Share-Based Awards | 6 Months Ended |
Jun. 30, 2014 |
Disclosure Of Compensation Related Costs Sharebased Payments [Abstract] | ' |
Share-Based Awards | ' |
Note 9. | Share-Based Awards | | | | | | | | | | | | | | | | | | | |
On July 19, 2011, our 2011 Incentive Plan (as amended and/or restated from time to time, the “2011 Plan”) became effective and replaced our 2005 Equity Incentive Plan. The 2011 Plan contains an “evergreen” provision, pursuant to which the number of shares of Class A common stock available for issuance under the 2011 Plan can be increased on the first day of each of our fiscal years beginning in 2013 by a number of shares equal to the least of (a) 3.5% of our outstanding Class A common stock and Class B common stock on a fully diluted basis as of the end of our immediately preceding fiscal year, (b) 3,500,000 shares, and (c) a lesser amount determined by our board of directors; provided, however, that any shares from any increases in previous years that are not actually issued will continue to be available for issuance under the 2011 Plan. The 2011 Plan is administered by the compensation committee of the board of directors. Under the terms of the 2011 Plan, the compensation committee may grant equity awards, including incentive stock options, nonqualified stock options, restricted stock, restricted stock units, or restricted units to employees, officers, directors, consultants, agents, advisors and independent contractors. The compensation committee has also authorized certain senior executive officers to grant equity awards under the 2011 Plan, within limits prescribed by the compensation committee. |
Stock Options |
All stock options granted from inception through June 30, 2014 are nonqualified stock options, with the exception of substituted incentive stock options for 15,143 shares of Zillow’s Class A common stock that were granted in connection with the December 14, 2012 acquisition of HotPads, Inc. Options under the 2011 Plan are granted with an exercise price per share not less than 100% of the fair market value of our Class A common stock on the date of grant, with the exception of substituted stock options granted in connection with acquisitions, and are exercisable at such times and under such conditions as determined by the compensation committee. Under the 2011 Plan, the maximum term of an option is ten years from the date of grant. Any portion of an option that is not vested and exercisable on the date of a participant’s termination of service expires on such date. Employees generally forfeit their rights to exercise vested options after 3 months following their termination of employment or 12 months in the event of termination by reason of death, disability or retirement. Options granted under the 2011 Plan are typically granted with seven-year terms and typically vest 25% after 12 months and ratably thereafter over the next 36 months, except for options granted under the Stock Option Grant Program for Nonemployee Directors (“Nonemployee Director Awards”), which are fully vested and exercisable on the date of grant, and except for certain options that were granted to our chief executive officer in December 2012 and January 2013. |
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The following table summarizes stock option activity for the year ended December 31, 2013 and the six months ended June 30, 2014: |
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| | Shares | | | Number | | | Weighted- | | | Weighted- | | | Aggregate | |
Available | of Shares | Average | Average | Intrinsic |
for Grant | Subject to | Exercise | Remaining | Value |
| Existing | Price Per | Contractual | |
| Options | Share | Life (Years) | |
Outstanding at January 1, 2013 | | | 321,678 | | | | 5,462,672 | | | $ | 14.48 | | | | 4.48 | | | $ | 78,912,364 | |
Authorized increase in plan shares | | | 2,887,064 | | | | — | | | | — | | | | | | | | | |
Granted | | | (1,984,157 | ) | | | 2,009,542 | | | | 43.87 | | | | | | | | | |
Exercised | | | — | | | | (2,026,829 | ) | | | 9.03 | | | | | | | | | |
Forfeited or cancelled | | | 288,679 | | | | (288,679 | ) | | | 31.93 | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Outstanding at December 31, 2013 | | | 1,513,264 | | | | 5,156,706 | | | | 27.09 | | | | 5.43 | | | | 283,008,505 | |
Authorized increase in plan shares | | | 1,563,827 | | | | — | | | | — | | | | | | | | | |
Granted | | | (1,641,789 | ) | | | 1,641,789 | | | | 88 | | | | | | | | | |
Exercised | | | — | | | | (825,342 | ) | | | 17 | | | | | | | | | |
Forfeited or cancelled | | | 148,343 | | | | (148,343 | ) | | | 52.54 | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Outstanding at June 30, 2014 | | | 1,583,645 | | | | 5,824,810 | | | | 45.06 | | | | 5.53 | | | | 571,097,095 | |
Vested and exercisable at June 30, 2014 | | | | | | | 1,566,583 | | | | 17.55 | | | | 3.92 | | | | 196,414,195 | |
The shares available for grant identified in the above table exclude options for an aggregate of 25,385 shares that were granted in 2013 in substitution of options previously granted by StreetEasy, Inc. (“StreetEasy”). Pursuant to the terms of the 2011 Plan, such substituted stock option awards do not reduce the number of shares available for future issuance under the 2011 Plan. As of June 30, 2014, the numbers above do not include 77,750 shares of restricted stock and 164,167 restricted stock units outstanding under our 2011 Plan. |
The fair value of options granted, excluding Nonemployee Director Awards and certain options granted to the Company’s chief executive officer in December 2012 and January 2013, is estimated at the date of grant using the Black-Scholes-Merton option-pricing model, assuming no dividends and with the following assumptions for the periods presented: |
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| | Three Months Ended | | Six Months Ended | | | | | | | | | | | | |
June 30, | June 30, | | | | | | | | | | | | |
| | 2014 | | 2013 | | 2014 | | 2013 | | | | | | | | | | | | |
Expected volatility | | 54% | | 50% | | 53%-54% | | 50%-51% | | | | | | | | | | | | |
Expected dividend yields | | — | | — | | — | | — | | | | | | | | | | | | |
Risk-free interest rate | | 1.35%-1.49% | | 0.59%-1.22% | | 1.29%-1.52% | | 0.59%-1.22% | | | | | | | | | | | | |
Weighted-average expected life | | 4.58 years | | 4.58 years | | 4.58 years | | 4.58 years | | | | | | | | | | | | |
Weighted-average fair value of options granted | | $49.25 | | $23.22 | | $39.62 | | $16.53 | | | | | | | | | | | | |
In March 2014, stock options for an aggregate of 23,010 shares of our Class A common stock were granted as Nonemployee Director Awards. The fair value of options granted for the Nonemployee Director Awards, $32.60 per share, is estimated at the date of grant using the Black-Scholes-Merton option-pricing model, assuming no dividends, expected volatility of 54%, a risk-free interest rate of 0.69%, and a weighted-average expected life of 3.5 years. During the six months ended June 30, 2014 and 2013, share-based compensation expense recognized in our statements of operations related to Nonemployee Director Awards was $0.8 million and $0.5 million, respectively, and is included in general and administrative expenses. There was no share-based compensation expense recognized in our statements of operations related to Nonemployee Director Awards for the three months ended June 30, 2014 and 2013. |
As of June 30, 2014, there was a total of $81.1 million in unrecognized compensation cost related to unvested stock options, which is expected to be recognized over a weighted-average period of 3.3 years. |
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Restricted Stock Awards |
The following table summarizes restricted stock award activity for the year ended December 31, 2013 and the six months ended June 30, 2014: |
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| | Shares of | | | Weighted- | | | | | | | | | | | | | |
Restricted Stock | Average Grant- | | | | | | | | | | | | |
| Date Fair | | | | | | | | | | | | |
| Value | | | | | | | | | | | | |
Unvested outstanding at January 1, 2013 | | | 340,103 | | | $ | 30.37 | | | | | | | | | | | | | |
Granted | | | 3,673 | | | | 44.66 | | | | | | | | | | | | | |
Vested | | | (108,379 | ) | | | 30.94 | | | | | | | | | | | | | |
Forfeited or cancelled | | | (5,270 | ) | | | 25.92 | | | | | | | | | | | | | |
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Unvested outstanding at December 31, 2013 | | | 230,127 | | | | 30.43 | | | | | | | | | | | | | |
Granted | | | 3,255 | | | | 80.91 | | | | | | | | | | | | | |
Vested | | | (91,048 | ) | | | 30.9 | | | | | | | | | | | | | |
Forfeited or cancelled | | | — | | | | — | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Unvested outstanding at June 30, 2014 | | | 142,334 | | | | 31.28 | | | | | | | | | | | | | |
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The fair value of the outstanding shares of restricted stock awards will be recorded as share-based compensation expense over the vesting period. As of June 30, 2014, there was $4.4 million of total unrecognized compensation cost related to restricted stock awards. |
Restricted Stock Units |
The following table summarizes activity for restricted stock units for the year ended December 31, 2013 and the six months ended June 30, 2014: |
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| | Restricted Stock | | | Weighted- | | | | | | | | | | | | | |
Units | Average Grant- | | | | | | | | | | | | |
| Date Fair | | | | | | | | | | | | |
| Value | | | | | | | | | | | | |
Unvested outstanding at January 1, 2013 | | | 295,737 | | | $ | 38.76 | | | | | | | | | | | | | |
Granted | | | 97,804 | | | | 81.12 | | | | | | | | | | | | | |
Vested | | | (253,384 | ) | | | 42.53 | | | | | | | | | | | | | |
Forfeited or cancelled | | | (19,034 | ) | | | 59.26 | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Unvested outstanding at December 31, 2013 | | | 121,123 | | | | 64.07 | | | | | | | | | | | | | |
Granted | | | 96,964 | | | | 102.12 | | | | | | | | | | | | | |
Vested | | | (30,407 | ) | | | 67.66 | | | | | | | | | | | | | |
Forfeited or cancelled | | | (23,513 | ) | | | 76.22 | | | | | | | | | | | | | |
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Unvested outstanding at June 30, 2014 | | | 164,167 | | | | 83.2 | | | | | | | | | | | | | |
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In April 2014, pursuant to the terms of an Amended and Restated Executive Employment Agreement and a Restricted Stock Unit Award Notice and Restricted Stock Unit Award Agreement entered into between Zillow and an employee, Zillow granted to the employee restricted stock units for 59,320 shares of our Class A common stock, which vest quarterly over four years beginning on the vesting commencement date of March 26, 2014, subject to the recipient’s continued full-time employment or service to Zillow. In the event of termination of service or employment by Zillow without cause or upon the resignation by such employee for good reason, the employee will receive 24 months’ accelerated vesting of the restricted stock units, except that in the event of such a termination in connection with a change in control, the restricted stock units will become fully vested. The employee will be entitled to receive one share of Zillow’s Class A common stock for each then outstanding unit that becomes vested. The grant date fair value of the restricted stock units is approximately $5.4 million. |
In June 2014, pursuant to the terms of Restricted Stock Unit Award Notices and Restricted Stock Unit Award Agreements entered into between Zillow and certain employees, Zillow granted to the employees restricted stock units for a total of 24,880 shares of our Class A common stock, which vest ratably after each six-month period over two years beginning on the vesting commencement date of June 3, 2014, subject to the recipients’ continued full-time employment or service to Zillow. In the event of termination of service of employment by Zillow without cause, 50% of the then unvested restricted stock units will become vested units, and the recipient will be entitled to receive one share of Zillow’s Class A common stock for each then outstanding unit. The grant date fair value of the restricted stock units is approximately $3.2 million. |
The fair value of restricted stock units will be recorded as share-based compensation expense over the vesting period. As of June 30, 2014, there was $13.5 million of total unrecognized compensation cost related to restricted stock units. |
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Share-Based Compensation Expense |
The following table presents the effects of share-based compensation in our statements of operations during the periods presented (in thousands): |
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| | Three Months Ended | | | Six Months Ended | | | | | |
June 30, | June 30, | | | | |
| | 2014 | | | 2013 | | | 2014 | | | 2013 | | | | | |
Cost of revenue | | $ | 418 | | | $ | 176 | | | $ | 791 | | | $ | 339 | | | | | |
Sales and marketing | | | 1,698 | | | | 7,777 | | | | 3,001 | | | | 9,004 | | | | | |
Technology and development | | | 3,056 | | | | 1,034 | | | | 5,081 | | | | 2,068 | | | | | |
General and administrative | | | 3,238 | | | | 1,480 | | | | 6,669 | | | | 3,202 | | | | | |
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Total | | $ | 8,410 | | | $ | 10,467 | | | $ | 15,542 | | | $ | 14,613 | | | | | |