Document
false2019Q3000141809112/3131P3YP4YP2Y


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________________________________________
FORM 10-Q
____________________________________________________
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2019
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM                  TO
Commission File Number 001-36164
____________________________________________________
Twitter, Inc.
(Exact name of registrant as specified in its charter)
____________________________________________________
Delaware
20-8913779
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
1355 Market Street, Suite 900
San Francisco, California 94103
(Address of principal executive offices and Zip Code)
(415) 222-9670
(Registrant’s telephone number, including area code)
____________________________________________________

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value $0.000005 per shareTWTRNew York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES NO ☒
The number of shares of the registrant’s common stock outstanding as of October 24, 2019 was 776,356,684.




TABLE OF CONTENTS
Page

2


SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which statements involve substantial risks and uncertainties. Forward-looking statements generally relate to future events or our future financial or operating performance. In some cases, you can identify forward-looking statements because they contain words such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans or intentions. Forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to, statements about:
our ability to attract and retain users and increase the level of engagement, including ad engagement, of our users and its impact on revenue;
our plans regarding health and user safety, including our expectations regarding the impact on our reported metrics, policies, enforcement and preventing manipulation of our platform;
our expectations regarding monetizable DAU (mDAU), changes in cost per ad engagement and changes in ad engagements;
our ability to develop or acquire new products, product features and services, improve our existing products and services, including with respect to Promoted Tweet product features, video and performance advertising, and increase the value of our products and services;
our business strategies, plans and priorities, including our plans for growth and hiring, investment in our research and development efforts and our plans to scale capacity and enhance capability and reliability of our infrastructure, including capital expenditures relating to infrastructure;
our work to increase the stability, performance and scale of our ads platform and our mobile application download product;
our ability to provide new content from third parties, including our ability to secure live streaming video content on terms that are acceptable to us;
our ability to attract advertisers to our platforms, products and services and increase the amount that advertisers spend with us;
our expectations regarding our user growth and growth rates and related opportunities as well as the continued usage of our mobile applications, including the impact of seasonality;
our ability to increase our revenue and our revenue growth rate, including advertising and data licensing and other revenue;
our ability to improve user monetization;
our future financial performance, including trends in cost per ad engagement, revenue (including data licensing revenue), cost of revenue, operating expenses, including stock-based compensation and income taxes;
our expectations regarding certain deferred tax assets and fluctuations in our tax expense and cash taxes;
the impact of the General Data Protection Regulation (GDPR) and other privacy and data protection laws and regulations;
the impact of content- or copyright-related legislation or regulation;
our expectations regarding outstanding litigation or the decisions of the courts;
the effects of seasonal trends on our results of operations;
the impact of our future transactions and corporate structuring on our income and other taxes;
the sufficiency of our cash and cash equivalents, short-term investment balance and credit facility together with cash generated from operations to meet our working capital and capital expenditure requirements;
our ability to timely and effectively develop, invest in, scale and adapt our existing technology and network infrastructure;
our ability to successfully acquire and integrate companies and assets; and
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our expectations regarding international operations and foreign exchange gains and losses.
We caution you that the foregoing list may not contain all of the forward-looking statements made in this Quarterly Report on Form 10-Q.
You should not rely upon forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this Quarterly Report on Form 10-Q primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, operating results, cash flows or prospects. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties and other factors described in the section titled “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Quarterly Report on Form 10-Q. We cannot assure you that the results, events and circumstances reflected in the forward-looking statements will be achieved or occur, and actual results, events or circumstances could differ materially from those described in the forward-looking statements.
The forward-looking statements made in this Quarterly Report on Form 10-Q relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this Quarterly Report on Form 10-Q to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q or to reflect new information or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may make.
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NOTE REGARDING KEY METRICS
We review a number of metrics, including monetizable daily active usage or users, or mDAU, changes in ad engagements and changes in cost per ad engagement, to evaluate our business, measure our performance, identify trends affecting our business, formulate business plans and make strategic decisions. See the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations— Key Metrics” for a discussion of how we calculate mDAU, changes in ad engagements and changes in cost per ad engagement.
We define mDAU as Twitter users who logged in and accessed Twitter on any given day through Twitter.com or Twitter applications that are able to show ads. Our definition and calculation of mDAU is the same as that of the DAU data presented since the first quarter of 2016. The 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. 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 active user base. 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 in the previous year. We believe that mDAU, and its related growth, are the best ways to measure our success against our objectives and to show the size of our audience and engagement.
The numbers of active users presented in this Quarterly Report on Form 10-Q are based on internal company data. While these numbers are based on what we believe to be reasonable estimates for the applicable period of measurement, there are inherent challenges in measuring usage and user engagement across our large user base around the world. Furthermore, our metrics may be impacted by our information quality efforts, which are our overall efforts to reduce malicious activity on the service, inclusive of spam, malicious automation, and fake accounts. For example, there are a number of false or spam accounts in existence on our platform. We have performed an internal review of a sample of accounts and estimate that the average of false or spam accounts during the third quarter of 2019 represented fewer than 5% of our mDAU during the quarter. The false or spam accounts for a period represents the average of false or spam accounts in the samples during each monthly analysis period during the quarter. In making this determination, we applied significant judgment, so 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 estimated. We are continually seeking to improve our ability to estimate the total number of spam accounts and eliminate them from the calculation of our active users, and have made improvements in our spam detection capabilities that have resulted in the suspension of a large number of spam, malicious automation and fake accounts. We intend to continue to make such improvements. After we determine an account is spam, malicious automation or fake, we stop counting it in our mDAU or related metrics. We also treat multiple accounts held by a single person or organization as multiple users for purposes of calculating mDAU 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 people or organizations using our platform.
In addition, our data regarding user geographic location for purposes of reporting the geographic location of our mDAU is based on the IP address or phone number associated with the account when a user initially registered the account on Twitter. The IP address or phone number may not always accurately reflect a user’s actual location at the time such user engaged with our platform. For example, someone accessing Twitter on a mobile device may appear to be accessing Twitter from the location of the proxy server that the user connects to rather than from the user’s actual location.
We regularly review and may adjust our processes for calculating our internal metrics to improve their accuracy. Our measures of user growth and user engagement may differ from estimates published by third parties or from similarly-titled metrics of our competitors due to differences in methodology.
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PART I — FINANCIAL INFORMATION
Item 1. Financial Statements
TWITTER, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except par value)
(Unaudited)
September 30,
2019
December 31,
2018
Assets
Current assets:
Cash and cash equivalents$1,869,444  $1,894,444  
Short-term investments3,946,940  4,314,957  
Accounts receivable, net of allowance for doubtful accounts of $3,513 and $3,559
684,186  788,700  
Prepaid expenses and other current assets123,881  112,935  
Total current assets6,624,451  7,111,036  
Property and equipment, net994,266  885,078  
Operating lease right-of-use assets663,423    
Intangible assets, net46,915  45,025  
Goodwill1,243,472  1,227,269  
Deferred tax assets, net1,896,340  808,459  
Other assets132,058  85,705  
Total assets$11,600,925  $10,162,572  
Liabilities and stockholders' equity
Current liabilities:
Accounts payable$150,785  $145,186  
Accrued and other current liabilities445,676  405,751  
Convertible notes, short-term  897,328  
Operating lease liabilities, short-term132,219    
Finance lease liabilities, short-term33,947  68,046  
Total current liabilities762,627  1,516,311  
Convertible notes, long-term1,794,885  1,730,922  
Operating lease liabilities, long-term580,976    
Finance lease liabilities, long-term3,086  24,394  
Deferred and other long-term tax liabilities, net20,329  17,849  
Other long-term liabilities23,380  67,502  
Total liabilities3,185,283  3,356,978  
Commitments and contingencies (Note 14)
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; 775,718 and 764,257 shares issued and outstanding
4  4  
Additional paid-in capital8,638,734  8,324,974  
Accumulated other comprehensive loss(115,909) (65,311) 
Accumulated deficit(107,187) (1,454,073) 
Total stockholders' equity8,415,642  6,805,594  
Total liabilities and stockholders' equity$11,600,925  $10,162,572  
The accompanying notes are an integral part of these consolidated financial statements.

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TWITTER, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
Three Months Ended
September 30,
Nine Months Ended
September 30,
2019201820192018
Revenue$823,717  $758,111  $2,451,988  $2,133,523  
Costs and expenses
Cost of revenue281,057  243,644  823,033  696,652  
Research and development178,553  150,764  484,041  412,684  
Sales and marketing226,204  193,496  672,252  559,587  
General and administrative93,758  78,339  259,173  218,183  
Total costs and expenses779,572  666,243  2,238,499  1,887,106  
Income from operations44,145  91,868  213,489  246,417  
Interest expense(36,226) (38,336) (111,803) (95,333) 
Interest income40,348  36,067  123,776  74,208  
Other income (expense), net(504) (2,341) 6,583  (8,285) 
Income before income taxes47,763  87,258  232,045  217,007  
Provision (benefit) for income taxes11,241  (701,921) (1,114,841) (733,286) 
Net income$36,522  $789,179  $1,346,886  $950,293  
Net income per share attributable to common stockholders:
Basic$0.05  $1.04  $1.75  $1.26  
Diluted$0.05  $1.02  $1.72  $1.23  
Weighted-average shares used to compute net income per share attributable to common stockholders:
Basic772,789  756,537  768,719  752,233  
Diluted790,523  776,002  784,443  771,511  
The accompanying notes are an integral part of these consolidated financial statements.
7


TWITTER, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
(Unaudited)
Three Months Ended
September 30,
Nine Months Ended
September 30,
2019201820192018
Net income$36,522  $789,179  $1,346,886  $950,293  
Other comprehensive income (loss), net of tax:
Change in unrealized gain (loss) on investments in available-for-sale securities1,331  594  19,285  149  
Change in foreign currency translation adjustment(70,296) (7,253) (69,883) (31,663) 
Net change in accumulated other comprehensive income (loss)(68,965) (6,659) (50,598) (31,514) 
Comprehensive income (loss)$(32,443) $782,520  $1,296,288  $918,779  
The accompanying notes are an integral part of these consolidated financial statements.
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TWITTER, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands)
(Unaudited)
Three Months Ended
September 30,
Nine Months Ended
September 30,
2019201820192018
SharesAmountSharesAmountSharesAmountSharesAmount
Common stock
Balance, beginning of period772,393  $4  756,956  $4  764,257  $4  746,902  $4  
Issuance of common stock in connection with RSU vesting3,264  —  3,560  —  10,396  —  11,744  —  
Issuance of common stock in connection with acquisitions—  —  —  —  —  —  119  —  
Issuance of restricted stock in connection with acquisitions accounted for as stock-based compensation—  —  —  —  306  —  655  —  
Exercise of stock options152  —  83  —  347  —  517  —  
Issuance of common stock upon purchases under employee stock purchase plan—  —  —  —  901  —  990  —  
Shares withheld related to net share settlement of equity awards(91) —  (196) —  (487) —  (516) —  
Other activities—  —  —  —  (2) —  (8) —  
Balance, end of period775,718  $4  760,403  $4  775,718  $4  760,403  $4  
Additional paid-in capital
Balance, beginning of period—  $8,535,463  —  $8,125,889  —  $8,324,974  —  $7,750,522  
Issuance of common stock in connection with acquisitions—  —  —  —  —  —  —  5,405  
Issuance of stock options in connection with acquisitions—  —  —  —  —  —  —  917  
Issuance of restricted stock in connection with acquisitions—  —  —  —  —  —  —  12,843  
Exercise of stock options—  245  —  155  —  754  —  3,252  
Issuance of common stock upon purchases under employee stock purchase plan—  —  —  —  —  25,209  —  16,337  
Shares withheld related to net share settlement of equity awards—  (3,757) —  (6,821) —  (16,695) —  (16,174) 
Stock-based compensation—  106,783  —  102,825  —  304,492  —  277,878  
Equity component of the convertible note issuance, net—  —  —  —  —  —  —  252,248  
Purchase of convertible note hedge—  —  —  —  —  —  —  (267,950) 
Issuance of warrants—  —  —  —  —  —  —  186,760  
Other activities—  —  —  2,989  —  —  —  2,999  
Balance, end of period—  $8,638,734  —  $8,225,037  —  $8,638,734  —  $8,225,037  
Accumulated other comprehensive loss
Balance, beginning of period—  $(46,944) —  $(56,434) —  $(65,311) —  $(31,579) 
Other comprehensive income (loss)—  (68,965) —  (6,659) —  (50,598) —  (31,514) 
Balance, end of period—  $(115,909) —  $(63,093) —  $(115,909) —  $(63,093) 
Accumulated deficit
Balance, beginning of period—  $(143,709) —  $(2,498,555) —  $(1,454,073) —  $(2,671,729) 
Cumulative-effect adjustment from adoption of revenue recognition rule—  —  —  —  —  —  —  12,060  
Net income—  36,522  —  789,179  —  1,346,886  —  950,293  
Balance, end of period—  $(107,187) —  $(1,709,376) —  $(107,187) —  $(1,709,376) 
Total stockholders' equity775,718  $8,415,642  760,403  $6,452,572  775,718  $8,415,642  760,403  $6,452,572  
The accompanying notes are an integral part of these consolidated financial statements.
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TWITTER, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Nine Months Ended September 30,
20192018
Cash flows from operating activities
Net income$1,346,886  $950,293  
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization expense349,076  314,775  
Stock-based compensation expense276,729  244,341  
Amortization of discount on convertible notes93,251  74,909  
Deferred income taxes(1,138,293) (748,366) 
Impairment of investments in privately-held companies1,550  3,000  
Other adjustments(13,841) (5,838) 
Changes in assets and liabilities, net of assets acquired and liabilities assumed from acquisitions:
Accounts receivable93,932  35,389  
Prepaid expenses and other assets83,646  103,234  
Accounts payable(12,599) (22,590) 
Accrued and other liabilities(54,152) 58,565  
Net cash provided by operating activities1,026,185  1,007,712  
Cash flows from investing activities
Purchases of property and equipment(389,073) (409,913) 
Proceeds from sales of property and equipment4,290  8,127  
Purchases of marketable securities(3,940,682) (4,054,312) 
Proceeds from maturities and sales of marketable securities4,325,187  2,792,558  
Purchases of investments in privately-held companies(51,163) (2,175) 
Business combinations, net of cash acquired(20,302) (33,572) 
Other investing activities2,281    
Net cash used in investing activities(69,462) (1,699,287) 
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  (13,483) 
Repayment of convertible notes(935,000)   
Taxes paid related to net share settlement of equity awards(16,695) (16,180) 
Payments of finance lease obligations(53,627) (69,504) 
Proceeds from exercise of stock options753  3,251  
Proceeds from issuances of common stock under employee stock purchase plan25,209  16,337  
Net cash provided by (used in) financing activities(979,360) 989,231  
Net increase (decrease) in cash, cash equivalents and restricted cash(22,637) 297,656  
Foreign exchange effect on cash, cash equivalents and restricted cash(1,790) (15,211) 
Cash, cash equivalents and restricted cash at beginning of period1,921,875  1,673,857  
Cash, cash equivalents and restricted cash at end of period$1,897,448  $1,956,302  
Supplemental disclosures of non-cash investing and financing activities
Common stock issued in connection with acquisitions$  $19,165  
Equipment purchases under finance leases$  $16,086  
Changes in accrued property and equipment purchases$26,679  $(28,617) 
Reconciliation of cash, cash equivalents and restricted cash as shown in the consolidated statements of cash flows
Cash and cash equivalents$1,869,444  $1,928,929  
Restricted cash included in prepaid expenses and other current assets1,869  1,690  
Restricted cash included in other assets26,135  25,683  
Total cash, cash equivalents and restricted cash$1,897,448  $1,956,302  
The accompanying notes are an integral part of these consolidated financial statements.
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TWITTER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note 1. Description of Business and Summary of Significant Accounting Policies
Twitter, Inc. (“Twitter” or the “Company”) was incorporated in Delaware in April 2007 and is headquartered in San Francisco, California. Twitter offers products and services for users, advertisers, developers and platform and data partners.
Basis of Presentation
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.
The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (GAAP). The unaudited interim consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and reflect, in management’s opinion, all adjustments of a normal, recurring nature that are necessary for the fair statement of the Company’s financial position, results of operations and cash flows for the interim periods, but are not necessarily indicative of the results expected for the full fiscal year or any other period.
The accompanying interim consolidated financial statements and these related notes should be read in conjunction with the consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.
Use of Estimates
The preparation of the Company’s consolidated financial statements in conformity with 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 the Company believes are reasonable under the circumstances, and the Company evaluates these estimates on an ongoing basis.
Prior Period Reclassifications
Certain prior period amounts have been reclassified to conform to the current period presentation.
Recent Accounting Pronouncements
Recently adopted accounting pronouncements
In February 2016, the Financial Accounting Standards Board (“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 consolidated balance sheets. 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. The FASB has subsequently issued additional updates that allow entities to apply certain practical expedients upon transition to this new guidance. The Company adopted this guidance as of January 1, 2019 and elected to apply practical expedients permitted under the transition guidance that allow the Company to use the beginning of the period of adoption (January 1, 2019) as the date of initial application, to not separate non-lease components from lease components for lessee and lessor transactions, and to not reassess lease classification, treatment of initial direct costs, or whether an existing or expired contract contains a lease. Prior period financial statements were not recast under the new guidance. The adoption of the new lease standard resulted in the recognition of operating lease ROU assets of $737.7 million recorded in operating lease right-of-use assets and lease liabilities of $777.1 million recorded in operating lease liabilities, short-term and operating lease liabilities, long-term on the consolidated balance sheets as of January 1, 2019. In connection with the adoption of this standard, deferred rent of $53.0 million, which was previously recorded in accrued and other current liabilities and in other long-term liabilities on the consolidated balance sheets, was derecognized. Additionally, prepaid rents of $13.6 million which were previously recorded in prepaid expenses and other current assets on the consolidated balance sheets were reclassified upon adoption as a reduction to operating lease liabilities, short-term.

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In March 2017, the FASB issued 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 securities to the earliest call date. Prior to this guidance, entities generally amortized the premium as a yield adjustment over the contractual life of the security. The Company adopted this new accounting standard as of January 1, 2019 and the adoption did not have a material impact on the Company’s financial statements.
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 to retained earnings (accumulated deficit). The new guidance also requires entities to make additional disclosures, regardless of whether reclassification of tax effects is elected. The Company adopted this new accounting standard during the three months ended March 31, 2019 and did not elect the option to reclassify tax effects as a result of tax reform and as such, adoption did not have a material impact on the Company’s financial statements and related disclosures.
With the exception of the standards discussed above, there have been no other recent accounting pronouncements or changes in accounting pronouncements during the nine months ended September 30, 2019, as compared to the recent accounting pronouncements described in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018, that are of significance or potential significance to the Company.
Note 2. Revenue
Revenue Recognition
Revenue is recognized when the control of promised goods or services is transferred to customers at an amount that reflects the consideration to which the Company expects to be entitled to in exchange for those goods or services. The Company identifies its contracts with customers and all performance obligations within those contracts. The Company then determines the transaction price and allocates the transaction price to the performance obligations within the Company's contracts with customers, recognizing revenue when, or as the Company satisfies its performance obligations. While the majority of the Company's revenue transactions are based on standard business terms and conditions, the Company also enters into sales agreements with advertisers and data partners that sometimes involve multiple performance obligations and occasionally include non-standard terms or conditions.
Revenue by geography is based on the billing address of the customers. The following table sets forth revenue by services and revenue by geographic area (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
2019201820192018
Revenue by services:
Advertising services$702,257  $649,816  $2,108,846  $1,826,032  
Data licensing and other121,460  108,295  343,142  307,491  
Total revenue$823,717  $758,111  $2,451,988  $2,133,523  

Three Months Ended September 30,Nine Months Ended September 30,
2019201820192018
Revenue by geographic area:
United States$465,409  $423,443  $1,352,966  $1,136,670  
Japan128,797  130,425  397,539  369,470  
Rest of World229,511  204,243  701,483  627,383  
Total revenue$823,717  $758,111  $2,451,988  $2,133,523  
Contract Balances
The Company enters into contracts with its customers, which may give rise to contract liabilities (deferred revenue) and contract assets (unbilled revenue). The payment terms and conditions within the Company’s contracts vary by the type and location of its customer and products or services purchased, the substantial majority of which are due in less than one year. When the timing of revenue recognition differs from the timing of payments made by customers, the Company recognizes either unbilled revenue (its performance precedes the billing date) or deferred revenue (customer payment is received in advance of performance).

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Deferred Revenue (Contract Liabilities)
The Company presents deferred revenue primarily within accrued and other current liabilities in the consolidated balance 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 presents unbilled revenue in the consolidated balance sheets within prepaid expenses and other current assets and within other assets. The Company’s contracts do not contain material financing components. The Company's unbilled revenue primarily consists of amounts that have yet to be billed under contracts with escalating fee structures. Specifically, because the Company generally recognizes revenue on a straight-line basis for data licensing arrangements with escalating fee structures, revenue recognized represents amounts to which the Company is contractually entitled; however, the revenue recognized exceeds the amounts the Company has a right to bill as of the period end, thus resulting in unbilled revenue.

The following table presents contract balances (in thousands):
September 30,
2019
December 31,
2018
Unbilled Revenue$23,875  $20,786  
Deferred Revenue$69,497  $38,949  
The amount of revenue recognized in the three months ended September 30, 2019 that was included in the deferred revenue balance as of June 30, 2019 was $28.6 million. The amount of revenue recognized in the nine months ended September 30, 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 media inventory earned by and material rights provided to customers in prior periods and the satisfaction of the Company’s performance obligations relating to data licensing contracts with advance cash payments.
The amount of revenue recognized from obligations satisfied (or partially satisfied) in prior periods was not material.
The increase in unbilled revenue balance from December 31, 2018 to September 30, 2019 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.
The increase in deferred revenue balance from December 31, 2018 to September 30, 2019 was primarily due to cash payments received or due in advance of satisfying the Company’s performance obligations for data licensing contracts and bonus and make good media inventory earned by and offered to customers during the period.
Remaining Performance Obligations
As of September 30, 2019, the aggregate amount of the transaction price allocated to remaining performance obligations in contracts with an original expected duration exceeding one year is $635.5 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

Total
Remainder of 201920202021 and Thereafter
Revenue expected to be recognized on remaining performance obligations$635,493  $68,161  $238,345  $328,987  

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Note 3. Cash, Cash Equivalents and Short-term Investments
Cash, cash equivalents and short-term investments consist of the following (in thousands):
September 30,
2019
December 31,
2018
Cash and cash equivalents:
Cash$234,918  $229,924  
Money market funds891,335  861,206  
Corporate notes, commercial paper and certificates of deposit743,191  803,314  
Total cash and cash equivalents$1,869,444  $1,894,444  
Short-term investments:
U.S. government and agency securities including treasury bills$504,562  $1,053,408  
Corporate notes, commercial paper and certificates of deposit3,442,378  3,261,549  
Total short-term investments$3,946,940  $4,314,957  
The contractual maturities of securities classified as available-for-sale as of September 30, 2019 were as follows (in thousands):
September 30,
2019
Due within one year$2,280,352  
Due after one year through five years1,666,588  
Total$3,946,940  

The following tables summarize unrealized gains and losses related to available-for-sale securities classified as short-term investments on the Company’s consolidated balance sheets (in thousands):
September 30, 2019
Gross
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Aggregated
Estimated
Fair Value
U.S. government and agency securities including treasury bills$503,038  $1,665  $(141) $504,562  
Corporate notes, commercial paper and certificates of deposit3,428,664  13,849  (135) 3,442,378  
Total available-for-sale securities classified as short-term investments$3,931,702  $15,514  $(276) $3,946,940  

December 31, 2018
Gross
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Aggregated
Estimated
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 deposit3,265,012  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  
The gross unrealized loss on securities in a continuous loss position for 12 months or longer was not material as of September 30, 2019 and December 31, 2018. The proceeds from sales of marketable securities were $173.3 million and $42.1 million in the nine months ended September 30, 2019 and 2018, respectively. The resulting gains or losses in both periods were not material.
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.

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Note 4. Fair Value Measurements
The Company measures its cash equivalents, short-term investments and derivative financial instruments at fair value. The Company classifies its cash equivalents, short-term investments and derivative financial instruments within Level 1 or Level 2 because the Company values these investments using quoted market prices or alternative pricing sources and models utilizing market observable inputs. The fair value of the Company’s Level 1 financial assets is based on quoted market prices of the identical underlying security. The fair value of the Company’s Level 2 financial assets is based on inputs that are directly or indirectly observable in the market, including the readily-available pricing sources for the identical underlying security that may not be actively traded.
The following tables set forth the fair value of the Company’s financial assets and liabilities measured at fair value on a recurring basis as of September 30, 2019 and December 31, 2018 based on the three-tier fair value hierarchy (in thousands):
September 30, 2019
Level 1Level 2Total
Assets
Cash equivalents:
Money market funds$891,335  $  $891,335  
Commercial paper  720,581  720,581  
Certificates of deposit  22,610  22,610  
Short-term investments:
U.S. government and agency securities  504,562  504,562  
Corporate notes  2,167,976  2,167,976  
Commercial paper  808,212  808,212  
Certificates of deposit  466,190  466,190  
Other current assets:
Foreign currency contracts  3,634  3,634  
Total$891,335  $4,693,765  $5,585,100  
Liabilities
Other current liabilities:
Foreign currency contracts  2,802  2,802  
Total$  $2,802  $2,802  

December 31, 2018
Level 1Level 2Total
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  

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The Company has $954.0 million in aggregate principal amount of 1.00% convertible senior notes due in 2021 (the “2021 Notes”) and $1.15 billion in aggregate principal amount of 0.25% convertible senior notes due in 2024 (the “2024 Notes” and, together with the 2021 Notes, the “Notes”) outstanding as of September 30, 2019. Refer to Note 10 – Convertible Notes for further details on the Notes.
The estimated fair value of the 2021 Notes and 2024 Notes, based on a market approach as of September 30, 2019 was approximately $941.8 million and $1.26 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.
Derivative Financial Instruments
The Company enters into foreign currency forward contracts with financial institutions to reduce the risk that its 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. These contracts do not subject the Company to material balance sheet risk due to exchange rate movements because gains and losses on these derivatives are intended to offset gains and losses on the hedged foreign currency denominated assets and liabilities. These foreign currency forward contracts are not designated as hedging instruments.
The Company recognizes these derivative instruments as either assets or liabilities in the consolidated balance sheets at fair value based on a Level 2 valuation. The Company records changes in the fair value (i.e., gains or losses) of the derivatives in other income (expense), net in the consolidated statements of income. The notional principal of foreign currency contracts outstanding was equivalent to $518.8 million and $545.3 million at September 30, 2019 and December 31, 2018, respectively.
The fair values of outstanding derivative instruments for the periods presented on a gross basis are as follows (in thousands):
Balance Sheet LocationSeptember 30,
2019
December 31,
2018
Assets
Foreign currency contracts not designated as hedging instrumentsOther current assets$3,634  $1,343  
Liabilities
Foreign currency contracts not designated as hedging instrumentsOther current liabilities$2,802  $3,826  
The Company recognized $9.6 million and $14.5 million of net losses on its foreign currency contracts in the three and nine months ended September 30, 2019, respectively. The Company recognized $1.2 million of net gains and $5.4 million of net losses on its foreign currency contracts in the three and nine months ended September 30, 2018, respectively.
Note 5.