STOCKHOLDERS' EQUITY

9 Months Ended

Sep. 30, 2021

Share-based Payment Arrangement [Abstract]

STOCKHOLDERS’ EQUITY

Common Stock

The Company has two classes of authorized common stock outstanding; Class A common stock and Class B common stock. Class A common stock and Class B common stock are referred to as "common stock" throughout these Notes to the Condensed Consolidated Financial Statements, unless otherwise noted. Holders of shares of Class A common stock are entitled to one vote per share, while holders of shares of Class B common stock are entitled to ten votes per share. Shares of the Company's Class B common stock are convertible into an equivalent number of shares of its Class A common stock and generally convert into shares of its Class A common stock upon transfer. The holders of Class A common stock and Class B common stock have no preemptive or other subscription rights and there are no redemption or sinking fund provisions with respect to such shares. As of September 30, 2021, the Company was authorized to issue 1,000,000,000 shares of Class A common stock and 500,000,000 shares of Class B common stock, each with a par value of $0.0000001 per share. As of September 30, 2021, there were 398,878,883 shares of Class A common stock and 62,100,770 shares of Class B common stock outstanding. Options and awards granted following the Company's initial public offering are related to underlying Class A common stock.

Warrants

In conjunction with the 2022 Convertible Notes offering, the Company sold the 2022 warrants whereby the counterparties have the option to purchase a total of approximately 19.2 million shares of the Company’s Class A common stock at a price of $31.18 per share, and expire on June 1, 2022. None of the warrants were exercised as of September 30, 2021.

In conjunction with the 2023 Convertible Notes offering, the Company sold the 2023 warrants whereby the counterparties have the option to purchase a total of approximately 11.1 million shares of the Company’s Class A common stock at a price of $109.26 per share, and expire on August 15, 2023. None of the warrants were exercised as of September 30, 2021.

In conjunction with the 2025 Convertible Notes offering, the Company sold the 2025 warrants whereby the counterparties have the option to purchase a total of approximately 8.3 million shares of the Company’s Class A common stock at a price of $161.34 per share, and expire on June 1, 2025. None of the warrants were exercised as of September 30, 2021.

In conjunction with the 2026 Convertible Notes offering, the Company sold the 2026 warrants whereby the counterparties have the option to purchase a total of approximately 1.9 million shares of the Company’s Class A common stock at a price of $368.16 per share, and expire on August 1, 2026. None of the warrants were exercised as of September 30, 2021.

In conjunction with the 2027 Convertible Notes offering, the Company sold the 2027 warrants whereby the counterparties have the option to purchase a total of approximately 1.9 million shares of the Company’s Class A common stock at a price of $414.18 per share, and expire on February 1, 2028. None of the warrants were exercised as of September 30, 2021.

Conversion of Convertible Notes and Exercise of Convertible Note Hedges

In connection with the conversion of the 2022 Convertible Notes, the Company issued 16.3 million shares of Class A common stock, of which 0.2 million shares were issued in the nine months ended September 30, 2021. The Company also exercised a pro-rata portion of the 2022 convertible note hedges and received 14.9 million shares of Class A common stock from the 2017 Counterparties to offset the shares issued, of which 5.5 million shares were received in the nine months ended September 30, 2021.

In connection with the conversion of the 2023 Convertible Notes, the Company issued 2.8 million shares of Class A common stock in the nine months ended September 30, 2021. The Company also exercised a pro-rata portion of the 2023 convertible note hedges and received 1.3 million shares of Class A common stock from the 2018 Counterparties to offset the shares issued as of September 30, 2021.

Stock Plans

The Company maintains two share-based employee compensation plans: the 2009 Stock Plan (2009 Plan) and the 2015 Equity Incentive Plan (2015 Plan). The 2015 Plan serves as the successor to the 2009 Plan. The 2015 Plan became effective as of November 17, 2015. Outstanding awards under the 2009 Plan continue to be subject to the terms and conditions of the 2009 Plan. Since November 17, 2015, no additional awards have been nor will be granted in the future under the 2009 Plan.

Under the 2015 Plan, shares of the Company's Class A common stock are reserved for the issuance of incentive and nonstatutory stock options (ISOs and NSOs, respectively), restricted stock awards (RSAs), restricted stock units (RSUs), performance shares, and stock bonuses to qualified employees, directors, and consultants. The awards must be granted at a price per share not less than the fair market value at the date of grant. Initially, 30,000,000 shares were reserved under the 2015 Plan and any shares subject to options or other similar awards granted under the 2009 Plan that expire, are forfeited, are repurchased by the Company or otherwise terminate unexercised, will become available under the 2015 Plan. The number of shares available for issuance under the 2015 Plan has been and will be increased on the first day of each fiscal year, in an amount equal to the least of (i) 40,000,000 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 administrator of the Plan. The administrator consists of the Board of Directors who then delegates the responsibilities to the Compensation Committee. As of September 30, 2021, the total number of shares subject to stock options, RSAs and RSUs outstanding under the 2015 Plan was 16,570,814, and 118,883,836 shares were available for future issuance. As of September 30, 2021, the total number of shares subject to stock options, RSAs and RSUs outstanding under the 2009 Plan was 6,797,068.

A summary of stock option activity for the nine months ended September 30, 2021 is as follows (in thousands, except share and per share data):


	Number of Stock Options Outstanding	Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value
Balance at December 31, 2020	13,630,882	$	17.84	3.84	$	2,723,394
Granted	198,771	255.22
Exercised	(4,417,087)	11.64
Forfeited	(2,895)	71.99
Balance at September 30, 2021	9,409,671	$	25.75	4.19	$	2,017,556

Options exercisable as of September 30, 2021	8,099,979	$	15.57	3.52	$	1,816,899

Restricted Stock Activity

Activity related to RSAs and RSUs during the nine months ended September 30, 2021 is set forth below:


	Number of shares	Weighted Average Grant Date Fair Value
Unvested as of December 31, 2020	15,622,645	$	71.71
Granted	4,256,680	246.06
Vested	(5,179,004)	68.22
Forfeited	(742,110)	101.77
Unvested as of September 30, 2021	13,958,211	$	124.57

Share-Based Compensation

The fair value of stock options and employee stock purchase plan rights are estimated on the date of grant using the Black-Scholes-Merton option valuation model. The fair value of RSAs and RSUs is determined by the closing price of the Company’s common stock on each grant date.

The following table summarizes the effects of share-based compensation on the Company's condensed consolidated statements of operations (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Cost of revenue	$	99	$	100	$	310	$	271
Product development	121,209		78,682		314,265		205,647
Sales and marketing	16,023		12,063		40,680		27,354
General and administrative	27,680		19,544		74,744		50,600
Total	$	165,011	$	110,389	$	429,999	$	283,872

The Company recorded $7.6 million and $24.4 million of share-based compensation expense related to the Company's 2015 Employee Stock Purchase Plan during the three and nine months ended September 30, 2021, respectively, compared to $3.3 million and $12.1 million during the three and nine months ended September 30, 2020, respectively, which are included in the table above.

The Company capitalized $3.6 million and $11.0 million of share-based compensation expense related to capitalized software costs during the three and nine months ended September 30, 2021 and 2020, respectively, compared to $3.8 million and $9.5 million during the three and nine months ended September 30, 2020, respectively.

As of September 30, 2021, there was $1.7 billion of total unrecognized compensation cost related to outstanding stock options and restricted stock awards that are expected to be recognized over a weighted-average period of 2.94 years.