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Stock Based Awards and Other Equity Instruments | 9 Months Ended
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Sep. 30, 2022
Share-Based Payment Arrangement [Abstract] |
Stock Based Awards and Other Equity Instruments | NOTE 11: 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 unaudited condensed consolidated statements of operations during the periods presented:
|  | Three months ended |  |  | Nine months ended |
|  | September 30, |  |  | September 30, |
|  | 2022 |  |  | 2021 |  |  | 2022 |  |  | 2021 |
|  | (in millions) |  |  | (in millions) |
Cost of revenue |  | $ | — |  |  | $ | — |  |  | $ | 1 |  |  | $ | 1 |
Selling and marketing |  |  | 3 |  |  |  | 4 |  |  |  | 9 |  |  |  | 13 |
Technology and content |  |  | 9 |  |  |  | 12 |  |  |  | 27 |  |  |  | 35 |
General and administrative |  |  | 10 |  |  |  | 13 |  |  |  | 28 |  |  |  | 40 |
Total stock-based compensation expense |  |  | 22 |  |  |  | 29 |  |  |  | 65 |  |  |  | 89 |
Income tax benefit from stock-based compensation |  |  | (4 | ) |  |  | (6 | ) |  |  | (14 | ) |  |  | (18 | )
Total stock-based compensation expense, net of tax |  | $ | 18 |  |  | $ | 23 |  |  | $ | 51 |  |  | $ | 71 |
We capitaliz ed $2 million and $7 milli on o f stock-based compensation expense as website development costs during the three and nine months ended September 30, 2022, respectively, and $3 million and $10 million during the three and nine months ended September 30, 2021, respectively. Stock-Based Award Activity and Valuation 2022 Stock Option Activity A summary of our stock option activity, consisting 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 at December 31, 2021 |  |  | 5,671 |  |  | $ | 47.03 |  |  |  |  |  |  |
Granted (1) |  |  | 647 |  |  |  | 19.14 |  |  |  |  |  |  |
Exercised (2) |  |  | (13 | ) |  |  | 24.94 |  |  |  |  |  |  |
Cancelled or expired |  |  | (956 | ) |  |  | 44.36 |  |  |  |  |  |  |
Options outstanding at September 30, 2022 |  |  | 5,349 |  |  | $ | 44.19 |  |  |  | 5.4 |  |  | $ | 2 |
Exercisable as of September 30, 2022 |  |  | 3,893 |  |  | $ | 49.28 |  |  |  | 4.0 |  |  | $ | — |
Vested and expected to vest after September 30, 2022 (3) |  |  | 5,203 |  |  | $ | 44.66 |  |  |  | 5.2 |  |  | $ | 2 |
(1) Inclusive of approximately 516,000 stock options awarded to Matt Goldberg, our CEO, during July 2022. The estimated grant-date fair value per option, using a Black-Scholes option pricing model was $9.23. These stock options shall vest over four years, with 25% vesting on July 1, 2023 and 6.25% of the remaining award vesting in equal quarterly installments commencing thereafter, subject to the CEO’s continuous employment with 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 July 1, 2026. (2) Inclusive of approximate ly 10,000 stoc k options 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 Stock and Annual Incentive Plan (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 September 30, 2022 was $22.08. The total intrinsic value of stock options exercised for the nine months ended September 30, 2022 was not material, and for the nine months ended September 30, 2021 was $8 million. 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:
|  | Nine months ended |
|  | September 30, |
|  | 2022 |  |  | 2021 |
Risk free interest rate |  |  | 2.79 | % |  |  | 0.67 | %
Expected term (in years) |  |  | 5.51 |  |  |  | 5.32 |
Expected volatility |  |  | 51.48 | % |  |  | 49.69 | %
Expected dividend yield |  | — % |  |  | — % |
Weighted-average grant date fair value |  | $ | 9.47 |  |  | $ | 20.24 |
Our stock options generally have a term of ten years from the date of grant and typically vest equally over a four-year requisite service period. We amortize the grant-date fair value of our stock option grants as stock-based compensation expense over the vesting term on a straight-line basis, with the amount of compensation expense recognized at any date at least equaling the portion of the grant-date fair value of the award that is vested at that date. The total fair value of stock options veste d was $15 million and $19 million for the nine months ended September 30, 2022 and 2021, respectively. 2022 RSU Activity A summary of our restricted stock units (“RSUs”) activity, consisting primarily of service-based vesting terms, 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, 2021 |  |  | 5,786 |  |  | $ | 36.82 |  |  |  |
Granted (1) |  |  | 6,412 |  |  |  | 25.75 |  |  |  |
Vested and released (2) |  |  | (2,668 | ) |  |  | 36.12 |  |  |  |
Cancelled |  |  | (1,020 | ) |  |  | 33.42 |  |  |  |
Unvested RSUs outstanding as of September 30, 2022 (3) |  |  | 8,510 |  |  | $ | 29.11 |  |  | $ | 188 |
(1) Inclusive of approximately 258,000 RSUs awarded to our CEO during July 2022. The estimated grant-date fair value per RSU, based on the quoted price of our common stock on the date of grant, was $18.47. This service-based RSU award shall vest over four years, with 25% vesting on July 1, 2023 and 6.25% of the remaining award vesting in equal quarterly installments commencing thereafter, subject to the CEO’s continuous employment with 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 July 1, 2026. (2) Inclusive of approximate ly 706,000 RSU s 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. (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. We amortize the grant-date fair value of RSUs as stock-based compensation expense over the vesting term, which is typically over a four-year requisite service period on a straight-line basis, with the amount of compensation expense recognized at any date at least equaling the portion of the grant-date fair value of the award that is vested at that date. A summary of our market-based RSUs (“MSUs”) activity 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, 2021 |  |  | 120 |  |  | $ | 28.15 |  |  |  |
Granted (1) |  |  | 432 |  |  |  | 9.26 |  |  |  |
Cancelled |  |  | (35 | ) |  |  | 28.15 |  |  |  |
Unvested MSUs outstanding as of September 30, 2022 (2) |  |  | 517 |  |  | $ | 12.36 |  |  | $ | 11 |
(1) Inclusive of approximately 378,000 MSUs awarded to our CEO during July 2022. A Monte-Carlo simulation model, which simulated the present value of the potential outcomes of future stock prices was used to calculate the grant-date fair value of our MSU awards. These MSUs shall vest on July 1, 2025, with 25% vesting if our stock price is equal to or greater than $35.00 but less than $45.00, 50% if our stock price is equal to or greater than $45.00 but less than $55.00 and 100% if our stock price is equal to or greater than $55.00, 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 July 1, 2026. (2) A pproximately 85,000 outstanding MSUs provide for vesting based upon the Company’s total shareholder return, or TSR, performance over the period commencing January 1, 2020 through December 31, 2022 relative to the TSR performance of The Nasdaq Composite Total Return Index. Based upon actual attainment relative to the target performance metric, the grantees have the ability to receive up to 200% of the target number of MSUs originally granted, or to receive none at all. Total current income tax benefits associated with the exercise or settlement of Tripadvisor stock-based awards held by our employees was $4 million and $7 million d uring the three and nine months ended September 30, 2022, respectively, and $6 million and $20 million during the three and nine months ended September 30, 2021, respectively. Unrecognized Stock-Based Compensation A summary of our remaining unrecognized stock-based compensation expense and the weighted average remaining amortization period at September 30, 2022 related to our non-vested equity awards is presented below:
|  | Stock |  |  |  |
|  | Options |  |  | RSUs/MSUs |
Unrecognized compensation expense (in millions) |  | $ | 14 |  |  | $ | 208 |
Weighted average period remaining (in years) |  |  | 2.8 |  |  |  | 2.9 |

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