Common Stock and Stockholders' Equity | 9 Months Ended |
Sep. 30, 2014 |
Stockholders Equity Note [Abstract] | ' |
Common Stock and Stockholders' Equity | ' |
Note 9. Common Stock and Stockholders’ Equity |
Common Stock |
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. As of September 30, 2014, no dividends have been declared. |
Restricted Common Stock |
The Company has granted restricted common stock to certain key continuing employees in connection with the 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 two to four years from the issuance date, and the Company has the option to repurchase the unvested shares upon termination of employment. The fair value of the restricted common stock issued to employees 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 nine months ended September 30, 2014 are summarized as follows (in thousands, except per share data): |
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| | | | | | Weighted-Average | | | | | | | | | | |
| | Number of | | | Grant-Date Fair | | | | | | | | | | |
| | Shares | | | Value Per Share | | | | | | | | | | |
Unvested restricted common stock at December 31, 2013 | | | 6,866 | | | $ | 17.6 | | | | | | | | | | |
Granted | | | 2,467 | | | $ | 33.8 | | | | | | | | | | |
Vested | | | (2,256 | ) | | $ | 17.18 | | | | | | | | | | |
Canceled | | | (98 | ) | | $ | 13.46 | | | | | | | | | | |
Unvested restricted common stock at September 30, 2014 | | | 6,979 | | | $ | 23.52 | | | | | | | | | | |
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During the three months ended September 30, 2014 and 2013, the Company recorded $14.2 million and $7.8 million, respectively, and recorded $38.2 million and $20.3 million during the nine months ended September 30, 2014 and 2013, respectively, of compensation expense related to restricted common stock issued to employees. As of September 30, 2014, there was $114.7 million of unamortized stock-based compensation expense related to restricted common stock issued which is expected to be recognized over a weighted-average period of 2.50 years. To the extent the actual forfeiture rate is different from the Company’s estimate, stock-based compensation expense related to these stock awards will be different. |
Equity Incentive Plans |
As of September 30, 2014, the total number of RSUs and options outstanding under the 2013 Equity Incentive Plan was 26.2 million shares, and 79.3 million shares were available for future issuance. There were 68.2 million shares underlying options and RSUs outstanding under the 2007 Equity Incentive Plan as of September 30, 2014. No additional equity awards will be issued under the 2007 Equity Incentive Plan. |
Under the 2007 Equity Incentive Plan, RSUs granted to domestic and international employees prior to February 2013 (“Pre-2013 RSUs”) vest upon the satisfaction of both a service condition and a performance condition. The service condition for these awards is generally satisfied over four years. The performance condition was satisfied in February 2014 pursuant to the terms of the 2007 Equity Incentive Plan. An aggregate of 17.1 million shares of common stock were issued as a result of vesting and settlement of the Pre-2013 RSUs in the first quarter of 2014. During the same period, the Company's employees who are not executive officers were allowed to sell a portion of vested and settled Pre-2013 RSUs in the public market to satisfy the income tax obligations related to the vesting and settlement of such awards. The proceeds from selling the shares required to satisfy the employees' minimum statutory tax obligation were withheld and remitted to the appropriate tax authorities. RSUs granted to domestic employees starting in February 2013 (“Post-2013 RSUs”) are not subject to a performance condition in order to vest. The majority of Post-2013 RSUs vest over a service period of four years. Under the terms of the 2007 Equity Incentive Plan and the 2013 Equity Incentive Plan, the shares underlying Post-2013 RSUs that satisfy the service condition are to be delivered to holders no later than the fifteenth day of the third month following the end of the calendar year the service condition is satisfied, or if later, the end of the Company’s tax year. |
In addition, the Company undertook a net settlement of vested Pre-2013 RSUs held by the executive officers upon satisfaction of the performance condition in 2014 and withheld shares and remitted income tax of $16.2 million in cash on behalf of the applicable executive officers at the applicable minimum statutory rates in the nine months ended September 30, 2014. These shares withheld by the Company as a result of the net settlement of Pre-2013 RSUs are no longer considered issued and outstanding. |
Employee Stock Purchase Plan |
On May 15, 2014, the first purchase under the ESPP was made and employees purchased an aggregate of 1.0 million shares at a price of $22.10 per share. As of September 30, 2014, 16.7 million shares were available for future issuance under the ESPP. During the three and nine months ended September 30, 2014, the Company recorded $9.1 million and $25.8 million, respectively, of stock-based compensation expense related to the ESPP. |
Stock Option Activity |
A summary of stock option activity for the nine months ended September 30, 2014 is as follows (in thousands, except years and per share data): |
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| | 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, 2013 | | | 42,246 | | | $ | 1.89 | | | | 6.47 | | | $ | 2,609,295 | | |
Options granted | | | 500 | | | $ | 42.05 | | | | | | | | | | |
Options assumed in connection with acquisitions | | | 819 | | | $ | 1.6 | | | | | | | | | | |
Options exercised | | | (20,652 | ) | | $ | 1.22 | | | | | | | | | | |
Options canceled | | | (586 | ) | | $ | 8.24 | | | | | | | | | | |
Outstanding at September 30, 2014 | | | 22,327 | | | $ | 3.23 | | | | 6.1 | | | $ | 1,079,592 | | |
Vested and expected to vest at | | | 21,885 | | | $ | 3.1 | | | | 6.07 | | | $ | 1,061,031 | | |
September 30, 2014 (1) | |
Exercisable at September 30, 2014 | | | 17,638 | | | $ | 1.54 | | | | 5.68 | | | $ | 882,557 | | |
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-1 | The expected to vest options are the result of applying pre-vesting forfeiture rate assumptions to unvested options outstanding. | | | | | | | | | | | | | | | | |
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 value of stock options exercised during the three months ended September 30, 2014 and 2013 were $265.2 million and $24.0 million, respectively and $802.3 million and $95.3 million in the nine months ended September 30, 2014 and 2013, respectively. The total grant date fair value of stock options vested during the three months ended September 30, 2014 and 2013 were $4.8 million and $4.4 million, respectively, and $10.7 million and $8.7 million in the nine months ended September 30, 2014 and 2013, respectively. |
RSU Activity |
The following table summarizes the activity related to the Company’s Pre- and Post-2013 RSUs for the nine months ended September 30, 2014. 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): |
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| | RSUs Outstanding | | | | | | | | | | |
| | | | | | Weighted- | | | | | | | | | | |
| | | | | | Average Grant- | | | | | | | | | | |
| | | | | | Date Fair Value | | | | | | | | | | |
| | Shares | | | Per Share | | | | | | | | | | |
Unvested and outstanding at December 31, 2013 | | | 79,876 | | | $ | 19.54 | | | | | | | | | | |
Granted | | | 22,718 | | | $ | 49.12 | | | | | | | | | | |
Vested | | | (19,403 | ) | | $ | 19.38 | | | | | | | | | | |
Canceled | | | (9,077 | ) | | $ | 17.07 | | | | | | | | | | |
Unvested and outstanding at September 30, 2014 | | | 74,114 | | | $ | 28.56 | | | | | | | | | | |
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The fair value as of the respective vesting dates of RSUs that vested during the three and nine months ended September 30, 2014 was $469.8 million and $940.4 million, respectively and $65.2 million and $155.4 million, respectively during the three and nine months ended September 30, 2013. |
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Stock-Based Compensation Expense |
Total stock-based compensation expense recorded for employee and non-employee stock options, RSUs, shares issued under the ESPP, restricted common stock and Class A junior preferred stock in the three and nine months ended September 30, 2014 and 2013 is summarized as follows (in thousands): |
|
| | Three Months Ended September 30, | | | Nine Months Ended September 30, | | |
| | 2014 | | | 2013 | | | 2014 | | | 2013 | | |
Employee | | $ | 167,249 | | | $ | 43,320 | | | $ | 447,698 | | | $ | 77,735 | | |
Non-employee | | | 2,353 | | | | 282 | | | | 6,684 | | | | 1,435 | | |
Total | | $ | 169,602 | | | $ | 43,602 | | | $ | 454,382 | | | $ | 79,170 | | |
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Stock-based compensation expense is allocated based on the cost center to which the award holder belongs. Total stock-based compensation expense by function is as follows (in thousands): |
|
| | Three Months Ended September 30, | | | Nine Months Ended September 30, | | |
| | 2014 | | | 2013 | | | 2014 | | | 2013 | | |
Cost of revenue | | $ | 13,596 | | | $ | 3,060 | | | $ | 37,296 | | | $ | 5,015 | | |
Research and development | | | 93,973 | | | | 29,180 | | | | 264,784 | | | | 53,377 | | |
Sales and marketing | | | 42,884 | | | | 5,742 | | | | 108,232 | | | | 10,356 | | |
General and administrative | | | 19,149 | | | | 5,620 | | | | 44,070 | | | | 10,422 | | |
Total | | $ | 169,602 | | | $ | 43,602 | | | $ | 454,382 | | | $ | 79,170 | | |
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The Company capitalized $10.9 million and $3.4 million of stock-based compensation expense associated with the cost for developing software for internal use in the three months ended September 30, 2014 and 2013, respectively, and $26.4 million and $6.7 million in the nine months ended September 30, 2014 and 2013, respectively. |
The weighted-average grant-date fair value of stock options granted to employees, including stock assumed in connection with acquisitions, in the three months ended September 30, 2014 was $26.10 per share, and in the nine months ended September 30, 2014 and 2013 were $30.12 and $11.13 per share, respectively. The Company did not grant additional options to employees during the three months ended September 30, 2013. The fair value of stock options granted to employees and options assumed in connection with acquisitions was determined using the Black-Scholes option pricing model with the following weighted-average assumptions: |
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| | Three Months Ended September 30, | | Nine Months Ended September 30, | | | | |
| | 2014 | | | 2013 | | 2014 | | | 2013 | | | | |
Expected dividend yield | | | — | | | N/A | | | — | | | | — | | | | |
Risk-free interest rate | | | 1.86 | % | | N/A | | | 1.47 | % | | | 1.07 | % | | | |
Expected volatility | | | 43.7 | % | | N/A | | | 42.54 | % | | | 53.77 | % | | | |
Expected term (in years) | | | 5.85 | | | N/A | | | 4.73 | | | | 5.63 | | | | |
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As of September 30, 2014, there was $39.7 million of unamortized stock-based compensation expense related to unvested stock options granted to employees and non-employee service providers which is expected to be recognized over a weighted-average period of 2.29 years. As of September 30, 2014, the unamortized stock-based compensation expense related to Pre- and Post-2013 RSUs of $69.0 million and $1.42 billion, respectively, is expected to be recognized over a weighted-average period of 1.99 years and 3.12 years, respectively. $5.8 million of unamortized stock-based compensation expense related to the ESPP is expected to be recognized over a period of 0.23 years. To the extent the actual forfeiture rate is different from the Company’s estimate, stock-based compensation expense related to these stock awards will be different. |