EBAY INC, 10-K filed on 1/31/2020
Annual Report
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Cover Page - USD ($)
12 Months Ended
Dec. 31, 2019
Jan. 27, 2020
Jun. 30, 2019
Entity Information [Line Items]      
Document Type 10-K    
Document Annual Report true    
Document Period End Date Dec. 31, 2019    
Document Transition Report false    
Entity File Number 001-37713    
Entity Registrant Name eBay Inc.    
Entity Central Index Key 0001065088    
Amendment Flag false    
Document Fiscal Year Focus 2019    
Document Fiscal Period Focus FY    
Current Fiscal Year End Date --12-31    
Entity Incorporation, State or Country Code DE    
Entity Tax Identification Number 77-0430924    
Entity Address, Address Line One 2025 Hamilton Avenue    
Entity Address, City or Town San Jose    
Entity Address, State or Province CA    
Entity Address, Postal Zip Code 95125    
City Area Code 408    
Local Phone Number 376-7008    
Entity Well-known Seasoned Issuer Yes    
Entity Voluntary Filer No    
Entity Current Reporting Status Yes    
Entity Interactive Data Current Yes    
Entity Filer Category Large Accelerated Filer    
Entity Small Business false    
Entity Emerging Growth Company false    
Entity Shell Company false    
Entity Public Float     $ 31,354,367,947
Entity Common Stock, Shares Outstanding   796,080,826  
Documents Incorporated by Reference
Part III incorporates information by reference from the definitive proxy statement for the registrant’s Annual Meeting of Stockholders expected to be held on June 16, 2020.
   
Common stock      
Entity Information [Line Items]      
Title of 12(b) Security Common stock    
Entity Trading Symbol EBAY    
Security Exchange Name NASDAQ    
6.00% Notes due 2056      
Entity Information [Line Items]      
Title of 12(b) Security 6.00% Notes due 2056    
Entity Trading Symbol EBAYL    
Security Exchange Name NASDAQ    
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CONSOLIDATED BALANCE SHEET - USD ($)
$ in Millions
Dec. 31, 2019
Dec. 31, 2018
Current assets:    
Cash and cash equivalents $ 975 $ 2,202
Short-term investments 1,850 2,713
Accounts receivable, net 700 712
Other current assets 1,181 1,499
Total current assets 4,706 7,126
Long-term investments 1,316 3,778
Property and equipment, net 1,510 1,597
Goodwill 5,153 5,160
Intangible assets, net 67 92
Operating lease right-of-use assets 628  
Deferred tax assets 4,377 4,792
Other assets 417 274
Total assets 18,174 22,819
Current liabilities:    
Short-term debt 1,022 1,546
Accounts payable 270 286
Accrued expenses and other current liabilities 2,404 2,335
Deferred revenue 158 170
Income taxes payable 212 117
Total current liabilities 4,066 4,454
Operating lease liabilities 492  
Deferred tax liabilities 2,646 2,925
Long-term debt 6,738 7,685
Other liabilities 1,362 1,474
Total liabilities 15,304 16,538
Commitments and contingencies (Note 12)
Stockholders' equity:    
Common stock, $0.001 par value; 3,580 shares authorized; 796 and 915 shares outstanding 2 2
Additional paid-in capital 16,126 15,716
Treasury stock at cost, 897 and 763 shares (31,396) (26,394)
Retained earnings 17,754 16,459
Accumulated other comprehensive income 384 498
Total stockholders' equity 2,870 6,281
Total liabilities and stockholders' equity $ 18,174 $ 22,819
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CONSOLIDATED BALANCE SHEET (Parentheticals) - $ / shares
Dec. 31, 2019
Dec. 31, 2018
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 796,000,000 915,000,000
Treasury stock - shares 897,000,000 763,000,000
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CONSOLIDATED STATEMENT OF INCOME - USD ($)
shares in Millions, $ in Millions
12 Months Ended
Dec. 31, 2019
Dec. 31, 2018
Dec. 31, 2017
Income Statement [Abstract]      
Net revenues $ 10,800 $ 10,746 $ 9,927
Cost of net revenues 2,508 2,382 2,221
Gross profit 8,292 8,364 7,706
Operating expenses:      
Sales and marketing 3,194 3,391 2,878
Product development 1,240 1,285 1,224
General and administrative 1,189 1,131 1,030
Provision for transaction losses 300 286 272
Amortization of acquired intangible assets 48 49 38
Total operating expenses 5,971 6,142 5,442
Income from operations 2,321 2,222 2,264
Interest and other, net (114) 496 11
Income from continuing operations before income taxes 2,207 2,718 2,275
Income tax provision (415) (190) (3,288)
Income (loss) from continuing operations 1,792 2,528 (1,013)
Income (loss) from discontinued operations, net of income taxes (6) 2 (4)
Net income (loss) $ 1,786 $ 2,530 $ (1,017)
Income (loss) per share - basic:      
Continuing operations (in usd per share) $ 2.11 $ 2.58 $ (0.95)
Discontinued operations (in usd per share) (0.01) 0 0
Net income (loss) per share - basic (in usd per share) 2.10 2.58 (0.95)
Income (loss) per share - diluted:      
Continuing operations (in usd per share) 2.10 2.55 (0.95)
Discontinued operations (in usd per share) (0.01) 0 0
Net income (loss) per share - diluted (in usd per share) $ 2.09 $ 2.55 $ (0.95)
Weighted average shares:      
Basic (in shares) 849 980 1,064
Diluted (in shares) 856 991 1,064
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CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME - USD ($)
$ in Millions
12 Months Ended
Dec. 31, 2019
Dec. 31, 2018
Dec. 31, 2017
Statement of Comprehensive Income [Abstract]      
Net income (loss) $ 1,786 $ 2,530 $ (1,017)
Other comprehensive income (loss), net of reclassification adjustments:      
Foreign currency translation adjustment (99) (286) 978
Unrealized gains (losses) on investments, net 61 (41) (66)
Tax benefit (expense) on unrealized gains (losses) on investments, net (16) 10 23
Unrealized gains (losses) on hedging activities, net (77) 125  
Unrealized gains (losses) on hedging activities, net     (111)
Tax benefit (expense) on unrealized gains (losses) on hedging activities, net 17 (27)  
Tax benefit (expense) on unrealized gains (losses) on hedging activities, net     (17)
Other comprehensive income (loss), net of tax (114) (219) 841
Comprehensive income (loss) $ 1,672 $ 2,311 $ (176)
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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, 2016   $ 2 $ 14,907 $ (19,205) $ 14,946 $ (124)
Common stock, beginning of year (in shares) at Dec. 31, 2016   1,087        
Increase (Decrease) in Stockholders' Equity [Roll Forward]            
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      
Other     1      
Common stock repurchased       (2,687)    
Net income (loss) $ (1,017)       (1,017)  
Dividends and dividend equivalents declared         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        
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]            
Dividends and dividend equivalents declared per share or restricted stock unit (in usd per share) $ 0          
Common stock issued   $ 0        
Common stock issued (in shares)   17        
Common stock repurchased/forfeited   $ 0        
Common stock repurchased/forfeited (in shares)   (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      
Other     1      
Common stock repurchased       (4,502)    
Net income (loss) $ 2,530       2,530  
Dividends and dividend equivalents declared         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]            
Dividends and dividend equivalents declared per share or restricted stock unit (in usd per share) $ 0          
Common stock issued   $ 0        
Common stock issued (in shares)   15        
Common stock repurchased/forfeited   $ 0        
Common stock repurchased/forfeited (in shares) (134) (134)        
Common stock and stock-based awards issued     104      
Tax withholdings related to net share settlements of restricted stock awards and units     (202)      
Stock-based compensation     505      
Other     3      
Common stock repurchased $ (5,000)     (5,002)    
Net income (loss) 1,786       1,786  
Dividends and dividend equivalents declared         (491)  
Change in unrealized gains (losses) on investments $ 61         61
Change in unrealized gains (losses) on derivative instruments           (77)
Foreign currency translation adjustment           (99)
Tax benefit (provision) on above items           1
Common stock, end of period (in shares) at Dec. 31, 2019 796 796        
Stockholders' equity, end of period at Dec. 31, 2019 $ 2,870 $ 2 $ 16,126 $ (31,396) $ 17,754 $ 384
Increase (Decrease) in Stockholders' Equity [Roll Forward]            
Dividends and dividend equivalents declared per share or restricted stock unit (in usd per share) $ 0.56          
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CONSOLIDATED STATEMENT OF CASH FLOWS - USD ($)
$ in Millions
12 Months Ended
Dec. 31, 2019
Dec. 31, 2018
Dec. 31, 2017
Cash flows from operating activities:      
Net income (loss) $ 1,786 $ 2,530 $ (1,017)
(Income) loss from discontinued operations, net of income taxes 6 (2) 4
Adjustments:      
Provision for transaction losses 300 286 272
Depreciation and amortization 681 696 676
Stock-based compensation 505 538 483
(Gain) loss on investments, net 0 (572) 49
(Gain) loss on sale of business 52 0 (167)
Deferred income taxes 117 (153) 1,728
Change in fair value of warrant (133) (104) 0
Other 0 19 0
Changes in assets and liabilities, net of acquisition effects      
Accounts receivable (124) (98) (195)
Other current assets 177 (143) (148)
Other non-current assets 222 108 19
Accounts payable 4 (47) 19
Accrued expenses and other liabilities (391) (437) 206
Deferred revenue 0 33 8
Income taxes payable and other tax liabilities (88) 7 1,209
Net cash provided by continuing operating activities 3,114 2,661 3,146
Net cash used in discontinued operating activities 0 (3) 0
Net cash provided by operating activities 3,114 2,658 3,146
Cash flows from investing activities:      
Purchases of property and equipment (554) (651) (666)
Purchases of investments (46,977) (28,115) (14,599)
Maturities and sales of investments 50,548 30,901 14,520
Equity investments     (50)
Proceeds from sale of equity investment in Flipkart 0 1,029 0
Acquisitions, net of cash acquired (93) (302) (34)
Other 23 32 (2)
Net cash provided by (used in) investing activities 2,787 2,894 (1,295)
Cash flows from financing activities:      
Proceeds from issuance of common stock 106 109 120
Repurchases of common stock (4,973) (4,502) (2,746)
Tax withholdings related to net share settlements of restricted stock awards and units (202) (225) (219)
Proceeds from issuance of long-term debt, net 0 0 2,484
Payments for dividends (473) 0 0
Repayment of debt (1,550) (750) (1,452)
Other 1 (30) 29
Net cash used in financing activities (7,091) (5,398) (1,784)
Effect of exchange rate changes on cash and cash equivalents (33) (75) 238
Net increase (decrease) in cash, cash equivalents and restricted cash (1,223) 79 305
Cash, cash equivalents and restricted cash at beginning of period 2,219 2,140 1,835
Cash, cash equivalents and restricted cash at end of period 996 2,219 2,140
Cash paid for:      
Interest 304 314 285
Interest on finance lease obligations 1 0 0
Income taxes 333 597 308
Noncash investing activities:      
Relinquishment of equity method investment 0 266 0
Sale of business in exchange for ownership interest in Flipkart 0 0 211
Flipkart      
Cash flows from investing activities:      
Equity investments 0 0 (514)
Paytm Mall      
Cash flows from investing activities:      
Equity investments $ (160) $ 0 $ 0
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The Company and Summary of Significant Accounting Policies
12 Months Ended
Dec. 31, 2019
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. Founded in 1995 in San Jose, California, eBay is one of the world’s largest and most vibrant marketplaces for discovering great value and unique selection. Collectively, we connect millions of buyers and sellers around the world, empowering people and creating opportunity for all. Our technologies and services are designed to give buyers choice and a breadth of relevant inventory and to enable sellers worldwide to organize and offer their inventory for sale, virtually anytime and anywhere. 

When we refer to “we,” “our,” “us” or “eBay” in this Annual Report on Form 10-K, we mean the current Delaware corporation (eBay Inc.) and its consolidated subsidiaries, unless otherwise expressly stated or the context otherwise requires.

In the first quarter of 2019, we announced several organizational changes, including bringing our Marketplace geographic regions together under one global leadership team. We changed from one reportable segment to three reportable segments to reflect the way management and our chief operating decision maker (“CODM”) review and assess performance of the business. Our three reportable segments are Marketplace, StubHub and Classifieds. Marketplace includes our online marketplace located at www.ebay.com, its localized counterparts and the eBay suite of mobile apps. StubHub includes our online ticket platform located at www.stubhub.com, its localized counterparts and the StubHub mobile apps. Classifieds includes a collection of brands such as Mobile.de, Kijiji, Gumtree, Marktplaats, eBay Kleinanzeigen and others. Prior period information has been reclassified to conform to the current period segment presentation. For further information on our segments, refer to “Note 5 – Segments” to our consolidated financial statements included in this report.

On November 24, 2019, we entered into a stock purchase agreement with an affiliate of viagogo to sell StubHub for $4.05 billion, subject to certain adjustments. The completion, on our expected timeline, of the proposed sale of StubHub is subject to closing conditions and viagogo’s ability to obtain debt and equity financing on a timely basis, both of which have not been met as of December 31, 2019. If the conditions to the closing of the sale of StubHub are neither satisfied nor, where permissible, waived on a timely basis or at all, we may be unable to complete the sale of StubHub or such completion may be delayed beyond our expected timeline. Given the uncertainty, we have determined as of December 31, 2019 the transaction is not considered probable to close. As such, StubHub continues to be classified as held for use in our December 31, 2019 consolidated financial statements. 

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 in an orderly transaction for identical or similar instruments or impairment.

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, fees for these additional services are recognized when the single performance obligation is satisfied. Promoted listing fees are recognized when the item is sold and feature and listing fees are recognized 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 $128 million and $106 million as of December 31, 2019 and December 31, 2018, 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, 2019 that was included in the deferred revenue balance at the beginning of the period was $93 million. 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.

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, 2019 and 2018, we capitalized costs, primarily related to labor and stock-based compensation, of $137 million and $147 million, respectively. Amortization of previously capitalized amounts was $150 million, $160 million and $156 million for 2019, 2018 and 2017, 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, $1.4 billion and $1.3 billion for the years ended December 31, 2019, 2018 and 2017, 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 2019, 2018 and 2017 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.

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

Significant judgment is required in determining our tax expense and in evaluating our tax positions, including evaluating uncertainties and the complexity of taxes on foreign earnings. We review our tax positions quarterly and adjust the balances as new information becomes available. Tax positions are evaluated for potential reserves for uncertainty based on the estimated probability of sustaining the position under examination. Our income tax rate is affected by the tax rates that apply to our foreign earnings including U.S. minimum taxes on foreign earnings. The deferred tax benefit derived from the amortization of our intellectual property is based on the fair value, which has been agreed with foreign tax authorities. The deferred tax benefit may from time to time change based on changes in tax rates. 

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.

Cash and cash equivalents

Cash and cash equivalents are short-term, highly liquid investments with original maturities of three months or less when purchased, which may include bank deposits, US Treasury securities, time deposits, and certificates of deposit.

Investments

Short-term investments are investments with original maturities of less than one year when purchased, are classified as available-for-sale and are reported at fair value using the specific identification method. Short-term investments are primarily comprised of corporate debt securities, commercial paper, and agency securities.

Long-term investments are primarily comprised of corporate debt securities, agency securities, 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. We account for equity investments through which we exercise significant influence but do not have control over the investee under the equity method. 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. Our equity investments not accounted for under the equity method are carried at under the measurement alternative. Under the measurement alternative, the carrying value is measured at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. Such changes in the basis of the equity investment are recognized in interest & other, net.

We periodically perform impairment assessment review of our debt and equity investments. For 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). If any impairment is considered other-than-temporary, we will write down the security to its fair value and record the corresponding charge as interest & other, net. For equity investments we perform a qualitative assessment on a quarterly basis and recognize an impairment if there are sufficient indicators that the fair value of the investment is less than carrying value. Changes in value are recorded in interest & other, net.

Leases

We determine if an arrangement is a lease or contains a lease at inception. Operating and finance lease liabilities are recognized based on the present value of the remaining lease payments, discounted using the discount rate for the lease at the commencement date. As the rate implicit in the lease is not readily determinable for our operating leases, we generally use an incremental borrowing rate based on information available at the commencement date to determine the present value of future lease payments. Operating right-of-use (“ROU”) assets and finance lease assets are generally recognized based on the amount of the initial measurement of the lease liability. Our leases have remaining lease terms of up to ten years, some of which include options to extend the leases for up to five years, and some of which include options to terminate the leases within one year. Lease expense is recognized on a straight-line basis over the lease term. We account for lease and non-lease components as a single lease component for our data center leases. Lease and non-lease components for all other leases are accounted for separately.

Operating leases are included in operating lease right-of-use assets, other current liabilities and operating lease liabilities on our consolidated balance sheets. Finance leases are included in property and equipment, net, short-term debt, and long-term debt on our consolidated balance sheet.

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 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, 2019 and 2018 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 2019, 2018 and 2017, 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 Adyen that, subject to meeting certain conditions, entitles us to acquire a fixed number of shares up to 5% of Adyen’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, 2019, 2018 and 2017, 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 2016, the Financial Accounting Standards Board (“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. We adopted this guidance in the first quarter of 2019 using the modified retrospective approach, electing the package of practical expedients, and the practical expedient to not separate lease and nonlease components for data center operating leases. We also elected the optional transition method that permits adoption of the new standard prospectively, as of the effective date, without adjusting comparative periods presented. Adoption of the standard resulted in the recognition of $728 million of ROU assets and $744 million of lease liabilities on our consolidated balance sheet at adoption related to office space, data and fulfillment centers, and other corporate assets. The difference of $16 million represented deferred rent for leases that existed as of the date of adoption, which was an offset to the opening balance of right-of-use assets. The adoption of the standard on January 1, 2019 did not have a material impact on our consolidated statements of income, stockholders’ equity and cash flows.

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 was 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. The adoption of the standard in the first quarter of 2019 did not have a material impact on our consolidated financial statements at adoption.

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. The adoption of the standard in the first quarter of 2019 did not have an 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 is effective for annual reporting periods beginning after December 15, 2018, including interim reporting periods within those annual reporting periods. The adoption of the standard in the first quarter of 2019 did not have a material impact on our consolidated financial statements at adoption.

Recent Accounting Pronouncements Not Yet Adopted

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. This standard impacts the Company’s accounting for allowances for doubtful accounts, available-for-sale securities and other assets subject to credit risk. In preparation for the adoption of this standard, we will update our credit loss models as needed. The Company has completed its analysis of the impact of this guidance and the adoption of this standard will not have a material impact 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. 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 is effective for annual reporting periods beginning after December 15, 2019, including interim reporting periods within those fiscal years. The adoption of this standard will not 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. We do not expect the adoption of this standard to have a material impact on our consolidated financial statements.

In 2019, the FASB issued new guidance to simplify the accounting for income taxes by removing certain exceptions to the general principles and also simplification of areas such as franchise taxes, step-up in tax basis goodwill, separate entity financial statements and interim recognition of enactment of tax laws or rate changes. The standard will be effective for our annual reporting periods beginning after December 15, 2020, including interim reporting periods within those fiscal years. We are evaluating the impact of adopting this new accounting guidance on our consolidated financial statements.
v3.19.3.a.u2
Net Income (loss) Per Share
12 Months Ended
Dec. 31, 2019
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,
 
2019
 
2018
 
2017
Numerator:
 
 
 
 
 
Income (loss) from continuing operations
$
1,792

 
$
2,528

 
$
(1,013
)
Income (loss) from discontinued operations, net of income taxes
(6
)
 
2

 
(4
)
Net income (loss)
$
1,786

 
$
2,530

 
$
(1,017
)
Denominator:
 
 
 
 
 
Weighted average shares of common stock - basic
849

 
980

 
1,064

Dilutive effect of equity incentive awards
7

 
11

 

Weighted average shares of common stock - diluted
856

 
991

 
1,064

Income (loss) per share - basic:
 
 
 
 
 
Continuing operations
$
2.11

 
$
2.58

 
$
(0.95
)
Discontinued operations
(0.01
)
 

 

Net income (loss) per share - basic
$
2.10

 
$
2.58

 
$
(0.95
)
Income (loss) per share - diluted:
 
 
 
 
 
Continuing operations
$
2.10

 
$
2.55

 
$
(0.95
)
Discontinued operations
(0.01
)
 

 

Net income (loss) per share - diluted
$
2.09

 
$
2.55

 
$
(0.95
)
Common stock equivalents excluded from income per diluted share because their effect would have been anti-dilutive
18

 
12

 
46


v3.19.3.a.u2
Business Combinations
12 Months Ended
Dec. 31, 2019
Business Combinations [Abstract]  
Business Combinations Business Combinations

Business Combinations

In February 2019, we completed our acquisition of the U.K.-based classifieds site, Motors.co.uk for $93 million in cash. We believe the acquisition will increase our international presence and give buyers access to more listings.

The aggregate purchase consideration was allocated as follows (in millions):
 
Motors.co.uk
Goodwill
$
65

Purchased intangible assets
30

Net liabilities
(2
)
Total
$
93



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

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



The goodwill recognized is primarily attributable to expected synergies and the assembled workforce of Giosis. We have assigned the goodwill to our Marketplace segment. We generally do not expect goodwill to be deductible for income tax purposes.

Acquisition activity in 2017 was immaterial.

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.
v3.19.3.a.u2
Goodwill and Intangible Assets
12 Months Ended
Dec. 31, 2019
Goodwill and Intangible Assets Disclosure [Abstract]  
Goodwill and Intangible Assets Goodwill and Intangible Assets

Goodwill

The following table presents goodwill activity by reportable segment for the years ended December 31, 2019 and 2018 (in millions):
 
December 31,
2017
 
Goodwill
Acquired
 
Adjustments
 
December 31,
2018
 
Goodwill
Acquired
 
Adjustments
 
December 31,
2019
Marketplace
$
4,186

 
$
532

 
$
(124
)
 
$
4,594

 
$

 
$
(60
)
 
$
4,534

StubHub
233

 

 
(6
)
 
227

 

 
(4
)
 
223

Classifieds
354

 

 
(15
)
 
339

 
65

 
(8
)
 
396

Total
$
4,773

 
$
532

 
$
(145
)
 
$
5,160

 
$
65

 
$
(72
)
 
$
5,153



The adjustments to goodwill during the years ended December 31, 2019 and 2018 were primarily due to foreign currency translation. There were no impairments to goodwill in 2019 and 2018.

Intangible Assets

The components of identifiable intangible assets are as follows (in millions, except years): 
 
December 31, 2019
 
December 31, 2018
 
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
$
502

 
$
(448
)
 
$
54

 
5
 
$
519

 
$
(445
)
 
$
74

 
5
Marketing-related
540

 
(535
)
 
5

 
5
 
584

 
(578
)
 
6

 
5
Developed technologies
272

 
(267
)
 
5

 
3
 
278

 
(269
)
 
9

 
3
All other
161

 
(158
)
 
3

 
4
 
160

 
(157
)
 
3

 
4
Total
$
1,475

 
$
(1,408
)
 
$
67

 
 
 
$
1,541

 
$
(1,449
)
 
$
92

 
 

  
Amortization expense for intangible assets was $55 million, $63 million and $64 million for the years ended December 31, 2019, 2018 and 2017, respectively.

Expected future intangible asset amortization as of December 31, 2019 is as follows (in millions):
Fiscal year:
 
2020
$
45

2021
18

2022
2

2023
2

2024

Total
$
67


v3.19.3.a.u2
Segments
12 Months Ended
Dec. 31, 2019
Segment Reporting [Abstract]  
Segments Segments

In the first quarter of 2019, we announced several organizational changes, including bringing our Marketplace geographic regions together under one global leadership team. We changed from one reportable segment to three reportable segments to reflect the way management and our chief operating decision maker (“CODM”) review and assess performance of the business. Our three reportable segments are Marketplace, StubHub and Classifieds. Marketplace includes our online marketplace located at www.ebay.com, its localized counterparts and the eBay suite of mobile apps. StubHub includes our online ticket platform located at www.stubhub.com, its localized counterparts and the StubHub mobile apps. Classifieds includes a collection of brands such as mobile.de, Kijiji, Gumtree, Marktplaats, eBay Kleinanzeigen and others. The accounting policies of our segments are the same as those described in “Note 1 – The Company and Summary of Significant Accounting Policies”. Prior period segment information has been reclassified to conform to the current period segment presentation.

Our reportable segments reflect the way management and our CODM review and assess performance of the business. Our CODM reviews revenue and operating income (loss) for each reportable segment. Our CODM does not evaluate reportable segments using asset information. Corporate and other costs includes: (i) corporate management costs, such as human resources, finance and legal, that are not allocated to our segments; (ii) amortization of intangible assets; (iii) restructuring charges; (iv) stock-based compensation; and (v) results of operations of various initiatives that support all of our reportable segments.

Segment net revenue and operating income for the years ended 2019, 2018 and 2017 were as follows (in millions):
 
Year ended December 31,
 
2019
 
2018
 
2017
Net Revenues
 
 
 
 
 
Marketplace
 
 
 
 
 
Net transaction revenues
$
7,578

 
$
7,416

 
$
6,809

Marketing services and other revenues
1,060

 
1,225

 
1,192

Total Marketplace
8,638

 
8,641

 
8,001

 
 
 
 
 
 
StubHub
 
 
 
 
 
Net transaction revenues
1,057

 
1,068

 
1,011

Marketing services and other revenues
64

 
15

 
18

Total StubHub
1,121

 
1,083

 
1,029

 
 
 
 
 
 
Classifieds (1)
1,061

 
1,022

 
897

 
 
 
 
 
 
Elimination of inter-segment net revenue (2)
(20
)
 

 

Total consolidated net revenue
$
10,800

 
$
10,746

 
$
9,927

 
 
 
 
 
 
Operating income (loss)
 
 
 
 
 
Marketplace
$
2,814

 
$
2,673

 
$
2,626

StubHub
139

 
149

 
161

Classifieds
420

 
401

 
314

Corporate and other costs
(1,052
)
 
(1,001
)
 
(837
)
Total operating income
2,321

 
2,222

 
2,264

Interest and other, net
(114
)
 
496

 
11

Income before income taxes
$
2,207

 
$
2,718

 
$
2,275


(1)
Classifieds net revenues consists entirely of marketing services and other revenue.
(2)
Represents revenue generated between our reportable segments.

The following tables summarize the allocation of net revenues and long-lived tangible assets based on geography (in millions):  
 
Year Ended December 31,
 
2019
  
2018
  
2017
Net revenues by geography:
 
 
 
 
 
U.S.
$
4,337

  
$
4,373

  
$
4,187

Germany
1,506

  
1,591

  
1,464

United Kingdom
1,441

  
1,481

  
1,368

South Korea
1,221

 
1,195

 
1,061

Rest of world
2,295

  
2,106

  
1,847

Total net revenues
$
10,800

 
$
10,746

 
$
9,927


 
December 31,
 
2019
  
2018
Long-lived tangible assets by geography:
 
 
 
U.S.
$
1,786

  
$
1,661

International
352

  
151

Total long-lived tangible assets
$
2,138

  
$
1,812



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. Depreciation and amortization expense was primarily recorded in the Marketplace segment.
v3.19.3.a.u2
Investments
12 Months Ended
Dec. 31, 2019
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, 2019 and 2018 (in millions):
 
December 31, 2019
 
Gross
Amortized
Cost
  
Gross
Unrealized
Gains
  
Gross
Unrealized
Losses
 
Estimated
Fair Value
Short-term investments:
 
  
 
  
 
 
 
Restricted cash
$
21

  
$

  
$

 
$
21

Corporate debt securities
1,653

  
1

  

 
1,654

Government and agency securities
175

  

  

 
175

 
$
1,849

  
$
1

  
$

 
$
1,850

Long-term investments:
 
  
 
  
 
 
 
Corporate debt securities
957

  
4

  

 
961

 
$
957

  
$
4

  
$

 
$
961

 
 
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



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 less than 12 months had an estimated fair value of $774 million and an immaterial amount of unrealized losses as of December 31, 2019, and an estimated fair value of $2.9 billion and an immaterial amount of unrealized losses as of December 31, 2018. Investment securities in a continuous loss position for greater than 12 months had an estimated fair value of $92 million and an immaterial amount of unrealized losses as of December 31, 2019 and an estimated fair value of $2.7 billion and unrealized losses of $41 million December 31, 2018. As of December 31, 2019, these securities had a weighted average remaining maturity of approximately 2 months. Refer to “Note 17 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, 2019 are as follows (in millions):  
 
December 31, 2019
One year or less (including restricted cash of $21)
$
1,850

One year through two years
676

Two years through three years
198

Three years through four years
87

Total
$
2,811



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, 2019 and December 31, 2018 (in millions):
 
December 31, 2019
 
December 31, 2018
Equity investments without readily determinable fair values
$
337

 
$
137

Equity investments under the equity method of accounting
18

 
6

Total equity investments
$
355

 
$
143



In 2019, we invested $160 million in cash in exchange for an equity interest in Paytm Mall and $40 million in other investments. These investments are accounted for as equity investments without readily determinable fair value.

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 an investment of $725 million accounted for as an equity investment without readily determinable fair value. 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 summarizes the total carrying value of equity investments without readily determinable fair values during the twelve months ended December 31, 2019 and December 31, 2018 (in millions):

 
 
Year Ended
December 31, 2019
 
Year Ended December 31, 2018
Carrying value, beginning of period
 
$
137

 
$
872

Additions
 
200

 
23

Sales
 

 
(718
)
Downward adjustments for observable price changes and impairment
 

 
(20
)
Foreign currency translation and other
 

 
(20
)
Carrying value, end of period
 
$
337

 
$
137



For such equity investments without readily determinable fair values still held at December 31, 2019, cumulative downward adjustments for price changes and impairment was $81 million. As of December 31, 2019, there have been no upward adjustments for price changes to our equity investments without readily determinable fair values.
v3.19.3.a.u2
Derivative Instruments
12 Months Ended
Dec. 31, 2019
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 24 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 used 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. There were no interest rate swaps outstanding as of December 31, 2019.

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 hedged 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, 2019, we have estimated that approximately $2 million of net derivative loss 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 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 accounted for them as fair value hedges. These transactions were designated as fair value hedges for financial accounting purposes because they protected us against changes in the fair value of certain of our fixed rate borrowings due to benchmark interest rate movements. In 2019, $1.15 billion related to our 2.200% senior notes due 2019 of the $2.4 billion aggregate notional amount matured. In addition, during the three months ended September 30, 2019, we terminated the interest rate swaps related to $750 million of our 2.875% senior notes due July 2021 and $500 million of our 3.450% senior notes due July 2024. As a result of the early termination, hedge accounting was discontinued prospectively and the gain on termination was recorded as an increase to the long-term debt balance and is being recognized over the remaining life of the underlying debt as a reduction to interest expense. The gain recognized during the year ended December 31, 2019 was immaterial.

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 Adyen that, subject to meeting certain conditions, entitles us to acquire a fixed number of shares up to 5% of Adyen’s 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, 2019 and 2018 were as follows (in millions):
 
Balance Sheet Location
 
December 31,
2019
 
December 31,
2018
Derivative Assets:
 
 
 
 
 
Foreign exchange contracts designated as cash flow hedges
Other Current Assets
 
$
36

 
$
72

Foreign exchange contracts not designated as hedging instruments
Other Current Assets
 
17

 
38

Warrant
Other Assets
 
281

 
148

Foreign exchange contracts designated as cash flow hedges
Other Assets
 
15

 
4

Total derivative assets
 
 
$
349

 
$
262

 
 
 
 
 
 
Derivative Liabilities:
 
 
 
 
 
Foreign exchange contracts designated as cash flow hedges
Other Current Liabilities
 
$
2

 
$

Foreign exchange contracts designated as net investment hedges
Other Current Liabilities
 
2

 
1

Interest rate contracts designated as fair value hedges
Other Current Liabilities
 

 
7

Foreign exchange contracts not designated as hedging instruments
Other Current Liabilities
 
21

 
30

Interest rate contracts designated as fair value hedges
Other Liabilities
 

 
10

Total derivative liabilities
 
 
$
25

 
$
48

 
 
 
 
 
 
Total fair value of derivative instruments
 
 
$
324

 
$
214



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, 2019, the potential effect of rights of set-off associated with the foreign exchange contracts would be an offset to both assets and liabilities by $25 million, resulting in net derivative assets of $43 million and net derivative liabilities of less than $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, 2019 and 2018, and the impact of these derivative contracts on AOCI for the years ended December 31, 2019 and 2018 (in millions):
 
December 31, 2018
 
Amount of Gain (Loss)
Recognized in Other
Comprehensive 
Income
 
Less: Amount of Gain (Loss) Reclassified From AOCI to Earnings
 
December 31, 2019
Foreign exchange contracts designated as cash flow hedges
$
68

 
4

 
81

 
$
(9
)

 
December 31, 2017
 
Amount of Gain (Loss)
Recognized in Other
Comprehensive 
Income
 
Less: Amount of Gain (Loss) Reclassified From AOCI to Earnings
 
December 31, 2018
Foreign exchange contracts designated as cash flow hedges
$
(57
)
 
117

 
(8
)
 
$
68


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,
 
2019
 
2018
 
2017
Foreign exchange contracts designated as cash flow hedges recognized in net revenues
$
81

 
$
(8
)
 
$
(28
)
Foreign exchange contracts designated as cash flow hedges recognized in cost of net revenues

 

 
11

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

 

 
24

Foreign exchange contracts not designated as hedging instruments recognized in interest and other, net
(11
)
 
9

 
(16
)
Total gain (loss) recognized from foreign exchange derivative contracts in the consolidated statement of income
$
70

 
$
1

 
$
(9
)

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,
 
2019
 
2018
 
2017
Gain (loss) from interest rate contracts designated as fair value hedges recognized in interest and other, net
$
34

 
$
(19
)
 
$
(21
)
Gain (loss) from hedged items attributable to hedged risk recognized in interest and other, net
(34
)
 
19

 
21

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,
 
2019
 
2018
 
2017
Gain attributable to changes in the fair value of warrant recognized in interest and other, net
$
133

 
$
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, 2019 and 2018 (in millions):
 
December 31,
 
2019
 
2018
Foreign exchange contracts designated as cash flow hedges
$
1,983

 
$
1,510

Foreign exchange contracts designated as net investment hedges
200

 
804

Foreign exchange contracts not designated as hedging instruments
2,710

 
3,517

Interest rate contracts designated as fair value hedges

 
2,400

Total
$
4,893

 
$
8,231



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.
v3.19.3.a.u2
Fair Value Measurement of Assets and Liabilities
12 Months Ended
Dec. 31, 2019
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, 2019 and 2018 (in millions):
 
December 31, 2019
 
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
$
975

 
$
975

 
$

 
$

Short-term investments:
 
 
 
 
 
 
 
Restricted cash
21

 
21

 

 

Corporate debt securities
1,654

 

 
1,654

 

Government and agency securities
175

 

 
175

 

Total short-term investments
1,850

 
21

 
1,829

 

Derivatives
349

 

 
68

 
281

Long-term investments:
 
 
 
 
 
 
 
Corporate debt securities
961

 

 
961

 

Total long-term investments
961

 

 
961

 

Total financial assets
$
4,135

 
$
996

 
$
2,858

 
$
281

 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
Derivatives
$
25

 
$

 
$
25

 
$


<
 
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