STOCKHOLDERS' EQUITY

6 Months Ended

Jun. 30, 2023

Share-Based Payment Arrangement [Abstract]

STOCKHOLDERS’ EQUITY

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. All new stock options and stock-based awards are granted in Class A common stock.

Warrants

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. The 2023 Warrants expire evenly over a 60 trading day period starting on August 15, 2023. None of the warrants were exercised as of June 30, 2023.

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. The 2025 Warrants expire evenly over a 60 trading day period starting on June 1, 2025. None of the warrants were exercised as of June 30, 2023.

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. The 2026 Warrants expire evenly over a 60 trading day period starting on August 1, 2026. None of the warrants were exercised as of June 30, 2023.

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. The 2027 Warrants expire evenly over a 60 trading day period starting on February 1, 2028. None of the warrants were exercised as of June 30, 2023.

Conversion of Convertible Notes and Exercise of Convertible Note Hedges

In connection with the conversion of the 2023 Convertible Notes, the Company issued an aggregate 5.2 million shares of Class A common stock as of the maturity date on May 15, 2023, of which no shares were issued in the three and six months ended June 30, 2023. 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 June 30, 2023. No shares were received in the three and six months ended June 30, 2023.

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. As of June 30, 2023, the total number of shares subject to stock options, restricted stock awards ("RSAs"), and restricted stock units ("RSUs") outstanding under the 2009 Plan was 2,651,384 shares.

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), RSAs, 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 June 30, 2023, the total number of shares subject to stock options, RSAs, and RSUs outstanding under the 2015 Plan was 46,483,117, and 125,416,973 shares were available for future issuance.

A summary of stock option activity for the six months ended June 30, 2023 is as follows (in thousands, except per share data):


	Number of Stock Options	Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value
Outstanding, beginning of the year	6,739	$	40.37	4.02	$	224,484
Granted	682	65.16
Exercised	(1,163)	10.48
Forfeited	(106)	108.34
Expired	(24)	80.33
Outstanding, end of the period	6,128	$	47.47	4.41	$	181,393

Exercisable, end of the period	4,853	$	36.27	3.25	$	176,912

Restricted Stock Activity

Activity related to RSAs and RSUs during the six months ended June 30, 2023 is set forth below (in thousands, except per share data):


	Number of Shares	Weighted Average Grant Date Fair Value
Unvested, beginning of the year	28,300	$	97.89
Granted	22,827	62.75
Vested	(6,567)	90.48
Forfeited	(1,554)	103.61
Unvested, end of the period	43,006	$	80.16

Share-Based Compensation

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


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Cost of revenue	$	142	$	139	$	284	$	248
Product development	223,411		179,137		421,268		324,212
Sales and marketing	32,790		25,133		62,155		46,389
General and administrative	62,905		52,229		115,132		161,212
Total	$	319,248	$	256,638	$	598,839	$	532,061

The Company recorded $11.4 million and $32.5 million of share-based compensation expense related to the Company's 2015 Employee Stock Purchase Plan during the three and six months ended June 30, 2023, respectively, compared to $12.9 million and $25.9 million during the three and six months ended June 30, 2022, respectively, which are included in the table above. The total share-based compensation expense for the six months ended June 30, 2022 also includes $66.3 million related to the acceleration of various share-based arrangements associated with the acquisition of Afterpay, which is included in the table above.

The Company capitalized $7.2 million and $13.1 million of share-based compensation expense related to capitalized software costs during the three and six months ended June 30, 2023, respectively, compared to $3.6 million and $7.6 million during the three and six months ended June 30, 2022, respectively.

As of June 30, 2023, there was $3.4 billion of total unrecognized compensation cost related to outstanding stock options, RSUs, and RSAs that are expected to be recognized over a weighted-average period of 2.9 years.