466.4$454.5 million, respectively.
Stock-Based Compensation Expense
Stock-based compensation expense is allocated based on the cost center to which the award holder belongs. Total stock-based compensation expense by function for the years ended December 31, 2018, 2017 and 2016 is as follows (in thousands): | | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 | | 2019 |
| Cost of revenue | $ | 45,203 | | | $ | 32,020 | | | $ | 22,797 | |
| Research and development | 381,961 | | | 281,092 | | | 209,063 | |
| Sales and marketing | 112,990 | | | 98,748 | | | 85,739 | |
| General and administrative | 89,747 | | | 63,072 | | | 60,426 | |
| Total stock-based compensation expense | $ | 629,901 | | | $ | 474,932 | | | $ | 378,025 | |
| | Year Ended December 31, | |
| | 2018 | | | 2017 | | | 2016 | |
Cost of revenue | | $ | 17,289 | | | $ | 23,849 | | | $ | 29,502 | |
Research and development | | | 183,799 | | | | 240,833 | | | | 335,498 | |
Sales and marketing | | | 71,305 | | | | 94,135 | | | | 160,935 | |
General and administrative | | | 53,835 | | | | 74,989 | | | | 89,298 | |
Total stock-based compensation expense | | $ | 326,228 | | | $ | 433,806 | | | $ | 615,233 | |
The amount of incremental stock-based compensation recorded in relation to the modification of stock-based awards was not material for the years ended December 31, 2018, 20172021, 2020 and 2016.
2019.
The Company capitalized
$41.4$79.7 million,
$51.8$34.6 million and
$73.9$37.5 million of stock-based compensation expense associated with the cost for developing software for internal use in the years ended December 31,
2018, 20172021, 2020 and
2016,2019, respectively.
As of December 31,
2018,2021, there was
$715.0 million$1.82 billion of gross unamortized stock-based compensation expense related to unvested awards which
willis expected to be recognized over a weighted-average period of 2.9 years.
Starting in 2017, theThe Company accounts for forfeitures as they occur.
The domestic and foreign components of income (loss) before income taxes for the years ended December 31, 2018, 20172021, 2020 and 20162019 are as follows (in thousands): | | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 | | 2019 |
| Domestic | $ | (341,942) | | | $ | (72,850) | | | $ | 317,135 | |
| Foreign | (69,171) | | | 21,911 | | | 73,004 | |
| Income (loss) before income taxes | $ | (411,113) | | | $ | (50,939) | | | $ | 390,139 | |
| | Year Ended December 31, | |
| | 2018 | | | 2017 | | | 2016 | |
Domestic | | $ | 193,500 | | | $ | (18,412 | ) | | $ | (237,325 | ) |
Foreign | | | 230,044 | | | | (77,006 | ) | | | (203,509 | ) |
Income (loss) before income taxes | | $ | 423,544 | | | $ | (95,418 | ) | | $ | (440,834 | ) |
| | | | | | | | | | | | |
The components of the provision (benefit) for income taxes for the years ended December 31, 2018, 20172021, 2020 and 20162019 are as follows (in thousands):
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 | | 2019 |
| Current: | | | | | |
| Federal | $ | (1,382) | | | $ | (199) | | | $ | 563 | |
| State | 741 | | | 677 | | | 3,375 | |
| Foreign | 39,711 | | | 19,813 | | | 43,053 | |
| Total current provision for income taxes | 39,070 | | | 20,291 | | | 46,991 | |
| Deferred: | | | | | |
| Federal | (185,081) | | | (35,651) | | | 2,023 | |
| State | (24,405) | | | (2,248) | | | 2,050 | |
| Foreign | (19,288) | | | 1,102,295 | | | (1,126,584) | |
| Total deferred provision (benefit) for income taxes | (228,774) | | | 1,064,396 | | | (1,122,511) | |
| Provision (benefit) for income taxes | $ | (189,704) | | | $ | 1,084,687 | | | $ | (1,075,520) | |
| | Year Ended December 31, | |
| | 2018 | | | 2017 | | | 2016 | |
Current: | | | | | | | | | | | | |
Federal | | $ | (1,661 | ) | | $ | 1,977 | | | $ | 1,087 | |
State | | | 4,083 | | | | 316 | | | | (143 | ) |
Foreign | | | 17,246 | | | | 16,767 | | | | 19,870 | |
Total current provision for income taxes | | | 19,668 | | | | 19,060 | | | | 20,814 | |
Deferred: | | | | | | | | | | | | |
Federal | | | (711,084 | ) | | | (4,701 | ) | | | 293 | |
State | | | (49,047 | ) | | | (67 | ) | | | 17 | |
Foreign | | | (41,589 | ) | | | (1,647 | ) | | | (5,085 | ) |
Total deferred benefit for income taxes | | | (801,720 | ) | | | (6,415 | ) | | | (4,775 | ) |
Provision (benefit) for income taxes | | $ | (782,052 | ) | | $ | 12,645 | | | $ | 16,039 | |
| | | | | | | | | | | | |
The following is a reconciliation of the statutoryincome tax at the federal income taxstatutory rate to the Company’s effective tax rateprovision (benefit) for income taxes for the years ended December 31, 2018, 20172021, 2020 and 2016:
| | Year Ended December 31, | |
| | 2018 | | | 2017 | | | 2016 | |
Tax at federal statutory rate | | | 21.0 | % | | | 35.0 | % | | | 35.0 | % |
State taxes, net of federal benefit | | | (8.4 | ) | | | (0.3 | ) | | | 0.0 | |
Stock-based compensation | | | (6.4 | ) | | | (28.5 | ) | | | (2.8 | ) |
Research and development credits | | | (5.6 | ) | | | 18.6 | | | | 4.9 | |
Valuation allowance | | | (179.1 | ) | | | 425.2 | | | | (7.0 | ) |
Effect of the U.S. Tax Act | | | 0.0 | | | | (369.8 | ) | | | 0.0 | |
Nondeductible other expenses | | | 0.2 | | | | (8.7 | ) | | | (6.1 | ) |
Foreign rate differential | | | (6.4 | ) | | | (81.2 | ) | | | (27.4 | ) |
Other | | | 0.1 | | | | (3.6 | ) | | | (0.2 | ) |
Effective tax rate | | | (184.6 | )% | | | (13.3 | )% | | | (3.6 | )% |
| | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 | | 2019 |
| Income tax at federal statutory rate | $ | (86,334) | | | (10,697) | | | $ | 81,929 | |
| State taxes, net of federal benefit | (18,694) | | | (1,246) | | | 4,286 | |
| Stock-based compensation | (56,551) | | | (27,127) | | | (19,005) | |
| Research and development credits | (71,820) | | | (40,707) | | | (33,044) | |
| Valuation allowance | 361 | | | 1,104,732 | | | (724) | |
| Nondeductible other expenses | 6,145 | | | 7,438 | | | 12,266 | |
| Nondeductible Federal Trade Commission settlement accrual | — | | | 31,500 | | | — | |
| Deferred tax asset on intra-entity transfer of intangible assets | — | | | — | | | (1,203,381) | |
| Foreign rate differential | 39,285 | | | 22,078 | | | 79,186 | |
| Other | (2,096) | | | (1,284) | | | 2,967 | |
| Provision (benefit) for income taxes | $ | (189,704) | | | $ | 1,084,687 | | | $ | (1,075,520) | |
The tax effects of temporary differences and related deferred tax assets and liabilities as of December 31, 20182021 and 20172020 are as follows (in thousands): | | December 31, | |
| | 2018 | | | 2017 | |
Deferred tax assets: | | | | | | | | |
Net operating loss carryforwards | | $ | 513,427 | | | $ | 720,444 | |
Accruals and reserves | | | 32,298 | | | | 26,202 | |
Stock-based compensation expense | | | 29,600 | | | | 32,825 | |
Tax credits | | | 375,699 | | | | 327,756 | |
Capitalized research expenditures | | | 13,868 | | | | — | |
Fixed assets and intangible assets | | | 24,819 | | | | 10,803 | |
Investments | | | 16,571 | | | | 14,906 | |
Other | | | 17,658 | | | | 19,683 | |
Total deferred tax assets | | | 1,023,940 | | | | 1,152,619 | |
Valuation allowance | | | (210,862 | ) | | | (1,021,326 | ) |
Total deferred tax assets, net of valuation allowance | | | 813,078 | | | | 131,293 | |
| | | | | | | | |
Deferred tax liabilities: | | | | | | | | |
Fixed assets and intangible assets | | | — | | | | (57,290 | ) |
Capitalized research expenditures | | | — | | | | (51,179 | ) |
Other | | | (4,619 | ) | | | (12,369 | ) |
Total deferred tax liabilities | | | (4,619 | ) | | | (120,838 | ) |
Net deferred tax assets | | $ | 808,459 | | | $ | 10,455 | |
| | | | | | | | |
In December 2017, the Tax Act was enacted into law and the new legislation contains several key provisions that affected the Company, including a reduction of the federal corporate income tax rate to 21% effective January 1, 2018. The Company is required to recognize the effect of the tax law changes in the period of enactment, such as re-measuring its U.S. deferred tax assets and liabilities as well as its valuation allowance against its net U.S. deferred tax assets. Also in December 2017, the SEC staff issued SAB 118, which allowed the Company to record provisional amounts during a measurement period not to extend beyond one year of the enactment date. During the fourth quarter of 2018, the Company completed its accounting for the Tax Act as summarized below:
The Company previously recognized a provisional reduction in its deferred tax assets, with a corresponding decrease to the valuation allowance of the same amount, related to the revaluation of deferred tax assets and liabilities. No adjustments were made to the provisional estimates recorded due to the full valuation allowance upon adoption.
| | | | | | | | | | | |
| December 31, |
| 2021 | | 2020 |
| Deferred tax assets: | | | |
| Net operating loss carryforwards | $ | 487,729 | | | $ | 421,411 | |
| | | |
| | | |
| Tax credits | 586,026 | | | 485,106 | |
| | | |
| Fixed assets and intangible assets | 1,152,360 | | | 1,280,597 | |
| | | |
| Operating lease liability | 299,514 | | | 230,837 | |
| Litigation Settlement | 194,897 | | | — | |
| Other | 169,278 | | | 82,596 | |
| Total deferred tax assets | 2,889,804 | | | 2,500,547 | |
| Valuation allowance | (1,414,632) | | | (1,457,137) | |
| Total deferred tax assets, net of valuation allowance | 1,475,172 | | | 1,043,410 | |
| Deferred tax liabilities: | | | |
| Operating lease right-of-use asset | (276,855) | | | (215,663) | |
| Other | (50,716) | | | (32,451) | |
| Total deferred tax liabilities | (327,571) | | | (248,114) | |
| Net deferred tax assets | $ | 1,147,601 | | | $ | 795,296 | |
The Company was not subject to the one-time mandatory transition tax.
The Company elected to record the taxes for GILTI as period costs.
The Company elected to utilize tax law ordering for reflecting the realization of the net operating losses expected to offset future GILTI.
The Company has recordeda gross deferred tax asset balance of $2.89 billion and $2.50 billion as of December 31, 2021 and 2020, respectively. The Company has a valuation allowance of $14.6 millionapproximately $1.41 billion and $780.2 million against its gross U.S. federal deferred tax asset balance$1.46 billion as of December 31, 2018,2021, and December 31, 2017,2020, respectively as well asprimarily related to deferred tax assets of a foreign subsidiary, California, and Massachusetts, and U.S. federal unrealized capital losses. The Company continues to reassess the ability to realize the valuation allowance of $196.3 millionquarterly, and $222.9 million against its gross state deferred tax asset balance as of December 31, 2018, and December 31, 2017, respectively.
During the year ended December 31, 2018, the Company released $797.4 millionif future evidence allows for a partial or full release of the valuation allowance, related to most of the United States federal and all states deferreda tax assets with the exception of California and Massachusetts. The Company continues to maintain a valuation allowance related to specific net deferred tax assets where it is not more likely than not that the deferred tax assetsbenefit will be realized, which include all capital losses and California and Massachusetts net deferred tax assets. The Company concluded, based upon the preponderance of positive evidence (i.e. cumulative profit before tax adjusted for permanent items over the previous twelve quarters, a history of taxable income in recent periods, and the current forecast of income before taxes for the United States going forward) over negative evidence and the anticipated ability to use the deferred tax assets, that it was more likely than not that the deferred tax assets could be realized. If there are unfavorable changes to actual operating results or to projections of future income, the Company may determine that it is more likely than not such deferred tax assets may not be realizable.
recorded accordingly.
At December 31,
2018,2021, the Company had
$2.85$2.39 billion of U.S. federal,
and $1.30$1.36 billion of
U.S. state, $151.5 million of Ireland, and $55.6 million of Brazil net operating losses. The federal and state net operating losses
which will begin to expire in 2034
for federal and
2026 for state tax purposes,2024, respectively, if not utilized.
The Ireland and Brazil net operating losses have no expiration date. The Company also has $300.4$494.8 million and $236.2$349.4 million of U.S. federal and state research credit carryforwards, respectively. The U.S. federal credit carryforward will begin to expire in 2027.2027, if not utilized. The majority of state research tax credits have no expiration date. A small portion of state research tax credits will begin to expire in 2030, if not utilized. Additionally, the Company has California Enterprise Zone Credit carryforwards of $19.1$16.4 million which will begin to expire in 2023.
2023, if not utilized. Utilization of the U.S. net operating loss and credit carryforwards may be subject to an annual limitation due to the ownership change limitations provided by the Internal Revenue Code of 1986, as amended (the “Code”)Code), and similar state provisions. Utilization of the foreign net operating losses may be subject to limitation based on the nature of income earned. Any annual limitation may result in the expiration of net operating losses and credits before utilization.
Also during the year ended December 31, 2018, the Company released the valuation allowance related to deferred tax assets of its Brazilian operations that resulted in a net benefit to tax expense of $47.7 million. The Company reported cumulative profit before tax (adjusted for permanent items) over the previous twelve quarters in its Brazilian operations based on U.S. GAAP and expects that net operating loss carryovers and other deductible amounts in Brazil will ultimately be realizable against future profits. The Company concluded, based upon the preponderance of positive evidence over negative evidence and the anticipated ability to use the deferred tax assets, that it was more likely than not that the deferred tax assets in Brazil would be realizable due to U.S. GAAP forecasted profits for Twitter Brazil. If there are unfavorable changes to actual operating results or to projections of future income, the Company may determine that it is more likely than not such deferred tax assets may not be realizable.
As of December 31, 2018,2021, the unrecognized tax benefit was $332.3 million, including $317.5Company had $401.4 million of unrecognized tax benefits, of which if recognized, will not affect$309.5 million could result in a reduction of the annualCompany’s effective tax rate, as theseif recognized. The remainder of the unrecognized tax benefits would increase deferrednot affect the effective tax assets which would be subjectrate due to athe full valuation allowance recorded for California and the remaining $14.8 million of unrecognizedMassachusetts deferred tax benefits which, if recognized, would affect the annual effective tax rate. assets.
A reconciliation of the beginning and ending amount of unrecognized tax benefit is as follows (in thousands): | | Year Ended December 31, | |
| | 2018 | | | 2017 | | | 2016 | |
Gross unrecognized tax benefits at the beginning of the year | | $ | 259,781 | | | $ | 269,508 | | | $ | 209,443 | |
Increases related to prior year tax positions | | | 20,000 | | | | 913 | | | | 3,682 | |
Decreases related to prior year tax positions | | | (13,174 | ) | | | — | | | | — | |
Decreases related to settlement with tax authorities | | | — | | | | (1,415 | ) | | | — | |
Decreases related to the Tax Act | | | — | | | | (71,104 | ) | | | — | |
Increases related to current year tax positions | | | 66,249 | | | | 61,879 | | | | 56,383 | |
Statute of limitations expirations | | | (542 | ) | | | — | | | | — | |
Gross unrecognized tax benefits at the end of the year | | $ | 332,314 | | | $ | 259,781 | | | $ | 269,508 | |
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 | | 2019 |
| Gross unrecognized tax benefits at the beginning of the year | $ | 354,598 | | | $ | 419,858 | | | $ | 332,314 | |
| Increases related to prior year tax positions | 3,365 | | | 5,943 | | | 54,743 | |
| Decreases related to prior year tax positions | (5,296) | | | (99,540) | | | (2,537) | |
| | | | | |
| | | | | |
| Increases related to current year tax positions | 50,468 | | | 28,337 | | | 35,338 | |
| Statute of limitations expirations | (1,770) | | | — | | | — | |
| Gross unrecognized tax benefits at the end of the year | $ | 401,365 | | | $ | 354,598 | | | $ | 419,858 | |
Total unrecognized tax benefits are recorded on the Company’s consolidated balance sheets as follows (in thousands): | | | | | | | | | | | |
| December 31, |
| 2021 | | 2020 |
| Total unrecognized tax benefits balance | $ | 401,365 | | | $ | 354,598 | |
| Amounts netted against related deferred tax assets | (369,312) | | | (331,339) | |
| Unrecognized tax benefits recorded on consolidated balance sheets | $ | 32,053 | | | $ | 23,259 | |
| | December 31, | |
| | 2018 | | | 2017 | |
Total unrecognized tax benefits balance | | $ | 332,314 | | | $ | 259,781 | |
Amounts netted against related deferred tax assets | | | (317,524 | ) | | | (246,776 | ) |
Unrecognized tax benefits recorded on consolidated balance sheets | | $ | 14,790 | | | $ | 13,005 | |
| | | | | | | | |
The Company recognizes interest and/or penalties related to income tax matters as a component of income tax expense. In 2018,During the years ended December 31, 2021, 2020, and 2019, the Company recognized netimmaterial amounts of interest and penalties of $2.2 million in income tax expense. As of December 31, 2018,2021 and 2020, the Company recorded $3.1had $7.6 million and $7.2 million of interest and penalties related toincluded in uncertain tax positions.
positions, respectively.
The Company is subject to taxation in the United States and various state and foreign jurisdictions. Earnings from non-USnon-U.S. activities are subject to local country income tax. The material jurisdictions in whichwhere the Company is subject to potential examination by taxingtax authorities include the United States, California and Ireland. The Company is currently under examination in California for tax years 2013 through 2015. The Company believes that it has reserved adequate amounts have been reserved infor these jurisdictions. The Company’s 2007 to 20172020 tax yearsattributes remain subject to potential examination by the United States and California, due to tax attributes, and its 20142017 to 20172020 tax years remain subject to potential examination in Ireland. The Company remains subject to possiblepotential examination in various other jurisdictions that are not expected to result in material tax adjustments. The Company does not believe that its unrecognized tax benefits will materially change within the next 12 months.
Note
15.16. Commitments and Contingencies
Credit Facility
In August 2018, the
The Company
entered intohas a revolving credit agreement with certain lenders, which provides for a $500.0 million unsecured revolving credit facility maturing on August 7, 2023.
In connection with entering into the $500.0 million credit facility, the Company also terminated its $1.0 billion unsecured revolving credit facility. The Company is obligated to pay interest on loans under the
new credit facility and other customary fees for a credit facility of this size and type, including an upfront fee and an unused commitment fee. The interest rate for the
new credit facility is determined based on calculations using certain market rates as set forth in the credit agreement.
In addition, the credit facility contains restrictions on payments including cash payments of dividends. In March 2021, the Company entered into an amendment to the revolving credit agreement to increase the amount of indebtedness the Company may incur from $4.5 billion to $6.0 billion and to permit the convertible note issuance and hedge transactions associated with the 2026 Notes. As of December 31,
2018,2021, no amounts had been drawn under the credit facility.
Operating and Capital Leases
Unconditional Obligations
The
Company has entered into variousCompany's unconditional obligations are non-cancelable
operating lease agreements for certain offices and data center facilities with contractual
lease periods expiring between 2019 and 2028. During the year ended December 31, 2018 and 2017, the Company entered into several sublease agreements for office space that the Company is not fully utilizing. The Company also has lease arrangements for certain server and networking equipment that are accounted for as capital leases and included in property and equipment on the consolidated balance sheets.
A summary of gross lease commitments and sublease income as of December 31, 2018 is as follows (in thousands):
| | Operating | | | Sublease | | | Capital | |
| | Leases | | | Income | | | Leases | |
Years Ending December 31, | | | | | | | | | | | | |
2019 | | $ | 161,932 | | | $ | (24,312 | ) | | $ | 70,506 | |
2020 | | | 151,751 | | | | (15,144 | ) | | | 23,845 | |
2021 | | | 110,853 | | | | (11,762 | ) | | | 569 | |
2022 | | | 89,398 | | | | (1,319 | ) | | | — | |
2023 | | | 62,137 | | | | — | | | | — | |
Thereafter | | | 263,441 | | | | — | | | | — | |
| | $ | 839,512 | | | $ | (52,537 | ) | | | 94,920 | |
Less: Amounts representing interest | | | | | | | | | | | 2,480 | |
Total capital lease obligation | | | | | | | | | | | 92,440 | |
Less: Short-term portion | | | | | | | | | | | 68,046 | |
Long-term portion | | | | | | | | | | $ | 24,394 | |
Rent expense, net of sublease income, underprimarily related to the Company’s operating leases, including co-location arrangements for the Company’s data centers, was $138.8 million, $117.9 millioninfrastructure services and $155.7 million for the years ended December 31, 2018, 2017 and 2016, respectively.
Contractual Obligations
Our principal commitments consist of obligations under the Notes (including principal and coupon interest), capital and operating leases for equipment, office space and co-located data center facilities, as well as non-cancellable contractual commitments.other services arrangements. The following table summarizes ourthe Company's commitments to settle contractualunconditional obligations in cash as of December 31, 2018:
2021: | Payments Due by Year | |
| Total | | | 2019 | | | 2020-2021 | | | 2022-2023 | | | Thereafter | |
| (In thousands) | |
2019 Notes | $ | 937,338 | | | $ | 937,338 | | | $ | — | | | $ | — | | | $ | — | |
2021 Notes | | 982,646 | | | | 9,540 | | | | 973,106 | | | | — | | | | — | |
2024 Notes | | 1,165,781 | | | | 2,867 | | | | 5,742 | | | | 5,734 | | | | 1,151,438 | |
Operating lease obligations (1) | | 839,512 | | | | 161,932 | | | | 262,604 | | | | 151,535 | | | | 263,441 | |
Capital lease obligations | | 94,920 | | | | 70,506 | | | | 24,414 | | | | — | | | | — | |
Other contractual commitments (2) | | 346,922 | | | | 65,768 | | | | 135,205 | | | | 134,404 | | | | 11,545 | |
Total contractual obligations | $ | 4,367,119 | | | $ | 1,247,951 | | | $ | 1,401,071 | | | $ | 291,673 | | | $ | 1,426,424 | |
(1)
| The Company has entered into several sublease agreements for office space that it is not fully utilizing. Under the sublease agreements, the Company will receive approximately $52.5 million in sublease income over the next four years.
|
| | | | | |
| 2022 | $ | 213,578 | |
| 2023 | 385,854 | |
| 2024 | 387,446 | |
| 2025 | 382,469 | |
| 2026 | 197,428 | |
| Thereafter | 7,985 | |
| Total | $ | 1,574,760 | |
(2)
| Other contractual commitments are non-cancelable contractual commitments primarily related to the Company’s infrastructure services, bandwidth and other services arrangements.
|
Legal Proceedings
Beginning in September 2016, multiple putative class actions and derivative actions were filed in state and federal courts in the United States against Twitter, Twitter’sthe Company and the Company’s directors and/or certain former officers alleging that false and misleading statements, made in 2015, are in violation of securities laws and breach ofbreached fiduciary duty. The putative class actions were consolidated in the U.S. District Court for the Northern District of California. On October 16, 2017,
In January 2021, the court grantedCompany entered into a binding agreement to settle the shareholder derivative lawsuits. The derivative settlement resolves all claims asserted against the Company and the other named defendants in partthe derivative lawsuits without any liability or wrongdoing attributed to them personally or the Company. Under the terms of the settlement, the Company's board of directors will adopt and denied in part the Company’s motion to dismiss.implement certain corporate governance modifications. On July 17, 2018,27, 2021, the court granted plaintiffs' motionCourt of Chancery of the State of Delaware approved the settlement agreement, and in the three months ended September 30, 2021, the Company received $38.0 million of insurance proceeds to be used for general corporate purposes. The settlement does not require the Company to make any payment, aside from covering certain administrative costs related to the settlement.
The shareholder class certificationaction lawsuit was scheduled for trial on September 20, 2021. In September 2021, prior to the start of the trial, the Company negotiated and entered into a binding agreement to settle the shareholder class action lawsuit. The proposed class action settlement resolves all claims asserted against the Company and the other named defendants in the shareholder class action lawsuit without any liability or wrongdoing attributed to them personally or to the Company. Under the terms of the proposed settlement, the Company paid the settlement amount of $809.5 million from cash on hand in the fourth quarter of 2021. The settlement amount is included in litigation settlement, net in the consolidated statement of operations for the year ended December 31, 2021. The settlement agreement is subject to final approval by the U.S. District Court for the Northern District of California. Following the agreements to settle the class action and derivative lawsuits, no other matters related to the aforementioned putative class actions and derivative actions remain outstanding.
Beginning in October 2019, putative class actions were filed in the U.S. District Court for the Northern District of California against the Company and certain of the Company’s officers alleging violations of securities action.laws in connection with the Company’s announcements that it had discovered and taken steps to remediate issues related to certain user settings designed to target advertising that were not working as expected and seeking unspecified damages. The Company disputes the claims and intends to continue to defend the lawsuitslawsuit vigorously. In December 2020, the district court dismissed the plaintiffs’ claims. The case is currently on appeal to the United States Court of Appeal for the Ninth Circuit.
From time to time the Company notifies the Irish Data Protection Commission, its designated European privacy regulator under the European Union General Data Protection Regulation, or GDPR, and other regulators, of certain personal data breaches and privacy and cybersecurity issues, and is subject to inquiries and investigations regarding various aspects of our regulatory compliance. The Company is currently the subject of inquiries by the Irish Data Protection Commission with respect to its compliance with the GDPR.
On July 28, 2020, the Company received a draft complaint from the Federal Trade Commission (FTC) alleging violations of the Company’s 2011 consent order with the FTC and the Federal Trade Commission Act. The allegations relate to the Company’s use of phone number and/or email address data provided for safety and security purposes for targeted advertising during periods between 2013 and 2019. The Company estimates that the range of probable loss in this matter is $150.0 million to $250.0 million and recorded an accrual of $150.0 million in the three months ended June 30, 2020. The accrual is included in accrued and other current liabilities on the consolidated balance sheet as of December 31, 2021. The matter remains unresolved, and there can be no assurance as to the timing or the terms of any final outcome.
On January 15, 2021, a derivative action was filed in the Delaware Chancery Court against certain directors of the Company alleging that the directors violated their fiduciary duties in deciding to enter into the Cooperation Agreement with certain affiliates of Elliott Management Corporation, to enter into the Investment Agreement with an affiliate of Silver Lake Partners, and to authorize a program to repurchase up to $2.0 billion of the Company's common stock. The defendants moved to dismiss the complaint on March 19, 2021 and on September 10, 2021, the court denied defendants’ motion to dismiss. On November 9, 2021, the court granted a motion to stay the case for six months while a Special Litigation Committee of the Company's board of directors investigates the claims.
On February 22, 2021, a derivative action was filed in the Delaware Chancery Court against Jack Dorsey alleging that Mr. Dorsey violated his fiduciary duties relating to various alleged privacy and cybersecurity issues. The parties have agreed to a stay of this action pending the outcome of the Company's board of directors' investigation of the claims.
The Company is also currently involved in, and may in the future be involved in, legal proceedings, claims, investigations, and government inquiries and investigations arising in the ordinary course of business. These proceedings, which include both individual and class action litigation and administrative proceedings, have included, but are not limited to matters involving content on the platform or the Company's actions related there to, intellectual property, privacy, data protection, cybersecurity, consumer protection, securities, employment, and contractual rights. Legal fees and other costs associated with such actions are expensed as incurred.
The Company assesses, in conjunction with its legal counsel, the need to record a liability for litigation and contingencies. Litigation accruals are recordedWith respect to the cases, actions, and inquiries described above, the Company evaluates the associated developments on a regular basis and will accrue a liability when and if it is determined thatbelieves a loss related matter is both probable and the amount can be reasonably estimable. Material loss contingencies that are reasonably possible of occurrence, if any, are subject to disclosure. As of December 31, 2018, except forestimated. In addition, the above referenced class actions and derivative actions,Company believes there was no litigation or contingency with at leastis a reasonable possibility that it may incur a loss in some of athese matters and the loss may be material or exceed its estimated ranges of possible loss. No material losses have been recorded during the years ended December 31, 2018, 2017 and 2016 withWith respect to litigationthe matters described above that do not include an estimate of the amount of loss or range of possible loss, contingencies.such losses or range of possible losses either are not material or may be material but cannot be estimated.
The outcomes of the 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, are inherently uncertain. If one or more of these matters were resolved against the Company for amounts above management’s estimates, the Company’s financial condition and results of operations, including in a particular reporting period in which any such outcome becomes probable and estimable, could be materially adversely affected.
The Company is under
auditvarious non-income tax audits by
various domestic and foreign tax
authorities and currently involved in a number of tax disputes related to non-income tax matters. The subject matter of non-income taxauthorities. These audits primarily
arises from disputes on the tax treatmentrevolve around routine inquiries, refund requests, and
tax rate applied to the sale of the Company’s products and services in these jurisdictions and the tax treatment of certain employee benefits. The Company accrues non-income taxes that may result from
examinations by, or any negotiated agreements with, these
tax authoritiesaudits when
a loss isthey are probable and
reasonably estimable. If the Company determines that a loss is reasonably possible and the loss or range of loss can be
estimated, it discloses the reasonably
possible loss or range of loss. The Company believes these matters are without merit and it is defending itself vigorously.estimated. Due to the
inherent complexity and uncertainty of
some of these matters,
andhowever, as well as the judicial process in certain jurisdictions, the final outcome
of these audits may be materially different from the
Company’sCompany's expectations.
In the ordinary course of business, the Company often includes standard indemnification provisions in its arrangements with its customers, partners, suppliers and vendors. Pursuant to these provisions, the Company may be obligated to indemnify such parties for losses or claims suffered or incurred in connection with its service, breach of representations or covenants, intellectual property infringement or other claims made against such parties. These provisions may limit the time within which an indemnification claim can be made. It is not possible to determine the maximum potential amount under these indemnification obligations due to the limited history of prior indemnification claims and the unique facts and circumstances involved in each particular agreement. The Company has never incurred significant expense defending its licensees against third-party claims, nor has it ever incurred significant expense under its standard service warranties or arrangements with its customers, partners, suppliers and vendors. Accordingly, the Company had no liabilities recorded for these provisions as of December 31, 20182021 and 2017.2020.
Note
16.17. Related Party Transactions
In September 2015, the Company entered into a partnership agreement for no consideration with Square, Inc., for which Jack Dorsey (the Company’s Chief Executive Officer) serves as Chief Executive Officer, to enable U.S. political donations through Tweets. Neither Square, Inc. nor the Company will pay each other any amounts in connection with the agreement. The agreement has no impact on the Company’s consolidated financial statements.
Certain of the Company’s directors have affiliations with customers of the Company. The Company recognized revenue under contractual obligations from such customers of $25.9$31.2 million and $22.5 million for the years ended December 31, 2018 and December 31, 2017, respectively. No revenue was recognized under contractual obligations from such customers for the year ended December 31, 2016.2021 and $22.0 million for each of the years ended December 31, 2020 and 2019. The Company had outstanding receivable balances of $3.8$4.1 million and $4.2$5.0 million from such customers as of December 31, 20182021 and December 31, 2017,2020, respectively.
Note
17.18. Employee Benefit Plan
The Company has a 401(k) Plan that qualifies as a deferred compensation arrangement under Section 401 of the Internal Revenue Code. Under the 401(k) Plan, participating employees may defer a portion of their pretax earnings not to exceed the maximum amount allowable. Matching contributions are based upon the amount of the employees’ contributions subject to certain limitations. The matching contributions made by the Company were $6.3$15.1 million, for the year ended December 31, 2018$11.0 million, and $2.8$8.8 million for each of the years ended December 201731, 2021, 2020 and 2016.2019, respectively.
Note
18.19. Segment Information and Operations by Geographic Area
The Company has a single operating segment and reporting unit structure. The Company’s chief operating decision-maker is the Chief Executive Officer who reviews financial information presented on a consolidated basis for purposes of allocating resources and evaluating financial performance.
See Note
32 – Revenue for further details.
Property and Equipment, net
See Note 5 – Property and Equipment, Net for further details.
Note 20. Subsequent Events
In February 2022, the Company’s board of directors authorized a new $4.0 billion share repurchase program. The
following table sets forth propertyprogram became effective immediately, and
equipment, net by geographic area (in thousands): | | December 31, | | | December 31, | |
| | 2018 | | | 2017 | |
Property and equipment, net: | | | | | | | | |
United States | | $ | 853,731 | | | $ | 730,262 | |
International | | | 31,347 | | | | 43,453 | |
Total property and equipment, net | | $ | 885,078 | | | $ | 773,715 | |
Note 19. Restructuring Charges
On October 25, 2016,replaced the Board of Directorspreviously authorized $2.0 billion program from 2020. As part of the Company approved a reduction in force plan (“2016 Plan”) of up to approximately 9% of the Company’s positions globally. The reduction in force was undertaken to eliminate investment in noncore areas and drive toward greater efficiency, while allowingnew program, the Company to continue to invest in its highest priorities.
On December 17, 2016, the Board of Directors ofentered into a $2.0 billion accelerated share repurchase program and the Company approved a lease abandonment plan (“2016 Lease Plan”)intends to abandon excess office space with lease terms expiring through 2028.
The following table summarizesrepurchase the activities relatedremaining $2.0 billion over time.
In February 2022, the Company amended its existing revolving credit agreement to
restructuring charges, as discussed above (in thousands): | | 2016 Employee | | | 2016 | |
| | Termination Plan | | | Lease Plan | |
Charges (1) | | $ | 21,611 | | | $ | 79,685 | |
Cash payment | | | (11,629 | ) | | | (3,562 | ) |
Non-cash and other adjustments | | | (6,357 | ) | | | (19,577 | ) |
Accrued as of December 31, 2016 | | $ | 3,625 | | | $ | 56,546 | |
Charges (2) | | $ | 608 | | | $ | 6,090 | |
Cash payment | | | (4,309 | ) | | | (28,371 | ) |
Non-cash and other adjustments | | | 76 | | | | (2,336 | ) |
Accrued as of December 31, 2017 | | $ | — | | | $ | 31,929 | |
Charges (3) | | | — | | | | (4,255 | ) |
Cash payment | | | — | | | | (15,525 | ) |
Non-cash and other adjustments | | | — | | | | (34 | ) |
Accrued as of December 31, 2018 | | $ | — | | | $ | 12,115 | |
| | | | | | | | |
Reflected in consolidated balance sheets as of December 31, 2018: (4) | | | | | | | | |
Accrued and other current liabilities | | $ | — | | | $ | 12,070 | |
Other long-term liabilities | | $ | — | | | $ | 45 | |
(1) Forpermit repurchases by the year ended December 31, 2016, the Company recorded restructuring charges related of its common stock in an aggregate amount not to its 2016 Employee Termination Plan and 2016 Lease Planexceed $4.0 billion.
Table of $49.0 million within cost of revenue, $30.4 million within sales and marketing, $15.9 million withinresearch and development and $6.0 million within general and administrative in the consolidated statements of operations.(2) For the year ended December 31, 2017, the Company recorded restructuring charges related to its 2016 Employee Termination Plan and 2016 Lease Plan of $0.4 million within cost of revenue, $3.0 million within sales and marketing, $2.1 million withinresearch and development and $1.2 million within general and administrative in the consolidated statements of operations.
(3) For the year ended December 31, 2018, the Company reversed restructuring charges related to its 2016 Lease Plan of $0.3 million within cost of revenue, $1.7 million within sales and marketing, $1.4 million withinresearch and development and $0.9 million within general and administrative in the consolidated statements of operations.
(4) As of December 31, 2018, the Company’s restructuring accrual included approximately $12.1 million related to the 2016 Lease Plan. This amount is also included in the gross operating lease commitment table under Note 15 – Commitments and Contingencies.
Contents
ItemItem 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
Item 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Annual Report on Form 10-K. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the
“Exchange Act”)Exchange Act), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. The design of disclosure controls and procedures and internal control over financial reporting must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of December 31,
2018,2021, our disclosure controls and procedures were effective at the reasonable assurance level.
Changes in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the quarter ended December 31,
20182021 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Management's Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). Our management conducted an assessment of the effectiveness of our internal control over financial reporting based on the criteria established in “Internal Control - Integrated Framework” (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on that assessment, our management has concluded that our internal control over financial reporting was effective as of December 31, 2018.2021. The effectiveness of the Company’s internal control over financial reporting as of December 31, 20182021 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which appears herein.
Item 9B. OTHER INFORMATION
None.
On February 14, 2022, our board of directors approved our amended and restated bylaws effective immediately. The bylaws were amended and restated, among other things, to:
•include a proxy access bylaw in Section 2.15;
•include a federal forum selection bylaw related to claims under the Securities Act of 1933, as amended, in Article VIII;
•update various sections regarding directors, board committees and officers in Article III, IV and V; and
•make various updates throughout to conform to current Delaware law and make ministerial changes, clarifications, and other conforming revisions.
The foregoing description of our amended and restated bylaws is qualified in its entirety by the full text of the bylaws, a copy of which is included as Exhibit 3.2 to this Annual Report on Form 10-K.
Item 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
Part III
Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information called for by this item will be set forth in our Proxy Statement for the Annual Meeting of Stockholders to be filed with the SEC within 120 days of the fiscal year ended December 31,
20182021 and is incorporated herein by reference.
Our board of directors has adopted a code of business conduct and ethics that applies to all of our employees, officers and directors, including our Chief Executive Officer, Chief Financial Officer and other executive and senior financial officers. The full text of our code of business conduct and ethics is posted on the investor relations page on our website which is located at http://investor.twitterinc.com. We will post any amendments to our code of business conduct and ethics, or waivers of its requirements, on our website.
Item 11. EXECUTIVE COMPENSATION
The information called for by this item will be set forth in our Proxy Statement and is incorporated herein by reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The information required by this item will be set forth in our Proxy Statement and is incorporated herein by reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information, if any, required by this item will be set forth in our Proxy Statement and is incorporated herein by reference.
Item 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required by this item will be set forth in our Proxy Statement and is incorporated herein by reference.
PART IV
Item 15.
EXHIBITS,EXHIBIT AND FINANCIAL STATEMENT SCHEDULES
The following documents are filed as part of this Annual Report on Form 10-K:
| 1.
| Consolidated Financial Statements
|
1.Consolidated Financial StatementsOur Consolidated Financial Statements are listed in the “Index to Consolidated Financial Statements” under Part II, Item 8 of this Annual Report on Form 10-K.
| 2.
| Financial Statement Schedules
|
2.Financial Statement SchedulesVALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 2018, 20172021, 2020 AND 20162019 | | | | | | | | | | | | | | | | | | | | | | | |
| Balance at
Beginning of
Year | | Charged to
Expenses | | Charged/
Credited
to Other
Accounts | | Balance at
End of Year |
| (In thousands) |
| Allowance for Deferred Tax Assets: | | | | | | | |
| Year ended December 31, 2021 | $ | 1,457,137 | | | $ | 42,328 | | | $ | (84,833) | | | $ | 1,414,632 | |
| Year ended December 31, 2020 | $ | 223,775 | | | $ | 1,124,132 | | | $ | 109,230 | | | $ | 1,457,137 | |
| Year ended December 31, 2019 | $ | 210,862 | | | $ | 12,913 | | | $ | — | | | $ | 223,775 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Balance at
Beginning of
Year | | Additions
(Reductions) | | Write-off/
Adjustments | | Balance at
End of Year |
| (In thousands) |
| Allowance for Doubtful Accounts: | | | | | | | |
| Year ended December 31, 2021 | $ | 16,946 | | | $ | 436 | | | $ | (2,104) | | | $ | 15,278 | |
| Year ended December 31, 2020 | $ | 2,401 | | | $ | 17,190 | | | $ | (2,645) | | | $ | 16,946 | |
| Year ended December 31, 2019 | $ | 3,559 | | | $ | 3,083 | | | $ | (4,241) | | | $ | 2,401 | |
| | | | | | | | | Charged/ | | | | | |
| Balance at | | | | | | | Credited | | | | | |
| Beginning of | | | Charged to | | | to Other | | | Balance at | |
| Year | | | Expenses | | | Accounts | | | End of Year | |
| (In thousands) | |
Allowance for Deferred Tax Assets: | | | | | | | | | | | | | | | |
Year ended December 31, 2018 | $ | 1,021,326 | | | $ | (817,529 | ) | | $ | 7,065 | | | $ | 210,862 | |
Year ended December 31, 2017 | $ | 439,993 | | | $ | (346,389 | ) | | $ | 927,722 | | | $ | 1,021,326 | |
Year ended December 31, 2016 | $ | 378,448 | | | $ | 57,529 | | | $ | 4,016 | | | $ | 439,993 | |
| | | | | | | | | | | | | | | |
| Balance at | | | | | | | | | | | | | |
| Beginning of | | | Additions | | | Write-off/ | | | Balance at | |
| Year | | | (Reductions) | | | Adjustments | | | End of Year | |
| (In thousands) | |
Allowance for Doubtful Accounts: | | | | | | | | | | | | | | | |
Year ended December 31, 2018 | $ | 5,430 | | | $ | 1,610 | | | $ | (3,481 | ) | | $ | 3,559 | |
Year ended December 31, 2017 | $ | 7,216 | | | $ | 586 | | | $ | (2,372 | ) | | $ | 5,430 | |
Year ended December 31, 2016 | $ | 8,121 | | | $ | 3,958 | | | $ | (4,863 | ) | | $ | 7,216 | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
All other financial statement schedules have been omitted because they are not required, not applicable, not present in amounts sufficient to require submission of the schedule, or the required information is shown in our Consolidated Financial Statements or Notes thereto.
The documents listed in the Exhibit Index of this Annual Report on Form 10-K are incorporated by reference or are filed with this Annual Report on Form 10-K, in each case as indicated therein (numbered in accordance with Item 601 of Regulation S-K).
EXHIBIT INDEXExhibit
Number | | Exhibit Description | | Incorporated by Reference |
| | Form | | File No. | | Exhibit | | Filing Date | |
| | | | | | | | | | | |
| | | | | | | | | | | |
3.1 | | Restated Certificate of Incorporation of Twitter, Inc. | | S-1/A | | 333-191552 | | 3.2 | | October 22, 2013 | |
| | | | | | | | | | | |
3.2 | | Amended and Restated Bylaws of Twitter, Inc. | | 8-K | | 001-36164 | | 3.1 | | April 7, 2017 | |
| | | | | | | | | | | |
4.1 | | Form of common stock certificate of Twitter, Inc. | | S-1/A | | 333-191552 | | 4.1 | | October 22, 2013 | |
| | | | | | | | | | | |
4.2 | | Indenture, dated September 17, 2014, between Twitter, Inc. and U.S. Bank National Association. | | 8-K | | 001-36164 | | 4.1 | | September 17, 2014 | |
| | | | | | | | | | | |
4.3 | | Form of Global 0.25% Convertible Senior Note due 2019 (included in Exhibit 4.2) | | 8-K | | 001-36164 | | 4.2 | | September 17, 2014 | |
| | | | | | | | | | | |
4.4 | | Indenture, dated September 17, 2014, between Twitter, Inc. and U.S. Bank National Association. | | 8-K | | 001-36164 | | 4.3 | | September 17, 2014 | |
| | | | | | | | | | | |
4.5 | | Form of Global 1.00% Convertible Senior Note due 2021 (included in Exhibit 4.4) | | 8-K | | 001-36164 | | 4.4 | | September 17, 2014 | |
| | | | | | | | | | | |
4.6 | | Indenture, dated June 11, 2018, between Twitter, Inc. and U.S. Bank National Association. | | 8-K | | 001-36164 | | 4.1 | | June 11, 2018 | |
| | | | | | | | | | | |
4.7 | | Form of Global 0.25% Convertible Senior Note due 2024 (included in Exhibit 4.6). | | 8-K | | 001-36164 | | 4.2 | | June 11, 2018 | |
| | | | | | | | | | | |
10.1* | | Form of Indemnification Agreement between Twitter, Inc. and each of its directors and executive officers. | | S-1 | | 333-191552 | | 10.1 | | October 3, 2013 | |
| | | | | | | | | | | |
10.2* | | Twitter, Inc. 2013 Equity Incentive Plan and related form agreements. | | S-1/A | | 333-191552 | | 10.2 | | October 22, 2013 | |
| | | | | | | | | | | |
10.3* | | Twitter, Inc. 2013 Employee Stock Purchase Plan and related form agreements. | | S-8 | | 333-192150 | | 4.3 | | November 7, 2013 | |
| | | | | | | | | | | |
10.4* | | Twitter, Inc. 2007 Equity Incentive Plan and related form agreements. | | S-1 | | 333-191552 | | 10.4 | | October 3, 2013 | |
| | | | | | | | | | | |
10.5* | | Form of Performance-Based Restricted Stock Unit Award Agreement for Executives, including Notice of Grant, under the Twitter, Inc. 2013 Equity Incentive Plan. | | 10-K | | 333-209840 | | 10.5 | | February 29, 2016 | |
| | | | | | | | | | | |
10.6* | | Twitter, Inc. 2016 Equity Incentive Plan and related form agreements. | | S-8 | | 333-212740 | | 4.2 | | July 29, 2016 | |
| | | | | | | | | | | |
10.7* | | Twitter, Inc. 2011 Acquisition Option Plan. | | S-1 | | 333-191552 | | 10.5 | | October 3, 2013 | |
| | | | | | | | | | | |
10.8* | | Afterlive.tv Inc. 2010 Stock Plan. | | S-8 | | 333-198055 | | 4.4 | | August 11, 2014 | |
| | | | | | | | | | | |
10.9* | | Apps & Zerts, Inc. 2013 Stock Plan. | | S-8 | | 333-195743 | | 4.2 | | May 6, 2014 | |
| | | | | | | | | | | |
10.10* | | Bluefin Labs, Inc. 2008 Stock Plan. | | S-1 | | 333-191552 | | 10.6 | | October 3, 2013 | |
| | | | | | | | | | | |
10.11* | | CardSpring Inc. Amended and Restated 2011 Equity Incentive Plan. | | S-8 | | 333-198055 | | 4.6 | | August 11, 2014 | |
| | | | | | | | | | | |
10.12* | | Crashlytics, Inc. 2011 Stock Plan. | | S-1 | | 333-191552 | | 10.7 | | October 3, 2013 | |
| | | | | | | | | | | |
10.13* | | Gnip, Inc. 2008 Incentive Plan, as amended. | | S-8 | | 333-195743 | | 4.3 | | May 6, 2014 | |
| | | | | | | | | | | |
10.14* | | Magic Pony Technology Limited EMI Share Option Scheme | | S-8 | | 333-212740 | | 4.3 | | July 29, 2016 | |
| | | | | | | | | | | |
10.15* | | Mixer Labs, Inc. 2008 Stock Plan. | | S-1 | | 333-191552 | | 10.8 | | October 3, 2013 | |
| | | | | | | | | | | |
10.16* | | MoPub Inc. 2010 Equity Incentive Plan. | | S-1/A | | 333-191552 | | 10.22 | | November 4, 2013 | |
| | | | | | | | | | | |
10.17* | | Smyte, Inc. Amended and Restated 2014 Stock Option and Grant Plan and related form agreements. | | S-8 | | 333-2266447 | | 4.2 | | July 31, 2018 | |
| | | | | | | | | | | |
10.18* | | TapCommerce Inc. 2012 Stock Incentive Plan. | | S-8 | | 333-198055 | | 4.5 | | August 11, 2014 | |
| | | | | | | | | | | |
10.19* | | Twitter, Inc. Executive Incentive Compensation Plan. | | S-1 | | 333-191552 | | 10.9 | | October 3, 2013 | |
| | | | | | | | | | | |
10.20* | | Twitter, Inc. Change of Control and Involuntary Termination Protection Policy. | | 10-Q | | 001-36164 | | 10.1 | | August 11, 2014 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Exhibit Number | | Exhibit Description | | Incorporated by Reference |
| Form | | File No. | | Exhibit | | Filing Date |
| 3.1 | | | | S-1/A | | 333-191552 | | 3.2 | | October 22, 2013 |
| 3.2 | | | | | | | | | | |
| 4.1 | | | | S-1/A | | 333-191552 | | 4.1 | | October 22, 2013 |
| 4.2 | | | | 8-K | | 001-36164 | | 4.1 | | June 11, 2018 |
| 4.3 | | | | 8-K | | 001-36164 | | 4.2 | | June 11, 2018 |
| 4.4 | | | | 8-K | | 001-36164 | | 4.1 | | December 9, 2019 |
| 4.5 | | | | 8-K | | 001-36164 | | 4.2 | | December 9, 2019 |
| 4.6 | | | | 8-K | | 001-36164 | | 4.1 | | March 13, 2020 |
| 4.7 | | | | 8-K | | 001-36164 | | 4.2 | | March 13, 2020 |
| 4.8 | | | | 10-K | | 001-36164 | | 4.8 | | February 19, 2020 |
| 4.9 | | | | 8-K | | 001-36164 | | 4.1 | | March 4, 2021 |
| 4.10 | | | | 8-K | | 001-36164 | | 4.2 | | March 4, 2021 |
| 10.1* | | | | 10-Q | | 001-36164 | | 10.1 | | August 3, 2020 |
| 10.2* | | | | S-1/A | | 333-191552 | | 10.2 | | October 22, 2013 |
| 10.3* | | | | S-8 | | 333-192150 | | 4.3 | | November 7, 2013 |
| 10.4* | | | | S-1 | | 333-191552 | | 10.4 | | October 3, 2013 |
| 10.5* | | | | 10-K | | 001-36164 | | 10.5 | | February 29, 2016 |
| 10.6* | | | | S-8 | | 333-212740 | | 4.2 | | July 29, 2016 |
| 10.7* | | | | S-1 | | 333-191552 | | 10.9 | | October 3, 2013 |
| 10.8* | | | | 10-Q | | 001-36164 | | 10.1 | | August 11, 2014 |
| 10.9* | | | | 10-Q | | 001-36164 | | 10.1 | | October 30, 2020 |
| 10.10* | | | | 8-K | | 001-36164 | | 10.1 | | June 11, 2015 |
| 10.11* | | | | S-1/A | | 333-191552 | | 10.16 | | October 22, 2013 |
| 10.12* | | | | 8-K | | 001-36164 | | 10.1 | | June 4, 2015 |
| 10.13* | | | | 8-K | | 001-36164 | | 10.1 | | July 11, 2017 |
| 10.14* | | | | 8-K | | 001-36164 | | 10.1 | | November 29, 2021 |
| 10.15 | | | | S-1 | | 333-191552 | | 10.19 | | October 3, 2013 |
| | | | | | | | | | |
10.21* | | Twitter, Inc. Outside Director Compensation Policy | | 10-K | | 001-36164 | | 10.23 | | March 6, 2014 |
| | | | | | | | | | |
10.22* | | Twitter, Inc. 2013 Target Commission Plan. | | S-1/A | | 333-191552 | | 10.20 | | October 22, 2013 |
| | | | | | | | | | |
10.23* | | Offer Letter between Twitter, Inc. and Jack Dorsey, dated as of June 11, 2015. | | 8-K | | 001-36164 | | 10.1 | | June 11, 2015 |
| | | | | | | | | | |
10.24* | | Letter Agreement between Twitter, Inc. and Omid R. Kordestani, dated as of October 13, 2015. | | 8-K | | 001-36164 | | 10.1 | | October 16, 2015 |
| | | | | | | | | | |
10.25* | | Offer Letter between Twitter, Inc. and Vijaya Gadde, dated as of October 1, 2013. | | S-1/A | | 333-191552 | | 10.16 | | October 22, 2013 |
| | | | | | | | | | |
10.26* | | Offer Letter between Twitter, Inc. and Robert Kaiden, dated as of April 24, 2015. | | 8-K | | 001-36164 | | 10.1 | | June 4, 2015 |
| | | | | | | | | | |
10.27* | | Offer Letter between Twitter, Inc. and Ned D. Segal, dated July 11, 2017 | | 8-K | | 001-36164 | | 10.1 | | July 11, 2017 |
| | | | | | | | | | |
10.28* | | Amended and Restated Change of Control Severance Policy Participation Agreement between Twitter, Inc. and Anthony Noto, dated as of November 21, 2016 | | 10-K | | 001-36164 | | 10.28 | | February 23, 2018 |
| | | | | | | | | | |
10.29* | | Contribution Agreement, dated October 22, 2015, by and between Twitter, Inc. and the Jack Dorsey Revocable Trust dated December 8, 2010 | | 8-K | | 001-36164 | | 10.1 | | October 23, 2015 |
| | | | | | | | | | |
10.30 | | Form of Innovator’s Patent Agreement. | | S-1 | | 333-191552 | | 10.19 | | October 3, 2013 |
| | | | | | | | | | |
10.31 | | Office Lease between Twitter, Inc. and SRI Nine Market Square LLC, dated as of April 20, 2011, as amended on May 16, 2011, September 30, 2011 and June 1, 2012. | | S-1 | | 333-191552 | | 10.18 | | October 3, 2013 |
| | | | | | | | | | |
10.32 | | Revolving Credit Agreement among Twitter, Inc., the lenders party thereto and Morgan Stanley Senior Funding, Inc., as Administrative Agent, dated as of October 22, 2013. | | S-1/A | | 333-191552 | | 10.21 | | October 22, 2013 |
| | | | | | | | | | |
10.33 | | Amendment No. 1, dated September 10, 2014, to the Revolving Credit Agreement, dated October 22, 2013, among Twitter, Inc., Morgan Stanley Senior Funding, Inc., as administrative agent, and the lenders from time to time party thereto. | | 8-K | | 001-36164 | | 10.1 | | September 10, 2014 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 10.16 | | | | S-1 | | 333-191552 | | 10.18 | | October 3, 2013 |
| 10.17 | | | | 8-K | | 001-36164 | | 10.1 | | August 10, 2018 |
| 10.18 | | Amendment No. 1, dated March 1, 2021, to the Credit Agreement, dated August 7, 2018, among Twitter, Inc., JPMorgan Chase Bank, N.A., as administrative agent, and the lenders from time to time party thereto. | | 8-K | | 001-36164 | | 10.4 | | March 4, 2021 |
| 10.19 | | Amendment No. 2, dated as of February 9, 2022, to the Credit Agreement, dated as of August 7, 2018, among Twitter, Inc., the lenders from time to time thereto, and JPMorgan Chase Bank, N.A., as administrative agent | | 8-K | | 001-36164 | | 1.02 | | February 11, 2022 |
| 10.20 | | | | 8-K | | 001-36164 | | 10.2 | | September 17, 2014 |
| 10.21 | | | | 8-K | | 001-36164 | | 10.3 | | September 17, 2014 |
| 10.22 | | | | 8-K | | 001-36164 | | 10.2 | | June 11, 2018 |
| 10.23 | | | | 8-K | | 001-36164 | | 10.3 | | June 11, 2018 |
| 10.24 | | | | 8-K | | 001-36164 | | 10.2 | | March 4, 2021 |
| 10.25 | | | | 8-K | | 001-36164 | | 10.3 | | March 4, 2021 |
| 10.26 | | | | 8-K | | 001-36164 | | 10.1 | | March 9, 2020 |
| 10.27 | | | | 8-K | | 001-36164 | | 1.01 | | February 11, 2022 |
| 21.1 | | | | | | | | | | |
| 23.1 | | | | | | | | | | |
| 24.1 | | | | | | | | | | |
| 31.1 | | | | | | | | | | |
| 31.2 | | | | | | | | | | |
| 32.1† | | | | | | | | | | |
| | | | | | | | | | |
10.34 | | Amendment No. 2, dated June 6, 2018, to the Revolving Credit Agreement, dated October 22, 2013, among Twitter, Inc., Morgan Stanley Senior Funding, Inc., as administrative agent, and the lenders from time to time party thereto. | | 8-K | | 001-36164 | | 10.4 | | June 11, 2018 |
| | | | | | | | | | |
10.35 | | Revolving Credit Agreement, dated as of August 7, 2018, by and among Twitter, Inc., the lenders from time to time party thereto and JPMorgan Chase Bank, N.A., as administrative agent. | | 8-K | | 001-36164 | | 10.1 | | August 10, 2018 |
| | | | | | | | | | |
10.36 | | Form of Convertible Note Hedge Confirmation. | | 8-K | | 001-36164 | | 10.2 | | September 17, 2014 |
| | | | | | | | | | |
10.37 | | Form of Warrant Confirmation. | | 8-K | | 001-36164 | | 10.3 | | September 17, 2014 |
| | | | | | | | | | |
10.38 | | Purchase Agreement, dated June 6, 2018, by and among Twitter, Inc. and Goldman, Sachs & Co., J.P. Morgan Securities LLC and Morgan Stanley & Co. LLC, as representatives of the Purchasers named therein. | | 8-K | | 001-36164 | | 10.1 | | June 11, 2018 |
| | | | | | | | | | |
10.39 | | Form of Convertible Note Hedge Confirmation. | | 8-K | | 001-36164 | | 10.2 | | June 11, 2018 |
| | | | | | | | | | |
10.40 | | Form of Warrant Confirmation. | | 8-K | | 001-36164 | | 10.3 | | June 11, 2018 |
| | | | | | | | | | |
21.1 | | List of subsidiaries of Twitter, Inc. | | | | | | | | |
| | | | | | | | | | |
23.1 | | Consent of PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm. | | | | | | | | |
| | | | | | | | | | |
24.1 | | Power of Attorney (contained on signature page hereto) | | | | | | | | |
| | | | | | | | | | |
31.1 | | Certification of Chief Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | | | | | | | | |
| | | | | | | | | | |
31.2 | | Certification of Chief Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | | | | | | | | |
| | | | | | | | | | |
32.1† | | Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | | | | | | | | |
| | | | | | | | | | |
101.INS | | XBRL Instance Document. | | | | | | | | |
| | | | | | | | | | |
101.SCH | | XBRL Taxonomy Schema Linkbase Document | | | | | | | | |
| | | | | | | | | | |
101.CAL | | XBRL Taxonomy Definition Linkbase Document. | | | | | | | | |
| | | | | | | | | | |
101.DEF | | XBRL Taxonomy Calculation Linkbase Document. | | | | | | | | |
| | | | | | | | | | |
101.LAB | | XBRL Taxonomy Labels Linkbase Document. | | | | | | | | |
| | | | | | | | | | |
101.PRE | | XBRL Taxonomy Presentation Linkbase Document. | | | | | | | | |
*
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 101.INS | | XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | | | | | | | | |
| 101.SCH | | Inline XBRL Taxonomy Schema Linkbase Document | | | | | | | | |
| 101.CAL | | Inline XBRL Taxonomy Definition Linkbase Document. | | | | | | | | |
| 101.DEF | | Inline XBRL Taxonomy Calculation Linkbase Document. | | | | | | | | |
| 101.LAB | | Inline XBRL Taxonomy Labels Linkbase Document. | | | | | | | | |
| 101.PRE | | Inline XBRL Taxonomy Presentation Linkbase Document. | | | | | | | | |
| 104 | | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). | | | | | | | | |
| | | | | |
| * | Indicates a management contract or compensatory plan or arrangement. |
† | The certifications attached as Exhibit 32.1 that accompany this Annual Report on Form 10-K, are deemed furnished and not filed with the Securities and Exchange Commission and are not to be incorporated by reference into any filing of Twitter, Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Annual Report on Form 10-K, irrespective of any general incorporation language contained in such filing. |
ItemItem 16. FORM 10-K SUMMARY
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this annual report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: February 20, 2019.16, 2022 | TWITTER, INC.
| | | | | | | |
| | TWITTER, INC. |
| By:
| /s/ Jack Dorsey
|
| By: | Jack Dorsey
/s/ Parag Agrawal |
| | Parag Agrawal |
| | Chief Executive Officer |
Each person whose signature appears below constitutes and appoints
Jack DorseyParag Agrawal and Ned Segal, and each of them, as his or her true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their or his
or her substitutes, may lawfully do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:Signature
| | Title
| | Date
| | | | | | | | | | |
| Signature | | Title | | Date |
| | | | |
/s/ Jack DorseyParag Agrawal | | Chief Executive Officer and Director | | February 20, 2019 16, 2022 |
Jack Dorsey
Parag Agrawal | | (Principal Executive Officer) | | |
| | | | |
/s/ Ned Segal | | Chief Financial Officer | | February 20, 2019 16, 2022 |
Ned Segal | | (Principal Financial Officer) | | |
| | | | |
/s/ Robert Kaiden | | Chief Accounting Officer | | February 20, 2019 16, 2022 |
Robert Kaiden | | (Principal Accounting Officer) | | |
| | | | |
/s/ Mimi Alemayehou | | Director | | February 16, 2022 |
| Mimi Alemayehou | | | | |
| | | | |
| /s/ Jack Dorsey | | Director | | February 16, 2022 |
| Jack Dorsey | | | | |
| | | | |
| /s/ Egon Durban | | Director | | February 16, 2022 |
| Egon Durban | | | | |
| | | | |
| /s/ Omid Kordestani | | Executive Chairman and Director
| | February 20, 2019 16, 2022 |
Omid Kordestani | | | | |
| | | | |
/s/ Martha Lane Fox | | Director | | February 20, 2019 16, 2022 |
Martha Lane Fox | | | | |
| | | | |
/s/ Debra L. Lee Fei-Fei Li | | Director | | February 20, 2019 16, 2022 |
Debra L. Lee
Fei-Fei Li | | | | |
| | | | |
| | | | |
| /s/ Patrick Pichette | | Director | | February 20, 2019 16, 2022 |
Patrick Pichette | | | | |
| | | | |
/s/ David Rosenblatt | | Director | | February 20, 2019 16, 2022 |
David Rosenblatt | | | | |
| | | | |
/s/ Ngozi Okonjo-Iweala
| | Director
| | February 20, 2019
|
Ngozi Okonjo-Iweala
| | | | |
| | | | |
/s/ Bret Taylor | | Director | | February 20, 2019 16, 2022 |
Bret Taylor | | | | |
/s/ Evan Williams
| | Director
| | February 20, 2019
|
Evan Williams
| | | | |
/s/ Robert Zoellick | | Director | | February 20, 2019 16, 2022 |
Robert Zoellick | | | | |
| | | | |
126