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Fair Value Measurements

6 Months Ended

Jul. 31, 2022

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the reporting date. The accounting guidance establishes a three-tiered hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value as follows:

Level 1 Inputs: Unadjusted quoted prices in active markets for identical assets or liabilities accessible to the reporting entity at the measurement date.

Level 2 Inputs: Other than quoted prices included in Level 1 inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability.

Level 3 Inputs: Unobservable inputs for the asset or liability used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at the measurement date.

The following table presents the fair value hierarchy for the Company’s assets measured at fair value on a recurring basis as of July 31, 2022 (in thousands):


	Level 1		Level 2		Total

Cash equivalents:
Money market funds	$	590,661	$	—	$	590,661
Commercial paper	—		71,821		71,821


Corporate notes and bonds	—		15,696		15,696
Short-term investments:
Corporate notes and bonds	—		1,729,751		1,729,751
Commercial paper	—		889,803		889,803
Certificates of deposit	—		289,481		289,481
U.S. government and agency securities	—		137,442		137,442

Long-term investments:
Corporate notes and bonds	—		704,521		704,521
U.S. government and agency securities	—		382,163		382,163



Total	$	590,661	$	4,220,678	$	4,811,339

The following table presents the fair value hierarchy for the Company’s assets measured at fair value on a recurring basis as of January 31, 2022 (in thousands):


	Level 1		Level 2		Total

Cash equivalents:
Money market funds	$	722,492	$	—	$	722,492
Commercial paper	—		77,794		77,794
U.S. government securities	—		36,995		36,995

Corporate notes and bonds	—		7,949		7,949
Short-term investments:
Corporate notes and bonds	—		1,662,436		1,662,436
Commercial paper	—		883,636		883,636
U.S. government and agency securities	—		116,712		116,712
Certificates of deposit	—		103,580		103,580
Long-term investments:
Corporate notes and bonds	—		935,603		935,603
U.S. government and agency securities	—		320,207		320,207
Certificates of deposit	—		397		397

Total	$	722,492	$	4,145,309	$	4,867,801

The Company determines the fair value of its security holdings based on pricing from the Company’s service providers and market prices from industry-standard independent data providers. Such market prices may be quoted prices in active markets for identical assets (Level 1 inputs) or pricing determined using inputs other than quoted prices that are observable either directly or indirectly (Level 2 inputs), such as yield curve, volatility factors, credit spreads, default rates, loss severity, current market and contractual prices for the underlying instruments or debt, broker and dealer quotes, as well as other relevant economic measures.

Strategic Investments

The tables above do not include the Company’s strategic investments, which consist primarily of (i) non-marketable equity securities recorded at cost minus impairment, if any, and adjusted for observable transactions for the same or similar investments of the same issuer (referred to as the Measurement Alternative), and (ii) marketable equity securities.

The Company’s non-marketable equity securities accounted for using the Measurement Alternative are recorded at fair value on a non-recurring basis and classified within Level 3 of the fair value hierarchy because significant unobservable inputs or data in an inactive market are used in estimating their fair value. The estimation of fair value for these assets requires the use of an observable transaction price or other unobservable inputs, including the volatility, rights, and obligations of the securities the Company holds. The Company’s marketable equity securities are recorded at fair value on a recurring basis and classified within Level 1 of the fair value hierarchy because they are valued using the quoted market price.

The following table presents the Company’s strategic investments by type (in thousands):


	July 31, 2022		January 31, 2022

Equity securities:
Non-marketable equity securities under Measurement Alternative	$	176,805	$	170,860

Marketable equity securities	29,168		34,646
Debt securities:
Non-marketable debt securities	1,500		2,250
Total strategic investments—included in other assets	$	207,473	$	207,756

The following table summarizes the unrealized gains and losses included in the carrying value of the Company’s strategic investments in equity securities held as of July 31, 2022 (in thousands):


	Three Months Ended July 31,				Six Months Ended July 31,
	2022		2021		2022		2021

Non-marketable equity securities under Measurement Alternative:
Upward adjustments	$	—	$	8,060	$	—	$	8,060
Impairments	(26,555)		—		(26,555)		—

Marketable equity securities:
Net unrealized gains (losses)(1)	3,382		—		(5,477)		—
Total—included in other income (expense), net	$	(23,173)	$	8,060	$	(32,032)	$	8,060

________________

(1)The Company did not have any strategic investments in marketable equity securities during the three and six months ended July 31, 2021.

No realized gains or losses were recognized on the Company’s strategic investments in equity securities during any of periods presented. The cumulative upward adjustments and the cumulative impairments to the carrying value of the non-marketable equity securities accounted for using the Measurement Alternative that the Company held as of July 31, 2022 were $33.0 million and $26.6 million, respectively.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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