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Stock Based Awards and Other Equity Instruments

12 Months Ended

Dec. 31, 2020

Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]

Stock Based Awards and Other Equity Instruments

NOTE 15: STOCK BASED AWARDS AND OTHER EQUITY INSTRUMENTS

Stock-based Compensation Expense

The following table presents the amount of stock-based compensation expense related to stock-based awards, primarily stock options and RSUs, on our consolidated statements of operations during the periods presented:

	Year ended December 31,
	2020			2019			2018
	(in millions)
Cost of revenue	$	1		$	1		$	1
Selling and marketing		16			23			21
Technology and content		44			55			51
General and administrative		48			45			45
Total stock-based compensation expense		109			124			118
Income tax benefit from stock-based compensation expense		(23	)		(28	)		(27	)
Total stock-based compensation expense, net of tax effect	$	86		$	96		$	91

We capitalized $15 million, $19 million and $13 million of stock-based compensation expense as internal-use software and website development costs during the years ended December 31, 2020, 2019 and 2018, respectively.

Stock and Incentive Plans

On December 20, 2011, our 2011 Stock and Annual Incentive Plan (the “2011 Plan”) became effective and we filed a Registration Statement registering a total of 17,500,000 shares of our common stock, of which 17,400,000 shares were issuable in connection with grants of equity-based awards under our 2011 Plan and 100,000 shares were issuable under our Deferred Compensation Plan for Non-Employee Directors (refer to “Note 14: Employee Benefit Plans” for information on our Deferred Compensation Plan for Non-Employee Directors). At our annual meeting of stockholders held on June 28, 2013, our stockholders approved an amendment to our 2011 Plan to, among other things, increase the aggregate number of shares of common stock authorized for issuance thereunder by 15,000,000 shares.

On June 21, 2018, our stockholders approved the 2018 Stock and Annual Incentive Plan (the “2018 Plan”) and we filed a Registration Statement registering 6,000,000 shares plus the number of shares available for issuance (and not subject to outstanding awards) under the 2011 Plan. As of the effective date of the 2018 Plan, the Company ceased granting awards under the 2011 Plan. The 2018 Plan provides for the grant of stock options, stock appreciation rights, restricted stock, restricted stock units, and other stock-based awards to our directors, officers, employees and consultants. The foregoing summary of the material terms of the 2018 Plan is qualified in its entirety by reference to the 2018 Stock and Annual Incentive Plan Description incorporated herein by reference as Exhibit 10.4 to this Annual Report on Form 10-K.

As of December 31, 2020, the total number of shares reserved for future stock-based awards under the 2018 Plan is approximately 8.4 million shares. All shares of common stock issued in respect of the exercise of options, RSUs, or other equity awards have been issued from authorized, but unissued common stock.

Stock Based Award Activity and Valuation

Stock Option Activity

A summary of our stock option activity, consisting primarily of service-based non-qualified stock options, is presented below:

				Weighted		Weighted
				Average		Average
				Exercise		Remaining		Aggregate
	Options			Price Per		Contractual		Intrinsic
	Outstanding			Share		Life		Value
	(in thousands)					(in years)		(in millions)
Options outstanding as of December 31, 2017		6,853		$	52.78
Granted		762			43.53
Exercised (1)		(1,162	)		37.26
Cancelled or expired		(412	)		61.46
Options outstanding as of December 31, 2018		6,041			54.00
Granted		752			48.30
Exercised (1)		(195	)		42.17
Cancelled or expired		(581	)		56.97
Options outstanding as of December 31, 2019		6,017			50.27
Granted		1,106			25.23
Exercised (1)		(4	)		22.94
Cancelled or expired		(1,504	)		46.72
Options outstanding as of December 31, 2020		5,615		$	46.31		5.3	$	3
Exercisable as of December 31, 2020		3,293		$	55.87		3.4	$	—
Vested and expected to vest after December 31, 2020 (2)		5,615		$	46.31		5.3	$	3

(1)

Inclusive of 2,217, 120,112, and 814,635 stock options as of December 31, 2020, 2019 and 2018, respectively, which were not converted into shares due to net share settlement in order to cover the aggregate exercise price and the required amount of employee withholding taxes. Potential shares which had been convertible under stock options that were withheld under net share settlement remain in the authorized but unissued pool under the 2018 Plan and can be reissued by the Company. Total payments for the employees’ tax obligations to the taxing authorities due to net share settlements are reflected as a financing activity within the consolidated statements of cash flows.

(2)	The Company accounts for forfeitures as they occur, rather than estimate expected forfeitures as allowed under GAAP and therefore do not include a forfeiture rate in our vested and expected to vest calculation unless necessary for a performance condition award.

Aggregate intrinsic value represents the difference between the closing stock price of our common stock and the exercise price of outstanding, in-the-money options. Our closing stock price as reported on NASDAQ as of December 31, 2020 was $28.78. The total intrinsic value of stock options exercised for the year ended December 31, 2020 was not material, and for the years ending December 31, 2019 and 2018 was $2 million and $20 million, respectively.

The fair value of stock option grants has been estimated at the date of grant using the Black–Scholes option pricing model with the following weighted average assumptions for the periods presented:

	December 31,
	2020			2019			2018
Risk free interest rate		1.15	%		1.79	%		2.70	%
Expected term (in years)		5.30			5.19			5.45
Expected volatility		43.39	%		42.09	%		41.86	%
Expected dividend yield	— %			— %			— %
Weighted-average grant date fair value	$	10.08		$	21.25		$	18.11

The total fair value of stock options vested for the years ended December 31, 2020, 2019 and 2018 were $14 million, $15 million, and $38 million, respectively. Cash received from stock option exercises for the year ended December 31, 2020 was not material, and for the years ended December 31, 2019 and 2018 was $2 million and $6 million, respectively.

RSU Activity

A summary of our RSU activity is presented below:

				Weighted
				Average
				Grant-		Aggregate
	RSUs			Date Fair		Intrinsic
	Outstanding			Value Per Share		Value
	(in thousands)					(in millions)
Unvested RSUs outstanding as of December 31, 2017		5,802		$	48.81
Granted		3,302			43.04
Vested and released (1)		(1,617	)		54.22
Cancelled		(847	)		46.43
Unvested RSUs outstanding as of December 31, 2018		6,640			44.93
Granted (2)		4,688			47.35
Vested and released (1)		(2,002	)		48.11
Cancelled		(857	)		47.19
Unvested RSUs outstanding as of December 31, 2019		8,469			45.42
Granted		6,397			24.41
Vested and released (1)		(3,019	)		43.48
Cancelled		(3,736	)		36.26
Unvested RSUs outstanding as of December 31, 2020 (3)		8,111		$	32.29	$	233

(1)

Inclusive of 844,279, 532,164, and 424,848 RSUs as of December 31, 2020, 2019 and 2018, respectively, withheld due to net share settlement to satisfy required employee tax withholding requirements. Potential shares which had been convertible under RSUs that were withheld under net share settlement remain in the authorized but unissued pool under the 2018 Plan and can be reissued by the Company. Total payments for the employees’ tax obligations to the taxing authorities due to net share settlements are reflected as a financing activity within the consolidated statements of cash flows.

(2)	Inclusive of 843,426 dividend equivalents issued to employees holding non-vested RSU grant awards in conjunction with our special cash dividend declared on November 1, 2019, which will be payable to the holder subject to, and only upon vesting of, the underlying awards.

(3)	The Company accounts for forfeitures as they occur, rather than estimate expected forfeitures as allowed under GAAP and therefore do not include a forfeiture rate in our vested and expected to vest calculation unless necessary for a performance condition award.

On May 8, 2020, the Company entered into an amendment to the employment agreement (“Amendment”) with Ernst Teunissen, the Company’s Chief Financial Officer and Senior Vice President. The Amendment, among other things, provides for a target payment (“Bonus Award”) in an amount equal to the difference between a maximum payment of $7 million and the aggregate intrinsic value of Mr. Teunissen’s RSUs and stock options that vest between May 1, 2020 and May 31, 2022 (the “Target Period”), as measured using the average market price of the Company’s common stock for ten trading days immediately prior to May 31, 2022. On a quarterly basis, management estimates the Bonus Award and accrues this amount ratably over the Target Period, which as of and for the year ending December 31, 2020, was not material. The foregoing description of the Amendment does not purport to be complete and is qualified in its entirety by reference to the full text of the Amendment, which is incorporated by reference in this Annual Report on Form 10-K as Exhibit 10.25.

On May 27, 2020 and July 15, 2020, the Compensation Committee of the Board of Directors, approved modifications to the Company’s annual RSU and stock option grants, respectively, issued to its employees in the first quarter of 2020. Such modifications reduced the original grant-date vesting period from four years to two years. We estimate these modifications resulted in the acceleration and recognition of an additional $17 million of stock-based compensation expense during the year ended December 31, 2020, given the modified vesting term. There was

no change to the original fair value of the impacted RSUs or stock options as a result of this modification. This modification did not apply to the RSU and stock option grants to Mr. Teunissen in light of the separate arrangement described above.

A summary of our MSU activity is presented below:

				Weighted
				Average
				Grant-		Aggregate
	MSUs			Date Fair		Intrinsic
	Outstanding			Value Per Share		Value
	(in thousands)					(in millions)
Unvested MSUs outstanding as of December 31, 2017		213		$	30.04
Granted (1)		71			59.40
Vested and released		—			—
Cancelled		—			—
Unvested MSUs outstanding as of December 31, 2018		284			37.41
Granted (2)(3)		121			51.76
Vested and released		—			—
Cancelled		(16	)		58.63
Unvested MSUs outstanding as of December 31, 2019		389			40.99
Granted (4)		133			28.15
Vested and released		—			—
Cancelled (5)		(348	)		37.94
Unvested MSUs outstanding as of December 31, 2020		174		$	37.29	$	5

(1)

MSUs provide for vesting based upon the Company’s total shareholder return, or TSR, performance over the period commencing January 1, 2018 through December 31, 2020 relative to the TSR performance of the Nasdaq Composite Total Return Index. Based upon actual attainment relative to the target performance metric, the grantee has the ability to receive up to 200% of the target number of MSUs originally granted, or to be issued none at all.

(2)

Inclusive of 78,050 MSUs which provide for vesting based upon the Company’s total shareholder return, or TSR, performance over the period commencing January 1, 2019 through December 31, 2021 relative to the TSR performance of the Nasdaq Composite Total Return Index. Based upon actual attainment relative to the target performance metric, the grantee has the ability to receive up to 200% of the target number of MSUs originally granted, or to be issued none at all.

(3)	Inclusive of 42,477 dividend equivalents issued to employees holding non-vested MSU grant awards in conjunction with our special cash dividend declared on November 1, 2019, which will be payable to the holder subject to, and only upon vesting of, the underlying awards.

(4)

MSUs provide for vesting based upon the Company’s total shareholder return, or TSR, performance over the period commencing January 1, 2020 through December 31, 2022 relative to the TSR performance of the Nasdaq Composite Total Return Index. Based upon actual attainment relative to the target performance metric, the grantee has the ability to receive up to 200% of the target number of MSUs originally granted, or to receive none at all.

(5)	MSU cancellations primarily reflect performance targets not being attained during the performance period.

A Monte-Carlo simulation model, which simulated the present value of the potential outcomes of future stock prices and TSR of the Company and the Nasdaq Composite Total Return Index over the performance period, was used to calculate the grant-date fair value of our MSU awards. The estimated grant-date fair value of these awards is amortized on a straight-line basis over the requisite service period.

Unrecognized Stock-Based Compensation

A summary of our remaining unrecognized compensation expense and the weighted average remaining amortization period at December 31, 2020 related to our non-vested equity awards is presented below (in millions, except in years information):

	Stock
	Options		RSUs/MSUs
Unrecognized compensation expense	$	18	$	160
Weighted average period remaining (in years)		1.7		1.7