Stock-Based Compensation

Total stock-based compensation expense related to options, restricted stock awards, employee stock purchases, restricted stock units and stock purchase rights granted were allocated as follows (in thousands):



	Three Months Ended September 30,				Nine Months Ended September 30,
	2014		2013		2014		2013
Cost of revenue	$	480	$	107	$	992	$	257
Research and development	4,304		1,319		10,298		3,449
Sales and marketing	2,387		765		5,746		1,859
General and administrative	911		393		2,533		834
Total stock-based compensation	$	8,082	$	2,584	$	19,569	$	6,399

Allocations to cost of revenue, research and development, general and administrative and selling and marketing expense are based upon the department to which the associated employee reported.

Equity Award Plans

During the year ended December 31, 2004, we adopted the 2004 Equity Incentive Plan (the “2004 Plan”) for the purpose of granting stock based awards to employees, directors and consultants. Awards granted under the 2004 Plan could be in the form of Incentive Stock Options (“ISOs”), Nonstatutory Stock Options (“NSOs”) or Restricted Stock Awards (“RSAs”). With the establishment of the 2011 Plan (as defined below), the 2004 Plan was terminated with respect to the grant of future awards but the 2004 Plan continues to govern awards previously issued thereunder. During the year ended December 31, 2011, we adopted the 2011 Equity Incentive Plan (the “2011 Plan”) for the purpose of granting stock based awards to employees, directors, and consultants. Awards granted under the 2011 Plan could have been ISOs, NSOs, RSAs, Stock Appreciation Rights (“SARs”) or Restricted Stock Units (“RSUs”). With the establishment of the 2014 Plan (as defined below), the 2011 Plan terminated with respect to the grant of future awards but the 2011 Plan continues to govern awards previously issued thereunder.

2014 Plan

In April 2014, the board of directors and stockholders approved the 2014 Equity Incentive Plan (the “2014 Plan”), effective on the first day that our common stock was publicly traded. A total of 6,510,000 shares of our common stock were initially reserved for issuance under the 2014 Plan. In addition, the shares reserved for issuance under our 2014 Plan will also include (a) those shares reserved but unissued under the 2011 Plan and 2004 Plan as of the effective date and (b) shares returned to our 2011 Plan and 2004 Plan as the result of expiration or termination of options (provided that the maximum number of shares that may be added to the 2014 Plan pursuant to (a) and (b) is 20,025,189 shares). The number of shares available for grant and issuance under the 2014 Plan will be increased automatically on January 1 of each year commencing with 2016 by the number of shares equal to 3% of our shares outstanding on the immediately preceding December 31, but not to exceed 12,500,000 shares, unless the board of directors, in its discretion, determines to make a smaller increase.

2014 Employee Stock Purchase Plan

In April 2014, the board of directors and stockholders approved the 2014 Employee Stock Purchase Plan (the “ESPP”). The ESPP will become effective on the first day that our common stock is publicly traded. A total of 651,000 shares of our common stock are initially reserved for future issuance under the ESPP. The number of shares reserved for issuance under the ESPP will increase automatically on January 1 of each year commencing with 2015 by the number of shares equal to 1% of our shares outstanding immediately preceding December 31, but not to exceed 2,500,000 shares, unless the board of directors, in its discretion, determines to make a smaller increase.

Determination of Fair Value

Employee Stock Plans

For the three and nine months ended September 30, 2014 and 2013, the fair value of each stock option granted under the 2011 Plan was estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions and fair value per share:



	Three Months Ended September 30,				Nine Months Ended September 30,
	2014		2013		2014		2013
Expected term (in years)	6.2		6.7		7.6		6.6
Risk-free interest rate	1.9	%	2.2	%	2.3	%	1.7	%
Expected volatility	49.1	%	50.5	%	47.8	%	50.8	%
Dividend rate	—	%	—	%	—	%	—	%

ESPP

There were no stock purchases under the ESPP during the three and nine months ended September 30, 2014. The following table summarizes the assumptions relating to our ESPP:



	Three Months Ended September 30,			Nine Months Ended September 30,
	2014		2013	2014		2013
Expected term (in years)	1.4		N/A	1.4		N/A
Risk-free interest rate	0.3	%	N/A	0.3	%	N/A
Expected volatility	36.3	%	N/A	36.3	%	N/A
Dividend rate	—	%	N/A	—	%	N/A

As of September 30, 2014, the total unrecognized stock-based compensation expense for unvested ESPP options, net of expected forfeitures, was $4.1 million, which is expected to be recognized over a weighted-average period of 1.9 years.

Stock Option Activities

The following table summarizes the option and RSA (Restricted Stock Award) activity under the 2004 Plan and 2011 Plan and related information:



			Options and RSAs Outstanding
	Shares Available for Grant (in thousands)		Number of Shares Underlying Outstanding Options and RSAs (in thousands)		Weighted- Average Exercise Price per Share		Weighted- Average Remaining Contractual Term (Years) of Stock Options	Aggregate Intrinsic Value of Stock Options Outstanding (in thousands)
Outstanding—December 31, 2013	8,941		11,245		$	6.82	8.8	$	254,319
Authorized	6,510
Options granted	(3,537	)	3,483		33.32
Options exercised	—		(244	)	7.6
Options canceled	507		(507	)	11.19
Early exercised shares repurchased	26		—		4.05
Outstanding—September 30, 2014	12,447		13,977		$	13.25	8.4	$	1,047,415
Vested and exercisable—September 30, 2014			3,661		$	4.67	7.5	$	306,260
Vested and expected to vest—September 30, 2014			12,338		$	12.20	8.3	$	939,302

The weighted-average grant-date fair value of options granted during the nine months ended September 30, 2014 was $20.45 per share. The aggregate intrinsic value of options exercised for the nine months ended September 30, 2014 was $7.5 million.

As of September 30, 2014, the total unrecognized stock-based compensation expense for unvested stock options, net of expected forfeitures, was $88.8 million, which is expected to be recognized over a weighted-average period of 3.9 years. The total fair value of options vested for the nine months ended September 30, 2014 was $8.4 million.

Under the 2004 Plan and 2011 Plan, the options outstanding and vested and exercisable by exercise price at September 30, 2014 are as follows:



	Options Outstanding and Exercisable				Options Vested and Exercisable
Range of Exercise Price	Number of Shares Underlying Outstanding Options (in thousands)	Weighted- Average Remaining Contractual Life (Years)	Weighted- Average Exercise Price per Share		Number of Shares Underlying Outstanding Options (in thousands)	Weighted- Average Exercise Price per Share
$3.33 - $4.16	4,076	7.2	$	3.65	2,463	$	3.6
$4.18 - $4.92	2,123	8.1	4.56		618	4.73
$7.76 - $8.77	1,971	8.6	8.26		447	8.29
$10.18	1,886	9.0	10.18		120	10.18
$22.49	1,041	9.2	22.49		4	22.49
$30.67	1,658	9.4	30.67		2	30.47
$34.12 - $38.00	1,072	9.6	36.92		7	35.26
$75.00 - $84.00	150	9.9	75.60		—	—
	13,977	8.4	$	13.25	3,661	$	4.67

Restricted Stock Unit (RSU) Activities

A summary of the activity under our stock plans and changes during the reporting period and a summary of information related to RSUs are presented below (in thousands, except years and per share amounts):



	Number of Shares	Weighted- Average Grant Date Fair Value Per Share		Weighted-Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value
Unvested balance—December 31, 2013	—	—		0	—
RSUs granted	54	$	76.76
RSUs vested	—	—
RSUs forfeited/canceled	—	—
Unvested balance—September 30, 2014	54	$	76.76	2.1	$	4,772
RSUs vested and expected to vest—September 30, 2014	54	$	76.76	2.1	$	4,772

As of September 30, 2014, there was $3.4 million of unrecognized compensation cost related to unvested RSUs, net of estimated forfeitures. This amount is expected to be recognized over a weighted-average period of 3.1 years.

Restricted Stock Award Activities

A summary of our RSA activity and related information is as follows (in thousands, except per share amounts):



	Number of RSA’s Outstanding		Weighted- Average Grant Date Fair Value Per Share
Unvested balance—December 31, 2013	142		$	2.42
Vested	(44	)	2.50
Unvested balance—September 30, 2014	98		$	2.50

There were no RSAs granted during the nine months ended September 30, 2014. As of September 30, 2014, the total unrecognized expense for outstanding RSAs, net of expected forfeitures, was $0.3 million, which is expected to be amortized over a weighted-average period of 2.0 years. As of September 30, 2014, the intrinsic value of the outstanding RSAs based on the estimated fair value of $88.33 per share was $8.4 million.

Early Exercise of Stock Options

We have typically allowed our employees and directors to exercise options granted under the 2011 Plan and the 2004 Plan prior to vesting. Upon an "early exercise" of these options, the unvested shares acquired through the exercise become options subject to our repurchase right that lapse in accordance with the original option vesting schedule. Upon termination of employment prior to our repurchase rights lapsing in full, we have a right to repurchase the unvested shares at the original purchase price (or the then-current fair market value, if lower). The proceeds initially are recorded in other liabilities from the early exercise of stock options and are reclassified to common stock and paid-in capital as our repurchase right lapse. For the nine months ended September 30, 2014, we repurchased 29,803 shares of common stock at the original exercise price due to the termination of the holders of the unvested shares. As of September 30, 2014, shares held by employees and directors that were subject to repurchase were 1.8 million with an aggregate price of $5.6 million.