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INVESTMENTS AND FAIR VALUE MEASUREMENT

3 Months Ended

Mar. 31, 2022

NOTE 5: INVESTMENTS AND FAIR VALUE MEASUREMENT

Investments

We invest in marketable debt securities which are classified as available-for-sale. We elected the fair value option on our available-for-sale debt securities and carry them at fair value with adjustments to fair value presented in other expense (income), net on our unaudited condensed consolidated statements of operations. Investments on our unaudited condensed consolidated balance sheet consisted of the following:


	December 31, 2021
(in millions)	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value
Debt securities:
Asset-backed securities	$	5	$	—	$	—	$	5
Commercial paper	14		—		—		14
Corporate bonds	7		—		—		7
Government bonds	1		—		—		1
Total investments	$	27	$	—	$	—	$	27


	March 31, 2022
(in millions)	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value
Debt securities:
Asset-backed securities	$	8	$	—	$	—	$	8
Commercial paper	19		—		—		19
Corporate bonds	12		—		—		12
Government bonds	1		—		—		1
Total investments	$	40	$	—	$	—	$	40

All of our debt securities as of December 31, 2021 and March 31, 2022 had a stated contractual maturity or redemption date within one year.

Fair Value of Financial Instruments

Financial assets and liabilities measured at fair value on a recurring basis were presented on our unaudited condensed consolidated balance sheets as follows:


	December 31, 2021
(in millions)	Level 1		Level 2		Level 3		Total
Assets
Cash equivalents:
Money market funds	$	4,004	$	—	$	—	$	4,004


Investments:
Asset-backed securities	—		5		—		5
Commercial paper	—		14		—		14
Corporate bonds	—		7		—		7
Government bonds	1		—				1
User-held fractional shares	1,834		—		—		1,834
Other current assets:
Equity securities - securities owned	14		—		—		14
Total financial assets	$	5,853	$	26	$	—	$	5,879

Liabilities


Fractional share repurchase obligations	$	1,834	$	—	$	—	$	1,834
Total financial liabilities	$	1,834	$	—	$	—	$	1,834


	March 31, 2022
(in millions)	Level 1		Level 2		Level 3		Total
Assets
Cash equivalents:
Money market funds	$	1,624	$	—	$	—	$	1,624


Investments:
Asset-backed securities	—		8		—		8
Commercial paper	—		19		—		19
Corporate bonds	—		12		—		12
Government bonds	1		—		—		1
User-held fractional shares	1,929		—		—		1,929
Other current assets:
Equity securities - securities owned	10		—		—		10
Total financial assets	$	3,564	$	39	$	—	$	3,603

Liabilities


Fractional shares repurchase obligations	$	1,929	$	—	$	—	$	1,929
Total financial liabilities	$	1,929	$	—	$	—	$	1,929

During the three months ended March 31, 2022, we did not have any transfers in or out of Level 3 assets or liabilities.

Convertible Notes and Warrant Liability

In February 2021, we issued two tranches of convertible notes (the “convertible notes”) and granted to each purchaser of the Tranche I convertible notes a warrant to purchase equity securities (the “warrant liability”). We elected the fair value option for both tranches of the convertible notes as we believe it best reflects their underlying economics. Under the fair value option, the convertible notes were initially measured at their issuance date estimated fair value and subsequently remeasured at their estimated fair value at the end of each reporting period. Upon the closing of our IPO, all of our outstanding convertible notes and warrants were reclassified from liability to equity and the fair value was no longer required to be remeasured.

For the three months ended March 31, 2021, we recorded expense of $1.4 billion and $116 million due to changes in fair value of the convertible notes and warrant liability, respectively, in our unaudited condensed consolidated statements of operations. No such expense related to the convertible notes was attributable to the change in the instrument-specific credit risk. We elected to present the component related to accrued interest in the change in fair value of convertible notes and warrant liability.

The significant unobservable inputs used in the fair value measurement of the convertible notes and warrant liability included:


	March 31, 2021
	Convertible notes			Warrant liability
Fair value of common stock	$	41.41		$	41.41
Instrument discount	10		%	10		%
Volatility	60		%	60		%
Discount rate(1)	30%/35%			N/A
Risk free rate	0.03		%	0.03		%
Conversion probability:
IPO by June 30, 2021	90		%	90		%
Next financing by June 30, 2021 followed by IPO by December 31, 2021	10		%	10		%

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(1) Discount rate of 30% was applied on Tranche I and 35% was applied on Tranche 2. This represents the discount rate associated with the downside scenarios.

The following table sets forth a summary of the changes in the estimated fair value of our convertible notes and warrant liability:


(in millions)	Convertible notes		Warrant liability
Beginning of period, January 1, 2021	$	—	$	—
Issued during the period	3,299		253
Change in fair value	1,376		116

End of period, March 31, 2021	$	4,675	$	369

- 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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