
	Stockholders' Equity

Initial Public Offering

In May 2012, we completed our IPO in which we issued and sold 180,000,000 shares of Class A common stock at a public offering price of $38.00 per share and the selling stockholders sold 241,233,615 shares of Class A common stock. We did not receive any proceeds from the sale of shares by the selling stockholders. The total net proceeds received from the IPO were $6.8 billion after deducting underwriting discounts and commissions of $75 million and other offering expenses of approximately $7 million.

Convertible Preferred Stock

Upon the closing of our IPO, all shares of our then-outstanding convertible preferred stock, as shown on the table below, automatically converted into an aggregate of 545,401,443 shares of our Class B common stock.

The following table summarizes the convertible preferred stock outstanding immediately prior to the conversion into common stock, and the rights and preferences of our respective series as of December 31, 2011 and immediately prior to the conversion into common stock:



	Shares		Aggregate Liquidation Preference		Dividend Per Share Per Annum		Conversion Ratio Per Share
	Authorized	Issued and Outstanding	Aggregate Liquidation Preference		Dividend Per Share Per Annum		Conversion Ratio Per Share
	(in thousands)	(in thousands)	(in millions)
Series A	134,747	133,055	$	1	$	0.00036875	1.000000
Series B	226,032	224,123	13		0.00456		1.004910
Series C	95,768	91,410	26		0.02297335		1.004909
Series D	67,454	50,591	375		0.593		1.012561
Series E	45,000	44,038	200		0.3633264		1.000000
Total	569,001	543,217	$	615

Common Stock

Our certificate of incorporation authorizes the issuance of Class A common stock and Class B common stock. As of December 31, 2012, we are authorized to issue 5,000,000,000 shares of Class A common stock and 4,141,000,000 shares of Class B common stock, each with a par value of $0.000006 per share. Holders of our Class A common stock and Class B common stock are entitled to dividends when, as and if, declared by our board of directors, subject to the rights of the holders of all classes of stock outstanding having priority rights to dividends. As of December 31, 2012, we did not declare any dividends and our credit facilities contain restrictions on our ability to pay dividends. The holder of each share of Class A common stock is entitled to one vote, while the holder of each share of Class B common stock is entitled to ten votes. Shares of our Class B common stock are convertible into an equivalent number of shares of our Class A common stock and generally convert into shares of our Class A common stock upon transfer. Class A common stock and Class B common stock are referred to as common stock throughout the notes to these financial statements, unless otherwise noted.

Upon the closing of our IPO, an aggregate of 335,943,024 shares of Class B common stock were converted into Class A common stock. As of December 31, 2012, there were 1,671,277,621 shares and 701,427,574 shares of Class A common stock and Class B common stock, respectively, issued and outstanding.

Share-based Compensation Plans

We maintain three share-based employee compensation plans: the 2012 Plan, the 2005 Stock Plan and the 2005 Officers' Stock Plan (collectively, Stock Plans). Our 2012 Plan was approved by our board of directors in January 2012 and adopted by our stockholders in April 2012. The 2012 Plan, effective on May 17, 2012, serves as the successor to our 2005 Stock Plan and provides for the issuance of incentive and nonstatutory stock options, restricted stock awards, stock appreciation rights, RSUs, performance shares and stock bonuses to qualified employees, directors and consultants. No new awards will be issued under the 2005 Stock Plan as of the effective date of the 2012 Plan. Outstanding awards under the 2005 Stock Plan continue to be subject to the terms and conditions of the 2005 Stock Plan. Shares available for grant under the 2005 Stock Plan, which were reserved but not issued or subject to outstanding awards under the 2005 Stock Plan as of the effective date, were added to the reserves of the 2012 Plan.

We have initially reserved 25,000,000 shares of our Class A common stock for issuance under our 2012 Plan. The number of shares reserved for issuance under our 2012 Plan will increase automatically on the first day of January of each of 2013 through 2022 by a number of shares of Class A common stock equal to the lesser of (i) 2.5% of the total outstanding shares of our common stock as of the immediately preceding December 31st or (ii) a number of shares determined by the board of directors. The maximum term for stock options granted under the 2012 Plan may not exceed ten years from the date of grant. Our 2012 Plan will terminate ten years from the date of approval unless it is terminated earlier by our compensation committee.

The 2005 Officers' Stock Plan provides for up to 120,000,000 shares of incentive and nonstatutory stock options to certain of our employees or officers. The 2005 Officers' Stock Plan will terminate ten years after its adoption unless terminated earlier by our compensation committee. Stock options become vested and exercisable at such times and under such conditions as determined by our compensation committee on the date of grant. In November 2005, we issued a nonstatutory stock option to our CEO to purchase 120,000,000 shares of our Class B common stock under the 2005 Officers' Stock Plan. As of December 31, 2012, the option had been partially exercised in respect of 60,000,000 shares with the remainder remaining outstanding and fully vested, and no options were available for future issuance under the 2005 Officers' Stock Plan.

The following table summarizes the stock option and RSU award activities under the Stock Plans for the year ended December 31, 2012:



			Shares Subject to Options Outstanding							Outstanding RSUs
	Shares Available for Grant⁽¹⁾		Number of Shares		Weighted Average Exercise Price		Weighted- Average Remaining Contractual Term	Aggregate Intrinsic Value⁽²⁾		Outstanding RSUs⁽³⁾		Weighted Average Grant Date Fair Value
	(in thousands)		(in thousands)				(in years)	(in millions)		(in thousands)
Balance as of December 31, 2011	52,318		258,539		$	0.47	4.38	$	7,360	378,772		$	6.83
Stock options exercised	—		(135,505	)	0.12					—
Stock options forfeited/cancelled	213		(213	)	1.41					—
RSUs granted	(41,252	)	—							41,252		32.60
RSUs settled	—		—							(278,846	)	3.02
Shares withheld related to net share settlement of RSUs	122,757		—							—
RSUs forfeited and cancelled	12,955		—							(12,955	)	20.00
2012 Equity Incentive Plan shares authorized	25,000		—							—
Balance as of December 31, 2012	171,991		122,821		$	0.85	3.79	$	3,166	128,223		$	22.08
Stock options vested and expected to vest as of December 31, 2012			122,791		$	0.85	3.79	$	3,166
Stock options exercisable as of December 31, 2012			113,688		$	0.34	3.53	$	2,989


(1)	After excluding 195 thousand restricted stock awards included in the table above, 171,796 thousand shares are available for grant under the Stock Plans as of December 31, 2012.


(2)	The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying stock option awards and the assessed fair value of our common stock as of December 31, 2011 and the closing market price of our common stock as of December 31, 2012.


(3)	During the year ended December 31, 2012 69,196 thousand RSUs were vested and the total grant date fair value of these RSUs vested is $9.14. As of December 31, 2012 and 2011, we have 113,044 thousand and 153,943 thousand of unvested RSUs.

Under net settlement procedures currently applicable to our outstanding RSUs for current and former employees, upon each settlement date, RSUs are withheld to cover the required withholding tax, which is based on the value of the RSU on the settlement date as determined by the closing price of our common stock on the trading day immediately preceding the applicable settlement date. The remaining amounts are delivered to the recipient as shares of our common stock. We settled 279 million of Pre-2011 RSUs in 2012 of which 273 million RSUs were net settled by withholding 123 million shares, which represented the employees' minimum statutory obligation for each such employee's applicable income and other employment taxes and remitted cash totaling of $2.86 billion to the appropriate tax authorities. The amount remitted to the tax authorities for the employees' tax obligation to the tax authorities was reflected as a financing activity within our consolidated statements of cash flows. These shares withheld by us as a result of the net settlement of Pre-2011 RSUs are no longer considered issued and outstanding, thereby reducing our shares outstanding used to calculate earnings per share. These shares are returned to the reserves and are available for future issuance under the 2012 Plan.

We estimate the fair value of stock options granted using the Black-Scholes-Merton single option valuation model, which requires inputs such as expected term, expected volatility and risk-free interest rate. Further, the estimated forfeiture rate of awards also affects the amount of aggregate compensation. These inputs are subjective and generally require significant analysis and judgment to develop.

We estimate the expected term based upon the historical behavior of our employees for employee grants. We estimate expected volatility based on a study of publicly traded industry peer companies. The forfeiture rate is derived primarily from our historical data, and the risk-free interest rate is based on the yield available on U.S. Treasury zero-coupon issues. Our dividend yield is 0%, since we have not paid, and do not expect to pay, dividends.

The fair values of employee options granted during 2010 have been estimated as of the date of grant using the following weighted-average assumptions.



	December 31, 2010
Expected term from grant date (in years)	7.15
Risk-free interest rate	1.69%
Expected volatility	0.46
Dividend yield	—

The weighted-average fair value of employee options granted during the year ended December 31, 2010 was $5.26 per share. There were no options granted for the years ended December 31, 2012 and 2011.

The following table summarizes additional information regarding outstanding and exercisable options under the Stock Plans at

December 31, 2012:



	Options Outstanding				Options Exercisable
Exercise Price (Range)	Number of Shares	Weighted- Average Remaining Life	Weighted- Average Exercise Price		Number of Shares	Weighted- Average Exercise Price
	(in thousands)	(in years)			(in thousands)
$0.00 - 0.04	5,381	2.65	$	0.04	5,381	$	0.04
0.06	63,379	2.86	0.06		63,379	0.06
0.10 - 0.18	18,096	3.66	0.15		18,096	0.15
0.29 - 0.33	14,701	4.40	0.31		14,701	0.31
1.78	4,693	5.59	1.78		3,701	1.78
1.85	4,865	6.04	1.85		3,938	1.85
2.95	2,506	6.64	2.95		1,567	2.95
3.23	4,500	6.82	3.23		2,925	3.23
10.39	3,500	7.56	10.39		—	—
15.00	1,200	7.81	15.00		—	—
	122,821	3.79	$	0.85	113,688	$	0.34

The aggregate intrinsic value of the options exercised in the years ended December 31, 2012, 2011, and 2010 was $4.23 billion, $2.38 billion and $492 million, respectively. The total grant date fair value of stock options vested during the years ended December 31, 2012, 2011, and 2010 was $5 million, $6 million and $16 million, respectively.

As of December 31, 2012, there was $2.21 billion of unrecognized share-based compensation expense, of which $1.96 billion is related to RSUs, and $244 million is related to restricted shares and stock options. This unrecognized compensation expense is expected to be recognized over a weighted-average period of approximately three years.