Fair Value Measurement of Assets and Liabilities

9 Months Ended

Sep. 30, 2020

Fair Value Disclosures [Abstract]

Fair Value Measurement of Assets and Liabilities

Fair Value Measurement of Assets and Liabilities

The following tables present our financial assets and liabilities measured at fair value on a recurring basis (in millions):

	September 30, 2020		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant  Unobservable Inputs (Level 3)
Assets:
Cash and cash equivalents	$	963	$	933	$	30	$	—
Short-term investments:
Restricted cash	126		126		—		—
Corporate debt securities	2,571		—		2,571		—
Total short-term investments	2,697		126		2,571		—
Derivatives	836		—		59		777
Long-term investments:
Corporate debt securities	391		—		391		—
Total long-term investments	391		—		391		—
Total financial assets	$	4,887	$	1,059	$	3,051	$	777
Liabilities:
Derivatives	$	29	$	—	$	29	$	—

	December 31, 2019		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant  Unobservable Inputs (Level 3)
Assets:
Cash and cash equivalents	$	901	$	901	$	—	$	—
Short-term investments:
Restricted cash	21		21		—		—
Corporate debt securities	1,654		—		1,654		—
Government and agency securities	175		—		175		—
Total short-term investments	1,850		21		1,829		—
Derivatives	345		—		64		281
Long-term investments:
Corporate debt securities	961		—		961		—
Total long-term investments	961		—		961		—
Total financial assets	$	4,057	$	922	$	2,854	$	281
Liabilities:
Derivatives	$	20	$	—	$	20	$	—

Our financial assets and liabilities are valued using market prices on both active markets (Level 1), less active markets (Level 2) and little or no market activity (Level 3). Level 1 instrument valuations are obtained from real-time quotes for transactions in active exchange markets involving identical assets. Level 2 instrument valuations are obtained from readily available pricing sources for comparable instruments, identical instruments in less active markets, or models using market observable inputs. Level 3 instrument valuations typically reflect management’s estimate of assumptions that market participants would use in pricing the asset or liability. We did not have any transfers of financial instruments between valuation levels during the nine months ended September 30, 2020.

The majority of our derivative instruments are valued using pricing models that take into account the contract terms as well as multiple inputs where applicable, such as equity prices, interest rate yield curves, option volatility and currency rates. Our warrant, which is accounted for as a derivative instrument, is valued using a Black-Scholes model. Key assumptions used in the valuation include risk-free interest rates; Adyen’s common stock price, equity volatility and common stock outstanding; exercise price; and details specific to the warrant. The value is also probability adjusted for management’s assumptions with respect to vesting of the four tranches which are each subject to meeting processing volume milestone targets. These assumptions and the probability of meeting processing volume milestone targets may have a significant impact on the value of the warrant. Refer to “Note 7 – Derivative Instruments” for further details on our derivative instruments.

Other financial instruments, including accounts receivable and accounts payable, are carried at cost, which approximates their fair value because of the short-term nature of these instruments.

The following tables present a reconciliation of the opening to closing balance of assets measured using significant unobservable inputs (Level 3) (in millions):

	September 30, 2020
Opening balance as of January 1, 2020	$	281
Change in fair value	496
Closing balance as of September 30, 2020	$	777

	December 31, 2019
Opening balance as of January 1, 2019	$	148
Change in fair value	133
Closing balance as of December 31, 2019	$	281

The following table presents quantitative information about Level 3 significant unobservable inputs used in the fair value measurement of the warrant as of September 30, 2020 (in millions):

	Fair value		Valuation technique	Unobservable Input	Range (weighted average)(1)
Warrant	$	777	Black-Scholes and Monte Carlo	Probability of vesting	0.0% - 90.0% (69%)
				Equity volatility	21.2% - 54.6% (40%)

(1) Probability of vesting were weighted by the unadjusted value of the tranches. For volatility, the average represents the arithmetic average of the inputs and is not weighted by the relative fair value or notional amount.