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. 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. 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.

Fair value option and available-for-sale securities investments. To determine the fair value of its fair value option investments each period, the Company first estimates the fair value of each entity in its entirety. The Company primarily uses the discounted cash flow method, which is an income approach, to estimate the fair value of the investees. The key inputs to determining fair values under that approach are cash flow forecasts and discount rates. As of March 31, 2018 and December 31, 2017, the Company applied discount rates of 21% and 22%, respectively, in its discounted cash flow valuations for Monster LP. The Company also uses a market approach valuation technique, which is based on market multiples of guideline companies, to determine the fair value of each entity. The discounted cash flow and market multiple valuations are then evaluated and weighted to determine the amount that is most representative of the fair value of each entity. Once the Company determines the fair value of each entity, it then determines the fair value of its specific investments in those entities. The entities have complex capital structures, so the Company applies an option-pricing model that considers the liquidation preferences of each investee’s respective classes of ownership interests to determine the fair value of the Company’s investment in each entity.

The Company also has investments in redeemable preferred shares and convertible debt securities issued by nonpublic entities. The Company measures the fair value of those available-for-sale securities using the discounted cash flow method.

The Company has classified its fair value option investments and 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 and discount rates. Increases in projected cash flows and decreases in discount rates contribute to increases in the estimated fair values of the fair value option investments and available-for-sale securities, whereas decreases in projected cash flows and increases in discount rates contribute to decreases in their fair values.

Contingent consideration. The Company had contingent obligations to transfer cash to the former owners of acquired businesses if specified financial results were met over future reporting periods (i.e., earn-outs). Liabilities for contingent consideration were 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 recorded in earnings within Selling, general and administrative expense on the condensed consolidated statements of operations.

The Company used an income approach to value contingent consideration obligations based on the present value of probability-weighted future cash flows. The Company 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.

The following tables summarize the Company's assets that are measured at fair value on a recurring basis as of March 31, 2018 and December 31, 2017 (in thousands):



			Fair Value Measurement at Reporting Date Using
	March 31, 2018		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Cash equivalents	$	93,325	$	93,325	$	—	$	—
Fair value option investments	77,933		—		—		77,933
Available-for-sale securities:
Convertible debt securities	11,070		—		—		11,070
Redeemable preferred shares	14,576		—		—		14,576



			Fair Value Measurement at Reporting Date Using
	December 31, 2017		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Cash equivalents	$	137,975	$	137,975	$	—	$	—
Fair value option investments	82,966		—		—		82,966
Available-for-sale securities:
Convertible debt securities	11,354		—		—		11,354
Redeemable preferred shares	15,431		—		—		15,431

The following table provides a roll-forward of the fair value of recurring Level 3 fair value measurements for the three months ended March 31, 2018 and 2017 (in thousands):



	Three Months Ended March 31,
	2018			2017
Assets
Fair value option investments:
Beginning Balance	$	82,966		$	82,584
Total gains (losses) included in earnings	(5,033		)	303
Ending Balance	$	77,933		$	82,887
Unrealized gains (losses) still held ⁽¹⁾	$	(5,033	)	$	303
Available-for-sale securities
Convertible debt securities:
Beginning Balance	$	11,354		$	10,038
Acquisition of convertible debt security	—			1,612
Total gains (losses) included in other comprehensive income (loss)	(501		)	42
Total gains (losses) included in earnings ⁽²⁾	217			239
Ending Balance	$	11,070		$	11,931
Unrealized gains (losses) still held ⁽¹⁾	$	(284	)	$	281
Redeemable preferred shares:
Beginning Balance	$	15,431		$	17,444
Total gains (losses) included in other comprehensive income (loss)	—			344
Impairment included in earnings	(855		)	—
Ending Balance	$	14,576		$	17,788
Unrealized (losses) gains still held ⁽¹⁾	$	(855	)	$	344

Liabilities
Contingent Consideration:
Beginning Balance	$	—		$	14,588
Total losses (gains) included in earnings ⁽³⁾	—			12
Ending Balance	$	—		$	14,600
Unrealized losses (gains) still held⁽¹⁾	$	—		$	12


(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)	Represents accretion of interest income and changes in the fair value of an embedded derivative.


(3)	Changes in the fair value of contingent consideration liabilities are classified within Selling, general and administrative expense 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 three months ended March 31, 2018 and 2017.

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

The following table presents the carrying amount and fair value of equity securities that were classified as cost method investments as of December 31, 2017 (in thousands):



	December 31, 2017
	Carrying Amount		Fair Value
Cost method investments ⁽¹⁾	$	25,438	$	32,792


(1)	See Note 2, Adoption of New Accounting Standards, and Note 5, Investments, for information about the Company's adoption of ASU 2016-01 on January 1, 2018 and its impact on accounting for equity investments without readily determinable fair values that were previously subject to the cost method of accounting.

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 classified the fair value measurements of its cost method investments as Level 3 measurements within the fair value hierarchy as of December 31, 2017 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 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 March 31, 2018 and December 31, 2017 due to their short-term nature.