FAIR VALUE MEASUREMENTS

Fair value is defined under U.S. GAAP as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. As such, fair value is a market-based measurement that is determined based on assumptions that market participants would use in pricing an asset or a liability.

To increase the comparability of fair value measures, the following hierarchy prioritizes the inputs in valuation methodologies used to measure fair value:

Level 1 - Measurements that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.

Level 2 - Measurements that include other inputs that are directly or indirectly observable in the marketplace.

Level 3 - Measurements derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable. These fair value measurements require significant judgment.

In determining fair value, the Company uses various valuation approaches within the fair value measurement framework. The valuation methodologies used for the Company's assets and liabilities measured at fair value and their classification in the valuation hierarchy are summarized below:

Cash equivalents - Cash equivalents primarily consist of AAA-rated money market funds with overnight liquidity and no stated maturities. The Company classified cash equivalents as Level 1 due to the short-term nature of these instruments and measured the fair value based on quoted prices in active markets for identical assets.

Available-for-sale securities - The Company has investments in redeemable preferred shares and convertible debt securities issued by nonpublic entities. The Company measures the fair value of available-for-sale securities using the discounted cash flow method, which is an income approach, and the probability-weighted expected return method, which is an income approach that incorporates probability-weighted outcomes.

The Company has classified its investments in available-for-sale securities as Level 3 due to the lack of observable market data over fair value inputs such as cash flow projections, discount rates and probability-weightings. Increases in projected cash flows and decreases in discount rates contribute to increases in the estimated fair values of available-for-sale securities, whereas decreases in projected cash flows and increases in discount rates contribute to decreases in their fair values. Additionally, increases in the probabilities of favorable investment outcomes, such as a sale or initial public offering of the investee, and decreases in the probabilities of unfavorable outcomes, such as a default by the investee, contribute to increases in the estimated fair value of available-for-sale securities, whereas decreases in the probabilities of favorable investment outcomes and increases in the probabilities of unfavorable investment outcomes contribute to decreases in their fair values.

Contingent consideration - The Company has contingent obligations to transfer cash or shares to the former owners of acquired businesses if specified financial results are met over future reporting periods (i.e. earn-outs). The Company also has a contingent obligation to transfer up to $1.1 million of cash or shares to the former owners of an acquired business if the Company's share price is less than $6.48 per share on June 8, 2015. Liabilities for contingent consideration are measured at fair value each reporting period, with the acquisition-date fair value included as part of the consideration transferred and subsequent changes in fair value are recorded in earnings within "Acquisition-related expense (benefit), net" on the consolidated statements of operations.

The Company uses an income approach to value contingent consideration obligations based on future financial performance, which is determined based on the present value of probability-weighted future cash flows. The Company has generally classified the contingent consideration liabilities as Level 3 due to the lack of relevant observable market data over fair value inputs such as probability-weighting of payment outcomes. Increases in the assessed likelihood of a higher payout under a contingent consideration arrangement contribute to increases in the fair value of the related liability. Conversely, decreases in the assessed likelihood of a higher payout under a contingent consideration arrangement contribute to decreases in the fair value of the related liability. The Company uses a Black-Scholes-Merton option pricing model to value the contingent consideration obligation that is payable upon declines in the Company's share price. Increases in volatility and decreases in the Company's share price contribute to the increases in the fair value of that contingent consideration liability. Conversely, decreases in volatility and increases in the Company's share price contribute to decreases in the fair value of the contingent consideration liability. Changes in assumptions could have an impact on the payout of contingent consideration arrangements with a maximum payout of $8.4 million.

The following tables summarize the Company's assets and liabilities that are measured at fair value on a recurring basis (in thousands):



			Fair Value Measurement at Reporting Date Using
Description	December 31, 2014		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Cash equivalents	$	440,596	$	440,596	$	—	$	—
Available-for-sale securities:
Convertible debt securities	2,527		—		—		2,527
Redeemable preferred shares	4,910		—		—		4,910

Liabilities:
Contingent consideration	1,983		—		—		1,983



			Fair Value Measurement at Reporting Date Using
Description	December 31, 2013		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Cash equivalents	$	585,514	$	585,514	$	—	$	—
Available-for-sale securities:
Convertible debt securities	3,174		—		—		3,174
Redeemable preferred shares	—		—		—		—

Liabilities:
Contingent consideration	606		—		—		606

The following table provides a roll-forward of the fair value of recurring Level 3 fair value measurements for the years ended December 31, 2014, 2013 and 2012 (in thousands):



	Year Ended December 31,
	2014			2013			2012
Assets
Available-for-sale securities
Convertible debt securities:
Beginning Balance	$	3,174		$	3,087		$	—
Purchases of convertible debt securities	—			370			3,000
Total gains (losses) included in other comprehensive income	693			(283		)	87
Total gains (losses) included in other expense, net	(1,340		)	—			—
Ending Balance	$	2,527		$	3,174		$	3,087
Unrealized (losses) gains still held⁽¹⁾	$	(647	)	$	(283	)	$	87
Redeemable preferred shares:
Beginning Balance	$	—		$	42,539		$	—
Acquisitions of preferred shares in exchange transactions (See note 6)	—			34,982			56,940
Purchase of redeemable preferred shares	4,599			8,000			—
Total gains included in other comprehensive income	311			—			—
Other-than-temporary impairments included in earnings	—			(85,521		)	(14,401		)
Ending Balance	$	4,910		$	—		$	42,539
Unrealized (losses) gains still held⁽¹⁾	$	311		$	(85,521	)	$	(14,401	)

Liabilities
Contingent Consideration:
Beginning Balance	$	606		$	7,601		$	11,230
Issuance of contingent consideration in connection with acquisitions	4,388			3,567			3,400
Settlements of contingent consideration liabilities	(424		)	(4,377		)	(4,936		)
Reclass to non-fair value liabilities when no longer contingent	(143		)	(3,014		)	(4,978		)
Total (gains) losses included in earnings⁽²⁾	(2,444		)	(3,171		)	897
Reclass of contingent consideration from Level 2 to Level 3	—			—			1,988
Ending Balance	$	1,983		$	606		$	7,601
Unrealized (gains) losses still held⁽¹⁾	$	(2,405	)	$	360		$	211


(1)	Represents the unrealized losses or gains recorded in earnings and/or other comprehensive income (loss) during the period for assets and liabilities classified as Level 3 that are still held (or outstanding) at the end of the period.


(2)	Changes in the fair value of contingent consideration liabilities are classified within "Acquisition-related expense (benefit), net" on the consolidated statements of operations.

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

Certain assets and liabilities are measured at fair value on a nonrecurring basis, including assets that are written down to fair value as a result of an impairment. The Company did not record any significant nonrecurring fair value measurements after initial recognition for the years ended December 31, 2014 and 2013. The following table summarizes the Company's assets that were measured at fair value on a nonrecurring basis as of December 31, 2012 (in thousands):



			Fair Value Measurement at Reporting Date Using
Description	December 31, 2012		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Asset impairments:
Cost method investment in Life Media Limited (F-tuan) common shares	$	34,982	$	—	$	—	$	34,982
Equity method investment	$	495	$	—	$	—	$	495

Estimated Fair Value of Financial Assets and Liabilities Not Measured at Fair Value

The following table presents the carrying amounts and fair values of financial instruments that are not carried at fair value in the consolidated financial statements (in thousands):



	December 31, 2014				December 31, 2013
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Cost method investments	$	15,630	$	16,134	$	15,788	$	15,573

The fair values of the Company's cost method investments were determined using the market approach or the income approach, depending on the availability of fair value inputs such as financial projections for the investees and market multiples for comparable companies. The Company has classified the fair value measurements of its cost method investments as Level 3 measurements within the fair value hierarchy because they involve significant unobservable inputs such as cash flow projections and discount rates.

The Company's other financial instruments not carried at fair value consist primarily of short term certificates of deposit, accounts receivable, restricted cash, accounts payable, accrued merchant and supplier payables and accrued expenses. The carrying values of these assets and liabilities approximate their respective fair values as of December 31, 2014 and 2013 due to their short term nature.