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Fair Value Measurements

9 Months Ended

Oct. 31, 2023

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 October 31, 2023 (in thousands):


	Level 1		Level 2		Total

Cash equivalents:
Money market funds	$	579,719	$	—	$	579,719
Time deposits	—		5,285		5,285
Commercial paper	—		4,996		4,996



Short-term investments:
Corporate notes and bonds	—		937,328		937,328
U.S. government and agency securities	—		756,460		756,460
Commercial paper	—		571,672		571,672
Certificates of deposit	—		300,897		300,897


Long-term investments:
Corporate notes and bonds	—		580,413		580,413
U.S. government and agency securities	—		367,416		367,416



Total	$	579,719	$	3,524,467	$	4,104,186

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, 2023 (in thousands):


	Level 1		Level 2		Total

Cash equivalents:
Money market funds(1)	$	520,138	$	—	$	520,138
Commercial paper	—		9,304		9,304

Corporate notes and bonds	—		6,903		6,903
Certificates of deposit	—		3,044		3,044
Short-term investments:
Corporate notes and bonds	—		1,301,296		1,301,296
Commercial paper	—		881,348		881,348
Certificates of deposit	—		445,194		445,194
U.S. government and agency securities	—		440,128		440,128
Long-term investments:
Corporate notes and bonds	—		801,784		801,784
U.S. government and agency securities	—		263,708		263,708
Certificates of deposit	—		7,531		7,531
Total(1)	$	520,138	$	4,160,240	$	4,680,378

________________

(1)Includes a reclassification of $141.0 million from cash to cash equivalents for the money market funds balance as of January 31, 2023, as presented in the Annual Report on Form 10-K filed with the SEC on March 29, 2023. Such reclassification did not impact the Company’s consolidated balance sheet as of January 31, 2023 or its consolidated statement of cash flows for the fiscal year ended January 31, 2023.

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):


	October 31, 2023		January 31, 2023

Equity securities:
Non-marketable equity securities under Measurement Alternative	$	192,038	$	174,248
Non-marketable equity securities under equity method	5,206		5,066
Marketable equity securities	26,329		22,122
Debt securities:
Non-marketable debt securities	1,500		1,500
Total strategic investments—included in other assets	$	225,073	$	202,936

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 October 31, 2023 (in thousands):


	Three Months Ended October 31,				Nine Months Ended October 31,
	2023		2022		2023		2022

Non-marketable equity securities under Measurement Alternative:
Upward adjustments	$	—	$	1,124	$	—	$	1,124
Impairments	(1,000)		(7,482)		(3,101)		(34,037)
Marketable equity securities:
Net unrealized gains (losses)	(790)		(6,706)		4,206		(12,183)
Total—included in other expense, net	$	(1,790)	$	(13,064)	$	1,105	$	(45,096)

The cumulative upward adjustments and the cumulative impairments to the carrying value of the non-marketable equity securities accounted for using the Measurement Alternative held by the Company as of October 31, 2023 were $37.1 million and $41.1 million, respectively.

No realized gains or losses were recognized on the Company’s strategic investments in equity securities during any of periods presented.

- 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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