STOCKHOLDERS' EQUITY

3 Months Ended

Mar. 31, 2022

Share-based Payment Arrangement [Abstract]

STOCKHOLDERS’ EQUITY

Preferred Stock

As of March 31, 2022, the Company is authorized to issue 100,000,000 shares of preferred stock, with a $0.0000001 par value. No shares of preferred stock are outstanding as of March 31, 2022.

Common Stock

The Company has two classes of authorized common stock outstanding; Class A common stock and Class B common stock. Class A common stock and Class B common stock are referred to as "common stock" throughout these Notes to the Condensed Consolidated Financial Statements, unless otherwise noted. Holders of shares of Class A common stock are entitled to one vote per share, while holders of shares of Class B common stock are entitled to ten votes per share. Shares of the Company's Class B common stock are convertible into an equivalent number of shares of its Class A common stock and generally convert into shares of its Class A common stock upon transfer. The holders of Class A common stock and Class B common stock have no preemptive or other subscription rights and there are no redemption or sinking fund provisions with respect to such shares. As of March 31, 2022, the Company was authorized to issue 1,000,000,000 shares of Class A common stock and 500,000,000 shares of Class B common stock, each with a par value of $0.0000001 per share. As of March 31, 2022, there were 517,799,568 shares of Class A common stock and 61,696,578 shares of Class B common stock outstanding. Options and awards granted following the Company's initial public offering are related to underlying Class A common stock.

Warrants

In conjunction with the 2022 Convertible Notes offering, the Company sold the 2022 Warrants whereby the counterparties have the option to purchase a total of approximately 19.2 million shares of the Company’s Class A common stock at a price of $31.18 per share, and expire on June 1, 2022. None of the warrants were exercised as of March 31, 2022.

In conjunction with the 2023 Convertible Notes offering, the Company sold the 2023 Warrants whereby the counterparties have the option to purchase a total of approximately 11.1 million shares of the Company’s Class A common stock at a price of $109.26 per share, and expire on August 15, 2023. None of the warrants were exercised as of March 31, 2022.

In conjunction with the 2025 Convertible Notes offering, the Company sold the 2025 Warrants whereby the counterparties have the option to purchase a total of approximately 8.3 million shares of the Company’s Class A common stock at a price of $161.34 per share, and expire on June 1, 2025. None of the warrants were exercised as of March 31, 2022.

In conjunction with the 2026 Convertible Notes offering, the Company sold the 2026 Warrants whereby the counterparties have the option to purchase a total of approximately 1.9 million shares of the Company’s Class A common stock at a price of $368.16 per share, and expire on August 1, 2026. None of the warrants were exercised as of March 31, 2022.

In conjunction with the 2027 Convertible Notes offering, the Company sold the 2027 Warrants whereby the counterparties have the option to purchase a total of approximately 1.9 million shares of the Company’s Class A common stock at a price of $414.18 per share, and expire on February 1, 2028. None of the warrants were exercised as of March 31, 2022.

Conversion of Convertible Notes and Exercise of Convertible Note Hedges

In connection with the conversion of the 2022 Convertible Notes, the Company issued 16.5 million shares of Class A common stock, of which an immaterial number of shares were issued in the three months ended March 31, 2022. The Company also exercised a pro-rata portion of the 2022 Convertible Note Hedges and received 15.0 million shares of Class A common stock from the 2022 Note Hedge Counterparties to offset the shares issued, of which 0.2 million shares were received in the three months ended March 31, 2022.

In connection with the conversion of the 2023 Convertible Notes, the Company issued 5.2 million shares of Class A common stock in the three months ended March 31, 2022. The Company also exercised a pro-rata portion of the 2023 Convertible Note Hedges and received 3.0 million shares of Class A common stock from the 2023 Note Hedge Counterparties to offset the shares issued as of March 31, 2022.

Stock Plans

The Company maintains two share-based employee compensation plans: the 2009 Stock Plan ("2009 Plan") and the 2015 Equity Incentive Plan ("2015 Plan"). The 2015 Plan serves as the successor to the 2009 Plan. The 2015 Plan became effective as of November 17, 2015. Outstanding awards under the 2009 Plan continue to be subject to the terms and conditions of the 2009 Plan. Since November 17, 2015, no additional awards have been nor will be granted in the future under the 2009 Plan.

Under the 2015 Plan, shares of the Company's Class A common stock are reserved for the issuance of incentive and nonstatutory stock options ("ISOs" and "NSOs", respectively), restricted stock awards ("RSAs"), restricted stock units ("RSUs"), performance shares, and stock bonuses to qualified employees, directors, and consultants. The awards must be granted at a price per share not less than the fair market value at the date of grant. Initially, 30,000,000 shares were reserved under the 2015 Plan and any shares subject to options or other similar awards granted under the 2009 Plan that expire, are forfeited, are repurchased by the Company, or otherwise terminate unexercised, will become available under the 2015 Plan. The number of shares available for issuance under the 2015 Plan has been and will be increased on the first day of each fiscal year, in an amount equal to the least of (i) 40,000,000 shares, (ii) 5% of the outstanding shares on the last day of the immediately preceding fiscal year, or (iii) such number of shares determined by the administrator of the Plan. The administrator consists of the Board of Directors who then delegates the responsibilities to the Compensation Committee. As

of March 31, 2022, the total number of shares subject to stock options, RSAs and RSUs outstanding under the 2015 Plan was 16,635,548, and 138,604,728 shares were available for future issuance. As of March 31, 2022, the total number of shares subject to stock options, RSAs and RSUs outstanding under the 2009 Plan was 6,080,636.

A summary of stock option activity for the three months ended March 31, 2022 is as follows (in thousands, except share and per share data):


	Number of Stock Options Outstanding	Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value
Balance at December 31, 2021	8,916,100	$	26.09	3.89	$	1,226,105
Granted	264,897	44.98
Exercised	(407,887)	10.03
Forfeited	(44,692)	55.37
Balance at March 31, 2022	8,728,418	$	27.27	3.63	$	970,780

Options exercisable as of March 31, 2022	7,565,229	$	18.10	3.12	$	894,398

Restricted Stock Activity

Activity related to RSAs and RSUs during the three months ended March 31, 2022 is set forth below:


	Number of Shares	Weighted Average Grant Date Fair Value
Unvested as of December 31, 2021	13,221,953	$	137.86
Granted	3,019,011	114.52
Vested	(1,593,198)	105.33
Forfeited	(660,000)	124.84
Unvested as of March 31, 2022	13,987,766	$	137.14

Share-Based Compensation

The fair value of stock options and employee stock purchase plan rights are estimated on the date of grant using the Black-Scholes-Merton option valuation model. The fair value of RSAs and RSUs is determined by the closing price of the Company’s common stock on each grant date.

The following table summarizes the effects of share-based compensation on the Company's condensed consolidated statements of operations (in thousands):


	Three Months Ended March 31,
	2022		2021
Cost of revenue	$	109	$	99
Product development	145,075		86,895
Sales and marketing	21,256		10,880
General and administrative	108,983		20,749
Total	$	275,423	$	118,623

The Company recorded $13.0 million and $8.8 million of share-based compensation expense related to the Company's 2015 Employee Stock Purchase Plan during the three months ended March 31, 2022 and 2021, respectively, which are included in the table above. The total share-based compensation expense for the three months ended March 31,

2022 also includes $66.3 million related to the acceleration of various share-based arrangements associated with the acquisition of Afterpay.

The Company capitalized $3.9 million and $3.4 million of share-based compensation expense related to capitalized software costs during the three months ended March 31, 2022 and 2021, respectively.

As of March 31, 2022, there was $1.8 billion of total unrecognized compensation cost related to outstanding stock options and restricted stock awards that are expected to be recognized over a weighted-average period of 2.74 years.