Stock-based compensation

Equity incentive plans

The Company has issued equity grants from its three stock-based employee compensation plans: the 2014 Equity Incentive Plan (2014 Plan), the 2010 Equity Incentive Plan (2010 Plan), and the Employee Stock Purchase Plan (ESPP).

The 2014 Plan serves as the successor to the 2010 Plan and provides for the granting of incentive and nonqualified stock options, restricted stock awards (RSAs), restricted stock units (RSUs), stock appreciation rights, stock bonus awards, and performance awards to employees, non-employee directors, and consultants. No shares have been issued under the 2010 Plan since June 2014. Options granted under the 2014 Plan generally expire within 10 years from the date of grant and generally vest over four years. Options with performance or market-based conditions are generally subject to a required service period along with the performance or market condition. RSUs granted under the 2014 Plan generally vest either annually or quarterly over three or four years based upon on continued service. The ESPP allows eligible employees to purchase shares of the Company's Class A common stock through payroll deductions at a price equal to 85% of the lower of the fair market values of the stock as of the beginning or the end of six-month offering periods. For additional information regarding the Company's equity incentive plans, please refer to the footnotes to the audited financial statements contained in its Annual Report on Form 10-K for the year ended December 31, 2014.

Stock option activity

A summary of the Company’s stock option activity and related information is as follows:



	Options outstanding
(shares in thousands)	Shares		Weighted- average exercise price		Weighted- average grant date fair value		Total intrinsic value of exercises (in thousands)		Aggregate intrinsic value (in thousands)
Outstanding at December 31, 2014:	25,134		$	6.62					$	1,425,339
Granted	420		45.56		$	22.47
Exercised	(4,143	)	1.44				$	203,784
Forfeited/Cancelled	(74	)	20.91
Outstanding at March 31, 2015:	21,337		$	8.34					$	756,135

Exercisable at March 31, 2015	14,678		$	2.68					$	597,831
Vested and expected to vest at March 31, 2015	20,966		$	8.08					$	748,068

At March 31, 2015, there was $66.3 million of unearned stock-based compensation expense related to unvested options, which is expected to be amortized over a weighted average period of 2.6 years.

Restricted stock awards

RSAs represent share awards of the Company’s common stock that are generally subject to repurchase at the original issuance price upon termination of services prior to vesting. These repurchase terms are considered to be a forfeiture provision and do not result in mark-to-market accounting each reporting period. At March 31, 2015, all RSAs were fully vested. A summary of the Company’s restricted stock awards is as follows:



(shares in thousands)	Shares		Weighted- average grant date fair value		Aggregate intrinsic value (in thousands)
Non-vested shares at December 31, 2014	17		$	6.30	$	1,017
Vested	(17	)
Non-vested shares at March 31, 2015	—		$	—	$	—

Restricted stock units

The cost of RSUs is determined using the fair value of the Company's common stock on the date of grant, and compensation is recognized on a straight-line basis over the requisite service period. The Company also has issued RSUs with both a market condition and service condition. The Company estimated the fair value of these market-based RSUs using a Monte Carlo valuation model on the date of grant. A summary of the Company’s RSU activity is as follows:



(shares in thousands)	Shares		Weighted- average grant date fair value
Non-vested shares at December 31, 2014	4,307		$	21.98
Granted	332		46.42
Vested	(817	)	15.80
Forfeited	(8	)	79.22
Non-vested shares at March 31, 2015	3,814		25.30

In June 2014, the Company granted a 4.5 million RSU award to the Chief Executive Officer (CEO RSUs), which included 1.5 million RSUs that vested immediately upon grant and 3.0 million RSUs that were subject to a market-based condition and a service condition. In January 2015, the market-based condition was achieved and the Company recorded stock-based compensation expense of $15.8 million during the three months ended March 31, 2015. At March 31, 2015, $20.6 million of total unearned compensation costs related to the CEO RSUs is expected to be recognized over the remaining vesting period of 2.3 years.

At March 31, 2015, there was $70.3 million of unearned stock-based compensation related to RSUs (including the CEO RSUs), which is expected to be amortized over a weighted average period of 2.3 years.

Employee stock purchase plan

On February 13, 2015, the first purchase under the Company's ESPP was made and employees purchased an aggregate of 313,233 shares at a price of $20.40 per share. During the three months ended March 31, 2015, the Company recorded $1.1 million of stock-based compensation expense related to the ESPP. At March 31, 2015, there was $1.5 million of unearned stock-based compensation related to the Company’s ESPP, which is expected to be recognized over 0.4 years.

Stock-based compensation expense

The Company measures compensation expense for all stock-based payment awards, including stock options, RSUs, and purchases under the Company's ESPP, based on the estimated fair values on the date of the grant. The fair value of stock options granted and purchases under the Company's ESPP is estimated using the Black-Scholes option pricing model. There have been no significant changes in the Company’s valuation assumptions for measuring compensation expense from those disclosed in the footnotes to the audited financial statements contained in its Annual Report on Form 10-K for the year ended December 31, 2014.

The following tables set forth the detailed allocation of stock-based compensation expense:



	Three months ended
(in thousands)	March 31, 2015			March 31, 2014
Stock-based compensation expense:
Cost of revenue	$	283		$	168
Research and development	3,535			1,401
Sales and marketing	3,066			1,414
General and administrative	19,617			1,054
Total stock-based compensation expense	26,501			4,037
Total tax benefit recognized	(9,304		)	(342		)
Decrease in net income	$	17,197		$	3,695

Stock-based compensation expense by type of award:
Stock options	$	5,957		$	2,894
RSUs	18,920			179
RSAs	566			964
ESPP	1,058			—
Total stock-based compensation expense	$	26,501		$	4,037