FACEBOOK INC, 10-Q filed on 10/30/2014
Quarterly Report
Document and Entity Information
9 Months Ended
Sep. 30, 2014
Oct. 27, 2014
Class A Common Stock
Oct. 27, 2014
Class B Common Stock
Document Information
 
 
 
Document Type
10-Q 
 
 
Amendment Flag
false 
 
 
Document Period End Date
Sep. 30, 2014 
 
 
Document Fiscal Year Focus
2014 
 
 
Document Fiscal Period Focus
Q3 
 
 
Trading Symbol
FB 
 
 
Entity Registrant Name
FACEBOOK INC 
 
 
Entity Central Index Key
0001326801 
 
 
Current Fiscal Year End Date
--12-31 
 
 
Entity Filer Category
Large Accelerated Filer 
 
 
Entity Common Stock, Shares Outstanding
 
2,223,936,268 
563,911,667 
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (USD $)
In Millions, unless otherwise specified
Sep. 30, 2014
Dec. 31, 2013
Current assets:
 
 
Cash and cash equivalents
$ 8,999 
$ 3,323 
Marketable securities
5,251 
8,126 
Accounts receivable, net of allowances for doubtful accounts of $35 and $38 as of September 30, 2014 and December 31, 2013, respectively
1,363 
1,109 
Prepaid expenses and other current assets
502 
512 
Total current assets
16,115 
13,070 
Property and equipment, net
3,703 
2,882 
Intangible assets, net
1,317 
883 
Goodwill
2,612 
839 
Other assets
441 
221 
Total assets
24,188 
17,895 
Current liabilities:
 
 
Accounts payable
120 
87 
Partners payable
208 
181 
Accrued expenses and other current liabilities
709 
555 
Deferred revenue and deposits
48 
38 
Current portion of capital lease obligations
149 
239 
Total current liabilities
1,234 
1,100 
Capital lease obligations, less current portion
129 
237 
Other liabilities
1,587 
1,088 
Total liabilities
2,950 
2,425 
Stockholders' equity:
 
 
Common stock, $0.000006 par value; 5,000 million Class A shares authorized, 2,044 million and 1,970 million shares issued and outstanding, including 4 million and 6 million outstanding shares subject to repurchase, as of September 30, 2014 and December 31, 2013, respectively; 4,141 million Class B shares authorized, 564 million and 577 million shares issued and outstanding, including 8 million and 6 million outstanding shares subject to repurchase, as of September 30, 2014 and December 31, 2013 respective
0 
0 
Additional paid-in capital
15,949 
12,297 
Accumulated other comprehensive (loss) income
(109)
14 
Retained earnings
5,398 
3,159 
Total stockholders' equity
21,238 
15,470 
Total liabilities and stockholders' equity
$ 24,188 
$ 17,895 
CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $)
In Millions, except Share data, unless otherwise specified
Sep. 30, 2014
Dec. 31, 2013
Current assets:
 
 
Accounts receivable, allowances for doubtful accounts
$ 35 
$ 38 
Stockholders' equity:
 
 
Common stock, par value (in dollars per share)
$ 0.000006 
$ 0.000006 
Class A Common Stock
 
 
Stockholders' equity:
 
 
Common stock, shares authorized
5,000,000,000 
5,000,000,000 
Common stock, shares issued
2,044,000,000 
1,970,000,000 
Common stock, shares outstanding
2,044,000,000 
1,970,000,000 
Common stock, outstanding shares subject to repurchase
4,000,000 
6,000,000 
Class B Common Stock
 
 
Stockholders' equity:
 
 
Common stock, shares authorized
4,141,000,000 
4,141,000,000 
Common stock, shares issued
564,000,000 
577,000,000 
Common stock, shares outstanding
564,000,000 
577,000,000 
Common stock, outstanding shares subject to repurchase
8,000,000 
6,000,000 
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (USD $)
In Millions, except Per Share data, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2014
Sep. 30, 2013
Sep. 30, 2014
Sep. 30, 2013
Revenue
$ 3,203 
$ 2,016 
$ 8,615 
$ 5,286 
Costs and expenses:
 
 
 
 
Cost of revenue
565 
507 
1,501 
1,384 
Research and development
608 
369 
1,555 
1,006 
Marketing and sales
374 
233 
1,055 
704 
General and administrative
259 
171 
643 
520 
Total costs and expenses
1,806 
1,280 
4,754 
3,614 
Income from operations
1,397 
736 
3,861 
1,672 
Interest and other income/(expense), net
(61)
(10)
(65)
(48)
Income before provision for income taxes
1,336 
726 
3,796 
1,624 
Provision for income taxes
530 
301 
1,557 
647 
Net income
806 
425 
2,239 
977 
Less: Net income attributable to participating securities
4 
3 
10 
6 
Net income attributable to Class A and Class B common stockholders
802 
422 
2,229 
971 
Earnings per share attributable to Class A and Class B common stockholders:
 
 
 
 
Basic (in dollars per share)
$ 0.31 
$ 0.17 
$ 0.87 
$ 0.40 
Diluted (in dollars per share)
$ 0.30 
$ 0.17 
$ 0.86 
$ 0.39 
Weighted average shares used to compute earnings per share attributable to Class A and Class B common stockholders:
 
 
 
 
Basic (in shares)
2,587 
2,430 
2,565 
2,408 
Diluted (in shares)
2,644 
2,528 
2,616 
2,504 
Share-based compensation expense included in costs and expenses:
 
 
 
 
Share-based compensation expense
353 
239 
941 
633 
Cost of revenue
 
 
 
 
Share-based compensation expense included in costs and expenses:
 
 
 
 
Share-based compensation expense
16 
12 
44 
31 
Research and development
 
 
 
 
Share-based compensation expense included in costs and expenses:
 
 
 
 
Share-based compensation expense
243 
164 
643 
432 
Marketing and sales
 
 
 
 
Share-based compensation expense included in costs and expenses:
 
 
 
 
Share-based compensation expense
53 
34 
146 
91 
General and administrative
 
 
 
 
Share-based compensation expense included in costs and expenses:
 
 
 
 
Share-based compensation expense
$ 41 
$ 29 
$ 108 
$ 79 
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) (USD $)
In Millions, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2014
Sep. 30, 2013
Sep. 30, 2014
Sep. 30, 2013
Statement of Comprehensive Income [Abstract]
 
 
 
 
Net income
$ 806 
$ 425 
$ 2,239 
$ 977 
Other comprehensive income (loss):
 
 
 
 
Change in foreign currency translation adjustment
(102)
38 
(123)
7 
Change in unrealized gain/loss on available-for-sale investments, net of tax
(2)
4 
0 
1 
Change in unrealized gain/loss on derivative, net of tax
0 
(1)
0 
3 
Comprehensive income
$ 702 
$ 466 
$ 2,116 
$ 988 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (USD $)
In Millions, unless otherwise specified
9 Months Ended
Sep. 30, 2014
Sep. 30, 2013
Cash flows from operating activities
 
 
Net income
$ 2,239 
$ 977 
Adjustments to reconcile net income to net cash provided by operating activities:
 
 
Depreciation and amortization
810 
737 
Lease abandonment
(31)
108 
Share-based compensation
941 
633 
Deferred income taxes
(30)
21 
Tax benefit from share-based award activity
1,354 
277 
Excess tax benefit from share-based award activity
(1,365)
(285)
Other
5 
39 
Changes in assets and liabilities:
 
 
Accounts receivable
(264)
(145)
Prepaid expenses and other current assets
(45)
433 
Other assets
(158)
(35)
Accounts payable
12 
(17)
Partners payable
(22)
2 
Accrued expenses and other current liabilities
198 
(105)
Deferred revenue and deposits
3 
6 
Other liabilities
227 
345 
Net cash provided by operating activities
3,874 
2,991 
Cash flows from investing activities
 
 
Purchases of property and equipment
(1,314)
(879)
Purchases of marketable securities
(6,215)
(4,364)
Sales of marketable securities
7,391 
2,433 
Maturities of marketable securities
1,710 
2,954 
Acquisitions of businesses, net of cash acquired, and purchases of intangible assets
(754)
(237)
Change in restricted cash and deposits
(113)
4 
Other investing activities, net
(2)
(1)
Net cash provided by (used in) investing activities
703 
(90)
Cash flows from financing activities
 
 
Taxes paid related to net share settlement of equity awards
(3)
(706)
Proceeds from exercise of stock options
7 
20 
Repayment of long-term debt
0 
(1,500)
Principal payments on capital lease obligations
(199)
(291)
Excess tax benefit from share-based award activity
1,365 
285 
Net cash provided by (used in) financing activities
1,170 
(2,192)
Effect of exchange rate changes on cash and cash equivalents
(71)
7 
Net increase in cash and cash equivalents
5,676 
716 
Cash and cash equivalents at beginning of period
3,323 
2,384 
Cash and cash equivalents at end of period
8,999 
3,100 
Cash paid during the period for:
 
 
Interest
11 
33 
Income taxes
107 
61 
Cash received during the period for:
 
 
Income taxes
6 
419 
Non-cash investing and financing activities:
 
 
Fair value of shares issued related to acquisitions of businesses
1,368 
77 
Net change in accounts payable and accrued expenses and other current liabilities related to property and equipment additions
 
 
Non-cash investing and financing activities:
 
 
Property and equipment expenditures incurred but not yet paid
38 
31 
Property and equipment acquired under capital leases
 
 
Non-cash investing and financing activities:
 
 
Property and equipment expenditures incurred but not yet paid
$ 0 
$ 11 
Summary of Significant Accounting Policies
Summary of Significant Accounting Policies
Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (GAAP) and applicable rules and regulations of the Securities and Exchange Commission regarding interim financial reporting. Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. As such, the information included in this quarterly report on Form 10-Q should be read in conjunction with the consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2013.
The condensed consolidated balance sheet as of December 31, 2013 included herein was derived from the audited financial statements as of that date, but does not include all disclosures including notes required by GAAP.
The condensed consolidated financial statements include the accounts of Facebook, Inc. and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated.
The accompanying condensed consolidated financial statements reflect all normal recurring adjustments necessary to present fairly the financial position, results of operations, and cash flows for the interim periods, but are not necessarily indicative of the results of operations to be anticipated for the full year ending December 31, 2014.
There have been no changes to our significant accounting policies described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2013 that have had a material impact on our condensed consolidated financial statements and related notes.
Use of Estimates
Conformity with GAAP requires the use of estimates and judgments that affect the reported amounts in the condensed consolidated financial statements and accompanying notes. These estimates form the basis for judgments we make about the carrying values of our assets and liabilities, which are not readily apparent from other sources. We base our estimates and judgments on historical information and on various other assumptions that we believe are reasonable under the circumstances. GAAP requires us to make estimates and judgments in several areas, including, but not limited to, those related to revenue recognition, collectability of accounts receivable, contingent liabilities, fair value of financial instruments, fair value of acquired intangible assets and goodwill, useful lives of intangible assets and property and equipment, and income taxes. These estimates are based on management's knowledge about current events and expectations about actions we may undertake in the future. Actual results could differ materially from those estimates.
Recent Accounting Pronouncements
 In May 2014, the Financial Accounting Standards Board issued guidance related to revenue from contracts with customers. Under this guidance, revenue is recognized when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services. The updated standard will replace most existing revenue recognition guidance under GAAP when it becomes effective and permits the use of either the retrospective or cumulative effect transition method. Early adoption is not permitted. The updated standard will be effective for us in the first quarter of 2017. We have not yet selected a transition method and we are currently evaluating the effect that the updated standard will have on our consolidated financial statements and related disclosures.
Acquisitions
Acquisitions
Acquisitions
In July 2014, we completed our acquisition of Oculus VR, Inc. (Oculus), a privately-held company developing virtual reality technology that is expected to expand our platform. Pursuant to the merger agreement, we issued 23 million shares of our Class B common stock and paid $400 million in cash. Furthermore, up to an additional three million shares of our Class B common stock and $60 million in cash will be payable contingent upon the completion of certain milestones. We determined the acquisition-date fair value of the contingent consideration liability, based on the likelihood of payment related to the contingent earn-out clauses, as part of the consideration transferred. For contingent consideration to be settled in common stock, we use the fair value of the shares as of the acquisition date, which is remeasured on each reporting date until settlement. See Note 5 “Fair Value Measurements" for subsequent measurements of this contingent liability. The earn-out portion that would be payable to employee equityholders is subject to continuous employment through the applicable payment dates and as such has been excluded from purchase consideration transferred and accounted for as share-based compensation and other compensation expense.
We have accounted for this acquisition as a business combination. This method requires, among other things, that assets acquired and liabilities assumed in a business combination be recognized at their fair values as of the acquisition date and that in-process research and development (IPR&D) be recorded at fair value on the balance sheet regardless of the likelihood of success of the related product or technology.
The following table summarizes the components of the purchase consideration transferred based on the closing price of our common stock as of the acquisition date (in millions):
Cash
$
400

Common stock
1,601

Less: post-acquisition share-based compensation and other compensation expense
(297
)
Less: cash acquired on acquisition date
(20
)
Total purchase consideration, excluding contingent consideration
$
1,684

Contingent consideration
169

Purchase consideration
$
1,853


Of the $297 million of share-based compensation and other compensation expense excluded from the purchase consideration above, approximately $13 million was recognized as share-based compensation at closing as a result of the vesting provisions of employee replacement awards on the acquisition date. The remaining $284 million is subject to continuous employment and will be recognized as share-based compensation and other compensation expense over the required service period of four years.
The fair value of assets acquired and liabilities assumed from our acquisition of Oculus was based on a preliminary valuation and our estimates and assumptions are subject to change within the measurement period. The primary areas of the purchase price that are not yet finalized are related to income taxes and residual goodwill. Measurement period adjustments that we determine to be material will be applied retrospectively to the period of acquisition in our condensed consolidated financial statements and, depending on the nature of the adjustments, other periods subsequent to the period of acquisition could also be affected.
In the nine months ended September 30, 2014, we also completed other business acquisitions for total cash consideration of $456 million. These acquisitions were not material to our condensed consolidated financial statements either individually or in the aggregate. We have included the financial results of Oculus and the other business acquisitions, which are not material, in our condensed consolidated financial statements from their respective dates of acquisition. Pro forma historical results of operations related to our acquisitions of Oculus and the other business acquisitions during the nine months ended September 30, 2014 have not been presented because they are not material to our condensed consolidated statements of income, either individually or in the aggregate.
The following table summarizes the allocation of the fair values of the assets acquired and liabilities assumed, including those items that are still preliminary, and the related useful lives, where applicable:
 
Oculus
 
Other
 
(in millions)
 
Useful lives (in years)
 
(in millions)
 
Useful lives (in years)
Finite-lived intangible assets:
 
 
 
 
 
 
 
Acquired technology
$
235

 
5
 
$
62

 
3 - 5
Tradename and other
132

 
2 - 7
 
87

 
3 - 5
IPR&D intangible assets
60

 
 
 
—

 
 
Net assets acquired
—

 
 
 
104

 
 
Deferred tax liabilities
(107
)
 
 
 
(41
)
 
 
Net assets acquired
$
320

 
 
 
$
212

 
 
Goodwill
1,533

 
 
 
244

 
 
Total fair value
$
1,853

 
 
 
$
456

 
 


IPR&D intangible assets represent the value assigned to acquired research and development projects that, as of the acquisition date had not established technological feasibility and had no alternative future use. The IPR&D intangible assets are capitalized and accounted for as indefinite-lived intangible assets and will be subject to impairment testing until completion or abandonment of the projects. Upon successful completion of each project and launch of the product, we will make a separate determination of useful life of the IPR&D intangible assets and the related amortization will be recorded as an expense over the estimated useful life of the specific projects.
Goodwill generated from all business acquisitions completed during the nine months ended September 30, 2014 is primarily attributable to expected synergies from future growth, from potential monetization opportunities and, also for Oculus, as a potential to expand our platform. All goodwill generated during this period is not deductible for tax purposes.
Earnings per Share
Earnings per Share
Earnings per Share
We compute earnings per share (EPS) of Class A and Class B common stock using the two-class method required for participating securities. We consider restricted stock awards to be participating securities because holders of such shares have non-forfeitable dividend rights in the event of our declaration of a dividend for common shares.
Undistributed earnings allocated to participating securities are subtracted from net income in determining net income attributable to common stockholders. Basic EPS is computed by dividing net income attributable to common stockholders by the weighted-average number of shares of our Class A and Class B common stock outstanding, adjusted for outstanding shares that are subject to repurchase.
For the calculation of diluted EPS, net income attributable to common stockholders for basic EPS is adjusted by the effect of dilutive securities, including awards under our equity compensation plans. In addition, the computation of the diluted EPS of Class A common stock assumes the conversion of our Class B common stock to Class A common stock, while the diluted EPS of Class B common stock does not assume the conversion of those shares to Class A common stock. Diluted EPS attributable to common stockholders is computed by dividing the resulting net income attributable to common stockholders by the weighted-average number of fully diluted common shares outstanding. Basic and dilutive securities in our basic and diluted EPS calculation for the three and nine months ended September 30, 2014 do not include contingent earn-out shares resulting from our acquisition of Oculus. Issuance of these earn-out shares is dependent upon the completion of certain milestones. These milestones were not met as of September 30, 2014 and accordingly, these shares are excluded from the effect of basic and dilutive securities.
We have also excluded 15 million restricted stock units (RSUs) from the EPS calculation for the nine months ended September 30, 2013 because the impact would be anti-dilutive. Shares excluded from the calculation were not material for the three and nine months ended September 30, 2014 and the three months ended September 30, 2013.
Basic and diluted EPS are the same for each class of common stock because they are entitled to the same liquidation and dividend rights.
The numerators and denominators of the basic and diluted EPS computations for our common stock were calculated as follows (in millions, except per share amounts): 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2014
 
2013
 
2014
 
2013
 
Class A
 
Class B
 
Class A
 
Class B
 
Class A
 
Class B
 
Class A
 
Class B
Basic EPS:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Numerator
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income
$
632

 
$
174

 
$
320

 
$
105

 
$
1,747

 
$
492

 
$
717

 
$
260

Less: Net income attributable to participating securities
3

 
1

 
2

 
1

 
8

 
2

 
4

 
2

Net income attributable to common stockholders
$
629

 
$
173

 
$
318

 
$
104

 
$
1,739

 
$
490

 
$
713

 
$
258

Denominator
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Weighted average shares outstanding
2,032

 
567

 
1,833

 
611

 
2,006

 
570

 
1,773

 
649

Less: Shares subject to repurchase
4

 
8

 
6

 
8

 
5

 
6

 
5

 
9

Number of shares used for basic EPS computation
2,028

 
559

 
1,827

 
603

 
2,001

 
564

 
1,768

 
640

Basic EPS
$
0.31

 
$
0.31

 
$
0.17

 
$
0.17

 
$
0.87

 
$
0.87

 
$
0.40

 
$
0.40

Diluted EPS:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Numerator
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income attributable to common stockholders
$
629

 
$
173

 
$
318

 
$
104

 
$
1,739

 
$
490

 
$
713

 
$
258

Reallocation of net income attributable to participating securities
4

 
—

 
3

 
—

 
10

 
—

 
6

 
—

Reallocation of net income as a result of conversion of Class B to Class A common stock
173

 
—

 
104

 
—

 
490

 
—

 
258

 
—

Reallocation of net income to Class B common stock
—

 
7

 
—

 
13

 
—

 
18

 
—

 
29

Net income attributable to common stockholders for diluted EPS
$
806

 
$
180

 
$
425

 
$
117

 
$
2,239

 
$
508

 
$
977

 
$
287

Denominator
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Number of shares used for basic EPS computation
2,028

 
559

 
1,827

 
603

 
2,001

 
564

 
1,768

 
640

Conversion of Class B to Class A common stock
559

 
—

 
603

 
—

 
564

 
—

 
640

 
—

Weighted average effect of dilutive securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Employee stock options
13

 
13

 
59

 
59

 
13

 
13

 
69

 
69

RSUs
36

 
14

 
33

 
33

 
32

 
13

 
21

 
21

Shares subject to repurchase
8

 
5

 
6

 
6

 
6

 
3

 
6

 
6

Number of shares used for diluted EPS computation
2,644

 
591

 
2,528

 
701

 
2,616

 
593

 
2,504

 
736

Diluted EPS
$
0.30

 
$
0.30

 
$
0.17

 
$
0.17

 
$
0.86

 
$
0.86

 
$
0.39

 
$
0.39

Cash, Cash Equivalents and Marketable Securities
Cash, Cash Equivalents and Marketable Securities
Cash, Cash Equivalents and Marketable Securities
The following table sets forth the cash, cash equivalents and marketable securities (in millions):
 
September 30, 2014
 
December 31, 2013
Cash and cash equivalents:
 
 
 
Cash
$
1,344

 
$
1,044

Cash equivalents:

 

Money market funds
7,655

 
2,279

Total cash and cash equivalents
8,999

 
3,323

Marketable securities:
 
 
 
U.S. government securities
2,062

 
5,687

U.S. government agency securities
2,330

 
2,439

Corporate debt securities
859

 
—

Total marketable securities
5,251

 
8,126

Total cash, cash equivalents and marketable securities
$
14,250

 
$
11,449


The gross unrealized gains or losses on our marketable securities as of September 30, 2014 and December 31, 2013 were not significant. In addition, there were no securities in a continuous loss position for 12 months or longer as of September 30, 2014 and December 31, 2013.
The following table classifies our marketable securities by contractual maturities (in millions):  
 
September 30, 2014
Due in one year
$
2,747

Due in one to two years
2,504

Total
$
5,251

Fair Value Measurements
Fair Value Measurements
Fair Value Measurements
Assets and liabilities measured at fair value on a recurring basis are summarized below (in millions): 
 
 
 
Fair Value Measurement at
Reporting Date Using
Description
September 30, 2014
 
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
Cash equivalents:
 
 
 
 
 
 
 
Money market funds
$
7,655

 
$
7,655

 
$
—

 
$
—

Marketable securities:
 
 
 
 
 
 
 
U.S. government securities
2,062

 
2,062

 
—

 
—

U.S. government agency securities
2,330

 
2,330

 
—

 
—

Corporate debt securities
859

 
—

 
859

 
—

Total cash equivalents and marketable securities
$
12,906

 
$
12,047

 
$
859

 
$
—

 
 
 
 
 
 
 
 
Other liabilities:
 
 
 
 
 
 
 
Contingent consideration liability
$
192

 
$
—

 
$
—

 
$
192

 
 
 
Fair Value Measurement at
Reporting Date Using
Description
December 31, 2013
 
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
Cash equivalents:
 
 
 
 
 
 
 
Money market funds
$
2,279

 
$
2,279

 
$
—

 
$
—

Marketable securities:
 
 
 
 
 
 
 
U.S. government securities
5,687

 
5,687

 
—

 
—

U.S. government agency securities
2,439

 
2,439

 
—

 
—

Total cash equivalents and marketable securities
$
10,405

 
$
10,405

 
$
—

 
$
—


We classify our cash equivalents and marketable securities within Level 1 or Level 2 because we use quoted market prices or alternative pricing sources and models utilizing market observable inputs to determine their fair value.
We classify our contingent consideration liability in connection with our acquisition of Oculus within Level 3 as factors used to develop the estimated fair value are unobservable inputs that are not supported by market activity. We estimate the fair value of our contingent consideration liability based on the present value of probability-weighted future cash flows related to the contingent earn-out criteria and the fair value of our common stock on each reporting date. Our fair value estimate of this liability was $169 million at the date of acquisition and changes in the fair value of the contingent consideration liability subsequent to the acquisition date, such as changes in the probability assessment and the fair value of our common stock, are recognized in earnings in the period when the change in the estimated fair value occurs. During the three and nine months ended September 30, 2014, we recognized a $23 million change in the fair value of our contingent consideration liability in research and development expense in our condensed consolidated statements of income primarily due to the change in the fair value of our common stock.
Property and Equipment
Property and Equipment
Property and Equipment
Property and equipment consisted of the following (in millions): 
 
September 30,
2014
 
December 31,
2013
Land
$
153

 
$
45

Buildings
1,347

 
1,071

Leasehold improvements
279

 
203

Network equipment
2,704

 
2,351

Computer software, office equipment and other
134

 
95

Construction in progress
702

 
377

Total
5,319

 
4,142

Less: Accumulated depreciation
(1,616
)
 
(1,260
)
Property and equipment, net
$
3,703

 
$
2,882


Construction in progress includes costs primarily related to the expansion of our corporate headquarters in Menlo Park, California, construction of data centers, and network equipment infrastructure to support our data centers around the world. No interest was capitalized during the three months ended September 30, 2014 and 2013, and the nine months ended September 30, 2014. Interest capitalized during the nine months ended September 30, 2013 was not material.
Goodwill and Intangible Assets
Goodwill and Intangible Assets
Goodwill and Intangible Assets
The change in the carrying amount of goodwill for the nine months ended September 30, 2014 is as follows (in millions): 
Balance as of December 31, 2013
$
839

Goodwill acquired
1,777

Effect of currency translation adjustment
(4
)
Balance as of September 30, 2014
$
2,612

Intangible assets consisted of the following (in millions):
 
 
 
September 30, 2014
 
December 31, 2013
 
Useful lives from date of acquisitions (in years)
 
Gross Carrying Amount
 
Accumulated Amortization
 
Net Carrying Amount
 
Gross Carrying Amount
 
Accumulated Amortization
 
Net Carrying Amount
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Finite-lived intangible assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
Acquired patents
2 - 18
 
$
773

 
$
(215
)
 
$
558

 
$
773

 
$
(142
)
 
$
631

Acquired technology
2 - 10
 
518

 
(104
)
 
414

 
227

 
(65
)
 
162

Tradename and other
2 - 10
 
357

 
(72
)
 
285

 
138

 
(48
)
 
90

Total finite-lived intangible assets:
 
 
$
1,648

 
$
(391
)
 
$
1,257

 
$
1,138

 
$
(255
)
 
$
883

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Indefinite-lived intangible assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
IPR&D
 
 
$
60

 
$
—

 
$
60

 
$
—

 
$
—

 
$
—

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total intangible assets
 
 
$
1,708

 
$
(391
)
 
$
1,317

 
$
1,138

 
$
(255
)
 
$
883


Amortization expense of intangible assets was $59 million and $141 million for the three and nine months ended September 30, 2014, respectively, and $37 million and $106 million for the three and nine months ended September 30, 2013, respectively.
As of September 30, 2014, estimated amortization expense for the unamortized acquired intangible assets for the next five years and thereafter is as follows (in millions):
The remainder of 2014
$
66

2015
260

2016
244

2017
209

2018
163

Thereafter
315

 
$
1,257

Long-term Debt
Long-term Debt
Long-term Debt
In August 2013, we entered into a five-year senior unsecured revolving credit facility (2013 Revolving Credit Facility) that allows us to borrow up to $6.5 billion to fund working capital and general corporate purposes with interest payable on the borrowed amounts set at LIBOR plus 1.0%, as well as an annual commitment fee of 0.10% on the daily undrawn balance of the facility. We paid origination fees at closing of the 2013 Revolving Credit Facility, which fees are being amortized over the term of the facility. Any amounts outstanding under this facility will be due and payable on August 15, 2018. As of September 30, 2014, no amounts had been drawn down and we were in compliance with the covenants under this facility.
Commitments and Contingencies
Commitments and Contingencies
Commitments and Contingencies
Leases
We entered into various capital lease arrangements to obtain property and equipment for our operations. Additionally, on occasion we have purchased property and equipment for which we have subsequently obtained capital financing under sale-leaseback transactions. These agreements are typically for three years, except for a building lease which is for 15 years, with interest rates ranging from 1% to 13%. The leases are secured by the underlying leased buildings, leasehold improvements, and equipment. We have also entered into various non-cancelable operating lease agreements for certain of our offices, equipment, land and data centers with original lease periods expiring between 2014 and 2029. We are committed to pay a portion of the related actual operating expenses under certain of these lease agreements. Certain of these arrangements have free rent periods or escalating rent payment provisions, and we recognize rent expense under such arrangements on a straight-line basis.
Operating lease expense was $31 million and $94 million for the three and nine months ended September 30, 2014, respectively, and $28 million and $101 million for the three and nine months ended September 30, 2013, respectively.
Other Agreement
In April 2014, we entered into a non-cancelable contractual commitment to spend a minimum of $140 million on network services over a period of 10 years.
Contingencies
Beginning on May 22, 2012, multiple putative class actions, derivative actions, and individual actions were filed in state and federal courts in the United States and in other jurisdictions against us, our directors, and/or certain of our officers alleging violation of securities laws or breach of fiduciary duties in connection with our initial public offering (IPO) and seeking unspecified damages. We believe these lawsuits are without merit, and we intend to continue to vigorously defend them. The vast majority of the cases in the United States, along with multiple cases filed against The NASDAQ OMX Group, Inc. and The Nasdaq Stock Market LLC (collectively referred to herein as NASDAQ) alleging technical and other trading-related errors by NASDAQ in connection with our IPO, were ordered centralized for coordinated or consolidated pre-trial proceedings in the U.S. District Court for the Southern District of New York. In a series of rulings in 2013 and 2014, the court denied our motion to dismiss the consolidated securities class action and granted our motions to dismiss the derivative actions against our directors and certain of our officers. The plaintiffs in four of these derivative actions have filed notices of appeal. In addition, the events surrounding our IPO became the subject of various state and federal government inquiries. In May 2014, the Securities and Exchange Commission (SEC) notified us that it had terminated its inquiry and that no enforcement action had been recommended by the SEC.
We are also party to various legal proceedings and claims that arise in the ordinary course of business. With respect to our outstanding legal matters, 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. However, the 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.
Stockholders' Equity
Stockholders' Equity
Stockholders' Equity
Share-based Compensation Plans
We maintain two share-based employee compensation plans: the 2012 Equity Incentive Plan (2012 Plan) and the 2005 Stock Plan (collectively, Stock Plans). Our 2012 Plan serves as the successor to our 2005 Stock Plan and provides for the issuance of incentive and nonstatutory stock options, restricted stock awards, stock appreciation rights, RSUs, performance shares and stock bonuses to qualified employees, directors and consultants. Outstanding awards under the 2005 Stock Plan continue to be subject to the terms and conditions of the 2005 Stock Plan. The maximum term for stock options granted under the 2012 Plan may not exceed ten years from the date of grant. Our 2012 Plan will terminate ten years from the date of approval unless it is terminated earlier by our compensation committee.
We have initially reserved 25,000,000 shares of our Class A common stock for issuance under our 2012 Plan, which amount increases on the first day of January of each year through 2022 based on a formula or as determined by the board of directors. Our board of directors elected not to increase the number of shares reserved for issuance in 2014. In addition, shares available for grant under the 2005 Stock Plan, which were reserved but not issued or subject to outstanding awards under the 2005 Stock Plan as of the effective date of our IPO, were added to the reserves of the 2012 Plan and shares that were withheld in connection with the net settlement of RSUs were also added to the reserves of the 2012 Plan. In January 2014, we began requiring that employees sell a portion of the shares that they receive upon the vesting of RSUs in order to cover any required withholding taxes, rather than our previous approach of net share settlement.
In February 2014, we terminated our 2005 Officers' Plan as the only outstanding option issued under this plan had been exercised in full.
The following table summarizes the stock option activity under the Stock Plans during the nine months ended September 30, 2014: 
 
Shares Subject to Options Outstanding
 
Number of
Shares
 
Weighted
Average
Exercise
Price
 
Weighted-
Average
Remaining
Contractual
Term
 
Aggregate
Intrinsic
Value(1)
 
(in thousands)
 
 
 
(in years)
 
(in millions)
Balance as of December 31, 2013
22,102

 
$
3.56

 
 
 
 
Stock options exercised
(5,015
)
 
0.91

 
 
 
 
Balance as of September 30, 2014
17,087

 
$
4.34

 
3.22
 
$
1,276

Stock options vested and expected to vest as of September 30, 2014
17,071

 
$
4.33

 
3.22
 
$
1,275

Stock options exercisable as of September 30, 2014
13,719

 
$
2.48

 
2.56
 
$
1,050

(1)
The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying stock option awards and the closing price of our Class A common stock of $79.04 on September 30, 2014.
The aggregate intrinsic value of options exercised was $117 million and $321 million for the three and nine months ended September 30, 2014, respectively, and $586 million and $1.17 billion for the three and nine months ended September 30, 2013, respectively.
The following table summarizes the activities for our unvested RSUs for the nine months ended September 30, 2014:
 
Unvested RSUs
 
Number of Shares
 
Weighted Average Grant Date Fair Value
 
(in thousands)
 
 
Unvested at December 31, 2013
103,971

 
$
27.30

Granted
33,844

 
70.04

Vested
(33,450
)
 
24.77

Forfeited
(7,948
)
 
33.87

Unvested at September 30, 2014
96,417

 
$
42.64



The fair value as of the respective vesting dates of RSUs that vested during the three and nine months ended September 30, 2014 was $652 million and $2.19 billion, respectively, and $326 million and $1.15 billion, respectively, during the three and nine months ended September 30, 2013.
As of September 30, 2014, there was $4.17 billion of unrecognized share-based compensation expense, of which $3.71 billion is related to RSUs and $464 million is related to restricted shares, shares with performance conditions related to our contingent consideration liability, and stock options. This unrecognized compensation expense is expected to be recognized over a weighted-average period of approximately three years.
Income Taxes
Income Taxes
Income Taxes
Our tax provision for interim periods is determined using an estimate of our annual effective tax rate, adjusted for discrete items arising in that quarter. In each quarter we update our estimate of the annual effective tax rate, and if our estimated annual tax rate changes, we make a cumulative adjustment in that quarter. Our quarterly tax provision, and our quarterly estimate of our annual effective tax rate, are subject to significant volatility due to several factors, including our ability to accurately predict our income (loss) before provision for income taxes in multiple jurisdictions, including the portions of our share-based compensation that will not generate tax benefits, and the effects of acquisitions and the integration of those acquisitions. In addition, our effective tax rate can be more or less volatile based on the amount of income before provision for income taxes.
Our effective tax rate has exceeded the U.S. statutory rate primarily because of the effect of non-deductible share-based compensation and the impact of acquiring intellectual property and integrating it into our business. Our effective tax rate in the future will depend on the portion of our profits earned within and outside the United States, which will also be affected by our methodologies for valuing our intellectual property and intercompany transactions.
We are subject to taxation in the United States and various other state and foreign jurisdictions. The material jurisdictions in which we are subject to potential examination include the United States and Ireland. We are under examination by the Internal Revenue Service (IRS) for our 2008, 2009 and 2010 tax years. We believe that adequate amounts have been reserved for any adjustments that may ultimately result from these examinations, and we do not anticipate a significant impact to our gross unrecognized tax benefits within the next 12 months related to these years. Our 2011 and subsequent tax years remain subject to potential examination by the IRS and all tax years starting in 2008 remain subject to potential examination in Ireland. We remain subject to possible examinations or are undergoing audits in various other jurisdictions that are not anticipated to be material to our financial statements.
Our gross unrecognized tax benefits were $1.51 billion and $1.32 billion as of September 30, 2014 and December 31, 2013, respectively. If the gross unrecognized tax benefits as of September 30, 2014 were realized in a future period, this would result in a tax benefit of $1.03 billion within our provision of income taxes at such time. Our existing tax positions will continue to generate an increase in unrecognized tax benefits in future periods. 
Although the timing of the resolution, settlement, and closure of any audit is highly uncertain, it is reasonably possible that the balance of gross unrecognized tax benefits could significantly change in the next 12 months. However, given the number of years remaining that are subject to examination, we are unable to estimate the full range of possible adjustments to the balance of gross unrecognized tax benefits.
Geographical Information
Geographical Information
Geographical Information
Revenue by geography is based on the billing address of the marketer or developer. The following tables set forth revenue and property and equipment, net by geographic area (in millions):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2014
 
2013
 
2014
 
2013
Revenue:
 
 
 
 
 
 
 
United States
$
1,468

 
$
940

 
$
3,857

 
$
2,438

Rest of the world (1)
1,735

 
1,076

 
4,758

 
2,848

Total revenue
$
3,203

 
$
2,016

 
$
8,615

 
$
5,286

 
(1)
No individual country exceeded 10% of our total revenue for any period presented.
 
September 30,
2014
 
December 31,
2013
Property and equipment, net:
 
 
 
United States
$
3,023

 
$
2,368

Sweden
513

 
415

Rest of the world
167

 
99

Total property and equipment, net
$
3,703

 
$
2,882

Subsequent Events
Subsequent Events
Subsequent Events
    
On October 6, 2014, we completed our acquisition of WhatsApp Inc. (WhatsApp), a privately-held cross-platform mobile messaging company that is expected to provide us with strategic advantages in the mobile ecosystem and expand our mobile messaging offerings. Pursuant to the merger agreement, we issued approximately 178 million shares of our Class A common stock and paid $4.59 billion in cash. We will also grant 46 million RSUs to WhatsApp employees.
    
Upon acquisition, WhatsApp became a wholly-owned subsidiary of Facebook. The acquisition will be accounted for as a business combination. The following table summarizes the components of the preliminary purchase consideration transferred based on the closing price of $77.56 per share of our Class A common stock on the acquisition close date (in millions):
Cash
$
4,589

Common stock
13,787

Less: post-acquisition share-based compensation and other compensation expense
(1,067
)
Less: cash and promissory notes acquired on acquisition date
(116
)
Purchase consideration
$
17,193


Of the $1.07 billion of share-based compensation and other compensation expense excluded from the purchase consideration above, approximately $188 million will be accounted for as share-based compensation expense at closing as a result of the vesting provisions of WhatsApp employee awards on the acquisition date. The remaining $879 million (approximately 8.5 million shares of Class A common stock and $219 million in cash) is subject to continuous employment and will be recognized as share-based compensation and other compensation expense over the required service period of up to three years.
The following table summarizes the preliminary allocation of the assets acquired and liabilities assumed based on their fair values as of the acquisition date and related estimated useful lives of the finite-lived intangible assets acquired (in millions, except estimated useful life):
 
 
Estimated useful life
(in years)
Finite-lived intangible assets:
 
 
Acquired users
$
2,026

7 years
Tradename
448

5 years
Acquired technology
288

5 years
Other
21

2 years
Net liabilities assumed
(33
)
 
Deferred tax liabilities
(916
)
 
Net assets acquired
$
1,834

 
Goodwill
15,359

 
 
$
17,193

 

The $15.36 billion of goodwill is primarily attributable to expected synergies from future growth, from potential monetization opportunities, from strategic advantages provided in the mobile ecosystem and from expansion of our mobile messaging offerings. Goodwill is not expected to be deductible for tax purposes.
The following unaudited pro forma information presents the combined results of operations as if the acquisition had been completed on January 1, 2013, the beginning of the comparable prior annual reporting period. The unaudited pro forma results include: (i) amortization associated with preliminary estimates for the acquired intangible assets; (ii) recognition of the post-acquisition share-based compensation and other compensation expense; (iii) share-based compensation expense related to the 46 million RSUs we will grant to WhatsApp employees; and (iv) the associated tax impact on these unaudited pro forma adjustments.
The unaudited pro forma results do not reflect any cost saving synergies from operating efficiencies or the effect of the incremental costs incurred in integrating the two companies. Accordingly, these unaudited pro forma results are presented for informational purpose only and are not necessarily indicative of what the actual results of operations of the combined company would have been if the acquisition had occurred at the beginning of the period presented, nor are they indicative of future results of operations (in millions):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2014
 
2013
 
2014
 
2013
Revenue
$
3,210

 
$
2,019

 
$
8,637

 
$
5,292

Net income (loss)
$
526

 
$
136

 
$
1,289

 
$
(106
)

The unaudited pro forma combined net loss for the nine months ended September 30, 2013 includes a non-recurring pro forma adjustment of $188 million of share-based compensation expense recognized at closing as a result of the vesting provisions of WhatsApp employee awards on the acquisition date.
Summary of Significant Accounting Policies (Policies)
Basis of Presentation 
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (GAAP) and applicable rules and regulations of the Securities and Exchange Commission regarding interim financial reporting. Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. As such, the information included in this quarterly report on Form 10-Q should be read in conjunction with the consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2013.
The condensed consolidated balance sheet as of December 31, 2013 included herein was derived from the audited financial statements as of that date, but does not include all disclosures including notes required by GAAP.
The condensed consolidated financial statements include the accounts of Facebook, Inc. and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated.
The accompanying condensed consolidated financial statements reflect all normal recurring adjustments necessary to present fairly the financial position, results of operations, and cash flows for the interim periods, but are not necessarily indicative of the results of operations to be anticipated for the full year ending December 31, 2014.
There have been no changes to our significant accounting policies described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2013 that have had a material impact on our condensed consolidated financial statements and related notes.
Use of Estimates 
Use of Estimates
Conformity with GAAP requires the use of estimates and judgments that affect the reported amounts in the condensed consolidated financial statements and accompanying notes. These estimates form the basis for judgments we make about the carrying values of our assets and liabilities, which are not readily apparent from other sources. We base our estimates and judgments on historical information and on various other assumptions that we believe are reasonable under the circumstances. GAAP requires us to make estimates and judgments in several areas, including, but not limited to, those related to revenue recognition, collectability of accounts receivable, contingent liabilities, fair value of financial instruments, fair value of acquired intangible assets and goodwill, useful lives of intangible assets and property and equipment, and income taxes. These estimates are based on management's knowledge about current events and expectations about actions we may undertake in the future. Actual results could differ materially from those estimates.
Recent Accounting Pronouncements 
Recent Accounting Pronouncements
 In May 2014, the Financial Accounting Standards Board issued guidance related to revenue from contracts with customers. Under this guidance, revenue is recognized when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services. The updated standard will replace most existing revenue recognition guidance under GAAP when it becomes effective and permits the use of either the retrospective or cumulative effect transition method. Early adoption is not permitted. The updated standard will be effective for us in the first quarter of 2017. We have not yet selected a transition method and we are currently evaluating the effect that the updated standard will have on our consolidated financial statements and related disclosures.
Acquisitions (Tables) (Oculus)
Schedule of the Components of Consideration Transferred 
The following table summarizes the components of the purchase consideration transferred based on the closing price of our common stock as of the acquisition date (in millions):
Cash
$
400

Common stock
1,601

Less: post-acquisition share-based compensation and other compensation expense
(297
)
Less: cash acquired on acquisition date
(20
)
Total purchase consideration, excluding contingent consideration
$
1,684

Contingent consideration
169

Purchase consideration
$
1,853

Schedule of Business Acquisitions, Assets Acquired and Liabilities Assumed 
The following table summarizes the allocation of the fair values of the assets acquired and liabilities assumed, including those items that are still preliminary, and the related useful lives, where applicable:
 
Oculus
 
Other
 
(in millions)
 
Useful lives (in years)
 
(in millions)
 
Useful lives (in years)
Finite-lived intangible assets:
 
 
 
 
 
 
 
Acquired technology
$
235

 
5
 
$
62

 
3 - 5
Tradename and other
132

 
2 - 7
 
87

 
3 - 5
IPR&D intangible assets
60

 
 
 
—

 
 
Net assets acquired
—

 
 
 
104

 
 
Deferred tax liabilities
(107
)
 
 
 
(41
)
 
 
Net assets acquired
$
320

 
 
 
$
212

 
 
Goodwill
1,533

 
 
 
244

 
 
Total fair value
$
1,853

 
 
 
$
456

 
 
Earnings per Share (Tables)
Numerators and Denominators of Basic and Diluted EPS Computations for Common Stock
The numerators and denominators of the basic and diluted EPS computations for our common stock were calculated as follows (in millions, except per share amounts): 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2014
 
2013
 
2014
 
2013
 
Class A
 
Class B
 
Class A
 
Class B
 
Class A
 
Class B
 
Class A
 
Class B
Basic EPS:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Numerator
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income
$
632

 
$
174

 
$
320

 
$
105

 
$
1,747

 
$
492

 
$
717

 
$
260

Less: Net income attributable to participating securities
3

 
1

 
2

 
1

 
8

 
2

 
4

 
2

Net income attributable to common stockholders
$
629

 
$
173

 
$
318

 
$
104

 
$
1,739

 
$
490

 
$
713

 
$
258

Denominator
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Weighted average shares outstanding
2,032

 
567

 
1,833

 
611

 
2,006

 
570

 
1,773

 
649

Less: Shares subject to repurchase
4

 
8

 
6

 
8

 
5

 
6

 
5

 
9

Number of shares used for basic EPS computation
2,028

 
559

 
1,827

 
603

 
2,001

 
564

 
1,768

 
640

Basic EPS
$
0.31

 
$
0.31

 
$
0.17

 
$
0.17

 
$
0.87

 
$
0.87

 
$
0.40

 
$
0.40

Diluted EPS:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Numerator
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income attributable to common stockholders
$
629

 
$
173

 
$
318

 
$
104

 
$
1,739

 
$
490

 
$
713

 
$
258

Reallocation of net income attributable to participating securities
4

 
—

 
3

 
—

 
10

 
—

 
6

 
—

Reallocation of net income as a result of conversion of Class B to Class A common stock
173

 
—

 
104

 
—

 
490

 
—

 
258

 
—

Reallocation of net income to Class B common stock
—

 
7

 
—

 
13

 
—

 
18

 
—

 
29

Net income attributable to common stockholders for diluted EPS
$
806

 
$
180

 
$
425

 
$
117

 
$
2,239

 
$
508

 
$
977

 
$
287

Denominator
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Number of shares used for basic EPS computation
2,028

 
559

 
1,827

 
603

 
2,001

 
564

 
1,768

 
640

Conversion of Class B to Class A common stock
559

 
—

 
603

 
—

 
564

 
—

 
640

 
—

Weighted average effect of dilutive securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Employee stock options
13

 
13

 
59

 
59

 
13

 
13

 
69

 
69

RSUs
36

 
14

 
33

 
33

 
32

 
13

 
21

 
21

Shares subject to repurchase
8

 
5

 
6

 
6

 
6

 
3

 
6

 
6

Number of shares used for diluted EPS computation
2,644

 
591

 
2,528

 
701

 
2,616

 
593

 
2,504

 
736

Diluted EPS
$
0.30

 
$
0.30

 
$
0.17

 
$
0.17

 
$
0.86

 
$
0.86

 
$
0.39

 
$
0.39

Cash, Cash Equivalents and Marketable Securities (Tables)
Cash, Cash Equivalents and Marketable Securities 
The following table sets forth the cash, cash equivalents and marketable securities (in millions):
 
September 30, 2014
 
December 31, 2013
Cash and cash equivalents:
 
 
 
Cash
$
1,344

 
$
1,044

Cash equivalents:

 

Money market funds
7,655

 
2,279

Total cash and cash equivalents
8,999

 
3,323

Marketable securities:
 
 
 
U.S. government securities
2,062

 
5,687

U.S. government agency securities
2,330

 
2,439

Corporate debt securities
859

 
—

Total marketable securities
5,251

 
8,126

Total cash, cash equivalents and marketable securities
$
14,250

 
$
11,449

Marketable Securities by Contractual Maturities 
The following table classifies our marketable securities by contractual maturities (in millions):  
 
September 30, 2014
Due in one year
$
2,747

Due in one to two years
2,504

Total
$
5,251

Fair Value Measurements (Tables)
Assets and Liabilities Measured at Fair Value on a Recurring Basis
Assets and liabilities measured at fair value on a recurring basis are summarized below (in millions): 
 
 
 
Fair Value Measurement at
Reporting Date Using
Description
September 30, 2014
 
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
Cash equivalents:
 
 
 
 
 
 
 
Money market funds
$
7,655

 
$
7,655

 
$
—

 
$
—

Marketable securities:
 
 
 
 
 
 
 
U.S. government securities
2,062

 
2,062

 
—

 
—

U.S. government agency securities
2,330

 
2,330

 
—

 
—

Corporate debt securities
859

 
—

 
859

 
—

Total cash equivalents and marketable securities
$
12,906

 
$
12,047

 
$
859

 
$
—

 
 
 
 
 
 
 
 
Other liabilities:
 
 
 
 
 
 
 
Contingent consideration liability
$
192

 
$
—

 
$
—

 
$
192

 
 
 
Fair Value Measurement at
Reporting Date Using
Description
December 31, 2013
 
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
Cash equivalents:
 
 
 
 
 
 
 
Money market funds
$
2,279

 
$
2,279

 
$
—

 
$
—

Marketable securities:
 
 
 
 
 
 
 
U.S. government securities
5,687

 
5,687

 
—

 
—

U.S. government agency securities
2,439

 
2,439

 
—

 
—

Total cash equivalents and marketable securities
$
10,405

 
$
10,405

 
$
—

 
$
—

Property and Equipment (Tables)
Property and Equipment
Property and equipment consisted of the following (in millions): 
 
September 30,
2014
 
December 31,
2013
Land
$
153

 
$
45

Buildings
1,347

 
1,071

Leasehold improvements
279

 
203

Network equipment
2,704

 
2,351

Computer software, office equipment and other
134

 
95

Construction in progress
702

 
377

Total
5,319

 
4,142

Less: Accumulated depreciation
(1,616
)
 
(1,260
)
Property and equipment, net
$
3,703

 
$
2,882

Goodwill and Intangible Assets (Tables)
Changes in Carrying Amount of Goodwill 
The change in the carrying amount of goodwill for the nine months ended September 30, 2014 is as follows (in millions): 
Balance as of December 31, 2013
$
839

Goodwill acquired
1,777

Effect of currency translation adjustment
(4
)
Balance as of September 30, 2014
$
2,612

Intangible Assets 
Intangible assets consisted of the following (in millions):
 
 
 
September 30, 2014
 
December 31, 2013
 
Useful lives from date of acquisitions (in years)
 
Gross Carrying Amount
 
Accumulated Amortization
 
Net Carrying Amount
 
Gross Carrying Amount
 
Accumulated Amortization
 
Net Carrying Amount
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Finite-lived intangible assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
Acquired patents
2 - 18
 
$
773

 
$
(215
)
 
$
558

 
$
773

 
$
(142
)
 
$
631

Acquired technology
2 - 10
 
518

 
(104
)
 
414

 
227

 
(65
)
 
162

Tradename and other
2 - 10
 
357

 
(72
)
 
285

 
138

 
(48
)
 
90

Total finite-lived intangible assets:
 
 
$
1,648

 
$
(391
)
 
$
1,257

 
$
1,138

 
$
(255
)
 
$
883

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Indefinite-lived intangible assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
IPR&D
 
 
$
60

 
$
—

 
$
60

 
$
—

 
$
—

 
$
—

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total intangible assets
 
 
$
1,708

 
$
(391
)
 
$
1,317

 
$
1,138

 
$
(255
)
 
$
883

Estimated Amortization Expense for Unamortized Acquired Intangible Assets 
As of September 30, 2014, estimated amortization expense for the unamortized acquired intangible assets for the next five years and thereafter is as follows (in millions):
The remainder of 2014
$
66

2015
260

2016
244

2017
209

2018
163

Thereafter
315

 
$
1,257

Stockholders' Equity (Tables)
Stock Option Activity under Stock Plans 
The following table summarizes the stock option activity under the Stock Plans during the nine months ended September 30, 2014: 
 
Shares Subject to Options Outstanding
 
Number of
Shares
 
Weighted
Average
Exercise
Price
 
Weighted-
Average
Remaining
Contractual
Term
 
Aggregate
Intrinsic
Value(1)
 
(in thousands)
 
 
 
(in years)
 
(in millions)
Balance as of December 31, 2013
22,102

 
$
3.56

 
 
 
 
Stock options exercised
(5,015
)
 
0.91

 
 
 
 
Balance as of September 30, 2014
17,087

 
$
4.34

 
3.22
 
$
1,276

Stock options vested and expected to vest as of September 30, 2014
17,071

 
$
4.33

 
3.22
 
$
1,275

Stock options exercisable as of September 30, 2014
13,719

 
$
2.48

 
2.56
 
$
1,050

(1)
The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying stock option awards and the closing price of our Class A common stock of $79.04 on September 30, 2014.
Restricted Stock Units Award Activity 
The following table summarizes the activities for our unvested RSUs for the nine months ended September 30, 2014:
 
Unvested RSUs
 
Number of Shares
 
Weighted Average Grant Date Fair Value
 
(in thousands)
 
 
Unvested at December 31, 2013
103,971

 
$
27.30

Granted
33,844

 
70.04

Vested
(33,450
)
 
24.77

Forfeited
(7,948
)
 
33.87

Unvested at September 30, 2014
96,417

 
$
42.64

Geographical Information (Tables)
Revenue and Property and Equipment by Geographic Area
Revenue by geography is based on the billing address of the marketer or developer. The following tables set forth revenue and property and equipment, net by geographic area (in millions):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2014
 
2013
 
2014
 
2013
Revenue:
 
 
 
 
 
 
 
United States
$
1,468

 
$
940

 
$
3,857

 
$
2,438

Rest of the world (1)
1,735

 
1,076

 
4,758

 
2,848

Total revenue
$
3,203

 
$
2,016

 
$
8,615

 
$
5,286

 
(1)
No individual country exceeded 10% of our total revenue for any period presented.
 
September 30,
2014
 
December 31,
2013
Property and equipment, net:
 
 
 
United States
$
3,023

 
$
2,368

Sweden
513

 
415

Rest of the world
167

 
99

Total property and equipment, net
$
3,703

 
$
2,882

Subsequent Event (Tables) (WhatsApp)
Schedule of the Components of Consideration Transferred 
The following table summarizes the components of the preliminary purchase consideration transferred based on the closing price of $77.56 per share of our Class A common stock on the acquisition close date (in millions):
Cash
$
4,589

Common stock
13,787

Less: post-acquisition share-based compensation and other compensation expense
(1,067
)
Less: cash and promissory notes acquired on acquisition date
(116
)
Purchase consideration
$
17,193

Schedule of Business Acquisitions, Assets Acquired and Liabilities Assumed 
The following table summarizes the preliminary allocation of the assets acquired and liabilities assumed based on their fair values as of the acquisition date and related estimated useful lives of the finite-lived intangible assets acquired (in millions, except estimated useful life):
 
 
Estimated useful life
(in years)
Finite-lived intangible assets:
 
 
Acquired users
$
2,026

7 years
Tradename
448

5 years
Acquired technology
288

5 years
Other
21

2 years
Net liabilities assumed
(33
)
 
Deferred tax liabilities
(916
)
 
Net assets acquired
$
1,834

 
Goodwill
15,359

 
 
$
17,193

 
Business Acquisition, Pro Forma Information 
The unaudited pro forma results do not reflect any cost saving synergies from operating efficiencies or the effect of the incremental costs incurred in integrating the two companies. Accordingly, these unaudited pro forma results are presented for informational purpose only and are not necessarily indicative of what the actual results of operations of the combined company would have been if the acquisition had occurred at the beginning of the period presented, nor are they indicative of future results of operations (in millions):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2014
 
2013
 
2014
 
2013
Revenue
$
3,210

 
$
2,019

 
$
8,637

 
$
5,292

Net income (loss)
$
526

 
$
136

 
$
1,289

 
$
(106
)
Acquisitions (Details) (USD $)
In Millions, except Share data, unless otherwise specified
1 Months Ended 9 Months Ended 1 Months Ended 9 Months Ended 9 Months Ended 9 Months Ended
Sep. 30, 2014
Jul. 31, 2014
Dec. 31, 2013
Jul. 31, 2014
Oculus
Sep. 30, 2014
Oculus
Jul. 31, 2014
Oculus
Class B Common Stock
Sep. 30, 2014
Oculus
Acquired Technology
Jul. 31, 2014
Oculus
Acquired Technology
Jul. 31, 2014
Oculus
Tradename and Other
Jul. 31, 2014
Oculus
In Process Research and Development
Sep. 30, 2014
Oculus
Minimum
Tradename and Other
Sep. 30, 2014
Oculus
Maximum
Tradename and Other
Sep. 30, 2014
Other Current Period Acquisition
Sep. 30, 2014
Other Current Period Acquisition
Acquired Technology
Sep. 30, 2014
Other Current Period Acquisition
Tradename and Other
Sep. 30, 2014
Other Current Period Acquisition
In Process Research and Development
Sep. 30, 2014
Other Current Period Acquisition
Minimum
Acquired Technology
Sep. 30, 2014
Other Current Period Acquisition
Minimum
Tradename and Other
Sep. 30, 2014
Other Current Period Acquisition
Maximum
Acquired Technology
Sep. 30, 2014
Other Current Period Acquisition
Maximum
Tradename and Other
Jul. 31, 2014
Cash
Oculus
Business Acquisition [Line Items]
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Business Acquisition, number of shares issued
 
 
 
 
 
23,000,000 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Payments to acquire business
 
 
 
$ 400 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Contingent liability, shares issuable (in shares)
 
 
 
 
 
3,000,000 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Contingent liability
 
169 
 
169 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
60 
Business Combination, Consideration Transferred [Abstract]
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash
 
 
 
400 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Common stock
 
 
 
1,601 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Less: post-acquisition share-based compensation and other compensation expense
 
 
 
(297)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Less: cash and promissory notes acquired on acquisition date
 
 
 
(20)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total purchase consideration, excluding contingent consideration
 
 
 
1,684 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Contingent consideration
 
169 
 
169 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
60 
Purchase consideration
 
 
 
1,853 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Share-based compensation recognized
 
 
 
13 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Deferred compensation expense to be recognized
 
 
 
 
284 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Deferred compensation, Requisite service period
 
 
 
 
4 years 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Business Combination, Recognized Identifiable Assets Acquired, Goodwill, and Liabilities Assumed, Net [Abstract]
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Finite and Indefinite-lived intangible assets:
 
 
 
 
 
 
 
235 
132 
60 
 
 
 
62 
87 
0 
 
 
 
 
 
Finite-lived intangible asset, Useful life
 
 
 
 
 
 
5 years 
 
 
 
2 years 
7 years 
 
 
 
 
3 years 
3 years 
5 years 
5 years 
 
Net assets acquired
 
 
 
0 
 
 
 
 
 
 
 
 
104 
 
 
 
 
 
 
 
 
Deferred tax liabilities
 
 
 
(107)
 
 
 
 
 
 
 
 
(41)
 
 
 
 
 
 
 
 
Net assets acquired
 
 
 
320 
 
 
 
 
 
 
 
 
212 
 
 
 
 
 
 
 
 
Goodwill
2,612 
 
839 
1,533 
 
 
 
 
 
 
 
 
244 
 
 
 
 
 
 
 
 
Total fair value
 
 
 
$ 1,853 
 
 
 
 
 
 
 
 
$ 456 
 
 
 
 
 
 
 
 
Earnings per Share - Antidilutive Securities (Details) (Restricted Stock Units (RSUs))
In Millions, unless otherwise specified
9 Months Ended
Sep. 30, 2013
Restricted Stock Units (RSUs)
 
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
 
Antidilutive securities excluded from computation of earnings per share
15 
Earnings per Share (Details) (USD $)
In Millions, except Per Share data, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2014
Sep. 30, 2013
Sep. 30, 2014
Sep. 30, 2013
Numerator
 
 
 
 
Net income
$ 806 
$ 425 
$ 2,239 
$ 977 
Less: Net income attributable to participating securities
4 
3 
10 
6 
Net income attributable to Class A and Class B common stockholders
802 
422 
2,229 
971 
Denominator
 
 
 
 
Number of shares used for basic EPS computation (in shares)
2,587 
2,430 
2,565 
2,408 
Basic EPS (in dollars per share)
$ 0.31 
$ 0.17 
$ 0.87 
$ 0.40 
Numerator
 
 
 
 
Net income attributable to common stockholders
802 
422 
2,229 
971 
Denominator
 
 
 
 
Number of shares used for basic EPS computation (in shares)
2,587 
2,430 
2,565 
2,408 
Number of shares used for diluted EPS computation (in shares)
2,644 
2,528 
2,616 
2,504 
Diluted EPS (in dollars per share)
$ 0.30 
$ 0.17 
$ 0.86 
$ 0.39 
Class A Common Stock
 
 
 
 
Numerator
 
 
 
 
Net income
632 
320 
1,747 
717 
Less: Net income attributable to participating securities
3 
2 
8 
4 
Net income attributable to Class A and Class B common stockholders
629 
318 
1,739 
713 
Denominator
 
 
 
 
Weighted average shares outstanding (in shares)
2,032 
1,833 
2,006 
1,773 
Less: Shares subject to repurchase (in shares)
4 
6 
5 
5 
Number of shares used for basic EPS computation (in shares)
2,028 
1,827 
2,001 
1,768 
Basic EPS (in dollars per share)
$ 0.31 
$ 0.17 
$ 0.87 
$ 0.40 
Numerator
 
 
 
 
Net income attributable to common stockholders
629 
318 
1,739 
713 
Reallocation of net income attributable to participating securities
4 
3 
10 
6 
Reallocation of net income as a result of conversion of Class B to Class A common stock
173 
104 
490 
258 
Reallocation of net income to Class B common stock
0 
0 
0 
0 
Net income attributable to common stockholders for diluted EPS
806 
425 
2,239 
977 
Denominator
 
 
 
 
Number of shares used for basic EPS computation (in shares)
2,028 
1,827 
2,001 
1,768 
Conversion of Class B to Class A common stock (in shares)
559 
603 
564 
640 
Shares subject to repurchase (in shares)
8 
6 
6 
6 
Number of shares used for diluted EPS computation (in shares)
2,644 
2,528 
2,616 
2,504 
Diluted EPS (in dollars per share)
$ 0.30 
$ 0.17 
$ 0.86 
$ 0.39 
Class A Common Stock |
Employee Stock Options
 
 
 
 
Denominator
 
 
 
 
Share based payment arrangements (in shares)
13 
59 
13 
69 
Class A Common Stock |
Restricted Stock Units (RSUs)
 
 
 
 
Denominator
 
 
 
 
Share based payment arrangements (in shares)
36 
33 
32 
21 
Class B Common Stock
 
 
 
 
Numerator
 
 
 
 
Net income
174 
105 
492 
260 
Less: Net income attributable to participating securities
1 
1 
2 
2 
Net income attributable to Class A and Class B common stockholders
173 
104 
490 
258 
Denominator
 
 
 
 
Weighted average shares outstanding (in shares)
567 
611 
570 
649 
Less: Shares subject to repurchase (in shares)
8 
8 
6 
9 
Number of shares used for basic EPS computation (in shares)
559 
603 
564 
640 
Basic EPS (in dollars per share)
$ 0.31 
$ 0.17 
$ 0.87 
$ 0.40 
Numerator
 
 
 
 
Net income attributable to common stockholders
173 
104 
490 
258 
Reallocation of net income attributable to participating securities
0 
0 
0 
0 
Reallocation of net income as a result of conversion of Class B to Class A common stock
0 
0 
0 
0 
Reallocation of net income to Class B common stock
7 
13 
18 
29 
Net income attributable to common stockholders for diluted EPS
$ 180 
$ 117 
$ 508 
$ 287 
Denominator
 
 
 
 
Number of shares used for basic EPS computation (in shares)
559 
603 
564 
640 
Conversion of Class B to Class A common stock (in shares)
0 
0 
0 
0 
Shares subject to repurchase (in shares)
5 
6 
3 
6 
Number of shares used for diluted EPS computation (in shares)
591 
701 
593 
736 
Diluted EPS (in dollars per share)
$ 0.30 
$ 0.17 
$ 0.86 
$ 0.39 
Class B Common Stock |
Employee Stock Options
 
 
 
 
Denominator
 
 
 
 
Share based payment arrangements (in shares)
13 
59 
13 
69 
Class B Common Stock |
Restricted Stock Units (RSUs)
 
 
 
 
Denominator
 
 
 
 
Share based payment arrangements (in shares)
14 
33 
13 
21 
Cash, Cash Equivalents and Marketable Securities (Details) (USD $)
In Millions, unless otherwise specified
Sep. 30, 2014
security
Dec. 31, 2013
security
Sep. 30, 2013
Dec. 31, 2012
Cash, Cash Equivalents, and Marketable Securities
 
 
 
 
Cash
$ 1,344 
$ 1,044 
 
 
Money market funds
7,655 
2,279 
 
 
Total cash and cash equivalents
8,999 
3,323 
3,100 
2,384 
Total marketable securities
5,251 
8,126 
 
 
Total cash, cash equivalents and marketable securities
14,250 
11,449 
 
 
Number of positions in a continuous loss position for 12 months or longer
0 
0 
 
 
US Government Securities
 
 
 
 
Cash, Cash Equivalents, and Marketable Securities
 
 
 
 
Total marketable securities
2,062 
5,687 
 
 
US Government Agency Securities
 
 
 
 
Cash, Cash Equivalents, and Marketable Securities
 
 
 
 
Total marketable securities
2,330 
2,439 
 
 
Corporate Debt Securities
 
 
 
 
Cash, Cash Equivalents, and Marketable Securities
 
 
 
 
Total marketable securities
$ 859 
$ 0 
 
 
Cash, Cash Equivalents and Marketable Securities - Contractual Maturities of Debt Securities (Details) (USD $)
In Millions, unless otherwise specified
Sep. 30, 2014
Dec. 31, 2013
Cash and Cash Equivalents [Abstract]
 
 
Due in one year
$ 2,747 
 
Due in one to two years
2,504 
 
Total marketable securities
$ 5,251 
$ 8,126 
Fair Value Measurements (Details) (USD $)
In Millions, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2014
Sep. 30, 2014
Jul. 31, 2014
Dec. 31, 2013
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
 
 
 
 
Marketable securities
$ 5,251 
$ 5,251 
 
$ 8,126 
Contingent liability
 
 
169 
 
Change in value of contingent consideration liability
23 
23 
 
 
Fair Value, Measurements, Recurring |
Estimate of Fair Value, Fair Value Disclosure
 
 
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
 
 
 
 
Total cash equivalents and marketable securities
12,906 
12,906 
 
10,405 
Contingent liability
192 
192 
 
 
Fair Value, Measurements, Recurring |
Quoted Prices in Active Markets for Identical Assets (Level 1)
 
 
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
 
 
 
 
Total cash equivalents and marketable securities
12,047 
12,047 
 
10,405 
Contingent liability
0 
0 
 
 
Fair Value, Measurements, Recurring |
Significant Other Observable Inputs (Level 2)
 
 
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
 
 
 
 
Total cash equivalents and marketable securities
859 
859 
 
0 
Contingent liability
0 
0 
 
 
Fair Value, Measurements, Recurring |
Significant Unobservable Inputs (Level 3)
 
 
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
 
 
 
 
Total cash equivalents and marketable securities
0 
0 
 
0 
Contingent liability
192 
192 
 
 
US Government Securities
 
 
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
 
 
 
 
Marketable securities
2,062 
2,062 
 
5,687 
US Government Securities |
Fair Value, Measurements, Recurring |
Estimate of Fair Value, Fair Value Disclosure
 
 
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
 
 
 
 
Marketable securities
2,062 
2,062 
 
5,687 
US Government Securities |
Fair Value, Measurements, Recurring |
Quoted Prices in Active Markets for Identical Assets (Level 1)
 
 
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
 
 
 
 
Marketable securities
2,062 
2,062 
 
5,687 
US Government Securities |
Fair Value, Measurements, Recurring |
Significant Other Observable Inputs (Level 2)
 
 
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
 
 
 
 
Marketable securities
0 
0 
 
0 
US Government Securities |
Fair Value, Measurements, Recurring |
Significant Unobservable Inputs (Level 3)
 
 
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
 
 
 
 
Marketable securities
0 
0 
 
0 
US Government Agency Securities
 
 
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
 
 
 
 
Marketable securities
2,330 
2,330 
 
2,439 
US Government Agency Securities |
Fair Value, Measurements, Recurring |
Estimate of Fair Value, Fair Value Disclosure
 
 
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
 
 
 
 
Marketable securities
2,330 
2,330 
 
2,439 
US Government Agency Securities |
Fair Value, Measurements, Recurring |
Quoted Prices in Active Markets for Identical Assets (Level 1)
 
 
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
 
 
 
 
Marketable securities
2,330 
2,330 
 
2,439 
US Government Agency Securities |
Fair Value, Measurements, Recurring |
Significant Other Observable Inputs (Level 2)
 
 
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
 
 
 
 
Marketable securities
0 
0 
 
0 
US Government Agency Securities |
Fair Value, Measurements, Recurring |
Significant Unobservable Inputs (Level 3)
 
 
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
 
 
 
 
Marketable securities
0 
0 
 
0 
Corporate Debt Securities
 
 
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
 
 
 
 
Marketable securities
859 
859 
 
0 
Corporate Debt Securities |
Fair Value, Measurements, Recurring |
Estimate of Fair Value, Fair Value Disclosure
 
 
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
 
 
 
 
Marketable securities
859 
859 
 
 
Corporate Debt Securities |
Fair Value, Measurements, Recurring |
Quoted Prices in Active Markets for Identical Assets (Level 1)
 
 
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
 
 
 
 
Marketable securities
0 
0 
 
 
Corporate Debt Securities |
Fair Value, Measurements, Recurring |
Significant Other Observable Inputs (Level 2)
 
 
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
 
 
 
 
Marketable securities
859 
859 
 
 
Corporate Debt Securities |
Fair Value, Measurements, Recurring |
Significant Unobservable Inputs (Level 3)
 
 
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
 
 
 
 
Marketable securities
0 
0 
 
 
Money Market Funds |
Fair Value, Measurements, Recurring |
Estimate of Fair Value, Fair Value Disclosure
 
 
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
 
 
 
 
Cash equivalents
7,655 
7,655 
 
2,279 
Money Market Funds |
Fair Value, Measurements, Recurring |
Quoted Prices in Active Markets for Identical Assets (Level 1)
 
 
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
 
 
 
 
Cash equivalents
7,655 
7,655 
 
2,279 
Money Market Funds |
Fair Value, Measurements, Recurring |
Significant Other Observable Inputs (Level 2)
 
 
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
 
 
 
 
Cash equivalents
0 
0 
 
0 
Money Market Funds |
Fair Value, Measurements, Recurring |
Significant Unobservable Inputs (Level 3)
 
 
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
 
 
 
 
Cash equivalents
$ 0 
$ 0 
 
$ 0 
Property and Equipment (Detail) (USD $)
3 Months Ended 9 Months Ended
Sep. 30, 2014
Sep. 30, 2013
Sep. 30, 2014
Dec. 31, 2013
Property, Plant and Equipment
 
 
 
 
Property and equipment, gross
$ 5,319,000,000 
 
$ 5,319,000,000 
$ 4,142,000,000 
Less: Accumulated depreciation
(1,616,000,000)
 
(1,616,000,000)
(1,260,000,000)
Property and equipment, net
3,703,000,000 
 
3,703,000,000 
2,882,000,000 
Interest costs capitalized
0 
0 
0 
 
Land
 
 
 
 
Property, Plant and Equipment
 
 
 
 
Property and equipment, gross
153,000,000 
 
153,000,000 
45,000,000 
Buildings
 
 
 
 
Property, Plant and Equipment
 
 
 
 
Property and equipment, gross
1,347,000,000 
 
1,347,000,000 
1,071,000,000 
Leasehold improvements
 
 
 
 
Property, Plant and Equipment
 
 
 
 
Property and equipment, gross
279,000,000 
 
279,000,000 
203,000,000 
Network Equipment
 
 
 
 
Property, Plant and Equipment
 
 
 
 
Property and equipment, gross
2,704,000,000 
 
2,704,000,000 
2,351,000,000 
Computer software, office equipment and other
 
 
 
 
Property, Plant and Equipment
 
 
 
 
Property and equipment, gross
134,000,000 
 
134,000,000 
95,000,000 
Construction in progress
 
 
 
 
Property, Plant and Equipment
 
 
 
 
Property and equipment, gross
$ 702,000,000 
 
$ 702,000,000 
$ 377,000,000 
Goodwill and Intangible Assets (Detail) (USD $)
In Millions, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2014
Sep. 30, 2013
Sep. 30, 2014
Sep. 30, 2013
Dec. 31, 2013
Goodwill and Intangible Assets Disclosure
 
 
 
 
 
Gross Carrying Amount
$ 1,648 
 
$ 1,648 
 
$ 1,138 
Accumulated Amortization
(391)
 
(391)
 
(255)
Net Carrying Amount
1,257 
 
1,257 
 
883 
Indefinite-lived intangible assets
60 
 
60 
 
0 
Total intangible assets, Gross
1,708 
 
1,708 
 
1,138 
Total intangible assets, Net
1,317 
 
1,317 
 
883 
Amortization expense
59 
37 
141 
106 
 
Goodwill
 
 
 
 
 
Goodwill beginning
 
 
839 
 
 
Goodwill acquired
 
 
1,777 
 
 
Effect of currency translation adjustment
 
 
(4)
 
 
Goodwill ending
2,612 
 
2,612 
 
 
Acquired patents
 
 
 
 
 
Goodwill and Intangible Assets Disclosure
 
 
 
 
 
Gross Carrying Amount
773 
 
773 
 
773 
Accumulated Amortization
(215)
 
(215)
 
(142)
Net Carrying Amount
558 
 
558 
 
631 
Acquired technology
 
 
 
 
 
Goodwill and Intangible Assets Disclosure
 
 
 
 
 
Gross Carrying Amount
518 
 
518 
 
227 
Accumulated Amortization
(104)
 
(104)
 
(65)
Net Carrying Amount
414 
 
414 
 
162 
Tradename and other
 
 
 
 
 
Goodwill and Intangible Assets Disclosure
 
 
 
 
 
Gross Carrying Amount
357 
 
357 
 
138 
Accumulated Amortization
(72)
 
(72)
 
(48)
Net Carrying Amount
$ 285 
 
$ 285 
 
$ 90 
Minimum |
Acquired patents
 
 
 
 
 
Goodwill and Intangible Assets Disclosure
 
 
 
 
 
Finite-Lived Intangible Asset, Useful Life
 
 
2 years 
 
 
Minimum |
Acquired technology
 
 
 
 
 
Goodwill and Intangible Assets Disclosure
 
 
 
 
 
Finite-Lived Intangible Asset, Useful Life
 
 
2 years 
 
 
Minimum |
Tradename and other
 
 
 
 
 
Goodwill and Intangible Assets Disclosure
 
 
 
 
 
Finite-Lived Intangible Asset, Useful Life
 
 
2 years 
 
 
Maximum |
Acquired patents
 
 
 
 
 
Goodwill and Intangible Assets Disclosure
 
 
 
 
 
Finite-Lived Intangible Asset, Useful Life
 
 
18 years 
 
 
Maximum |
Acquired technology
 
 
 
 
 
Goodwill and Intangible Assets Disclosure
 
 
 
 
 
Finite-Lived Intangible Asset, Useful Life
 
 
10 years 
 
 
Maximum |
Tradename and other
 
 
 
 
 
Goodwill and Intangible Assets Disclosure
 
 
 
 
 
Finite-Lived Intangible Asset, Useful Life
 
 
10 years 
 
 
Goodwill and Intangible Assets - Estimated Amortization Expense (Details) (USD $)
In Millions, unless otherwise specified
Sep. 30, 2014
Dec. 31, 2013
Finite-Lived Intangible Assets, Amortization Expense, Maturity Schedule [Abstract]
 
 
The remainder of 2014
$ 66 
 
2015
260 
 
2016
244 
 
2017
209 
 
2018
163 
 
Thereafter
315 
 
Net Carrying Amount
$ 1,257 
$ 883 
Long-term Debt - Borrowings (Details) (Revolving Credit Facility, 2013 Revolving Credit Facility, USD $)
1 Months Ended
Aug. 31, 2013
Sep. 30, 2014
Revolving Credit Facility |
2013 Revolving Credit Facility
 
 
Debt Instrument
 
 
Term loan facility, term period
5 years 
 
Line of credit facility, maximum borrowing capacity
$ 6,500,000,000.0 
 
Debt instrument, interest rate during period
LIBOR 
 
Basis spread on variable rate
1.00% 
 
Line of credit facility, unused capacity, commitment fee percentage
0.10% 
 
Line of credit facility, amount outstanding
 
$ 0 
Commitments and Contingencies (Details) (USD $)
In Millions, unless otherwise specified
1 Months Ended 3 Months Ended 9 Months Ended
Apr. 30, 2014
Sep. 30, 2014
Sep. 30, 2013
Sep. 30, 2014
Sep. 30, 2013
Leases [Abstract]
 
 
 
 
 
Capital lease agreement period
 
 
 
3 years 
 
Operating lease expense
 
$ 31 
$ 28 
$ 94 
$ 101 
Contractual obligation
$ 140 
 
 
 
 
Contractual obligation, period
10 years 
 
 
 
 
Minimum
 
 
 
 
 
Leases [Abstract]
 
 
 
 
 
Interest rate
 
1.00% 
 
1.00% 
 
Expiration date of lease
 
 
 
2014 
 
Maximum
 
 
 
 
 
Leases [Abstract]
 
 
 
 
 
Interest rate
 
13.00% 
 
13.00% 
 
Expiration date of lease
 
 
 
2029 
 
Buildings
 
 
 
 
 
Leases [Abstract]
 
 
 
 
 
Capital lease agreement period
 
 
 
15 years 
 
Stockholders' Equity - Share-based Compensation Plans (Detail)
9 Months Ended
Sep. 30, 2014
Share-based Compensation Arrangement by Share-based Payment Award
 
Share-based employee compensation plans, number
2 
2012 Plan
 
Share-based Compensation Arrangement by Share-based Payment Award
 
Share-based compensation arrangement by share-based payment award, expiration period (in years)
10 years 
Share-based compensation arrangement by share-based payment award, expiration period for plan (in years)
10 years 
2012 equity incentive plan shares authorized
25,000,000 
2012 Plan |
Maximum
 
Share-based Compensation Arrangement by Share-based Payment Award
 
Shares reserved for issuance increase date range
Jan. 01, 2022 
Stockholders' Equity - Stock Option Activity (Details) (USD $)
In Millions, except Share data in Thousands, unless otherwise specified
9 Months Ended
Sep. 30, 2014
Employee Stock Options
 
Number of Shares
 
Beginning balance (in shares)
22,102 
Stock options exercised (in shares)
(5,015)
Ending balance (in shares)
17,087 
Stock options vested and expected to vest as of period end (in shares)
17,071 
Stock options exercisable as of period end (in shares)
13,719 
Weighted Average Exercise Price
 
Beginning Balance (in dollars per share)
$ 3.56 
Stock options exercised (in dollars per share)
$ 0.91 
Ending Balance (in dollars per share)
$ 4.34 
Stock options vested and expected to vest as of period end (in dollars per share)
$ 4.33 
Stock options exercisable as of period end (in dollars per share)
$ 2.48 
Weighted- Average Remaining Contractual Term
 
Balance at period end (in years)
3 years 2 months 20 days 
Stock options vested and expected to vest as of period end (in years)
3 years 2 months 20 days 
Stock options exercisable as of period end (in years)
2 years 6 months 22 days 
Aggregate Intrinsic Value
 
Balance at period end
$ 1,276 1
Stock options vested and expected to vest as of period end
1,275 1
Stock options exercisable as of period end
$ 1,050 1
Class A Common Stock
 
Aggregate Intrinsic Value
 
Common stock, closing share price (in usd per share)
$ 79.04 
Stockholders' Equity - Stock Options Additional Disclosures (Details) (USD $)
In Millions, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2014
Sep. 30, 2013
Sep. 30, 2014
Sep. 30, 2013
Equity [Abstract]
 
 
 
 
Aggregate intrinsic value of the options exercised
$ 117 
$ 586 
$ 321 
$ 1,170 
Stockholders' Equity - Restricted Stock Units (Details) (Restricted Stock Units (RSUs), USD $)
In Thousands, except Per Share data, unless otherwise specified
9 Months Ended
Sep. 30, 2014
Restricted Stock Units (RSUs)
 
Number of Shares
 
Unvested at beginning of period (in shares)
103,971 
Granted (in shares)
33,844 
Vested (in shares)
(33,450)
Forfeited (in shares)
(7,948)
Unvested at end of period (in shares)
96,417 
Weighted Average Grant Date Fair Value
 
Unvested at beginning of period (in dollars per share)
$ 27.30 
Granted (in dollars per share)
$ 70.04 
Vested (in dollars per share)
$ 24.77 
Forfeited (in dollars per share)
$ 33.87 
Unvested at end of period (in dollars per share)
$ 42.64 
Stockholders' Equity - Additional Award Disclosures (Details) (USD $)
In Millions, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2014
Sep. 30, 2013
Sep. 30, 2014
Sep. 30, 2013
Share-based Compensation Arrangement by Share-based Payment Award
 
 
 
 
Future period share-based compensation expense
$ 4,170 
 
$ 4,170 
 
Future period share-based compensation expense period of recognition (in years)
 
 
3 years 
 
Restricted Stock Units (RSUs)
 
 
 
 
Share-based Compensation Arrangement by Share-based Payment Award
 
 
 
 
Fair value of vested RSUs
652 
326 
2,190 
1,150 
Future period share-based compensation expense
3,710 
 
3,710 
 
Other Awards
 
 
 
 
Share-based Compensation Arrangement by Share-based Payment Award
 
 
 
 
Future period share-based compensation expense
$ 464 
 
$ 464 
 
Income Taxes Income Tax (Details) (USD $)
In Billions, unless otherwise specified
Sep. 30, 2014
Dec. 31, 2013
Income Tax Disclosure [Abstract]
 
 
Unrecognized tax benefits
$ 1.51 
$ 1.32 
Unrecognized tax benefits that would impact effective tax rate
$ 1.03 
 
Geographical Information - Revenue (Details) (USD $)
In Millions, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2014
Sep. 30, 2013
Sep. 30, 2014
Sep. 30, 2013
Revenue by Geographical Area
 
 
 
 
Revenue
$ 3,203 
$ 2,016 
$ 8,615 
$ 5,286 
United States
 
 
 
 
Revenue by Geographical Area
 
 
 
 
Revenue
1,468 
940 
3,857 
2,438 
Rest of the World
 
 
 
 
Revenue by Geographical Area
 
 
 
 
Revenue
$ 1,735 1
$ 1,076 1
$ 4,758 1
$ 2,848 1
Geographical Information - Property and Equipment, Net (Details) (USD $)
In Millions, unless otherwise specified
Sep. 30, 2014
Dec. 31, 2013
Property and Equipment, Net by Geographical Area
 
 
Property and equipment, net
$ 3,703 
$ 2,882 
United States
 
 
Property and Equipment, Net by Geographical Area
 
 
Property and equipment, net
3,023 
2,368 
Sweden
 
 
Property and Equipment, Net by Geographical Area
 
 
Property and equipment, net
513 
415 
Rest of the World
 
 
Property and Equipment, Net by Geographical Area
 
 
Property and equipment, net
$ 167 
$ 99 
Subsequent Events (Details) (USD $)
In Millions, except Per Share data, unless otherwise specified
3 Months Ended 9 Months Ended 0 Months Ended 0 Months Ended 0 Months Ended 0 Months Ended 0 Months Ended 0 Months Ended
Sep. 30, 2014
Dec. 31, 2013
Sep. 30, 2014
Class A Common Stock
Sep. 30, 2014
WhatsApp
Sep. 30, 2013
WhatsApp
Sep. 30, 2014
WhatsApp
Sep. 30, 2013
WhatsApp
Oct. 6, 2014
Subsequent Event
WhatsApp
Oct. 6, 2014
Subsequent Event
WhatsApp
Oct. 6, 2014
Subsequent Event
WhatsApp
Acquired users
Oct. 6, 2014
Subsequent Event
WhatsApp
Acquired users
Oct. 6, 2014
Subsequent Event
WhatsApp
Trade Names
Oct. 6, 2014
Subsequent Event
WhatsApp
Trade Names
Oct. 6, 2014
Subsequent Event
WhatsApp
Acquired technology
Oct. 6, 2014
Subsequent Event
WhatsApp
Acquired technology
Oct. 6, 2014
Subsequent Event
WhatsApp
Other Intangible Assets
Oct. 6, 2014
Subsequent Event
WhatsApp
Other Intangible Assets
Oct. 6, 2014
Subsequent Event
WhatsApp
Restricted Stock Units (RSUs)
Oct. 6, 2014
Subsequent Event
WhatsApp
Class A Common Stock
Subsequent Event [Line Items]
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Business Acquisition, number of shares issued
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
178 
Payments to acquire business
 
 
 
 
 
 
 
$ 4,589 
 
 
 
 
 
 
 
 
 
 
 
Shares to be issued
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
46 
 
Common stock, closing share price (in usd per share)
 
 
$ 79.04 
 
 
 
 
 
$ 77.56 
 
 
 
 
 
 
 
 
 
 
Business Combination, Consideration Transferred [Abstract]
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash
 
 
 
 
 
 
 
4,589 
 
 
 
 
 
 
 
 
 
 
 
Common stock
 
 
 
 
 
 
 
 
13,787 
 
 
 
 
 
 
 
 
 
 
Less: post-acquisition share-based compensation and other compensation expense
 
 
 
 
 
 
 
(1,067)
 
 
 
 
 
 
 
 
 
 
 
Less: cash and promissory notes acquired on acquisition date
 
 
 
 
 
 
 
 
(116)
 
 
 
 
 
 
 
 
 
 
Purchase consideration
 
 
 
 
 
 
 
17,193 
 
 
 
 
 
 
 
 
 
 
 
Share-based compensation recognized
 
 
 
 
 
 
 
(188)
 
 
 
 
 
 
 
 
 
 
 
Deferred compensation expense to be recognized
 
 
 
 
 
 
 
879 
 
 
 
 
 
 
 
 
 
 
 
Deferred compensation (in shares)
 
 
 
 
 
 
 
8.5 
 
 
 
 
 
 
 
 
 
 
 
Deferred compensation, Cash award granted
 
 
 
 
 
 
 
 
219 
 
 
 
 
 
 
 
 
 
 
Deferred compensation, Requisite service period
 
 
 
 
 
 
 
3 years 
 
 
 
 
 
 
 
 
 
 
 
Business Combination, Recognized Identifiable Assets Acquired, Goodwill, and Liabilities Assumed, Net [Abstract]
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Finite-lived intangible assets:
 
 
 
 
 
 
 
 
 
 
2,026 
 
448 
 
288 
 
21 
 
 
Finite-lived intangible asset, Useful life
 
 
 
 
 
 
 
 
 
7 years 
 
5 years 
 
5 years 
 
2 years 
 
 
 
Net liabilities assumed
 
 
 
 
 
 
 
 
(33)
 
 
 
 
 
 
 
 
 
 
Deferred tax liabilities
 
 
 
 
 
 
 
 
(916)
 
 
 
 
 
 
 
 
 
 
Net assets acquired
 
 
 
 
 
 
 
 
1,834 
 
 
 
 
 
 
 
 
 
 
Goodwill
2,612 
839 
 
 
 
 
 
 
15,359 
 
 
 
 
 
 
 
 
 
 
Purchase consideration
 
 
 
 
 
 
 
17,193 
 
 
 
 
 
 
 
 
 
 
 
Business Acquisition, Pro Forma Information [Abstract]
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue
 
 
 
3,210 
2,019 
8,637 
5,292 
 
 
 
 
 
 
 
 
 
 
 
 
Net income (loss)
 
 
 
$ 526 
$ 136 
$ 1,289 
$ (106)