Property and Equipment

12 Months Ended

Dec. 31, 2019

Property, Plant and Equipment [Abstract]

Note 10—Property and Equipment

Property and equipment consisted of the following as of the dates indicated (in thousands):



		As of December 31,
	Estimated useful lives	2019		2018
Computer equipment (1)	3 years	$	35,190	$	36,670
Furniture and equipment	2 - 4 years	7,999		6,574
Leasehold improvements (2)	Shorter of life of asset or lease term	48,688		10,731
Construction in progress	Not applicable	206		551
Building (2)	25 years	66,650		81,892
Website development and internal-use software (3)	3 - 5 years	106,215		69,201
		264,948		205,619

Less: Accumulated depreciation and amortization		120,084		85,440
		$	144,864	$	120,179


(1)	Computer equipment includes leased equipment which are accounted for as finance leases since the adoption of ASU 2016-02—Leases in the first quarter of 2019. These leases were previously accounted for as capital leases.

(2)

In 2014 the Company applied build-to-suit accounting treatment to its headquarters lease in Brooklyn, New York. Upon adoption of ASU 2016-02—Leases in the first quarter of 2019, the Company derecognized the existing facility financing obligation and existing building asset for sale-leaseback transactions that currently do not qualify for sale accounting of $60.0 million and $51.1 million, respectively, and $22.1 million was reclassified from building to leasehold improvements and the Company recognized a new ROU asset of $66.7 million for the associated lease. For more information on the adoption of ASU 2016-02—Leases see “Note 1—Basis of Presentation and Summary of Significant Accounting Policies.”


(3)	On August 15, 2019, the Company acquired Reverb in a business combination, including the developed technology which was recognized at fair value. This amount is included in website development and internal-use software and is amortized on a straight-line basis over a period of 3 years.

Depreciation and amortization expense on property and equipment was $38.4 million, $22.4 million, and $23.8 million for the years ended December 31, 2019, 2018, and 2017, respectively, which includes amortization expense for equipment acquired under finance leases of $4.3 million for the year ended December 31, 2019 and under capital leases of $5.9 million and $7.7 million for the years ended December 31, 2018 and 2017, respectively. The gross balance of leased equipment as of December 31, 2019 and 2018 was $30.4 million and $29.7 million, respectively. The related accumulated amortization of equipment under finance leases was $28.5 million at December 31, 2019 and under capital leases was $24.4 million at December 31, 2018.

The following table summarizes capitalized website development and internal-use software activities during the periods indicated (in thousands):



	Year Ended December 31,
	2019		2018
Balance as of the beginning of the period	$	69,201	$	48,333
Additions to website development	8,687		22,068
Acquisition of developed technology	30,300		—
Less: Retirements	1,973		1,200
	106,215		69,201
Less:
Accumulated amortization balance as of the beginning of the period	38,418		29,991
Amortization Expense	18,737		9,519
Less: Retirements	340		1,092
Accumulated amortization balance as of the end of the period	56,815		38,418
	$	49,400	$	30,783

For the years ended December 31, 2019, 2018, and 2017, the Company recorded amortization expense relating to capitalized website development and internal-use software of $18.7 million, $9.5 million, and $8.2 million, respectively. The loss on write-off for capitalized website development and internal-use software assets that were retired during the years ended December 31, 2019, 2018, and 2017 was $1.6 million, $0.1 million, and $0.3 million, respectively.

On August 15, 2019, the Company acquired Reverb in a business combination, including the developed technology which was recognized at fair value. As of December 31, 2019, the gross book value and accumulated amortization of the acquired developed technology classified in property and equipment, net was $30.3 million and $3.8 million, respectively. The developed technology is amortized on a straight-line basis over a period of 3 years. Amortization expense from the developed technology of Reverb was $3.8 million for the period ended December 31, 2019 and was recorded in cost of revenue.

The Company recognized a $3.2 million impairment loss related to capitalized website development and internal-use software during the year ended December 31, 2017, included in asset impairment charges. During the fourth quarter of 2017, the Company made the decision to discontinue certain product offerings, including Etsy Studio and Etsy Manufacturing, which was an indicator that the carrying amount of certain capitalized website development and internal-use software assets may not be recoverable. The Company prepared an undiscounted cash flow analysis and determined that the values for these assets exceeded the expected future cash flows and impaired the remaining book values based on a negative present value of projected undiscounted cash flows.