| SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 2. SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES Use of
Estimates The preparation of the
Companys consolidated financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the consolidated financial statements and the reported amounts of
income and expenses during the reporting period. These estimates are based on
information available as of the date of the consolidated financial statements;
therefore, actual results could differ from managements estimates. Foreign Currency
Translation The consolidated
financial statements of the Companys foreign subsidiaries are measured using
the local currency as the functional currency. Assets and liabilities of foreign
subsidiaries are translated at exchange
rates in effect as of the balance sheet date. Revenues and expenses are
translated at average exchange rates in effect during the year. Translation
adjustments are recorded within accumulated other comprehensive loss, a separate
component of stockholders equity. Cash and Cash
Equivalents The Company considers
all highly liquid investments, such as treasury bills, commercial paper,
certificates of deposit and money market instruments with maturities of three
months or less at the time of acquisition to be cash equivalents. Cash and cash
equivalents primarily consist of amounts held in interest-bearing money market
funds that were readily convertible to cash. The fair value of cash and cash
equivalents approximates their carrying value. Marketable
Securities The Company determines
the classification of its marketable securities at the time of purchase and
re-evaluates these determinations at each balance sheet date. Debt securities
are classified as held-to-maturity when the Company has the positive intent and
ability to hold the securities to maturity. Held-to-maturity securities are
stated at amortized cost and are periodically assessed for other-than-temporary
impairment. Amortized cost of debt securities is adjusted for amortization of
premiums and accretion of discounts to maturity, and is included in interest
income. Held-to-maturity securities with less than one year to maturity are
included in short-term marketable securities. All other held-to-maturity
securities are classified as long-term securities. Concentrations of Credit
Risk Financial instruments that
potentially subject the Company to concentration of credit risk consist
primarily of cash and cash equivalents and accounts receivable. The Company
places its cash and cash equivalents with major financial institutions, which
management assesses to be of high credit quality, in order to limit the exposure
of each investment. Credit risk with respect to
accounts receivable is dispersed due to the Companys large number of customers.
In addition, the Companys credit risk is mitigated by the relatively short
collection period. Collateral is not required for accounts receivable. The
Company maintains an allowance for doubtful accounts receivable balances. The
allowance is based upon historical loss patterns, the number of days that
billings are past due and an evaluation of the potential risk of loss associated
with delinquent accounts. When new information becomes available to indicate
that the estimate provided for the allowance was incorrect, an adjustment, which
is considered a change in the estimate, is made. The carrying value of accounts
receivable approximates their fair value. As of December 31, 2016,
2015 and 2014, there were no customers that accounted for more than 10% of total
accounts receivable. The following table
presents the changes in the allowance for doubtful accounts (in thousands):
Year Ended December
31,
2016 2015 2014
Allowance
for doubtful accounts:
Balance,
beginning of period $ 3,208 $ 1,627 $ 810
Add:
bad debt expense 15,913 10,271 6,369
Less:
write-offs, net of recoveries (14,129 ) (8,690 ) (5,552 )
Balance, end
of period $ 4,992 $ 3,208 $ 1,627 Property, Equipment and
Software Property, equipment and
software are stated at cost less accumulated depreciation and amortization.
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets, which are approximately three to five years.
Leasehold improvements are amortized over the shorter of the lease term or 10
years. Website and Internal-Use
Software Development Costs Costs
related to website and internal-use software are primarily related to the
Companys website, including support systems. The Company capitalizes its costs
to develop software when preliminary development efforts are successfully
completed, management has authorized and committed project funding and it is
probable that the project will be completed and the software will be used as
intended. Such costs are amortized on a straight-line basis over the estimated
useful life of the related asset, which is generally three years.
Costs incurred prior to meeting these criteria, together with costs incurred for
training and maintenance, are expensed as incurred. Costs incurred for
enhancements that are expected to result in additional material functionality
are capitalized and amortized over the estimated useful life of the
upgrades. The Company capitalized
$19.2 million, $14.7 million and $13.9 million in website and internal-use
software costs during the years ended December 31, 2016, 2015 and 2014,
respectively, which are included in property, equipment and software, net on the
consolidated balance sheets. Amortization expense related to website and
internal-use software was $12.3 million, $8.4 million and $4.6 million for the
years ended December 31, 2016, 2015 and 2014, respectively. The Company wrote off $0.1
million, $0.1 million and $0.0 million of website and internal-use software
costs in the years ended December 31, 2016, 2015 and 2014, respectively. The
retirements were related to obsolete projects no longer supported by the
Company. The loss on disposition of the projects has been included in
depreciation and amortization expense in the Companys consolidated statements
of operations. Business
Combinations The Company accounts
for acquisitions of entities that include inputs and processes and have the
ability to create outputs as business combinations. The Company allocates the
purchase price of the acquisition to the tangible assets, liabilities and
identifiable intangible assets acquired based on their estimated fair values.
The excess of the purchase price over those fair values is recorded as goodwill.
Acquisition-related expenses and integration costs are expensed as incurred.
During the measurement period, the Company records adjustments to the assets
acquired and liabilities assumed with the corresponding offset to goodwill.
After the measurement period, which could be up to one year after the
transaction date, subsequent adjustments are recorded to the Companys
consolidated statements of operations. Goodwill Goodwill represents the excess of the purchase
price in a business combination over the fair value of net tangible and
intangible assets acquired. The carrying amount of goodwill is reviewed at least
annually, or more frequently if events or changes in circumstances indicate that
the carrying value of goodwill may not be recoverable. The Company has the
option to first assess qualitative factors to determine whether it is more
likely than not that the fair value of its single reporting operating unit is
less than its carrying amount as a basis for determining whether it is necessary
to perform the two-step goodwill impairment test under the authoritative
guidance issued by the Financial Accounting Standards Board (FASB). If the
Company determines that it is more likely than not that its fair value is less
than the carrying amount, or opts not to perform a qualitative assessment, then
the two-step goodwill impairment test will be performed. The first step,
identifying a potential impairment, compares the fair value of the reporting
unit with its carrying amount. If the carrying amount exceeds its fair value,
the second step will be performed; otherwise, no further step is required. The
second step, measuring the impairment loss, compares the implied fair value of
the goodwill with the carrying amount of the goodwill. Any excess of the
goodwill carrying amount over the applied fair value is recognized as an
impairment loss, and the carrying value of goodwill is written down to fair
value. No impairment charges have been recorded to date. Intangible
Assets Intangible assets include
acquired intangible assets identified through business combinations, which are
carried at fair value less accumulated amortization, and purchased intangible
assets, which are carried at cost less accumulated amortization. Amortization is
recorded over the estimated useful lives of the assets, generally two years to
12 years. The Company reviews 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 the 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. No impairment charges have been
recorded to date. Cost-Method
Investments Nonmarketable equity
investments, that the Company has determined do not meet the criteria for
accounting under the equity method of accounting, are accounted for using the
cost method of accounting and classified as Other non-current assets on the
consolidated balance sheets. Under the cost method, investments are carried at
cost and are adjusted only for other-than-temporary declines in fair value,
certain distributions and additional investments. The carrying amount of
investments is reviewed if events or changes in circumstances indicate that the
carrying value may not be recoverable. Impairment of Long-Lived
Assets and Long-Lived Assets to Be Disposed of The Company evaluates its long-lived assets for
impairment whenever events or changes in circumstances indicate that the
carrying amount of such assets may not be recoverable. Recoverability of assets
to be held and used is measured by a comparison of the carrying amount of an
asset to future undiscounted net cash flows expected to be generated by the
asset. If such assets are considered to be impaired, the impairment to be
recognized is measured as the amount by which the carrying amount of the assets
exceeds the fair value of the assets. Assets to be disposed of are reported at
the lower of the carrying amount or fair value less costs to sell. Revenue
Recognition The Company generates
revenue from its advertising products, transactions, other services and, through
the end of 2015, brand advertising. The Company recognizes revenue when all of
the following conditions are met: there is persuasive evidence of an
arrangement, service has been provided to the customer, the amount to be paid by
the customer is fixed or determinable, and collection is reasonably assured.
Payments received in advance of services being rendered are recorded as deferred
revenue and recognized over the requisite service period. Advertising . The Company
generates advertising revenue primarily through the display of advertising
products on its website and mobile app. These arrangements are evidenced by
either written or electronic acceptance of an agreement that stipulates the
types of advertising to be delivered, the timing and pricing. Performance-based
advertising placements are priced on a cost-per-click basis through an auction,
while impression-based ads are delivered pursuant to fixed monthly fee
advertising plans. The Company recognizes revenue from the delivery of
performance-based ads in the period of delivery and from the delivery of
impression-based ads ratably over the service period, in each case net of
customer discounts. The Company also generates advertising revenue through
indirect sales of advertising products, such as through reseller
agreements that allow partners to sell Yelp Branded Profiles to their clients
and the monetization of remnant advertising inventory through third-party ad
networks. Transactions . The Company
generates transactions revenue from Yelp Eat24, revenue-sharing partner arrangements
and the sale of vouchers through the Companys Yelp Deals and Gift
Certificates. Yelp Eat24 generates revenue through
arrangements with restaurants, in which restaurants pay a commission percentage
fee on orders placed through the Yelp Eat24 platform. The Company records revenue
associated with Yelp Eat24 transactions on a net basis. Yelp Platform partnerships provide consumers with the ability to complete food delivery and
other transactions through third parties directly on Yelp. The Company earns a fee on Platform partnerships for acting as an agent for these transactions, which it record on a net basis and include in revenue upon completion of a transaction. Yelp Deals allow
merchants to promote themselves and offer discounted goods and services on a
real-time basis to consumers directly on the Companys website and mobile app.
The Company earns a fee on Yelp Deals for acting as an agent in these
transactions, which are recorded on a net basis and included in revenue upon
sale of the deal. The Company records a sales allowance for potential Yelp Deals
refunds based on the Companys estimate of future refunds. Gift Certificates
allow merchants to sell full-priced gift certificates directly to consumers
through their business listing pages. The Company earns a fee based on the
amount of the Gift Certificate sold, which it records on a net basis and
includes in revenue upon a consumers purchase of the Gift Certificate.
Brand Advertising.
Through the end of 2015, the
Company generated brand advertising revenue through the sale of graphic and text
display advertisements on its website. The Company recognized revenue from the
sale of impression-based advertisements on its online network in the period in
which the advertisements (impressions) were delivered, net of customer
discounts. The Company also generated brand revenue from fixed-price brand
sponsorships that were recognized ratably over the service period. The
arrangements were evidenced by insertion orders or contracts that stipulate the
types of advertising delivered and the pricing. Other
Services . The Company generates
other revenue through subscription services, such as sales of monthly
subscriptions to its Yelp Reservations product, licensing payments for access to
Yelp data and other non-advertising, non-transaction partnerships. Subscription
revenues are recognized ratably over the contract terms beginning on the
commencement date of each contract, which is the date the service is made
available to customers. Multiple Element
Arrangements . The Company enters
into arrangements with its customers to sell advertising packages that include
different media placements or ad services that are delivered at the same time,
or within close proximity of one another. The Company allocates
arrangement consideration in multiple-deliverable arrangements at the inception
of the arrangement to all deliverables or those packages in which all components
of the package are delivered at the same time, based on the relative selling
price method in accordance with the selling price hierarchy, which includes: (1)
vendor-specific objective evidence (VSOE), if available; (2) third-party
evidence (TPE), if VSOE is not available; and (3) best estimate of selling
price (BESP), if neither VSOE nor TPE is available. VSOEThe Company determines
VSOE based on its historical pricing and discounting practices for the specific
product or service when sold separately. In determining VSOE, the Company
requires that a substantial majority of the standalone selling prices for these
services fall within a reasonably narrow price range; however, the Company has
not historically sold a large volume of advertising products on a standalone
basis. As a result, the Company has not been able to establish VSOE for any of
its advertising products. TPEWhen VSOE cannot be
established for deliverables in multiple element arrangements, the Company
applies judgment with respect to whether it can establish a selling price based
on TPE. TPE is determined based on competitor prices for similar deliverables
when sold separately. Generally, the Companys go-to-market strategy differs
from that of its peers and its offerings contain a significant level of
differentiation such that the comparable pricing of services cannot be obtained.
Furthermore, the Company is unable to reliably determine what similar competitor
services selling prices are on a standalone basis. As a result, the Company has
not been able to establish selling price based on TPE. BESPWhen it is unable to
establish selling price using VSOE or TPE, the Company uses BESP in its
allocation of arrangement consideration. The objective of BESP is to determine
the price at which the Company would transact a sale if the service were sold on
a standalone basis. BESP is generally used to allocate the selling price to
deliverables in the Companys multiple element arrangements. The Company
determines BESP for deliverables by considering multiple factors including, but
not limited to, prices it charges for similar offerings, market conditions,
competitive landscape and pricing practices. The Company limits the amount of
allocable arrangement consideration to amounts that are fixed or determinable
and that are not contingent on future performance or future deliverables. The
Company will regularly review BESP. Changes in assumptions or judgments or
changes to elements in the arrangement could cause a material increase or
decrease in the amount of revenue that the Company reports in a particular
period. The Company recognizes the
relative fair value of the media placements or ad services as they are delivered
assuming all other revenue recognition criteria are met. Cost of
Revenue The Companys cost of
revenue primarily consists of credit card processing fees, web hosting,
salaries, benefits and stock-based compensation expense for its infrastructure
teams related to operating the Companys website and mobile app. It also
includes food delivery related costs as well as creative design for brand
advertising and video production expenses. All costs are expensed when incurred.
Stock-Based
Compensation The Company accounts
for stock-based employee compensation plans under the fair value recognition and
measurement provisions in accordance with applicable accounting standards, which
require all stock-based payments to employees, including grants of stock
options, restricted stock awards, restricted stock units and issuances under its
2012 Employee Stock Purchase Plan, as amended (ESPP), to be measured based on
the grant-date fair value of the awards. Prior to January 1, 2016,
stock-based compensation expense was recorded net of estimated forfeitures in
the Companys consolidated statements of income (loss) and, accordingly, was
recorded for only those stock-based awards that the Company expected to vest.
The Company estimated the forfeiture rate based on historical forfeitures of
equity awards and adjusted the rate to reflect changes in facts and
circumstances, if any. The Company revised its estimated forfeiture rate if
actual forfeitures differed from its initial estimates. Effective as of January 1,
2016, the Company adopted a change in accounting policy in accordance with
Accounting Standards Update 2016-09, CompensationStock Compensation (Topic
718) (ASU 2016-09) to account for forfeitures as they occur. The change was
applied on a modified retrospective basis with a cumulative effect adjustment to
retained earnings of $1.1 million (which reduced the accumulated deficit) as of
January 1, 2016. No prior periods were recast as a result of this change in
accounting policy. Advertising
Expenses Advertising costs are expensed in the period in which the advertising takes place. Costs of producing
advertising are expensed in the period in which production takes place. Total advertising expenses incurred
were $46.9 million, $30.9 million and $8.1 million for the years ended December
31, 2016, 2015 and 2014, respectively. Comprehensive Income
(Loss) Comprehensive income
(loss) consists of net income (loss) and other comprehensive income (loss),
which includes certain changes in equity that are excluded from net income
(loss). Specifically, it includes foreign currency translation adjustments.
Income
Taxes The Company records income
taxes using the asset and liability method, which requires the recognition of
deferred tax assets and liabilities for the expected future tax consequences of
events that have been recognized in the Companys financial statements or tax
returns. In estimating future tax consequences, generally all expected future
events other than enactments or changes in the tax law or rates are considered.
Valuation allowances are provided to reduce deferred tax assets to the amount
that is more likely than not to be realized. The Company operates in
various tax jurisdictions and is subject to audit by various tax authorities.
The Company provides for tax contingencies whenever it is deemed probable that a
tax asset has been impaired or a tax liability has been incurred for events such
as tax claims or changes in tax laws. Tax contingencies are based upon their
technical merits, relative tax law and the specific facts and circumstances as
of each reporting period. Changes in facts and circumstances could result in
material changes to the amounts recorded for such tax contingencies. The Company recognizes a
tax benefit from an uncertain tax position only if 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. The tax benefits recognized in
the financial statements from such a position are then measured based on the
largest benefit that has a greater than 50% likelihood of being realized upon
ultimate settlement. Effective as of January 1,
2016, the Company early adopted a change in accounting policy in accordance with
ASU 2016-09, which eliminated the requirement that excess tax benefits be
realized as a reduction in current taxes payable before the associated tax
benefit could be recognized as an increase in paid in capital. Under ASU
2016-09, these previously unrecognized deferred tax assets were recognized on a
modified retrospective basis as of January 1, 2016, the start of the year in
which the Company early adopted ASU 2016-09. The U.S. federal and state net
operating losses and credits recognized as of January 1, 2016, as described
above, have been offset by a valuation allowance. As a result, only the Ireland
net operating losses resulted in a cumulative-effect adjustment to retained
earnings of $0.2 million (which reduced the accumulated deficit) as of January
1, 2016. Additionally, ASU 2016-09 addresses the presentation of excess tax
benefits and employee taxes paid on the statement of cash flows. The Company is
now required to present excess tax benefits as an operating activity in the same
manner as other cash flows related to income taxes on the statement of cash
flows rather than as a financing activity. The Company adopted this change
prospectively. Employee Benefit
Plan The Company sponsors a
qualified 401(k) defined contribution plan covering eligible employees.
Participants may contribute a portion of their annual compensation up to a
maximum annual amount set by the Internal Revenue Service (IRS). Employer
contributions under this plan were $3.8 million, $2.9 million and $1.9 million
for the years ended December 31, 2016, 2015 and 2014, respectively. Recent Accounting
Pronouncements Not Yet Effective In May 2014, the Financial Accounting Standards
Board (“FASB”) issued Accounting Standards Update 2014-09 “Revenue from Contracts with Customers”
(“ASU 2014-09”). ASU 2014-09 supersedes the revenue recognition requirements in “Revenue Recognition
(Topic 605),” and requires entities to recognize revenue when they transfer promised goods or services to
customers, in an amount that reflects the consideration that the entity expects to be entitled to in exchange for
such goods or services. As currently issued and amended, ASU 2014-09 is effective for annual reporting periods
beginning after December 15, 2017, including interim periods within that reporting period, though early
adoption is permitted for annual reporting periods beginning after December 15, 2016. In December 2016, the
FASB issued guidance on Technical Corrections and Improvements to Topic 606, Revenue from Contracts with
Customers. The new revenue standard may be applied retrospectively to each prior period presented " full retrospective modified retrospective In January 2016, FASB
issued Accounting Standards Update 2016-01, Recognition and Measurement of
Financial Assets and Financial Liabilities (Subtopic 825-10) (ASU 2016-01).
The new standard provides guidance for the recognition, measurement,
presentation and disclosure of financial instruments. This guidance is effective
for annual and interim periods beginning after December 15, 2017 and early
adoption is not permitted. The Company is currently evaluating the impact of the
adoption of ASU 2016-01 on its consolidated financial statements. In February 2016, FASB
issued Accounting Standards Update No. 2016-02, Leases (ASU 2016-02). The
new guidance generally requires an entity to recognize on its balance sheet
operating and financing lease liabilities and corresponding right-of-use assets.
The standard will be effective for the first interim period within annual
reporting periods beginning after December 15, 2018 and early adoption is
permitted. The new standard requires a modified retrospective transition for
existing leases to each prior reporting period presented. The Company is
currently evaluating the impact of the adoption of ASU 2016-02 on its
consolidated financial statements. In August 2016, FASB issued
Accounting Standards Update No. 2016-15, Statement of Cash Flows (Subtopic
230) (ASU 2016-15). The new guidance provides clarity around the cash flow
classification for specific issues in an effort to reduce the current and
potential future diversity in practice. The standard will be effective for the
first interim period within annual reporting periods beginning after December
15, 2017 and early adoption is permitted. The Company is currently evaluating
the impact of the adoption of ASU 2016-15 on its consolidated financial
statements. In November 2016, FASB
issued Accounting Standards Update No. 2016-18, Statement of Cash Flows
(Subtopic 230) (ASU 2016-18). The new guidance requires that the statement of
cash flows explain the change during the period in the total of cash, cash
equivalents, and amounts generally described as restricted cash or restricted
cash equivalents. The standard will be effective for the first interim period
within annual reporting periods beginning after December 15, 2017 and early
adoption is permitted. The Company is currently evaluating the impact of the
adoption of ASU 2016-18 on its consolidated financial statements. |
