PINTEREST, INC. The following discussion and analysis of our financial condition and results of operations should be read together with our condensed consolidated financial statements and related notes and other financial information appearing elsewhere in this Quarterly Report on Form 10-Q. This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions, including uncertainty regarding the duration and scope of the impact of the COVID-19 pandemic. Our actual results could differ materially from these forward-looking statements as a result of many factors, including those discussed in "Risk Factors" and "Note About Forward-Looking Statements" included elsewhere in this Quarterly Report on Form 10-Q. Overview of Second Quarter Results Our key financial and operating results as of and for the three months endedJune 30, 2019 are as follows: •Revenue was$272.5 million , an increase of 4% compared to the three months endedJune 30, 2019 . •Monthly active users ("MAUs") were 416 million, an increase of 39% compared toJune 30, 2019 . •Share-based compensation expense was$62.1 million , a decrease of$1,072.5 million compared to the three months endedJune 30, 2019 . •Total costs and expenses were$377.0 million . •Loss from operations was$(104.5) million . •Net loss was$(100.7) million . •Adjusted EBITDA was$(33.9) million . •Cash, cash equivalents and marketable securities were$1,703.1 million . •Headcount was 2,432. Update on the COVID-19 Pandemic The COVID-19 pandemic has resulted in authorities implementing numerous preventative measures to contain or mitigate the outbreak of the virus, such as travel bans and restrictions, limitations on business activity, quarantines and shelter-in-place orders. These measures have caused, and are continuing to cause, business slowdowns or shutdowns in affected areas, both regionally and worldwide, which has impacted our business and results of operations. After a sharp deceleration in growth in mid-March as advertisers responded to the COVID-19 pandemic, our revenue growth stabilized in April, improved in each month of the quarter and continued to accelerate in early July as shelter-in-place restrictions eased. An increase in the number of advertisements supported our revenue growth. In addition, as people began spending more time at home due to the pandemic, over the same time period, we have seen an increase in user engagement, driving higher levels of board creation and visitation, saves, searches, conversions and MAUs. We are unable to predict the extent and duration of the impact of the COVID-19 pandemic on our business, operations and financial results. See "Risk Factors" and "Note About Forward-Looking Statements" for additional details. While we plan to continue to invest in our strategic priorities in the coming year as we pursue and prioritize long-term growth, we are also making adjustments to our expenses where appropriate to be prudent in the current environment. Since the full impact of the COVID-19 pandemic on our results of operations and overall financial performance remains uncertain and highly unpredictable, our past results may not be indicative of our future performance. To the extent the pandemic continues to disrupt economic activity globally we, like other businesses, would not be immune as it could adversely affect our business, operations and financial results through prolonged decreases in advertising spend, depressed economic activity or declines in capital markets. We continue to actively monitor the situation and may take further actions that alter our business operations as may be required by federal, state, local or foreign authorities, or that we determine are in the best interests of our employees, advertisers, Pinners, partners and stockholders. It is not clear what the potential effects any such alterations or modifications may have on our business, including the effects on our employees, advertisers, Pinners, suppliers, vendors or other partners, or on our financial results. 20 -------------------------------------------------------------------------------- Trends in User Metrics Monthly Active Users. We define a monthly active user as an authenticated
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Note:
21
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As of June 30, 2020 , global MAUs were 416 million, an increase of 39% compared
to June 30, 2019 . While we have historically had lower engagement in the second
calendar quarter, we experienced an increase in active user growth with the
recent shelter-in-place order related to the COVID-19 pandemic. We do not expect
to experience similar user growth rates in the future, but as the impact of the
COVID-19 pandemic on user growth is hard to measure and predict, we do not know
the extent to which new or existing users will maintain their engagement once
the pandemic has subsided.
We have experienced significant growth in our global MAUs over the last several
years. In particular, our international MAUs have grown significantly as a
result of our focus on localizing content in international markets. We expect
our international user growth to continue to outpace U.S. user growth in the
near term.
Trends in Monetization Metrics
Revenue. We calculate revenue by user geography based on our estimate of the
geography in which ad impressions are delivered. The geography of our users
affects our revenue and financial results because we currently only monetize
certain countries and currencies and because we monetize different geographies
at different average rates. Our revenue in the United States is higher primarily
due to our decision to focus our earliest monetization efforts there and also
due to the relative size and maturity of the U.S. digital advertising market.
Quarterly Revenue
(in millions)
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22-------------------------------------------------------------------------------- [[Image Removed: pins-20200630_g6.jpg]][[Image Removed: pins-20200630_g7.jpg]] Note: Revenue by geography in the charts above is geographically apportioned based on our estimate of the geographic location of our users when they perform a revenue-generating activity. This allocation differs from our disclosure of revenue disaggregated by geography in the notes to our condensed consolidated financial statements where revenue is geographically apportioned based on our customers' billing addresses.United States and International may not sum to Global and quarterly amounts may not sum to annual due to rounding. Average Revenue per User ("ARPU"). We measure monetization of our platform through our average revenue per user metric. We define ARPU as our total revenue in a given geography during a period divided by average MAUs in that geography during the period. We calculate ARPU by geography based on our estimate of the geography in which revenue-generating activities occur. We present ARPU on aU.S. and international basis because we currently monetize users in different geographies at different average rates.U.S. ARPU is higher primarily due to our decision to focus our earliest monetization efforts there and also due to the relative size and maturity of theU.S. digital advertising market. Quarterly Average Revenue per User [[Image Removed: pins-20200630_g8.jpg]] 23 -------------------------------------------------------------------------------- [[Image Removed: pins-20200630_g9.jpg]][[Image Removed: pins-20200630_g10.jpg]] For the three months endedJune 30, 2020 , global ARPU was$0.70 , which represents a decrease of 21% compared to the three months endedJune 30, 2019 . For the three months endedJune 30, 2020 ,U.S. ARPU was$2.50 , a decrease of 11%, and international ARPU was$0.14 , an increase of 21% compared to the three months endedJune 30, 2019 . We use MAUs and ARPU to assess the growth and health of the overall business and believe that these metrics best reflect our ability to attract, retain, engage and monetize our users, and thereby drive revenue. 24 -------------------------------------------------------------------------------- Non-GAAP Financial Measure To supplement our condensed consolidated financial statements presented in accordance with GAAP, we consider Adjusted EBITDA, a financial measure which is not based on any standardized methodology prescribed by GAAP. We define Adjusted EBITDA as net loss adjusted to exclude depreciation and amortization expense, share-based compensation expense, interest income, interest expense and other income (expense), net and provision for income taxes. We use Adjusted EBITDA to evaluate our operating results and for financial and operational decision-making purposes. We believe Adjusted EBITDA helps identify underlying trends in our business that could otherwise be masked by the effect of the income and expenses that it excludes. We also believe Adjusted EBITDA provides useful information about our operating results, enhances the overall understanding of our past performance and future prospects, and allows for greater transparency with respect to key metrics we use for financial and operational decision-making. We are presenting Adjusted EBITDA to assist investors in seeing our operating results through the eyes of management, and because we believe that this measure provides an additional tool for investors to use in comparing our core business operating results over multiple periods with other companies in our industry. However, our definition of Adjusted EBITDA may not be the same as similarly titled measures used by other companies. Adjusted EBITDA should not be considered in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. There are a number of limitations related to the use of Adjusted EBITDA rather than net loss, the nearest GAAP equivalent. For example, Adjusted EBITDA excludes: •certain recurring, non-cash charges such as depreciation of fixed assets and amortization of acquired intangible assets, although these assets may have to be replaced in the future; and •share-based compensation expense, which has been, and will continue to be for the foreseeable future, a significant recurring expense and an important part of our compensation strategy. Because of these limitations, you should consider Adjusted EBITDA alongside other financial performance measures, including net loss and our other financial results presented in accordance with GAAP. The following table presents a reconciliation of net loss, the most directly comparable financial measure calculated and presented in accordance with GAAP, to Adjusted EBITDA (in thousands): Three Months Ended Six Months Ended June 30, June 30, 2020 2019 2020 2019 Net Loss$ (100,748) $ (1,159,501) $ (241,944) $ (1,200,921) Depreciation and amortization 8,485 6,507 20,231 12,203 Share-based compensation 62,145 1,134,599 143,169 1,135,293 Interest income (4,218) (8,127) (11,369) (12,186) Interest expense and other (income) expense, net 16 448 2,093 948 Provision for income taxes 420 37 600 190 Adjusted EBITDA$ (33,900) $ (26,037) $ (87,220) $ (64,473) 25
-------------------------------------------------------------------------------- Components of Results of Operations Revenue. We generate revenue by delivering ads on our website and mobile application. Advertisers purchase ads directly with us or through their relationships with advertising agencies. We recognize revenue only after transferring control of promised goods or services to customers, which occurs when a user clicks on an ad contracted on a CPC basis, views an ad contracted on a CPM basis or views a video ad contracted on a CPV basis. Cost of Revenue. Cost of revenue consists primarily of expenses associated with the delivery of our service, including the cost of hosting our website and mobile application. Cost of revenue also includes personnel-related expense, including salaries, benefits and share-based compensation for employees on our operations teams, payments associated with partner arrangements, credit card and other transaction processing fees, and allocated facilities and other supporting overhead costs. Research and Development. Research and development consists primarily of personnel-related expense, including salaries, benefits and share-based compensation for our engineers and other employees engaged in the research and development of our products, and allocated facilities and other supporting overhead costs. Sales and Marketing. Sales and marketing consists primarily of personnel-related expense, including salaries, commissions, benefits and share-based compensation for our employees engaged in sales, sales support, marketing and customer service functions, advertising and promotional expenditures, professional services and allocated facilities and other supporting overhead costs. Our marketing efforts also include user- and advertiser-focused marketing expenditures. General and Administrative. General and administrative consists primarily of personnel-related expense, including salaries, benefits and share-based compensation for our employees engaged in finance, legal, human resources and other administrative functions, professional services, including outside legal and accounting services, and allocated facilities and other supporting overhead costs. Other Income. Other income consists primarily of interest earned on our cash equivalents and marketable securities. Provision for Income Taxes. Provision for income taxes consists primarily of income taxes in foreign jurisdictions,U.S. federal and state income taxes adjusted for discrete items. Adjusted EBITDA. We define Adjusted EBITDA as net loss adjusted to exclude depreciation and amortization expense, share-based compensation expense, interest and other income (expense), net and provision for income taxes. See "Non-GAAP Financial Measure" for more information and for a reconciliation of net loss, the most directly comparable financial measure calculated and presented in accordance with GAAP, to Adjusted EBITDA. 26 --------------------------------------------------------------------------------
Results of Operations The following tables set forth our condensed consolidated statements of operations data (in thousands):
Three Months Ended Six Months Ended
June 30, June 30,
2020 2019 2020 2019
Revenue $ 272,485 $ 261,249 $ 544,425 $ 463,160
Costs and expenses (1):
Cost of revenue 108,259 105,415 207,491 179,109
Research and development 136,593 801,879 282,297 874,323
Sales and marketing 86,483 296,919 203,510 373,313
General and administrative 45,680 224,179 101,747 248,384
Total costs and expenses 377,015 1,428,392 795,045 1,675,129
Loss from operations (104,530) (1,167,143) (250,620) (1,211,969)
Interest income 4,218 8,127 11,369 12,186
Interest expense and other income
(expense), net (16) (448) (2,093) (948)
Loss before provision for income taxes (100,328) (1,159,464) (241,344) (1,200,731) Provision for income taxes 420 37 600 190 Net loss$ (100,748) $ (1,159,501) $ (241,944) $ (1,200,921) Adjusted EBITDA (2)$ (33,900) $ (26,037) $ (87,220) $ (64,473)
(1)Includes share-based compensation expense as follows (in thousands):
Three Months Ended Six Months Ended
June 30, June 30,
2020 2019 2020 2019
Cost of revenue $ 2,325 $ 28,157 $ 3,751 $ 28,172
Research and development 46,358 709,996 95,264 710,622
Sales and marketing (3) (2,074) 202,128 11,845 202,157
General and administrative 15,536 194,318 32,309 194,342
Total share-based compensation
(2)See "Non-GAAP Financial Measure" for more information and for a reconciliation of net loss, the most directly comparable financial measure calculated and presented in accordance with GAAP, to Adjusted EBITDA. (3)Share-based compensation expense was negative for the three months endedJune 30, 2020 due to the reversal of previously recognized share-based compensation expense related to unvested RSUs forfeited by our former Chief Operating Officer. 27 --------------------------------------------------------------------------------
The following table sets forth our condensed consolidated statements of operations data (as a percentage of revenue):
Three Months Ended Six Months Ended
June 30, June 30,
2020 2019 2020 2019
Revenue 100 % 100 % 100 % 100 %
Costs and expenses:
Cost of revenue 40 40 38 39
Research and development 50 307 52 189
Sales and marketing 32 114 37 81
General and administrative 17 86 19 54
Total costs and expenses 138 547 146 362
Loss from operations (38) (447) (46) (262)
Interest income 2 3 2 3
Interest expense and other income (expense),
net - - - -
Loss before provision for income taxes (37) (444) (44) (259)
Provision for income taxes - - - -
Net loss (37) % (444) % (44) % (259) %
Three and Six Months Ended June 30, 2020 and 2019
Revenue
Three Months Ended Six Months Ended
June 30, June 30,
2020 2019 % change 2020 2019 % change
(in thousands, except percentages)
Revenue $ 272,485 $ 261,249 4 % $ 544,425 $ 463,160 18 %
Revenue for the three and six months ended June 30, 2020 increased by $11.2
million and $81.3 million respectively, compared to the three and six months
ended June 30, 2019 . Revenue growth was driven by a 39% increase in MAUs offset
by 21% and 12% respective decreases in ARPU. These resulted in a 17% increase in
the number of advertisements served offset by an 11% decrease in the price of
advertisements for the three months ended June 30, 2020 compared to the three
months ended June 30, 2019 . The impact of the price of advertisements was not
significant for the six months ended June 30, 2020 compared to the six months
ended June 30, 2019 . ARPU compression was driven by the increase in MAUs and a
decrease in advertising demand due to the COVID-19 pandemic.
Revenue based on our estimate of the geographic location of our users decreased
by 2% in the United States to $231.7 million for the three months ended June 30,
2020 driven by an 11% decrease in ARPU offset by a 13% increase in U.S. MAUs.
For the six months ended June 30, 2020 , U.S. revenue increased by 10% to
$468.5 million driven by a 13% increase in U.S. MAUs. For the three and six
months ended June 30, 2020 , international revenue increased by 72% and 97% to
$40.8 million and $75.9 million , respectively, driven by 21% and 38% respective
increases in international ARPU supported by a 49% increase in international
MAUs.
Cost of Revenue
Three Months Ended Six Months Ended
June 30, June 30,
2020 2019 % change 2020 2019 % change
(in thousands, except percentages)
Cost of revenue $ 108,259 $ 105,415 3 % $ 207,491 $ 179,109 16 %
Percentage of revenue 40 % 40 % 38 % 39 %
Cost of revenue for the three and six months ended
28
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higher absolute hosting costs due to user growth, offset by $25.8 million and
$24.4 million respective decreases in share-based compensation expense and
related employer taxes due to our IPO in 2019.
Research and Development
Three Months Ended Six Months Ended
June 30, June 30,
2020 2019 % change 2020 2019 % change
(in thousands, except percentages)
Research and development $ 136,593 $ 801,879 (83) % $ 282,297 $ 874,323 (68) %
Percentage of revenue 50 % 307 % 52 % 189 %
Research and development for the three and six months ended June 30, 2020
decreased by $665.3 million and $592.0 million , respectively, compared to the
three and six months ended June 30, 2019 . These decreases were primarily due to
$663.6 million and $615.4 million respective decreases in share-based
compensation expense and related employer taxes due to our IPO in 2019, offset
by 13% and 18% respective increases in average headcount, which drove higher
personnel expenses.
Sales and Marketing
Three Months Ended Six Months Ended
June 30, June 30,
2020 2019 % change 2020 2019 % change
(in thousands, except percentages)
Sales and marketing $ 86,483 $ 296,919 (71) % $ 203,510 $ 373,313 (45) %
Percentage of revenue 32 % 114 % 37 % 81 %
Sales and marketing for the three and six months ended June 30, 2020 decreased
by $210.4 million and $169.8 million , respectively, compared to the three and
six months ended June 30, 2019 . These decreases were primarily due to $204.2
million and $190.3 million respective decreases in share-based compensation
expense and related employer taxes due to our IPO in 2019, a decrease in travel,
events and other marketing expenses due to the COVID-19 pandemic and the
reversal of previously recognized share-based compensation expense related to
unvested RSUs forfeited by our former Chief Operating Officer, offset by 36% and
31% respective increases in average headcount, which drove higher personnel
expenses.
General and Administrative
Three Months Ended Six Months Ended
June 30, June 30,
2020 2019 % change 2020 2019 % change
(in thousands, except percentages)
General and administrative $ 45,680 $ 224,179 (80) % $ 101,747 $ 248,384 (59) % Percentage of revenue 17 % 86 % 19 % 54 % General and administrative for the three and six months endedJune 30, 2020 decreased by$178.5 million and$146.6 million , respectively, compared to the three and six months endedJune 30, 2019 . These decreases were primarily due to$178.8 million and$162.0 million respective decreases in share-based compensation expense and related employer taxes due to our IPO in 2019, offset by 16% respective increases in average headcount, which drove higher personnel expenses. 29 --------------------------------------------------------------------------------
Other Income
Three Months Ended Six Months Ended
June 30, June 30,
2020 2019 % change 2020 2019 % change
(in thousands, except percentages)
Interest income $ 4,218 $ 8,127 (48) % $ 11,369 $ 12,186 (7) %
Interest expense and
other income (expense) (16) (448) (96) % (2,093) (948) (121) %
Other income $ 4,202 $ 7,679 (45) % $ 9,276 $ 11,238 (17) %
Other income for the three and six months ended June 30, 2020 decreased by $3.5
million and $2.0 million , respectively, compared to the three and six months
ended June 30, 2019 . These decreases were primarily due to lower returns on our
marketable securities as a result of lower interest rates.
Provision for Income Taxes
Three Months Ended Six Months Ended
June 30, June 30,
2020 2019 % change 2020 2019 % change
(in thousands, except percentages)
Provision for income
taxes $ 420 $ 37 1035 % $ 600 $ 190 216 %
Provision for income taxes was primarily due to profits generated by our foreign
subsidiaries for each of the periods presented.
Net Loss and Adjusted EBITDA
Three Months Ended Six Months Ended
June 30, June 30,
2020 2019 % change 2020 2019 % change
(in thousands, except percentages)
Net loss $ (100,748) $ (1,159,501) 91 % $ (241,944) $ (1,200,921) 80%
Adjusted EBITDA$ (33,900) $ (26,037) (30) %$ (87,220) $ (64,473)
(35) %
Net loss for the three and six months endedJune 30, 2020 was$(100.7) million and$(241.9) million , as compared to$(1,159.5) million and$(1,200.9) million for the three and six months endedJune 30, 2019 , respectively. Adjusted EBITDA was$(33.9) million and$(87.2) million for the three and six months endedJune 30, 2020 , as compared to$(26.0) million and$(64.5) million for the three and six months endedJune 30, 2019 , respectively, due to the factors described above. See "Non-GAAP Financial Measure" for more information and for a reconciliation of net loss, the most directly comparable financial measure calculated and presented in accordance with GAAP, to Adjusted EBITDA. 30 -------------------------------------------------------------------------------- Liquidity and Capital Resources We have historically financed our operations primarily through sales of our stock and payments received from our customers. Our primary uses of cash are personnel-related costs and the cost of hosting our website and mobile application. As ofJune 30, 2020 , we had$1,703.1 million in cash, cash equivalents and marketable securities. Our cash equivalents and marketable securities are primarily invested in short-duration fixed income securities, including government and investment-grade corporate debt securities and money market funds. As ofJune 30, 2020 ,$47.1 million of our cash and cash equivalents was held by our foreign subsidiaries. InNovember 2018 , we entered into a five-year$500.0 million revolving credit facility with an accordion option which, if exercised, would allow us to increase the aggregate commitments by the greater of$100.0 million and 10% of our consolidated total assets, provided we are able to secure additional lender commitments and satisfy certain other conditions. Interest on any borrowings under the revolving credit facility accrues at either LIBOR plus 1.50% or at an alternative base rate plus 0.50%, at our election, and we are required to pay an annual commitment fee that accrues at 0.15% per annum on the unused portion of the aggregate commitments under the revolving credit facility. The revolving credit facility also allows us to issue letters of credit, which reduce the amount we can borrow. We are required to pay a fee that accrues at 1.50% per annum on the average aggregate daily maximum amount available to be drawn under any outstanding letters of credit. The revolving credit facility contains customary conditions to borrowing, events of default and covenants, including covenants that restrict our ability to incur indebtedness, grant liens, make distributions to holders of our stock or the stock of our subsidiaries, make investments or engage in transactions with our affiliates. The revolving credit facility also contains two financial maintenance covenants: a consolidated total assets covenant and a minimum liquidity balance of$350.0 million , which includes any available borrowing capacity. The obligations under the revolving credit facility are secured by liens on substantially all of our domestic assets, including certain domestic intellectual property assets. We are in compliance with all covenants and there were no amounts outstanding under this facility as ofJune 30, 2020 . We believe our existing cash, cash equivalents and marketable securities and amounts available under our revolving credit facility will be sufficient to meet our working capital and capital expenditure needs over at least the next 12 months, though we continue to monitor the effects of COVID-19 on our working capital needs and may require additional capital resources in the future. In addition, the COVID-19 pandemic has caused disruption in the capital markets. It could make financing more difficult and/or expensive and we may not be able to obtain such financing on terms acceptable to us or at all. For the six months endedJune 30, 2020 and 2019, our net cash flows were as follows (in thousands): Six Months Ended June 30, 2020 2019 Net cash provided by (used in): Operating activities$ 20,767 $ (16,375) Investing activities$ 215,829 $ 55,298 Financing activities$ (24,138) $ 1,261,124 31
-------------------------------------------------------------------------------- Operating Activities Cash flows from operating activities consist of our net loss adjusted for certain non-cash reconciling items, such as share-based compensation expense, depreciation and amortization, and changes in our operating assets and liabilities. Net cash provided by operating activities increased by$37.1 million for the six months endedJune 30, 2020 compared to the six months endedJune 30, 2019 , primarily due to an increase in collections of accounts receivable offset by an increase in our net loss after adjusting for non-cash reconciling items. Investing Activities Cash flows from investing activities consist of capital expenditures for improvements to new and existing office spaces. We also actively manage our operating cash and cash equivalent balances and invest excess cash in short-duration marketable securities, the sales and maturities of which we use to fund our ongoing working capital requirements. Net cash provided by investing activities increased by$160.5 million for the six months endedJune 30, 2020 compared to the six months endedJune 30, 2019 , primarily due to increased proceeds from sales and maturities of marketable securities offset by increased purchases of marketable securities. Financing Activities Cash flows from financing activities consist of net proceeds related to our IPO, tax remittances on release of RSUs and proceeds from the exercise of stock options. Net cash used in financing activities increased by$1,285.3 million for the six months endedJune 30, 2020 compared to the six months endedJune 30, 2019 primarily due to the net proceeds related to our IPO in 2019. Off-Balance Sheet Arrangements We did not have any off-balance sheet arrangements as ofJune 30, 2020 . Contractual Obligations InMarch 2019 , we entered into a lease for approximately 490,000 square feet of office space to be constructed near our current headquarters campus inSan Francisco, California . Expected delivery of the premises has been delayed, and we currently estimate that commencement and expiration dates will occur in 2025 and 2035, respectively. We may terminate the lease prior to commencement if certain contingencies are not satisfied. We will be subject to total non-cancelable minimum lease payments of approximately$440.0 million if these contingencies are met, and we will record a right-of-use asset and related lease liability of no more than that amount at lease commencement using our incremental borrowing rate at that date. There have been no other material changes to our non-cancelable contractual commitments sinceDecember 31, 2019 . Critical Accounting Policies and Estimates We prepare our condensed consolidated financial statements in accordance with GAAP. Preparing our condensed consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses as well as related disclosures. Because these estimates and judgments may change from period to period, actual results could differ materially, which may negatively affect our financial condition or results of operations. We base our estimates and judgments on historical experience and various other assumptions that we consider reasonable, and we evaluate these estimates and judgments on an ongoing basis. We refer to such estimates and judgments, discussed further below, as critical accounting policies and estimates. Many of our estimates require increased judgment due to the significant volatility, uncertainty and economic disruption of the global COVID-19 pandemic. We continue to monitor the effects of the COVID-19 pandemic, and our estimates and judgments may change materially as new events occur or additional information becomes available to us. Refer to Note 1 to our condensed consolidated financial statements for further information on our other significant accounting policies. Revenue Recognition We generate revenue by delivering ads on our website and mobile application. We recognize revenue only after transferring control of promised goods or services to customers, which occurs when a user clicks on an ad contracted 32 -------------------------------------------------------------------------------- on a CPC basis, views an ad contracted on a CPM basis or views a video ad contracted on a CPV basis. We typically bill customers on a CPC, CPM or CPV basis, and our payment terms vary by customer type and location. The term between billing and payment due dates is not significant. We occasionally offer customers free ad inventory and revenue is recognized only after satisfying our contractual performance obligations. When contracts with our customers contain multiple performance obligations, we allocate the overall transaction price, which is the amount of consideration to which we expect to be entitled in exchange for promised goods or services, to each of the distinct performance obligations based on their relative standalone selling prices. We generally determine standalone selling prices based on the effective price charged per contracted click, impression or view, and we do not disclose the value of unsatisfied performance obligations because the original expected duration of our contracts is generally less than one year. Share-Based Compensation RSUs granted under our 2009 Plan are subject to both a service condition, which is typically satisfied over four years, and a performance condition, which was deemed satisfied upon the pricing of our IPO. We did not record any share-based compensation expense for our RSUs prior to our IPO because the performance condition had not yet been satisfied. Following the closing of our IPO, we recorded cumulative share-based compensation expense using the accelerated attribution method for those RSUs granted under our 2009 Plan for which the service condition had been satisfied at that date. We will record the remaining unrecognized share-based compensation expense over the remainder of the requisite service period. RSUs and RSAs granted under our 2019 Plan are subject to a service condition only, which is typically satisfied over four years. We recognize share-based compensation expense on these RSUs and RSAs on a straight-line basis over the requisite service period. We measure RSUs and RSAs based on the fair market value of our common stock on the grant date, and we account for forfeitures as they occur. Leases and Operating Lease Incremental Borrowing Rate We lease office space under operating leases with expiration dates through 2035. We determine whether an arrangement constitutes a lease and record lease liabilities and right-of-use assets on our condensed consolidated balance sheets at lease commencement. We measure lease liabilities based on the present value of the total lease payments not yet paid discounted based on the more readily determinable of the rate implicit in the lease or our incremental borrowing rate, which is the estimated rate we would be required to pay for a collateralized borrowing equal to the total lease payments over the term of the lease. We estimate our incremental borrowing rate based on an analysis of publicly traded debt securities of companies with credit and financial profiles similar to our own. We measure right-of-use assets based on the corresponding lease liability adjusted for (i) payments made to the lessor at or before the commencement date, (ii) initial direct costs we incur and (iii) tenant incentives under the lease. We begin recognizing rent expense when the lessor makes the underlying asset available to us, we do not assume renewals or early terminations unless we are reasonably certain to exercise these options at commencement, and we do not allocate consideration between lease and non-lease components. Recent Accounting Pronouncements Refer to Note 1 to our condensed consolidated financial statements for recent accounting pronouncements. 33
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