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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________________________________________
FORM 10-Q
____________________________________________________
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2020
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM                  TO
Commission File Number 001-36164
____________________________________________________
Twitter, Inc.
(Exact name of registrant as specified in its charter)
____________________________________________________
Delaware
20-8913779
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
1355 Market Street, Suite 900
San Francisco, California 94103
(Address of principal executive offices and Zip Code)
(415) 222-9670
(Registrant’s telephone number, including area code)
____________________________________________________

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value $0.000005 per shareTWTRNew York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES NO ☒
The number of shares of the registrant’s common stock outstanding as of April 30, 2020 was 784,629,121.




TABLE OF CONTENTS
Page







2


SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which statements involve substantial risks and uncertainties. Forward-looking statements generally relate to future events or our future financial or operating performance. In some cases, you can identify forward-looking statements because they contain words such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans or intentions. Forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to, statements about:
our ability to attract and retain people on Twitter and increase their level of engagement, including ad engagement, and its impact on revenue;
our plans regarding health and safety and our other top priorities, including our expectations regarding the impact on our reported metrics, policies, enforcement and preventing manipulation of our platform;

the impact of the COVID-19 pandemic and related responses of businesses and governments to the pandemic on our operations and personnel, and on commercial activity and advertiser demand across our platform and on our operating results;
our expectations regarding monetizable DAUs (mDAU), changes in cost per ad engagement and changes in ad engagements;
our ability to develop or acquire new products, product features and services, improve our existing products and services, including with respect to Promoted Products, video and performance advertising, and increase the value of our products and services;
our business strategies, plans and priorities, including our plans for growth and hiring, investment in our research and development efforts and our plans to scale capacity and enhance capability and reliability of our infrastructure, including capital expenditures relating to infrastructure;
our work to increase the stability, performance, development velocity and scale of our ads platform and our Mobile Application Promotion (MAP) product;
our ability to provide new content from third parties, including our ability to secure live streaming video content on terms that are acceptable to us;
our ability to attract advertisers to our platforms, products and services and increase the amount that advertisers spend with us;
our expectations regarding our mDAU growth and growth rates and related opportunities as well as the continued usage of our mobile applications, including the impact of seasonality;
our ability to increase our revenue and our revenue growth rate, including advertising and data licensing and other revenue;
our ability to improve monetization of our products and services;
our future financial performance, including trends in cost per ad engagement, revenue (including data licensing revenue), cost of revenue, operating expenses, including stock-based compensation and income taxes;
our expectations regarding certain deferred tax assets and fluctuations in our tax expense and cash taxes;
the impact of privacy and data protection laws and regulations;
the impact of content- or copyright-related legislation or regulation;
our expectations regarding outstanding litigation or the decisions of the courts;
the effects of seasonal trends on our results of operations;
the impact of our future transactions and corporate structuring on our income and other taxes;
the sufficiency of our cash and cash equivalents, short-term investment balance and credit facility together with cash generated from operations to meet our working capital and capital expenditure requirements;
our ability to timely and effectively develop, invest in, scale and adapt our existing technology and network infrastructure;
our ability to successfully acquire and integrate companies and assets; and
3


our expectations regarding international operations and foreign exchange gains and losses.
We caution you that the foregoing list may not contain all of the forward-looking statements made in this Quarterly Report on Form 10-Q.
You should not rely upon forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this Quarterly Report on Form 10-Q primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, operating results, cash flows or prospects. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties and other factors described in the section titled “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Quarterly Report on Form 10-Q. We cannot assure you that the results, events and circumstances reflected in the forward-looking statements will be achieved or occur, and actual results, events or circumstances could differ materially from those described in the forward-looking statements.
The forward-looking statements made in this Quarterly Report on Form 10-Q relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this Quarterly Report on Form 10-Q to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q or to reflect new information or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may make.
4


NOTE REGARDING KEY METRICS
We review a number of metrics, including monetizable daily active usage or users, or mDAU, changes in ad engagements and changes in cost per ad engagement, to evaluate our business, measure our performance, identify trends affecting our business, formulate business plans and make strategic decisions. See the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations— Key Metrics” for a discussion of how we calculate mDAU, changes in ad engagements and changes in cost per ad engagement.
We define mDAU as people, organizations, or other accounts who logged in or were otherwise authenticated and accessed Twitter on any given day through twitter.com or Twitter applications that are able to show ads. Average mDAU for a period represents the number of mDAU on each day of such period divided by the number of days for such period. Changes in mDAU are a measure of changes in the size of our daily logged in or otherwise authenticated active total accounts. To calculate the year-over-year change in mDAU, we subtract the average mDAU for the three months ended in the previous year from the average mDAU for the same three months ended in the current year and divide the result by the average mDAU for the three months ended in the previous year. Additionally, our calculation of mDAU is not based on any standardized industry methodology and is not necessarily calculated in the same manner or comparable to similarly titled measures presented by other companies. Similarly, our measures of mDAU growth and engagement may differ from estimates published by third parties or from similarly-titled metrics of our competitors due to differences in methodology.
The numbers of mDAU presented in this Quarterly Report on Form 10-Q are based on internal company data. While these numbers are based on what we believe to be reasonable estimates for the applicable period of measurement, there are inherent challenges in measuring usage and engagement across our large number of total accounts around the world. Furthermore, our metrics may be impacted by our information quality efforts, which are our overall efforts to reduce malicious activity on the service, inclusive of spam, malicious automation, and fake accounts. For example, there are a number of false or spam accounts in existence on our platform. We have performed an internal review of a sample of accounts and estimate that the average of false or spam accounts during the first quarter of 2020 represented fewer than 5% of our mDAU during the quarter. The false or spam accounts for a period represents the average of false or spam accounts in the samples during each monthly analysis period during the quarter. In making this determination, we applied significant judgment, so our estimation of false or spam accounts may not accurately represent the actual number of such accounts, and the actual number of false or spam accounts could be higher than we have estimated. We are continually seeking to improve our ability to estimate the total number of spam accounts and eliminate them from the calculation of our mDAU, and have made improvements in our spam detection capabilities that have resulted in the suspension of a large number of spam, malicious automation, and fake accounts. We intend to continue to make such improvements. After we determine an account is spam, malicious automation, or fake, we stop counting it in our mDAU, or other related metrics. We also treat multiple accounts held by a single person or organization as multiple mDAU because we permit people and organizations to have more than one account. Additionally, some accounts used by organizations are used by many people within the organization. As such, the calculations of our mDAU may not accurately reflect the actual number of people or organizations using our platform.
In addition, geographic location data collected for purposes of reporting the geographic location of our mDAU is based on the IP address or phone number associated with the account when an account is initially registered on Twitter. The IP address or phone number may not always accurately reflect a person’s actual location at the time they engaged with our platform. For example, someone accessing Twitter from the location of the proxy server that the person connects to rather than from the person’s actual location.
We regularly review and may adjust our processes for calculating our internal metrics to improve their accuracy.
5


PART I — FINANCIAL INFORMATION
Item 1. Financial Statements
TWITTER, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except par value)
(Unaudited)
March 31,
2020
December 31,
2019
Assets
Current assets:
Cash and cash equivalents$3,463,349  $1,799,082  
Short-term investments4,207,315  4,839,970  
Accounts receivable, net of allowance for doubtful accounts of $15,852 and $2,401
656,377  850,184  
Prepaid expenses and other current assets140,538  130,839  
Total current assets8,467,579  7,620,075  
Property and equipment, net1,081,371  1,031,781  
Operating lease right-of-use assets666,527  697,095  
Intangible assets, net64,565  55,106  
Goodwill1,269,633  1,256,699  
Deferred tax assets, net1,856,293  1,908,086  
Other assets134,757  134,547  
Total assets$13,540,725  $12,703,389  
Liabilities and stockholders' equity
Current liabilities:
Accounts payable$183,921  $161,148  
Accrued and other current liabilities370,256  500,893  
Operating lease liabilities, short-term141,955  146,959  
Finance lease liabilities, short-term13,888  23,476  
Total current liabilities710,020  832,476  
Convertible notes, long-term2,706,038  1,816,833  
Senior notes, long-term692,240  691,967  
Operating lease liabilities, long-term582,872  609,245  
Deferred and other long-term tax liabilities, net25,366  24,170  
Other long-term liabilities28,562  24,312  
Total liabilities4,745,098  3,999,003  
Commitments and contingencies (Note 14)
Stockholders' equity:
Preferred stock, $0.000005 par value-- 200,000 shares authorized; none issued and outstanding
    
Common stock, $0.000005 par value-- 5,000,000 shares authorized; 784,100 and 779,619 shares issued and outstanding
4  4  
Additional paid-in capital8,952,059  8,763,330  
Accumulated other comprehensive loss(157,997) (70,534) 
Retained earnings1,561  11,586  
Total stockholders' equity8,795,627  8,704,386  
Total liabilities and stockholders' equity$13,540,725  $12,703,389  

The accompanying notes are an integral part of these consolidated financial statements.

6


TWITTER, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
Three Months Ended
March 31,
20202019
Revenue
$807,637  $786,890  
Costs and expenses
Cost of revenue
284,037  264,011  
Research and development
200,388  146,246  
Sales and marketing
221,287  205,799  
General and administrative
109,368  77,176  
Total costs and expenses
815,080  693,232  
Income (loss) from operations
(7,443) 93,658  
Interest expense
(33,270) (37,260) 
Interest income
32,897  40,541  
Other expense, net(7,719) (436) 
Income (loss) before income taxes
(15,535) 96,503  
Benefit from income taxes
(7,139) (94,301) 
Net income (loss)
$(8,396) $190,804  
Net income (loss) per share attributable to common stockholders:
Basic
$(0.01) $0.25  
Diluted
$(0.01) $0.25  
Weighted-average shares used to compute net income (loss) per share attributable to common stockholders:
Basic
780,688  764,550  
Diluted
780,688  777,689  

The accompanying notes are an integral part of these consolidated financial statements.
7


TWITTER, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
(Unaudited)
Three Months Ended
March 31,
20202019
Net income (loss)
$(8,396) $190,804  
Other comprehensive income (loss), net of tax:
Change in unrealized gain (loss) on investments in available-for-sale securities(26,360) 8,848  
Change in foreign currency translation adjustment(61,103) (202) 
Net change in accumulated other comprehensive income (loss)(87,463) 8,646  
Comprehensive income (loss)$(95,859) $199,450  

The accompanying notes are an integral part of these consolidated financial statements.
8


TWITTER, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands)
(Unaudited)
Three Months Ended
March 31,
20202019
SharesAmountSharesAmount
Common stock
Balance, beginning of period779,619  $4  764,257  $4  
Issuance of common stock in connection with RSU vesting4,225  —  3,889  —  
Issuance of restricted stock in connection with acquisitions accounted for as stock-based compensation412  —  —  —  
Exercise of stock options181  —  72  —  
Shares withheld related to net share settlement of equity awards(337) —  (305) —  
Balance, end of period784,100  $4  767,913  $4  
Additional paid-in capital
Balance, beginning of period—  $8,763,330  —  $8,324,974  
Issuance of restricted stock in connection with acquisitions—  1,312  —  —  
Exercise of stock options—  305  —  96  
Shares withheld related to net share settlement of equity awards—  (11,693) —  (9,477) 
Stock-based compensation—  106,596  —  93,156  
Equity component of the convertible note issuance, net—  92,209  —  —  
Balance, end of period—  $8,952,059  —  $8,408,749  
Accumulated other comprehensive loss
Balance, beginning of period—  $(70,534) —  $(65,311) 
Other comprehensive income (loss)—  (87,463) —  8,646  
Balance, end of period—  $(157,997) —  $(56,665) 
Retained earnings (Accumulated deficit)
Balance, beginning of period—  $11,586  —  $(1,454,073) 
Cumulative-effect adjustment from adoption of current expected credit loss guidance—  (1,629) —  —  
Net income (loss)
—  (8,396) —  190,804  
Balance, end of period—  $1,561  —  $(1,263,269) 
Total stockholders' equity784,100$8,795,627  767,913$7,088,819  

The accompanying notes are an integral part of these consolidated financial statements.
9


TWITTER, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Three Months Ended March 31,
20202019
Cash flows from operating activities
Net income (loss)$(8,396) $190,804  
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization expense120,649  113,474  
Stock-based compensation expense97,903  83,491  
Amortization of discount on convertible notes21,504  30,877  
Bad debt expense14,067  627  
Deferred income taxes(7,024) 14,364  
Deferred tax assets establishment related to intra-entity transfers of intangible assets  (124,420) 
Impairment of investments in privately-held companies8,003    
Other adjustments(8,425) 3,446  
Changes in assets and liabilities, net of assets acquired and liabilities assumed from acquisitions:
Accounts receivable168,932  103,633  
Prepaid expenses and other assets(6,252) (9,284) 
Operating lease right-of-use assets38,749  35,433  
Accounts payable(14,480) (12,879) 
Accrued and other liabilities(139,168) (47,997) 
Operating lease liabilities(39,295) (29,876) 
Net cash provided by operating activities246,767  351,693  
Cash flows from investing activities
Purchases of property and equipment(122,667) (83,026) 
Proceeds from sales of property and equipment1,623  1,956  
Purchases of marketable securities(1,233,530) (1,635,142) 
Proceeds from maturities of marketable securities1,125,634  1,711,300  
Proceeds from sales of marketable securities722,253  34,358  
Business combinations, net of cash acquired(14,780)   
Other investing activities(12,389)   
Net cash provided by investing activities466,144  29,446  
Cash flows from financing activities
Proceeds from issuance of convertible notes1,000,000    
Debt issuance costs(14,662)   
Taxes paid related to net share settlement of equity awards(11,693) (9,477) 
Payments of finance lease obligations(9,966) (19,719) 
Proceeds from exercise of stock options305  95  
Net cash provided by (used in) financing activities963,984  (29,101) 
Net increase in cash, cash equivalents and restricted cash1,676,895  352,038  
Foreign exchange effect on cash, cash equivalents and restricted cash(11,948) (146) 
Cash, cash equivalents and restricted cash at beginning of period1,827,666  1,921,875  
Cash, cash equivalents and restricted cash at end of period$3,492,613  $2,273,767  
Supplemental disclosures of non-cash investing and financing activities
Common stock issued in connection with acquisitions$1,312  $  
Changes in accrued property and equipment purchases$38,512  $43,720  
Reconciliation of cash, cash equivalents and restricted cash as shown in the consolidated statements of cash flows
Cash and cash equivalents$3,463,349  $2,247,661  
Restricted cash included in prepaid expenses and other current assets1,846  1,222  
Restricted cash included in other assets27,418  24,884  
Total cash, cash equivalents and restricted cash$3,492,613  $2,273,767  

The accompanying notes are an integral part of these consolidated financial statements.
10


TWITTER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Description of Business and Summary of Significant Accounting Policies
Twitter, Inc. (“Twitter” or the “Company”) was incorporated in Delaware in April 2007 and is headquartered in San Francisco, California. Twitter offers products and services for people, organizations, advertisers, developers and platform and data partners.
Basis of Presentation
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.
The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (GAAP). The unaudited interim consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and reflect, in management’s opinion, all adjustments of a normal, recurring nature that are necessary for the fair statement of the Company’s financial position, results of operations and cash flows for the interim periods, but are not necessarily indicative of the results expected for the full fiscal year or any other period.
The accompanying interim consolidated financial statements and these related notes should be read in conjunction with the consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.
Prior Period Reclassifications
Certain prior period amounts have been reclassified to conform to the current period presentation.
Use of Estimates
The preparation of the Company’s consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, as well as related disclosure of contingent assets and liabilities. Actual results could differ materially from the Company’s estimates. To the extent that there are material differences between these estimates and actual results, the Company’s financial condition or operating results will be affected. The Company bases its estimates on past experience and other assumptions that the Company believes are reasonable under the circumstances, and the Company evaluates these estimates on an ongoing basis.
COVID-19 Impacts
The COVID-19 pandemic has caused widespread economic disruption and has impacted the Company in a number of ways, most notably a significant decrease in global advertising spend in March 2020. The Company expects the extent of the impact on its financial and operational results will depend on the duration and severity of the economic disruption caused by the COVID-19 pandemic.
As of March 31, 2020, the Company had $7.67 billion of cash, cash equivalents and short-term investments in marketable securities. If required, the Company may take certain liquidity mitigation actions in the future; however, it does not believe such actions are necessary based on its current forecasts. The Company believes that the existing cash, cash equivalents and short-term investments balances, together with cash generated by operations will be sufficient to meet its working capital and capital expenditure requirements in the foreseeable future based on its current expectations of the impact of the COVID-19 pandemic.
The Company considered the impacts of the COVID-19 pandemic on its significant estimates and judgments used in applying its accounting policies in the three months ended March 31, 2020. In light of the pandemic, there is a greater degree of uncertainty in applying these judgments and depending on the duration and severity of the pandemic, changes to its estimates and judgments could result in a meaningful impact to its financial statements in future periods. Some of the more reasonably possible and significant items subject to a greater degree of uncertainty during this time include estimates of revenue collectibility and credit losses related to accounts receivable, unbilled revenue, and investments in debt securities, investments in privately-held companies, and valuation allowance against deferred tax assets.
11


Recent Accounting Pronouncements
Recently adopted accounting pronouncements
In June 2016, the Financial Accounting Standards Board ("FASB") issued a new accounting standard update on the measurement of credit losses on financial instruments. The new guidance requires financial assets measured at amortized cost to be presented at the net amount expected to be collected and available-for-sale debt securities to record credit losses through an allowance for credit losses. The Company adopted this new accounting standard on January 1, 2020 using a modified retrospective method. In connection with the adoption of this guidance, the Company recorded a cumulative-effect adjustment of $1.6 million to opening retained earnings as of January 1, 2020, related to additional allowance for credit losses on doubtful accounts and unbilled revenue.
In August 2018, the FASB issued a new accounting standard update which eliminates, adds and modifies certain disclosure requirements for fair value measurements. The update eliminates the requirement to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, and introduces a requirement to disclose the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. The Company adopted this new accounting standard on January 1, 2020, using the prospective method, and the adoption did not have a material impact on the Company’s financial statements and related disclosures.
In August 2018, the FASB issued a new accounting standard update requiring a customer in a cloud computing arrangement (i.e., hosting arrangement) that is a service contract to capitalize certain implementation costs as if the arrangement was an internal-use software project. Capitalized implementation costs related to a hosting arrangement that is a service contract will be amortized over the term of the hosting arrangement, beginning when the module or component of the hosting arrangement is ready for its intended use. The Company adopted the new accounting standard update on January 1, 2020, using the prospective method, and the adoption did not have a material impact on the Company’s financial statements and related disclosures.
In December 2019, the FASB issued a new accounting standard update to simplify the accounting for income taxes. The new guidance removes certain exceptions for recognizing deferred taxes for investments, performing intraperiod allocation and calculating income taxes in interim periods. It also adds guidance to reduce complexity in certain areas, including recognizing deferred taxes for tax goodwill and allocating taxes to members of a consolidated group. The Company adopted this guidance on January 1, 2020, using the modified retrospective method, and the adoption did not have a material impact on the Company's financial statements and related disclosures.
With the exception of the standards discussed above, there have been no other recent accounting pronouncements or changes in accounting pronouncements during the three months ended March 31, 2020, as compared to the recent accounting pronouncements described in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019, that are of significance or potential significance to the Company.
Significant Accounting Policies
There have been no material changes to the Company's significant accounting policies from its Annual Report on Form 10-K for the fiscal year ended December 31, 2019, except for the policies noted below, which changed as a result of the adoption of the new standard on the measurement of credit losses on financial instruments.
Accounts Receivable, Net
The Company records accounts receivable at the invoiced amount. The Company maintains an allowance for doubtful accounts to reserve for potentially uncollectible receivable amounts. In evaluating the Company’s ability to collect outstanding receivable balances, the Company considers various factors including the age of the balance, the creditworthiness of the customer, which is assessed based on ongoing credit evaluations and payment history, the customer’s current financial condition, and now considers macro-economic factors such as gross domestic product (“GDP”) growth rates to estimate expected future credit losses. In the three months ended March 31, 2020, the Company recorded $14.1 million of incremental allowance for doubtful accounts, including estimated future losses in consideration of the impact of the COVID-19 pandemic on the economy and the Company, offset by $0.6 million of other adjustments. The Company considered the current and expected future economic and market conditions surrounding the COVID-19 pandemic to determine future expected losses on its accounts receivable. Actual future bad debt could differ materially from this estimate and additional bad debt could be incurred as the duration and severity of the impact of the COVID-19 pandemic remains uncertain.
Unbilled Revenue (Contract Assets)
The Company evaluates whether its unbilled revenue is exposed to potential credit losses by considering factors such as the creditworthiness of its customers, the term over which unbilled revenue will be recognized, historical impairment of unbilled revenue, and contemplation of projected macroeconomic factors such as GDP growth rates. As of March 31, 2020, the Company recorded an immaterial amount of allowance for credit losses on unbilled revenue in consideration of the impact of the COVID-19 pandemic on the economy and the Company. The Company considered the current and expected future economic and market conditions surrounding the COVID-19 pandemic to determine future expected credit losses on its unbilled revenue. Actual results could differ materially from the Company’s estimates given the uncertainty arising from the COVID-19 pandemic.
12


Cash, Cash Equivalents and Short-term Investments
The Company determines the appropriate classification of its investments in marketable securities at the time of purchase and reevaluates such designation at each balance sheet date. The Company has classified and accounted for its marketable securities as available-for-sale. After considering the Company’s capital preservation objectives, as well as its liquidity requirements, the Company may sell securities prior to their stated maturities. The Company carries its available-for-sale securities at fair value. The Company reports the unrealized gains and losses, net of taxes, as a component of stockholders’ equity, except for unrealized losses determined to be credit-related which are recorded as other expense, net in the consolidated statements of operations and reports an allowance for credit losses in short-term investments on the balance sheet, if any.
The gross unrealized loss on available-for-sale debt securities as of March 31, 2020 was $22.6 million, primarily attributable to the economic uncertainty related to the COVID-19 pandemic, which led to volatile prices of the Company's corporate debt securities. The Company's investment policy only allows purchases of investment-grade notes and provides guidelines on concentrations to ensure minimum risk of loss. The Company evaluated whether the unrealized loss was the result of the credit worthiness of the corporate notes it held, or other non-credit-related factors such as liquidity by reviewing a number of factors such as the implied yield of the corporate note based on the market price, the nature of the invested entity's business or industry, market capitalization relative to debt, changes in credit ratings, and the market prices of the corporate notes subsequent to quarter end. The Company concluded that there were no expected credit losses related to its available-for-sale debt securities as of March 31, 2020. As such, the Company reported the unrealized loss as of March 31, 2020 in other comprehensive income (loss) as a component of stockholders’ equity rather than in other expense, net in the consolidated statements of operations. The Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost bases. As of March 31, 2020, no allowance for credit losses in short-term investments was recorded. However, given the uncertainty surrounding the severity and duration of the COVID-19 pandemic, the Company could incur future unrealized losses on available-for-sale debt securities that are credit-related, which will be recorded in other expense, net in the consolidated statements of operations.
Note 2. Revenue
Revenue Recognition
Revenue is recognized when the control of promised goods or services is transferred to customers at an amount that reflects the consideration to which the Company expects to be entitled to in exchange for those goods or services. The Company identifies its contracts with customers and all performance obligations within those contracts. The Company then determines the transaction price and allocates the transaction price to the performance obligations within the Company's contracts with customers, recognizing revenue when, or as the Company satisfies its performance obligations. While the majority of the Company's revenue transactions are based on standard business terms and conditions, the Company also enters into sales agreements with advertisers and data partners that sometimes involve multiple performance obligations and occasionally include non-standard terms or conditions.
Revenue by geography is based on the billing address of the customers. The following tables set forth revenue by services and revenue by geographic area (in thousands):
Three Months Ended March 31,
20202019
Revenue by services:
Advertising services$682,192  $679,466  
Data licensing and other125,445  107,424  
Total revenue$807,637  $786,890  

Three Months Ended March 31,
20202019
Revenue by geographic area:
United States$468,430  $432,356  
Japan131,132  135,571  
Rest of World208,075  218,963  
Total revenue$807,637  $786,890  

13


Contract Balances
The Company enters into contracts with its customers, which may give rise to contract liabilities (deferred revenue) and contract assets (unbilled revenue). The payment terms and conditions within the Company’s contracts vary by the type and location of its customer and products or services purchased, the substantial majority of which are due in less than one year. When the timing of revenue recognition differs from the timing of payments made by customers, the Company recognizes either unbilled revenue (its performance precedes the billing date) or deferred revenue (customer payment is received in advance of performance).
Unbilled Revenue (Contract Assets)
The Company presents unbilled revenue in the consolidated balance sheets within prepaid expenses and other current assets and within other assets. The Company’s contracts do not contain material financing components. The Company's unbilled revenue primarily consists of amounts that have yet to be billed under contracts with escalating fee structures. Specifically, because the Company generally recognizes revenue on a straight-line basis for data licensing arrangements with escalating fee structures, revenue recognized represents amounts to which the Company is contractually entitled; however, the revenue recognized exceeds the amounts the Company has a right to bill as of the period end, thus resulting in unbilled revenue.
Deferred Revenue (Contract Liabilities)
The Company presents deferred revenue primarily within accrued and other current liabilities in the consolidated balance sheets and there is not expected to be any material non-current contract liabilities given the Company's contracting provisions. The Company's deferred revenue balance primarily consists of cash payments due in advance of satisfying its performance obligations relating to data licensing contracts and performance obligations given to customers based on their spend relating to advertising contracts, for which the Company defers, as they represent material rights. The Company recognizes deferred revenue relating to its data licensing contracts on a straight-line basis over the period in which the Company provides data. The Company recognizes deferred revenue relating to its advertising contracts based on the amount of customer spend and the relative standalone selling price of the material rights.
The following table presents contract balances (in thousands):
March 31,
2020
December 31,
2019
Unbilled revenue$29,018  $27,691  
Deferred revenue$48,860  $69,000  
The amount of revenue recognized in the three months ended March 31, 2020 that was included in the deferred revenue balance as of December 31, 2019 was $45.3 million. This revenue consists primarily of revenue recognized as a result of the utilization of bonus ads inventory earned by and material rights provided to customers in prior periods and the satisfaction of the Company’s performance obligations relating to data licensing contracts with advance cash payments or material rights.
The amount of revenue recognized from obligations satisfied (or partially satisfied) in prior periods was not material.
The increase in unbilled revenue balance from December 31, 2019 to March 31, 2020 was primarily attributable to differences between revenue recognized and amounts billed in the Company's data licensing arrangements with escalating fee structures due to recognizing such fees as revenue on a straight-line basis.
The decrease in deferred revenue balance from December 31, 2019 to March 31, 2020 was primarily due to utilization of bonus and make good ads inventory earned in prior periods and the satisfaction of its performance obligations relating to data licensing contracts with advance cash payments or material rights, offset by bonus and make good ads inventory offered to customers during the period.
Remaining Performance Obligations
As of March 31, 2020, the aggregate amount of the transaction price allocated to remaining performance obligations in contracts with an original expected duration exceeding one year is $815.4 million. This total amount primarily consists of long-term data licensing contracts and excludes deferred revenue related to the Company’s short-term advertising service arrangements. The Company expects to recognize this amount as revenue over the following time periods (in thousands):
Remaining Performance Obligations

Total
Remainder of 202020212022 and Thereafter
Revenue expected to be recognized on remaining performance obligations$815,446  $220,308  $249,190  $345,948  


14


Note 3. Cash, Cash Equivalents and Short-term Investments
Cash, cash equivalents and short-term investments consist of the following (in thousands):
March 31,
2020
December 31,
2019
Cash and cash equivalents:
Cash$235,429  $254,405  
Money market funds2,617,093  465,158  
Corporate notes, commercial paper and certificates of deposit610,827  1,079,519  
Total cash and cash equivalents$3,463,349  $1,799,082  
Short-term investments:
U.S. government and agency securities including treasury bills$248,948  $660,860  
Corporate notes, commercial paper and certificates of deposit3,957,867  4,179,110  
Marketable equity securities500    
Total short-term investments$4,207,315  $4,839,970  
The contractual maturities of debt securities classified as available-for-sale as of March 31, 2020 were as follows (in thousands):
March 31,
2020
Due within one year$2,401,260  
Due after one year through five years1,805,555  
Total$4,206,815  

The following tables summarize unrealized gains and losses related to available-for-sale debt securities classified as short-term investments on the Company’s consolidated balance sheets (in thousands):
March 31, 2020
Gross
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Aggregated
Estimated
Fair Value
U.S. government and agency securities including treasury bills$247,262  $1,686  $  $248,948  
Corporate notes, commercial paper and certificates of deposit3,972,693  7,817  (22,643) 3,957,867  
Total available-for-sale debt securities classified as short-term investments$4,219,955  $9,503  $(22,643) $4,206,815  

December 31, 2019
Gross
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Aggregated
Estimated
Fair Value
U.S. government and agency securities including treasury bills$660,361  $1,049  $(550) $660,860  
Corporate notes, commercial paper and certificates of deposit4,166,203  13,133  (226) 4,179,110  
Total available-for-sale debt securities classified as short-term investments$4,826,564  $14,182  $(776) $4,839,970  
The gross unrealized loss on available-for-sale debt securities in a continuous loss position for 12 months or longer was not material as of March 31, 2020 and December 31, 2019.
Note 4. Fair Value Measurements
The Company measures its cash equivalents, short-term investments and derivative financial instruments at fair value. The Company classifies its cash equivalents, short-term investments and derivative financial instruments within Level 1 or Level 2 because the Company values these investments using quoted market prices or alternative pricing sources and models utilizing market observable inputs. The fair value of the Company’s Level 1 financial assets is based on quoted market prices of the identical underlying security. The fair value of the Company’s Level 2 financial assets is based on inputs that are directly or indirectly observable in the market, including the readily-available pricing sources for the identical underlying security that may not be actively traded.
15


The following tables set forth the fair value of the Company’s financial assets and liabilities measured at fair value on a recurring basis as of March 31, 2020 and December 31, 2019 based on the three-tier fair value hierarchy (in thousands):
March 31, 2020
Level 1Level 2Total
Assets
Cash equivalents:
Money market funds$2,617,093  $  $2,617,093  
Corporate notes  6,414  6,414  
Commercial paper  604,413  604,413  
Short-term investments:
U.S. government and agency securities  248,948  248,948  
Corporate notes  2,517,406  2,517,406  
Commercial paper  1,051,720  1,051,720  
Certificates of deposit  388,741  388,741  
Marketable equity securities500    500  
Other current assets:
Foreign currency contracts  1,979  1,979  
Total$2,617,593  $4,819,621  $7,437,214  
Liabilities
Other current liabilities:
Foreign currency contracts  4,646  4,646  
Total$  $4,646  $4,646  

December 31, 2019
Level 1Level 2Total
Assets
Cash equivalents:
Money market funds$465,158  $  $465,158  
Corporate notes  8,246  8,246  
Commercial paper  1,031,825  1,031,825  
Certificates of deposit  39,448  39,448  
Short-term investments:
U.S. government and agency securities  660,860  660,860  
Corporate notes  2,468,429  2,468,429  
Commercial paper  1,236,487  1,236,487  
Certificates of deposit  474,194  474,194  
Other current assets:
Foreign currency contracts  3,756  3,756  
Total$465,158  $5,923,245  $6,388,403  
Liabilities
Other current liabilities:
Foreign currency contracts  1,573  1,573  
Total$  $1,573  $1,573  
The Company has $954.0 million in aggregate principal amount of 1.00% convertible senior notes due in 2021, or the 2021 Notes, $1.15 billion in aggregate principal amount of 0.25% convertible senior notes due in 2024, or the 2024 Notes, $1.0 billion in aggregate principal amount of 0.375% convertible senior notes due in 2025, or the 2025 Notes, and, taken together with the 2021 Notes and the 2024 Notes, the Convertible Notes. The Company also has $700.0 million in aggregate principal amount of 3.875% senior notes due in 2027, or the 2027 Notes, and, together with the Convertible Notes, the Notes, outstanding as of March 31, 2020. Refer to Note 10 – Senior Notes and Convertible Notes for further details on the Notes.
The estimated fair value of the 2021 Notes, the 2024 Notes, and the 2027 Notes, based on a market approach as of March 31, 2020 was approximately $910.5 million, $1.04 billion, and $672.8 million, respectively, which represents a Level 2 valuation. The estimated fair value was determined based on the estimated or actual bids and offers of the Notes in an over-the-counter market on the last business day of the period.
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The estimated fair value of the 2025 Notes, based on a binomial model, as of March 31, 2020 was approximately $980.6 million, which represents a Level 3 valuation. The Level 3 inputs used include risk free rate, volatility and discount yield.
Derivative Financial Instruments
The Company enters into foreign currency forward contracts with financial institutions to reduce the risk that its earnings may be adversely affected by the impact of exchange rate fluctuations on monetary assets or liabilities denominated in currencies other than the functional currency of a subsidiary. These contracts do not subject the Company to material balance sheet risk due to exchange rate movements because gains and losses on these derivatives are intended to offset gains and losses on the hedged foreign currency denominated assets and liabilities. These foreign currency forward contracts are not designated as hedging instruments.
The Company recognizes these derivative instruments as either assets or liabilities in the consolidated balance sheets at fair value based on a Level 2 valuation. The Company records changes in the fair value (i.e., gains or losses) of the derivatives in other expense, net in the consolidated statements of operations. The notional principal of foreign currency contracts outstanding was equivalent to $428.4 million and $456.1 million at March 31, 2020 and December 31, 2019, respectively.
The fair values of outstanding derivative instruments for the periods presented on a gross basis are as follows (in thousands):
Balance Sheet LocationMarch 31,
2020
December 31,
2019
Assets
Foreign currency contracts not designated as hedging instrumentsOther current assets$1,979  $3,756  
Liabilities
Foreign currency contracts not designated as hedging instrumentsOther current liabilities$4,646  $1,573  
The Company recognized $11.7 million and $0.6 million of net losses on its foreign currency contracts in the three months ended March 31, 2020 and 2019, respectively.
Note 5. Property and Equipment, Net
The following tables set forth property and equipment, net by type and by geographic area for the periods presented (in thousands):
March 31,
2020
December 31,
2019
Property and equipment, net
Equipment$1,532,086  $1,445,003  
Furniture and leasehold improvements351,145  347,983  
Capitalized software714,988  688,894  
Construction in progress97,195  100,551  
Total2,695,414  2,582,431  
Less: Accumulated depreciation and amortization(1,614,043) (1,550,650) 
Property and equipment, net$1,081,371  $1,031,781  

March 31,
2020
December 31,
2019
Property and equipment, net:
United States$1,053,030  $999,552  
International28,341  32,229  
Total property and equipment, net$1,081,371  $1,031,781  

Note 6. Operating and Finance Leases
The Company has operating leases primarily for office space and data center facilities. The Company’s server and networking equipment leases typically are accounted for as finance leases. Operating lease right-of-use assets obtained in exchange for operating lease obligations were $13.3 million and $6.2 million in the three months ended March 31, 2020 and 2019, respectively. There were no material changes in the Company's operating and finance leases in the three months ended March 31, 2020, as compared to the disclosure in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2019.
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Note 7. Goodwill and Intangible Assets
The following table presents the goodwill activities for the periods presented (in thousands):
Goodwill
Balance as of December 31, 2019$1,256,699  
Acquisition18,590  
Other(5,656) 
Balance as of March 31, 2020$1,269,633  
For each of the periods presented, gross goodwill balance equaled the net balance since no impairment charges have been recorded. The following table presents the detail of intangible assets for the periods presented (in thousands):
Gross Carrying
Value
Accumulated
Amortization
Net Carrying
Value
March 31, 2020:
Patents and developed technologies$109,703  $(46,551) $63,152  
Other1,433  (20) 1,413  
Total$111,136  $(46,571) $64,565  
December 31, 2019:
Patents and developed technologies$96,636  $(41,530) $55,106  
Total$96,636  $(41,530) $55,106  
Amortization expense associated with intangible assets for the three months ended March 31, 2020 and 2019 was $5.0 million and $4.8 million, respectively.
Estimated future amortization expense as of March 31, 2020 is as follows (in thousands):
Remainder of 2020$