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Stock Based Awards and Other Equity Instruments | 12 Months Ended
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Dec. 31, 2019
Disclosure Of Compensation Related Costs Sharebased Payments [Abstract] |
Stock Based Awards and Other Equity Instruments | NOTE 6: STOCK BASED AWARDS AND OTHER EQUITY INSTRUMENTS Stock-based Compensation Expense The following table presents the amount of stock-based compensation expense related to stock-based awards, primarily stock options and RSUs, on our consolidated statements of operations during the periods presented:
|  | Year ended December 31, |
|  | 2019 |  |  | 2018 |  |  | 2017 |
|  | (in millions) |
Cost of revenue |  | $ | 1 |  |  | $ | 1 |  |  | $ | — |
Selling and marketing |  |  | 23 |  |  |  | 21 |  |  |  | 21 |
Technology and content |  |  | 55 |  |  |  | 51 |  |  |  | 40 |
General and administrative |  |  | 45 |  |  |  | 45 |  |  |  | 35 |
Total stock-based compensation expense |  |  | 124 |  |  |  | 118 |  |  |  | 96 |
Income tax benefit from stock-based compensation expense |  |  | (28 | ) |  |  | (27 | ) |  |  | (28 | )
Total stock-based compensation expense, net of tax effect |  | $ | 96 |  |  | $ | 91 |  |  | $ | 68 |
We capitalized $19 million, $13 million and $13 million of stock-based compensation expense as internal-use software and website development costs during the years ended December 31, 2019, 2018 and 2017, respectively. Stock and Incentive Plans On December 20, 2011, our 2011 Stock and Annual Incentive Plan (the “2011 Plan”) became effective and we filed a to Registration Statement registering a total of 17,500,000 shares of our common stock, of which 17,400,000 shares were issuable in connection with grants of equity-based awards under our 2011 Plan and 100,000 shares were issuable under our Deferred Compensation Plan for Non-Employee Directors (refer to “Note 15: Employee Benefit Plans” for information on our Deferred Compensation Plan for Non-Employee Directors). At our annual meeting of stockholders held on June 28, 2013, our stockholders approved an amendment to our 2011 Plan to, among other things, increase the aggregate number of shares of common stock authorized for issuance thereunder by 15,000,000 shares. On June 21, 2018, our stockholders approved the 2018 Stock and Annual Incentive Plan (the “2018 Plan”) and we filed a Registration Statement registering 6,000,000 shares plus the number of shares available for issuance (and not subject to outstanding awards) under the 2011 Plan. As of the effective date of the 2018 Plan, no additional awards will be granted under the 2011 Plan. The 2018 Plan provides for the grant of stock options, stock appreciation rights, restricted stock, restricted stock units, and other stock-based awards to our directors, officers, employees and consultants. The summary of the material terms of the 2018 Plan is qualified in its entirety by the full text of the 2018 Plan previously filed. As of December 31, 2019, the total number of shares reserved for future stock-based awards under the 2018 Plan is approximately 10.1 million shares. All shares of common stock issued in respect of the exercise of options, RSUs, or other equity awards have been issued from authorized, but unissued common stock. Stock Based Award Activity and Valuation Stock Option Activity A summary of our stock option activity, consisting primarily of service-based non-qualified stock options, is presented below:
|  |  |  |  |  | Weighted |  |  | Weighted |  |  |  |  |
|  |  |  |  |  | Average |  |  | Average |  |  |  |  |
|  |  |  |  |  | Exercise |  |  | Remaining |  |  | Aggregate |
|  | Options |  |  | Price Per |  |  | Contractual |  |  | Intrinsic |
|  | Outstanding |  |  | Share |  |  | Life |  |  | Value |
|  | (in thousands) |  |  |  |  |  |  | (in years) |  |  | (in millions) |
Options outstanding as of December 31, 2016 |  |  | 5,818 |  |  | $ | 57.60 |  |  |  |  |  |  |  |  |
Granted (1) |  |  | 2,333 |  |  |  | 40.03 |  |  |  |  |  |  |  |  |
Exercised (2) |  |  | (496 | ) |  |  | 29.37 |  |  |  |  |  |  |  |  |
Cancelled or expired |  |  | (802 | ) |  |  | 65.13 |  |  |  |  |  |  |  |  |
Options outstanding as of December 31, 2017 |  |  | 6,853 |  |  |  | 52.78 |  |  |  |  |  |  |  |  |
Granted |  |  | 762 |  |  |  | 43.53 |  |  |  |  |  |  |  |  |
Exercised (2) |  |  | (1,162 | ) |  |  | 37.26 |  |  |  |  |  |  |  |  |
Cancelled or expired |  |  | (412 | ) |  |  | 61.46 |  |  |  |  |  |  |  |  |
Options outstanding as of December 31, 2018 |  |  | 6,041 |  |  |  | 54.00 |  |  |  |  |  |  |  |  |
Granted |  |  | 752 |  |  |  | 48.30 |  |  |  |  |  |  |  |  |
Exercised (2) |  |  | (195 | ) |  |  | 42.17 |  |  |  |  |  |  |  |  |
Cancelled or expired |  |  | (581 | ) |  |  | 56.97 |  |  |  |  |  |  |  |  |
Options outstanding as of December 31, 2019 |  |  | 6,017 |  |  | $ | 50.27 |  |  |  | 5.9 |  |  | $ | — |
Exercisable as of December 31, 2019 |  |  | 3,425 |  |  | $ | 57.27 |  |  |  | 4.2 |  |  | $ | — |
Vested and expected to vest after December 31, 2019 (3) |  |  | 6,017 |  |  | $ | 50.27 |  |  |  | 5.9 |  |  | $ | — |
(1) | Inclusive of 780,000 stock options awarded to our Chief Executive Officer and President, or CEO, during November 2017. The estimated grant-date fair value per option, using a Black-Scholes option pricing model was $17.33. These stock options shall vest in equal installments on each of August 1, 2021 and August 1, 2022, subject to the CEO’s continuous employment with, or performance of services for, the Company. The estimated grant-date fair value of this award will be amortized on a straight-line basis over the requisite service period through August 1, 2022.
(2) | Inclusive of 120,112, 814,635, and 294,410 stock options as of December 31, 2019, 2018 and 2017, respectively, which were not converted into shares due to net share settlement in order to cover the aggregate exercise price and the required amount of employee withholding taxes. Potential shares which had been convertible under stock options that were withheld under net share settlement remain in the authorized but unissued pool under the 2018 Plan and can be reissued by the Company. Total payments for the employees’ tax obligations to the taxing authorities due to net share settlements are reflected as a financing activity within the consolidated statements of cash flows.
(3) | The Company accounts for forfeitures as they occur, rather than estimate expected forfeitures as allowed under GAAP and therefore do not include a forfeiture rate in our vested and expected to vest calculation unless necessary for a performance condition award.
Aggregate intrinsic value represents the difference between the closing stock price of our common stock and the exercise price of outstanding, in-the-money options. Our closing stock price as reported on NASDAQ as of December 31, 2019 was $30.38. The total intrinsic value of stock options exercised for the years ended December 31, 2019, 2018 and 2017 were $2 million, $20 million, and $8 million, respectively. The fair value of stock option grants has been estimated at the date of grant using the Black–Scholes option pricing model with the following weighted average assumptions for the periods presented:
|  | December 31, |
|  | 2019 |  |  | 2018 |  |  | 2017 |
Risk free interest rate |  |  | 1.79 | % |  |  | 2.70 | % |  |  | 2.02 | %
Expected term (in years) |  |  | 5.19 |  |  |  | 5.45 |  |  |  | 6.13 |
Expected volatility |  |  | 42.09 | % |  |  | 41.86 | % |  |  | 42.14 | %
Expected dividend yield |  | — % |  |  | — % |  |  | — % |
Weighted-average grant date fair value |  | $ | 21.25 |  |  | $ | 18.11 |  |  | $ | 16.50 |
The total fair value of stock options vested for the years ended December 31, 2019, 2018 and 2017 were $15 million, $38 million, and $40 million, respectively. Cash received from stock option exercises for the years ended December 31, 2019, 2018 and 2017 were $2 million, $6 million, and $3 million, respectively. On June 5, 2017, the Section 16 Committee of our Board of Directors approved an amendment to the nonqualified stock option award (the “Option”) granted on August 28, 2013 to Stephen Kaufer, the Company’s CEO. The amendment provided that the Option will expire on the tenth anniversary, instead of the seventh anniversary, of the grant date. Vesting conditions under the Option were not affected by this amendment. As a result of the modification, incremental fair value of $5 million was recognized to stock-based compensation expense on a straight-line basis over the remaining vesting term, or through August 2018, in general and administrative expense on the consolidated statement of operations. RSU Activity A summary of our RSU activity is presented below:
|  |  |  |  |  | Weighted |  |  |  |  |
|  |  |  |  |  | Average |  |  |  |  |
|  |  |  |  |  | Grant- |  |  | Aggregate |
|  | RSUs |  |  | Date Fair |  |  | Intrinsic |
|  | Outstanding |  |  | Value Per Share |  |  | Value |
|  | (in thousands) |  |  |  |  |  |  | (in millions) |
Unvested RSUs outstanding as of December 31, 2016 |  |  | 2,856 |  |  | $ | 69.35 |  |  |  |  |
Granted (1)(2) |  |  | 4,829 |  |  |  | 41.58 |  |  |  |  |
Vested and released (3) |  |  | (1,030 | ) |  |  | 67.25 |  |  |  |  |
Cancelled |  |  | (853 | ) |  |  | 52.64 |  |  |  |  |
Unvested RSUs outstanding as of December 31, 2017 |  |  | 5,802 |  |  |  | 48.81 |  |  |  |  |
Granted |  |  | 3,302 |  |  |  | 43.04 |  |  |  |  |
Vested and released (3) |  |  | (1,617 | ) |  |  | 54.22 |  |  |  |  |
Cancelled |  |  | (847 | ) |  |  | 46.43 |  |  |  |  |
Unvested RSUs outstanding as of December 31, 2018 |  |  | 6,640 |  |  |  | 44.93 |  |  |  |  |
Granted (4) |  |  | 4,688 |  |  |  | 47.35 |  |  |  |  |
Vested and released (3) |  |  | (2,002 | ) |  |  | 48.11 |  |  |  |  |
Cancelled |  |  | (857 | ) |  |  | 47.19 |  |  |  |  |
Unvested RSUs outstanding as of December 31, 2019 (5) |  |  | 8,469 |  |  | $ | 45.42 |  |  | $ | 258 |
(1) | Inclusive of 426,000 service-based RSUs awarded to our CEO during November 2017. The service-based RSU award provides for vesting in two equal annual installments on each of August 1, 2021 and August 1, 2022, subject to the CEO’s continuous employment with, or performance of services for, the Company. The estimated grant-date fair value per RSU, based on the quoted price of our common stock on the date of grant, was $34.71. The estimated grant-date fair value of this award will be amortized on a straight-line basis over the requisite service period through August 1, 2022.
(2) | Excludes from the 2017 RSU grants, a performance-based RSU grant for 213,000 shares awarded to our CEO during November 2017. This award provides for vesting based on the extent to which the Company achieves
| certain financial and/or the CEO achieves certain strategic performance metrics relative to the targets to be established by the Company’s Compensation Committee. One quarter of these RSUs may vest and settle annually based on actual performance relative to the targets established annually for each of the four fiscal years ending December 31, 2018, December 31, 2019, December 31, 2020, and December 31, 2021, of which 60,582 RSUs vested and settled during the year ending December 31, 2019 related to the achievement of 2018 annual performance targets. The estimated grant-date fair value per RSU will be calculated upon the establishment of annual performance targets and each tranche will be amortized on a straight-line basis over its requisite service period. At any point in time during the vesting period, the award’s expense to date will at least equal the portion of the grant-date fair value that is expected to vest at that date. Based upon actual attainment relative to the target performance metrics, the CEO has the ability to receive up to 125% of the target number originally granted, or to be issued none at all.
(3) | Inclusive of 532,164, 424,848, and 301,932 RSUs as of December 31, 2019, 2018 and 2017, respectively, withheld due to net share settlement to satisfy required employee tax withholding requirements. Potential shares which had been convertible under RSUs that were withheld under net share settlement remain in the authorized but unissued pool under the 2018 Plan and can be reissued by the Company. Total payments for the employees’ tax obligations to the taxing authorities due to net share settlements are reflected as a financing activity within the consolidated statements of cash flows.
(4) | Inclusive of 843,426 dividend equivalents issued to employees holding non-vested RSU grant awards in conjunction with our special cash dividend declared on November 1, 2019, which will be payable to the holder subject to, and upon vesting of, the underlying awards.
(5) | The Company accounts for forfeitures as they occur, rather than estimate expected forfeitures as allowed under GAAP and therefore do not include a forfeiture rate in our vested and expected to vest calculation unless necessary for a performance condition award.
A summary of our RSU activity for MSUs is presented below:
|  |  |  |  |  | Weighted |  |  |  |  |
|  |  |  |  |  | Average |  |  |  |  |
|  |  |  |  |  | Grant- |  |  | Aggregate |
|  | MSUs |  |  | Date Fair |  |  | Intrinsic |
|  | Outstanding |  |  | Value Per Share |  |  | Value |
|  | (in thousands) |  |  |  |  |  |  | (in millions) |
Unvested MSUs outstanding as of December 31, 2017 (1) |  |  | 213 |  |  | $ | 30.04 |  |  |  |  |
Granted (2) |  |  | 71 |  |  |  | 59.40 |  |  |  |  |
Vested and released |  |  | — |  |  |  |  |  |  |  |  |
Cancelled |  |  | — |  |  |  |  |  |  |  |  |
Unvested MSUs outstanding as of December 31, 2018 |  |  | 284 |  |  |  | 37.41 |  |  |  |  |
Granted (3)(4) |  |  | 121 |  |  |  | 51.76 |  |  |  |  |
Vested and released |  |  | — |  |  |  | — |  |  |  |  |
Cancelled |  |  | (16 | ) |  |  | 58.63 |  |  |  |  |
Unvested MSUs outstanding as of December 31, 2019 |  |  | 389 |  |  | $ | 40.99 |  |  | $ | 12 |
(1) | Represents 213,000 market-based RSU or MSUs awarded to the Company’s CEO in November 2017. The MSU award provides for vesting based upon the Company’s total shareholder return, or TSR, performance over the period commencing January 1, 2018 through December 31, 2020 relative to the TSR performance of the Nasdaq Composite Total Return Index. Based upon actual attainment relative to the target performance metric, the CEO has the ability to receive up to 125% of the target number of MSUs originally granted, or to be issued none at all.
(2) | MSUs provide for vesting based upon the Company’s total shareholder return, or TSR, performance over the period commencing January 1, 2018 through December 31, 2020 relative to the TSR performance of the Nasdaq Composite Total Return Index. Based upon actual attainment relative to the target performance metric, the grantee has the ability to receive up to 200% of the target number of MSUs originally granted, or to be issued none at all. These MSUs were granted under the 2011 Plan.
(3) | Inclusive of 78,050 MSUs which provide for vesting based upon the Company’s total shareholder return, or TSR, performance over the period commencing January 1, 2019 through December 31, 2021 relative to the TSR performance of the Nasdaq Composite Total Return Index. Based upon actual attainment relative to the
| target performance metric, the grantee has the ability to receive up to 200% of the target number of MSUs originally granted, or to be issued none at all. These MSUs were granted under the 2018 Plan.
(4) | Inclusive of 42,477 dividend equivalents issued to employees holding non-vested MSU grant awards in conjunction with our special cash dividend declared on November 1, 2019, which will be payable to the holder subject to, and upon vesting of, the underlying awards.
A Monte-Carlo simulation model, which simulated the present value of the potential outcomes of future stock prices and TSR of the Company and the Nasdaq Composite Total Return Index over the performance period, was used to calculate the grant-date fair value of our MSU awards. The estimated grant-date fair value of these awards is being amortized on a straight-line basis over the requisite service period. Unrecognized Stock-Based Compensation A summary of our remaining unrecognized compensation expense and the weighted average remaining amortization period at December 31, 2019 related to our non-vested equity awards is presented below (in millions, except in years information):
|  | Stock |  |  |  |  |
|  | Options |  |  | RSUs/MSUs |
Unrecognized compensation expense |  | $ | 32 |  |  | $ | 248 |
Weighted average period remaining (in years) |  |  | 2.6 |  |  |  | 2.5 |

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