While our insurance policies include liability coverage for certain of these matters, if we experienced a significant security incident, we could be subject to liability or other damages that exceed our insurance coverage.
Our future performance depends in part on support from our content partners and data partners.
We believe user engagement with our products and services depends in part on the availability of applications and content generated by our content or platform partners. There is no assurance that our content or platform partners will continue to develop and maintain applications and content for our products and services, and if they cease to, then user engagement may decline. In addition, we generate revenue from licensing our historical and real-time data to third parties. If any of these relationships are terminated or not renewed on economic and other terms that are acceptable to us, or if we are unable to enter into similar relationships in the future, our operating results could be adversely affected.
•recruiting and retaining talented and capable employees in foreign countries and maintaining our company culture across all of our offices;
•providing our products and services and operating across a significant distance, in different languages and among different cultures, including the potential need to modify our products, services, content and features to ensure that they are culturally relevant in different countries;
•increased competition from largely regional websites, mobile applications and services that provide real-time communications and have strong positions in particular countries, which have expanded and may continue to expand their geographic footprint;
•differing and potentially lower levels of usermDAU growth, user engagement and ad engagement in new and emerging geographies;
•different levels of advertiser demand;
•greater difficulty in monetizing our products and services;
•compliance with applicable foreign laws and regulations, including laws and regulations with respect to privacy, data protection, data localization, data security, taxation, consumer protection, copyright, fake news, hate speech, spam and content, and the risk of penalties to the people who use our usersproducts and services and individual members of management if our practices are deemed to be out of compliance;
•actions by governments or others to restrict access to Twitter or censor content on Twitter, such as how domestic Internet service providers in China have blocked access to Twitter and other countries, including Iran, Libya, Pakistan, Turkey and Syria, have intermittently restricted access to Twitter, whether these actions are taken for political reasons, in response to decisions we make regarding governmental requests or content generated by people on Twitter, or otherwise;
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•longer payment cycles in some countries;
•credit risk and higher levels of payment fraud;
•operating in jurisdictions that do not protect intellectual property rights to the same extent as the United States;
•compliance with anti-bribery laws including, without limitation, compliance with the Foreign Corrupt Practices Act and the U.K. Bribery Act, including by our business partners;
•currency exchange rate fluctuations, as we conduct business in currencies other than U.S. dollars but report our operating results in U.S. dollars and any foreign currency forward contracts into which we enter may not mitigate the impact of exchange rate fluctuations;
•foreign exchange controls that might require significant lead time in setting up operations in certain geographic territories and might prevent us from repatriating cash earned outside the United States;
•political and economic instability in some countries;
•double taxation of our international earnings and potentially adverse tax consequences due to changes in the tax laws of the United States or the foreign jurisdictions in which we operate; and
•higher costs of doing business internationally, including increased accounting, travel, infrastructure and legal compliance costs.
Our business is subject to complex and evolving U.S. and foreign laws and regulations. These laws and regulations are subject to change and uncertain interpretation, and could result in claims, changes to our business practices, monetary penalties, increased cost of operations or declines in user growth, user engagement or ad engagement, or otherwise harm our business.
We are subject to a variety of laws and regulations in the United States and abroad that involve matters central to our business, including privacy, security, rights of publicity, data protection, content regulation, intellectual property, competition, protection of minors, consumer protection, credit card processing and taxation. Many of these laws and regulations are still evolving and being tested in courts. As a result, it is possible that these laws and regulations may be interpreted and applied in a manner that is inconsistent from country to country and inconsistent with our current policies and practices and in ways that could harm our business, particularly in the new and rapidly evolving industry in which we operate. Additionally, the introduction of new products or services may subject us to additional laws and regulations.
From time to time, governments, regulators and others have expressed concerns about whether our products, services or practices compromise the privacy of users and others. While we strive to comply with applicable data protection laws and regulations, as well as our own posted privacy policies and other obligations we may have with respect to privacy and data protection, the failure or perceived failure to so comply may result, and in some cases has resulted, in inquiries and other proceedings or actions against us by governments, regulators or others. A number of proposals have recently been adopted or are currently pending before federal, state and foreign legislative and regulatory bodies that could significantly affect our business. For example, in June 2018 California recently enacted legislation, the California Consumer Privacy Act, or CCPA, that will, among other things, require covered companies to provide new disclosures to California consumers, and afford such consumers new abilities to opt-out of certain sales of personal information, when it goes into effect on January 1, 2020. The CCPA was amended in September 2018, and it remains unclear what, if any, modifications will be made to this legislation or how it will be interpreted. Moreover, foreign data protection, privacy, consumer protection, content regulation and other laws and regulations are often more restrictive than those in the United States. In particular, the European Union, or EU, and its member states traditionally have taken broader views as to types of data that are subject to privacy and data protection, and have imposed greater legal obligations on companies in this regard. For example, the GDPR has been adopted and went into effect in May 2018. The GDPR includes more stringent operational requirements for entities processing personal information and significant penalties for non-compliance, including fines of up to €20 million or 4% of total worldwide revenue, whichever is higher. Additionally, we rely on a variety of legal bases to transfer certain personal information outside of the European Economic Area, including the EU-U.S. Privacy Shield Framework, the Swiss-U.S. Privacy Shield Framework, and EU Standard Contractual Clauses, or SCCs. The EU-U.S. Privacy Shield Framework is currently under review by regulatory authorities and it and the SCCs are both the subject of legal challenges in European courts, and they may be modified or invalidated. The absence of successor legal bases for continued data transfer could require us to create duplicative, and potentially expensive, information technology infrastructure and business operations in Europe or limit our ability to collect and use personal information collected in Europe. Any of these changes with respect to EU data protection law could disrupt our business.
Further, following a referendum in June 2016 in which voters in the United Kingdom approved an exit from the EU, the United Kingdom government has initiated a process to leave the EU (often referred to as “Brexit”). Without further agreement between the United Kingdom and the EU, the United Kingdom will formally leave the EU in March 2019. Brexit could lead to economic and legal uncertainty in the region and could adversely affect the tax, currency, operational, legal and regulatory regimes to which our business is subject. Brexit may adversely affect our revenues and subject us to new regulatory costs and challenges, in addition to other adverse effects that we are unable effectively to anticipate.
The United Kingdom recently implemented a Data Protection Bill that substantially implements the GDPR, which became law in May 2018. Brexit has created uncertainty with regard to whether the EU will view the UK data protection regulation as adequate under GDPR. Until that is resolved, the requirements for data transfers between the United Kingdom and the EU are unclear.
Legislative changes in the United States, at both the federal and state level, that could impose new obligations in areas such as privacy and liability for copyright infringement or content by third parties such as various Congressional efforts to restrict the scope of the protections available to online platforms under Section 230 of the Communications Decency Act, and our current protections from liability for third-party content in the United States could decrease or change. Additionally, recent amendments to U.S. patent laws may affect the ability of companies, including us, to protect their innovations and defend against claims of patent infringement.
Similarly, the EU’s proposed Directive on Copyright in the Digital Single Market (the EU Copyright Directive), if enacted as currently proposed, would expand the liability of online platforms for user-generated content and would obligate platforms to negotiate licenses with rightsholders and ensure that unauthorized copyrighted material is not available on their platforms. The EU Copyright Directive would also give publishers rights over snippets of news content displayed online and restrict platforms’ ability to display such material. If enacted, the EU Copyright Directive would increase our costs of operations and increase our liability for user-generated content.
Additionally, we have relationships with third parties that perform a variety of functions such as payments processing, tokenization, vaulting, currency conversion, fraud prevention and data security audits. The laws and regulations related to online payments are complex, subject to change, and vary across different jurisdictions in the United States and globally. As a result, we may be required to spend significant time, effort and expense to comply with applicable laws and regulations. Any failure or claim of our failure to comply, or any failure or claim of failure by the above-mentioned third parties to comply, could increase our costs or could result in liabilities. Additionally, because Twitter accepts payment via credit cards and is certified as a PCI Level 1 service provider, we are subject to payment card association operating rules and certification requirements, including the Payment Card Industry Data Security Standard.
We currently allow use of our platform without the collection of extensive personal information, such as age. We may experience additional pressure to expand our collection of personal information in order to comply with new and additional regulatory demands or we may independently decide to do so. If we obtain such additional personal information, we may be subject to additional regulation.
Regulatory investigations and settlements could cause us to incur additional expenses or change our business practices in a manner materially adverse to our business.
We are currently the subject of inquiries by the Irish Data Protection Commission with respect to our compliance with the GDPR and expect to continue to be subject to regulatory scrutiny as our business grows and awareness of our brand increases, In the past, we have been subject to regulatory investigations, and expect to continue to be subject to regulatory scrutiny as our business grows and awareness of our brand increases. In March 2011, to resolve an investigation into various incidents, we entered into a settlement agreement with the FTC that, among other things, required us to establish an information security program designed to protect non-public consumer information and also requires that we obtain biennial independent security assessments. The obligations under the settlement agreement remain in effect until the later of March 2, 2031, or the date 20 years after the date, if any, on which the U.S. government or the FTC files a complaint in federal court alleging any violation of the order. We expect to continue to be the subject of regulatory inquiries, investigations and audits in the future by the FTC and other regulators around the world.
It is possible that a regulatory inquiry, investigation or audit might result in changes to our policies or practices, and may cause us to incur substantial costs or could result in reputational harm, prevent us from offering certain products, services, features or functionalities, cause us to incur substantial costs or require us to change our business practices in a manner materially adverse to our business. Violation of existing or future regulatory orders, settlements or consent decrees could subject us to substantial monetary fines and other penalties that could negatively affect our financial condition and operating results.
We may face lawsuits or incur liability as a result of content published or made available through our products and services.
We have faced and will continue to face claims relating to content that is published or made available through our products and services or third-party products or services. In particular, the nature of our business exposes us to claims related to defamation, intellectual property rights, rights of publicity and privacy, illegal content, misinformation, content regulation and personal injury torts. The laws relating to the liability of providers of online products or services for activities of their users remains somewhat unsettled, both within the United States and internationally. This risk may be enhanced in certain jurisdictions outside the United States where we may be less protected under local laws than we are in the United States. For example, we are subject to legislation in Germany that may impose significant fines for failure to comply with certain content removal and disclosure obligations. In addition, the public nature of communications on our network exposes us to risks arising from the creation of impersonation accounts intended to be attributed to our users or advertisers. We could incur significant costs investigating and defending these claims. If we incur material costs or liability as a result of these occurrences, our business, financial condition and operating results could be adversely affected.
Our intellectual property rights are valuable, and any inability to protect them could reduce the value of our products, services and brand.
Our
these trade secrets and proprietary information.
Our Innovator’s Patent Agreement, or IPA, also can limit our ability to prevent infringement of our patents. In May 2013, we implemented the IPA, which we enter into with our employees and consultants, including our founders. The IPA, which applies to our current and future patents, allows us to assert our patents defensively. The IPA also allows us to assert our patents offensively with the permission of the inventors of the applicable patent. Under the IPA, an assertion of claims is considered to be for a defensive purpose if the claims are asserted: (i) against an entity that has filed, maintained, threatened or voluntarily participated in a patent infringement lawsuit against us or any people on Twitter, or any of our users, affiliates, customers, suppliers or distributors; (ii) against an entity that has used its patents offensively against any other party in the past ten years, so long as the entity has not instituted the patent infringement lawsuit defensively in response to a patent litigation threat against the entity; or (iii) otherwise to deter a patent litigation threat against us or people on Twitter, or any of our users, affiliates, customers, suppliers or distributors. In addition, the IPA provides that the above limitations apply to any future owner or exclusive licensee of any of our patents, which could limit our ability to sell or license our patents to third parties. WhileIn this case, while we may be able to claim protection of our intellectual property under other rights such(such as trade secrets or contractual obligations with our employees not to disclose or use confidential information,information), we may be unable to assert our patent rights against third parties that we believe are infringing our patents, even if such third parties are developing products and services that compete with our products and services. For example, in the event that an inventor of one of our patents leaves usgoes to work for another company and that company uses ourthe inventor’s patented technologyinvention to compete with us, we would not be able to assert that patent against such other company unless the assertion of the patent right is for a defensive purpose.purpose since it would be unlikely the employee would consent to offensive use of the patent against his or her current employer. In such event, we may be limited in our ability to assert a patent right against another company, and instead would need to rely on trade secret protection or the contractual obligation of the inventor to us not to disclose or use our confidential information. In addition, the terms of the IPA could affect our ability to monetize our intellectual property portfolio.
We presently are involved in a number of intellectual property lawsuits, and as we face increasing competition and develop new products, we expect the number of patent and other intellectual property claims against us may grow. There may be intellectual property or other rights held by others, including issued or pending patents, that cover significant aspects of our products and services, and we cannot be sure that we are not infringing or violating, and have not infringed or violated, any third-party intellectual property rights or that we will not be held to have done so or be accused of doing so in the future. Any claim or litigation alleging that we have infringed or otherwise violated intellectual property or other rights of third parties, with or without merit, and whether or not settled out of court or determined in our favor, could be time-consuming and costly to address and resolve, and could divert the time and attention of our management and technical personnel. Some of our competitors have substantially greater resources than we do and are able to sustain the costs of complex intellectual property litigation to a greater degree and for longer periods of time than we could. The outcome of any litigation is inherently uncertain, and there can be no assurances that favorable final outcomes will be obtained in all cases. In addition, plaintiffs may seek, and we may become subject to, preliminary or provisional rulings in the course of any such litigation, including potential preliminary injunctions requiring us to cease some or all of our operations. We may decide to settle such lawsuits and disputes on terms that are unfavorable to us. Similarly, if any litigation to which we are a party is resolved adversely, we may be subject to an unfavorable judgment that may not be reversed upon appeal. The terms of such a settlement or judgment may require us to cease some or all of our operations or pay substantial amounts to the other party. In addition, we may have to seek a license to continue practices found to be in violation of a third-party’s rights. If we are required, or choose to enter into royalty or licensing arrangements, such arrangements may not be available on reasonable terms, or at all, and may significantly increase our operating costs and expenses. As a result, we may also be required to develop or procure alternative non-infringing technology, which could require significant effort and expense or discontinue use of the technology. An unfavorable resolution of the disputes and litigation referred to above couldwould adversely affectimpact our business, financial condition and operating results.
We use open source softwarepractices in our productsan effort to comply with them. Moreover, foreign data protection, privacy, and servicesother laws and will use open source softwareregulations are often more restrictive or burdensome than those in the future. In addition,United States. For example, the GDPR imposes stringent operational requirements for entities processing personal information and significant penalties for non-compliance, including fines of up to €20 million or 4% of total worldwide revenue, whichever is higher. Additionally, we regularly contribute software source codehave historically relied upon a variety of legal bases to open source projects under open source licensestransfer certain personal information outside of the European Economic Area, including the EU-U.S. Privacy Shield Framework, the Swiss-U.S. Privacy Shield Framework, and EU Standard Contractual Clauses (SCCs). These legal bases all have been, and may be, the subject of legal challenges and on July 16, 2020, the Court of Justice of the European Union (CJEU) invalidated the U.S.-EU Privacy Shield framework and imposed additional obligations on companies when relying on the SCCs. This CJEU decision may result in different European Economic Area data protection regulators applying differing standards for, or release internal software projects under open source licenses,require ad hoc verification of measures taken with respect to, certain data flows. The CJEU’s decision will require us to take additional steps to legitimize impacted personal data transfers, and anticipate doing sowe may find it necessary or desirable to modify our data handling practices in the future. The termsconnection with this decision or future legal challenges relating to cross-border data transfers. This could result in increased costs of many open source licensescompliance and limitations on our customers, vendors, and us. This CJEU decision or future legal challenges also could result in us being required to which we are subject have not been interpreted by U.S.implement duplicative, and potentially expensive, information technology infrastructure and business operations in Europe or foreign courts, and there is a risk that open source software licenses could be construed in a manner that imposes unanticipated conditions or restrictions onlimit our ability to providecollect or distributeprocess personal information in Europe, and may serve as a basis for our productspersonal data handling practices, or services. Additionally, we may from timethose of our customers and vendors, to time face claims from third parties claiming ownership of, or demanding release of, the open source software or derivative works that we developed using such software, which could include our proprietary source code, or otherwise seeking to enforce the terms of the applicable open source license. These claims could result in litigation and could require us to make our software source code freely available, purchase a costly license or cease offering the implicated products or services unless and until we can re-engineer them to avoid infringement. This re-engineering process could require significant additional research and development resources, and we may not be able to complete it successfully. In addition to risks related to license requirements, use of certain open source software may pose greater risks than use of third-party commercial software, as open source licensors generally do not provide warranties or controls on the origin of software.challenged. Any of these riskschanges with respect to EU data protection law could be difficult to eliminate or manage,disrupt our business and if not addressed, could have a negative effect onotherwise adversely impact our business, financial condition and operating results.
adversely impacted. investments. results. Risks •creating a classified board of directors whose members serve staggered three-year terms; •authorizing “blank check” preferred stock, which could be issued by our board of directors without stockholder approval and may contain voting, liquidation, dividend and other rights superior to our common stock; •limiting the liability of, and providing indemnification to, our directors and officers; •limiting the ability of our stockholders to call and bring business before special meetings; •requiring advance notice of stockholder proposals for business to be conducted at meetings of our stockholders and for nominations of candidates for election to our board of directors; and •controlling the procedures for the conduct and scheduling of stockholder meetings. •price and volume fluctuations in the overall stock market from time to •volatility in the market prices and trading volumes of technology stocks; •sales of shares of our common stock by us or our stockholders; •rumors and market speculation involving us or other companies in our industry; •the financial or non-financial metric projections we may provide to the public, any changes in those projections or our failure to meet those projections; •announcements by us or our competitors of new products or services; •the public’s reaction to our press releases, other public announcements and filings with the SEC; •actual or anticipated changes in our operating results or fluctuations in our operating results; •actual or anticipated developments in our business, our competitors’ businesses or the competitive landscape generally; •our issuance of shares of our common stock, whether in connection with an acquisition or upon conversion of some or all of our outstanding Convertible Notes; •litigation or regulatory action involving us, our industry or both, or investigations by regulators into our operations or those of our competitors; •developments or disputes concerning our intellectual property or other proprietary rights; •announced or completed acquisitions of businesses or technologies by us or our competitors; •new laws or regulations or new interpretations of existing laws or regulations applicable to our business; •changes in accounting standards, policies, guidelines, interpretations or principles; •any significant change in our management; and •general economic conditions and slow or negative growth of our markets. . The following graph compares the cumulative 5-year total return to stockholders on our common stock relative to the cumulative total returns of the Standard & Poor’s 500 Index, or S&P 500, and the Dow Jones Internet Composite Index, or DJ Internet Composite. An investment of $100 (with reinvestment of all dividends) is assumed to have been made in our common stock and in each index Year Ended December 31, 2018 2017 2016 2015 2014 (In thousands, except per share data) Consolidated Statement of Operations Data: Revenue(1) $ 3,042,359 $ 2,443,299 $ 2,529,619 $ 2,218,032 $ 1,403,002 Costs and expenses(2) Cost of revenue 964,997 861,242 932,240 729,256 446,309 Research and development 553,858 542,010 713,482 806,648 691,543 Sales and marketing 771,361 717,419 957,829 871,491 614,110 General and administrative 298,818 283,888 293,276 260,673 189,906 Total costs and expenses 2,589,034 2,404,559 2,896,827 2,668,068 1,941,868 Income (loss) from operations 453,325 38,740 (367,208 ) (450,036 ) (538,866 ) Interest expense (132,606 ) (105,237 ) (99,968 ) (98,178 ) (35,918 ) Interest income 111,221 44,383 24,277 9,073 1,933 Other income (expense), net (8,396 ) (73,304 ) 2,065 5,836 (5,500 ) Income (loss) before income taxes 423,544 (95,418 ) (440,834 ) (533,305 ) (578,351 ) Provision (benefit) for income taxes(3) (782,052 ) 12,645 16,039 (12,274 ) (531 ) Net income (loss) $ 1,205,596 $ (108,063 ) $ (456,873 ) $ (521,031 ) $ (577,820 ) Net income (loss) per share attributable to common stockholders: Basic $ 1.60 $ (0.15 ) $ (0.65 ) $ (0.79 ) $ (0.96 ) Diluted $ 1.56 $ (0.15 ) $ (0.65 ) $ (0.79 ) $ (0.96 ) Weighted-average shares used to compute net income (loss) per share attributable to common stockholders: Basic 754,326 732,702 702,135 662,424 604,990 Diluted 772,686 732,702 702,135 662,424 604,990 Other Financial Information:(4) Adjusted EBITDA $ 1,200,796 $ 862,986 $ 751,493 $ 557,807 $ 300,896 Non-GAAP net income $ 663,804 $ 328,859 $ 264,406 $ 180,486 $ 68,438 Year Ended December 31, 2018 2017 2016 2015 2014 (In thousands) Cost of revenue $ 17,289 $ 23,849 $ 29,502 $ 40,705 $ 50,536 Research and development 183,799 240,833 335,498 401,537 360,726 Sales and marketing 71,305 94,135 160,935 156,904 157,263 General and administrative 53,835 74,989 89,298 82,972 63,072 Total stock-based compensation $ 326,228 $ 433,806 $ 615,233 $ 682,118 $ 631,597 As of December 31, 2018 2017 2016 2015 2014 (In thousands) Consolidated Balance Sheet Data: Cash and cash equivalents $ 1,894,444 $ 1,638,413 $ 988,598 $ 911,471 $ 1,510,724 Short-term investments 4,314,957 2,764,689 2,785,981 2,583,877 2,111,154 Property and equipment, net 885,078 773,715 783,901 735,299 557,019 Total assets 10,162,572 7,412,477 6,870,365 6,442,439 5,583,082 Convertible notes 2,628,250 1,627,460 1,538,967 1,455,095 1,376,020 Total liabilities 3,356,978 2,365,259 2,265,430 2,074,392 1,956,679 Total stockholders' equity 6,805,594 5,047,218 4,604,935 4,368,047 3,626,403 Contents Year Ended December 31, 2018 2017 2016 2015 2014 (in thousands) Reconciliation of Net Income (Loss) to Adjusted EBITDA Net income (loss) $ 1,205,596 $ (108,063 ) $ (456,873 ) $ (521,031 ) $ (577,820 ) Stock-based compensation expense 326,228 433,806 615,233 682,118 631,597 Depreciation and amortization expense 425,498 395,867 402,172 312,823 208,165 Interest and other expense, net 29,781 134,158 73,626 83,269 39,485 Provision (benefit) for income taxes (782,052 ) 12,645 16,039 (12,274 ) (531 ) Restructuring charges and one-time nonrecurring gain (4,255 ) (5,427 ) 101,296 12,902 — Adjusted EBITDA $ 1,200,796 $ 862,986 $ 751,493 $ 557,807 $ 300,896 Year Ended December 31, 2018 2017 2016 2015 2014 (in thousands) Reconciliation of Net Income (Loss) to Non-GAAP Net Income Net income (loss) $ 1,205,596 $ (108,063 ) $ (456,873 ) $ (521,031 ) $ (577,820 ) Exclude: Provision (benefit) for income taxes (782,052 ) 12,645 16,039 (12,274 ) (531 ) Income (loss) before income taxes 423,544 (95,418 ) (440,834 ) (533,305 ) (578,351 ) Stock-based compensation expense 326,228 433,806 615,233 682,118 631,597 Amortization of acquired intangible assets 18,984 46,537 69,338 54,659 36,563 Non-cash interest expense related to convertible notes 105,926 80,061 74,660 69,185 18,823 Non-cash expense related to acquisition — — — 926 — Impairment of investments in privately-held companies 3,000 62,439 — — — Restructuring charges and one-time nonrecurring gain (4,255 ) (5,427 ) 101,296 12,902 — Non-GAAP income before income taxes 873,427 521,998 419,693 286,485 108,632 Non-GAAP provision for income taxes 209,623 193,139 155,287 105,999 40,194 Non-GAAP net income $ 663,804 $ 328,859 $ 264,406 $ 180,486 $ 68,438 •Advertising revenue totaled •Data licensing and other revenue totaled •Total ad engagements increased •Cost per engagement decreased intangible assets. 2020. same period in 2019. In the second half of 2020, advertisers around the world significantly increased their investment on Twitter, demonstrating the benefit we’re delivering with a larger audience, recent revenue product feature improvements, better measurement and targeting, and improved ad formats. Additionally, our calculation of mDAU is not based on any standardized industry methodology and is not necessarily calculated in the same manner or comparable to similarly titled measures presented by other companies. 2019. Changes in Ad Engagements and Changes in Cost per Ad Engagement. We define an ad engagement as another based on geographic performance, auction dynamics, the strength of demand for various ad formats, and campaign objectives. Year Ended December 31, 2018 2017 2016 Revenue Advertising services $ 2,617,397 $ 2,109,987 $ 2,248,052 Data licensing and other 424,962 333,312 281,567 Total revenue 3,042,359 2,443,299 2,529,619 Costs and expenses (1) Cost of revenue 964,997 861,242 932,240 Research and development 553,858 542,010 713,482 Sales and marketing 771,361 717,419 957,829 General and administrative 298,818 283,888 293,276 Total costs and expenses 2,589,034 2,404,559 2,896,827 Income (loss) from operations 453,325 38,740 (367,208 ) Interest expense (132,606 ) (105,237 ) (99,968 ) Interest income 111,221 44,383 24,277 Other income (expense), net (8,396 ) (73,304 ) 2,065 Income (loss) before income taxes 423,544 (95,418 ) (440,834 ) Provision (benefit) for income taxes (782,052 ) 12,645 16,039 Net income (loss) $ 1,205,596 $ (108,063 ) $ (456,873 ) Year Ended December 31, 2018 2017 2016 Cost of revenue $ 17,289 $ 23,849 $ 29,502 Research and development 183,799 240,833 335,498 Sales and marketing 71,305 94,135 160,935 General and administrative 53,835 74,989 89,298 Total stock-based compensation expense $ 326,228 $ 433,806 $ 615,233 Year Ended December 31, 2018 2017 2016 Revenue Advertising services 86 % 86 % 89 % Data licensing and other 14 14 11 Total revenue 100 100 100 Costs and expenses Cost of revenue 32 35 37 Research and development 18 22 28 Sales and marketing 25 29 38 General and administrative 10 12 12 Total costs and expenses 85 98 115 Income (loss) from operations 15 2 (15 ) Interest expense (4 ) (4 ) (4 ) Interest income 4 2 1 Other income (expense), net (0 ) (3 ) 0 Income (loss) before income taxes 14 (4 ) (17 ) Provision (benefit) for income taxes (26 ) 1 1 Net income (loss) 40 % (4 )% (18 )% 2018 •Promoted Accounts. Promoted Accounts, which are labeled as “promoted,” provide a way for our advertisers to grow a community of •Promoted Trends. Promoted Trends, which are labeled as “promoted,” appear at the top of the list of trending topics or timeline for an entire day in a particular country or on a global basis. We sell our Promoted Trends on a fixed-fee-per-day basis. Year Ended December 31, 2017 to 2018 2016 to 2017 2018 2017 2016 % Change % Change (in thousands) Advertising services $ 2,617,397 $ 2,109,987 $ 2,248,052 24 % (6 )% Data licensing and other 424,962 333,312 281,567 27 % 18 % Total revenue $ 3,042,359 $ 2,443,299 $ 2,529,619 25 % (3 )% 2019. 2019. The overall increase in advertising revenue reflects an increase in advertiser demand driven by our larger audience, recent revenue product feature improvements, better measurement and targeting, improved ad formats, and our acquisition of CrossInstall in 2020, despite widespread economic disruption related to the COVID-19 pandemic and a decrease in global advertising demand in the first half of 2020. The increase in advertising revenue was Cost of Revenue Year Ended December 31, 2017 to 2018 2016 to 2017 2018 2017 2016 % Change % Change (in thousands) Cost of revenue $ 964,997 $ 861,242 $ 932,240 12 % (8 )% Cost of revenue as a percentage of revenue 32 % 35 % 37 % We plan to continue to scale the capacity and enhance the capability and reliability of our infrastructure to support Year Ended December 31, 2017 to 2018 2016 to 2017 2018 2017 2016 % Change % Change (in thousands) Research and development $ 553,858 $ 542,010 $ 713,482 2 % (24 )% Research and development as a percentage of revenue 18 % 22 % 28 % Year Ended December 31, 2017 to 2018 2016 to 2017 2018 2017 2016 % Change % Change (in thousands) Sales and marketing $ 771,361 $ 717,419 $ 957,829 8 % (25 )% Sales and marketing as a percentage of revenue 25 % 29 % 38 % administrative expenses. Year Ended December 31, 2017 to 2018 2016 to 2017 2018 2017 2016 % Change % Change (in thousands) General and administrative $ 298,818 $ 283,888 $ 293,276 5 % (3 )% General and administrative as a percentage of revenue 10 % 12 % 12 % Year Ended December 31, 2018 2017 2016 (in thousands) Interest expense $ 132,606 $ 105,237 $ 99,968 this Annual Report on Form 10-K. Year Ended December 31, 2018 2017 2016 (in thousands) Interest income $ 111,221 $ 44,383 $ 24,277 Year Ended December 31, 2018 2017 2016 (in thousands) Other income (expense), net $ (8,396 ) $ (73,304 ) $ 2,065 companies during the year ended December 31, 2019. Year Ended December 31, 2018 2017 2016 (in thousands) Provision (benefit) for income taxes $ (782,052 ) $ 12,645 $ 16,039 Three Months Ended Dec. 31, Sep. 30, Jun. 30, Mar. 31, Dec. 31, Sep. 30, Jun. 30, Mar. 31, 2018 2018 2018 2018 2017 2017 2017 2017 (Unaudited, in thousands, except per share data) Consolidated Statement of Operations Data: Revenue(1) Advertising services $ 791,365 $ 649,816 $ 601,060 $ 575,156 $ 644,257 $ 502,802 $ 489,148 $ 473,780 Data licensing and other 117,471 108,295 109,481 89,715 87,303 86,831 84,707 74,471 Total revenue 908,836 758,111 710,541 664,871 731,560 589,633 573,855 548,251 Costs and expenses(2) Cost of revenue 268,345 243,644 230,185 222,823 217,979 210,016 212,908 220,339 Research and development 141,174 150,764 138,574 123,346 133,996 136,115 143,171 128,728 Sales and marketing 211,774 193,496 188,032 178,059 189,572 172,957 185,296 169,594 General and administrative 80,635 78,339 74,126 65,718 79,915 63,266 70,839 69,868 Total costs and expenses 701,928 666,243 630,917 589,946 621,462 582,354 612,214 588,529 Income (loss) from operations 206,908 91,868 79,624 74,925 110,098 7,279 (38,359 ) (40,278 ) Interest expense (37,273 ) (38,336 ) (29,982 ) (27,015 ) (26,700 ) (26,732 ) (26,396 ) (25,409 ) Interest income 37,013 36,067 21,960 16,181 13,349 12,028 10,486 8,520 Other expense, net (3) (111 ) (2,341 ) (5,735 ) (209 ) (3,194 ) (10,106 ) (58,806 ) (1,198 ) Income (loss) before income taxes 206,537 87,258 65,867 63,882 93,553 (17,531 ) (113,075 ) (58,365 ) Provision (benefit) for income taxes (4) (48,766 ) (701,921 ) (34,250 ) 2,885 2,474 3,564 3,413 3,194 Net income (loss) $ 255,303 $ 789,179 $ 100,117 $ 60,997 $ 91,079 $ (21,095 ) $ (116,488 ) $ (61,559 ) Net income (loss) per share attributable to common stockholders: Basic $ 0.34 $ 1.04 $ 0.13 $ 0.08 $ 0.12 $ (0.03 ) $ (0.16 ) $ (0.09 ) Diluted $ 0.33 $ 1.02 $ 0.13 $ 0.08 $ 0.12 $ (0.03 ) $ (0.16 ) $ (0.09 ) Other Financial Information: Adjusted EBITDA(5) $ 396,529 $ 295,403 $ 264,810 $ 244,054 $ 308,174 $ 206,999 $ 177,874 $ 169,939 Non-GAAP net income(6) $ 244,141 $ 162,718 $ 133,955 $ 122,990 $ 141,407 $ 77,848 $ 56,370 $ 53,234 Three Months Ended Dec. 31, Sep. 30, Jun. 30, Mar. 31, Dec. 31, Sep. 30, Jun. 30, Mar. 31, 2018 2018 2018 2018 2017 2017 2017 2017 (Unaudited, in thousands) Cost of revenue $ 4,905 $ 4,247 $ 3,338 $ 4,799 $ 6,019 $ 5,625 $ 6,253 $ 5,952 Research and development 43,589 53,195 45,069 41,946 55,648 57,174 63,625 64,386 Sales and marketing 18,624 19,634 18,225 14,822 25,919 22,433 20,694 25,089 General and administrative 14,769 14,530 12,837 11,699 14,868 15,727 22,824 21,570 Total stock-based compensation expense $ 81,887 $ 91,606 $ 79,469 $ 73,266 $ 102,454 $ 100,959 $ 113,396 $ 116,997 Three Months Ended Dec. 31, Sep. 30, Jun. 30, Mar. 31, Dec. 31, Sep. 30, Jun. 30, Mar. 31, 2018 2018 2018 2018 2017 2017 2017 2017 (Unaudited, in thousands) Reconciliation of Net Income (Loss) to Adjusted EBITDA: Net income (loss) $ 255,303 $ 789,179 $ 100,117 $ 60,997 $ 91,079 $ (21,095 ) $ (116,488 ) $ (61,559 ) Stock-based compensation expense 81,887 91,606 79,469 73,266 102,454 100,959 113,396 116,997 Depreciation and amortization expense 110,723 111,947 105,982 96,846 92,520 97,492 103,063 102,792 Interest and other expense, net 371 4,610 13,757 11,043 16,545 24,810 74,716 18,087 Provision (benefit) for income taxes (48,766 ) (701,921 ) (34,250 ) 2,885 2,474 3,564 3,413 3,194 Restructuring charges and one-time nonrecurring gain (2,989 ) (18 ) (265 ) (983 ) 3,102 1,269 (226 ) (9,572 ) Adjusted EBITDA $ 396,529 $ 295,403 $ 264,810 $ 244,054 $ 308,174 $ 206,999 $ 177,874 $ 169,939 Three Months Ended Dec. 31, Sep. 30, Jun. 30, Mar. 31, Dec. 31, Sep. 30, Jun. 30, Mar. 31, 2018 2018 2018 2018 2017 2017 2017 2017 (Unaudited, in thousands) Reconciliation of Net Income (Loss) to Non-GAAP Net Income: Net income (loss) $ 255,303 $ 789,179 $ 100,117 $ 60,997 $ 91,079 $ (21,095 ) $ (116,488 ) $ (61,559 ) Exclude: Provision (benefit) for income taxes (48,766 ) (701,921 ) (34,250 ) 2,885 2,474 3,564 3,413 3,194 Income (loss) before income taxes 206,537 87,258 65,867 63,882 93,553 (17,531 ) (113,075 ) (58,365 ) Stock-based compensation expense 81,887 91,606 79,469 73,266 102,454 100,959 113,396 116,997 Amortization of acquired intangible assets 4,786 4,380 4,876 4,942 4,929 11,077 14,340 16,191 Non-cash interest expense related to convertible notes 31,017 30,878 23,309 20,722 20,417 20,355 20,041 19,248 Impairment of investments in privately-held companies — 0 3,000 — — 7,439 55,000 — Restructuring charges and one-time nonrecurring gain (2,989 ) (18 ) (265 ) (983 ) 3,102 1,269 (226 ) (9,572 ) Non-GAAP income before income taxes 321,238 214,104 176,256 161,829 224,455 123,568 89,476 84,499 Non-GAAP provision for income taxes 77,097 51,386 42,301 38,839 83,048 45,720 33,106 31,265 Non-GAAP net income $ 244,141 $ 162,718 $ 133,955 $ 122,990 $ 141,407 $ 77,848 $ 56,370 $ 53,234 Year Ended December 31, 2018 2017 2016 (In thousands) Consolidated Statements of Cash Flows Data: Net income (loss) $ 1,205,596 $ (108,063 ) $ (456,873 ) Net cash provided by operating activities 1,339,711 831,209 763,055 Net cash provided used in investing activities (2,055,513 ) (116,526 ) (593,248 ) Net cash provided by (used in) financing activities 978,116 (78,373 ) (83,975 ) $5.3 million that were not settled as of December 31, 2020 that are presented as treasury stock on the consolidated balance sheets, under the program. 2021, despite the uncertainty related to the COVID-19 pandemic. center in 2021 and support our existing data centers and infrastructure needs. 2018. Payments Due by Year Total 2019 2020-2021 2022-2023 Thereafter (In thousands) 2019 Notes $ 937,338 $ 937,338 $ — $ — $ — 2021 Notes 982,646 9,540 973,106 — — 2024 Notes 1,165,781 2,867 5,742 5,734 1,151,438 Operating lease obligations (1) 839,512 161,932 262,604 151,535 263,441 Capital lease obligations 94,920 70,506 24,414 — — Other contractual commitments (2) 346,922 65,768 135,205 134,404 11,545 Total contractual obligations $ 4,367,119 $ 1,247,951 $ 1,401,071 $ 291,673 $ 1,426,424 As of December 31, contractual obligation table in Note 16. For our Promoted Product arrangements, significant judgments are (i) identifying the performance obligations in the contract, (ii) determining the basis for allocating contract consideration to performance obligations, (iii) determining whether we are the principal or the agent in arrangements where another party is involved in providing specified services to a customer, and (iv) estimating the transaction price to be allocated for contracts with tiered rebate provisions. nature of the Company’s performance obligation, which is a series of distinct monthly periods of providing a license of IP. such assumptions, estimates or actual results. Foreign Currency Exchange Risk 2020. Definition and Limitations of Internal Control over Financial Reporting 17, 2021 December 31, December 31, 2018 2017 Assets Current assets: Cash and cash equivalents $ 1,894,444 $ 1,638,413 Short-term investments 4,314,957 2,764,689 Accounts receivable, net of allowance for doubtful accounts of $3,559 and $5,430 788,700 664,268 Prepaid expenses and other current assets 112,935 254,514 Total current assets 7,111,036 5,321,884 Property and equipment, net 885,078 773,715 Intangible assets, net 45,025 49,654 Goodwill 1,227,269 1,188,935 Deferred tax assets, net 808,459 10,455 Other assets 85,705 67,834 Total assets $ 10,162,572 $ 7,412,477 Liabilities and stockholders' equity Current liabilities: Accounts payable $ 145,186 $ 170,969 Accrued and other current liabilities 405,751 327,333 Convertible notes, short-term 897,328 — Capital leases, short-term 68,046 84,976 Total current liabilities 1,516,311 583,278 Convertible notes, long-term 1,730,922 1,627,460 Capital leases, long-term 24,394 81,308 Deferred and other long-term tax liabilities, net 17,849 13,240 Other long-term liabilities 67,502 59,973 Total liabilities 3,356,978 2,365,259 Commitments and contingencies (Note 15) Stockholders' equity: Preferred stock, $0.000005 par value-- 200,000 shares authorized; none issued and outstanding — — Common stock, $0.000005 par value-- 5,000,000 shares authorized; 764,257 and 746,902 shares issued and outstanding 4 4 Additional paid-in capital 8,324,974 7,750,522 Accumulated other comprehensive loss (65,311 ) (31,579 ) Accumulated deficit (1,454,073 ) (2,671,729 ) Total stockholders' equity 6,805,594 5,047,218 Total liabilities and stockholders' equity $ 10,162,572 $ 7,412,477 Year Ended December 31, 2018 2017 2016 Revenue $ 3,042,359 $ 2,443,299 $ 2,529,619 Costs and expenses Cost of revenue 964,997 861,242 932,240 Research and development 553,858 542,010 713,482 Sales and marketing 771,361 717,419 957,829 General and administrative 298,818 283,888 293,276 Total costs and expenses 2,589,034 2,404,559 2,896,827 Income (loss) from operations 453,325 38,740 (367,208 ) Interest expense (132,606 ) (105,237 ) (99,968 ) Interest income 111,221 44,383 24,277 Other income (expense), net (8,396 ) (73,304 ) 2,065 Income (loss) before income taxes 423,544 (95,418 ) (440,834 ) Provision (benefit) for income taxes (782,052 ) 12,645 16,039 Net income (loss) $ 1,205,596 $ (108,063 ) $ (456,873 ) Net income (loss) per share attributable to common stockholders: Basic $ 1.60 $ (0.15 ) $ (0.65 ) Diluted $ 1.56 $ (0.15 ) $ (0.65 ) Weighted-average shares used to compute net income (loss) per share attributable to common stockholders: Basic 754,326 732,702 702,135 Diluted 772,686 732,702 702,135 Year Ended December 31, 2018 2017 2016 Net income (loss) $ 1,205,596 $ (108,063 ) $ (456,873 ) Other comprehensive income (loss), net of tax: Change in unrealized gain (loss) on investments in available-for-sale securities (393 ) (1,325 ) 1,685 Change in foreign currency translation adjustment (33,339 ) 38,999 (25,372 ) Net change in accumulated other comprehensive income (loss) (33,732 ) 37,674 (23,687 ) Comprehensive income (loss) $ 1,171,864 $ (70,389 ) $ (480,560 ) Year Ended December 31, 2018 2017 2016 Shares Amount Shares Amount Shares Amount Common stock Balance, beginning of period 746,902 $ 4 721,572 $ 4 694,132 $ 3 Issuance of common stock in connection with RSU vesting 15,026 — 20,855 — 26,909 1 Issuance of common stock in connection with acquisitions 119 — — — 41 — Issuance of restricted stock in connection with acquisitions accounted for as stock-based compensation 655 — — — 3,364 — Exercise of stock options 634 — 3,733 — 2,864 — Issuance of common stock upon purchases under employee stock purchase plan 1,539 — 1,735 — 2,039 — Shares withheld related to net share settlement of equity awards (610 ) — (531 ) — (878 ) — Cancellation of shares contributed by the CEO — — — — (6,814 ) — Other activities (8 ) — (462 ) — (85 ) — Balance, end of period 764,257 $ 4 746,902 $ 4 721,572 $ 4 Additional paid-in capital Balance, beginning of period — $ 7,750,522 — $ 7,224,534 — $ 6,507,087 Cumulative-effect adjustment from adoption of stock-based compensation expense simplification rule — — — 13,316 — — Issuance of common stock in connection with acquisitions — 5,405 — — — 735 Issuance of stock options in connection with acquisitions — 917 — — — — Issuance of restricted stock in connection with acquisitions — 12,843 — — — — Exercise of stock options — 3,442 — 9,515 — 7,714 Issuance of common stock upon purchases under employee stock purchase plan — 29,288 — 23,920 — 24,431 Shares withheld related to net share settlement of equity awards — (19,256 ) — (8,962 ) — (15,598 ) Stock-based compensation — 367,668 — 488,123 — 695,525 Equity component of the convertible note issuance, net — 252,248 — — — — Purchase of convertible note hedge — (267,950 ) — — — — Issuance of warrants — 186,760 — — — — Other activities — 3,087 — 76 — 4,640 Balance, end of period — $ 8,324,974 — $ 7,750,522 — $ 7,224,534 Accumulated other comprehensive loss Balance, beginning of period — $ (31,579 ) — $ (69,253 ) — $ (45,566 ) Other comprehensive income (loss) — (33,732 ) — 37,674 — (23,687 ) Balance, end of period — $ (65,311 ) — $ (31,579 ) — $ (69,253 ) Accumulated deficit Balance, beginning of period — $ (2,671,729 ) — $ (2,550,350 ) — $ (2,093,477 ) Cumulative-effect adjustment from adoption of revenue recognition rule — $ 12,060 — — — — Cumulative-effect adjustment from adoption of stock-based compensation expense simplification rule — — — (13,316 ) — — Net income (loss) — 1,205,596 — (108,063 ) — (456,873 ) Balance, end of period — $ (1,454,073 ) — $ (2,671,729 ) — $ (2,550,350 ) Total stockholders' equity 764,257 $ 6,805,594 746,902 $ 5,047,218 721,572 $ 4,604,935 Year Ended December 31, 2018 2017 2016 Cash flows from operating activities Net income (loss) $ 1,205,596 $ (108,063 ) $ (456,873 ) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization expense 425,498 395,867 402,172 Stock-based compensation expense 326,228 433,806 615,233 Amortization of discount on convertible notes 105,926 80,061 74,660 Deferred income taxes (801,720 ) (6,415 ) (4,775 ) Impairment of investments in privately-held companies 3,000 62,439 4,000 Other adjustments (14,139 ) 5,753 46,042 Changes in assets and liabilities, net of assets acquired and liabilities assumed from acquisitions: Accounts receivable (130,871 ) 2,668 (22,969 ) Prepaid expenses and other assets 126,470 (13,974 ) 7,101 Accounts payable (1,533 ) 8,371 (7,112 ) Accrued and other liabilities 95,256 (29,304 ) 105,576 Net cash provided by operating activities 1,339,711 831,209 763,055 Cash flows from investing activities Purchases of property and equipment (483,934 ) (160,742 ) (218,657 ) Proceeds from sales of property and equipment 13,070 2,783 — Purchases of marketable securities (5,334,396 ) (2,687,214 ) (2,908,611 ) Proceeds from maturities of marketable securities 3,732,973 2,579,747 2,518,631 Proceeds from sales of marketable securities 58,721 124,826 183,154 Proceeds from sales of long-lived assets — 35,000 — Purchases of investments in privately-held companies (3,375 ) (825 ) (81,502 ) Business combinations, net of cash acquired (33,572 ) — (85,082 ) Other investing activities (5,000 ) (10,101 ) (1,181 ) Net cash used in investing activities (2,055,513 ) (116,526 ) (593,248 ) Cash flows from financing activities Proceeds from issuance of convertible notes 1,150,000 — — Purchases of convertible note hedges (267,950 ) — — Proceeds from issuance of warrants concurrent with note hedges 186,760 — — Debt issuance costs (13,783 ) — — Taxes paid related to net share settlement of equity awards (19,263 ) (8,962 ) (15,598 ) Payments of capital lease obligations (90,351 ) (102,775 ) (100,558 ) Proceeds from exercise of stock options 3,415 9,444 7,540 Proceeds from issuances of common stock under employee stock purchase plan 29,288 23,920 24,641 Net cash provided by (used in) financing activities 978,116 (78,373 ) (83,975 ) Net increase in cash, cash equivalents and restricted cash 262,314 636,310 85,832 Foreign exchange effect on cash, cash equivalents and restricted cash (14,296 ) 9,914 (3,754 ) Cash, cash equivalents and restricted cash at beginning of period 1,673,857 1,027,633 945,555 Cash, cash equivalents and restricted cash at end of period $ 1,921,875 $ 1,673,857 $ 1,027,633 Supplemental cash flow data Interest paid in cash $ 14,547 $ 13,990 $ 12,953 Taxes paid in cash $ 33,065 $ 16,216 $ 14,532 Supplemental disclosures of non-cash investing and financing activities Common stock issued in connection with acquisitions $ 19,165 $ — $ 1,341 Equipment purchases under capital leases $ 16,086 $ 123,235 $ 100,281 Changes in accrued property and equipment purchases $ (23,469 ) $ 16,387 $ 5,738 Reconciliation of cash, cash equivalents and restricted cash as shown in the consolidated statements of cash flows Cash and cash equivalents $ 1,894,444 $ 1,638,413 $ 988,598 Restricted cash included in prepaid expenses and other current assets 1,698 8,289 9,449 Restricted cash included in other assets 25,733 27,155 29,586 Total cash, cash equivalents and restricted cash $ 1,921,875 $ 1,673,857 $ 1,027,633 The Company also generates advertising revenue by selling services in which the Company places ads on third-party publishers’ websites, applications or other offerings. To fulfill these transactions, the Company purchases advertising inventory from third-party publishers’ websites and applications where the Company has identified the advertisers’ targeted audience and therefore incurs traffic acquisition costs prior to transferring the advertising service to its customers. At such point, the Company has the sole ability to monetize the third-party publishers advertising inventory. In such transactions, the Company obtains control of a right to a service to be performed by the third-party publishers, which gives the Company the ability to direct those publishers to provide the services to the Company's customers on the Company's behalf. Therefore, the Company reports advertising revenue generated from these transactions on a gross basis and records the related traffic acquisition costs as cost of revenue. performance obligation, which is a series of distinct monthly periods of providing a license of IP. acquisitions. net in the consolidated statements of operations. Finance Leases the head lease. 2018. condition, and considers macroeconomic factors to estimate expected future credit losses. In the year ended December 31, 2020, the Company recorded a $17.2 million increment in the allowance for doubtful accounts, offset by $2.7 million of write-offs and other adjustments. Estimated Useful Life Computer hardware, networking and office equipment Computer software Furniture and fixtures Five years Leasehold improvements Lesser of estimated useful life or remaining lease term such assumptions, estimates or actual results. Recent Accounting Pronouncements modified retrospective method. In 2021. Year Ended December 31, 2018 2017 (1) 2016 (1) Revenue by services: Advertising services $ 2,617,397 $ 2,109,987 $ 2,248,052 Data licensing and other 424,962 333,312 281,567 Total revenue $ 3,042,359 $ 2,443,299 $ 2,529,619 Year Ended December 31, 2018 2017 (1) 2016 (1) Revenue by geographic area: United States $ 1,642,259 $ 1,413,614 $ 1,564,776 Japan 507,970 343,741 268,496 Rest of World 892,130 685,944 696,347 Total revenue $ 3,042,359 $ 2,443,299 $ 2,529,619 (1) Prior period amounts have not been adjusted due to adoption of the new revenue standard under the modified retrospective method. The Company expenses sales commissions as incurred when the amortization period is one year or less. Sales commission expenses are recorded within sales and marketing in the consolidated statements of operations. December 31, January 1, 2018 2018 Unbilled Revenue $ 20,786 $ 7,980 Deferred Revenue $ 38,949 $ 25,869 periods and the satisfaction of the Company’s performance obligations relating to data licensing contracts with advance cash payments or material rights. The period. Remaining Performance Obligations 2021 and Total 2019 2020 Thereafter Revenue expected to be recognized on remaining performance obligations $ 494,845 $ 201,546 $ 146,612 $ 146,687 December 31, December 31, 2018 2017 Cash and cash equivalents: Cash $ 229,924 $ 301,684 Money market funds 861,206 981,681 Corporate notes, commercial paper and certificates of deposit 803,314 355,048 Total cash and cash equivalents $ 1,894,444 $ 1,638,413 Short-term investments: U.S. government and agency securities including treasury bills $ 1,053,408 $ 1,064,957 Corporate notes, commercial paper and certificates of deposit 3,261,549 1,699,732 Total short-term investments $ 4,314,957 $ 2,764,689 December 31, 2018 Gross Gross Gross Aggregated Amortized Unrealized Unrealized Estimated Costs Gains Losses Fair Value U.S. government and agency securities including treasury bills $ 1,053,988 $ 41 $ (621 ) $ 1,053,408 Corporate notes, commercial paper and certificates of deposit 3,265,012 713 (4,176 ) 3,261,549 Total available-for-sale securities classified as short-term investments $ 4,319,000 $ 754 $ (4,797 ) $ 4,314,957 December 31, 2017 Gross Gross Gross Aggregated Amortized Unrealized Unrealized Estimated Costs Gains Losses Fair Value U.S. government and agency securities including treasury bills $ 1,067,047 $ 133 $ (2,223 ) $ 1,064,957 Corporate notes, commercial paper and certificates of deposit 1,701,168 72 (1,508 ) 1,699,732 Total available-for-sale securities classified as short-term investments $ 2,768,215 $ 205 $ (3,731 ) $ 2,764,689 December 31, 2018 Due within one year $ 3,262,976 Due after one year through five years 1,051,981 Total $ 4,314,957 The gross unrealized loss on available-for-sale debt securities in a continuous loss position for 12 months or longer was not material as of December 31, December 31, 2018 Level 1 Level 2 Total Assets Cash equivalents: Money market funds $ 861,206 $ — $ 861,206 Corporate notes 24,537 24,537 Commercial paper — 778,777 778,777 Short-term investments: Treasury bills — 294,128 294,128 U.S. government and agency securities — 759,280 759,280 Corporate notes — 1,713,835 1,713,835 Commercial paper — 733,999 733,999 Certificates of deposit — 813,715 813,715 Other current assets: Foreign currency contracts — 1,343 1,343 Total $ 861,206 $ 5,119,614 $ 5,980,820 Liabilities Other current liabilities: Foreign currency contracts — 3,826 3,826 Total $ — $ 3,826 $ 3,826 December 31, 2017 Level 1 Level 2 Total Assets Cash equivalents: Money market funds $ 981,681 $ — $ 981,681 Commercial paper — 346,968 346,968 Certificates of deposit — 8,080 8,080 Short-term investments: U.S. government and agency securities — 1,064,957 1,064,957 Corporate notes — 745,915 745,915 Commercial paper — 299,675 299,675 Certificates of deposit — 654,142 654,142 Other current assets: Foreign currency contracts — 2,237 2,237 Total $ 981,681 $ 3,121,974 $ 4,103,655 Liabilities Other current liabilities: Foreign currency contracts — 601 601 Total $ — $ 601 $ 601 The estimated fair value of the December 31, December 31, Balance Sheet Location 2018 2017 Assets Foreign currency contracts not designated as hedging instruments Other current assets $ 1,343 $ 2,237 Liabilities Foreign currency contracts not designated as hedging instruments Other current liabilities $ 3,826 $ 601 December 31, December 31, 2018 2017 Property and equipment, net Equipment $ 1,185,270 $ 1,091,672 Furniture and leasehold improvements 328,532 314,852 Capitalized software 554,962 472,147 Construction in progress 96,488 49,417 Total 2,165,252 1,928,088 Less: Accumulated depreciation and amortization (1,280,174 ) (1,154,373 ) Property and equipment, net $ 885,078 $ 773,715 Goodwill Balance as of December 31, 2017 $ 1,188,935 Acquisition 44,014 Foreign currency translation adjustment and other (5,680 ) Balance as of December 31, 2018 $ 1,227,269 The following table presents the detail of intangible assets for the periods presented (in thousands): Gross Carrying Accumulated Net Carrying Value Amortization Value December 31, 2018: Patents and developed technologies $ 93,211 $ (48,806 ) $ 44,405 Publisher and advertiser relationships 9,300 (8,680 ) 620 Total $ 102,511 $ (57,486 ) $ 45,025 December 31, 2017: Patents and developed technologies $ 93,511 $ (46,337 ) $ 47,174 Publisher and advertiser relationships 9,300 (6,820 ) 2,480 Total $ 102,811 $ (53,157 ) $ 49,654 Years ending December 31, 2019 $ 14,808 2020 10,081 2021 7,218 2022 4,290 2023 4,264 Thereafter 4,364 Total $ 45,025 December 31, December 31, 2018 2017 Accrued compensation $ 155,830 $ 98,553 Accrued tax liabilities 39,729 36,097 Accrued publisher, content and ad network costs 33,014 32,462 Deferred revenue 38,949 27,824 Accrued other 138,229 132,397 Total $ 405,751 $ 327,333 two years. Investments in Privately-Held Companies value and any future funding commitments. The Company also recorded a gain of $10.2 million from the sale of an investment in a privately-held company in the year ended December 31, 2019 within other income (expense), net in the consolidated statements of operations. NaN such gains were recorded in the years ended December 31, 2020 and 2018. Upon conversion of the merger and acquisition events. In 2014, the Company issued and December 15 of each year. The 2021 Notes mature on September 15, 2021 and the 2024 Notes mature on June 15, 2024. In accordance with accounting guidance on embedded conversion features, the Company valued and bifurcated the conversion option associated with the warrants, respectively. the consolidated balance sheet as of December 31, 2020. December 31, 2018 December 31, 2017 2019 Notes 2021 Notes 2024 Notes 2019 Notes 2021 Notes Principal amounts: Principal $ 935,000 $ 954,000 $ 1,150,000 $ 935,000 $ 954,000 Unamortized debt discount and issuance costs (1) (37,672 ) (130,232 ) (242,846 ) (88,359 ) (173,181 ) Net carrying amount $ 897,328 $ 823,768 $ 907,154 $ 846,641 $ 780,819 Carrying amount of the equity component (2) $ 222,826 $ 283,283 $ 254,981 $ 222,826 $ 283,283 2018, respectively. Diluted net income (loss) per share is computed by dividing the net income (loss) attributable to common stockholders by the weighted-average number of common shares outstanding during the period, including potential dilutive common stock instruments. In the Year Ended December 31, 2018 2017 2016 Basic net income (loss) per share: Numerator Net income (loss) $ 1,205,596 $ (108,063 ) $ (456,873 ) Denominator Weighted-average common shares outstanding 756,916 736,607 708,010 Weighted-average restricted stock subject to repurchase (2,590 ) (3,905 ) (5,875 ) Weighted-average shares used to compute basic net income (loss) per share 754,326 732,702 702,135 Basic net income (loss) per share attributable to common stockholders $ 1.60 $ (0.15 ) $ (0.65 ) Diluted net income (loss) per share: Numerator Net income (loss) $ 1,205,596 $ (108,063 ) $ (456,873 ) Denominator Number of shares used in basic computation 754,326 732,702 702,135 Weighted-average effect of dilutive securities: RSUs 13,285 — — Stock options 2,686 — — Other 2,389 — — Weighted-average shares used to compute diluted net income (loss) per share 772,686 732,702 702,135 Diluted net income (loss) per share attributable to common stockholders $ 1.56 $ (0.15 ) $ (0.65 ) Year Ended December 31, 2018 2017 2016 RSUs 14,949 33,123 48,069 Warrants 44,454 24,329 24,329 Stock options 837 4,793 8,723 Shares subject to repurchase and others 1,951 5,879 6,637 If the average market price of the common stock exceeds the exercise price of the warrants, $105.28 for the Weighted-Average Number of Grant-Date Fair Shares Value Per Share Unvested restricted common stock at December 31, 2017 2,764 $ 19.60 Granted 654 $ 25.62 Vested (1,173 ) $ 23.05 Canceled (7 ) $ 36.44 Unvested restricted common stock at December 31, 2018 2,238 $ 19.50 Options Outstanding Weighted- Weighted- Average Average Remaining Number of Exercise Contractual Life Aggregate Shares Price Per Share (in years) Intrinsic Value Outstanding at December 31, 2017 4,793 $ 11.94 4.84 $ 70,932 Options granted and assumed in connection with acquisitions 46 $ 2.00 Options exercised (634 ) $ 5.43 Options canceled (513 ) $ 41.11 Outstanding at December 31, 2018 3,692 $ 8.88 3.64 $ 73,581 Exercisable at December 31, 2018 3,363 $ 7.84 3.32 $ 70,468 The Company granted PRSUs with a vesting period of one year and three years prior to 2020 and in 2020, respectively. PRSUs Outstanding Weighted- Average Grant- Date Fair Value Shares Per Share Unvested and outstanding at December 31, 2017 346 $ 15.39 Granted (100% target level) 519 $ 35.25 Additional earned performance shares related to 2017 grants 300 $ 15.39 Vested (187% target level) (646 ) $ 15.39 Canceled (129 ) $ 34.36 Unvested and outstanding at December 31, 2018 (1) 390 $ 35.55 $22.7 million and $23.2 million, respectively. The following table summarizes the activity related to the Company’s TSR RSUs for the year ended December 31, TSR RSUs Outstanding Weighted- Average Grant- Date Fair Value Shares Per Share Unvested and outstanding at December 31, 2017 146 $ 13.02 Granted (100% target level) 414 $ 53.71 Canceled (140 ) $ 35.05 Unvested and outstanding at December 31, 2018 (1) 420 $ 45.78 financial years. RSUs Outstanding Weighted- Average Grant- Date Fair Value Shares Per Share Unvested and outstanding at December 31, 2017 33,123 $ 19.80 Granted 19,101 $ 30.73 Vested (14,379 ) $ 21.64 Canceled (7,458 ) $ 23.17 Unvested and outstanding at December 31, 2018 30,387 $ 24.97 Year Ended December 31, 2018 2017 2016 Cost of revenue $ 17,289 $ 23,849 $ 29,502 Research and development 183,799 240,833 335,498 Sales and marketing 71,305 94,135 160,935 General and administrative 53,835 74,989 89,298 Total stock-based compensation expense $ 326,228 $ 433,806 $ 615,233 The amount of incremental stock-based compensation recorded in relation to the modification of stock-based awards was not material for the years ended December 31, 2018. Year Ended December 31, 2018 2017 2016 Domestic $ 193,500 $ (18,412 ) $ (237,325 ) Foreign 230,044 (77,006 ) (203,509 ) Income (loss) before income taxes $ 423,544 $ (95,418 ) $ (440,834 ) Year Ended December 31, 2018 2017 2016 Current: Federal $ (1,661 ) $ 1,977 $ 1,087 State 4,083 316 (143 ) Foreign 17,246 16,767 19,870 Total current provision for income taxes 19,668 19,060 20,814 Deferred: Federal (711,084 ) (4,701 ) 293 State (49,047 ) (67 ) 17 Foreign (41,589 ) (1,647 ) (5,085 ) Total deferred benefit for income taxes (801,720 ) (6,415 ) (4,775 ) Provision (benefit) for income taxes $ (782,052 ) $ 12,645 $ 16,039 Year Ended December 31, 2018 2017 2016 Tax at federal statutory rate 21.0 % 35.0 % 35.0 % State taxes, net of federal benefit (8.4 ) (0.3 ) 0.0 Stock-based compensation (6.4 ) (28.5 ) (2.8 ) Research and development credits (5.6 ) 18.6 4.9 Valuation allowance (179.1 ) 425.2 (7.0 ) Effect of the U.S. Tax Act 0.0 (369.8 ) 0.0 Nondeductible other expenses 0.2 (8.7 ) (6.1 ) Foreign rate differential (6.4 ) (81.2 ) (27.4 ) Other 0.1 (3.6 ) (0.2 ) Effective tax rate (184.6 )% (13.3 )% (3.6 )% December 31, 2018 2017 Deferred tax assets: Net operating loss carryforwards $ 513,427 $ 720,444 Accruals and reserves 32,298 26,202 Stock-based compensation expense 29,600 32,825 Tax credits 375,699 327,756 Capitalized research expenditures 13,868 — Fixed assets and intangible assets 24,819 10,803 Investments 16,571 14,906 Other 17,658 19,683 Total deferred tax assets 1,023,940 1,152,619 Valuation allowance (210,862 ) (1,021,326 ) Total deferred tax assets, net of valuation allowance 813,078 131,293 Deferred tax liabilities: Fixed assets and intangible assets — (57,290 ) Capitalized research expenditures — (51,179 ) Other (4,619 ) (12,369 ) Total deferred tax liabilities (4,619 ) (120,838 ) Net deferred tax assets $ 808,459 $ 10,455 During the year ended December 31, 2018, the Company released The Brazil net operating losses have no expiration date. The Company also has 2023, if not utilized. Utilization of the net operating loss and credit carryforwards may be subject to an annual limitation due to the ownership change limitations provided by the Internal Revenue Code of 1986, as amended (the Year Ended December 31, 2018 2017 2016 Gross unrecognized tax benefits at the beginning of the year $ 259,781 $ 269,508 $ 209,443 Increases related to prior year tax positions 20,000 913 3,682 Decreases related to prior year tax positions (13,174 ) — — Decreases related to settlement with tax authorities — (1,415 ) — Decreases related to the Tax Act — (71,104 ) — Increases related to current year tax positions 66,249 61,879 56,383 Statute of limitations expirations (542 ) — — Gross unrecognized tax benefits at the end of the year $ 332,314 $ 259,781 $ 269,508 December 31, 2018 2017 Total unrecognized tax benefits balance $ 332,314 $ 259,781 Amounts netted against related deferred tax assets (317,524 ) (246,776 ) Unrecognized tax benefits recorded on consolidated balance sheets $ 14,790 $ 13,005 positions, respectively. Operating Sublease Capital Leases Income Leases Years Ending December 31, 2019 $ 161,932 $ (24,312 ) $ 70,506 2020 151,751 (15,144 ) 23,845 2021 110,853 (11,762 ) 569 2022 89,398 (1,319 ) — 2023 62,137 — — Thereafter 263,441 — — $ 839,512 $ (52,537 ) 94,920 Less: Amounts representing interest 2,480 Total capital lease obligation 92,440 Less: Short-term portion 68,046 Long-term portion $ 24,394 Contractual Obligations Payments Due by Year Total 2019 2020-2021 2022-2023 Thereafter (In thousands) 2019 Notes $ 937,338 $ 937,338 $ — $ — $ — 2021 Notes 982,646 9,540 973,106 — — 2024 Notes 1,165,781 2,867 5,742 5,734 1,151,438 Operating lease obligations (1) 839,512 161,932 262,604 151,535 263,441 Capital lease obligations 94,920 70,506 24,414 — — Other contractual commitments (2) 346,922 65,768 135,205 134,404 11,545 Total contractual obligations $ 4,367,119 $ 1,247,951 $ 1,401,071 $ 291,673 $ 1,426,424 such losses or range of possible losses either are not material or may be material but cannot be estimated. Certain of the Company’s directors have affiliations with customers of the Company. The Company recognized revenue under contractual obligations from such customers of December 31, December 31, 2018 2017 Property and equipment, net: United States $ 853,731 $ 730,262 International 31,347 43,453 Total property and equipment, net $ 885,078 $ 773,715 2016 Employee 2016 Termination Plan Lease Plan Charges (1) $ 21,611 $ 79,685 Cash payment (11,629 ) (3,562 ) Non-cash and other adjustments (6,357 ) (19,577 ) Accrued as of December 31, 2016 $ 3,625 $ 56,546 Charges (2) $ 608 $ 6,090 Cash payment (4,309 ) (28,371 ) Non-cash and other adjustments 76 (2,336 ) Accrued as of December 31, 2017 $ — $ 31,929 Charges (3) — (4,255 ) Cash payment — (15,525 ) Non-cash and other adjustments — (34 ) Accrued as of December 31, 2018 $ — $ 12,115 Reflected in consolidated balance sheets as of December 31, 2018: (4) Accrued and other current liabilities $ — $ 12,070 Other long-term liabilities $ — $ 45 Charged/ Balance at Credited Beginning of Charged to to Other Balance at Year Expenses Accounts End of Year (In thousands) Allowance for Deferred Tax Assets: Year ended December 31, 2018 $ 1,021,326 $ (817,529 ) $ 7,065 $ 210,862 Year ended December 31, 2017 $ 439,993 $ (346,389 ) $ 927,722 $ 1,021,326 Year ended December 31, 2016 $ 378,448 $ 57,529 $ 4,016 $ 439,993 Balance at Beginning of Additions Write-off/ Balance at Year (Reductions) Adjustments End of Year (In thousands) Allowance for Doubtful Accounts: Year ended December 31, 2018 $ 5,430 $ 1,610 $ (3,481 ) $ 3,559 Year ended December 31, 2017 $ 7,216 $ 586 $ (2,372 ) $ 5,430 Year ended December 31, 2016 $ 8,121 $ 3,958 $ (4,863 ) $ 7,216 Exhibit Exhibit Description Incorporated by Reference Form File No. Exhibit Filing Date 3.1 S-1/A 333-191552 3.2 October 22, 2013 3.2 8-K 001-36164 3.1 April 7, 2017 4.1 S-1/A 333-191552 4.1 October 22, 2013 4.2 Indenture, dated September 17, 2014, between Twitter, Inc. and U.S. Bank National Association. 8-K 001-36164 4.1 September 17, 2014 4.3 Form of Global 0.25% Convertible Senior Note due 2019 (included in Exhibit 4.2) 8-K 001-36164 4.2 September 17, 2014 4.4 Indenture, dated September 17, 2014, between Twitter, Inc. and U.S. Bank National Association. 8-K 001-36164 4.3 September 17, 2014 4.5 Form of Global 1.00% Convertible Senior Note due 2021 (included in Exhibit 4.4) 8-K 001-36164 4.4 September 17, 2014 4.6 Indenture, dated June 11, 2018, between Twitter, Inc. and U.S. Bank National Association. 8-K 001-36164 4.1 June 11, 2018 4.7 Form of Global 0.25% Convertible Senior Note due 2024 (included in Exhibit 4.6). 8-K 001-36164 4.2 June 11, 2018 10.1* S-1 333-191552 10.1 October 3, 2013 10.2* Twitter, Inc. 2013 Equity Incentive Plan and related form agreements. S-1/A 333-191552 10.2 October 22, 2013 10.3* Twitter, Inc. 2013 Employee Stock Purchase Plan and related form agreements. S-8 333-192150 4.3 November 7, 2013 10.4* Twitter, Inc. 2007 Equity Incentive Plan and related form agreements. S-1 333-191552 10.4 October 3, 2013 10.5* 10-K 333-209840 10.5 February 29, 2016 10.6* Twitter, Inc. 2016 Equity Incentive Plan and related form agreements. S-8 333-212740 4.2 July 29, 2016 10.7* S-1 333-191552 10.5 October 3, 2013 10.8* S-8 333-198055 4.4 August 11, 2014 10.9* S-8 333-195743 4.2 May 6, 2014 10.10* S-1 333-191552 10.6 October 3, 2013 10.11* CardSpring Inc. Amended and Restated 2011 Equity Incentive Plan. S-8 333-198055 4.6 August 11, 2014 10.12* S-1 333-191552 10.7 October 3, 2013 10.13* S-8 333-195743 4.3 May 6, 2014 10.14* S-8 333-212740 4.3 July 29, 2016 10.15* S-1 333-191552 10.8 October 3, 2013 10.16* S-1/A 333-191552 10.22 November 4, 2013 10.17* Smyte, Inc. Amended and Restated 2014 Stock Option and Grant Plan and related form agreements. S-8 333-2266447 4.2 July 31, 2018 10.18* S-8 333-198055 4.5 August 11, 2014 10.19* S-1 333-191552 10.9 October 3, 2013 10.20* Twitter, Inc. Change of Control and Involuntary Termination Protection Policy. 10-Q 001-36164 10.1 August 11, 2014 10.21* 10-K 001-36164 10.23 March 6, 2014 10.22* S-1/A 333-191552 10.20 October 22, 2013 10.23* Offer Letter between Twitter, Inc. and Jack Dorsey, dated as of June 11, 2015. 8-K 001-36164 10.1 June 11, 2015 10.24* Letter Agreement between Twitter, Inc. and Omid R. Kordestani, dated as of October 13, 2015. 8-K 001-36164 10.1 October 16, 2015 10.25* Offer Letter between Twitter, Inc. and Vijaya Gadde, dated as of October 1, 2013. S-1/A 333-191552 10.16 October 22, 2013 10.26* Offer Letter between Twitter, Inc. and Robert Kaiden, dated as of April 24, 2015. 8-K 001-36164 10.1 June 4, 2015 10.27* Offer Letter between Twitter, Inc. and Ned D. Segal, dated July 11, 2017 8-K 001-36164 10.1 July 11, 2017 10.28* 10-K 001-36164 10.28 February 23, 2018 10.29* 8-K 001-36164 10.1 October 23, 2015 10.30 S-1 333-191552 10.19 October 3, 2013 10.31 S-1 333-191552 10.18 October 3, 2013 10.32 S-1/A 333-191552 10.21 October 22, 2013 10.33 8-K 001-36164 10.1 September 10, 2014 10.34 8-K 001-36164 10.4 June 11, 2018 10.35 8-K 001-36164 10.1 August 10, 2018 10.36 8-K 001-36164 10.2 September 17, 2014 10.37 8-K 001-36164 10.3 September 17, 2014 10.38 8-K 001-36164 10.1 June 11, 2018 10.39 8-K 001-36164 10.2 June 11, 2018 10.40 8-K 001-36164 10.3 June 11, 2018 21.1 23.1 Consent of PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm. 24.1 31.1 31.2 32.1† 101.INS XBRL Instance Document. 101.SCH XBRL Taxonomy Schema Linkbase Document 101.CAL XBRL Taxonomy Definition Linkbase Document. 101.DEF XBRL Taxonomy Calculation Linkbase Document. 101.LAB XBRL Taxonomy Labels Linkbase Document. 101.PRE XBRL Taxonomy Presentation Linkbase Document. † The certifications attached as Exhibit 32.1 that accompany this Annual Report on Form 10-K, are deemed furnished and not filed with the Securities and Exchange Commission and are not to be incorporated by reference into any filing of Twitter, Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Annual Report on Form 10-K, irrespective of any general incorporation language contained in such filing. Jack Dorsey Chief Executive Officer Chief Executive Officer and Director February Jack Dorsey (Principal Executive Officer) /s/ Ned Segal Chief Financial Officer February Ned Segal (Principal Financial Officer) /s/ Robert Kaiden Chief Accounting Officer February Robert Kaiden (Principal Accounting Officer) /s/ Jesse Cohn February Omid Kordestani /s/ Martha Lane Fox Director February Martha Lane Fox /s/ Director February Director February Patrick Pichette /s/ Ngozi Okonjo-Iweala Director February David Rosenblatt /s/ Bret Taylor Director February Bret Taylor /s/ Robert Zoellick Director February Robert ZoellickWe relyFurther, the UK officially left the EU in 2020 (often referred to as "Brexit"). The effect of Brexit will depend on assumptionsagreements, if any, the UK makes to retain access to EU markets. Brexit creates economic and estimateslegal uncertainty in the region and could adversely affect the tax, currency, operational, legal and regulatory regimes to calculatewhich our business is subject, including with respect to privacy and data protection. Brexit may adversely affect our revenues and subject us to new regulatory costs and challenges, in addition to other adverse effects that we are unable effectively to anticipate. The UK implemented a Data Protection Act, effective in May 2018 and statutorily amended in 2019, that substantially implements the GDPR, with penalties for noncompliance of up to the greater of £17.5 million or four percent of worldwide revenues. Brexit has, however, created uncertainty with regard to the future regulation of data protection in the UK and requirements for data transfers between the UK and the EU and other jurisdictions. For example, the EU-UK Trade and Cooperation Agreement provides for a transition period of four months, subject to a potential two-month extension, in which the European Commission will, subject to certain exceptions that may result in termination of such transition period, continue to treat the UK as if it remained an EU member state with respect to personal data transfers. The UK may thereafter be considered a “third country” under the GDPR, with transfers of personal data from the EU to the UK needing to be made pursuant to GDPR-compliant safeguards unless the European Commission adopts an adequacy decision with respect to the UK. With substantial uncertainty over the interpretation and application of how the UK will approach and address the GDPR following the transition period, we may face challenges in addressing applicable requirements and making necessary changes to our policies and practices, and may incur significant costs and expenses in an effort to do so.key metrics,failure to comply, or any failure or claim of failure by the above-mentioned third parties to comply, could increase our costs or could result in liabilities. Additionally, because we accept payment via credit cards, we are subject to global payments industry operating rules and real or perceived inaccuraciescertification requirements governed by PCI Security Standards Council, including the Payment Card Industry Data Security Standard. Any failure by us to comply with these operating rules and certification requirements also may result in such metricscosts and liabilities and may harm our reputation and negatively affect our business.The number of our active users is calculated using internal company data that has not been independently verified. While these numbers are based on what we believe to be reasonable calculations for the applicable period of measurement, there are inherent challengesresult in measuring usage and user engagement across our large user base around the world. For example, there are a number of false or spam accounts in existence on our platform. We estimate that the average of false or spam accounts during the fourth quarter of 2018 continued to represent fewer than 5% of our MAUs and mDAUs during the quarter. However, this estimate is based on an internal review of a sample of accounts and we apply significant judgment in making this determination. As such, our estimation of false or spam accounts may not accurately represent the actual number of such accounts, and the actual number of false or spam accounts could be higher than we have currently estimated. We are continually seeking to improveus losing our ability to estimate the total number of spam accountsaccept certain payment cards.eliminate them from the calculation of our active users, but we otherwise treat multiple accounts held by a single personforeign laws and regulations described above, as well as any associated inquiries or organization as multiple users for purposes of calculating our active users because we permit people and organizations to have more than one account. Additionally, some accounts used by organizations are used by many people within the organization. As such, the calculations of our active users may not accurately reflect the actual number of peopleinvestigations or organizations using our platform. Further, we rely on third-party SMS aggregators and mobile carriers to deliver SMS messages to certain of our MAUs. If, however, we are notified of material deliverability issues because of, for example, infrastructure issues at the service-provider level or governmental restrictions based on content, we do not include the affected users in MAUs. We may also discover unexpected errors in our internal data that resulted from technical orany other errors. For example, in 2017, we discovered that since the fourth quarter of 2014 we had included users of certain third-party applications as Twitter MAUs that should not have been considered MAUs. These third-party applications used Digits, a software development kit of our now-divested Fabric platform that allowed third-party applications to send authentication messages via SMS through our systems, which did not relate to activity on the Twitter platform. Although the change in the MAUs was relatively small in relation to our overall MAU numbers, we may face increased scrutiny on the calculation of our key metrics as a result of the error.Our calculations of MAUregulatory actions, may be affected by mobile applications that automatically contact our servers for regular updatesonerous and costly to comply with no discernable user-initiated action involved, and this activity can cause our system to count the user associated with such a device as an active user on the day such contact occurs. The impact of this automatic activity on MAU varies by geography because mobile application usage varies in different regions of the world. In addition, our data regarding user geographic location is based on the IP address or phone number associated with the account when a user initially registered the account on Twitter. That IP address or phone number may not always accurately reflect a user’s actual location at the time of such user’s engagement on our platform.We regularly review and may adjust our processes for calculating our internal metricsbe inconsistent from jurisdiction to improve their accuracy. Our measuresjurisdiction, further increasing the cost of user growthcompliance and user engagementdoing business. Any such costs may differ from estimates published by third partiesdelay or from similarly-titled metricsimpede the development of our competitors due to differences in methodology. If advertisers, content or platform partners or investors do not perceive our user metrics to be accurate representations of our user base or user engagement, or if we discover material inaccuracies in our user metrics, our reputation may be harmed and content partners, advertisers and platform partners may be less willing to allocate their budgets or resources to ournew products and services, which could negatively affectresult in negative publicity, increase our operating costs, require significant management time and attention, and subject us to remedies that may result in a loss of mDAU or advertisers and otherwise harm our business, including fines or demands or orders that we modify or cease existing business practices.operating results. Further, asadditional legal or regulatory demands or we may independently decide to do so. If we obtain such additional personal information, we may be subject to additional legal or regulatory obligations.develops,practices in a manner material and adverse to our business.may revisenotify the Irish Data Protection Commission and other regulators of certain personal data breaches and privacy or cease reporting metrics if we determine that such metricsdata protection issues, and are no longer accurate or appropriate measuressubject to inquiries and investigations regarding various aspects of our performance. For example, we believe that mDAU, and its related growth,regulatory compliance. We are currently the best wayssubject of inquiries by the Irish Data Protection Commission with respect to measure our success against our objectives and to showcompliance with the size of our audience and engagement going forward, so we will discontinue disclosing MAU after the first quarter of 2019.GDPR. In the past, we also stopped disclosing timeline viewshave been subject to regulatory investigations and orders, and we expect to continue to be subject to regulatory scrutiny as we no longer believed that metric was helpful in measuring engagement on our platform. If investors, analysts or customers do not believe our reported measures, such as mDAU, are sufficient or accurately reflect our business grows and awareness of our brand increases.may receive negative publicityentered into a consent order with the FTC that, among other things, required us to establish an information security program designed to protect non-public consumer information and our operating results mayalso requires that we obtain biennial independent security assessments. The obligations under the consent order remain in effect until the later of March 2, 2031, or the date 20 years after the date, if any, on which the U.S. government or the FTC files a complaint in federal court alleging any violation of the order. We expect to continue to be harmed.We rely in part on application marketplacesthe subject of regulatory inquiries, investigations and Internet search engines to drive traffic to our products and services, and if we fail to appear high upaudits in the search resultsfuture by the FTC and other regulators around the world. Violation of existing or rankings, trafficfuture regulatory orders, settlements or consent decrees could subject us to our platform could declinesubstantial fines, penalties and our business and operating results could be adversely affected.We rely on application marketplaces, such as Apple’s App Store and Google’s Play, to drive downloads of our mobile applications. In the future, Apple, Google or other operators of application marketplaces may make changes to their marketplaces which make access to our products and services more difficult or limit our use of data to provide targeted advertising. We also depend in part on Internet search engines, such as Google, Apple Spotlight, Bing and Yahoo, to drive traffic to our website. For example, when a user types an inquiry into a search engine, we rely on a high organic search result ranking of our webpages in these search results to refer the user to our website. However, our ability to maintain high organic search result rankings is not within our control. Our competitors’ search engine optimization, or SEO, efforts may result in their websites receiving a higher search result page ranking than ours, or Internet search engines could revise their methodologies in a waycosts that would adversely affect our search result rankings. If internet search engines modify their search algorithms in ways that are detrimental to us, or if our competitors’ SEO efforts are more successful than ours, the growth in our user base could slow. Our website has experienced fluctuations in search result rankings in the past, and we anticipate similar fluctuations in the future. Any reduction in the number of users directed to our mobile applications or website through application marketplaces and search engines could harm our business and operating results.Users increasingly access our products and services through mobile and alternative devices, and we need to continue to promote the adoption of our mobile applications, and our business and operating results may be harmed if we are unable to do so.In the three months ended December 31, 2018, 93% of our advertising revenue was generated from mobile devices. Since we generate a majority of our advertising revenue through users on mobile devices, we must continue to drive adoption of our mobile applications. However, in emerging markets like India and Pakistan, a significant portion of users use feature phones and communicate via SMS messaging, both of which have limited functionality and neither of which may be able to take full advantage of our products and services offered on smartphone or our website or desktop applications. In addition, mobile users frequently change or upgrade their mobile devices. Our business and operating results may be harmed if our users do not install our mobile application when they change or upgrade their mobile device. Although we generate the majority of our advertising revenue from ad engagements on mobile devices, certain of our products and services, including Promoted Trends and Promoted Accounts, receive less prominence on our mobile applications than they do on our desktop applications. This has in the past reduced, and may in the future continue to reduce, the amount of revenue we are able to generate from these products and services as users increasingly access our products and services through mobile and alternative devices. In addition, as new devices and platforms are continually being released, users may consume content in a manner that is more difficult to monetize. If we are unable to develop products and services that are compatible with new devices and platforms, or if we are unable to drive continued adoption of our mobile applications, our business and operating results may be harmed.Acquisitions, divestitures and investments could disrupt our business and harmimpact our financial condition and operating results.Our success will depend, For example, on July 28, 2020, we received a draft complaint from the FTC alleging violations of the 2011 consent order with the FTC and the FTC Act. The allegations relate to our use of phone number and/or email address data provided for safety and security purposes for targeted advertising during periods between 2013 and 2019. We estimate that the range of probable loss in part, onthis matter is $150.0 million to $250.0 million. The matter remains unresolved, and there can be no assurance as to the timing or the terms of any final outcome.ability to expandpolicies or practices, divert management and other resources from our business, or otherwise materially and adversely impact our business, financial condition and operating results.product featuresand services.and growor third-party products or services. In particular, the nature of our business in responseexposes us to changing technologies, userclaims related to defamation, intellectual property rights, rights of publicity and advertiser demands,privacy, illegal content, misinformation, content regulation and competitive pressures. In some circumstances, we may determinepersonal injury torts. The laws relating to do so through the acquisitionliability of complementary businesses and technologies rather than through internal development, including, for example, our acquisitionsproviders of Periscope, a live-streaming video mobile application, and MoPub, a mobile-focused advertising exchange. The identification of suitable acquisition candidates can be difficult, time-consuming and costly, and we may not be able to successfully complete identified acquisitions. The risks we face in connection with acquisitions include:diversion of management time and focus from operating our business to addressing acquisition integration challenges;retention of key employees from the acquired company;cultural challenges associated with integrating employees from the acquired company into our organization;integration of the acquired company’s accounting, management information, human resources and other administrative systems and processes;•the need to implement or improve controls, procedures, and policies at a business that prior to the acquisition may have lacked effective controls, procedures and policies;liabilityonline products or services for activities of the acquired company beforepeople who use them remains somewhat unsettled, both within the acquisition, including intellectual property infringement claims, violationsUnited States and internationally. For example, there are various Executive and Congressional efforts to restrict the scope of the protections from legal liability for content moderation decisions and third-party content posted on online platforms that are currently available to online platforms under Section 230 of the Communications Decency Act, and our current protections from liability for content moderation decisions and third-party content posted on our platform in the United States could decrease or change, potentially resulting in increased liability for content moderation decisions and third-party content posted on our platform and higher litigation costs. This risk may be enhanced in certain jurisdictions outside the United States where we may be less protected under local laws commercial disputes, tax liabilities and other known and unknown liabilities;unanticipated write-offs or charges; andlitigation or other claimsthan we are in connection with the acquired company, including claims from terminated employees, users, former stockholders or other third parties.OurUnited States. For example, we are subject to legislation in Germany that may impose significant fines for failure to address these riskscomply with certain content removal and disclosure obligations. Other countries, including Singapore, India, Australia and the United Kingdom, have implemented or other problems encountered in connection withare considering similar legislation imposing penalties for failure to remove certain types of content. In addition, the public nature of communications on our past or future acquisitions and investments could causeplatform exposes us to failrisks arising from the creation of impersonation accounts intended to realize the anticipated benefitsbe attributed to people on Twitter or our advertisers. We could incur significant costs investigating and defending these claims. If we incur material costs or liability as a result of these acquisitions or investments, cause us to incur unanticipated liabilities, and harmoccurrences, our business, generally. Future acquisitions could also result in dilutive issuances of our equity securities, the incurrence of debt, contingent liabilities, amortization expenses, incremental operating expenses or the impairment of goodwill, any of which could harm our financial condition orand operating results.We also make investments in privately-held companies in furtherance of our strategic objectives. We may not realize a return and may recognize a loss on such investments. Many of the instruments in which we invest are non-marketable at the time of our initial investment. Companies in which we invest range from early-stage companies still defining their strategic direction to more mature companies with established revenue streams and business models. The success of our investment in any company is typically dependent on the availability to the company of additional funding on favorable terms, or a liquidity event, such as a public offering or acquisition. If any of the companies in which we invest decrease in value, we could lose all or part of our investment. For example, in the year ended December 31, 2017, we recorded a $62.4 million impairment charge relating to an investment in a privately-held company.In certain cases, we have also divested or stopped investing in certain products, including products that we acquired. For instance, in January 2017, we divested certain assets related to our Fabric platform. In 2017, we also deprecated certain of our revenue products, including TellApart, which was acquired in 2015. In these cases, we have needed to and may, in the future, need to restructure operations, terminate employees and/or incur other expenses. We may not realize the expected benefits and cost savings of these actions and our results maywould be harmed.
Financial and Transactional RisksIf currency exchange rates fluctuate substantiallythe future, our operating results, which are reported in U.S. dollars, could be adversely affected.Our international operations expose us to the effects of fluctuations in currency exchange rates. We incur expenses for employee compensation and other operating expenses at our international locations in the local currency, and accept payment from advertisers or data partners in currencies other than the U.S. dollar. Since we conduct business in currencies other than U.S. dollars but report our operating results in U.S. dollars, we face exposure to fluctuations in currency exchange rates. While we enter into foreign currency forward contracts with financial institutions to reduce the risk that our earnings may be adversely affected by the impact of exchange rate fluctuations on monetary assets or liabilities denominated in currencies other than the functional currency of a subsidiary, exchange rate fluctuations between the U.S. dollar and other currencies could have a material impact on our operating results.We may not have sufficient cash on hand or the ability to raise the funds necessary for cash settlement upon conversion of our convertible senior notes, to repurchase such notes for cash upon a fundamental change, or repay the Notes at their maturity, and our future debt may contain limitationspart, on our ability to pay cash upon conversionexpand our products, product features and services, and grow our business in response to changing technologies, demands of people on Twitter and our advertisers and competitive pressures. In some circumstances, we may determine to do so through the acquisition of complementary businesses and technologies rather than through internal development, including, for example, our acquisitions of CrossInstall, a demand side platform, and MoPub, a mobile-focused advertising exchange. The identification of suitable acquisition candidates can be difficult, time-consuming and costly, and we may not be able to successfully complete identified acquisitions. The risks we face in connection with acquisitions include:repurchaseimprove controls, procedures, and policies at a business that prior to the acquisition may have lacked effective controls, procedures and policies;notes. $935.0 million in aggregate principal amount of 0.25% convertible senior notes due 2019, or the 2019 Notes, and $954.0 million in aggregate principal amount of 1.00% convertible senior notes due 2021, or the 2021 Notes, in private placements to qualified institutional buyers.Notes. In June 2018, we issued an additional $1.15 billion in aggregate principal amount of 0.25% convertible senior notes due 2024, or the 2024 Notes. In 2019, we issued $700.0 million in aggregate principal amount of 3.875% senior notes due 2027, which we refer to as the 2027 Notes. In March 2020, we issued $1.0 billion in aggregate principal amount of 0.375% convertible senior notes due 2025, or the 2025 Notes. We refer to the 2021 Notes, when taken together with the 20192024 Notes and the 20212025 Notes in a private placementas the Convertible Notes, and we refer to qualified institutional buyers.the Convertible Notes and the 2027 Notes as the Notes. As of December 31, 2018,2020, we had a total par value of $3.04$3.80 billion in aggregate principal amount of outstanding Notes.Holders As of December 31, 2020, we also had an undrawn unsecured revolving credit facility providing for loans in the Notes will have the right under the relevant indenture governing the Notes to aggregate principal amount of $500.0 million.repurchase all oruse a substantial portion of theirour cash flow from operations to pay principal and interest on debt, including the Notes, or to repurchase our Notes when required upon the occurrence of a fundamentalcertain change beforeof control events or otherwise pursuant to the relevant maturity date, in each case at a repurchase price equal to 100% ofterms thereof, which will reduce the principal amount of the respective services of Notes, plus accruedcash flow available to fund working capital, capital expenditures, acquisitions, and unpaid interest, if any,other business activities;the fundamental change repurchase date. In addition, upon conversion of the Notes, unless we elect to deliver solelyuse cash and/or issue shares of our common stock to settle suchany conversion (other than paying cashobligations of the Convertible Notes;lieucertain of delivering any fractional shares), we will be required to make cash payments in respect ofour debt instruments, including the Notes, being converted. Moreover, weaccelerated or being deemed to be in default if certain terms of default are triggered, such as applicable cross payment default and/or cross-acceleration provisions;requiredavailable to repay the Notesus, in cash at their maturity, unless earlier converted or repurchased. However, weamounts sufficient to enable us to meet our debt payment obligations and to fund other liquidity needs. Additionally, events and circumstances may occur which would cause us to not have sufficient available cash on hand or be able to obtain financing at the timesatisfy applicable draw-down conditions and utilize our revolving credit facility. If we are requiredunable to makegenerate sufficient cash settlement upon conversion of the Notes, repurchase the Notes upon a fundamental change, or repay the Notes at their maturity. In addition,flows to service our ability to repurchase the Notes or pay cash due upon conversions of the Notesdebt payment obligations, we may be limited by law, regulatory authority or agreements governing our future indebtedness.Our abilityneed to refinance the Notes, make cash payments in connection with conversionsor restructure our debt, sell assets, reduce or delay capital investments, or seek to raise additional capital. If we are unable to implement one or more of the Notes, repurchase the Notes in the event of a fundamental change, or repay the Notes at their maturity will depend on market conditions and our future performance, which is subject to economic, financial, competitive and other factors beyond our control. We also may not use the cash we have raised through the issuance of the Notes in an optimally productive and profitable manner. Since inception we have incurred significant operating losses and we historically had not been cash flow positive and may not be in the future. As a result, we may not have enough available cash or be able to obtain financingthese alternatives on commercially reasonable terms or at all, at the time we are required to make repurchases of notes surrendered therefor or pay cash with respect to notes being converted or at their maturity and our level of indebtedness could adversely affect our future operations by increasing our vulnerability to adverse changes in general economic and industry conditions and by limiting or prohibiting our ability to obtain additional financing for future capital expenditures, acquisitions and general corporate and other purposes. In addition, if we aremay be unable to make cash payments upon conversion of the Notes we would be required to issue significant amounts ofmeet our common stock,debt payment obligations, which would be dilutive to existing stockholders. If we do not have sufficient cash to repurchase the Notes following a fundamental change or repay the Notes at their maturity, we would be in default under the terms of the Notes, which could seriously harm our business. In addition, the terms of the Notes do not limit the amount of future indebtedness we may incur. If we incur significantly more debt, this could intensify the risks described above.Our business is subject to the risks of earthquakes, fire, power outages, floodsmaterially and other catastrophic events, and to interruption by man-made problems such as terrorism.A significant natural disaster, such as an earthquake, fire, flood or significant power outage could have a material adverseadversely impact on our business, financial condition and operating results, and financial condition. Our headquarters and certain of our co-located data center facilities are located in the San Francisco Bay Area, a region known for seismic activity. Despite any precautions we may take, the occurrence of a natural disaster or other unanticipated problems at our data centers could result in lengthy interruptions in our services. In addition, acts of terrorism and other geo-political unrest could cause disruptions in our business. All of the aforementioned risks may be further increased if our disaster recovery plans prove to be inadequate. We have implemented a disaster recovery program, which allows us to move production to a back-up data center in the event of a catastrophe. Although this program is functional, we do not currently serve network traffic equally from each data center, so if our primary data center shuts down, there will be a period of time that our products or services, or certain of our products or services, will remain inaccessible to our users or our users may experience severe issues accessing our products and services.We do not carry business interruption insurance sufficient to compensate us for the potentially significant losses, including the potential harm to our business that may result from interruptions in our ability to provide our products and services.The tax laws applicable to our international business activities, including the laws of the United States and other jurisdictions, are subject to interpretation. The taxing authorities of the jurisdictions in which we operate may challenge our methodologies for valuing developed technology (or other intangible assets) or intercompany arrangements, which could increase our worldwide effective tax rate and harm our financial condition and operating results. On October 5, 2015, the Organization for Economic Cooperation and Development (OECD), an international association of 34 countries, including the U.S., Ireland, and UK, released the final reports from its Base Erosion and Profit Shifting (BEPS) Action Plans. The BEPS recommendations covered a number of issues, including country-by-country reporting, permanent establishment rules, transfer pricing rules and tax treaties. Future tax reform resulting from this development may result in changes to long-standing tax principles, which could adversely affect our effective tax rate or result in higher cash tax liabilities. We are subject to review and audit by U.S. federaltax authorities in the United States (federal and statestate), Ireland, and other foreign tax authorities.jurisdictions and the laws in those jurisdictions are subject to interpretation. Tax authorities may disagree with certainand challenge some of the positions we have taken and any adverse outcome of such a review oran audit could have a negative effect on our financial position and operating results. In addition, our future income taxes could be adversely affected by earnings being lower than anticipated in jurisdictions that have lower statutory tax rates and higher than anticipated in jurisdictions that have higher statutory tax rates, by changes in the valuation of our deferred tax assets and liabilities, or by changes in tax laws, regulations or accounting principles, as well as certain discrete items. Furthermore, changesFor example, the legislation commonly referred to the taxation of undistributed foreign earnings could change our future intentions regarding reinvestment of such earnings. Greater than anticipated tax expenses, or disputes with tax authorities, could adversely impact our operating results. In addition, many countries in Europe, as well as a number of other countries and organizations, have recently proposed changes to tax laws regarding digital services that could significantly increase our tax obligations in many countries where we do business or require us to change the manner in which we operate our business.On August 7, 2018, the Ninth Circuit Court of Appeals withdrew its July 24, 2018 opinion in Altera Corp. v. Commissioner which required related parties in an intercompany cost-sharing arrangement to share expenses related to share-based compensation and reversed the prior decision of the United States Tax Court. We will continue to monitor the potential effects of any future developments in this case and related matters. We could be negatively impacted by an adverse ruling in the case.Uncertainties in the interpretation and application of the 2017 Tax Cuts and Jobs Act could materially affect our tax obligations and effective tax rate.The 2017(the Tax Cuts and Jobs Act (the “Tax Act”)Act) significantly affected U.S. tax law by changing how U.S. income tax is assessed on multinational corporations. The Tax Act requires complex computations not previously provided for in U.S. tax law and the U.S. Department of Treasury has issued and will continue to issue regulations and interpretive guidance that may significantly impact how we will apply the law and impact our results of operations. As additional regulatoryinterpretive guidance is issued, weDevelopment has published proposals covering a number of issues, including country-by-country reporting, permanent establishment rules, transfer pricing rules, tax treaties and taxation of the digital economy. Future tax reform resulting from this development may refine our analysis and make adjustments that differ from amounts initially recorded,result in changes to long-standing tax principles, which could materiallyadversely affect our effective tax rate or result in higher cash tax liabilities. In 2018, the European Commission proposed a series of measures aimed at ensuring a fair and efficient taxation of digital businesses operating within the European Union. Some countries, in the European Union and beyond, have unilaterally moved to introduce their own digital services tax to capture tax revenue on digital services more immediately. Notably France, Italy, Austria, the United Kingdom, Turkey, India, Spain and Kenya have enacted or will soon enact a digital tax. Such laws may increase our tax obligations in those countries or change the manner in which we operate our business. generally accepted accounting principles in the United States, or GAAP, we review our intangible assets for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. Goodwill is required to be tested for impairment at least annually. As of December 31, 2018, we had recorded a total of $1.27 billion of goodwill and intangible assets. An adverse change in market conditions or financial results, particularly if such change has the effect of changing one of our critical assumptions or estimates, could result in a change to the estimation of fair value that could result in an impairment charge to our goodwill or intangible assets. Any such material charges may have a material negativeand adverse impact on our operating results.Our ability to use our net operating loss carryforwardscertain other tax attributes may be limited.As of December 31, 2018, we had U.S. federal net operating loss carryforwards of approximately $2.85 billion and state net operating loss carryforwards of approximately $1.30 billion. As of December 31, 2018, we had federal R&D credits of $300.4 million and state credits of $236.2 million. Under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, or the Code, if a corporation undergoes an “ownership change,” the corporation’s ability to use its pre-change net operating loss carryforwards and other pre-change tax attributes, such as research tax credits, to offset its post-change income and taxes may be limited. In general, an “ownership change” occurs if there is a cumulative change in our ownership by “5% shareholders” that exceeds 50 percentage points over a rolling three-year period. Similar rules may apply under state tax laws. In the event that it is determined that we have in the past experienced an ownership change, or if we experience one or more ownership changes as a result of future transactions in our stock, then we may be limited in our ability to use our net operating loss carryforwards and other tax assets to reduce taxes owed on the net taxable income that we earn. Any such limitations on the ability to use our net operating loss carryforwards and other tax assets could adversely impact our business, financial condition and operating results.We may require additional capital to support our operations or the growth of our business, and we cannot be certain that this capital will be available on reasonable terms when required, or at all.From time to time, we may need additional financing to operate or grow our business. Our ability to obtain additional financing, if and when required, will depend on investor and lender demand, our operating performance, the condition of the capital markets and other factors, and we cannot assure you that additional financing will be available to us on favorable terms when required, or at all. If we raise additional funds through the issuance of equity, equity-linked or debt securities, those securities may have rights, preferences or privileges senior to the rights of our common stock, and our existing stockholders may experience dilution. If we are unable to obtain adequate financing or financing on terms satisfactory to us when we require it, our ability to continue to support the operation or growth of our business could be significantly impaired and our operating results may be harmed.Relatedrelated to Ownership of Our Commonour Capital Stock From January 1, 2017 to December 31, 2018, the reported high and low sales prices of our common stock has ranged from $47.79 to $14.12. In addition to the factors discussed in this “Risk Factors” section and elsewhere in this Annual Report on Form 10-K, factors that could cause fluctuations in the market price of our common stock include the following:time;
•changes in operating performance and stock market valuations of other technology companies generally, or those in our industry in particular;•changes in operating performance and stock market valuations of other technology companies generally, or those in our industry in particular;failure•changes in the recommendations of securities analysts to maintain coverage of us,regarding our common stock, changes in financial estimates by securities analysts who follow our company, or our failure to meet these estimates or the expectations of investors;of converted with respect to the 2021 Notes or 2024 Notes, as the case may be. We also entered into warrant transactions with the option counterparties. However, the warrant transactions could separately have a dilutive effect to the extent that the market price of our common stock exceeds the applicable strike price of the warrants.If securities or industry analysts cease publishing research or reports about us, our business or our market, or if they change their recommendations regarding our common stock adversely, the price of our common stock and trading volume could decline.The trading market for our common stock is influenced, to some extent, by the research and reports that securities or industry analysts publish about us, our business, our industry, our market or our competitors. If any of the analysts who cover us change their recommendation regarding our common stock adversely, or provide more favorable relative recommendations about our competitors, the price of our common stock would likely decline. If any analysts who cover us were to cease coverage of our company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause the price of our common stock or trading volume to decline.We do not expect to declare any dividends in the foreseeable future.We do not anticipate declaring any cash dividends to holders of our common stock in the foreseeable future. In addition, our credit facility contains restrictions on payments including payments of cash dividends. Consequently, investors may need to rely on sales of our common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investment.2018,2020, we leased office facilities around the world totaling approximately 1,561,0001,700,000 square feet, including approximately 749,000700,000 square feet for our corporate headquarters in San Francisco, California. We also lease data center facilities in the United States pursuant to various lease agreements and co-location arrangements with data center operators. WeWhile we believe our facilities are sufficient for our current needs.needs, we are investing to build out a new data center to add capacity to support further growth.Beginning in September 2016, multiple putative class actions and derivative actions were filed in state and federal courts in the United States against Twitter, Twitter’s directors, and/or certain former officers alleging false and misleading statements in violation of securities laws and breach of fiduciary duty. The putative class actions were consolidated in the U.S. District Court for the Northern District of California. On October 16, 2017, the court granted in part and denied in part the Company’s motion to dismiss. On July 17, 2018, the court granted plaintiffs' motion for class certification in the consolidated securities action. The Company disputes the claims and continues to defend the lawsuits vigorously. also currently involved in, and may in the future be involved in, legal proceedings, claims, investigations, and government inquiries and investigations arising in the ordinary course of business. These proceedings, which include both individual and class action litigation and administrative proceedings, have included, but are not limited to matters involving content on the platform, intellectual property, privacy, data protection, consumer protection, securities, employment and contractual rights. Legal risk may be enhanced in jurisdictions outside the United States where our protection from liability for content published on our platform by third parties may be unclear and where we may be less protected under local laws than we are in the United States. Future litigation may be necessary, among other things, to defend ourselves, and our usersthe people on Twitter or to establish our rights.Although the results of the For information regarding legal proceedings claims, investigations, and government inquiries in which we are involved, cannot be predicted with certainty, we do not believe that there is a reasonable possibility that the final outcome of these matters will have a material adverse effect on our business, financial condition, operating results, or prospects. However, the final results of any current or future proceeding cannot be predicted with certainty, and until there is final resolution on any such matter that we may be required to accrue for, we may be exposed to losssee “Legal Proceedings” in excessNote 16 of the amount accrued. RegardlessNotes to Consolidated Financial Statements included in Part II, Item 8 of the outcome, litigation can have an adverse impactthis Annual Report on us because of defense and settlement costs, diversion of management resources, and other factors.Item since November 7, 2013. Prior to that date, there was no public trading market for our common stock.7, 2019,9, 2021, there were 876831 holders of record of our common stock. Because many of our shares of common stock are held by brokers and other institutions on behalf of stockholders, we are unable to estimate the total number of stockholders represented by these record holders.Period October 1 - 31 — $ — — $ 2,000 November 1 - 30 4,552 $ 42.27 4,552 $ 1,808 December 1 - 31 1,130 $ 51.54 1,130 $ 1,749 Total 5,682 5,682 2018,the three months ended December 31, 2020, we issued a total of 773,950262,584 shares of our common stock in connection with the acquisition of one company to certain former shareholders of the acquired company.offers, sales,offer, sale, and issuancesissuance of the above securities werewas exempt from registration under the Securities Act of 1933, as amended (the “Act”)Act) by virtue of Section 4(a)(2) of the Act, because the issuance of securities to the recipients did not involve a public offering. The recipients of the securities in this transaction represented their intentions to acquire the securities for investment only and not with a view to or for sale in connection with any distribution thereof, and appropriate legends were placed upon the stock certificates issued in these transactions.this transaction. All recipients had adequate access, through their relationships with us or otherwise, to information about us. The issuancesissuance of these securities werewas made without any general solicitation or advertising.on November 7, 2013,at the date our common stock began tradingmarket close on the NYSE,last trading day for the fiscal year ended December 31, 2015 and its relative performance is tracked through December 31, 2018.2020. The returns shown are based on historical results and are not intended to suggest future performance.
ItemThe following selected historical consolidated financial data should be readconjunction with Part II, Item 7, “Management’s Discussion and AnalysisSEC Release No. 33-10890.Financial Condition and Results of Operations”, our consolidated financial statements and the related notes included in Item 8, “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K.The consolidated statements of operations data for the years ended December 31, 2018, 2017 and 2016 and the consolidated balance sheet data as of December 31, 2018 and 2017 are derived from our audited consolidated financial statements included in Part II, Item 8, “Financial Statements and Supplementary Data” in this Annual Report on Form 10‑K. The consolidated statements of operations data for the years ended December 31, 2015 and 2014 and the consolidated balance sheet data as of December 31, 2016, 2015 and 2014 are derived from our audited consolidated financial statements not included in this Annual Report on Form 10-K. Our historical results are not necessarily indicative of the results that may be expected in the future.(2)Costs and expenses include stock-based compensation expense as follows:(3)Provision (benefit) for income taxes includes the impact of the Tax Act. Refer to Note 14 of the Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K for further information. In the year ended December 31, 2018, we recorded a net benefit to tax expense of $845.1 million associated with the release of the valuation allowance related to Brazil and most of the United States federal and all states deferred tax assets with the exception of California and Massachusetts.(4)See the section titled “Non-GAAP Financial Measures” below for additional information and a reconciliation of net income (loss) to Adjusted EBITDA and net income (loss) to non-GAAP net income.Non-GAAP Financial MeasuresTo supplement our consolidated financial statements presented in accordance with generally accepted accounting principles in the United States, or GAAP, we consider certain financial measures that are not prepared in accordance with GAAP, including Adjusted EBITDA, non-GAAP income before income taxes, non-GAAP provision for income taxes as it relates to the calculation of non-GAAP net income, and non-GAAP net income. These non-GAAP financial measures are not based on any standardized methodology prescribed by GAAP and are not necessarily comparable to similarly-titled measures presented by other companies.Adjusted EBITDAWe define Adjusted EBITDA as net income (loss) adjusted to exclude stock-based compensation expense, depreciation and amortization expense, interest and other expenses, net, provision (benefit) for income taxes, restructuring charges and one-time nonrecurring gain, if any.The following table presents a reconciliation of net income (loss) to Adjusted EBITDA for each of the periods indicated:Non-GAAP Net IncomeWe define non-GAAP net income as net income (loss) adjusted to exclude stock-based compensation expense, amortization of acquired intangible assets, non-cash interest expense related to convertible notes, non-cash expense related to acquisitions, impairment of investments in privately-held companies, restructuring charges and one-time nonrecurring gain, and adjustment to income tax expense based on the non-GAAP measure of profitability using our blended U.S. statutory tax rate, which was 24% for 2018 as a result of the Tax Act and 37% for all other historical periods presented.Non-GAAP Income before Income Taxes. We define non-GAAP income before income taxes as income (loss) before income taxes adjusted to exclude stock-based compensation expense, amortization of acquired intangible assets, non-cash interest expense related to convertible notes, non-cash expense related to acquisitions, impairment of investments in privately-held companies, and restructuring charges and one-time nonrecurring gain.Non-GAAP Provision for Income Taxes. We define non-GAAP provision for income taxes as the current and deferred income tax expense commensurate with the non-GAAP measure of profitability using our blended U.S. statutory tax rate.The following table presents a reconciliation of net income (loss) to non-GAAP net income for each of the periods indicated:We use non-GAAP financial measures of Adjusted EBITDA, non-GAAP income before income taxes, non-GAAP provision for income taxes, and non-GAAP net income in evaluating our operating results and for financial and operational decision-making purposes. We believe that Adjusted EBITDA, non-GAAP income before income taxes and non-GAAP net income help identify underlying trends in our business that could otherwise be masked by the effect of the expenses that we exclude in Adjusted EBITDA, non-GAAP income before income taxes and non-GAAP net income. We believe that Adjusted EBITDA, non-GAAP income before income taxes and non-GAAP net income provide useful information about our operating results, enhance the overall understanding of our past performance and future prospects and allow for greater transparency with respect to key metrics used by our management in its financial and operational decision-making. We also use these measures to establish budgets and operational goals for managing our business and evaluating our performance.These non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. There are a number of limitations related to the use of these non-GAAP financial measures rather than net income (loss), which is the nearest GAAP equivalent of these financial measures. Some of these limitations are:Adjusted EBITDA, non-GAAP income before income taxes, non-GAAP provision for income taxes as it relates to the calculation of non-GAAP net income and non-GAAP net income exclude restructuring charges, one-time nonrecurring gain and certain recurring non-cash charges, such as stock-based compensation expense, amortization of acquired intangible assets, non-cash interest expense related to convertible notes and impairment of investments in privately-held companies;Stock-based compensation expense has been, and will continue to be for the foreseeable future, a significant recurring expense in our business and an important part of our compensation strategy;Adjusted EBITDA and non-GAAP income before income taxes do not reflect tax payments that reduce cash available to us;Non-GAAP net income reflects an estimate of taxes calculated in accordance with the SEC’s Non-GAAP Financial Measures Compliance and Disclosure Interpretation, not actual taxes due or payable;Adjusted EBITDA excludes depreciation and amortization expense and although these are non-cash charges, the property and equipment being depreciated and amortized may have to be replaced in the future; andThe expenses that we exclude in our calculation of these non-GAAP financial measures may differ from the expenses, if any, that our peer companies may exclude from similarly-titled non-GAAP measures when they report their results of operations.ItemItem 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS2018 Overview and2020 Highlights$3.04$3.72 billion, an increase of 25%7%, compared to 2017.2019.$2.62$3.21 billion, an increase of 24%7%, compared to 2017.$425.0$509.0 million, an increase of 27%9%, compared to 2017.U.S.•International revenue totaled $1.64 billion, an increase of 16%8%, compared to 2017.International revenue totaled $1.40 billion, an increase of 36% compared to 2017.55% year-over-year.20% year-over-year.comparedbenefit from income taxes related to a net lossthe establishment of $108.1 million in 2017.Non-GAAP net income was $663.8 million, an increasedeferred tax assets from the intra-entity transfer of 102% compared to 2017.Adjusted EBITDA was $1.20 billion, an increase of 39% compared to 2017.Stock-based compensation for the year was $326.2 million, or 11% of revenue, representing a decrease of 25% compared to 2017.$6.21$7.47 billion as of December 31, 2018.usersusage (mDAU) were 126was 192 million for the three months ended December 31, 2018,2020, an increase of 9% year-over-year.Average monthly active users (MAU) were 321 million for27% year over year.three months ended December 31, 2018,start of the pandemic, we saw increased use of Twitter as people sought to stay informed and connect with others, and in the fourth quarter of 2020, our year-over-year growth in mDAU remained strong, driven by global conversations related to current events and ongoing product improvements. Our work to serve the public conversation, by helping people find trusted sources of information, and better organizing and surfacing the many topics and interests that bring people to Twitter, helped us retain new and recently reactivated accounts in 2020. We also continue to benefit from the ongoing impact of product improvements, including continued increases in relevance across notifications, search, Explore, and the Home timeline.decreaseresult of 3%the COVID-19 pandemic, we experienced a reduction in advertiser demand in the first half of 2020 compared to the three months ended December 31, 2017.following key metrics discussed below, to evaluate our business, measure our performance, identify trends affecting our business, formulate business plans and make strategic decisions.areis the best waysway to measure our success against our objectives and to show the size of our audience and engagement going forward, so we will discontinue disclosing MAU after the first quarter of 2019.Monetizable Daily Active Usage (monetizable DAU or mDAU). We define monetizable daily active usage or users (mDAU) as Twitter users who logged in and accessed Twitter on any given day through a client capable of displaying ads (e.g., Twitter.com or the Twitter App). Our definition and calculation of mDAU is the same as that of the DAU data presented since the first quarter of 2016. Additionally, our calculation of mDAU is not based on any standardized industry methodology and is not necessarily calculated in the same manner or comparable to similarly-titled measures presented by other companies.engagement. Average mDAU for a period represents the number of mDAU on each day of such period divided by the number of days for such period. Changes in mDAU are a measure of changes in the size of our daily logged in or otherwise authenticated active user base.total accounts. To calculate the year-over-year change in mDAU, we subtract the average mDAU for the three months ended in the previous year from the average mDAU for the same three months ended in the current year and divide the result by the average mDAU for the three months ended in the previous year.2018,2020, we had 126192 million average mDAUs,mDAU, which represents an increase of 9%27% from the three months ended December 31, 2017.2019. The increase was driven by a combination of organic growth, marketing,global conversation around current events and ongoing product improvements. In the three months ended December 31, 2018,2020, we had 2737 million average mDAUsmDAU in the United States and 99155 million average mDAUsmDAU in the rest of the world, which represent increases of 5%21% and 11%28%, respectively, from the three months ended December 31, 2017.mDAUsmDAU and factors that can affect this metric, see the section titled “Note Regarding Key Metrics.”
Monthly Active Users (MAUs). We define MAUs as Twitter users who logged in or were otherwise authenticated and accessed Twitter through our website, mobile website, desktop or mobile applications, SMS or registered third-party applications or websites in the 30-day period ending on the date
(1) Reported average Monthly Active Users reflects adjustments for approximately 1-2 million users per quarter of certain third-party applications that were included as Twitter MAUs that should not have been considered MAUs in certain prior periods. Daily Active Usage was not affected. Further details regarding the adjustment can be found in the section titled "Note About Our MAU Adjustment."(2)In the three months ended March 31, 2018, we discovered that a software change made in the second quarter of 2017 resulted in a non-material overstatement of our historical MAU in 2017. The differences were between 30,000 and 400,000 in each period presented for total MAU. After rounding, the only impact to our prior disclosures was to reduce international MAU from 261 million to 260 million in the third quarter of 2017 due to a change of approximately 175,000 international MAUs.a useran interaction with one of our pay-for-performance advertising products. Ad engagements with our advertising products are based on a user completingthe completion of an objective set out by an advertiser such as expanding, Retweeting, liking or replying to a Promoted Tweet, viewing an embedded video, downloading or engaging with a promoted mobile application, clicking on a website link, signing up for marketing emails from advertisers, following the account that tweetsTweets a Promoted Tweet, or completing a transaction on an external website. We believe changes in ad engagements is one way to measure user engagement with our advertising products. We believe changes in costCost per ad engagement is an output of our ads auction process, and will vary from one wayperiod to measure demand.2018,2020, ad engagements increased 33%35% from the three months ended December 31, 2017. The increase was2019, driven by strong growth in ad impressions due to our growing audience and increased demand and improved clickthrough rates (CTR), which grew on a year-over-year basis across the majority of ad types as our ad prediction models and video ad product performance continues to improve.for ads. In the three months ended December 31, 2018,2020, cost per ad engagement decreased 7% fromby 3% compared to the three months ended December 31, 2017. The decrease in cost per ad engagement reflects higher CTR from improved relevance, an ongoing shift to video ads,2019, which carry higher CTR and lower CPE, and slight compression in like for like pricing. With improved CTR, advertisers are able to get the same amount of engagements (or more) at a lower (or similar) price.
Factors Affecting Our Future PerformanceUser Growth and Monetization. User growth trends reflected in the growth rate of mDAUs and monetization trends reflected in advertising engagements are key factors that affect our revenue. As our user base and the level of engagement of our users grow, we believe the potential to increase our revenue grows.User Growth. We have generally experienced growth in our number of mDAU over the last several years. In general, a higher proportion of Internet users in the United States and Japan use Twitter than Internet users in other countries. Accordingly, in the future we expect our user growth rate in certain international markets to continue to be higher than our user growth rate in the United States. However, we expect to face challenges in entering some markets, such as China, where access to Twitter is blocked, as well as certain other countries that have intermittently restricted access to Twitter. Restrictions or limitations on access to Twitter may adversely impact our ability to increase the size of our user base and generate additional revenue in certain markets.We intend to grow mDAU by building and shipping product changes more rapidly to make Twitter safer and investing in our core use case and in new product areas that further strengthen our unique position as the best and fastest place to see and talk about what’s happening in the world. Our mDAU growth rate has fluctuated over time, and it may slow or decline. To the extent our mDAU growth or growth rate slows or the absolute number of mDAU declines, our revenue growth will become dependent on our ability to increase levels of user engagement on Twitter and increasing revenue growth from third-party publishers’ websites and applications, data licensing and other offerings.Monetization. There are many variables that impact the monetization of our platform, such as the number of users, our users’ level of engagement with our platform, ad load (which iswas largely a function of the amount of advertising we choose to display), our users’ engagement with our Promoted Products, advertiser demand and cost per ad engagement. Generally, we design our algorithms for our pay-for-performance Promoted Products on Twitter to optimize the overall user experience and the value we deliver to advertisers. Advertising revenue growth may be impacted by escalating competition for digital ad spending and the reevaluation of our revenue product feature portfolio, which could result in the de-emphasis of certain product features. Furthermore, we may see a decline in the number of advertisers on a year-over-year basis, which may also impact overall demand for our ads products. We have, and may in the future, increase ad load to the extent that we are able to continue to reach the right balance of advertiser value and the overall user experience. In order to improve monetization, we plan to increase the value of our advertising services by continuing to increase the size and engagement of our user base as well as improve our ability to target advertising to our users’ interests and the ability of our advertisers to optimize their campaigns and measure the results of their campaigns. Although the majority of the Promoted Products we sell to our advertisers are placed on Twitter, we have augmented our advertising revenue by selling products that we place on third-party publishers’ websites, applications or other offerings. When we place ads off our owned and operated properties, we incur additional costs, particularly traffic acquisition costs, to fulfill our services to advertisers.We intend to continue to increase the monetization of our platform by improving the targeting capabilities of our advertising services to enhance the value of our Promoted Products for advertisers, delivering differentiated products to advertisers, and developing new ad formats for advertisers.Effectiveness of Our Advertising Services. Advertisers can use Twitter to communicate directly with their followers for free, but many choose to purchase our advertising services to reach a broader audience and further promote their brands, products and services. We believe that increasing the effectiveness of our Promoted Products for advertisers, as well as providing better measurement tools and improving creative capabilities, will increase the amount that advertisers spend with us. We aim to increase the value of our Promoted Products by increasing the size and engagement of our user base, improving our ability to target advertising to our users’ interests and improving the ability of our advertisers to optimize their campaigns and measure the results of their campaigns. We may also develop new advertising products and services.Investment in International Operations. We intend to strategically invest in our international operations in order to expand our user base and advertiser base and increase user engagement and monetization internationally. In the three months ended December 31, 2018, we had 99 million average mDAUs internationally compared to 27 million average mDAUs in the United States. In the three months ended December 31, 2018, we had 255 million average MAUs internationally compared to 66 million average MAUs in the United States. International growth of mDAUs has been faster than growth in the United States; however, we derive approximately half of our advertising revenue from advertisers in the United States.We face challenges in increasing our advertising revenue internationally, including local competition, differences in advertiser demand, differences in the digital advertising market and conventions, and differences in the manner in which Twitter is accessed and used internationally. We face competition from well-established competitors in certain international markets. In addition, certain international markets are not as familiar with digital advertising in general, or with new forms of digital advertising, such as our Promoted Products. In these jurisdictions we are investing to educate advertisers about the benefits of our advertising services. However, we expect that it may require a significant investment of time and resources to educate advertisers in many international markets. We also face challenges in providing certain advertising products, features or analytics in certain international markets, such as the European Union, due to government regulation.
Competition. We face competition for users and advertisers. We compete against many companies to attract and engage users and for advertiser spend, including companies with greater financial resources and substantially larger user bases which offer a variety of Internet and mobile device-based products, services and content. In recent years there has been a significant number of acquisitions and consolidation activity by and among our actual and potential competitors. We must compete effectively for users and advertisers in order to grow our business and increase our revenue. We believe that our ability to compete effectively for users depends upon a number of factors, including the quality of our products and services and the actual or perceived return our advertisers receive on their investment in our products and services. Our ability to compete effectively for advertisers also depends upon a number of factors, including our ability to offer attractive advertising products with unique targeting capabilities, the size of our active user base, and our ability to have the most valuable audience when they are most receptive. We have seen competition for digital ad spending and expect this trend to continue. In addition, many advertisers, particularly branded advertisers use marketing mix analyses to determine how to allocate their advertising budgets on an annual or bi-annual basis. As a result, we need to demonstrate to those advertisers during the appropriate time period that we provide a better return on investment than our competitors do in order to secure, increase or sustain our share of the advertising budget allocated for a significant portion of the year until the next budget cycle. We intend to continue to invest in research and development to improve our products and services for users and advertisers and to grow our active user base in order to address the competitive challenges in our industry. As part of our strategy to improve our products and services, we may acquire other companies to add engineering talent or complementary products and technologies.Investment in Infrastructure. We strive to optimize the capacity and enhance the capability and reliability of our infrastructure. Our infrastructure is critical to providing users, platform partners, advertisers and data partners access to our platform, particularly during major planned and unplanned events, such as elections, sporting events or natural disasters, when activity on our platform increases dramatically. As our user base and the activity on our platform grow, we expect that investments and expenses associated with our infrastructure will continue to grow. These investments and expenses include the expansion and improvement of our data center operations and related operating costs, additional servers and networking equipment to increase the capacity of our infrastructure, increased bandwidth costs, and costs to secure our customers’ data.Products and Services Innovation. Our ability to increase the size and engagement of our user base, attract advertisers and increase our revenue will depend, in part, on our ability to improve existing products and services and to successfully develop or acquire new products and services. We will continue to invest in revenue products as we work to improve our ads platform and ad formats to help our ad partners launch new products and services and connect with what’s happening on Twitter. We plan to continue to make significant investments in research and development and, from time to time, we may acquire companies to enhance our products, services and technical capabilities. In addition, we continue to invest in health as we continue our work to help people find credible information on our service and feel safe participating in the conversation on Twitter.Investment in Talent. We intend to invest in hiring key engineering roles and retaining talented employees to grow our business. We have seen reduced levels of attrition in 2018, but we need to continue to focus on hiring and employee retention to be successful. We have also made, and intend to continue to make, acquisitions that add engineers, designers, product managers and other personnel with specific technology expertise. In addition, we must retain our high-performing personnel in order to continue to develop, sell and market our products and services and manage our business.Seasonality. Advertising spending is traditionally strongest in the fourth quarter of each year. Historically, this seasonality in advertising spending has affected our quarterly results, with higher sequential advertising revenue growth from the third quarter to the fourth quarter compared to sequential advertising revenue growth from the fourth quarter to the subsequent first quarter. For example, our advertising revenue increased 17%, 28% and 22% between the third and fourth quarters of 2016, 2017 and 2018, respectively, while advertising revenue for the first quarter of 2017 and 2018 decreased 26% and 11% compared to the fourth quarter of 2016 and 2017, respectively.Stock-Based Compensation Expense. We have historically utilized, and intend to continue to utilize, various forms of stock-based awards in order to hire and retain talented employees. During the years ended December 31, 2018 and 2017, we recognized $326.2 million and $433.8 million of expense related to stock-based compensation, respectively. As of December 31, 2018, we had unrecognized stock-based compensation expense of approximately $715.0 million related to outstanding equity awards, which we expect to recognize over a weighted-average period of approximately three years. The stock-based compensation expenses related to our outstanding equity awards have a significant impact on the amount of net income we generate on a GAAP basis. We made significant progress in reducing our annual stock-based compensation expense on both an absolute basis and as a percentage of revenue, down to 11% in 2018, from 18% and 24% in 2017 and 2016, respectively. We remain committed to maintaining stock-based compensation as a percentage of revenue in line with our peers.Year Ended December 31, 2020 2019 2018 Revenue Advertising services $ 3,207,392 $ 2,993,392 $ 2,617,397 Data licensing and other 508,957 465,937 424,962 Total revenue 3,716,349 3,459,329 3,042,359 Cost of revenue 1,366,388 1,137,041 964,997 Research and development 873,011 682,281 553,858 Sales and marketing 887,860 913,813 771,361 562,432 359,821 298,818 Total costs and expenses 3,689,691 3,092,956 2,589,034 Income from operations Income from operations 26,658 366,373 453,325 Interest expense (152,878) (138,180) (132,606) Interest income 88,178 157,703 111,221 Other income (expense), net (12,897) 4,243 (8,396) Income (loss) before income taxes (50,939) 390,139 423,544 1,084,687 (1,075,520) (782,052) Net income (loss) $ (1,135,626) $ 1,465,659 $ 1,205,596 (1)Costs and expenses include stock-based compensation expense as follows (in thousands):
(1)Costs and expenses include stock-based compensation expense as follows (in thousands):Year Ended December 31, 2020 2019 2018 Cost of revenue $ 32,020 $ 22,797 $ 17,289 Research and development 281,092 209,063 183,799 Sales and marketing 98,748 85,739 71,305 General and administrative 63,072 60,426 53,835 Total stock-based compensation expense $ 474,932 $ 378,025 $ 326,228 Year Ended December 31, 2020 2019 2018 Revenue Advertising services 86 % 87 % 86 % Data licensing and other 14 13 14 Total revenue 100 100 100 Costs and expenses Cost of revenue 37 33 32 Research and development 23 20 18 Sales and marketing 24 26 25 General and administrative 15 10 10 Total costs and expenses 99 89 85 Income from operations Income from operations 1 11 15 Interest expense (4) (4) (4) Interest income 2 5 4 Other income (expense), net 0 0 0 Income (loss) before income taxes (1) 11 14 Provision (benefit) for income taxes 29 (31) (26) Net income (loss) (31) % 42 % 40 % 2018, 20172020, 2019 and 2016 user’s timeline, search results or profile pages just like an ordinary Tweet regardless of device, whether it be desktop or mobile. Using our proprietary algorithms and understanding of the interests of each user,account, we can deliver Promoted Tweets that are intended to be relevant to a particular user.account. We enable our advertisers to target an audience based on our users’an individual account’s interest graphs.graph. Our Promoted Tweets are pay-for-performance or pay-for-impression delivered advertising that are priced through an auction. Our Promoted Tweets include objective-based features that allow advertisers to pay only for the types of engagement selected by the advertisers, such as Tweet engagements (e.g., Retweets, replies and likes), website clicks, or conversions, mobile application installs or engagements, obtaining new followers, or video views.userspeople who are interested in their business, products or services. Our Promoted Accounts are pay-for-performance advertising that is priced through an auction.which data(which consists of public Tweets and their content,content), and (ii) providing mobile advertising exchange services through our MoPub exchange. Our data partners generally purchase licenses to access all or a portion of our data for a fixed period. We recognize data licensing revenue as our data partners consume and benefit from their continuous use of the licensed data over time.data. In addition, we operate a mobile ad exchange and receive service fees from transactions completed on the exchange. Our mobile ad exchange enables buyers and sellers to purchase and sell advertising inventory and matches buyers and sellers. We have determined we are not the principal as it relates to our performance obligation of providing an ad exchange service in the purchase and sale of advertising inventory in transactions between third-party buyers and sellers on the exchange. Therefore, we report revenue related to our ad exchange services on a net basis.Year Ended December 31, 2019 to 2020 2018 to 2019 2020 2019 2018 % Change % Change (in thousands) Advertising services $ 3,207,392 $ 2,993,392 $ 2,617,397 7 % 14 % Data licensing and other 508,957 465,937 424,962 9 % 10 % Total revenue $ 3,716,349 $ 3,459,329 $ 3,042,359 7 % 14 % 201820172019. Revenue in 20182020 increased by $599.1$257.0 million or 7% compared to 2017.2018,2020, advertising revenue increased by 24%$214.0 million or 7% compared to 2017. The substantial majority of our advertising revenue was generated from our owned and operated platform. Advertising revenue generated from the sale of our advertising products on our owned and operated platform in 2018 was $2.46 billion as compared to $1.90 billion in 2017. Advertising revenue generated from the sale of our advertising products placed on third-party publishers’ websites, applications and other offerings in 2018 was $154.4 million as compared to $211.2 million in 2017. primarily attributable to a 55%23% increase in the number of ad engagements in 2020 offset by a 20%13% decrease in cost per ad engagement in 20182020 compared to 2017.2019. The increase in ad engagements was primarily driven by strong growth in ad impressions due to our growing audience and increased demand and improved clickthrough rates.for ads. The decrease in cost per ad engagement reflects the ongoing mix shift to video ad engagements (which have overall lower cost per ad engagementwas largely a function of supply outstripping demand.other ad formats)2019. The increase was attributable to expanded partnerships in Developer and Enterprise Solutions (DES), higher clickthrough rates, and a slight compression in like for like pricing.The decrease in advertisingthe timing of revenue from the sale of our advertising products placed on third-party publishers’ websites, applications and other offerings in 2018 was driven primarily by the lack of contribution from TellApart (which was deprecated in 2017). TellApart revenue contributed $44.6 millionrecognition.in 2017, mainly in the first half of 2017, and was fully deprecated in the fourth quarter of 2017.Advertising revenue continuedproducts as we work to be driven by continued sales momentum with advertisers, built aroundimprove our differentiated ad formats better relevance, and improved ROI.to deliver increased value to advertisers around the world. As our user basemDAU and the level of engagement of our users grow,mDAU grows, we believe the potential to increase our revenue grows.In 2018, data licensing and other revenue increased by 27% compared to 2017. A majority2017 Compared to 2016. Revenue in 2017 decreased by $86.3 million compared to 2016.In 2017, advertising revenue decreased by 6% compared to 2016. The substantial majority of our advertising revenue was generated from our owned and operated platform. Advertising revenue generated from the sale of our advertising products on our owned and operated platform in 2017 was $1.90 billion as compared to $1.99 billion in 2016. Advertising revenue generated from the sale of our advertising products placed on third-party publishers’ websites, applications and other offerings in 2017 was $211.2 million as compared to $260.2 million in 2016. The decrease in advertising revenue from the sale of our advertising products placed on third-party publishers’ websites, applications and other offerings in 2017 was driven by significantly lower contribution from TellApart (which was deprecated in 2017), which was offset by strong performance from Twitter Audience Platform. TellApart revenue was $44.6 million in 2017, mainly in the first half of 2017, compared to $126.4 million in 2016.The overall decrease in advertising revenue was primarily attributable to a 52% decrease in cost per ad engagement offset by a 96% increase in the number of ad engagements in 2017 compared to 2016. The decrease in cost per ad engagement reflects a higher mix of video ad engagements (which have overall lower cost per ad engagement compared to other ad formats) and lower cost per ad engagement across the majority of ad formats compared to the fourth quarter of 2016. The increase in ad engagements was driven by a continuing mix shift toward video ad impressions as well as higher clickthrough rates.Advertising revenue continued to be driven by strong growth in our video ad formats offset by declines in traditional Promoted Tweet and direct response ad formats.In 2017, data licensing and other revenue increased by 18% compared to 2016. A majority of the increase was attributable to growth in data licensing fees from the offering of data products.content costs,revenue share expenses, amortization of acquired intangible assets and amortization of capitalized labor costs for internally developed software, allocated facilities costs, as well as traffic acquisition costs, or TAC. Infrastructure costs consist primarily of data center costs related to our co-located facilities, which include lease and hosting costs, related support and maintenance costs and energy and bandwidth costs;costs, public cloud hosting costs, as well as depreciation of servers and networking equipment; and personnel-related costs, including salaries, benefits and stock-based compensation, for our operations teams. TAC consists of costs we incur with third parties in connection with the sale to advertisers of our advertising products that we place on third-party publishers’ websites, and applications or other offerings collectively resulting from acquisitions, and from our organically-built advertising network, Twitter Audience Platform.acquisitions. Certain of the elements of our cost of revenue are fixed and cannot be reduced in the near term.Year Ended December 31, 2019 to 2020 2018 to 2019 2020 2019 2018 % Change % Change (in thousands) Cost of revenue $ 1,366,388 $ 1,137,041 $ 964,997 20 % 18 % Cost of revenue as a percentage of revenue 37 % 33 % 32 % 201820172019. In 2018,2020, cost of revenue increased by $103.8$229.3 million compared to 2017.2019. The increase was attributable to an $89.3a $122.9 million increase in infrastructure costs and $106.4 million increase in other direct costs, primarily driven by an increase in contenttraffic acquisition costs, and a $50.4 million increase in depreciation and amortization expense primarilymainly related to additional internally developed software, server and networking equipment. These increases were offset by a $35.3 million decrease in TAC substantially due to the lack of advertising revenue generated from TellApart (which we deprecated in 2017), and a $0.6 million decrease in other expenses.2017 Compared to 2016. In 2017, cost of revenue decreased by $71.0 million compared to 2016. The decrease was attributable to a $48.6 million decrease in restructuring expenses, a $45.3 million decrease in infrastructure costs, a $42.7 million decrease in TAC substantially due to the decrease in advertising revenue generated from TellApart (which we deprecated in 2017), and a $3.5 million decrease in personnel-related costs. These decreases were offset by a $55.5 million increase in other direct costs that is primarily driven by an increase in content costs, and a $13.6 million increase in depreciation and amortization expense primarily related to additional internally developed software, server and networking equipment.usermDAU growth and increased activity on our platform. We expect that cost of revenue will increase in absolute dollar amounts and vary as a percentage of revenue.Year Ended December 31, 2019 to 2020 2018 to 2019 2020 2019 2018 % Change % Change (in thousands) Research and development $ 873,011 $ 682,281 $ 553,858 28 % 23 % Research and development as a percentage of revenue 23 % 20 % 18 % 201820172019. In 2018,2020, research and development expenses increased by $11.8$190.7 million compared to 2017.2019. The increase was attributable to a $15.4$115.1 million net increase in allocated facilities costs, other supporting overhead expenses, and other expenses, and the absence of a $12.1 million one-time nonrecurring gain on sale of assets that occurred in the year ended December 31, 2017. These increases were offset by a $8.7 million net decrease in personnel-related costs driven by a decrease in stock-based compensation expense due partially to forfeitures offset in part by an increase in average employee headcount, and a $7.0 million increase in the capitalization of costs associated with developing software for internal use.2017 Compared to 2016. In 2017, research and development expenses decreased by $171.5 million compared to 2016. The decrease was attributable to a $141.6 million decrease in personnel-related costs mainly driven by an increase in employee headcount as we continue to focus our investments on engineering, product, design, and research, a decrease$54.5 million net increase in stock-based compensation expense, a $25.9 million decrease in restructuring charges net of a one-time nonrecurring gain on sale of assets in 2017, a $23.7 million decrease in allocated facilities costs and other supporting overhead expenses due to a decrease in overall total expenses, a $2.6 million decrease in otheradministrative expenses, and a $2.5 million decrease in depreciation and amortization expense, offset by a $24.8$21.1 million decrease in the capitalization of costs associated with developing software for internal use.the rightan appropriate level of engineering, product management and design personnel and related resources to support our research and development efforts.efforts on key priorities. We expect that research and development costsexpenses will increase in absolute dollar amounts and vary as a percentage of revenue.tradeshows,trade shows, branding, marketing, public relations costs, amortization of acquired intangible assets, allocated facilities costs, and other supporting overhead costs.Year Ended December 31, 2019 to 2020 2018 to 2019 2020 2019 2018 % Change % Change (in thousands) Sales and marketing $ 887,860 $ 913,813 $ 771,361 (3) % 18 % Sales and marketing as a percentage of revenue 24 % 26 % 25 % 20182020 Compared to 20172019. In 2018,2020, sales and marketing expenses increaseddecreased by $53.9$26.0 million compared to 2017. 2019.The increase was attributable to a $36.2 million net increase in allocated facilities costs and other supporting overhead expenses, a $9.3 million increase in marketing and sales-related expenses, and a $23.9 million net increase in personnel-related costs driven by an increase in average employee headcount offset in part by a decrease in stock-based compensation expense. These increases were offset by a $15.5 million decrease in amortization of acquired intangible assets due to certain intangible assets becoming fully amortized.2017 Compared to 2016. In 2017, sales and marketing expenses decreased by $240.4 million compared to 2016. The decrease was attributable to a $116.0 million decrease in personnel-related costs, driven by a decrease in average employee headcount mainly as a result of our 2016 restructuring plan, a $54.0$67.8 million decrease in marketing and sales-related expenses, primarily due to reduced marketing campaigns and customer events, and travel during the COVID-19 pandemic, offset by a $28.0$41.8 million decreasenet increase in allocated facilities costs and other supporting overhead expenses due to a decrease in overall total expenses, a $27.4 million decrease in restructuring expenses, and a $15.0 million decrease in amortization of acquired intangible assets.the rightan appropriate level of sales and marketing expenses to execute on our key priorities and objectives. We expect that sales and marketing costsexpenses will increase in absolute dollar amounts and vary as a percentage of revenue.Year Ended December 31, 2019 to 2020 2018 to 2019 2020 2019 2018 % Change % Change (in thousands) General and administrative $ 562,432 $ 359,821 $ 298,818 56 % 20 % General and administrative as a percentage of revenue 15 % 10 % 10 % 201820172019. In 2018,2020, general and administrative expenseexpenses increased by $14.9$202.6 million compared to 2017.2019. The increase was attributable to a $24.6$150.0 million net increaselegal accrual related to an ongoing Federal Trade Commission (FTC) matter recorded in personnel-related costs driven by an increase in average employee headcount offset in part bythe second quarter of 2020, a decrease in stock-based compensation expense, and a $7.9$80.9 million increase in professional service fees. These increases were offset by a $17.6 million decrease in allocated facilities costs, other supporting overhead expenses, and other expenses.2017 Compared to 2016. In 2017, general and administrative expense decreased by $9.4 million compared to 2016. The decrease was attributable to a $9.2 million decrease in personnel-related costs mainly driven by a decreasean increase in stock-based compensation expense, a $4.9 million decrease in facilities and supporting costs,employee headcount, and a $4.8$13.7 million decreaseincrease in restructuring charges. The decreases wereprofessional service fees, offset by a $9.0net decrease of $42.0 million increase in feesfacilities costs and costs for professional services, and a $0.5 million increase in other administrative expenses.key areas of our business and ensure that we have the right level of general and administrative functions to ensure we have an appropriate level of support onfor our key prioritiesobjectives. Absent one-time general and objectives. Weadministrative expenses such as the $150.0 million expense recorded for the FTC matter in 2020, we expect that general and administrative expenses will increase in absolute dollar amounts and vary as a percentage of revenue. and the $1.15 billion principal amount of 0.25% convertible senior notes due in 2024, or the 2024 Notes, and together with the 2019$700.0 million principal amount of 3.875% senior notes due in 2027, or the 2027 Notes, and 2021 Notes, the $1.0 billion principal amount of 0.375% convertible senior notes due in 2025, or the 2025 Notes, and interest expense related to capitalfinance leases and other financing facilities.Year Ended December 31, 2020 2019 2018 (in thousands) Interest expense $ 152,878 $ 138,180 $ 132,606 20182017. 2019. In 2018,2020, interest expense increased by $27.4$14.7 million compared to 20172019 primarily due to the issuance of the 20242027 Notes in June 2018. December 2019 and the 2025 Notes in March 2020, offset by our repayment of the 2019 Notes at their maturity in September 2019.2018 was comprised of $127.7 million of total interest expense relatedNote 2 to the Notes as well as our credit facility (described below) and $4.9 million related to capital leasesConsolidated Financial Statements included in Part II, Item 8 of equipment.2017 Compared to 2016. In 2017, interest expense increased by $5.3 million compared to 2016. Interest expense in 2017 was comprised of $99.6 million of total interest expense related to the Notes as well as our credit facility (described below) and $5.6 million related to capital leases of equipment.Year Ended December 31, 2020 2019 2018 (in thousands) Interest income $ 88,178 $ 157,703 $ 111,221 20182017. 2019. In 2018,2020, interest income increaseddecreased by $66.8$69.5 million compared to 2017.2019. The increasedecrease was primarily attributable to higher invested cash balances and higherlower interest rates.2017 Compared to 2016. In 2017, interest income increased by $20.1 million compared to 2016. The increase was primarily attributable to higher invested cash balances and higher interest rates.Year Ended December 31, 2020 2019 2018 (in thousands) Other income (expense), net $ (12,897) $ 4,243 $ (8,396) 20182017. 2019. In 2018,2020, other expense, net, was $8.4 million compared to other expense, net, of $73.3 million in 2017. The change was primarily attributable to a $3.0 million impairment charge in the year ended December 31, 2018, compared to a $62.4 million impairment charge in the year ended December 31, 2017, and the more favorable foreign currency exchange impacts from foreign currency-denominated assets and liabilities as well as derivative financial instruments.2017 Compared to 2016. In 2017, other expense, net, was $73.3$12.9 million compared to other income, net, of $2.1$4.2 million in 2016.2019. The change was primarily attributable to impairment charges of $8.8 million on our investments in privately-held companies during the recordingyear ended December 31, 2020, compared to an $8.6 million gain net of an impairment chargecharges on an investmentour investments in a privately-held company of $62.4 million in 2017 and less favorable foreign currency exchange impacts from foreign currency-denominated assets and liabilities as well as derivative financial instruments.Year Ended December 31, 2020 2019 2018 (in thousands) Provision (benefit) for income taxes $ 1,084,687 $ (1,075,520) $ (782,052) and changes in the related valuation allowance reflecting the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.In2017, the Tax Act was enacted into law31, 2019 and the new legislation contains several key tax provisions that affected us,2018reductiondiscussion of the federal corporate income tax rate to 21% effective January 1, 2018. We are required to recognize the effect of the tax law changes in the period of enactment, such as re-measuring our U.S. deferred tax assets and liabilities as well as our valuation allowance against our net U.S. deferred tax assets. Also in December 2017, the SEC staff issued Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the 2017 Tax Cuts and Jobs Act (SAB 118), which allows us to record provisional amounts during a measurement period not to extend beyond one year of the enactment date. We completed our accountingfinancial results for the Tax Act infiscal year ended December 31, 2019 compared to the fourth quarter of 2018, within the one-year measurement period from the enactment. Please refer to Note 14 of the Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K for further information.2018 Compared to 2017. Our benefit for income taxes in the twelve monthsfiscal year ended December 31, 2018, was $782.1 million, comparedrefer to a provisionPart II, Item 7 of our Form 10-K filed with the SEC on February 19, 2020.income taxesany of $12.6 million in 2017. Our current provision for income taxesthe quarters within the two most recent fiscal years that individually or in the twelve months ended December 31, 2018 was $19.7 million, compared to a current provision of $19.1 million for the twelve months ended December 31, 2017. Our deferred benefit for income taxes in the twelve months ended December 31, 2018 was $801.7 million, compared to a deferred benefit for income taxes of $6.4 million in the twelve months ended December 31, 2017. The change is due to the release of our valuation allowance of $845.1 million related to Brazil and most of the United States federal and all states deferred tax assets with the exception of California and Massachusetts, offset by our current year income tax expense of $63.0 million, compared to a provision of $12.6 million in 2017. Excluding the release of our deferred tax asset valuation allowance, the change was primarily due to the increase in pre-tax profitability offset by an increase to the benefit of share-based compensation.2017 Compared to 2016. Our provision for income taxes in 2017 decreased by $3.4 million compared to 2016 primarily due to an increase in the income tax benefit arising from intraperiod allocation and partial release of valuation allowance attributable to the Tax Act related to alternative minimum tax (AMT) credits.We anticipate that going forward we will have income tax expense, which amounts could be affected by our jurisdictional mix of profit before taxes, the extent foreign earningsaggregate are taxed in the United States through new provisions under the Tax Act, changes in tax rates and tax regulations, the impact of tax examinations, the impact of business combinations, tax effects of share based compensation, and changes in the remaining valuation allowances.Quarterly Results of OperationsThe following table sets forth our unaudited consolidated statement of operations data for each of the eight quarters in the period ended December 31, 2018. The unaudited quarterly statement of operations data set forth below have been prepared on a basis consistent with our audited annual consolidated financial statements in this Annual Report on Form 10-K and include, in our opinion, all normal recurring adjustments necessary for a fair statement of the financial information contained in those statements. Our historical results are not necessarily indicative of the results that may be expected in the future. The following quarterly financial data should be read in conjunction with our audited consolidated financial statements and the related notes included elsewhere in this Annual Report on Form 10-K.
material.(1)We adopted the new revenue standard on January 1, 2018 using the modified retrospective method. Revenue was not materially impacted by the application of the new revenue standard in any of the quarters in 2018.(2)Costs and expenses include stock-based compensation expense as follows:(3)In the second and third quarter of 2017, we incurred $55.0 million and $7.4 million, respectively, of impairment charges on an investment in a privately-held company.(5)The following table presents a reconciliation of net income (loss) to Adjusted EBITDA for each of the periods indicated:(6)The following table presents a reconciliation of net income (loss) to non-GAAP net income for each of the periods indicated:Credit FacilityIn August 2018, we entered into a revolving credit agreement with certain lenders which provides for a $500.0 million revolving unsecured credit facility maturing on August 7, 2023. In connection with entering into the $500.0 million credit facility, we also terminated our $1.0 billion unsecured revolving credit facility. We are obligated to pay interest on loans under the new credit facility and other customary fees for a credit facility of this size and type, including an upfront fee and an unused commitment fee. The interest rate for the new credit facility is determined based on calculations using certain market rates as set forth in the credit agreement. As of December 31, 2018, no amounts had been drawn under the credit facility.Year Ended December 31, 2020 2019 2018 (in thousands) Consolidated Statements of Cash Flows Data: Net income (loss) $ (1,135,626) $ 1,465,659 $ 1,205,596 Net cash provided by operating activities $ 992,870 $ 1,303,364 $ 1,339,711 Net cash used in investing activities Net cash used in investing activities $ (1,560,565) $ (1,115,974) $ (2,055,513) Net cash provided by (used in) financing activities $ 755,310 $ (286,175) $ 978,116 June 2018,March 2020, we also received net proceeds of approximately $1.14 billion$985.3 million from the issuance of the 20242025 Notes, after deducting the debt issuance costs. Concurrent with the saleswhich we paid approximately $268.0an aggregate amount of $250.6 million, and sold warrantsincluding 98,000 shares for which we received approximately $186.8 million.2018,2020, we had $6.21$7.47 billion of cash, cash equivalents and short-term investments in marketable securities, of which $210.0$255.1 million was held by our foreign subsidiaries. During the SAB 118 period relatedWe do not plan to the Tax Act, we re-assessed our intentions related to certain ofindefinitely reinvest these funds held by our foreign subsidiaries in light of the reduced tax associated with repatriation. Weand have determined that we will no longer be indefinitely reinvested related to these funds and accrued the incremental foreign withholding taxes. In addition, we have a revolving unsecured credit facility available to borrow up to $500.0 million.taxes due as part of repatriation. We believe that our existing cash, cash equivalents and short-term investment balance,balances, and our credit facility, together with cash generated from operations will be sufficient to meet our working capital and capital expenditure requirements for at least the next 12 months, and to repay the $936.2$954.0 million of principal and coupon interest associated with our 20192021 Notes due in September 2019.20182020 was $1.34 billion, an increase$992.9 million, a decrease in cash inflow of $508.5$310.5 million compared to 2017.2019. Cash provided by operating activities was driven by net incomeloss of $1.21$1.14 billion, as adjusted for the exclusion of non-cash expenses and other adjustments totaling $44.8$2.15 billion, including a $1.10 billion provision for income taxes related to the establishment of a valuation allowance against deferred tax assets, $495.2 million of depreciation and amortization expense, $474.9 million of stock-based compensation expense, and the effect of changes in working capital and other carrying balances that resulted in cash outflows of $24.6 million.$845.1 million net benefit$1.21 billion income tax benefits related to tax expense associated with the releaseestablishment of the valuation allowance related to deferred tax assets $425.5from intra-entity transfers of intangible assets, $465.5 million of depreciation and amortization expense, and $326.2$378.0 million of stock-based compensation expense, and the effect of changes in working capital and other carrying balances that resulted in cash inflows of $89.3 million, which was in part driven by a one-time refund of prepaid employment taxes of $147.5$18.7 million.Cash provided by operating activities in 2017 was $831.2 million, an increase in cash inflow of $68.2 million compared to 2016. Cash provided by operating activities was driven by a net loss of $108.1 million, as adjusted for the exclusion of non-cash expenses and other adjustments totaling $971.5 million, of which the most significant items were $433.8 million of stock-based compensation expense, $395.9 million of depreciation and amortization expense and $62.4 million of impairment charges on an investment in a privately-held company, and the effect of changes in working capital and other carrying balances that resulted in cash outflows of $32.2 million.Cash provided by operating activities in 2016 was $763.1 million, an increase in cash inflow of $380.0 million compared to 2015. Cash provided by operating activities was driven by a net loss of $456.9 million, as adjusted for the exclusion of non-cash expenses and other adjustments totaling $1.14 billion, of which the most significant items were $615.2 million of stock-based compensation expense, and the effect of changes in working capital and other carrying balances that resulted in cash outflow of $82.6 million.20182020 was $2.06$1.56 billion, an increase in cash outflow of $1.94 billion$444.6 million compared to 2017. 2019. The changeincrease was primarily due to a $2.65 billion$474.3 million increase in purchases of marketable securities, a $323.2$373.9 million decrease in proceeds from maturities of marketable securities, a $332.7 million increase in purchases of property and equipment, an absence of $35.0$18.4 million increase in cash used in business combinations, an $11.8 million decrease in proceeds from salesales of long-lived assets, and a net$1.4 million increase in cash used in other investing activities, offset by a $725.6 million increase in proceeds from sales of $33.6marketable securities, a $39.3 million decrease in purchases of investments in privately-held companies, and a $3.0 million increase in proceeds from sales of property and equipment.$1.09 billion net increase in proceeds from sales and maturities of marketable securities, a $2.6 million decrease in expenditures on other investing activities and a $10.3$463.7 million increase in proceeds from sales of property and equipment.Cash used in investing activities in 2017 was $116.5 million, a decrease in cash outflow of $476.7 million compared to 2016. The change was primarily due to a $221.4 million decrease in the purchases of marketable securities, a $80.7$56.8 million decreaseincrease in purchases of property and equipment, a $47.8 million increase in purchases of investments in privately-held companies, a net $85.1$6.9 million decrease in cash used in business combinations, a $57.9 million decrease in purchases of property and equipment, a $35.0 million increase in proceeds from sale of long-lived assets, a $2.8 million increase in net proceeds from sales and maturities of marketable securities, and a $2.8 million increase in proceeds from sales of property and equipment, offset byand a $8.9$4.5 million increase in expenditures oncash used in other investing activities.Cash used in investing activities in 2016 was $593.2 million, a decrease in cash outflow of $305.6 million compared to 2015. The decrease in cash outflow was due to decreased purchases of marketable securities of $774.9 million, property and equipment of $128.6 million and other investments of $9.9 million, offset by a decrease in sales and maturities of marketable securities of $503.4 million, an increase in purchase of investments in privately-held companies of $71.0 million, and an increase in use of cash as acquisition consideration of $33.4 million.20192021 of approximately $550$900 million to $600$950 million as we continue to expandcomplete the final buildout of our co-locatednew data centers.capitalrepurchases of common stock under our share repurchase program, repayment of convertible notes, payments of finance lease financingobligations, and stock option exercises by employees and other service providers.20182020 was $978.1$755.3 million, compared to $78.4$286.2 million cash used in financing activities in 2017.2019. The change was due to $985.3 million of net proceeds of $1.14 billion from the issuance of convertible notesthe 2025 Notes net of issuance costs in 2020, a $935.0 million repayment of convertible notes in 2019 that did not reoccur in 2020, a $43.6 million decrease in payments of finance lease obligations, a $13.1 million increase in proceeds from the issuance of shares of stock from the employee stock purchase plan (ESPP), and a $4.7 million increase in proceeds from option exercises, offset by $691.9 million of net proceeds from the issuance of the 2027 Notes in 2019, repurchases of common stock of $245.3 million in 2020, and a $3.0 million increase in tax payments related to net share settlements of equity awards.thea net cash outflow of $81.2 million from the purchase of convertible note hedges and sale of warrants closed in connection with the issuance of convertible notes,the 2024 Notes, a $12.4use of $935.0 million to repay, in full, the 2019 Notes at maturity, a $2.6 million decrease in proceeds from option exercises, and a $0.3 million increase in tax payments related to net share settlements of equity awards, offset by $691.9 million of net proceeds from the issuance of the 2027 Notes in 2019, a $23.7 million decrease in payments of capitalfinance lease obligations, and a $5.4$13.1 million increase in proceeds from the issuance of shares of stock from the ESPP, offset by a $10.3 million increase in tax payments related to net share settlements of equity awards and a $6.0 million decrease in proceeds from option exercises.Cash used in financing activities in 2017 was $78.4 million, a decrease in cash outflow of $5.6 million compared to 2016. The decrease in cash outflow was due to a $6.4 million decrease in taxes paid related to net share settlement of equity awards and other activities and a $1.9 million increase in proceeds from option exercises. These decreases were offset by a $2.2 million increase in payments of capital lease obligations and a $0.5 million decrease in proceeds from the issuance of shares ofemployee stock from ESPP.Cash used in financing activities in 2016 was $84.0 million, an increase in cash outflow of $21.0 million compared to 2015. The increase in cash outflow was due to a $14.9 million decrease in proceeds from the issuance of shares of stock from ESPP, a net $13.3 million increase in tax payments related to net share settlements of equity awards and other activities, and a net $9.8 million decrease in proceeds from option exercises, offset by a reduction in repayments of capital lease obligations of $17.0 million.Off Balance2018, 20172020, 2019, or 2016.capitalfinance and operating leases for equipment, office space and co-located data center facilities, as well as non-cancellable contractual commitments. The followingRefer to Note 16, Commitments and Contingencies, of the Notes to Consolidated Financial Statements under Part II, Item 8 of this Annual Report on Form 10-K for more details, including a table summarizesof our commitments to settle contractual obligations in cash as of December 31, 2018.obligations.(1)We have entered into several sublease agreements for office space that we are not fully utilizing. Under the sublease agreements, we will receive approximately $52.5 million in sublease income over the next four years. (2)Other contractual commitments are non-cancelable contractual commitments primarily related to our infrastructure services, bandwidth and other services arrangements.2018,2020, we had recorded liabilities of $17.9$30.4 million related to uncertain tax positions. Due to uncertainties in the timing of potential tax audits, the timing of the resolution of these positions is uncertain and we are unable to make a reasonably reliable estimate of the timing of payments in individual years beyond 12 months. As a result, this amount is not included in the above table.pay on impressionspay-for-impressions delivered, each priced through an auction. Promoted Trends are featured by geography and offered on a fixed-fee-per-day basis. Advertisers are obligated to pay when a userperson engages with a Promoted Tweet, follows a Promoted Account, when an impression is delivered, or when a Promoted Trend is displayed.displayed for an entire day in a particular country or on a global basis. These advertising services may be sold in combination as a bundled arrangement or separately on a stand-alone basis.userperson engaging with a Promoted Tweet or an ad on a third-party publisher website or application in a manner satisfying the types of engagement selected by the advertisers, such as Tweet engagements (e.g., retweets, replies and likes), website clicks, mobile application installs or engagements, obtaining new followers, or video views, following a Promoted Account, delivery of impressions, or through the display of a Promoted Trend on our platform.Twitter’sour intellectual property (“IP”)(IP) for a defined period of time, may contain a single performance obligation satisfied at a point in time (“Historical IP”)(Historical IP) or over time (“Future IP”)(Future IP), or may contain two or more performance obligations satisfied separately at a point in time (Historical IP) and over time (Future IP). In some of our data licensing arrangements, pricing is a fixed monthly fee over a specified term. In arrangements with a single performance obligation satisfied over time, data licensing revenue is recognized on a straight-line basis over the period in which we provide data as the customer consumes and benefits from the continuous data available on an ongoing basis. In arrangements with at least two performance obligations, we allocate revenue on a relative basis between the performance obligations based on standalone selling price (“SSP”)(SSP) and recognize revenue as the performance obligations are satisfied.inover the period thatcontract term, on a straight-line, cumulative catch-up basis. This reflects the related downstream customer sales using our licensed data occur, and such amounts have been immaterial to date.onupon examination by the taxing authorities based on the technical merits of the position. Although we believe we have adequately reserved for our uncertain tax positions (including net interest and penalties), we can provide no assurance that the final tax outcome of these matters will not be different. We make adjustments to these reserves in accordance with income tax accounting guidance when facts and circumstances change, such as the closing of a tax audit. To the extent that the final tax outcome of these matters is different from the amounts recorded, such differences may impact the provision (benefit) for income taxes in the period in which such determination is made. We record interest and penalties related to our uncertain tax positions in our provision (benefit) for income taxes.Tax Act contains several key tax provisions that affected us, including a reductionestablishment of the federal corporate income tax rate to 21% effective January 1, 2018. We are required to recognize the effect of the tax law changes in the period of enactment, such as re-measuring our U.S. deferred tax assets from intra-entity transfers of intangible assets requires management to make significant estimates and liabilities as well as our valuation allowance against our net U.S. deferred taxassumptions to determine the fair value of such intangible assets. In December 2017,Critical estimates in valuing the SEC staff issued Staff Accounting Bulletin No. 118, Income Tax Accounting Implicationsintangible assets include, but are not limited to, internal revenue and expense forecasts, the estimated life of the 2017 Tax Cutsintangible assets, and Jobs Act (SAB 118), which allowed us to record provisional amounts during a measurement period not to extend beyond one year of the enactment date. We completed our accounting for the Tax Actdiscount rates. The discount rates used in the fourth quarterincome method to discount expected future cash flows to present value are adjusted to reflect the inherent risks related to the cash flow. Although we believe the assumptions and estimates we have made are reasonable and appropriate, they are based, in part, on historical experience and are inherently uncertain. Unanticipated events and circumstances may occur that could affect either the accuracy or validity of 2018, within the one year-measurement period from the enactment date. We elected to account for Global Intangible Low-Taxed Income (GILTI) under the Tax Act as a period cost when the expense is incurred and apply the approach of tax law ordering for reflecting the realization of loss carryforward expected to offset future GILTI.various lawsuits,and may in the future be involved in, legal proceedings, claims, investigations, and proceedings that arisegovernment inquiries and investigations arising in the ordinary course of business. Certain of these matters include speculative claims for substantial or indeterminate amounts of damages. We record a liability when we believe that it is both probable that a loss has been incurred and the amount or range can be reasonably estimated. If we determine there is a reasonable possibility that we may incur a loss and the loss or range of loss can be estimated, we disclose the possible loss to the extent material. Significant judgment is required to determine both probability and the estimated amount. We review these provisions on a quarterly basis and adjust these provisions accordingly to reflect the impact of negotiations, settlements, rulings, advice of legal counsel, and updated information.We believe that the amount or estimable range of reasonably possible loss, will not, either individually or in the aggregate, have a material adverse effect on our business, consolidated financial position, results of operations, or cash flows with respect to loss contingencies for legal and other contingencies as of December 31, 2018. However, theThe outcome of litigation is inherently uncertain. Therefore, if one or more of these legal matters were resolved against us for amounts in excess of management's expectations, our results of operations and financial condition, including in a particular reporting period, could be materially adversely affected.account for acquisitions of entities that include inputs and processes and haveallocate the ability to create outputs as business combinations. The purchase price of the acquisition is allocated to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values at the acquisition dates. The excess of the purchase price over those fair values is recorded as goodwill. During the measurement period, which may be up to one year from the acquisition date, we may record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to the consolidated statements of operations.2018,2020, a hypothetical increase in interest rates of 100 basis points would result in a decrease of approximately $17.7$46.1 million in the fair value of our available-for-sale securities. We currently do not hedge these interest rate exposures.In 2014 and 2018,issued convertible senior notes with inhad $3.10 billion aggregate principal amount of $1.89 billionConvertible Notes outstanding and $1.15 billion, respectively.$700.0 million aggregate principal amount of 2027 Notes outstanding. We carry the Notes at face value less amortized discount on the consolidated balance sheet. Since theeach series of Notes bearbears interest at a fixed rates,rate, we have no financial statement risk associated with changes in interest rates. However, the fair value of theeach series of Notes changes when the market price of our stock fluctuates or interest rates change.lossincome (loss) as a result of transaction gains or losses related to revaluing and ultimately settling certain asset and liability balances that are denominated in currencies other than the functional currency of the entities in which they are recorded. Foreign currency netgains and losses were $4.6 million in 2018.immaterial for 2020 and 2019. We currently utilize foreign currency forward contracts with financial institutions to reduce the risk that our earnings may be adversely affected by the impact of exchange rate fluctuations on monetary assets or liabilities denominated in currencies other than the local currency of a subsidiary. These contracts are not designated as hedging instruments. We may in the future enter into other derivative financial instruments if it is determined that such hedging activities are appropriate to further reduce our foreign currency exchange risk. Based on our foreign currency exposures from monetary assets and liabilities net of our open hedge position, we estimated that a 10% change in exchange rates against the U.S. dollar would have resulted in a gain or loss of approximately $5.6$13.8 million as of December 31, 2018.PagePage 75777879808182The supplementary financial information required by this Item 8 is included in Item 7 under the caption “Quarterly ResultsREPORTREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM20182020 and 2017,2019, and the related consolidated statements of operations, of comprehensive income (loss), of stockholders’stockholders' equity and of cash flows for each of the three years in the period ended December 31, 2018,2020, including the related notes and financial statement schedule listed in the index appearing under Item 15.215 (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2018,2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).20182020 and 2017,2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 20182020 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2018,2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.Management'sManagement’s Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.20, 2019December 31,
2020December 31,
2019Assets Current assets: Cash and cash equivalents $ 1,988,429 $ 1,799,082 Short-term investments 5,483,873 4,839,970 Accounts receivable, net of allowance for doubtful accounts of $16,946 and $2,401 Accounts receivable, net of allowance for doubtful accounts of $16,946 and $2,401 1,041,743 850,184 Prepaid expenses and other current assets 123,063 130,839 Total current assets 8,637,108 7,620,075 Property and equipment, net 1,493,794 1,031,781 Operating lease right-of-use assets Operating lease right-of-use assets 930,139 697,095 Intangible assets, net 58,338 55,106 Goodwill 1,312,346 1,256,699 Deferred tax assets, net 796,326 1,908,086 Other assets 151,039 134,547 Total assets $ 13,379,090 $ 12,703,389 Liabilities and stockholders' equity Current liabilities: Accounts payable $ 194,281 $ 161,148 Accrued and other current liabilities 662,965 500,893 Convertible notes, short-term 917,866 0 Operating lease liabilities, short-term Operating lease liabilities, short-term 177,147 146,959 Finance lease liabilities, short-term Finance lease liabilities, short-term 567 23,476 Total current liabilities 1,952,826 832,476 Convertible notes, long-term 1,875,878 1,816,833 Senior notes, long-term Senior notes, long-term 692,994 691,967 Operating lease liabilities, long-term Operating lease liabilities, long-term 819,748 609,245 Deferred and other long-term tax liabilities, net 31,463 24,170 Other long-term liabilities 36,099 24,312 Total liabilities 5,409,008 3,999,003 Commitments and contingencies (Note 16) Commitments and contingencies (Note 16) 0 0 Stockholders' equity: Preferred stock, $0.000005 par value-- 200,000 shares authorized; NaN issued and outstanding Preferred stock, $0.000005 par value-- 200,000 shares authorized; NaN issued and outstanding 0 0 Common stock, $0.000005 par value-- 5,000,000 shares authorized; 796,000 and 779,619 shares issued and outstanding Common stock, $0.000005 par value-- 5,000,000 shares authorized; 796,000 and 779,619 shares issued and outstanding 4 4 Additional paid-in capital 9,167,138 8,763,330 Treasury stock, at cost-- 98 and 0 shares Treasury stock, at cost-- 98 and 0 shares (5,297) 0 Accumulated other comprehensive loss (66,094) (70,534) Retained earnings (accumulated deficit) Retained earnings (accumulated deficit) (1,125,669) 11,586 Total stockholders' equity 7,970,082 8,704,386 Total liabilities and stockholders' equity $ 13,379,090 $ 12,703,389 Year Ended December 31, 2020 2019 2018 Revenue $ 3,716,349 $ 3,459,329 $ 3,042,359 Costs and expenses Cost of revenue 1,366,388 1,137,041 964,997 Research and development 873,011 682,281 553,858 Sales and marketing 887,860 913,813 771,361 General and administrative 562,432 359,821 298,818 Total costs and expenses 3,689,691 3,092,956 2,589,034 Income from operations Income from operations 26,658 366,373 453,325 Interest expense (152,878) (138,180) (132,606) Interest income 88,178 157,703 111,221 Other income (expense), net (12,897) 4,243 (8,396) Income (loss) before income taxes (50,939) 390,139 423,544 Provision (benefit) for income taxes 1,084,687 (1,075,520) (782,052) Net income (loss) $ (1,135,626) $ 1,465,659 $ 1,205,596 Net income (loss) per share attributable to common stockholders: Basic $ (1.44) $ 1.90 $ 1.60 Diluted $ (1.44) $ 1.87 $ 1.56 Weighted-average shares used to compute net income (loss) per share attributable to common stockholders: Basic 787,861 770,729 754,326 Diluted 787,861 785,531 772,686 Year Ended December 31, 2020 2019 2018 Net income (loss) $ (1,135,626) $ 1,465,659 $ 1,205,596 Other comprehensive income (loss), net of tax: Change in unrealized gain (loss) on investments in available-for-sale securities 11,318 13,785 (393) Change in foreign currency translation adjustment (6,878) (19,008) (33,339) Net change in accumulated other comprehensive income (loss) 4,440 (5,223) (33,732) Comprehensive income (loss) $ (1,131,186) $ 1,460,436 $ 1,171,864 Year Ended December 31, 2020 2019 2018 Shares Amount Shares Amount Shares Amount Common stock Balance, beginning of period 779,619 $ 4 764,257 $ 4 746,902 $ 4 Issuance of common stock in connection with RSU vesting 16,795 — 13,519 — 15,026 — Issuance of common stock in connection with acquisitions 168 — — — 119 — Issuance of restricted stock in connection with acquisitions accounted for as stock-based compensation 1,509 — 471 — 655 — Exercise of stock options 1,882 — 361 — 634 — Issuance of common stock upon purchases under employee stock purchase plan 2,250 — 1,592 — 1,539 — Shares withheld related to net share settlement of equity awards (639) — (579) — (610) — Repurchases of common stock Repurchases of common stock (5,584) — — — — — Other activities 0 — (2) — (8) — Balance, end of period 796,000 $ 4 779,619 $ 4 764,257 $ 4 Additional paid-in capital Balance, beginning of period — $ 8,763,330 — $ 8,324,974 — $ 7,750,522 Issuance of common stock in connection with acquisitions — 8,311 — 0 — 18,248 Issuance of stock options in connection with acquisitions — — — 0 — 917 Exercise of stock options — 5,441 — 788 — 3,442 Issuance of common stock upon purchases under employee stock purchase plan — 55,470 — 42,378 — 29,288 Shares withheld related to net share settlement of equity awards — (22,585) — (19,594) — (19,256) Stock-based compensation — 510,254 — 414,784 — 367,668 Equity component of the convertible note issuance, net — 92,209 — 0 — 252,248 Purchase of convertible note hedge — — — 0 — (267,950) Issuance of warrants — — — 0 — 186,760 Repurchases of common stock Repurchases of common stock — (245,292) — — — — Other activities — — — 0 — 3,087 Balance, end of period Balance, end of period — $ 9,167,138 — $ 8,763,330 — $ 8,324,974 Treasury stock Treasury stock Balance, beginning of period Balance, beginning of period — $ 0 — $ — — $ — Repurchases of common stock Repurchases of common stock — (5,297) — — — — Balance, end of period — $ (5,297) — $ — — $ — Accumulated other comprehensive loss Balance, beginning of period — $ (70,534) — $ (65,311) — $ (31,579) Other comprehensive income (loss) — 4,440 — (5,223) — (33,732) Balance, end of period — $ (66,094) — $ (70,534) — $ (65,311) Retained earnings (accumulated deficit) Retained earnings (accumulated deficit) Balance, beginning of period — $ 11,586 — $ (1,454,073) — $ (2,671,729) Cumulative-effect adjustment from adoption of new accounting standards Cumulative-effect adjustment from adoption of new accounting standards — (1,629) — — — 12,060 Net income (loss) — (1,135,626) — 1,465,659 — 1,205,596 Balance, end of period — $ (1,125,669) — $ 11,586 — $ (1,454,073) Total stockholders' equity 796,000 $ 7,970,082 779,619 $ 8,704,386 764,257 $ 6,805,594 Year Ended December 31, 2020 2019 2018 Cash flows from operating activities Net income (loss) $ (1,135,626) $ 1,465,659 $ 1,205,596 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization expense 495,177 465,549 425,498 Stock-based compensation expense 474,932 378,025 326,228 Amortization of discount on convertible notes 101,733 113,298 105,926 Bad debt expense Bad debt expense 18,775 3,083 1,610 Deferred income taxes (36,978) 84,369 43,409 Deferred tax assets valuation allowance release Deferred tax assets valuation allowance release 0 0 (845,129) Deferred tax assets establishment related to intra-entity transfers of intangible assets Deferred tax assets establishment related to intra-entity transfers of intangible assets 0 (1,206,880) 0 Deferred tax assets valuation allowance establishment Deferred tax assets valuation allowance establishment 1,101,374 0 0 Impairment of investments in privately-held companies 8,842 1,550 3,000 Other adjustments (10,764) (19,989) (15,749) Changes in assets and liabilities, net of assets acquired and liabilities assumed from acquisitions: Accounts receivable (188,039) (67,000) (130,871) Prepaid expenses and other assets 6,398 (29,602) 126,470 Operating lease right-of-use assets Operating lease right-of-use assets 168,000 149,880 0 Accounts payable 18,232 2,946 (1,533) Accrued and other liabilities 123,345 92,681 95,256 Operating lease liabilities Operating lease liabilities (152,531) (130,205) 0 Net cash provided by operating activities 992,870 1,303,364 1,339,711 Cash flows from investing activities Purchases of property and equipment (873,354) (540,688) (483,934) Proceeds from sales of property and equipment 9,170 6,158 13,070 Purchases of marketable securities (6,272,395) (5,798,111) (5,334,396) Proceeds from maturities of marketable securities 4,554,238 4,928,097 3,732,973 Proceeds from sales of marketable securities 1,092,754 367,116 58,721 Purchases of investments in privately-held companies Purchases of investments in privately-held companies (11,912) (51,163) (3,375) Proceeds from sales of long-lived assets 0 11,781 0 Business combinations, net of cash acquired (48,016) (29,664) (33,572) Other investing activities (11,050) (9,500) (5,000) Net cash used in investing activities (1,560,565) (1,115,974) (2,055,513) Cash flows from financing activities Proceeds from issuance of convertible notes 1,000,000 0 1,150,000 Proceeds from issuance of senior notes Proceeds from issuance of senior notes 0 700,000 0 Purchases of convertible note hedges 0 0 (267,950) Proceeds from issuance of warrants concurrent with note hedges 0 0 186,760 Debt issuance costs (14,662) (8,070) (13,783) Repayment of convertible notes Repayment of convertible notes 0 (935,000) 0 Repurchases of common stock Repurchases of common stock (245,292) 0 0 Taxes paid related to net share settlement of equity awards (22,587) (19,594) (19,263) Payments of finance lease obligations Payments of finance lease obligations (23,062) (66,677) (90,351) Proceeds from exercise of stock options 5,442 788 3,415 Proceeds from issuances of common stock under employee stock purchase plan 55,471 42,378 29,288 Net cash provided by (used in) financing activities 755,310 (286,175) 978,116 Net increase (decrease) in cash, cash equivalents and restricted cash Net increase (decrease) in cash, cash equivalents and restricted cash 187,615 (98,785) 262,314 Foreign exchange effect on cash, cash equivalents and restricted cash (4,005) 4,576 (14,296) Cash, cash equivalents and restricted cash at beginning of period 1,827,666 1,921,875 1,673,857 Cash, cash equivalents and restricted cash at end of period $ 2,011,276 $ 1,827,666 $ 1,921,875 Supplemental cash flow data Interest paid in cash $ 38,510 $ 12,236 $ 14,547 Income taxes paid in cash Income taxes paid in cash $ 11,480 $ 20,144 $ 33,065 Supplemental disclosures of non-cash investing and financing activities Common stock issued in connection with acquisitions $ 8,311 $ 0 $ 19,165 Changes in accrued property and equipment purchases $ 24,882 $ 14,985 $ (23,469) Reconciliation of cash, cash equivalents and restricted cash as shown in the consolidated statements of cash flows Cash and cash equivalents $ 1,988,429 $ 1,799,082 $ 1,894,444 Restricted cash included in prepaid expenses and other current assets 2,287 1,862 1,698 Restricted cash included in other assets 20,560 26,722 25,733 Total cash, cash equivalents and restricted cash $ 2,011,276 $ 1,827,666 $ 1,921,875 users,people, organizations, advertisers, developers and platform and data partners.significant intercompany accounts and transactions have been eliminated in consolidation.(“GAAP”)(GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, as well as related disclosure of contingent assets and liabilities. Actual results could differ materially from the Company’s estimates. To the extent that there are material differences between these estimates and actual results, the Company’s financial condition or operating results will be affected. The Company bases its estimates on past experience and other assumptions that managementthe Company believes are reasonable based on its knowledge of current events, as well as its expectations about actions it may take inunder the future,circumstances, and the Company evaluates these estimates on an ongoing basis.userperson engages with a Promoted Tweet, follows a Promoted Account, when an impression is delivered, or when a Promoted Trend is displayed.displayed for an entire day in a particular country or on a global basis. These advertising services may be sold in combination as a bundled arrangement or separately on a stand-alone basis.userperson engaging with a Promoted Tweet or an ad on a third-party publisher website or application in a manner satisfying the types of engagement selected by the advertisers, such as Tweet engagements (e.g., retweets,Retweets, replies and likes), website clicks, mobile application installs or engagements, obtaining new followers, or video views, following a Promoted Account, delivery of impressions, or through the display of a Promoted Trend on the Company's platform.Twitter’sits intellectual property (“IP”)(IP) for a defined period of time, may contain a single performance obligation satisfied at a point in time (“Historical IP”)(Historical IP) or over time (“Future IP”)(Future IP), or may contain two or more performance obligations satisfied separately at a point in time (Historical IP) and over time (Future IP). In some of the Company's data licensing arrangements, pricing is a fixed monthly fee over a specified term. In arrangements with a single performance obligation satisfied over time, data licensing revenue is recognized on a straight-line basis over the period in which the Company provides data as the customer consumes and benefits from the continuous data available on an ongoing basis. In arrangements with at least two performance obligations, the Company allocates revenue on a relative basis between the performance obligations based on standalone selling price (“SSP”)(SSP) and recognizes revenue as the performance obligations are satisfied.inover the period thatcontract term, on a straight-line, cumulative catch-up basis. This reflects the related downstream customer sales usingnature of the Company’s licensed data occur, and such amounts have been immaterial to date.content costs,revenue share expenses, amortization expense of technology acquired through acquisitions and amortization of capitalized labor costs for internally developed software, allocated facilities costs, as well as traffic acquisition costs (“TAC”)(TAC). Infrastructure costs consist primarily of data center costs related to the Company’s co-located facilities, which include lease and hosting costs, related support and maintenance costs and energy and bandwidth costs, public cloud hosting costs, as well as depreciation of servers and networking equipment, and personnel-related costs, including salaries, benefits and stock-based compensation, for its operations teams. Content costsRevenue share expenses are primarily related to payments to providers from whom the Company licenses content, in order to increase engagement on the platform. The fees paid to these content providers may be based on revenues generated, or a minimum guaranteed fee. TAC consists of costs incurred with third parties in connection with the sale to advertisers of advertising products that the Company places on third-party publishers’ websites, applications or other offerings collectively resulting from acquisitions and from the Company’s organically-built advertising network, Twitter Audience Platform. without market conditions, the Company recognizes the compensation expense only for those awards expected to meet the performance and service vesting conditionconditions. For service-based restricted stock awards, expense is recognized on a straight-line basis over the requisite service period whichperiod. The service condition for restricted stock awards is generally one year for performance vesting condition awards and satisfied over four years, but has been up to five years for service vesting condition awards.in certain circumstances. For performance-based restricted stock awards, with market conditions,expense is recognized on a graded basis over the requisite service period. For market-based restricted stock awards, the Company recognizes the compensation expense on a straight-linegraded basis over the requisite service period regardless of whether the market condition is satisfied, provided that the requisite service has been provided. Starting in 2017, theThe requisite service period for performance-based and market-based restricted stock awards is generally up to three years. The Company accounts for forfeitures as they occur.performance-basedmarket-based restricted stock awards with market conditions is determined using a Monte Carlo simulation to estimate the grant date fair value.
Business Combinationsaccounts for acquisitions of entities that include inputs and processes and haveallocates the ability to create outputs as business combinations. The purchase price of the acquisition is allocated to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values at the acquisition dates. The excess of the purchase price over those fair values is recorded as goodwill. During the measurement period, which may be up to one year from the acquisition date, the Company may record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to the consolidated statements of operations.Prior to January 1, 2018, theThe Company accountedaccounts for its non-marketableinvestments in privately-held companies either under equity securities at cost less impairment. Realized gains and losses on non-marketable securities soldmethod accounting or impaired were recognized in other income (expense), net. On January 1, 2018, the Company adopted the new standard which changed the way it accounts for non-marketable securities. The Company now adjustsby adjusting the carrying value of its non-marketable equity securities to fair value upon observable transactions for identical or similar investments of the same issuer or upon impairment (referred to as the measurement alternative). The investments in privately-held companies are included within Other Assets on the consolidated balance sheets. All gains and losses on non-marketable equity securities, realized and unrealized, are recognized in other income (expense), net. privateprivately-held companies, the amount of cash that the privately-held companies have on-hand, the ability to obtain additional financing and overall market conditions in which the privateprivately-held companies operate or based on the price observed from the most recent completed financing.various lawsuits,and may in the future be involved in, legal proceedings, claims, investigations, and proceedings that arisegovernment inquiries and investigations arising in the ordinary course of business. The Company records a liability when it believes that it is both probable that a loss has been incurred and the amount or range can be reasonably estimated. If the Company determines there is a reasonable possibility that it may incur a loss and the loss or range of loss can be estimated, it discloses the possible loss to the extent material. Significant judgment is required to determine both probability and the estimated amount. The Company reviews these provisions on a quarterly basis and adjustadjusts these provisions accordingly to reflect the impact of negotiations, settlements, rulings, advice of legal counsel, and updated information.RestructuringOther Chargesrecords charges associated with management-approved restructuring plans to reduce headcount andhas operating leases primarily for leases. Restructuring costs are recognized when the related liability is incurred and measured at fair value. The Company records a liability for employee terminations when all of the following conditions have been met: management, having the authority to approve the action, commits to a plan of termination; the plan identifies the number of employees to be terminated, their job classifications and their locations, and the expected completion date; the plan establishes the terms of the benefit arrangement in sufficient detail to enable employees to determine the type and amount of benefits they will receive if they are involuntarily terminated; and actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn.The Company accrues for costs to terminate an operating lease or other contract when it terminates the contract in accordance with the contract terms.A liability for costs that will continue to be incurred under a contract for the remaining term without economic benefits to the Company is recognized and measured when the entity meets the cease-use date. In recording liabilities for cease-use facilities, the Company makes various assumptions, including the time period over which the facilities are expected to be vacant, expected sublease terms and expected sublease rates. The estimates involve a number of risks and uncertainties, some of which are beyond the Company’s control, including future real estate market conditions and the Company’s ability to successfully enter into sublease agreements with terms as favorable as those assumed when arriving at the estimates. The Company regularly evaluates a number of factors to determine the appropriateness and reasonableness of the restructuring and lease loss accruals including the various assumptions noted above. If actual results differed significantly from its estimates, the Company may be required to adjust the restructuring and lease loss accruals in the future.Operating and Capital LeasesThe Company leases office space and data center facilities underfacilities. The determination of whether an arrangement is a lease or contains a lease is made at inception by evaluating whether the arrangement conveys the right to use an identified asset and whether the Company obtains substantially all of the economic benefits from and has the ability to direct the use of the asset. Operating leases are included in operating leases. lease right-of-use assets, operating lease liabilities, short-term, and operating lease liabilities, long-term on the Company’s consolidated balance sheets.freeoptions for the Company to renew or escalating rent payment provisions.early terminate a lease. The Company considers these options, which may be elected at the Company’s sole discretion, in determining the lease term on a lease-by-lease basis. Leases with an initial term of twelve months or less are not recognized on the consolidated balance sheets. The Company recognizes rentlease expense under suchfor these leases on a straight-line basis over the term of the lease. Lease renewal periods are considered on a lease-by-lease basis in determining the lease term. entered into server and networking equipment lease arrangements with original lease terms upranging from three to four years. The Company’s server and networking equipment leases typically are accounted for as capitalfinance leases as they meet one or more of the four capitalfive finance lease classification criteria. Assets acquired under capitalfinance leases are amortizedincluded in property and equipment, net, finance lease liabilities, short-term, and finance lease liabilities, long-term in the Company’s consolidated balance sheets and are depreciated to operating expenses on a straight-line basis over their estimated useful life. Aslives.2017, non-lease components such as common-area maintenance costs. For each asset class of the Company’s leases—real estate offices, data centers, and equipment—the Company had capitalhas elected to account for both of these provisions as a single lease obligations includedcomponent. For arrangements accounted for as a single lease component, there may be variability in short-termfuture lease payments as the amount of the non-lease components is typically revised from one period to the next. These variable lease payments, which are primarily comprised of common-area maintenance, utilities, and long-term capital lease obligationsreal estate taxes that are passed on from the lessor in proportion to the space leased by the Company, are recognized in operating expenses in the consolidated balance sheetsperiod in which the obligation for those payments was incurred. The Company recognizes lease expense for its operating leases in operating expenses on a straight-line basis over the term of $92.4 millionthe lease.$166.3 million, respectively.non-lease components. The Company has elected to account for both of these provisions as a single lease component. Sublease rent income is recognized as an offset to operating expense on a straight-line basis over the lease term. In addition to sublease rent, variable non-lease costs such as common-area maintenance, utilities, and real estate taxes are charged to subtenants over the years ended December 31, 2018, 2017 and 2016,duration of the lease for their proportionate share of these costs. These variable non-lease income receipts are recognized in operating expenses as a reduction to costs incurred by the Company recorded approximately $4.9 million, $5.6 million and $5.5 million, respectively, of interest expense in relation to these capital lease arrangements.20182020 and 2017,2019, the Company has restricted cash balances of $1.7$2.3 million and $8.3$1.9 million, respectively, within prepaid expenses and other current assets and $25.7$20.6 million and $27.1$26.7 million, respectively, in other assets on the accompanying consolidated balance sheets based upon the term of the remaining restrictions. These restricted cash balances are primarily cash deposits to back letters of credit related to certain property leases.value, andvalue. The Company reports the unrealized gains and losses, net of taxes, as a component of stockholders’ equity, except for unrealized losses determined to be other-than-temporarycredit-related, which are recorded as other income (expense), net.net in the consolidated statements of operations and reports an allowance for credit losses in short-term investments on the balance sheet, if any. The Company determines any realized gains or losses on the sale of marketable securities on a specific identification method and records such gains and losses as a component of other income (expense), net. Interest earned on cash, cash equivalents, and marketable securities was $111.2$88.2 million, $44.4$157.7 million, and $24.3$111.2 million during the years ended December 31, 2018, 20172020, 2019 and 2016,2018, respectively. These balancesamounts are recorded in interest income in the accompanying consolidated statements of operations.investments periodically for possible other-than-temporary impairment. A decline in fair value below the amortized costs ofunrealized loss on available-for-sale debt securities is considered an other-than-temporary impairment if the result of the credit worthiness of the corporate notes it held, or other non-credit-related factors such as liquidity by reviewing a number of factors such as the implied yield of the corporate note based on the market price, the nature of the invested entity's business or industry, market capitalization relative to debt, changes in credit ratings, and the market prices of the corporate notes subsequent to period end. As of December 31, 2020, the gross unrealized loss on available-for-sale debt securities was immaterial and there were no expected credit losses related to the Company's available-for-sale debt securities. The Company has the intentdoes not intend to sell the security orthese investments and it is not more likely than not that the Company will be required to sell the securitythese investments before recovery of the entiretheir amortized cost basis. In those instances, an impairment charge equal to the difference between the fair value and the amortized cost basis is recognizedbases. As of December 31, 2020, no allowance for credit losses in earnings. Regardless of the Company’s intent or requirement to sell a debt security, impairment is considered other-than-temporary if the Company does not expect to recover the entire amortized cost basis.short-term investments was recorded.20182020 and 2017,2019, no single customer accounted for more than 10% of the Company’s net accounts receivable balance.balances. No single customer accounted for more than 10% of the Company’s revenue in the years ended December 31, 2018, 20172020, 2019 and 2016.and the customer’s current financial condition.Property and Equipment fourfive yearschangescircumstances indicate the carrying amount may not be recoverable.2018, 20172020, 2019 and 2016,2018, the Company capitalized $3.7$3.8 million, $3.6$4.6 million, and $4.3$3.7 million of interest expense, respectively.20182020 and determined that the fair value of the reporting unit significantly exceeded its carrying value. As such, goodwill was not impaired. NoNaN impairment charge was recorded in any of the periods presented in the accompanying consolidated financial statements.no0 impairment charges recorded in any of the periods presented in the accompanying consolidated financial statements.2018, 20172020, 2019 and 2016,2018, the Company capitalized costs totaling approximately $121.0$109.3 million, $113.9$127.5 million and $139.0$121.0 million, respectively. Capitalized internal use software development costs are included in property and equipment, net. Included in the capitalized amounts above are $41.4$34.6 million, $51.8$37.5 million and $73.9$41.4 million of stock-based compensation expense in the years ended December 31, 2020, 2019 and 2018, 2017 and 2016, respectively.fourfive years. In the years ended December 31, 2018, 20172020, 2019 and 2016,2018, the amortization of capitalized costs totaled approximately $109.6 million, $116.0 million and $111.8 million, $96.5 million and $74.6 million, respectively.ourits uncertain tax positions in the provision (benefit) for income taxes.Tax Cuts and Jobs Act (the “Tax Act”) contains several key tax provisions that affected the Company, including a reductionestablishment of the federal corporate income tax rate to 21% effective January 1, 2018. The Company is required to recognize the effect of the tax law changes in the period of enactment, such as re-measuring its U.S. deferred tax assets from intra-entity transfers of intangible assets requires management to make significant estimates and liabilities as well as its valuation allowance against its net U.S. deferred taxassumptions to determine the fair value of such intangible assets. In December 2017,Critical estimates in valuing the SEC staff issued Staff Accounting Bulletin No. 118, Income Tax Accounting Implicationsintangible assets include, but are not limited to, internal revenue and expense forecasts, the estimated life of the 2017 Tax Cutsintangible assets, and Jobs Act (SAB 118), which alloweddiscount rates. The discount rates used in the income method to discount expected future cash flows to present value are adjusted to reflect the inherent risks related to the cash flow. Although the Company to record provisional amounts during a measurement period not to extend beyond one yearbelieves the assumptions and estimates it has made are reasonable and appropriate, they are based, in part, on historical experience and are inherently uncertain. Unanticipated events and circumstances may occur that could affect either the accuracy or validity of the enactment date. The Company completed its accounting for the Tax Act in the fourth quarter of 2018, within the one-year measurement period from the enactment date. The Company elected to account for Global Intangible Low-Taxed Income (GILTI) under the Tax Act as a period cost when the expense is incurred, and apply the approach of tax law ordering for reflecting the realization of loss carryforwards expected to offset future GILTI.$78.1$56.1 million, $70.2$81.3 million and $114.3$80.8 million for the years ended December 31, 2020, 2019 and 2018, 2017 and 2016, respectively.May 2014,June 2016, the Financial Accounting Standards Board (FASB) issued a new accounting standard update on revenue recognition from contracts with customers (“Topic 606”). The new guidance replaces all current GAAP guidance on this topic and requires entities to recognize revenue when control of the promised goods or services is transferred to customers at an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. The Company adopted this new accounting standard on January 1, 2018 using the modified retrospective method. See Note 3 – Revenue for further details.In January 2016, the FASB issued a new accounting standard update on the classification and measurement of financial instruments. The new guidance principally affects accounting standards for equity investments, financial liabilities where the fair value option has been elected, and the presentation and disclosure requirements for financial instruments. The Company adopted this new accounting standard prospectively for its non-marketable equity securities on January 1, 2018. The Company has elected to use the measurement alternative for its non-marketable equity securities, defined as cost adjusted for changes from observable transactions for identical or similar investments of the same issuer, less impairment. The Company’s investments in privately-held companies are non-marketable equity securities without readily determinable fair values and there was no upward adjustment during the twelve months ended December 31, 2018. See Note 9 – Acquisitions and Other Investments for further details.In August 2016, the FASB issued a new accounting standard update on the statement of cash flows. The new guidance clarifies classification of certain cash receipts and cash payments in the statement of cash flows. The Company adopted this new accounting standard retrospectively on January 1, 2018, and the adoption did not have a material impact on the Company’s financial statements.In October 2016, the FASB issued a new accounting standard update on simplifying the accounting for income taxes related to intra-entity asset transfers. The new guidance requires an entity to recognize the tax expense from the sale of an asset in the seller’s tax jurisdiction when the transfers occurs, even though the pre-tax effects of that transaction are eliminated in consolidation. The Company adopted this new accounting standard on January 1, 2018 using the modified retrospective method. Upon adoption, the Company recognized an additional deferred tax asset of $29.5 million related to a prior period intra-entity transfer, which was offset by a full valuation allowance. Therefore, the recognition of the deferred tax asset upon adoption did not have an impact on the Company’s accumulated deficit. See Note 14 – Income Taxes for further details.In November 2016, the FASB issued a new accounting standard update on the presentation of restricted cash in the statement of cash flows. The new guidance requires an entity to show the changes in the total of cash, cash equivalents, restricted cash and restricted cash equivalents in the statement of cash flows, and an entity will no longer present transfers between cash and cash equivalents and restricted cash and restricted cash equivalents in the statement of cash flows. The Company adopted this new accounting standard retrospectively on January 1, 2018. As a result of the adoption, net cash used in investing activities was adjusted to exclude the changes in restricted cash, resulting in an increase of $3.6 million in the previously-reported amount for the twelve months ended December 31, 2017 and a $4.8 million decrease in the previously-reported amount for the twelve months ended December 31, 2016. Restricted cash balances are primarily cash deposits secured against letters of credit related to certain property leases.In January 2017, the FASB issued a new accounting standard update on narrowing the definition of a business. The new guidance requires an entity to evaluate if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets; if so, the set of transferred assets and activities is not a business. The guidance also requires a business to include at least one substantive process and narrows the definition of outputs. The Company adopted this new accounting standard retrospectively on January 1, 2018 and the adoption did not have a material impact on the Company’s financial statements.Recently issued accounting pronouncements not yet adoptedIn February 2016, the FASB issued a new accounting standard update on leases. The new guidance requires lessees to recognize right-of-use (“ROU”) assets and lease liabilities for operating leases, initially measured at the present value of the lease payments, on the balance sheet. In addition, it requires lessees to recognize a single lease cost, calculated so that the cost of the lease is allocated over the lease term, generally on a straight-line basis. This guidance will be effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. In July 2018, the FASB issued updated guidance which allows an additional transition method to adopt the new lease standard at the adoption date, as compared to the beginning of the earliest period presented, and recognize a cumulative-effect adjustment to the beginning balance of retained earnings in the period of adoption. The Company will adopt the new lease standard effective January 1, 2019 and will elect to apply all relevant practical expedients permitted under the transition guidance within the new lease standard with the exception of the practical expedient allowing the use of hindsight in determining the lease term and in assessing impairment. The standard will have a material impact on the Company’s consolidated balance sheets, but it will not have a material impact on its consolidated statements of operations, its consolidated statements of stockholders’ equity, or its consolidated statements of cash flows. The most significant impact will be the recognition of ROU assets and lease liabilities for operating leases. The accounting for capital leases remains substantially unchanged. The adoption of the new lease standard on January 1, 2019 is anticipated to result in the recognition of ROU assets and lease liabilities of approximately $700 million to $800 million.In June 2016, the FASB issued a new accounting standard update on the measurement of credit losses on financial instruments. The new guidance requires financial assets measured at amortized cost to be presented at the net amount expected to be collected and available-for-sale debt securities to record credit losses through an allowance for credit losses. This guidance will be effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted as early as the fiscal years beginning after December 15, 2018. The Company is evaluating the impact of adoptingadopted this new accounting standard update on January 1, 2020 using the financial statements and related disclosures.March 2017,connection with the FASB issuedadoption of this guidance, the Company recorded a new accounting standard update on shortening the premium amortization period for purchased non-contingently callable debt securities. The new guidance shortens the amortization period for the premium on purchased non-contingently callable debt securitiescumulative-effect adjustment of $1.6 million to the earliest call date. Currently, entities generally amortize the premium as a yield adjustment over the contractual life of the security. This guidance will be effective for fiscal years, and interim periods within those years, beginning after December 15, 2018. Adoption is not expected to have a material impact on the Company’s financial statements and related disclosures.In February 2018, the FASB issued a new accounting standard update to give entities the option to reclassify tax effects stranded in accumulated other comprehensive income as a result of tax reform toopening retained earnings (accumulated deficits). The new guidance also requires entitiesas of January 1, 2020, related to make additional disclosures, regardlessallowance for credit losses on doubtful accounts and unbilled revenue.used to developof significant unobservable inputs forused to develop Level 3 fair value measurements. This guidance will be effective for fiscal years,The Company adopted this new accounting standard on January 1, 2020, using the prospective method, and interim periods within those fiscal years, beginning after December 15, 2019. Adoption isthe adoption did not expected to have a material impact on the Company’s financial statements and related disclosures.2019.2021, using a modified or full retrospective transition method. Early adoption is permitted.permitted for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. The Company is evaluating the impact of adoptingwill early adopt this new accounting standard update on its financial statements and related disclosures.Note 3. RevenueAdoption of ASC Topic 606, "Revenue from Contracts with Customers"On January 1, 2018, the Company adopted Topic 606guidance using the modified retrospective method applied to those contracts not yet substantially completed as of January 1, 2018. Results2021. The adoption of this new guidance is estimated to result in an increase of approximately $255.0 million and $35.0 million to Convertible notes, long-term and Convertible notes, short-term, respectively, in the consolidated balance sheets, to reflect the full principal amount of the convertible notes outstanding net of issuance costs, a reduction of approximately $568.0 million to additional paid-in capital, net of estimated income tax effects, to remove the equity component separately recorded for reporting periodsthe conversion features associated with the convertible notes, an increase to deferred tax assets, net of approximately $67.0 million, and a cumulative-effect adjustment of approximately $345.0 million, net of estimated income tax effects, to the beginning afterbalance of accumulated deficit as of January 1, 2018 are presented under2021. The adoption of this new guidance is anticipated to reduce interest expense by approximately $100.0 million during the year ended December 31, 2021. In addition, the required use of the if-converted method by the new revenue standard, while prior period amounts are not adjusted and continueguidance in calculating diluted earnings per share is expected to be reportedincrease the number of potentially dilutive shares in accordance with the Company's historical accounting policies and practices.addressesaddress of the customers. The following table setstables set forth revenue by services and revenue by geographic area (in thousands):Year Ended December 31, 2020 2019 2018 Revenue by services: Advertising services $ 3,207,392 $ 2,993,392 $ 2,617,397 Data licensing and other 508,957 465,937 424,962 Total revenue $ 3,716,349 $ 3,459,329 $ 3,042,359 Revenue Recognition Accounting PolicySee Note 2 – Summary of Significant Accounting Policies.Impact of AdoptionThe Company recorded a net reduction to opening accumulated deficit of $12.1 million, an increase to unbilled revenue of $8.0 million, and a reduction to deferred revenue of $4.1 million as of January 1, 2018 due to the cumulative impact of adopting Topic 606, with the impact primarily related to its data licensing arrangements.As a result of applying the new standard, the impact for the twelve months ended December 31, 2018 was an increase to revenue of $16.1 million, an increase to unbilled revenue of $12.6 million, and a reduction to deferred revenue of $3.5 million, with the impact primarily related to the Company’s data licensing arrangements.Year Ended December 31, 2020 2019 2018 Revenue by geographic area: United States $ 2,078,836 $ 1,944,022 $ 1,642,259 Japan 547,862 537,021 507,970 Rest of World 1,089,651 978,286 892,130 Total revenue $ 3,716,349 $ 3,459,329 $ 3,042,359 The Company applied the practical expedient to not disclose the value of remaining performance obligations not yet satisfied as of period end for variable consideration in the form of sales-based royalties promised in exchange for licenses to its intellectual property in data licensing contracts.recordspresents deferred revenue primarily within accrued and other current liabilities in the consolidated balance sheets.sheets and there is not expected to be any material non-current contract liabilities given the Company's contracting provisions. The Company's deferred revenue balance primarily consists of cash payments due in advance of satisfying its performance obligations relating to data licensing contracts and performance obligations given to customers based on their spend relating to advertising contracts, for which the Company defers, as they represent material rights. The Company recognizes deferred revenue relating to its data licensing contracts on a straight-line basis over the period in which the Company provides data. The Company recognizes deferred revenue relating to its advertising contracts based on the amount of customer spend and the relative standalone selling price of the material rights.Unbilled Revenue (Contract Assets)The Company records unbilled revenue within prepaid expenses and other current assets and other assets in the consolidated balance sheets. The Company's unbilled revenue primarily consistsDecember 31,
2020December 31,
2019Unbilled Revenue $ 44,063 $ 27,691 Deferred Revenue $ 62,191 $ 69,000 twelve monthsyear ended December 31, 20182020 that was included in the opening deferred revenue balance as of December 31, 2019 was $25.9$69.0 million. The amount of revenue recognized in the year ended December 31, 2019 that was included in the deferred revenue balance as of December 31, 2018 was $38.9 million. This revenue consists primarily of revenue recognized as a result of the utilization of bonus mediaads inventory earned by and material rights provided to customers in prior periods.January 1, 2018December 31, 2019 to December 31, 20182020 was primarily attributable to differences between revenue recognized and amounts billed in the Company's data licensing arrangements with escalating fee structures due to recognizing such fees as revenue on a straight-line basis.increasedecrease in the deferred revenue balance from January 1, 2018December 31, 2019 to December 31, 20182020 was primarily due to cash payments dueutilization of bonus and make good ads inventory earned in advanceprior periods and the satisfaction of satisfying the Company’sCompany's performance obligations relating to data licensing contracts andwith advance cash payments or material rights, offset by bonus and make good mediaads inventory offered to customers during the period, offset by the utilization of such media inventory issued.2018,2020, the aggregate amount of the transaction price allocated to remaining performance obligations in contracts with an original expected duration exceeding one year is $494.8$774.4 million. This total amount primarily consists of long-term data licensing contracts and excludes deferred revenue related to the Company’s short-term advertising service arrangements. The Company expects to recognize this amount as revenue over the following time periods (in thousands):Remaining Performance Obligations
Total2021 2022 2023 and Thereafter Revenue expected to be recognized on remaining performance obligations $ 774,447 $ 299,300 $ 215,794 $ 259,353 December 31,
2020December 31,
2019Cash and cash equivalents: Cash $ 285,002 $ 254,405 Money market funds 1,158,927 465,158 Corporate notes, commercial paper and certificates of deposit 544,500 1,079,519 Total cash and cash equivalents $ 1,988,429 $ 1,799,082 Short-term investments: U.S. government and agency securities $ 910,259 $ 660,860 Corporate notes, commercial paper and certificates of deposit 4,572,394 4,179,110 Marketable equity securities 1,220 0 Total short-term investments $ 5,483,873 $ 4,839,970 December 31,
2020Due within one year $ 2,733,961 Due after one year through five years 2,748,692 Total $ 5,482,653 as of December 31, 2018 and 2017 (in thousands):December 31, 2020 Gross
Amortized
CostGross
Unrealized
GainsGross
Unrealized
LossesAggregated
Estimated
Fair ValueU.S. government and agency securities $ 909,092 $ 1,177 $ (10) $ 910,259 Corporate notes, commercial paper and certificates of deposit 4,545,687 26,939 (232) 4,572,394 Total available-for-sale debt securities classified as short-term investments $ 5,454,779 $ 28,116 $ (242) $ 5,482,653 December 31, 2019 Gross
Amortized
CostGross
Unrealized
GainsGross
Unrealized
LossesAggregated
Estimated
Fair ValueU.S. government and agency securities $ 660,361 $ 1,049 $ (550) $ 660,860 Corporate notes, commercial paper and certificates of deposit 4,166,203 13,133 (226) 4,179,110 Total available-for-sale debt securities classified as short-term investments $ 4,826,564 $ 14,182 $ (776) $ 4,839,970 The contractual maturities of securities classified as available-for-sale as of December 31, 2018 were as follows (in thousands):20182020 and 2017.Investments are reviewed periodically to identify possible other-than-temporary impairments. No impairment loss has been recorded on the securities included in the tables above as the Company believes that the decrease in fair value of these securities is temporary and expects to recover the initial cost of investment for these securities.20182020 and 20172019 based on the three-tier fair value hierarchy (in thousands):December 31, 2020 Level 1 Level 2 Total Assets Cash equivalents: Money market funds $ 1,158,927 $ 0 $ 1,158,927 Corporate notes 0 1,347 1,347 Commercial paper 0 543,153 543,153 Short-term investments: U.S. government and agency securities 0 910,259 910,259 Corporate notes 0 2,829,521 2,829,521 Commercial paper 0 1,240,670 1,240,670 Certificates of deposit 0 502,203 502,203 Marketable equity securities 1,220 0 1,220 Other current assets: Foreign currency contracts 0 5,529 5,529 Total $ 1,160,147 $ 6,032,682 $ 7,192,829 Liabilities Other current liabilities: Foreign currency contracts $ 0 $ 1,028 $ 1,028 Total $ 0 $ 1,028 $ 1,028 December 31, 2019 Level 1 Level 2 Total Assets Cash equivalents: Money market funds $ 465,158 $ 0 $ 465,158 Corporate notes 0 8,246 8,246 Commercial paper 0 1,031,825 1,031,825 Certificates of deposit Certificates of deposit 0 39,448 39,448 Short-term investments: U.S. government and agency securities 0 660,860 660,860 Corporate notes 0 2,468,429 2,468,429 Commercial paper 0 1,236,487 1,236,487 Certificates of deposit 0 474,194 474,194 Other current assets: Foreign currency contracts 0 3,756 3,756 Total $ 465,158 $ 5,923,245 $ 6,388,403 Liabilities Other current liabilities: Foreign currency contracts $ 0 $ 1,573 $ 1,573 Total $ 0 $ 1,573 $ 1,573 In June 2018,Company issued2021 Notes, $1.15 billion in aggregate principal amount of 0.25% convertible senior notes due in 2024, (the “2024 Notes”)or the 2024 Notes, $1.0 billion in a private placement to qualified institutional buyers pursuant to Rule144A underaggregate principal amount of 0.375% convertible senior notes due in 2025, or the Securities Act of 1933, as amended. In 2014,2025 Notes, and, taken together with the 2021 Notes and the 2024 Notes, the Convertible Notes. The Company issued $935.0also has $700.0 million in aggregate principal amount of 0.25% convertible3.875% senior notes due in 2019 (the “2019 Notes”) and $954.0 million in aggregate principal amount of 1.00% convertible senior notes due in 2021 (the “2021 Notes”2027, or the 2027 Notes, and, together with the 2019 Notes and the 2024Convertible Notes, the “Notes”) in a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities ActNotes, outstanding as of 1933, as amended.December 31, 2020. Refer to Note 1011 – Senior Notes and Convertible Notes for further details on the Notes.2019 Notes, 2021 Notes, the 2024 Notes, and 2024the 2027 Notes, based on a market approach as of December 31, 2018,2020 was approximately $909.2$975.3 million, $872.6$1.39 billion, and $745.5 million, and $1.01 billion, respectively, which represents a Level 2 valuation. The estimated fair value was determined based on the estimated or actual bids and offers of the Notes in an over-the-counter market on the last business day of the period.asin other income (expense), net in the consolidated statements of operations. The notional principal of foreign currency contracts outstanding was equivalent to $545.3$729.8 million and $326.1$456.1 million at December 31, 20182020 and 2017,2019, respectively.Balance Sheet Location December 31,
2020December 31,
2019Assets Foreign currency contracts not designated as hedging instruments Other current assets $ 5,529 $ 3,756 Liabilities Foreign currency contracts not designated as hedging instruments Other current liabilities $ 1,028 $ 1,573 $8.3 million of net gains, and $1.6 million of net gains on theits foreign currency contracts in the yearyears ended December 31, 2020, 2019 and 2018, 2017 and 2016, respectively.table presents the detail oftables set forth property and equipment, net by type and by geographic area for the periods presented (in thousands):December 31,
2020December 31,
2019Property and equipment, net Equipment $ 1,830,459 $ 1,445,003 Furniture and leasehold improvements 362,766 347,983 Capitalized software 811,371 688,894 Construction in progress 349,935 100,551 Total 3,354,531 2,582,431 Less: Accumulated depreciation and amortization (1,860,737) (1,550,650) Property and equipment, net $ 1,493,794 $ 1,031,781 The gross carrying amountDecember 31,
2020December 31,
2019Property and equipment, net: United States $ 1,460,163 $ 999,552 International 33,631 32,229 Total property and equipment, net $ 1,493,794 $ 1,031,781 $406.5$471.6 million, $349.3$449.0 million, and $332.8$406.5 million for the years ended December 31, 2018, 20172020, 2019 and 2016,2018, respectively. Included in these amounts were depreciation expense for server and networking equipment acquired under capitalfinance leases in the amount of $84.2$20.5 million, $93.6$63.7 million, and $100.8$84.2 million for the years ended December 31, 2020, 2019 and 2018, 2017respectively.2016, respectively.Finance LeasesYear Ended December 31, 2020 2019 Operating lease cost $ 201,386 $ 173,005 Finance lease cost Depreciation expense 20,527 63,674 Interest on lease liabilities 369 2,125 Total finance lease cost 20,896 65,799 Short-term lease cost 5,603 3,000 Variable lease cost 52,476 49,456 Sublease income (9,626) (22,326) Total lease cost $ 270,735 $ 268,934 Year Ended December 31, 2020 2019 Supplemental Cash Flows Information Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases $ 183,033 $ 165,093 Operating cash flows from finance leases $ 369 $ 2,125 Financing cash flows from finance leases $ 23,062 $ 66,677 Right-of-use assets obtained in exchange for lease obligations: Operating leases $ 398,480 $ 110,522 December 31,
2020December 31,
2019Lease Term and Discount Rate Weighted-average remaining lease term (years): Operating leases 6.8 6.6 Finance leases 0.1 0.7 Weighted-average discount rate: Operating leases 3.8 % 4.3 % Finance leases 3.9 % 3.7 % Operating
LeasesFinance
LeasesTotal Sublease
IncomeYear Ending December 31, 2021 $ 218,869 $ 569 $ 219,438 $ (8,976) 2022 251,548 0 251,548 (1,353) 2023 178,870 0 178,870 0 2024 178,669 0 178,669 0 2025 175,585 0 175,585 0 Thereafter 667,742 0 667,742 0 Total future lease payments (receipts) 1,671,283 569 1,671,852 $ (10,329) Less: leases not yet commenced (528,964) 0 (528,964) Less: imputed interest (145,424) (2) (145,426) Total lease liabilities $ 996,895 $ 567 $ 997,462 Reconciliation of lease liabilities as shown in the consolidated balance sheets Operating lease liabilities, short-term $ 177,147 $ — $ 177,147 Operating lease liabilities, long-term 819,748 — 819,748 Finance lease liabilities, short-term — 567 567 Total lease liabilities $ 996,895 $ 567 $ 997,462 7.8. Goodwill and Intangible AssetsGoodwill Balance as of December 31, 2019 $ 1,256,699 Acquisitions 50,970 Other 4,677 Balance as of December 31, 2020 $ 1,312,346 the gross goodwill balance equaled the net balance since no0 impairment charges have been recorded. Refer to Note 9 – Acquisitions and Other Investments for further details about goodwill.Gross Carrying
ValueAccumulated
AmortizationNet Carrying
ValueDecember 31, 2020: Patents and developed technologies $ 110,153 $ (53,265) $ 56,888 Other 1,800 (350) 1,450 Total $ 111,953 $ (53,615) $ 58,338 December 31, 2019: Patents and developed technologies $ 96,636 $ (41,530) $ 55,106 Total $ 96,636 $ (41,530) $ 55,106 dates, and publisher and advertiser relationships are amortized over a period of five years.dates. Amortization expense associated with intangible assets for the years ended December 31, 2020, 2019 and 2018 2017 and 2016 was $19.0$23.6 million, $46.5$16.5 million and $69.3$19.0 million, respectively. During the year ended December 31, 2018, $13.92020, $11.5 million in gross carrying value and accumulated amortization related to fully-amortized intangible assets was eliminated.20182020 is as follows (in thousands):2021 $ 21,583 2022 14,528 2023 7,843 2024 2024 6,026 2025 2025 1,863 Thereafter 6,495 Total $ 58,338 8.9. Accrued and other current liabilitiesDecember 31,
2020December 31,
2019Accrued compensation $ 171,681 $ 190,465 Federal Trade Commission accrual (see Note 16) Federal Trade Commission accrual (see Note 16) 150,000 0 Deferred revenue Deferred revenue 58,976 68,987 Accrued publisher, content and ad network costs Accrued publisher, content and ad network costs 42,541 45,265 Accrued tax liabilities 40,384 45,967 Accrued professional services Accrued professional services 27,404 38,596 Accrued other 171,979 111,613 Total $ 662,965 $ 500,893 9.10. Acquisitions and Other Investments24 months.revenue and results of operations.2017 AcquisitionsThe Company did not complete any acquisitions during the year ended December 31, 2017.2016 AcquisitionsDuring the year ended December 31, 2016, the Company acquired several companies, each of which was accounted for as a business combination. The total purchase price of $91.4 million (paid in shares of the Company’s common stock having a total fair value of $1.3 million and cash of $90.1 million) for these acquisitions was allocated as follows: $14.4 million to developed technologies, $5.0 million to cash acquired, $0.2 million to net tangible assets acquired based on their estimated fair value on the acquisition date, $2.4 million to deferred tax liability, and the excess $74.2 million of the purchase price over the fair value of net assets acquired to goodwill. The goodwill from the acquisitions are mainly attributable to assembled workforce, expected synergies and other benefits. Tax deductible goodwill resulting from certain of these acquisitions was $63.8 million. The remaining goodwill is not tax deductible for U.S. income tax purposes. Developed technologies will be amortized on a straight-line basis over their estimated useful lives of up to 24 months.The results of operations for each of these acquisitions have been included in the Company’s consolidated statements of operations since the date of acquisition. Actual and pro forma revenue and results of operations for these acquisitions have not been presented because they do not have a material impact on the consolidated revenue and results of operations, either individually or in the aggregate.companies. The Company also evaluates each investee to determine if the investee is a variable interest entity and, if so, whether the Company is the primary beneficiarycompanies that primarily consist of the variable interest entity. The Company has determined, as of December 31, 2018 there were no variable interest entities required to be consolidated in the Company’s consolidated financial statements. The Company’s investments in privately-held companies are primarily non-marketable equity securities without readily determinable fair values. Prior to January 1, 2018, the Company accounted for its non-marketable equity securities at cost less impairment. Realized gains and losses on non-marketable securities sold or impaired were recognized in other income (expense), net. On January 1, 2018, the Company adopted the new standard which changed the way it accounts for non-marketable securities. The Company now adjusts the carrying value of its non-marketable equity securities to fair value upon observable transactions for identical or similar investments of the same issuer or upon impairment (referred to as the measurement alternative). All gains and losses on non-marketable equity securities, realized and unrealized, are recognized in other income (expense), net. The Company’s non-marketable equity securities had a combined carrying value of $25.8$85.8 million and $27.6$77.7 million as of December 31, 20182020 and 2017,2019, respectively. As of December 31, 2020, the Company committed to provide up to $60.0 million of bridge financing to one of its investments in privately-held companies. The loan contains a conversion feature where the Company may convert all or any part of the outstanding loan into preference shares through June 30, 2021. No amount was funded as of December 31, 2020. The maximum loss the Company can incur for its investments is their carrying value. These investments in privately-held companies are included within other assets on the consolidated balance sheets.The Company estimates the fair value of the investments to assess whether impairment losses shall be recorded using Level 3 inputs. These investments include the Company’s holdings in privately-held companies that are not exchange traded and therefore not supported with observable market prices; hence, the Company may determine the fair value by reviewing equity valuation reports, current financial results, long-term plans of the privately-held companies, the amount of cash that the privately-held companies have on-hand, the ability to obtain additional financing and overall market conditions in which the privately-held companies operate or based on the price observed from the most recent completed financing. In the years ended December 31, 2018, 2017,2020, 2019 and 2016,2018, the Company recorded $8.8 million, $1.6 million, and $3.0 million of impairment charges, of $3.0 million, $62.4 million, and $4.0 million, respectively, within other income (expense), net in the consolidated statements of operations. 10.11. Senior Notes and Convertible Notes2024June 2018,2019, the Company issued $1.15 billion in$700.0 million aggregate principal amount of the 20243.875% senior notes due 2027, or the 2027 Notes, in a private placement to qualified institutional buyers pursuant to Rule144A under the Securities Act of 1933, as amended.amended, and outside the United States pursuant to Regulation S under the Securities Act of 1933. The total net proceeds from this offering were approximately $1.14 billion,$691.9 million, after deducting $12.3$8.1 million of debt issuance costs in connection with the 2024issuance of the 2027 Notes.20242027 Notes represent senior unsecured obligations of the Company. The interest rate is fixed at 0.25%3.875% per annum and interest is payable semi-annually in arrears on June 15 and December 15 of each year, which commenced on June 15, 2020. The 2027 Notes mature on December 15, 2018. Each $1,000 of principalThe Company may redeem the 2027 Notes, in whole or in part, at any time prior to September 15, 2027 at a price equal to 100% of the 2024principal amount of the 2027 Notes plus a “make-whole” premium and accrued and unpaid interest, if any. On and after September 15, 2027, the Company may redeem the 2027 Notes at 100% of the principal amount plus accrued and unpaid interest, if any, to, but excluding, the redemption date. If the Company experiences a change of control triggering event (as defined in the Indenture), the Company must offer to repurchase the 2027 Notes at a repurchase price equal to 101% of the principal amount of the 2027 Notes to be repurchased, plus accrued and unpaid interest, if any, to the applicable repurchase date. initially be convertible into 17.5001 shares of the Company’s common stock based on an initial conversion rate of 24.0964 shares of common stock per $1,000 principal amount of the 2025 Notes, which is equivalentequal to an initial conversion price of approximately $57.14$41.50 per share, subject to customary anti-dilution and other adjustments, including in connection with any make-whole adjustment upon the occurrenceas a result of specified events. Holders of the 2024 Notes may convert the 2024 Notes at their option at any time on or after March 15, 2024 until close of business on the second scheduled trading day immediately preceding the maturity date of June 15, 2024. Further, holders of the 2024 Notes may convert all or any portion of their 2024 Notes at their option prior to the close of business on the business day immediately preceding March 15, 2024, only under the following circumstances:
certain extraordinary transactions.1)during any calendar quarter commencing after the calendar quarter ending on September 30, 2018 (and only during such calendar quarter), if the last reported sale price of the common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price for the notes on each applicable trading day;2)during the five business day period after any five consecutive trading day period (as used in this paragraph, the “measurement period”) in which the trading price (as defined in the Indenture governing the 2024 Notes) per $1,000 principal amount of 2024 Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of Twitter’s common stock and the conversion rate for the 2024 Notes on each such trading day; or3)upon the occurrence of certain specified corporate events.20242025 Notes, the Company will pay or deliver, as the case may be, cash, shares of its common stock or a combination of cash and shares of its common stock, at the Company’s election. If the Company satisfies its conversion obligation solely in cash or through payment and delivery, as the case may be, of a combination of cash and shares of its common stock, the amount of cash and shares of common stock, if any, due upon conversion will be based on a daily conversion value (as set forth in the indenture governing the 20242025 Notes) calculated on a proportionate basis for each trading day in a 30 trading day observation period.If20242025 Notes) occurs prior to, the maturity date, holders of the 20242025 Notes may require that the Company to repurchase all or a portionpart of their 2024the principal amount of the 2025 Notes for cash at a repurchase price equal to 100% of the principal amount of the 20242025 Notes, plus any accrued and unpaid interest to, but excluding, the repurchase date. In addition, if specific corporate events occurmaturityearlier of (i) the two year anniversary of the original issue date of the 20242025 Notes or (ii) immediately prior to the consummation of a change of control of the Company. Exceptions to such restrictions on transfer include, among others: (a) transfers to affiliates of Silver Lake, (b) transfers to the Company will be requiredor any of its subsidiaries, (c) transfers to increasea third party where the conversion rate for holders who electnet proceeds of such sale are solely used to convert their 2024 Notessatisfy a margin call or repay a permitted loan or (d) transfers in connection with certain circumstances.embeddedconvertible debt that may be settled in cash on conversion, features, the Company valued and bifurcatedseparated the conversion option associated with the 20242025 Notes (the equity component) from the respective host debt instrument (the liability component). The carrying value of the liability component was determined by measuring the fair value of a similar liability that does not have an associated convertible feature. The carrying value of the equity component of $121.4 million, which is referred to as debt discount, and initially recorded the conversion option of $255.0 million for the 2024 Noterecognized in stockholders’ equity.equity, represents the difference between the proceeds from the issuance of the 2025 Notes and the fair value of the liability component. The resultingequity component is not remeasured as long as it continues to meet the conditions for equity classification. The excess of the principal amount of the liability component over its carrying amount (the debt discount on the 2024 Notesdiscount) is amortized to interest expense at an effective interest rate of 4.46%2.99% over the contractual termsexpected life of the 20242025 Notes. The Company allocated $2.7$1.8 million of debt issuance costs to the equity component and the remaining debt issuance costs of $9.6$12.9 million are amortized to interest expense under the effective interest rate method over the contractual termsexpected life of the 2024 Notes.Concurrent with the offering of thenotes. in June 2018, the Company entered into convertible note hedge transactions with certain bank counterparties whereby the Company has the option to purchase initially (subject to adjustment for certain specified events) a total of approximately 20.1 million shares of its common stock at a price of approximately $57.14 per share. The total cost of the convertible note hedge transactions was $268.0 million. In addition, the Company sold warrants to certain bank counterparties whereby the holders of the warrants have the option to purchase initially (subject to adjustment for certain specified events) a total of approximately 20.1 million shares of the Company’s common stock at an initial strike price of $80.20. The Company received $186.8 million in cash proceeds from the sale of these warrants.Taken together, the purchase of the convertible note hedges and the sale of warrants in connection with the issuance of the 2024 Notes are intended to offset any actual dilution from the conversion of these 2024 Notes and to effectively increase the overall conversion price from approximately $57.14 to $80.20 per share. As these transactions meet certain accounting criteria, the convertible note hedges and warrants are recorded in stockholders’ equity and are not accounted for as derivatives. The net cost incurred in connection with the convertible note hedge and warrant transactions was recorded as a reduction to additional paid-in capital in the consolidated balance sheet as of December 31, 2018.2019 Notes and 2021 Notes$935.0$954.0 million in aggregate principal amount of 2019 Notes and $954.0 million in aggregate principal amount ofthe 1.00% convertible senior notes due 2021, or the 2021 Notes, in a private placement to qualified institutional buyers pursuant to Rule 144A of the Securities Act of 1933, as amended. The total net proceeds from this offering were approximately $1.86 billion,$939.5 million, after deducting $28.3$14.3 million of debt discount and $0.5$0.2 million of debt issuance costs in connection with the 2019issuance of the 2021 Notes. 2021 Notes. The 20192024 Notes and 2021 Notes representare senior unsecured obligations of the Company. The interest rates arerate of the 2021 Notes is fixed at 0.25% and 1.00% per annum for the 2019 Notes and the 2021 Notes, respectively, and areinterest is payable semi-annually in arrears on March 15 and September 15 of each year, which commencedyear. The interest rate of the 2024 Notes is fixed at 0.25% per annum and interest is payable semi-annually in arrears on MarchJune 15 2015. thesethe 2021 Notes and the 2024 Notes will initially be convertible into 12.8793 and 17.5001 shares, respectively, of the Company’s common stock, which is equivalent to an initial conversion price of approximately $77.64 and $57.14 per share, respectively, in each case, subject to adjustment upon the occurrence of specified events.events set forth in the indenture governing such series. Holders of these notesthe 2021 Notes may convert their notes2021 Notes at their option at any time on or after March 15, 2021 until close of business on the second scheduled trading day immediately preceding the relevant maturity date which isof September 15, 2021. Holders of the 2024 Notes may convert their 2024 Notes at their option at any time on or after March 15, 2019 for2024 until close of business on the 2019second scheduled trading day immediately preceding the maturity date of June 15, 2024. Further, holders of the Convertible Notes may convert all or any portion of the notes of the applicable series at the option of such holder prior to March 15, 2021 and March 15, 20212024 for the 2021 Notes. Further, holders of each of these notes may convert their notes at their option prior to the respective dates above,Notes and 2024 Notes, respectively, only under the following circumstances:1)during any calendar quarter commencing after the calendar quarter ending on December 31, 2014 (and only during such calendar quarters), if the last reported sale price of Twitter’s common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price for the relevant series of notes on each applicable trading day;
1)during any calendar quarter commencing after the calendar quarter ending on December 31, 2014, in the case of the 2021 Notes, and September 30, 2018, in the case of the 2024 Notes (and, in each case, only during such calendar quarter), if the last reported sale price of the common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price for the applicable series of Convertible Notes on each applicable trading day;2)during the five business day period after any five consecutive trading day period (the “measurement period”) in which the trading price (as defined in the related Indenture) per $1,000 principal amount of 2019 notes or 2021 notes, as applicable, for each trading day of the measurement period was less than 98% of the product of the last reported sale price of Twitter’s common stock and the conversion rate for the notes of the relevant series on each such trading day; or
2)during the 5 business day period after any 5 consecutive trading day period (the measurement period) in which the trading price (as defined in the indenture governing the applicable series of Convertible Notes) per $1,000 principal amount of such series of Convertible Notes for each trading day of the applicable measurement period was less than 98% of the product of the last reported sale price of Twitter’s common stock and the conversion rate for the applicable series of Convertible Notes on each such trading day; or3)upon the occurrence of certain specified corporate events.20192021 Notes and 20212024 Notes, the Company will pay or deliver, as the case may be, cash, shares of its common stock or a combination of cash and shares of its common stock, at the Company’s election. If the Company satisfies its conversion obligation solely in cash or through payment and delivery, as the case may be, of a combination of cash and shares of its common stock, the amount of cash and shares of common stock, if any, due upon conversion of the 2021 Notes or the 2024 Notes, as applicable, will be based on a daily conversion value (as described herein)defined in the indenture governing the applicable series of Convertible Notes) calculated on a proportionate basis for each trading day in athe applicable 30 trading day observation period.relevant indenture governing the applicable series of Convertible Notes) occurs prior to the applicable maturity date, holders of the 20192021 Notes and 20212024 Notes, as applicable, may require the Company to repurchase all or a portion of their notes for cash at a repurchase price equal to 100% of the principal amount of thesuch notes, plus any accrued and unpaid interest to, but excluding, the repurchase date.date of such series of notes. In addition, if specific corporate events occur prior to the applicable maturity date of the 2021 Notes or the 2024 Notes, the Company will be required to increase the conversion rate for holders who elect to convert their notes in certain circumstances.20192021 Notes and 2021the 2024 Notes from the respective host debt instrument, which is referred to as debt discount, and initially recorded the conversion option of $222.8 million for the 2019 Notes and $283.3 million for the 2021 Notes and $255.0 million for the 2024 Notes in stockholders’ equity. The resulting debt discountsdiscount on the 20192021 Notes and 2021the 2024 Notes are beingis amortized to interest expense at an effective interest rate of 5.75%6.25% and 6.25%4.46%, respectively, over the contractual terms of thethese notes. The Company allocated $0.1$2.8 million of debt issuance costs to the equity component and the remaining $9.8 million of debt issuance costs of $0.4 million are being amortized to interest expense.Concurrentlyexpense under the effective interest rate method over the contractual terms of these notes.thesethe 2021 Notes in September2014 and October 2014,the 2024 Notes in 2018, the Company entered into convertible note hedge transactions with certain bank counterparties whereby the Company has the option to purchase initially (subject to adjustment for certain specified events) a total of approximately 24.312.3 million and 20.1 million shares, respectively, of its common stock at a price of approximately $77.64 and $57.14 per share.share, respectively. The total cost of the convertible note hedge transactions was $407.2 million.$233.5 million and $268.0 million, respectively. In addition, the Company sold warrants to certain bank counterparties whereby the holders of the warrants have the option to purchase initially (subject to adjustment for certain specified events) a total of approximately 24.312.3 million and 20.1 million shares, respectively, of the Company’s common stock at aan initial strike price of $105.28.$105.28 and $80.20 per share, respectively. The Company received $289.3$172.9 million and $186.8 million in cash proceeds from the sale of these warrants.thesesuch notes and to effectively increase the overall conversion price from $77.64 to $105.28 per share.share, in the case of the 2021 Notes, and from $57.14 to $80.20 per share, in the case of the 2024 Notes. As these transactions meet certain accounting criteria, the convertible note hedges and warrants are recorded in stockholders’ equity and are not accounted for as derivatives. The net cost incurred in connection with the convertible note hedge and warrant transactions was recorded as a reduction to additional paid-in capital in 2014.(1)Included in the consolidated balance sheets within convertible notes and amortized over the remaining lives of the Notes.(2)Included in the consolidated balance sheets within additional paid-in capital.December 31, 2020 December 31, 2019 2021 Notes 2024 Notes 2025 Notes 2027 Notes 2021 Notes 2024 Notes 2027 Notes Principal amounts: Principal $ 954,000 $ 1,150,000 $ 1,000,000 $ 700,000 $ 954,000 $ 1,150,000 $ 700,000 (36,134) (160,297) (113,825) (7,006) (84,652) (202,515) (8,033) Net carrying amount $ 917,866 $ 989,703 $ 886,175 $ 692,994 $ 869,348 $ 947,485 $ 691,967 $ 283,283 $ 254,981 $ 121,413 $ 0 $ 283,283 $ 254,981 $ 0 twelve monthsyears ended December 31, 2018, 2017,2020, 2019, and 2016,2018, the Company recognized $115.4$112.2 million, $88.5$123.6 million and $83.9$115.4 million, respectively, of interest expense related to the amortization of debt discount and issuance costs prior to capitalization of interest. The Company recognized $42.6 million, $15.7 million, and $13.4 million of coupon interest expense in the year ended December 31, 2018, and $11.9 million of coupon interest expense in each of the years ended December 31, 20172020, 2019, and 2016.2018,2020, the remaining life of the 2019 Notes, 2021 Notes, the 2024 Notes, the 2025 Notes, and 2024the 2027 Notes is approximately 8 months, 3241 months, 50 months, and 6583 months, respectively.11.12. Net Income (Loss) per Share total net income (loss) attributable to common stockholders by the weighted-average common shares outstanding.outstanding during the period. The weighted-average common shares outstanding is adjusted for shares subject to repurchase such as unvested restricted stock granted to employees in connection with acquisitions, contingently returnable shares and escrowed shares supporting indemnification obligations that are issued in connection with acquisitions and unvested stock options exercised.yearsyear ended December 31, 2017 and 2016,2020, the Company’s potential common stock instruments such as stock options, RSUs, shares to be purchased under the 2013 Employee Stock Purchase Plan, shares subject to repurchases, the conversion feature of the Convertible Notes and the warrants were not included in the computation of diluted loss per share as the effect of including these shares in the calculation would have been anti-dilutive.lossincome (loss) per share for periods presented (in thousands, except per share data).Year Ended December 31, 2020 2019 2018 Basic net income (loss) per share: Numerator Net income (loss) $ (1,135,626) $ 1,465,659 $ 1,205,596 Denominator Weighted-average common shares outstanding 789,887 772,663 756,916 Weighted-average restricted stock subject to repurchase (2,026) (1,934) (2,590) Weighted-average shares used to compute basic net income (loss) per share 787,861 770,729 754,326 Basic net income (loss) per share attributable to common stockholders $ (1.44) $ 1.90 $ 1.60 Diluted net income (loss) per share: Numerator Net income (loss) $ (1,135,626) $ 1,465,659 $ 1,205,596 Denominator Number of shares used in basic computation 787,861 770,729 754,326 Weighted-average effect of dilutive securities: RSUs 0 10,468 13,285 Stock options 0 2,496 2,686 Other 0 1,838 2,389 Weighted-average shares used to compute diluted net income (loss) per share 787,861 785,531 772,686 Diluted net income (loss) per share attributable to common stockholders $ (1.44) $ 1.87 $ 1.56 number of potential common shares at the end of each period were excluded from the calculation of diluted net lossincome (loss) per share attributable to common stockholders because their effect would have been anti-dilutive for the periods presented (in thousands):Year Ended December 31, 2020 2019 2018 RSUs 36,611 12,117 14,949 Warrants 32,412 42,246 44,454 Stock options 1,436 3 837 Shares subject to repurchase and others 5,668 1,284 1,951 2019 Notes and 2021 Notes, the conversion spread of 24.312.3 million shares will have a dilutive impact on diluted net income per share of common stock when the average market price of the Company’s common stock for a given period exceeds the conversion price of $77.64 per share. For the 2024 Notes, the conversion spread of 20.1 million shares will have a dilutive impact on diluted net income per share of common stock when the average market price of the Company’s common stock for a given period exceeds the conversion price of $57.14 per share. For the 2025 Notes, the conversion spread of 24.1 million shares will have a dilutive impact on diluted net income per share of common stock when the average market price of the Company's common stock for a given period exceeds the conversion price of $41.50 per share. Since the average market price of the common stock is below the conversion price for all convertible notes for all periods presented, the Convertible Notes are anti-dilutive. 2019 Notes and 2021 Notes, and $80.20 for the 2024 Notes, the warrants will have a dilutive effect on the earnings per share assuming that the Company is profitable. Since the average market price of the common stock is below $80.20 for all periods presented, the warrants are anti-dilutive.12.13. Preferred Stock20182020 and 2017,2019, there was no0 preferred stock outstanding.13.14. Common Stock and Stockholders’ Equity2018,2020, the Company is authorized to issue 5.0 billion shares of $0.000005 par value common stock in accordance with the Certificate of Incorporation, as amended and restated.2018, no2020, 0 dividends have been declared.2018,2020, the total number of options, RSUs, and PRSUs outstanding under the 2013 Equity Incentive Plan was 32.538.6 million shares, and 176.0217.9 million shares were available for future issuance. There were 2.50.5 million shares of options outstanding under the 2007 Equity Incentive Plan as of December 31, 2018. No2020. NaN additional shares have been issued under the 2007 Equity Incentive Plan since 2013. In addition, a total of 6.8 million shares were reserved and are available for grants under the Company's 2016 Equity Incentive Plan. As of December 31, 2020, 0 shares have been issued under the 2016 Equity Incentive Plan. Options granted under the Company’s Equity Incentive Plans generally expire 10 years after the grant date. The Company issues new shares to satisfy stock option exercises.On May 25, 2016, the Company’s stockholders approved the 2016 Equity Incentive Plan. A total of 6,814,085 shares were reserved under the 2016 Equity Incentive Plan, which equals the number of shares that the Jack Dorsey Revocable Trust dated December 8, 2010 (the “Jack Dorsey Trust”), for which Jack Dorsey, the Company’s Chief Executive Officer, serves as trustee, gave back and contributed to the Company without any cost or charge to the Company. All such shares have been retired and cancelled by the Company. A maximum aggregate number of 6,814,085 shares were reserved under the 2016 Equity Incentive Plan and are available for grants.
Share Repurchases20182020 are summarized as follows (in thousands, except per share data):Number of
SharesWeighted-Average
Grant-Date Fair
Value Per ShareUnvested restricted common stock at December 31, 2019 1,428 $ 24.26 Granted 1,677 $ 32.90 Vested (1,107) $ 20.66 Unvested restricted common stock at December 31, 2020 1,998 $ 34.00 (the “ESPP”)(ESPP) became effective. The ESPP allows eligible employees to purchase shares of the Company’s common stock at a discount through payroll deductions of up to 15% of their eligible compensation, subject to any plan limitations. The ESPP provides for twelve-month offering periods, and each offering period will include purchase periods, which will be the approximately six-month period commencing with one exercise date and ending with the next exercise date. Employees are able to purchase shares at 85% of the lower of the fair market value of the Company’s common stock on the first trading day of the offering period or on the exercise date. The number of shares available for sale under the ESPP were and will be increased annually on the first day of each fiscal year, equal to the least of i) 11.3 million shares; ii) 1% of the outstanding shares of the Company’s common stock as of the last day of the immediately preceding fiscal year; or iii) such other amount as determined by the Board of Directors.20182020 and 2017,2019, employees purchased an aggregate of 1.52.3 million and 1.71.6 million shares, respectively, under this plan at a weighted average price of $19.03$24.65 and $13.79$26.62 per share, respectively.20182020 is as follows (in thousands, except years and per share data):Options Outstanding Number of
SharesWeighted-
Average
Exercise
Price Per ShareWeighted-
Average
Remaining
Contractual Life
(in years)Aggregate
Intrinsic ValueOutstanding at December 31, 2019 Outstanding at December 31, 2019 3,227 $ 9.84 2.65 $ 74,630 Options granted and assumed in connection with acquisitions 128 $ 7.08 Options exercised (1,882) $ 2.89 Options canceled (37) $ 0.91 Outstanding at December 31, 2020 Outstanding at December 31, 2020 1,436 $ 18.97 3.39 $ 50,534 Exercisable at December 31, 2020 Exercisable at December 31, 2020 1,415 $ 18.87 3.32 $ 49,932 2017were $78.5 million, $13.1 million and 2016 were $16.9 million, $51.6 million and $41.4 million, respectively.approximately one year (“PRSUs”)(PRSUs). These PRSUs are granted when the annual performance targets are set and the awards are approved by the Compensation Committee of the Board of Directors, generally in the first quarter of each financial year. 20182020 (in thousands, except per share data):(1)The PRSUs unvested and outstanding at December 31, 2018 represent performance based awards for the 2018 performance period and given financial results for the financial year will vest at 193% of target, or approximately 752,000 RSUs.PRSUs Outstanding Shares Weighted-
Average Grant-
Date Fair Value
Per ShareUnvested and outstanding at December 31, 2019 646 $ 31.52 Granted (100% target level) 729 $ 27.77 Vested (100% target level) (646) $ 31.52 Unvested and outstanding at December 31, 2020 729 $ 27.77 20182020 and 2019 was $20.4 million.executivesexecutives’ continued employment through the vesting date (“(TSR RSUs). The Company granted TSR RSUs”). 20182020 (in thousands, except per share data):(1)TSR RSUs Outstanding Shares Weighted-
Average Grant-
Date Fair Value
Per ShareUnvested and outstanding at December 31, 2019 759 $ 41.15 Granted (100% target level) 487 $ 31.16 Additional earned performance shares related to 2019 grants 52 $ 54.97 Vested (116% target level) (381) $ 54.97 Unvested and outstanding at December 31, 2020 917 $ 30.90 TSR RSUs unvested and outstanding at December 31, 2018 include performance based awards for the 2017 to 2018 performance period, and given financial results for the 2017 and 2018 financial years will vest at 132% of target, or approximately 121,500 RSUs.In addition, there are 1,148,311 additional PRSUs and TSR RSUs that willunvested and outstanding at December 31, 2020 include 430,000 shares of market-based awards for the 2019 to 2020 performance period, which are expected to vest at 52% of target, or 224,000 TSR RSUs in 2021, based on performance goals and Total Shareholder Return (“TSR”) targets, respectively, to be granted inthe financial results of the 2019 and 2020 at target levels from 0% to 200%.2018.2020. For purposes of this table, vested RSUs represent the shares for which the service condition had been fulfilled as of each respective date (in thousands, except per share data):RSUs Outstanding Shares Weighted-
Average Grant-
Date Fair Value
Per ShareUnvested and outstanding at December 31, 2019 Unvested and outstanding at December 31, 2019 31,731 $ 29.74 Granted 23,795 $ 32.24 Vested (15,768) $ 27.41 Canceled (3,147) $ 30.78 Unvested and outstanding at December 31, 2020 Unvested and outstanding at December 31, 2020 36,611 $ 32.28 2017,was $557.1 million, $454.5 million, and 2016 was approximately $445.7 million, $358.7 million, and $466.4 million, respectively.for the years ended December 31, 2018, 2017 and 2016 is as follows (in thousands):Year Ended December 31, 2020 2019 2018 Cost of revenue $ 32,020 $ 22,797 $ 17,289 Research and development 281,092 209,063 183,799 Sales and marketing 98,748 85,739 71,305 General and administrative 63,072 60,426 53,835 Total stock-based compensation expense $ 474,932 $ 378,025 $ 326,228 2018, 20172020, 2019 and 2016.$41.4$34.6 million, $51.8$37.5 million and $73.9$41.4 million of stock-based compensation expense associated with the cost for developing software for internal use in the years ended December 31, 2020, 2019 and 2018, 2017 and 2016, respectively.2018,2020, there was $715.0 million$1.14 billion of gross unamortized stock-based compensation expense related to unvested awards which willis expected to be recognized over a weighted-average period of 2.92.7 years. Starting in 2017, theThe Company accounts for forfeitures as they occur.14.15. Income Taxes2018, 20172020, 2019 and 20162018 are as follows (in thousands):Year Ended December 31, 2020 2019 2018 Domestic $ (72,850) $ 317,135 $ 193,500 Foreign 21,911 73,004 230,044 Income (loss) before income taxes $ (50,939) $ 390,139 $ 423,544 2018, 20172020, 2019 and 20162018 are as follows (in thousands):Year Ended December 31, 2020 2019 2018 Current: Federal $ (199) $ 563 $ (1,661) State 677 3,375 4,083 Foreign 19,813 43,053 17,246 Total current provision for income taxes 20,291 46,991 19,668 Deferred: Federal (35,651) 2,023 (711,084) State (2,248) 2,050 (49,047) Foreign 1,102,295 (1,126,584) (41,589) Total deferred provision (benefit) for income taxes Total deferred provision (benefit) for income taxes 1,064,396 (1,122,511) (801,720) Provision (benefit) for income taxes $ 1,084,687 $ (1,075,520) $ (782,052) statutoryincome tax at the federal income taxstatutory rate to the Company’s effective tax rateprovision (benefit) for income taxes for the years ended December 31, 2020, 2019 and 2018 2017 and 2016:Year Ended December 31, 2020 2019 2018 Income tax at federal statutory rate $ (10,697) 81,929 $ 88,944 State taxes, net of federal benefit (1,246) 4,286 (35,521) Stock-based compensation (27,127) (19,005) (27,228) Research and development credits (40,707) (33,044) (23,490) Valuation allowance 1,104,732 (724) (758,707) Nondeductible other expenses 7,438 12,266 682 Nondeductible Federal Trade Commission settlement accrual 31,500 0 0 Deferred tax asset on intra-entity transfer of intangible assets 0 (1,203,381) 0 Foreign rate differential 22,078 79,186 (27,002) Other (1,284) 2,967 270 Provision (benefit) for income taxes $ 1,084,687 $ (1,075,520) $ (782,052) 20182020 and 20172019 are as follows (in thousands):December 31, 2020 2019 Deferred tax assets: Net operating loss carryforwards $ 421,411 $ 390,005 Tax credits 485,106 425,011 Fixed assets and intangible assets 1,280,597 1,214,070 Operating lease liability Operating lease liability 230,837 170,817 Other 82,596 90,115 Total deferred tax assets 2,500,547 2,290,018 Valuation allowance (1,457,137) (223,775) Total deferred tax assets, net of valuation allowance 1,043,410 2,066,243 Deferred tax liabilities: Operating lease right-of-use asset Operating lease right-of-use asset (215,663) (157,845) Other (32,451) (1,138) Total deferred tax liabilities (248,114) (158,983) Net deferred tax assets $ 795,296 $ 1,907,260 In2017, the Tax Act was enacted into law and the new legislation contains several key provisions that affected31, 2020, the Company including a reduction ofreassessed the federal corporate income tax rateability to 21% effective January 1, 2018. The Company is required to recognize the effect of the tax law changes in the period of enactment, such as re-measuring its U.S.realize deferred tax assets by considering the available positive and liabilities as well as itsnegative evidence. As of June 30, 2020, the Company concluded that the deferred tax assets in a foreign subsidiary were not more-likely-than-not to be realized and recorded a full valuation allowance against its net U.S.such deferred tax assets. Alsoassets in December 2017, the SEC staff issued SAB 118, which allowedapproximate amount of $1.10 billion. In evaluating the need for a valuation allowance, the Company considered its recent operating results which resulted in a cumulative taxable loss in the foreign subsidiary for the twelve quarters ended June 30, 2020. The twelve quarters cumulative taxable losses from operations is considered a significant piece of negative evidence and outweighs other positive evidence, such as projections of future income. The twelve quarters cumulative taxable losses and projected near-term losses in the foreign subsidiary were largely driven by the negative impact from the COVID-19 pandemic as it caused decreased advertiser demand in the first half of 2020. If there are favorable changes to record provisional amounts duringactual operating results or to projections of future income, the Company may determine that it is more-likely-than-not such deferred tax assets may be realizable. As of December 31, 2020, there have been no changes to the Company's conclusion.measurement period notvaluation allowance, related to extend beyond one year of the enactment date. During the fourth quarter of 2018, theU.S. federal, states other than Massachusetts and California, and certain international subsidiaries. The Company completed its accounting forreassessment of the Tax Act as summarized below:The Company previously recognizedability to realize these assets and concluded that a provisional reduction in its deferred tax assets, with a corresponding decrease to the valuation allowance ofwas not required. same amount, relatedyear ended December 31, 2019, the Company transferred certain intangible assets among its wholly-owned subsidiaries to align its structure to its evolving operations, which resulted in the revaluationestablishment of deferred tax assets and liabilities. No adjustments were made to the provisional estimates recorded due to the full valuation allowance upon adoption.The Company was not subject to the one-time mandatory transition tax.The Company elected to record the taxes for GILTI as period costs.The Company elected to utilize tax law ordering for reflecting the realizationrecognition of the net operating losses expected to offset future GILTI.The Company has recorded a valuation allowance of $14.6 million and $780.2 million against its gross U.S. federal deferred tax asset balance asbenefit from income tax of December 31, 2018, and December 31, 2017, respectively, as well as a valuation allowance of $196.3 million and $222.9 million against its gross state deferred tax asset balance as of December 31, 2018, and December 31, 2017, respectively. $797.4 million of the valuation allowance related to most of the United States federal and all states deferred tax assets with the exception of California and Massachusetts.Massachusetts, as well as Brazil, which resulted in an income tax benefit of $845.1 million. The Company continues to maintain a valuation allowance related to specific net deferred tax assets where it is not more likely than not that the deferred tax assets will be realized, which include all capital losses and California and Massachusetts net deferred tax assets. The Company concluded, based upon the preponderance of positive evidence (i.e. cumulative profit before tax adjusted for permanent items over the previous twelve quarters, a history of taxable income in recent periods, and the current forecast of income before taxes for the United States going forward) over negative evidence and the anticipated ability to use the deferred tax assets, that it was more likely than not that the deferred tax assets could be realized. If there are unfavorable changes to actual operating results or to projections of future income, the Company may determine that it is more likely than not such deferred tax assets may not be realizable.2018,2020, the Company had $2.85$2.19 billion of U.S. federal, and $1.30$1.28 billion of U.S. state, and $59.2 million of Brazil net operating losses, which will begin to expire in 2034 for federal and 20262024 for state tax purposes, if not utilized.$300.4$398.4 million and $236.2$297.1 million of U.S. federal and state research credit carryforwards, respectively. The U.S. federal credit carryforward will begin to expire in 2027.2027, if not utilized. The majority of state research tax credits have no expiration date. A small portion of state research tax credits will begin to expire in 2030, if not utilized. Additionally, the Company has California Enterprise Zone Credit carryforwards of $19.1 million which will begin to expire in 2023.“Code”)Code), and similar state provisions. Any annual limitation may result in the expiration of net operating losses and credits before utilization.Also during the year ended December 31, 2018, the Company released the valuation allowance related to deferred tax assets of its Brazilian operations that resulted in a net benefit to tax expense of $47.7 million. The Company reported cumulative profit before tax (adjusted for permanent items) over the previous twelve quarters in its Brazilian operations based on U.S. GAAP and expects that net operating loss carryovers and other deductible amounts in Brazil will ultimately be realizable against future profits. The Company concluded, based upon the preponderance of positive evidence over negative evidence and the anticipated ability to use the deferred tax assets, that it was more likely than not that the deferred tax assets in Brazil would be realizable due to U.S. GAAP forecasted profits for Twitter Brazil. If there are unfavorable changes to actual operating results or to projections of future income, the Company may determine that it is more likely than not such deferred tax assets may not be realizable.2018,2020, the unrecognized tax benefit was $332.3 million, including $317.5Company had $354.6 million of unrecognized tax benefits, of which if recognized, will not affect$275.6 million could result in a reduction of the annualCompany’s effective tax rate, as theseif recognized. The remainder of the unrecognized tax benefits would increase deferrednot affect the effective tax assets which would be subjectrate due to athe full valuation allowance recorded for California and Massachusetts deferred tax assets. On June 7, 2019, the remaining $14.8 millionNinth Circuit Court of Appeals issued a new opinion in the case of Altera Corp. v. Commissioner (Altera), which upheld Department of Treasury regulations requiring related parties in an intercompany cost-sharing arrangement to share expenses related to stock-based compensation. In February 2020, Altera Corp. filed a petition to appeal the decision with the Supreme Court of the United States. On June 22, 2020, the Supreme Court denied the petition. The Company filed its 2019 U.S. Federal and state tax returns in the fourth quarter of 2020 and included certain adjustments related to Altera for which the Company previously recognized a reserve. As a result, the Company's unrecognized tax benefits which, if recognized, would affectdecreased by $96.9 million in the annualfourth quarter of 2020 with no impact on its effective tax rate.Year Ended December 31, 2020 2019 2018 Gross unrecognized tax benefits at the beginning of the year $ 419,858 $ 332,314 $ 259,781 Increases related to prior year tax positions 5,943 54,743 20,000 Decreases related to prior year tax positions (99,540) (2,537) (13,174) Increases related to current year tax positions 28,337 35,338 66,249 Statute of limitations expirations 0 0 (542) Gross unrecognized tax benefits at the end of the year $ 354,598 $ 419,858 $ 332,314 December 31, 2020 2019 Total unrecognized tax benefits balance $ 354,598 $ 419,858 Amounts netted against related deferred tax assets (331,339) (401,818) Unrecognized tax benefits recorded on consolidated balance sheets $ 23,259 $ 18,040 InDuring the years ended December 31, 2020, 2019, and 2018, the Company recognized netimmaterial amounts of interest and penalties of $2.2 million in income tax expense. As of December 31, 2018,2020 and 2019, the Company recorded $3.1had $7.2 million and $5.3 million of interest and penalties related toincluded in uncertain tax positions.state and foreign jurisdictions. Earnings from non-USnon-U.S. activities are subject to local country income tax. The material jurisdictions in whichwhere the Company is subject to potential examination by taxingtax authorities include the United States, California and Ireland. The Company is currently under examination in California for tax years 2013 through 2015. The Company believes that it has reserved adequate amounts have been reserved infor these jurisdictions. The Company’s 2007 to 20172019 tax yearsattributes remain subject to potential examination by the United States and California, due to tax attributes, and its 20142016 to 20172019 tax years remain subject to potential examination in Ireland. The Company remains subject to possiblepotential examination in various other jurisdictions that are not expected to result in material tax adjustments. The Company does not believe that its unrecognized tax benefits will materially change within the next 12 months.15.16. Commitments and ContingenciesIn August 2018, theentered intohas a revolving credit agreement with certain lenders, which provides for a $500.0 million unsecured revolving credit facility maturing on August 7, 2023. In connection with entering into the $500.0 million credit facility, the Company also terminated its $1.0 billion unsecured revolving credit facility. The Company is obligated to pay interest on loans under the new credit facility and other customary fees for a credit facility of this size and type, including an upfront fee and an unused commitment fee. The interest rate for the new credit facility is determined based on calculations using certain market rates as set forth in the credit agreement. In addition, the credit facility contains restrictions on payments including cash payments of dividends. As of December 31, 2018, no2020, 0 amounts had been drawn under the credit facility.Operating and Capital LeasesThe Company has entered into various non-cancelable operating lease agreements for certain offices and data center facilities with contractual lease periods expiring between 2019 and 2028. During the year ended December 31, 2018 and 2017, the Company entered into several sublease agreements for office space that the Company is not fully utilizing. The Company also has lease arrangements for certain server and networking equipment that are accounted for as capital leases and included in property and equipment on the consolidated balance sheets.A summary of gross lease commitments and sublease income as of December 31, 2018 is as follows (in thousands):Rent expense, net of sublease income, under the Company’s operating leases, including co-location arrangements for the Company’s data centers, was $138.8 million, $117.9 million and $155.7 million for the years ended December 31, 2018, 2017 and 2016, respectively.Ourcapitaloperating and operatingfinance leases for equipment, office space and co-located data center facilities, as well as non-cancellable contractual commitments. The following table summarizes ourits commitments to settle contractual obligations in cash as of December 31, 2018:2020:Payments Due by Year Total 2021 2022-2023 2024-2025 Thereafter (In thousands) 2021 Notes $ 963,540 $ 963,540 $ 0 $ 0 $ 0 2024 Notes 1,160,039 2,867 5,734 1,151,438 0 2025 Notes 2025 Notes 1,016,825 3,740 7,480 1,005,605 0 2027 Notes 2027 Notes 889,819 27,106 54,213 54,287 754,213 1,671,283 218,869 430,418 354,254 667,742 Finance lease obligations Finance lease obligations 569 569 0 0 0 1,669,012 227,601 519,866 734,827 186,718 Total contractual obligations $ 7,371,087 $ 1,444,292 $ 1,017,711 $ 3,300,411 $ 1,608,673
(1)The Company has entered into several sublease agreements for office space that it is not fully utilizing. Under the sublease agreements, the Company will receive approximately $10.3 million in sublease income over the next two years.(1)The Company has entered into several sublease agreements for office space that it is not fully utilizing. Under the sublease agreements, the Company will receive approximately $52.5 million in sublease income over the next four years.
(2)Other contractual commitments are non-cancelable contractual commitments primarily related to the Company’s infrastructure services and other services arrangements.(2)Other contractual commitments are non-cancelable contractual commitments primarily related to the Company’s infrastructure services, bandwidth and other services arrangements.Twitter, Twitter’sthe Company and the Company’s directors and/or certain former officers alleging that false and misleading statements, made in 2015, are in violation of securities laws and breach ofbreached fiduciary duty. The putative class actions were consolidated in the U.S. District Court for the Northern District of California. On October 16, 2017, the court granted in part and denied in part the Company’s motion to dismiss. On July 17, 2018, the court granted plaintiffs' motion for class certification in the consolidated securities action. In January 2021, the Company entered into a binding agreement to settle the pending shareholder derivative lawsuits. The proposed settlement resolves all claims asserted against the Company and the other named defendants in the derivative lawsuits without any liability or wrongdoing attributed to them personally or the Company. Under the terms of the proposed settlement, the Company's board of directors will adopt and implement certain corporate governance modifications. In addition, the Company will receive $38.0 million of insurance proceeds to be used for general corporate purposes. The settlement will not require the Company to make any payment, aside from covering certain administrative costs related to the settlement. The settlement agreement is subject to final approval by the Court of Chancery of the State of Delaware, which is scheduled for March 2021. The shareholder class action remains pending and is scheduled for trial on September 20, 2021.continuedefend the lawsuit vigorously. In December 2020, the district court dismissed the plaintiffs’ claims. The case is currently on appeal to the United States Court of Appeal for the Ninth Circuit.lawsuitslawsuit vigorously.Litigation accruals are recordedWith respect to the cases, actions, and inquiries described above, the Company evaluates the associated developments on a regular basis and accrues a liability when and if it is determined thatbelieves a loss related matter is both probable and the amount can be reasonably estimable. Material loss contingencies that are reasonably possible of occurrence, if any, are subject to disclosure. As of December 31, 2018, except forestimated. In addition, the above referenced class actions and derivative actions,Company believes there was no litigation or contingency with at leastis a reasonable possibility that it may incur a loss in some of athese matters and the loss may be material or exceed its estimated ranges of possible loss. No material losses have been recorded during the years ended December 31, 2018, 2017 and 2016 withWith respect to litigationthe matters described above that do not include an estimate of the amount of loss or range of possible loss, contingencies.auditvarious non-income tax audits by various domestic and foreign tax authorities and currently involved in a number of tax disputes related to non-income tax matters. The subject matter of non-income taxauthorities. These audits primarily arises from disputes on the tax treatmentrevolve around routine inquiries, refund requests, and tax rate applied to the sale of the Company’s products and services in these jurisdictions and the tax treatment of certain employee benefits. The Company accrues non-income taxes that may result from examinations by, or any negotiated agreements with, these tax authoritiesaudits when a loss isthey are probable and reasonably estimable. If the Company determines that a loss is reasonably possible and the loss or range of loss can be estimated, it discloses the reasonably possible loss or range of loss. The Company believes these matters are without merit and it is defending itself vigorously.estimated. Due to the inherent complexity and uncertainty of some of these matters, andhowever, as well as the judicial process in certain jurisdictions, the final outcome of these audits may be materially different from the Company’sCompany's expectations.20182020 and 2017.2019.16.17. Related Party TransactionsIn September 2015, the Company entered into a partnership agreement for no consideration with Square, Inc., for which Jack Dorsey (the Company’s Chief Executive Officer) serves as Chief Executive Officer, to enable U.S. political donations through Tweets. Neither Square, Inc. nor the Company will pay each other any amounts in connection with the agreement. The agreement has no impact on the Company’s consolidated financial statements.$25.9$22.0 million and $22.5 million for each of the years ended December 31, 20182020 and December 31, 2017, respectively. No revenue was recognized under contractual obligations from such customers2019 and $25.9 million for the year ended December 31, 2016.2018. The Company had outstanding receivable balances of $3.8$5.0 million and $4.2 million from such customers as of December 31, 20182020 and December 31, 2017,2019, respectively.17.18. Employee Benefit Planyearyears ended December 31, 2020, 2019 and 2018, and $2.8 million for each of the years ended December 2017 and 2016.respectively.18.19. Segment Information and Operations by Geographic AreaThe following table sets forth propertyequipment, net by geographic area (in thousands):Equipment, Net for further details.Note 19. Restructuring ChargesOn October 25, 2016, the BoardTable of Directors of the Company approved a reduction in force plan (“2016 Plan”) of up to approximately 9% of the Company’s positions globally. The reduction in force was undertaken to eliminate investment in noncore areas and drive toward greater efficiency, while allowing the Company to continue to invest in its highest priorities.On December 17, 2016, the Board of Directors of the Company approved a lease abandonment plan (“2016 Lease Plan”) to abandon excess office space with lease terms expiring through 2028.The following table summarizes the activities related to restructuring charges, as discussed above (in thousands):(1) For the year ended December 31, 2016, the Company recorded restructuring charges related to its 2016 Employee Termination Plan and 2016 Lease Plan of $49.0 million within cost of revenue, $30.4 million within sales and marketing, $15.9 million withinresearch and development and $6.0 million within general and administrative in the consolidated statements of operations.(2) For the year ended December 31, 2017, the Company recorded restructuring charges related to its 2016 Employee Termination Plan and 2016 Lease Plan of $0.4 million within cost of revenue, $3.0 million within sales and marketing, $2.1 million withinresearch and development and $1.2 million within general and administrative in the consolidated statements of operations.(3) For the year ended December 31, 2018, the Company reversed restructuring charges related to its 2016 Lease Plan of $0.3 million within cost of revenue, $1.7 million within sales and marketing, $1.4 million withinresearch and development and $0.9 million within general and administrative in the consolidated statements of operations.(4) As of December 31, 2018, the Company’s restructuring accrual included approximately $12.1 million related to the 2016 Lease Plan. This amount is also included in the gross operating lease commitment table under Note 15 – Commitments and Contingencies.ItemItem 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE“Exchange Act”)Exchange Act), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. The design of disclosure controls and procedures and internal control over financial reporting must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of December 31, 2018,2020, our disclosure controls and procedures were effective at the reasonable assurance level.20182020 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.2018.2020. The effectiveness of the Company’s internal control over financial reporting as of December 31, 20182020 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which appears herein.20182020 and is incorporated herein by reference.
1.Consolidated Financial Statements1.Consolidated Financial Statements
2.Financial Statement Schedules2.Financial Statement Schedules2018, 20172020, 2019 AND 20162018Balance at
Beginning of
YearCharged to
ExpensesCharged/
Credited
to Other
AccountsBalance at
End of Year(In thousands) Allowance for Deferred Tax Assets: Year ended December 31, 2020 $ 223,775 $ 1,124,132 $ 109,230 $ 1,457,137 Year ended December 31, 2019 $ 210,862 $ 12,913 $ 0 $ 223,775 Year ended December 31, 2018 $ 1,021,326 $ (817,529) $ 7,065 $ 210,862 Balance at
Beginning of
YearAdditions
(Reductions)Write-off/
AdjustmentsBalance at
End of Year(In thousands) Allowance for Doubtful Accounts: Year ended December 31, 2020 $ 2,401 $ 17,190 $ (2,645) $ 16,946 Year ended December 31, 2019 $ 3,559 $ 3,083 $ (4,241) $ 2,401 Year ended December 31, 2018 $ 5,430 $ 1,610 $ (3,481) $ 3,559
3.Exhibits3.Exhibits
Number Exhibit Description Incorporated by Reference Form File No. Exhibit Filing Date 3.1 S-1/A 333-191552 3.2 October 22, 2013 3.2 8-K 001-36164 3.1 April 7, 2017 4.1 S-1/A 333-191552 4.1 October 22, 2013 4.2 8-K 001-36164 4.3 September 17, 2014 4.3 8-K 001-36164 4.4 September 17, 2014 4.4 8-K 001-36164 4.1 June 11, 2018 4.5 8-K 001-36164 4.2 June 11, 2018 4.6 8-K 001-36164 4.1 December 9, 2019 4.7 8-K 001-36164 4.2 December 9, 2019 4.8 8-K 001-36164 4.1 March 13, 2020 4.9 8-K 001-36164 4.2 March 13, 2020 4.10* 10-K 001-36164 4.8 February 19, 2020 10.1** 10-Q 001-36164 10.1 August 3, 2020 10.2** S-1/A 333-191552 10.2 October 22, 2013 10.3** S-8 333-192150 4.3 November 7, 2013 10.4** S-1 333-191552 10.4 October 3, 2013 10.5** 10-K 001-36164 10.5 February 29, 2016 10.6** S-8 333-212740 4.2 July 29, 2016 10.7** S-8 333-198055 4.4 August 11, 2014 10.8** S-1 333-191552 10.6 October 3, 2013 10.9** S-8 333-198055 4.6 August 11, 2014 10.10** S-1 333-191552 10.7 October 3, 2013 10.11** S-8 333-195743 4.3 May 6, 2014 10.12** S-8 333-212740 4.3 July 29, 2016 10.13** S-1/A 333-191552 10.22 November 4, 2013 10.14** S-8 333-226447 4.2 July 31, 2018 10.15** S-1 333-191552 10.9 October 3, 2013 10.16** 10-Q 001-36164 10.1 August 11, 2014 10.17** 10-Q 001-36164 10.1 October 30, 2020 10.18** 8-K 001-36164 10.1 June 11, 2015 10.19** 8-K 001-36164 10.1 October 16, 2015 10.20** S-1/A 333-191552 10.16 October 22, 2013 10.21** 8-K 001-36164 10.1 June 4, 2015 10.22** 8-K 001-36164 10.1 July 11, 2017 10.23 S-1 333-191552 10.19 October 3, 2013 10.24 S-1 333-191552 10.18 October 3, 2013 10.25 S-1/A 333-191552 10.21 October 22, 2013 10.26 8-K 001-36164 10.1 September 10, 2014 10.27 8-K 001-36164 10.4 June 11, 2018 10.28 8-K 001-36164 10.1 August 10, 2018 10.29 8-K 001-36164 10.2 September 17, 2014 10.30 8-K 001-36164 10.3 September 17, 2014 10.31 8-K 001-36164 10.2 June 11, 2018 10.32 8-K 001-36164 10.3 June 11, 2018 10.33 8-K 001-36164 10.1 March 9, 2020 10.34 8-K 001-36164 10.2 March 9, 2020 21.1 10-K 001-36164 21.1 February 19, 2020 23.1 24.1 31.1 31.2 32.1† 101.INS 101.SCH Inline XBRL Taxonomy Schema Linkbase Document *101.CAL Inline XBRL Taxonomy Definition Linkbase Document. 101.DEF Inline XBRL Taxonomy Calculation Linkbase Document. 101.LAB Inline XBRL Taxonomy Labels Linkbase Document. 101.PRE Inline XBRL Taxonomy Presentation Linkbase Document. 104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). * Filed herewith. ** Indicates a management contract or compensatory plan or arrangement. ItemSIGNATURES20, 2019.17, 2021TWITTER, INC.TWITTER, INC. By:By: /s/ Jack Dorsey SignatureTitleDateSignature Title Date /s/ Jack Dorsey 20, 201920, 201920, 2019Director February 17, 2021 Jesse Cohn /s/ Egon Durban Director February 17, 2021 Egon Durban /s/ Omid Kordestani Executive Chairman and Director20, 201920, 2019Debra L. Lee20, 2019Debra L. Lee/s/ Patrick Pichette 20, 2019Director February 17, 2021 Ngozi Okonjo-Iweala /s/ David Rosenblatt 20, 2019/s/ Ngozi Okonjo-IwealaDirectorFebruary 20, 2019Ngozi Okonjo-Iweala20, 2019/s/ Evan WilliamsDirectorFebruary 20, 2019Evan Williams20, 2019126
