EBAY INC, 10-K filed on 1/30/2019
Annual Report
v3.10.0.1
Document and Entity Information - USD ($)
12 Months Ended
Dec. 31, 2018
Jan. 25, 2019
Jun. 30, 2018
Document and Entity Information [Abstract]      
Entity Registrant Name EBAY INC    
Entity Trading Symbol EBAY    
Entity Central Index Key 0001065088    
Document Type 10-K    
Document Period End Date Dec. 31, 2018    
Amendment Flag false    
Document Fiscal Year Focus 2018    
Document Fiscal Period Focus FY    
Current Fiscal Year End Date --12-31    
Entity Well-known Seasoned Issuer Yes    
Entity Current Reporting Status Yes    
Entity Voluntary Filer No    
Entity Filer Category Large Accelerated Filer    
Entity Common Stock, Shares Outstanding   914,880,451  
Entity Public Float     $ 33,679,134,490
Entity Emerging Growth Company false    
Entity Small Business false    
Entity Shell Company false    
v3.10.0.1
CONSOLIDATED BALANCE SHEET - USD ($)
$ in Millions
Dec. 31, 2018
Dec. 31, 2017
Current assets:    
Cash and cash equivalents $ 2,202 $ 2,120
Short-term investments 2,713 3,743
Accounts receivable, net 712 696
Other current assets 1,499 1,185
Total current assets 7,126 7,744
Long-term investments 3,778 6,331
Property and equipment, net 1,597 1,597
Goodwill 5,160 4,773
Intangible assets, net 92 69
Deferred tax assets 4,792 5,199
Other assets 274 273
Total assets 22,819 25,986
Current liabilities:    
Short-term debt 1,546 781
Accounts payable 286 330
Accrued expenses and other current liabilities 2,335 2,134
Deferred revenue 170 137
Income taxes payable 117 177
Total current liabilities 4,454 3,559
Deferred tax liabilities 2,925 3,424
Long-term debt 7,685 9,234
Other liabilities 1,474 1,720
Total liabilities 16,538 17,937
Commitments and contingencies (Note 11)
Stockholders' equity:    
Common stock, $0.001 par value; 3,580 shares authorized; 915 and 1,029 shares outstanding 2 2
Additional paid-in capital 15,716 15,293
Treasury stock at cost, 763 and 632 shares (26,394) (21,892)
Retained earnings 16,459 13,929
Accumulated other comprehensive income 498 717
Total stockholders' equity 6,281 8,049
Total liabilities and stockholders' equity $ 22,819 $ 25,986
v3.10.0.1
CONSOLIDATED BALANCE SHEET (Parentheticals) - $ / shares
Dec. 31, 2018
Dec. 31, 2017
Statement of Financial Position [Abstract]    
Common stock - par value (in usd per share) $ 0.001 $ 0.001
Common stock - shares authorized 3,580,000,000 3,580,000,000
Common stock - shares outstanding 915,000,000 1,029,000,000
Treasury stock - shares 763,000,000 632,000,000
v3.10.0.1
CONSOLIDATED STATEMENT OF INCOME - USD ($)
shares in Millions, $ in Millions
12 Months Ended
Dec. 31, 2018
Dec. 31, 2017
Dec. 31, 2016
Income Statement [Abstract]      
Net revenues $ 10,746 $ 9,927 $ 9,298
Cost of net revenues 2,382 2,221 2,004
Gross profit 8,364 7,706 7,294
Operating expenses:      
Sales and marketing 3,391 2,878 2,691
Product development 1,285 1,224 1,114
General and administrative 1,131 1,030 899
Provision for transaction losses 286 272 231
Amortization of acquired intangible assets 49 38 34
Total operating expenses 6,142 5,442 4,969
Income from operations 2,222 2,264 2,325
Interest and other, net 496 11 1,326
Income from continuing operations before income taxes 2,718 2,275 3,651
Income tax benefit (provision) (190) (3,288) 3,634
Income (loss) from continuing operations 2,528 (1,013) 7,285
Income (loss) from discontinued operations, net of income taxes 2 (4) (19)
Net income (loss) $ 2,530 $ (1,017) $ 7,266
Income (loss) per share - basic:      
Continuing operations (in usd per share) $ 2.58 $ (0.95) $ 6.43
Discontinued operations (in usd per share) 0 0 (0.02)
Net income (loss) per share - basic (in usd per share) 2.58 (0.95) 6.41
Income (loss) per share - diluted:      
Continuing operations (in usd per share) 2.55 (0.95) 6.37
Discontinued operations (in usd per share) 0 0 (0.02)
Net income (loss) per share - diluted (in usd per share) $ 2.55 $ (0.95) $ 6.35
Weighted average shares:      
Basic (in shares) 980 1,064 1,133
Diluted (in shares) 991 1,064 1,144
v3.10.0.1
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME - USD ($)
$ in Millions
12 Months Ended
Dec. 31, 2018
Dec. 31, 2017
Dec. 31, 2016
Statement of Comprehensive Income [Abstract]      
Net income (loss) $ 2,530 $ (1,017) $ 7,266
Other comprehensive income (loss), net of reclassification adjustments:      
Foreign currency translation adjustment (286) 978 (185)
Unrealized gains (losses) on investments, net (41) (66) (794)
Tax benefit (expense) on unrealized gains (losses) on investments, net 10 23 314
Unrealized gains (losses) on hedging activities, net 125 (111) 18
Tax benefit (expense) on unrealized gains (losses) on hedging activities, net (27) 17 (3)
Other comprehensive income (loss), net of tax (219) 841 (650)
Comprehensive income (loss) $ 2,311 $ (176) $ 6,616
v3.10.0.1
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY - USD ($)
shares in Millions, $ in Millions
Total
Common stock
Additional paid-in capital
Treasury stock at cost
Retained earnings
Accumulated other comprehensive income (loss)
Stockholders' equity, beginning of period at Dec. 31, 2015   $ 2 $ 14,538 $ (16,203) $ 7,713 $ 526
Common stock, beginning of year (in shares) at Dec. 31, 2015   1,184        
Increase (Decrease) in Stockholders' Equity [Roll Forward]            
Common stock issued   $ 0        
Common stock issued (in shares)   22        
Common stock repurchased/forfeited   $ 0        
Common stock repurchased/forfeited (in shares)   (119)        
Common stock and stock-based awards issued     102      
Tax withholdings related to net share settlements of restricted stock awards and units     (121)      
Stock-based compensation     416      
Stock-based awards tax impact     5      
Other     (33)      
Common stock repurchased       (3,002)    
Net income (loss) $ 7,266       7,266  
Distribution of PayPal         (20)  
Change in unrealized gains (losses) on investments (794)         (794)
Change in unrealized gains (losses) on derivative instruments           18
Foreign currency translation adjustment           (185)
Tax benefit (provision) on above items           311
Common stock, end of period (in shares) at Dec. 31, 2016   1,087        
Stockholders' equity, end of period at Dec. 31, 2016 10,526 $ 2 14,907 (19,205) 14,946 (124)
Increase (Decrease) in Stockholders' Equity [Roll Forward]            
Cumulative effect of accounting change         (13)  
Common stock issued   $ 0        
Common stock issued (in shares)   24        
Common stock repurchased/forfeited   $ 0        
Common stock repurchased/forfeited (in shares)   (82)        
Common stock and stock-based awards issued     120      
Tax withholdings related to net share settlements of restricted stock awards and units     (219)      
Stock-based compensation     484      
Stock-based awards tax impact     0      
Other     1      
Common stock repurchased       (2,687)    
Net income (loss) (1,017)       (1,017)  
Distribution of PayPal         0  
Change in unrealized gains (losses) on investments $ (66)         (66)
Change in unrealized gains (losses) on derivative instruments           (111)
Foreign currency translation adjustment           978
Tax benefit (provision) on above items           40
Common stock, end of period (in shares) at Dec. 31, 2017 1,029 1,029        
Stockholders' equity, end of period at Dec. 31, 2017 $ 8,049 $ 2 15,293 (21,892) 13,929 717
Increase (Decrease) in Stockholders' Equity [Roll Forward]            
Cumulative effect of accounting change         0  
Common stock issued   $ 0        
Common stock issued (in shares)   17        
Common stock repurchased/forfeited   $ 0        
Common stock repurchased/forfeited (in shares) (131) (131)        
Common stock and stock-based awards issued     109      
Tax withholdings related to net share settlements of restricted stock awards and units     (225)      
Stock-based compensation     538      
Stock-based awards tax impact     0      
Other     1      
Common stock repurchased $ (4,500)     (4,502)    
Net income (loss) 2,530       2,530  
Distribution of PayPal         0  
Change in unrealized gains (losses) on investments $ (41)         (41)
Change in unrealized gains (losses) on derivative instruments           125
Foreign currency translation adjustment           (286)
Tax benefit (provision) on above items           (17)
Common stock, end of period (in shares) at Dec. 31, 2018 915 915        
Stockholders' equity, end of period at Dec. 31, 2018 $ 6,281 $ 2 $ 15,716 $ (26,394) 16,459 $ 498
Increase (Decrease) in Stockholders' Equity [Roll Forward]            
Cumulative effect of accounting change         $ 0  
v3.10.0.1
CONSOLIDATED STATEMENT OF CASH FLOWS - USD ($)
$ in Millions
12 Months Ended
Dec. 31, 2018
Dec. 31, 2017
Dec. 31, 2016
Cash flows from operating activities:      
Net income (loss) $ 2,530 $ (1,017) $ 7,266
(Income) loss from discontinued operations, net of income taxes (2) 4 19
Adjustments:      
Provision for transaction losses 286 272 231
Depreciation and amortization 696 676 682
Stock-based compensation 538 483 416
(Gain) Loss on investments, net (572) 49 (1,236)
Gain on sale of business 0 (167) 0
Deferred income taxes (153) 1,728 (4,556)
Change in fair value of warrant (104) 0 0
Other 19 0 (15)
Changes in assets and liabilities, net of acquisition effects      
Accounts receivable (98) (195) (48)
Other current assets (143) (148) 23
Other non-current assets 108 19 94
Accounts payable (47) 19 (28)
Accrued expenses and other liabilities (437) 206 (130)
Deferred revenue 33 8 4
Income taxes payable and other tax liabilities 7 1,209 105
Net cash provided by continuing operating activities 2,661 3,146 2,827
Net cash used in discontinued operating activities (3) 0 (1)
Net cash provided by operating activities 2,658 3,146 2,826
Cash flows from investing activities:      
Purchases of property and equipment (651) (666) (626)
Purchases of investments (28,115) (14,599) (11,212)
Maturities and sales of investments 30,901 14,520 10,063
Equity investment in Flipkart 0 (514) 0
Proceeds from sale of equity investment in Flipkart 1,029 0 0
Acquisitions, net of cash acquired (302) (34) (212)
Other 32 (2) (30)
Net cash provided by (used in) investing activities 2,894 (1,295) (2,017)
Cash flows from financing activities:      
Proceeds from issuance of common stock 109 120 102
Repurchases of common stock (4,502) (2,746) (2,943)
Tax withholdings related to net share settlements of restricted stock awards and units (225) (219) (121)
Proceeds from issuance of long-term debt, net 0 2,484 2,216
Repayment of debt (750) (1,452) (20)
Other (30) 29 22
Net cash used in financing activities (5,398) (1,784) (744)
Effect of exchange rate changes on cash and cash equivalents (75) 238 (90)
Net increase (decrease) in cash, cash equivalents and restricted cash 79 305 (25)
Cash, cash equivalents and restricted cash at beginning of period 2,140 1,835 1,860
Cash, cash equivalents and restricted cash of continuing operations at end of period 2,219 2,140 1,835
Cash paid for:      
Interest 314 285 220
Income taxes 597 308 492
Noncash investing activities:      
Relinquishment of equity method investment 266 0 0
Sale of business in exchange for ownership interest in Flipkart $ 0 $ 211 $ 0
v3.10.0.1
The Company and Summary of Significant Accounting Policies
12 Months Ended
Dec. 31, 2018
Accounting Policies [Abstract]  
The Company and Summary of Significant Accounting Policies The Company and Summary of Significant Accounting Policies

The Company

eBay Inc. is a global commerce leader, which includes our Marketplace, StubHub and Classifieds platforms. Our Marketplace platforms include our online marketplace located at www.ebay.com, its localized counterparts and the eBay suite of mobile apps. Our StubHub platforms include our online ticket platform located at www.stubhub.com, its localized counterparts and the StubHub mobile apps. Our Classifieds platforms include a collection of brands such as Mobile.de, Kijiji, Gumtree, Marktplaats, eBay Kleinanzeigen and others. 

When we refer to “we,” “our,” “us” or “eBay” in this document, we mean the current Delaware corporation (eBay Inc.) and its California predecessor, as well as all of our consolidated subsidiaries, unless otherwise expressly stated or the context otherwise requires.

Use of Estimates

The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, we evaluate our estimates, including those related to provisions for transaction losses, legal contingencies, income taxes, revenue recognition, stock-based compensation, investments, goodwill and the recoverability of intangible assets. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ from those estimates.

Principles of Consolidation and Basis of Presentation

The accompanying financial statements are consolidated and include the financial statements of eBay Inc., our wholly and majority-owned subsidiaries and variable interest entities (“VIE”) where we are the primary beneficiary. All intercompany balances and transactions have been eliminated in consolidation. Minority interests are recorded as a noncontrolling interest. A qualitative approach is applied to assess the consolidation requirement for VIEs. Investments in entities where we hold at least a 20% ownership interest and have the ability to exercise significant influence, but not control, over the investee are accounted for using the equity method of accounting. For such investments, our share of the investees’ results of operations is included in interest and other, net and our investment balance is included in long-term investments. Investments in entities where we hold less than a 20% ownership interest are generally accounted for as equity investments to be measured at fair value or, under an election, at cost if it does not have readily determinable fair value, in which case the carrying value would be adjusted upon the occurrence of an observable price change or impairment.

Certain prior period amounts have been reclassified on our consolidated financial statements to conform with current year presentation. We have evaluated all subsequent events through the date the consolidated financial statements were issued.

Significant Accounting Policies

Revenue recognition
We recognize revenue when we transfer control of promised goods or services to customers in an amount that reflects the consideration to which we expect to be entitled in exchange for those goods or services. Revenue is recognized net of any taxes collected, which are subsequently remitted to governmental authorities.
Net transaction revenues
Our net transaction revenues primarily include final value fees, feature fees, including fees to promote listings, and listing fees from sellers in our Marketplace and final value fees from sellers and buyers on our StubHub platforms. Our net transaction revenues also include store subscription and other fees often from large enterprise sellers. Our net transaction revenues are reduced by incentives provided to our customers.
We identified one performance obligation to sellers on our Marketplace platform, which is to connect buyers and sellers on our secure and trusted Marketplace platforms. Final value fees are recognized when an item is sold on a Marketplace platform, satisfying this performance obligation. There may be additional services available to Marketplace sellers, mainly to promote or feature listings, that are not distinct within the context of the contract. Accordingly, feature and listing fees associated with these services are recognized when the single performance obligation is satisfied when an item is sold, or when the contract expires. On our StubHub platform, our performance obligation extends to both buyers and sellers. We made the policy election to consider delivery of tickets in our StubHub platform to be fulfillment activities and, consequently, the performance obligation is satisfied, and final value fees are recognized, upon payment to sellers.
Store subscription and other nonstandard listing contracts may contain multiple performance obligations, including discounts on future services. Determining whether performance obligations should be accounted for separately or combined may require significant judgment. The transaction price is allocated to each performance obligation based on its stand-alone selling price (“SSP”). In instances where SSP is not directly observable, we generally estimate selling prices based on when they are sold to customers of a similar nature and geography. These estimates are generally based on pricing strategies, market factors, strategic objectives and observable inputs. Store subscription revenues are recognized over the subscription period, and discounts offered through store subscription or nonstandard listing contracts are recognized when the options are exercised or when the options expire.
Further, to drive traffic to our platforms, we provide incentives to buyers and sellers in various forms including discounts on fees, discounts on items sold, coupons and rewards. Evaluating whether a promotion or incentive is a payment to a customer may require significant judgment. Promotions and incentives which are consideration payable to a customer are recognized as a reduction of revenue at the later of when revenue is recognized or when we pay or promise to pay the incentive. Promotions and incentives to most buyers on our Marketplace platforms, to whom we have no performance obligation, are recognized as sales and marketing expense. In addition, we may provide credits to customers when we refund certain fees. Credits are accounted for as variable consideration at contract inception when estimating the amount of revenue to be recognized when a performance obligation is satisfied to the extent that it is probable that a significant reversal of revenue will not occur and updated as additional information becomes available.
Marketing services and other revenues

Our marketing services and other revenues are derived principally from the sale of advertisements, classifieds fees, and revenue sharing arrangements. Advertising revenue is derived principally from the sale of online advertisements which are based on “impressions” (i.e., the number of times that an advertisement appears in pages viewed by users of our platforms) or “clicks” (which are generated each time users on our platforms click through our advertisements to an advertiser’s designated website) delivered to advertisers. We use the output method and apply the practical expedient to recognize advertising revenue in the amount to which we have a right to invoice. For contracts with target advertising commitments with rebates, estimated payout is accounted for as a variable consideration to the extent it is probable that a significant reversal of revenue will not occur.

We generate net revenues related to fees for listing items on our Classifieds platforms, which are recognized over the estimated period of the classifieds listing and fees to feature the listing that are recognized over the feature
period or a point in time depending on the nature of the feature purchased. Discounts offered through purchase of packages of multiple services are allocated based on the SSP of each respective feature.

Revenues related to revenue sharing arrangements are recognized based on whether we are the principal and are responsible for fulfilling the promise to provide the specified services or whether we are an agent arranging for those services to be provided by our partners. Determining whether we are a principal or agent in these contracts may require significant judgment. If we are the principal, we recognize revenue in the gross amount of consideration received from the customer, whereas if we are an agent, we recognize revenue net of the consideration due to our partners at a point in time when the services are provided. Our most significant revenue share arrangements are with shipping service providers. We are primarily acting as an agent in these contracts and revenues are recognized at a point in time when we have satisfied our promise of connecting the shipping service provider to our customer.
Refer to “Note 5 - Segments” for further information, including revenue by types and geographical markets.
Contract balances  

Timing of revenue recognition may differ from the timing of invoicing to customers. Accounts receivable represents amounts invoiced and revenue recognized prior to invoicing when we have satisfied our performance obligation and have the unconditional right to payment. The allowance for doubtful accounts and authorized credits is estimated based upon our assessment of various factors including historical experience, the age of the accounts receivable balances, current economic conditions and other factors that may affect our customers’ ability to pay. The allowance for doubtful accounts and authorized credits was $106 million and $102 million as of December 31, 2018 and December 31, 2017, respectively.
Deferred revenue consists of fees received related to unsatisfied performance obligations at the end of the period. Due to the generally short-term duration of contracts, the majority of the performance obligations are satisfied in the following reporting period. The amount of revenue recognized for the twelve months ended December 31, 2018 that was included in the deferred revenue balance at the beginning of the period was $96 million. The amount of revenue recognized for the twelve months ended December 31, 2017 that was included in the deferred revenue balance at the beginning of the period was $88 million.

Internal use software and platform development costs

Direct costs incurred to develop software for internal use and platform development costs are capitalized and amortized over an estimated useful life of one to five years. During the years ended December 31, 2018 and 2017, we capitalized costs, primarily related to labor and stock-based compensation, of $147 million and $140 million, respectively. Amortization of previously capitalized amounts was $160 million, $156 million and $149 million for 2018, 2017 and 2016, respectively. Costs related to the design or maintenance of internal use software and platform development are expensed as incurred.

Advertising expense

We expense the costs of producing advertisements at the time production occurs and expense the cost of communicating advertisements in the period during which the advertising space or airtime is used, in each case as sales and marketing expense. Internet advertising expenses are recognized based on the terms of the individual agreements, which are generally over the greater of the ratio of the number of impressions delivered over the total number of contracted impressions, on a pay-per-click basis, or on a straight-line basis over the term of the contract. Advertising expense totaled $1.4 billion, $1.3 billion and $1.2 billion for the years ended December 31, 2018, 2017 and 2016, respectively.

Stock-based compensation

We have equity incentive plans under which we grant equity awards, including stock options, restricted stock units (“RSUs”), performance-based restricted stock units, and performance share units, to our directors, officers and employees. We primarily issue RSUs. We determine compensation expense associated with RSUs based on the fair value of our common stock on the date of grant. We determine compensation expense associated with stock options based on the estimated grant date fair value method using the Black-Scholes valuation model. We generally recognize compensation expense using a straight-line amortization method over the respective vesting period for awards that are ultimately expected to vest. Accordingly, stock-based compensation expense for 2018, 2017 and 2016 has been reduced for estimated forfeitures. When estimating forfeitures, we consider voluntary termination behaviors as well as trends of actual option forfeitures. We recognize a benefit or provision from stock-based compensation in earnings as a component of income tax expense to the extent that an incremental tax benefit or deficiency is realized by following the ordering provisions of the tax law. In addition, we account for the indirect effects of stock-based compensation on the research tax credit and the foreign tax credit through our consolidated statement of income.

Provision for transaction losses

Provision for transaction losses consists primarily of losses resulting from our buyer protection programs, fraud and bad debt expense associated with our accounts receivable balance. Provisions for these items represent our estimate of actual losses based on our historical experience and many other factors including changes to our protection programs, the impact of regulatory changes as well as economic conditions.

Income taxes

We account for income taxes using an asset and liability approach, which requires the recognition of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in our financial statements or tax returns. The measurement of current and deferred tax assets and liabilities is based on provisions of enacted tax laws; the effects of future changes in tax laws or rates are not anticipated. If necessary, the measurement of deferred tax assets is reduced by the amount of any tax benefits that are not expected to be realized based on available evidence.

We report a liability for unrecognized tax benefits resulting from uncertain tax positions taken or expected to be taken in a tax return. We recognize interest and penalties, if any, related to unrecognized tax benefits in income tax expense.

We accounted for the tax effects of The Tax Cuts and Jobs Act, enacted on December 22, 2017, on a provisional basis in our 2017 consolidated financial statements. We completed our accounting in the fourth quarter of 2018 within the one year measurement period from the enactment date.

Cash and cash equivalents

Cash and cash equivalents are short-term, highly liquid investments with original maturities of three months or less when purchased and are primarily comprised of bank deposits and certificates of deposit.

Investments

Short-term investments, which may include marketable equity securities, time deposits, certificates of deposit, government bonds and corporate debt securities with original maturities of greater than three months but less than one year when purchased, are classified as available-for-sale and are reported at fair value using the specific identification method. Unrealized gains and losses related to equity securities are recognized in interest & other, net, with all other unrealized gains and losses reported as a component of other comprehensive income (loss), net of related estimated income tax provisions or benefits.

Long-term investments may include marketable government bonds and corporate debt securities, time deposits, certificates of deposit and equity investments. Debt securities are classified as available-for-sale and are reported at fair value using the specific identification method. Unrealized gains and losses on our available-for-sale debt securities are excluded from earnings and reported as a component of other comprehensive income (loss), net of related estimated income tax provisions or benefits.

Our equity investments are primarily investments in privately-held companies. Our consolidated results of operations include, as a component of interest and other, net, our share of the net income or loss of the equity investments accounted for under the equity method of accounting. Our share of investees’ results of operations is not significant for any period presented. Equity investments without readily determinable fair values are accounted for at cost, less impairment and adjusted for subsequent observable price changes obtained from orderly transactions for identical or similar investments issued by the same investee. Such changes in the basis of the equity investment are recognized in interest & other, net.

We assess whether an other-than-temporary impairment loss on our investments has occurred due to declines in fair value or other market conditions. With respect to our debt securities, this assessment takes into account the severity and duration of the decline in value, our intent to sell the security, whether it is more likely than not that we will be required to sell the security before recovery of its amortized cost basis, and whether we expect to recover the entire amortized cost basis of the security (that is, whether a credit loss exists).

Property and equipment

Property and equipment are stated at historical cost less accumulated depreciation. Depreciation for equipment, buildings and leasehold improvements commences once they are ready for our intended use. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, generally, one to three years for computer equipment and software, up to thirty years for buildings and building improvements, the shorter of five years or the term of the lease for leasehold improvements and three years for furniture, fixtures and vehicles. Land is not depreciated.
 
Goodwill and intangible assets

Goodwill is tested for impairment at a minimum on an annual basis. Goodwill is tested for impairment at the reporting unit level. A qualitative assessment can be performed to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying value. If the reporting unit does not pass the qualitative assessment, then the reporting unit’s carrying value is compared to its fair value. The fair values of the reporting units are estimated using income and market approaches. Goodwill is considered impaired if the carrying value of the reporting unit exceeds its fair value. The discounted cash flow method, a form of the income approach, uses expected future operating results and a market participant discount rate. The market approach uses comparable company prices and other relevant information generated by market transactions (either publicly traded entities or mergers and acquisitions) to develop pricing metrics to be applied to historical and expected future operating results of our reporting units. Failure to achieve these expected results, changes in the discount rate or market pricing metrics may cause a future impairment of goodwill at the reporting unit. We conducted our annual impairment test of goodwill as of August 31, 2018 and 2017 and determined that no adjustment to the carrying value of goodwill for any reporting units was required. 

Intangible assets consist of purchased customer lists and user base, marketing related, developed technologies and other intangible assets, including patents and contractual agreements. Intangible assets are amortized over the period of estimated benefit using the straight-line method and estimated useful lives ranging from one to five years. No significant residual value is estimated for intangible assets.

Impairment of long-lived assets

We evaluate long-lived assets (including intangible assets) for impairment whenever events or changes in circumstances indicate that the carrying amount of a long-lived asset may not be recoverable. An asset is considered impaired if its carrying amount exceeds the undiscounted future net cash flow the asset is expected to generate. In 2018, 2017 and 2016, no impairment was noted.

Foreign currency
 
Most of our foreign subsidiaries use the local currency of their respective countries as their functional currency. Assets and liabilities are translated into U.S. dollars using exchange rates prevailing at the balance sheet date, while revenues and expenses are translated at average exchange rates during the year. Gains and losses resulting from the translation of our consolidated balance sheet are recorded as a component of accumulated other comprehensive income.

Gains and losses from foreign currency transactions are recognized as interest and other, net.

Derivative instruments

We use derivative financial instruments, primarily forwards, options and swaps, to hedge certain foreign currency and interest rate exposures. We may also use other derivative instruments not designated as hedges, such as forwards to hedge foreign currency balance sheet exposures. We do not use derivative financial instruments for trading purposes. 

We also entered into a warrant agreement in addition to a commercial agreement with a service provider that, subject to meeting certain conditions, entitles us to acquire a fixed number of shares up to 5% of the service provider’s fully diluted issued and outstanding share capital at a specific date. The warrant is accounted for as a derivative instrument under ASC Topic 815, Derivatives and Hedging.

See “Note 7 - Derivative Instruments” for a full description of our derivative instrument activities and related accounting policies.

Concentration of credit risk

Our cash, cash equivalents, accounts receivable and derivative instruments are potentially subject to concentration of credit risk. Cash and cash equivalents are placed with financial institutions that management believes are of high credit quality. Our accounts receivable are derived from revenue earned from customers. In each of the years ended December 31, 2018, 2017 and 2016, no customer accounted for more than 10% of net revenues. Our derivative instruments expose us to credit risk to the extent that our counterparties may be unable to meet the terms of the agreements.

Recently Adopted Accounting Pronouncements

In 2014, the Financial Accounting Standards Board (“FASB”) issued new accounting guidance related to revenue recognition. This new standard replaces all current GAAP guidance on this topic and eliminates all industry-specific guidance. The new revenue recognition guidance provides a unified model to determine when and how revenue is recognized. The core principle is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration for which the entity expects to be entitled in exchange for those goods or services. In 2016, the FASB issued several amendments to the standard, including principal versus agent considerations when another party is involved in providing goods or services to a customer and the application of identifying performance obligations. We adopted the standard effective January 1, 2018 using the full retrospective transition method and recast each prior reporting period presented. The cumulative adjustment to retained earnings as of January 1, 2016 was immaterial.

Under the new standard, we identified one performance obligation related to the core service offered to sellers on our Marketplace platform and believe additional services, mainly to promote or feature listings at the option of sellers, are not distinct within the context of the contract. Accordingly, certain fees paid by sellers for these services will be recognized when the single performance obligation is satisfied or when the contract expires resulting, in some cases, in a change in the timing of recognition. In addition, we made the policy election to consider delivery of tickets in our StubHub business to be fulfillment activities and, consequently, the performance obligation is considered to be satisfied upon payment to sellers. The impact of this policy election will allow an acceleration of revenue recognition for certain users. The total impact resulting from the change in timing of recognition for both the Marketplace and StubHub platforms was an immaterial net change in transaction revenue for both the twelve month periods ended December 31, 2017 and 2016, and an increase in deferred revenue of $20 million and $19 million as of December 31, 2017 and 2016, respectively.

Further, certain incentives, such as coupons and rewards provided to certain users from which we do not earn revenue within the context of the identified contract, of $363 million and $323 million for the twelve months ended December 31, 2017 and 2016, respectively, was recognized as sales and marketing expenses, which historically was recorded as a reduction of revenue.

Adoption of this guidance impacted our previously reported results as follows (in millions, except per share data):
 
 
Year Ended December 31, 2017
 
Year Ended December 31, 2016
 
 
As Reported
 
As Adjusted
 
As Reported
 
As Adjusted
Net revenues
 
$
9,567

 
$
9,927

 
$
8,979

 
$
9,298

Cost of net revenues
 
$
2,222

 
$
2,221

 
$
2,007

 
$
2,004

Sales and marketing
 
$
2,515

 
$
2,878

 
$
2,368

 
$
2,691

Net income (loss)
 
$
(1,016
)
 
$
(1,017
)
 
$
7,266

 
$
7,266

 
 
 
 
 
 
 
 
 
Net income (loss) per share - basic
 
$
(0.95
)
 
$
(0.95
)
 
$
6.41

 
$
6.41

 
 
 
 
 
 
 
 
 
Net income (loss) per share - diluted
 
$
(0.95
)
 
$
(0.95
)
 
$
6.35

 
$
6.35



In 2016, the FASB issued new guidance related to accounting for equity investments, financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. In addition, the FASB clarified guidance related to the valuation allowance assessment when recognizing deferred tax assets resulting from unrealized losses on available-for-sale debt securities. In 2018, the FASB issued certain clarifications related to the application of the new guidance. We adopted this guidance in the first quarter of 2018 with no material impact on our consolidated financial statements at adoption. We anticipate that the standard will increase the volatility of our other income (expense), net, as a result of the remeasurement of equity investments.

In 2016, the FASB issued new guidance that clarifies the classification of certain cash receipts and cash payments in the statement of cash flows, including debt prepayment or extinguishment costs, settlement of contingent consideration arising from a business combination, insurance settlement proceeds, and distributions from certain equity method investees. Additionally, the FASB issued new guidance to include restricted cash with cash and cash equivalents when reconciling the beginning-of-the-period and end-of-the-period total amounts shown on the statement of cash flows. The new standards are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. We adopted this guidance in the first quarter of 2018 with no material impact on our consolidated financial statements at adoption.

In 2016, the FASB issued new guidance that requires the recognition of the income tax consequences of an intra-entity transfer of an asset, other than inventory, when the transfer occurs. This removes the exception to postpone recognition until the asset has been sold to an outside party. This standard is effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods within those annual reporting periods, with early adoption permitted. It is required to be applied on a modified retrospective basis through a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. We adopted this guidance in the first quarter of 2018 with no material impact on our consolidated financial statements at adoption.

In 2017, the FASB issued new guidance that narrows the application of when an integrated set of assets and activities is considered a business and provides a framework to assist entities in evaluating whether both an input and a substantive process are present to be considered a business. It is expected that the new guidance will reduce the number of transactions that would need to be further evaluated and accounted for as a business. This standard is effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods within those annual reporting periods, with early adoption permitted. We adopted this guidance in the first quarter of 2018 with no material impact on our consolidated financial statements at adoption; however, adoption of the new guidance will impact management’s consideration of strategic investments.

In 2017, the FASB issued new guidance to clarify the scope and application of the sale or transfer of nonfinancial assets to noncustomers, including partial sales and also defines what constitutes an “in substance nonfinancial asset”
which can include financial assets. The new guidance eliminates several accounting differences between transactions involving assets and transactions involving businesses. Further, the guidance aligns the accounting for derecognition of a nonfinancial asset with that of a business. This standard is effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods within those annual reporting periods. We adopted this guidance in the first quarter of 2018 with no material impact on our consolidated financial statements at adoption.

In 2017, the FASB issued new guidance to amend the scope of modification accounting for share-based payment arrangements. The amendments in the update provide guidance on types of changes to the terms or conditions of share-based payment awards would be required to apply modification accounting under ASC 718, Compensation-Stock Compensation. The amendments are effective for annual reporting periods beginning after December 15, 2017 with early adoption permitted. We adopted this guidance in the first quarter of 2018 with no material impact on our consolidated financial statements at adoption.

In 2017, the FASB issued new guidance to simplify the application of the hedge accounting guidance in current GAAP and improve the financial reporting of hedging relationships by allowing entities to better align its risk management activities and financial reporting for hedging relationships through changes to both designation and measurement for qualifying hedging relationships and the presentation of hedge results. Further, the new guidance allows more flexibility in the requirements to qualify and maintain hedge accounting. The new standard is effective for fiscal years beginning after December 15, 2018, and interim periods with early adoption permitted. We early adopted this guidance in the first quarter of 2018 with no material impact on our consolidated financial statements at adoption.

In 2018, the FASB issued new guidance that allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act, eliminating the stranded tax effects resulting from the Tax Cuts and Jobs Act. However, the new guidance only applies to the tax effects resulting from the Tax Cuts and Jobs Act and does not change the underlying guidance to recognize the effect of a change in tax laws or rates in income from continuing operations. The amendments are effective for all entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years, with early adoption permitted. We have elected to not reclassify the stranded tax effects resulting from the Tax Cut and Jobs Act to retained earnings. Accordingly, the standard does not have an impact on our consolidated financial statements.

Recent Accounting Pronouncements Not Yet Adopted

In 2016, the FASB issued new guidance related to accounting for leases. The new guidance requires the recognition of right-of-use (“ROU”) assets and lease liabilities by lessees for those leases classified as operating leases under previous guidance. In 2018, the FASB also approved an amendment that would permit the option to adopt the new standard prospectively as of the effective date, without adjusting comparative periods presented. The new standard will be effective for us beginning January 1, 2019. In preparation for the adoption of the new standard, we have implemented internal controls and a new lease accounting information system to enable the preparation of financial information. We will elect the optional transition approach to not apply the new lease standard in the comparative periods presented and the package of practical expedients. We will also elect the practical expedient to not account for lease and non-lease components separately for data center operating leases. We expect adoption of the standard will result in the recognition of ROU assets and lease liabilities for operating leases of approximately $700 million to $800 million at January 1, 2019, with the most significant impact from recognition of ROU assets and lease liabilities related to our office space, data center, fulfillment center and other corporate asset operating leases. The adoption of the new standard will not have a material impact on our consolidated statement of income, stockholders’ equity and cash flows.

In 2016, the FASB issued new guidance that requires credit losses on financial assets measured at amortized cost basis to be presented at the net amount expected to be collected, not based on incurred losses. Further, credit losses on available-for-sale debt securities should be recorded through an allowance for credit losses limited to the amount by which fair value is below amortized cost. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018 is permitted. We are evaluating the impact of adopting this new accounting guidance on our consolidated financial statements.

In 2017, the FASB issued new guidance to simplify the subsequent measurement of goodwill by removing the requirement to perform a hypothetical purchase price allocation to compute the implied fair value of goodwill to measure
impairment. Instead, any goodwill impairment will equal the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. Further, the guidance eliminates the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test. This standard is effective for annual or any interim goodwill impairment test in fiscal years beginning after December 15, 2019, with early adoption permitted for impairment tests performed after January 1, 2017. We do not expect the adoption of this standard to have a material impact on our consolidated financial statements.

In 2017, the FASB issued new guidance that will shorten the amortization period for certain callable debt securities held at a premium to the earliest call date to more closely align with expectations incorporated in market pricing. The new guidance will not impact debt securities held at a discount. Adoption of this standard will be made on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. This standard is effective for annual reporting periods beginning after December 15, 2018, including interim reporting periods within those annual reporting periods, with early adoption permitted. We do not expect the adoption of this standard to have a material impact on our consolidated financial statements.

In 2018, the FASB issued new guidance to simplify the accounting for nonemployee share-based payment transactions by expanding the scope of ASC Topic 718, Compensation - Stock Compensation, to include share-based payment transactions for acquiring goods and services from nonemployees. Under the new standard, most of the guidance on stock compensation payments to nonemployees would be aligned with the requirements for share-based payments granted to employees. This standard is effective for annual reporting periods beginning after December 15, 2018, including interim reporting periods within those annual reporting periods, with early adoption permitted. We do not expect the adoption of this standard to have a material impact on our consolidated financial statements.

In 2018, the FASB issued new guidance on a customer's accounting for implementation, set-up, and other upfront costs incurred in a cloud computing arrangement that is hosted by the vendor (i.e., a service contract). Under the new guidance, customers will apply the same criteria for capitalizing implementation costs as they would for an arrangement that has a software license. This standard will be effective for annual reporting periods beginning after December 15, 2019, including interim reporting periods within those fiscal years, with early adoption permitted. We do not expect the adoption of this standard to have a material impact on our consolidated financial statements.

In 2018, the FASB issued guidance to permit use of the Overnight Index Swap (“OIS”) rate as a U.S. benchmark interest rate for hedge accounting purposes in addition to the UST, the London InterBank Offered Rate (“LIBOR”) swap rate, the OIS rate based on the Fed Funds Effective Rate, and the Securities Industry and Financial Market Association Municipal Swap Rate. This guidance will be effective for annual reporting periods beginning after December 15, 2018, including interim reporting periods within those annual reporting periods. While we continue to assess the potential impact of this standard, we do not expect the adoption of this standard to have a material impact on our consolidated financial statements.

In 2018, the FASB issued new guidance to clarify the interaction between Collaborative Arrangements and Revenue from Contracts with Customers standards. The guidance (1) clarifies that certain transactions between collaborative arrangement participants should be accounted under revenue guidance; (2) adds unit of account guidance to the collaborative arrangement guidance to align with the revenue standard; and (3) clarifies presentation guidance for transactions with a collaborative arrangement participant that is not accounted for under the revenue standard. The guidance is effective for annual reporting periods beginning after December 15, 2019, including interim reporting periods within those annual reporting periods, with early adoption permitted. We do not expect the adoption of this standard to have a material impact on our consolidated financial statements.
v3.10.0.1
Net Income (loss) Per Share
12 Months Ended
Dec. 31, 2018
Earnings Per Share [Abstract]  
Net Income (loss) Per Share Net Income (loss) Per Share

Basic net income (loss) per share is computed by dividing net income (loss) for the period by the weighted average number of common shares outstanding during the period. Diluted net income (loss) per share is computed by dividing net income (loss) for the period by the weighted average number of shares of common stock and potentially dilutive common stock outstanding during the period. The dilutive effect of outstanding options and equity incentive awards is reflected in diluted net income (loss) per share by application of the treasury stock method. The calculation of diluted net income (loss) per share excludes all anti-dilutive common shares.

The following table presents the computation of basic and diluted net income (loss) per share (in millions, except per share amounts):
 
Year Ended December 31,
 
2018
 
2017
 
2016
Numerator:
 
 
 
 
 
Income (loss) from continuing operations
$
2,528

 
$
(1,013
)
 
$
7,285

Income (loss) from discontinued operations, net of income taxes
2

 
(4
)
 
(19
)
Net income (loss)
$
2,530

 
$
(1,017
)
 
$
7,266

Denominator:
 
 
 
 
 
Weighted average shares of common stock - basic
980

 
1,064

 
1,133

Dilutive effect of equity incentive awards
11

 

 
11

Weighted average shares of common stock - diluted
991

 
1,064

 
1,144

Income (loss) per share - basic:
 
 
 
 
 
Continuing operations
$
2.58

 
$
(0.95
)
 
$
6.43

Discontinued operations

 

 
(0.02
)
Net income (loss) per share - basic
$
2.58

 
$
(0.95
)
 
$
6.41

Income (loss) per share - diluted:
 
 
 
 
 
Continuing operations
$
2.55

 
$
(0.95
)
 
$
6.37

Discontinued operations

 

 
(0.02
)
Net income (loss) per share - diluted
$
2.55

 
$
(0.95
)
 
$
6.35

Common stock equivalents excluded from income per diluted share because their effect would have been anti-dilutive
12

 
46

 
8

v3.10.0.1
Business Combinations
12 Months Ended
Dec. 31, 2018
Business Combinations [Abstract]  
Business Combinations Business Combinations

Business Combinations

In 2018, we completed the acquisition of 100% of Giosis Pte. Ltd.’s (“Giosis”) Japan business, including the Qoo10.jp platform, in exchange for $306 million in cash and the relinquishment of our existing equity method investment in Giosis. We believe the acquisition allows us to offer Japanese consumers more inventory and grow our international presence. Refer to “Note 6 - Investments” for further details on the relinquishment of our equity method investment in Giosis’ non-Japanese business. The aggregate purchase consideration was allocated as follows (in millions):
 
Giosis
Goodwill
$
532

Purchased intangible assets
91

Net liabilities
(50
)
Total
$
573



These allocations were prepared on a preliminary basis and changes to these allocations may occur as additional information becomes available. The goodwill recognized is primarily attributable to expected synergies and the assembled workforce of Giosis. We generally do not expect goodwill to be deductible for income tax purposes.

Acquisition activity in 2017 was immaterial.

During 2016, we completed six acquisitions – Cargigi Inc., Expertmaker, SalesPredict, Ticketbis, Ticket Utils and Corrigon Ltd. – for an aggregate purchase consideration of approximately $212 million in cash. We believe these acquisitions will help us build a better user experience, improve discoverability and grow our international presence.

The aggregate purchase consideration of our 2016 acquisitions was allocated as follows (in millions):
 
Ticketbis
 
Other
 
Total
Purchased intangible assets
$
48

 
$
28

 
$
76

Goodwill
128

 
57

 
185

Net liabilities
(35
)
 
(14
)
 
(49
)
Total
$
141

 
$
71

 
$
212



These allocations have been prepared on a preliminary basis and changes to these allocations may occur as additional information becomes available. We generally do not expect goodwill to be deductible for income tax purposes.

Our consolidated financial statements include the operating results of acquired businesses from the date of acquisition. Separate operating results and pro forma results of operations for the acquisition above have not been presented as the effect of these acquisitions is not material to our financial results.
v3.10.0.1
Goodwill and Intangible Assets
12 Months Ended
Dec. 31, 2018
Goodwill and Intangible Assets Disclosure [Abstract]  
Goodwill and Intangible Assets Goodwill and Intangible Assets

Goodwill

The following table presents goodwill activity for the years ended December 31, 2018 and 2017 (in millions):
 
December 31,
2016
 
Goodwill Acquired
 
Adjustments
 
December 31,
2017
 
Goodwill
Acquired
 
Adjustments
 
December 31,
2018
Goodwill
$
4,501

 
10

 
262

 
$
4,773

 
532

 
(145
)
 
$
5,160



The adjustments to goodwill during the years ended December 31, 2018 and 2017 were primarily due to foreign currency translation. There were no impairments to goodwill in 2018 and 2017.

Intangible Assets

The components of identifiable intangible assets are as follows (in millions, except years): 
 
December 31, 2018
 
December 31, 2017
 
Gross Carrying Amount  
 
Accumulated Amortization 
 
Net Carrying Amount
 
Weighted Average Useful Life (Years)
 
Gross Carrying Amount 
 
Accumulated Amortization 
 
Net Carrying Amount
 
Weighted Average Useful Life (Years)
Intangible assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Customer lists and user base
$
519

 
$
(445
)
 
$
74

 
5
 
$
458

 
$
(430
)
 
$
28

 
5
Marketing-related
584

 
(578
)
 
6

 
5
 
607

 
(587
)
 
20

 
5
Developed technologies
278

 
(269
)
 
9

 
3
 
273

 
(258
)
 
15

 
3
All other
160

 
(157
)
 
3

 
4
 
156

 
(150
)
 
6

 
4
Total
$
1,541

 
$
(1,449
)
 
$
92

 
 
 
$
1,494

 
$
(1,425
)
 
$
69

 
 

  
Amortization expense for intangible assets was $63 million, $64 million and $56 million for the years ended December 31, 2018, 2017 and 2016, respectively.

Expected future intangible asset amortization as of December 31, 2018 is as follows (in millions):
Fiscal year:
 
2019
$
49

2020
34

2021
9

Thereafter

Total
$
92

v3.10.0.1
Segments
12 Months Ended
Dec. 31, 2018
Segment Reporting [Abstract]  
Segments Segments

We have one operating and reportable segment. Our chief operating decision maker reviews financial information presented on a consolidated basis for purposes of allocating resources and evaluating financial performance. The following table sets forth the breakdown of net revenues by type for the periods presented (in millions):
 
Year Ended December 31,
 
2018
 
2017
 
2016
Net revenues by type:
 
 
 
 
 
Net transaction revenues:
 
 
 
 
 
Marketplace
$
7,416

 
$
6,809

 
$
6,425

StubHub
1,068

 
1,011

 
938

Total net transaction revenues
8,484

 
7,820

 
7,363

Marketing services and other revenues:
 
 
 
 
 
Marketplace
1,225

 
1,192

 
1,137

Classifieds
1,022

 
897

 
791

StubHub, Corporate and other
15

 
18

 
7

Total marketing services and other revenues
2,262

 
2,107

 
1,935

Total net revenues
$
10,746

 
$
9,927

 
$
9,298



The following tables summarize the allocation of net revenues and long-lived tangible assets based on geography (in millions):  
 
Year Ended December 31,
 
2018
  
2017
  
2016
Net revenues by geography:
 
 
 
 
 
U.S.
$
4,373

  
$
4,187

  
$
3,967

Germany
1,591

  
1,464

  
1,359

United Kingdom
1,481

  
1,368

  
1,331

South Korea
1,195

 
1,061

 
957

Rest of world
2,106

  
1,847

  
1,684

Total net revenues
$
10,746

 
$
9,927

 
$
9,298


 
As of December 31,
 
2018
  
2017
Long-lived tangible assets by geography:
 
 
 
U.S.
$
1,661

  
$
1,603

International
151

  
160

Total long-lived tangible assets
$
1,812

  
$
1,763



Net revenues, inclusive of the effects of foreign exchange during each period, are attributed to U.S. and international geographies primarily based upon the country in which the seller, platform that displays advertising, other service provider, or customer, as the case may be, is located. Long-lived assets attributed to the U.S. and international geographies are based upon the country in which the asset is located or owned.
v3.10.0.1
Investments
12 Months Ended
Dec. 31, 2018
Investments [Abstract]  
Investments Investments
The following tables summarize the unrealized gains and losses and estimated fair value of our investments classified as available-for-sale as of December 31, 2018 and 2017 (in millions):
 
December 31, 2018
 
Gross
Amortized
Cost
  
Gross
Unrealized
Gains
  
Gross
Unrealized
Losses
 
Estimated
Fair Value
Short-term investments:
 
  
 
  
 
 
 
Restricted cash
$
17

  
$

  
$

 
$
17

Corporate debt securities
2,615

  

  
(9
)
 
2,606

Government and agency securities
90

  

  

 
90

 
$
2,722

  
$

  
$
(9
)
 
$
2,713

Long-term investments:
 
  
 
  
 
 
 
Corporate debt securities
3,682

  
1

  
(48
)
 
3,635

 
$
3,682

  
$
1

  
$
(48
)
 
$
3,635

 
 
December 31, 2017
 
Gross
Amortized
Cost
  
Gross
Unrealized
Gains
  
Gross
Unrealized
Losses
 
Estimated
Fair Value
Short-term investments:
 
  
 
  
 
 
 
Restricted cash
$
20

  
$

  
$

 
$
20

Corporate debt securities
3,726

  
1

  
(4
)
 
3,723

 
$
3,746

 
$
1

 
$
(4
)
 
$
3,743

Long-term investments:
 
  
 
  
 
 
 
Corporate debt securities
5,458

  
12

  
(24
)
 
5,446

 
$
5,458

  
$
12

  
$
(24
)
 
$
5,446



Restricted cash is held primarily in interest bearing accounts for letters of credit primarily related to our global sabbatical program and various lease arrangements. Our fixed-income investments consist of predominantly investment grade corporate debt securities and government and agency securities. The corporate debt and government and agency securities that we invest in are generally deemed to be low risk based on their credit ratings from the major rating agencies.

The longer the duration of these securities, the more susceptible they are to changes in market interest rates and bond yields. As interest rates increase, those securities purchased at a lower yield show a mark-to-market unrealized loss. The unrealized losses are due primarily to changes in credit spreads and interest rates. We regularly review investment securities for other-than-temporary impairment using both qualitative and quantitative criteria. We presently do not intend to sell any of the securities in an unrealized loss position and expect to realize the full value of all these investments upon maturity or sale.

Investment securities in a continuous loss position for greater than 12 months had an estimated fair value $2.7 billion and unrealized losses of $41 million as of December 31, 2018 and an estimated fair value of $360 million and an immaterial amount of unrealized losses as of December 31, 2017. As of December 31, 2018, these securities had a weighted average remaining maturity of approximately 17 months. Refer to “Note 16 - Accumulated Other Comprehensive Income” for amounts reclassified to earnings from unrealized gains and losses.
 
The estimated fair values of our short-term and long-term investments classified as available-for-sale by date of contractual maturity as of December 31, 2018 are as follows (in millions):  
 
December 31,
2018
One year or less (including restricted cash of $17)
$
2,713

One year through two years
1,922

Two years through three years
1,123

Three years through four years
473

Four years through five years
117

Thereafter

Total
$
6,348



Equity investments

Our equity investments are reported in long-term investments on our consolidated balance sheet. The following table provides a summary of our equity investments as of December 31, 2018 and December 31, 2017 (in millions):
 
December 31, 2018
 
December 31, 2017
Equity investments without readily determinable fair values
$
137

 
$
872

Equity investments under the equity method of accounting
6

 
13

Total equity investments
$
143

 
$
885



In 2018, we sold our investment in Flipkart and relinquished our existing equity method investment in Giosis as part of the exchange for the acquisition of Giosis’ Japan business. The $313 million gain upon sale of our investment in Flipkart and the $266 million gain upon relinquishment of our equity method investment in Giosis were recorded in
interest and other, net on our consolidated statement of income. Refer to “Note 3 - Business Combinations” for further details on the Giosis acquisition.

In 2017, we made a cost method investment of $50 million. In addition, we received a 5.44% ownership interest in Flipkart in exchange for our eBay India business and a $500 million cash investment, resulting in a cost method investment of $725 million. The gain on disposal of our eBay India business of $167 million was recorded in interest and other, net on our consolidated statement of income. In addition, we recorded a $61 million impairment charge to write-down our cost method investment in Jasper Infotech Private Limited (“Snapdeal”). The investment was measured at fair value due to events and circumstances that we identified as having significant impact on its fair value. The fair value measurement of the impaired investment was measured using significant unobservable inputs. The impairment charge, representing the difference between the net book value and the fair value, was recorded to interest and other, net.

The following table provides a summary of unrealized gains and losses recorded in interest and other, net during the twelve months ended December 31, 2018 related to equity investments without readily determinable fair values still held at December 31, 2018.

 
 
Year Ended
December 31, 2018
Net gains/(losses) recognized during the period on equity investments
 
$
313

Less: Net gains/(losses) recognized during the period on equity investments sold during the period
 
(313
)
Total unrealized gains/(losses) on equity investments still held
at December 31, 2018
 
$



The following table summarizes the total carrying value of equity investments without readily determinable fair values during the twelve months ended December 31, 2018 (in millions):

 
 
Year Ended
December 31, 2018
Carrying value, beginning of period
 
$
872

Additions
 
23

Sales
 
(718
)
Downward adjustments for observable price changes and impairment
 
(20
)
Foreign currency translation and other
 
(20
)
Carrying value, end of period
 
$
137



For such equity investments without readily determinable fair values as of December 31, 2018, cumulative downward adjustments for price changes and impairment was $81 million. As of December 31, 2018, there have been no upward adjustments for price changes to our equity investments without readily determinable fair values.
v3.10.0.1
Derivative Instruments
12 Months Ended
Dec. 31, 2018
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative Instruments Derivative Instruments

Our primary objective in holding derivatives is to reduce the volatility of earnings and cash flows associated with changes in foreign currency exchange rates and interest rates. These hedging contracts reduce, but do not entirely eliminate, the impact of adverse foreign exchange rate and interest rate movements. We do not use any of our derivative instruments for trading purposes.

We use foreign currency exchange contracts to reduce the volatility of cash flows related to forecasted revenues, expenses, assets and liabilities, including intercompany balances denominated in foreign currencies. These contracts are generally one month to one year in duration, but with maturities up to 18 months. The objective of the foreign exchange contracts is to better ensure that ultimately the U.S. dollar-equivalent cash flows are not adversely affected by changes in the applicable U.S. dollar/foreign currency exchange rate. We evaluate the effectiveness of our foreign
exchange contracts designated as cash flow or net investment hedges on a quarterly basis.

We use interest rate swaps to manage interest rate risk on our fixed rate notes issued in July 2014 and maturing in 2019, 2021 and 2024. These interest rate swaps had the economic effect of modifying the fixed interest obligations associated with $2.4 billion of these notes so that the interest payable on these senior notes effectively became variable based on LIBOR plus a spread. The duration of these interest rate contracts matches the duration of the fixed rate notes due 2019, 2021 and 2024.

Cash Flow Hedges

For derivative instruments that are designated as cash flow hedges, the derivative’s gain or loss is initially reported as a component of accumulated other comprehensive income (“AOCI”) and subsequently reclassified into earnings in the same period the forecasted transaction affects earnings. Derivative instruments designated as cash flow hedges must be de-designated as hedges when it is probable the forecasted hedged transaction will not occur in the initially identified time period or within a subsequent two-month time period. Unrealized gains and losses in AOCI associated with such derivative instruments are immediately reclassified into earnings. As of December 31, 2018, we have estimated that approximately $64 million of net derivative gain related to our cash flow hedges included in accumulated other comprehensive income will be reclassified into earnings within the next 12 months. We classify cash flows related to our cash flow hedges as operating activities in our consolidated statement of cash flows.

Net Investment Hedges

For derivative instruments that are designated as net investment hedges, the derivative’s gain or loss is initially reported in the translation adjustments component of AOCI and is reclassified to net earnings in the period in which the hedged subsidiary is either sold or substantially liquidated.

Fair Value Hedges

We have designated the interest rate swaps used to manage interest rate risk on our fixed rate notes issued in July 2014 and maturing in 2019, 2021 and 2024 as qualifying hedging instruments and are accounting for them as fair value hedges. These transactions are designated as fair value hedges for financial accounting purposes because they protect us against changes in the fair value of certain of our fixed rate borrowings due to benchmark interest rate movements. Changes in the fair values of these interest rate swap agreements are recognized in other assets or other liabilities with a corresponding increase or decrease in long-term debt. Each quarter we pay interest based on LIBOR plus a spread to the counterparty and on a semi-annual basis receive interest from the counterparty per the fixed rate of these senior notes. The net amount is recognized as interest expense in interest and other, net.

Non-Designated Hedges

Our derivatives not designated as hedging instruments consist of foreign currency forward contracts that we primarily use to hedge monetary assets or liabilities, including intercompany balances denominated in non-functional currencies. The gains and losses on our derivatives not designated as hedging instruments are recorded in interest and other, net, which are offset by the foreign currency gains and losses on the related assets and liabilities that are also recorded in interest and other, net. We classify cash flows related to our non-designated hedging instruments as operating activities in our consolidated statement of cash flows.

Warrant

We entered into a warrant agreement in conjunction with a commercial agreement with a service provider that, subject to meeting certain conditions, entitles us to acquire a fixed number of shares up to 5% of the service providers fully diluted issued and outstanding share capital at a specific date. The warrant has a term of seven years and will vest in a series of four tranches, at a specified price per share upon meeting significant processing volume milestone targets on a calendar year basis. If and when the relevant milestone is reached, the warrant becomes exercisable with respect to the corresponding tranche of warrant shares up until the warrant expiration date of January 31, 2025. The maximum number of tranches that can vest in one calendar year is two.
 
The warrant is accounted for as a derivative under ASC Topic 815, Derivatives and Hedging. We report the warrant at fair value within other assets in our consolidated balance sheets and changes in the fair value of the warrant are
recognized in interest and other, net in our consolidated statement of income. The day-one value attributable to the other side of the warrant, which was recorded as a deferred credit, is reported within other liabilities in our consolidated balance sheets and will be amortized over the life of the commercial arrangement.

Fair Value of Derivative Contracts

The fair values of our outstanding derivative instruments as of December 31, 2018 and 2017 were as follows (in millions):
 
Balance Sheet Location
 
December 31,
2018
 
December 31,
2017
Derivative Assets:
 
 
 
 
 
Foreign exchange contracts designated as cash flow hedges
Other Current Assets
 
$
72

 
$
16

Foreign exchange contracts not designated as hedging instruments
Other Current Assets
 
38

 
10

Warrant
Other Assets
 
148

 

Foreign exchange contracts designated as cash flow hedges
Other Assets
 
4

 

Interest rate contracts designated as fair value hedges
Other Assets
 

 
2

Total derivative assets
 
 
$
262

 
$
28

 
 
 
 
 
 
Derivative Liabilities:
 
 
 
 
 
Foreign exchange contracts designated as cash flow hedges
Other Current Liabilities
 
$

 
$
18

Foreign exchange contracts designated as net investment hedges
Other Current Liabilities
 
1

 

Interest rate contracts designated as fair value hedges
Other Current Liabilities
 
7

 

Foreign exchange contracts not designated as hedging instruments
Other Current Liabilities
 
30

 
11

Interest rate contracts designated as fair value hedges
Other Liabilities
 
10

 

Total derivative liabilities
 
 
$
48

 
$
29

 
 
 
 
 
 
Total fair value of derivative instruments
 
 
$
214

 
$
(1
)


Under the master netting agreements with the respective counterparties to our derivative contracts, subject to applicable requirements, we are allowed to net settle transactions of the same type with a single net amount payable by one party to the other. However, we have elected to present the derivative assets and derivative liabilities on a gross basis on our consolidated balance sheet. As of December 31, 2018, the potential effect of rights of set-off associated with the foreign exchange contracts would be an offset to both assets and liabilities by $30 million, resulting in net derivative assets of $84 million and net derivative liabilities of $1 million.

Effect of Derivative Contracts on Accumulated Other Comprehensive Income

The following tables present the activity of derivative instruments designated as cash flow hedges as of December 31, 2018 and 2017, and the impact of these derivative contracts on AOCI for the years ended December 31, 2018 and 2017 (in millions):
 
December 31, 2017
 
Amount of Gain (Loss)
Recognized in Other
Comprehensive 
Income
 
Amount of Gain (Loss)
Reclassified From
AOCI to Earnings
 
December 31, 2018
Foreign exchange contracts designated as cash flow hedges
$
(57
)
 
117

 
(8
)
 
$
68


 
December 31, 2016
 
Amount of Gain (Loss)
Recognized in Other
Comprehensive 
Income
 
Amount of Gain (Loss)
Reclassified From
AOCI to Earnings
 
December 31, 2017
Foreign exchange contracts designated as cash flow hedges
$
54

 
(104
)
 
7

 
$
(57
)

Effect of Derivative Contracts on Consolidated Statement of Income

The following table provides a summary of the total gain (loss) recognized in the consolidated statement of income from our foreign exchange derivative contracts by location (in millions):
 
Year Ended December 31,
 
2018
 
2017
 
2016
Foreign exchange contracts designated as cash flow hedges recognized in net revenues
$
(8
)
 
$
(28
)
 
$

Foreign exchange contracts designated as cash flow hedges recognized in cost of net revenues and operating expenses

 
11

 
7

Foreign exchange contracts designated as cash flow hedges recognized in interest and other, net

 
24

 
101

Foreign exchange contracts not designated as hedging instruments recognized in interest and other, net
9

 
(16
)
 
11

Total gain (loss) recognized from foreign exchange derivative contracts in the consolidated statement of income
$
1

 
$
(9
)
 
$
119


The following table provides a summary of the total gain (loss) recognized in the consolidated statement of income from our interest rate derivative contracts by location (in millions):
 
Year Ended December 31,
 
2018
 
2017
 
2016
Gain (loss) from interest rate contracts designated as fair value hedges recognized in interest and other, net
$
(19
)
 
$
(21
)
 
$
(18
)
Gain (loss) from hedged items attributable to hedged risk recognized in interest and other, net
19

 
21

 
18

Total gain (loss) recognized from interest rate derivative contracts in the consolidated statement of income
$

 
$

 
$


The following table provides a summary of the total gain recognized in the consolidated statement of income due to changes in the fair value of the warrant (in millions): 
 
Year Ended
December 31,
 
2018
 
2017
 
2016
Gain attributable to changes in the fair value of warrant recognized in interest and other, net
$
104

 
$

 
$




Notional Amounts of Derivative Contracts

Derivative transactions are measured in terms of the notional amount, but this amount is not recorded on the balance sheet and is not, when viewed in isolation, a meaningful measure of the risk profile of the instruments. The notional amount is generally not exchanged, but is used only as the basis on which the value of foreign exchange payments under these contracts are determined. The following table provides the notional amounts of our outstanding derivatives as of December 31, 2018 and 2017 (in millions):
 
December 31,
 
2018
 
2017
Foreign exchange contracts designated as cash flow hedges
$
1,510

 
$
1,990

Foreign exchange contracts designated as net investment hedges
804

 

Foreign exchange contracts not designated as hedging instruments
3,517

 
2,349

Interest rate contracts designated as fair value hedges
2,400

 
2,400

Total
$
8,231

 
$
6,739



Credit Risk

Our derivatives expose us to credit risk to the extent that the counterparties may be unable to meet the terms of the arrangement. We seek to mitigate such risk by limiting our counterparties to, and by spreading the risk across, major financial institutions. In addition, the potential risk of loss with any one counterparty resulting from this type of credit risk is monitored on an ongoing basis. To further limit credit risk, we also enter into collateral security arrangements related to certain interest rate derivative instruments whereby collateral is posted between counterparties if the fair value of the derivative instrument exceeds certain thresholds. Additional collateral would be required in the event of a significant credit downgrade by either party. We are not required to pledge, nor are we entitled to receive, collateral related to our foreign exchange derivative transactions. As of December 31, 2018, we had neither pledged nor received collateral related to our interest rate derivative transactions.
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Fair Value Measurement of Assets and Liabilities
12 Months Ended
Dec. 31, 2018
Fair Value Disclosures [Abstract]  
Fair Value Measurement of Assets and Liabilities Fair Value Measurement of Assets and Liabilities

The following tables present our financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2018 and 2017 (in millions):
 
December 31, 2018
 
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
 
Significant Other
Observable Inputs
(Level 2)
 
Significant 
Unobservable Inputs
(Level 3)
Assets:
 
 
 
 
 
 
 
Cash and cash equivalents
$
2,202

 
$
2,052

 
$
150

 
$

Short-term investments:
 
 
 
 
 
 
 
Restricted cash
17

 
17

 

 

Corporate debt securities
2,606

 

 
2,606

 

Government and agency securities
90

 

 
90

 

Total short-term investments
2,713

 
17

 
2,696

 

Derivatives
262

 

 
114

 
148

Long-term investments:
 
 
 
 
 
 
 
Corporate debt securities
3,635

 

 
3,635

 

Total long-term investments
3,635

 

 
3,635

 

Total financial assets
$
8,812

 
$
2,069

 
$
6,595

 
$
148

 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
Derivatives
$
48

 
$

 
$
48

 
$


 
December 31, 2017
 
Quoted Prices in
Active Markets for
Identical Assets
(Level 1) 
 
Significant Other
Observable Inputs
(Level 2)
 
Significant 
Unobservable Inputs
(Level 3)
Assets:
 
 
 
 
 
 
 
Cash and cash equivalents
$
2,120

 
$
2,120

 
$

 
$

Short-term investments:
 
 
 
 
 
 
 
Restricted cash
20

 
20

 

 

Corporate debt securities
3,723

 

 
3,723

 

Total short-term investments
3,743

 
20

 
3,723

 

Derivatives
28

 

 
28

 

Long-term investments:
 
 
 
 
 
 
 
Corporate debt securities
5,446

 

 
5,446

 

Total long-term investments
5,446

 

 
5,446

 

Total financial assets
$
11,337

 
$
2,140

 
$
9,197

 
$

 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
Derivatives
$
29

 
$

 
$
29

 
$

 
Our financial assets and liabilities are valued using market prices on both active markets (Level 1), less active markets (Level 2) and little or no market activity (Level 3). Level 1 instrument valuations are obtained from real-time quotes for transactions in active exchange markets involving identical assets. Level 2 instrument valuations are obtained from readily available pricing sources for comparable instruments, identical instruments in less active markets, or models using market observable inputs. Level 3 instrument valuations typically reflect management’s estimate of assumptions that market participants would use in pricing the asset or liability. We did not have any transfers of financial instruments between valuation levels during 2018 or 2017.

The majority of our derivative instruments are valued using pricing models that take into account the contract terms as well as multiple inputs where applicable, such as equity prices, interest rate yield curves, option volatility and currency rates. Our warrant, which is accounted for as a derivative instrument, is valued using a Black-Scholes model. Key assumptions used in the valuation include risk-free interest rates; the service provider’s common stock price, equity volatility and common stock outstanding; exercise price; and details specific to the warrant. The value is also probability adjusted for management assumptions with respect to meeting the processing volume milestone targets. Refer to “Note 7 - Derivative Instruments” for further details on our derivative instruments.

Other financial instruments, including accounts receivable and accounts payable, are carried at cost, which approximates their fair value because of the short-term nature of these instruments.

The following table presents a reconciliation of the opening to closing balance of assets measured using significant unobservable inputs (Level 3) as of December 31, 2018 (in millions):

 
December 31,
2018
Opening balance as of January 1, 2018
$

Recognition of warrant
44

Change in fair value
104

Closing balance as of December 31, 2018
$
148

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Balance Sheet Components
12 Months Ended
Dec. 31, 2018
Balance Sheet Components [Abstract]  
Balance Sheet Components Balance Sheet Components

Other Current Assets

 
December 31,
2018
 
2017
(In millions)
Customer accounts and funds receivable
$
670

 
$
662

Other
829

 
523

Other current assets
$
1,499