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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
For the quarterly period ended March 31, 2021
OR
         TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
For the transition period from to
Commission File Number: 1-36691
Booking Holdings Inc.
(Exact name of registrant as specified in its charter) 
Delaware06-1528493
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
800 Connecticut Avenue
Norwalk, Connecticut 06854
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (203) 299-8000
Former name, former address and former fiscal year, if changed, since last report: N/A
 _____________________________________________________________________________________________
 Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class: Trading Symbol(s)Name of each exchange on which registered:
Common Stock par value $0.008 per share BKNGThe NASDAQ Global Select Market
0.800% Senior Notes Due 2022BKNG 22AThe NASDAQ Stock Market LLC
2.150% Senior Notes Due 2022BKNG 22The NASDAQ Stock Market LLC
2.375% Senior Notes Due 2024BKNG 24The NASDAQ Stock Market LLC
0.100% Senior Notes Due 2025BKNG 25The NASDAQ Stock Market LLC
1.800% Senior Notes Due 2027BKNG 27The NASDAQ Stock Market LLC
0.500% Senior Notes Due 2028BKNG 28The NASDAQ Stock Market LLC
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.   Yes No .
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).   Yes No .
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act. 
Large accelerated filer
Accelerated filer Non-accelerated filer
Smaller reporting company
Emerging growth company
 If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes No
Number of shares of Common Stock outstanding at April 28, 2021:
Common Stock, par value $0.008 per share41,052,813
(Class)(Number of Shares)



Booking Holdings Inc.
Form 10-Q
 
For the Three Months Ended March 31, 2021
 
PART I - FINANCIAL INFORMATION 
  
Item 1. Financial Statements
  
Consolidated Balance Sheets at March 31, 2021 (Unaudited) and December 31, 2020
Consolidated Statements of Operations (Unaudited) For the Three Months Ended March 31, 2021 and 2020
Consolidated Statements of Comprehensive Loss (Unaudited) For the Three Months Ended March 31, 2021 and 2020
Consolidated Statements of Changes in Stockholders' Equity (Unaudited) For the Three Months Ended March 31, 2021 and 2020
Consolidated Statements of Cash Flows (Unaudited) For the Three Months Ended March 31, 2021 and 2020
Notes to Unaudited Consolidated Financial Statements
  
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
  
Item 3. Quantitative and Qualitative Disclosures About Market Risk
  
Item 4. Controls and Procedures
  
PART II - OTHER INFORMATION 
  
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 6. Exhibits
  
SIGNATURES
2


PART I — FINANCIAL INFORMATION
Item 1.  Financial Statements

Booking Holdings Inc.
CONSOLIDATED BALANCE SHEETS
(In millions, except share and per share data)
 March 31,
2021
December 31,
2020
(Unaudited)
ASSETS  
Current assets:  
Cash and cash equivalents$12,151 $10,562 
Short-term investments (Available-for-sale debt securities:
Amortized cost of $500 at March 31, 2021 and December 31, 2020)
500 501 
Accounts receivable, net (Allowance for expected credit losses of $94 and $166, respectively)
586 529 
Prepaid expenses, net (Allowance for expected credit losses of $20 and $22, respectively)
286 337 
Other current assets585 277 
Total current assets14,108 12,206 
Property and equipment, net734 756 
Operating lease assets480 529 
Intangible assets, net1,762 1,812 
Goodwill1,882 1,895 
Long-term investments (Includes available-for-sale debt securities:
Amortized cost of $225 at March 31, 2021 and December 31, 2020)
3,788 3,759 
Other assets, net (Allowance for expected credit losses of $36 and $33, respectively)
901 917 
Total assets$23,655 $21,874 
LIABILITIES AND STOCKHOLDERS' EQUITY  
Current liabilities:  
Accounts payable$570 $735 
Accrued expenses and other current liabilities1,350 1,382 
Deferred merchant bookings643 323 
Short-term debt3,905 985 
Total current liabilities6,468 3,425 
Deferred income taxes1,111 1,127 
Operating lease liabilities331 366 
Long-term U.S. transition tax liability923 923 
Other long-term liabilities128 111 
Long-term debt 9,930 11,029 
  Total liabilities18,891 16,981 
Commitments and contingencies (see Note 13)
Stockholders' equity:  
Common stock, $0.008 par value,
Authorized shares: 1,000,000,000
Issued shares: 63,562,095 and 63,406,451, respectively
  
Treasury stock, 22,511,172 and 22,446,897 shares, respectively
(24,274)(24,128)
Additional paid-in capital5,965 5,851 
Retained earnings23,233 23,288 
Accumulated other comprehensive loss(160)(118)
  Total stockholders' equity4,764 4,893 
Total liabilities and stockholders' equity$23,655 $21,874 
See Notes to Unaudited Consolidated Financial Statements.
3


Booking Holdings Inc.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except share and per share data)
 
 Three Months Ended
March 31,
 20212020
Agency revenues$717 $1,424 
Merchant revenues373 659 
Advertising and other revenues51 205 
Total revenues1,141 2,288 
Operating expenses:  
Marketing expenses461 851 
Sales and other expenses112 377 
Personnel, including stock-based compensation of $109 and $6, respectively
552 484 
General and administrative119 201 
Information technology87 78 
Depreciation and amortization113 117 
Restructuring and other exit costs8  
Impairment of goodwill 489 
Total operating expenses1,452 2,597 
Operating loss(311)(309)
Interest expense(98)(64)
Other income (expense), net131 (349)
Loss before income taxes(278)(722)
Income tax benefit(223)(23)
Net loss$(55)$(699)
Net loss applicable to common stockholders per basic common share$(1.34)$(17.01)
Weighted-average number of basic common shares outstanding (in 000's)40,973 41,093 
Net loss applicable to common stockholders per diluted common share$(1.34)$(17.01)
Weighted-average number of diluted common shares outstanding (in 000's)40,973 41,093 

See Notes to Unaudited Consolidated Financial Statements.

4


Booking Holdings Inc.
UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(In millions)
Three Months Ended
March 31,
20212020
Net loss$(55)$(699)
Other comprehensive loss, net of tax
Foreign currency translation adjustments(30)(77)
Unrealized losses on cash flow hedges(11) 
Net unrealized losses on available-for-sale securities(1)(74)
Total other comprehensive loss, net of tax(42)(151)
Comprehensive loss$(97)$(850)

See Notes to Unaudited Consolidated Financial Statements.
5


Booking Holdings Inc.
UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 2021 and 2020
(In millions, except share data)
 
Common StockTreasury StockAdditional Paid-in CapitalRetained EarningsAccumulated Other Comprehensive LossTotal
Shares
(in 000's)
AmountShares
(in 000's)
Amount
Balance, December 31, 202063,406 $ (22,447)$(24,128)$5,851 $23,288 $(118)$4,893 
Net loss— — — — — (55)— (55)
Foreign currency translation adjustments, net of tax— — — — — — (30)(30)
Unrealized losses on cash flow hedges, net of tax— — — — — — (11)(11)
Net unrealized losses on available-for-sale securities, net of tax— — — — — — (1)(1)
Exercise of stock options and vesting of restricted stock units and performance share units156  — — 1 — — 1 
Repurchase of common stock— — (64)(146)— — — (146)
Stock-based compensation and other stock-based payments— — — — 113 — — 113 
Balance, March 31, 202163,562 $ (22,511)$(24,274)$5,965 $23,233 $(160)$4,764 

Common StockTreasury StockAdditional Paid-in CapitalRetained EarningsAccumulated Other Comprehensive LossTotal
Shares
(in 000's)
AmountShares
(in 000's)
Amount
Balance, December 31, 201963,179 $ (21,762)$(22,864)$5,756 $23,232 $(191)$5,933 
Cumulative effect of adoption of accounting standards update— — — — — (3)— (3)
Net loss— — — — — (699)— (699)
Foreign currency translation adjustments, net of tax— — — — — — (77)(77)
Net unrealized losses on available-for-sale securities, net of tax— — — — — — (74)(74)
Reclassification adjustment for convertible debt in mezzanine— — — — (4)— — (4)
Exercise of stock options and vesting of restricted stock units and performance share units191  — —  — —  
Repurchase of common stock— — (678)(1,251)— — — (1,251)
Stock-based compensation and other stock-based payments— — — — 6 — — 6 
Balance, March 31, 202063,370 $ (22,440)$(24,115)$5,758 $22,530 $(342)$3,831 

See Notes to Unaudited Consolidated Financial Statements.

6


Booking Holdings Inc.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
 Three Months Ended
March 31,
 20212020
OPERATING ACTIVITIES:
Net loss$(55)$(699)
Adjustments to reconcile net loss to net cash used in operating activities: 
Depreciation and amortization113 117 
Provision for expected credit losses and chargebacks 262 
Deferred income tax benefit(50)(97)
Net (gains) losses on marketable equity securities(32)307 
Stock-based compensation expense and other stock-based payments113 11 
Operating lease amortization45 46 
Amortization of debt discount and debt issuance costs16 14 
Unrealized foreign currency transaction gains on Euro-denominated debt(91)(33)
Impairment of goodwill 489 
Impairment of investment 100 
Other(4)2 
Changes in assets and liabilities: 
Accounts receivable(72)760 
Prepaid expenses and other current assets(258)(445)
Deferred merchant bookings and other current liabilities114 (1,135)
Other long-term assets and liabilities (46)(79)
Net cash used in operating activities(207)(380)
INVESTING ACTIVITIES: 
Purchase of investments (72)
Proceeds from sale and maturity of investments 1,885 
Additions to property and equipment(65)(80)
Net cash (used in) provided by investing activities(65)1,733 
FINANCING ACTIVITIES:
Proceeds from the issuance of long-term debt2,015  
Payments for repurchase of common stock (137)(1,281)
Other financing activities(9) 
Net cash provided by (used in) financing activities1,869 (1,281)
Effect of exchange rate changes on cash and cash equivalents and restricted cash and cash equivalents(7)(21)
Net increase in cash and cash equivalents and restricted cash and cash equivalents1,590 51 
Total cash and cash equivalents and restricted cash and cash equivalents, beginning of period 10,582 6,332 
Total cash and cash equivalents and restricted cash and cash equivalents, end of period $12,172 $6,383 
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for income taxes (see Note 17)$216 $762 
Cash paid during the period for interest$66 $68 

See Notes to Unaudited Consolidated Financial Statements.
7


Booking Holdings Inc.
Notes to Unaudited Consolidated Financial Statements
 
1.                                      BASIS OF PRESENTATION
 
Management of Booking Holdings Inc. (the "Company") is responsible for the Unaudited Consolidated Financial Statements included in this document. The Unaudited Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") and include all normal and recurring adjustments that management of the Company considers necessary for a fair presentation of its financial position and operating results. The Company prepared the Unaudited Consolidated Financial Statements following the requirements of the Securities and Exchange Commission ("SEC") for interim reporting. As permitted under those rules, the Company condensed or omitted certain footnotes or other financial information that are normally required by U.S. GAAP for annual financial statements. These statements should be read in combination with the Consolidated Financial Statements in the Company's Annual Report on Form 10-K for the year ended December 31, 2020.
 
The Unaudited Consolidated Financial Statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. The functional currency of the Company's subsidiaries is generally the respective local currency. For international operations, assets and liabilities are translated into U.S. Dollars at the rate of exchange existing at the balance sheet date. Income statement amounts are translated at monthly average exchange rates applicable for the period. Translation gains and losses are included as a component of "Accumulated other comprehensive loss" in the accompanying Consolidated Balance Sheets. Foreign currency transaction gains and losses are included in "Other income (expense), net" in the Unaudited Consolidated Statements of Operations.
 
Revenues, expenses, assets and liabilities can vary during each quarter of the year. Therefore, the results and trends in these interim financial statements may not be the same as those for any subsequent quarter or the full year, especially during the periods that are impacted by the COVID-19 pandemic.

Impact of COVID-19

The ongoing outbreak of the novel strain of the coronavirus COVID-19 (the "COVID-19 pandemic") and the resulting economic conditions and government restrictions have resulted in a material decrease in consumer spending and an unprecedented decline in travel and restaurant activities and consumer demand for related services. See Note 2 to the Consolidated Financial Statements in the Company's Annual Report on Form 10-K for the year ended December 31, 2020 for further information. The Company’s financial results and prospects are almost entirely dependent on the sale of travel-related services. Many governments around the world continue to implement a variety of measures to reduce the spread of COVID-19, including travel restrictions, bans and advisories, instructions to residents to practice social distancing, curfews, quarantine advisories, including quarantine restrictions after travel in certain locations, shelter-in-place orders, required closures of non-essential businesses and additional restrictions on businesses as part of re-opening plans. These government mandates have had a significant adverse effect on many of the customers on whom the Company’s business relies, including hotels and other accommodation providers, airlines and restaurants, as well as the Company's workforce, operations and consumers. Though some governments have started to relax COVID-19-related restrictions and vaccine distributions have begun, there remains uncertainty around the impact of the new variants of COVID-19, when remaining restrictions will be lifted, if additional restrictions may be initiated, if there will be changes to travel behavior patterns when government restrictions are fully lifted, and the timing of distribution and administration of the vaccines globally.

In 2020, given the severe downturn in the global travel industry and the financial difficulties faced by many of the Company's travel service provider and restaurant customers and marketing affiliates, the Company increased its provision for expected credit losses (also referred to as provision for bad debt or provision for uncollectible accounts) on receivables from and prepayments to its travel service provider and restaurant customers and marketing affiliates (see Note 7). Moreover, due to the high level of cancellations of existing reservations, the Company incurred higher than normal cash outlays to refund consumers for prepaid reservations, including certain situations where the Company had already transferred the prepayment to the travel service provider (see Note 2). In 2021, based on its review of recent historical credit loss experience and stability in the economic conditions in certain markets, the Company has revised its estimates of expected credit losses (see Note 7). Any significant increase in the Company's provision for expected credit losses and any significant increase in cash outlays to refund consumers would have a corresponding adverse effect on the Company's results of operations and related cash flows.

As a result of the deterioration of the Company’s business due to the COVID-19 pandemic, the Company recorded significant goodwill impairment charges in 2020 (see Note 8). In addition, the Company recorded a significant impairment charge in 2020 for one of the Company's long-term investments (see Notes 5 and 6). Even though no additional impairment
8


indicators were identified as of March 31, 2021 for these assets, it is possible that the Company may have to record additional significant impairment charges in future periods.

See Note 9 for additional information about the Company’s existing debt arrangements, including 1.7 billion Euros of debt issued in March 2021 and payment of $2.0 billion in April 2021 to redeem certain Senior Notes issued in April 2020. The Company’s continued access to sources of liquidity depends on multiple factors, including global economic conditions, the condition of global financial markets, the availability of sufficient amounts of financing, the Company’s ability to meet debt covenant requirements, the Company’s operating performance and the Company's credit ratings.

While there have been some signs of a recovery in travel demand in certain parts of the world, the Company continues to expect the COVID-19 pandemic and its effects to have a significant adverse impact on the Company's business for the duration of the pandemic, during any resurgence of the pandemic and during the subsequent economic recovery, which could be an extended period of time. The extent of the effects of the COVID-19 pandemic on the Company’s business, results of operations, cash flows and growth prospects is highly uncertain and will ultimately depend on future developments. These include, but are not limited to, the severity, extent and duration of the COVID-19 pandemic, including as a result of any new variants of COVID-19 and any resurgences of the pandemic, the global distribution of the vaccines and their efficacy against existing and any future variants of COVID-19, and their impacts on the travel and restaurant industries and consumer spending more broadly. While the rate of vaccination distribution in some countries like Israel, the United Kingdom and the United States is encouraging, other countries in Europe (the Company's largest region in terms of room nights booked), in Asia, and other parts of the world have made slower progress. Even though there have been some improvements in the economic and operating conditions for the Company's business since the outset of the COVID-19 pandemic, the Company cannot predict the long-term effects of the pandemic on its business or the travel and restaurant industries as a whole. If the travel and restaurant industries are fundamentally changed by the COVID-19 pandemic in ways that are detrimental to the Company’s operating model, the Company’s business may continue to be adversely affected even as the broader global economy recovers.

In response to the reduction in the Company's business volumes as a result of the impact of the COVID-19 pandemic, during the year ended December 31, 2020, the Company took actions to reduce the size of its workforce to optimize efficiency and reduce costs. See Note 14 for additional information. The Company has also participated in certain governmental assistance programs and received certain grants and other assistance. See Note 15 for additional information.

Reclassification
Certain amounts from prior periods have been reclassified to conform to the current period presentation.

Recent Accounting Pronouncements Adopted

Simplifying the Accounting for Income Taxes

The Financial Accounting Standards Board ("FASB") issued a new accounting update relating to income taxes.  This update provides an exception to the general methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year.  This update also (1) requires an entity to recognize a franchise tax (or similar tax) that is partially based on income as an income-based tax and account for any incremental amount incurred as a non-income-based tax, (2) requires an entity to evaluate when a step-up in the tax basis of goodwill should be considered part of the business combination in which goodwill was originally recognized for accounting purposes and when it should be considered a separate transaction, and (3) requires that an entity reflect the effect of an enacted change in tax laws or rates in the annual effective tax rate computation in the interim period that includes the enactment date. 

The Company adopted this update on January 1, 2021 and applied the applicable amendments on a prospective basis. The adoption did not have a material impact on the Company's Unaudited Consolidated Financial Statements.   

Other Recent Accounting Pronouncements

Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity

In August 2020, the FASB issued a new accounting update relating to convertible instruments and contracts in an entity’s own equity. For convertible instruments, the accounting update reduces the number of accounting models for convertible debt instruments and convertible preferred stock. Limiting the accounting models results in fewer embedded conversion features being separately recognized from the host contract as compared with current U.S. GAAP. The accounting update amends the guidance for the derivatives scope exception for contracts in an entity’s own equity to reduce form-over-
9


substance-based accounting conclusions. The accounting update also simplifies the diluted earnings per share calculation in certain areas.

The update is effective for the Company from January 1, 2022. The update can be adopted on either a full or modified retrospective basis. The Company is currently evaluating the impact to its Consolidated Financial Statements of adopting this update.

2.                                    REVENUE

Disaggregation of Revenue

Geographic Information

The Company's international revenue information consists of the results of Booking.com, agoda and Rentalcars.com in their entirety and the results of the international businesses of KAYAK and OpenTable. This classification is independent of where the consumer resides, where the consumer is physically located while using the Company's services or the location of the travel service provider or restaurant. For example, a reservation made through Booking.com (which is domiciled in the Netherlands) at a hotel in New York by a consumer in the United States is part of the Company's international results. The Company's geographic information is as follows (in millions):
International
United StatesThe NetherlandsOtherTotal
Total revenues for the three months ended March 31,
2021$197 $811 $133 $1,141 
2020$285 $1,677 $326 $2,288 

Revenue by Type of Service

Approximately 86% and 85% of the Company's revenue for the three months ended March 31, 2021 and 2020, respectively, relates to online accommodation reservation services. Revenue from all other sources of online travel reservation services and advertising and other revenues each individually represent less than 10% of the Company's total revenues for each period.

Deferred Merchant Bookings and Deferred Revenue

Cash payments received from travelers in advance of the Company completing its performance obligations are included in "Deferred merchant bookings" in the Company's Consolidated Balance Sheets and are comprised principally of amounts estimated to be payable to the travel service providers as well as the Company's estimated deferred revenue for its commission or margin and fees. At March 31, 2021 and December 31, 2020, deferred merchant bookings included deferred revenue for online travel reservation services of $94 million and $50 million, respectively. The amounts are subject to refunds for cancellations. The Company expects to complete its performance obligations generally within one year from the reservation date. During the three months ended March 31, 2021, the Company recognized revenues of $25 million from the deferred revenue balance as of December 31, 2020.

Loyalty and Other Incentive Programs

The Company provides loyalty programs where participating consumers are awarded loyalty points on current transactions that can be redeemed in the future. At March 31, 2021 and December 31, 2020, liabilities for loyalty program incentives of $16 million and $21 million, respectively, were included in "Accrued expenses and other current liabilities" in the Consolidated Balance Sheets. The Company’s largest loyalty program is at OpenTable, where points can be redeemed for rewards such as qualifying reservations at participating restaurants, third-party gift cards and accommodation reservations booked through some of the Company’s other platforms. In March 2018, OpenTable introduced a three-year time-based expiration for points earned by diners. Unredeemed loyalty points existing as of the date of introduction of the expiration provision expired during the three months ending March 31, 2021. The estimated fair value of the loyalty points that are expected to be redeemed is recognized as a reduction of revenue at the time the incentives are granted.

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In addition to the loyalty programs, at March 31, 2021 and December 31, 2020, liabilities of $46 million and $60 million, respectively, for other incentive programs, such as referral bonuses, rebates, credits and discounts, were included in "Accrued expenses and other current liabilities" in the Consolidated Balance Sheets.

Refunds to Travelers

Due to the high level of cancellations of existing reservations as a result of the COVID-19 pandemic (see Note 1), in 2020, the Company incurred higher than normal cash outlays to refund travelers for prepaid reservations, including certain situations where the Company had already transferred the prepayment to the travel service provider. For the three months ended March 31, 2020, the Company recorded a reduction in revenue of $63 million for refunds paid or estimated to be payable to travelers where the Company had agreed to provide free cancellation for certain non-refundable reservations without a corresponding estimated expected recovery from the travel service providers.

3.                                      STOCK-BASED EMPLOYEE COMPENSATION
 
Stock-based compensation expense related to performance share units, restricted stock units and stock options is recognized based on fair value on a straight-line basis over the respective requisite service periods and forfeitures are accounted for when they occur. The fair value on the grant date of performance share units and restricted stock units is determined based on the number of units granted and the quoted price of the Company's common stock. For performance share units with market conditions, the effect of the market condition is also considered in the determination of fair value on the grant date using Monte Carlo simulations. The fair value of employee stock options is determined using the Black-Scholes model. Performance share units and restricted stock units are payable in shares of the Company's common stock upon vesting. The Company issues shares of its common stock upon the exercise of stock options. 

The Company records stock-based compensation expense for performance-based awards using its estimate of the probable outcome at the end of the performance period (i.e., the estimated performance against the performance targets or performance goals, as applicable). The Company periodically adjusts the cumulative stock-based compensation expense recorded when the probable outcome for these performance-based awards is updated based upon changes in actual and forecasted operating results or expected achievement of performance goals, as applicable.

Due to the impact of the COVID-19 pandemic (see Note 1), there was a significant decline, as of March 31, 2020, in the estimated performance over the performance periods against the performance targets and consequently, a significant reduction in the number of shares that were probable to be issued as compared to December 31, 2019. As a result, for the three months ended March 31, 2020, the Company recognized a reduction in stock-based compensation expense of $73 million, which is included in "Personnel" expense in the Unaudited Consolidated Statement of Operations for the three months ended March 31, 2020. During the three months ended June 30, 2020, considering pre-COVID-19 performance and the significant effect of the COVID-19 pandemic on Company performance and consequently on the number of shares that were probable to be issued to employees, the Company modified the performance-based awards granted in 2018 (other than the performance-based awards granted to executive officers and certain other employees) to fix the number of shares to be issued, subject to other vesting conditions. As a result, the Company incurred an additional stock-based compensation expense of $11 million to be recognized over the remaining requisite service period. During the three months ended March 31, 2021, the Company modified the performance-based awards granted in 2018 and 2019 to its executive officers, to fix the number of shares to be issued, subject to other vesting conditions. The modification, in the aggregate, resulted in additional stock-based compensation expense of $40 million, to be recognized over the remaining requisite service periods for the performance-based awards.

Restricted stock units and performance share units granted by the Company during the three months ended March 31, 2021 had an aggregate grant-date fair value of $368 million.  Restricted stock units and performance share units that vested during the three months ended March 31, 2021 had an aggregate fair value at vesting of $353 million. At March 31, 2021, there was $715 million of estimated total future stock-based compensation expense related to unvested restricted stock units and performance share units to be recognized over a weighted-average period of 2.3 years. At March 31, 2021, there was $47 million of estimated total future stock-based compensation expense related to unvested stock options to be recognized over a weighted-average period of 1.9 years.
 
Restricted Stock Units

The Company makes broad-based grants of restricted stock units that generally vest during a period of one- to three-years, subject to certain exceptions for terminations other than for "cause," for "good reason" or on account of death or disability.
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The following table summarizes the activity of restricted stock units for employees and non-employee directors during the three months ended March 31, 2021: 
Restricted Stock UnitsSharesWeighted-average Grant-date Fair Value
Unvested at December 31, 2020305,959 $1,697 
Granted119,284 $2,275 
Vested(103,989)$1,811 
Forfeited(12,143)$1,761 
Unvested at March 31, 2021309,111 $1,880 

Performance Share Units

The Company grants performance share units to executives and certain other employees, which generally vest at the end of a three-year period (with the exception of certain shorter term performance share units granted in 2021 that vest at the end of one and two years), subject to certain exceptions for terminations other than for "cause," for "good reason" or on account of death or disability. The number of shares that ultimately vest depends on achieving certain performance metrics, performance goals, stock price increase and/or relative total shareholder return, as applicable, by the end of the performance period, assuming there is no accelerated vesting for, among other things, a termination of employment under certain circumstances.

The following table summarizes the activity of performance share units for employees during the three months ended March 31, 2021:
Performance Share UnitsSharesWeighted-average Grant-date Fair Value
Unvested at December 31, 202084,478 $1,930 
Granted (1)
42,173 $2,287 
Vested(51,354)$2,022 
Performance shares adjustment (2)
42,298 $2,188 
Forfeited(4,651)$1,756 
Unvested at March 31, 2021112,944 $2,107 
(1) Excludes 12,251 performance share units awarded during the three months ended March 31, 2021 for which the grant date under Accounting Standards Codification ("ASC") 718, Compensation - Stock Compensation, has not yet been established. Amongst other conditions, for the grant date to be established, a mutual understanding is required to be reached between the Company and the employee of the key terms and conditions of the award, including the performance targets. The performance targets for each of the annual performance periods under the award are set at the beginning of the respective year.
(2) Probable outcome for performance-based awards is updated based upon changes in actual and forecasted operating results or expected achievement of performance goals, as applicable, and the impact of modifications.

The following table summarizes the estimated vesting, as of March 31, 2021, of performance share units granted in 2021, 2020 and 2019, net of forfeiture and vesting since the respective grant dates:
Performance Share Units, by grant year
2021(1)
20202019
Shares probable to be issued 64,395 9,492 39,057 
Shares not subject to the achievement of minimum performance thresholds28,858  39,057 
Shares that could be issued if maximum performance thresholds are met64,395 18,080 73,687 
(1) Excludes performance share units awarded during the three months ended March 31, 2021 for which the grant date under ASC 718 has not yet been established as disclosed above.
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Stock Options

In 2020, the Company granted stock options to certain employees that vest in March 2023, subject to certain exceptions for terminations other than for "cause," for "good reason" or on account of death or disability. No stock options were granted to the executive officers of the Company. Stock options granted or assumed in acquisitions generally have a term of 10 years from the grant date.

The following table summarizes the activity for stock options during the three months ended March 31, 2021: 
Employee Stock Options Number of SharesWeighted-average
 Exercise Price
Aggregate
 Intrinsic Value (in millions)
Weighted-average Remaining Contractual Term
(in years)
Balance, December 31, 2020152,746 $1,401 $126 9.3
Exercised(655)$1,094 
Forfeited (7,275)$1,411 
Balance, March 31, 2021144,816 $1,402 $134 9.0
Exercisable at March 31, 20214,230 $1,217 $5 5.6

4.                                      NET LOSS PER SHARE
 
The Company computes basic net loss per share by dividing net loss applicable to common stockholders by the weighted-average number of common shares outstanding during the period. Diluted net loss per share is based upon the weighted-average number of common and common equivalent shares outstanding during the period.
 
Common equivalent shares related to stock options, restricted stock units and performance share units are calculated using the treasury stock method. Performance share units are included in the weighted-average common equivalent shares based on the number of shares that would be issued if the end of the reporting period were the end of the performance period, if the result would be dilutive.
 
The Company's convertible notes have net share settlement features requiring the Company upon conversion to settle the principal amount of the debt for cash and the conversion premium for cash or shares of the Company's common stock, at the Company's option. Under the treasury stock method, if the conversion prices for the convertible notes exceed the Company's average stock price for the period, the convertible notes generally have no impact on diluted net income per share. The convertible notes are included in the calculation of diluted net income per share if their inclusion is dilutive under the treasury stock method.

As the Company had net losses for both the three months ended March 31, 2021 and 2020, no incremental shares related to stock-based awards and convertible senior notes are included in the weighted-average numbers of diluted common and common equivalent shares outstanding because the effect would be anti-dilutive.

For the three months ended March 31, 2021 and 2020, 403,620 and 258,828 potential common shares, respectively, related to stock options, restricted stock units, performance share units and convertible senior notes were excluded from the calculation of diluted net loss per share because their effect would have been anti-dilutive for the respective period.

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5.                                      INVESTMENTS

The following table summarizes, by major security type, the Company's investments at March 31, 2021 (in millions): 
 CostGross
Unrealized Gains /Upward Adjustments
Gross
Unrealized Losses /Downward Adjustments
Carrying
 Value
Short-term investments:
Debt securities:
Trip.com Group convertible debt securities$500 $ $ $500 
Long-term investments:
Investments in private companies:
  Debt securities$200 $ $ $200 
  Equity securities552  (100)452 
Other long-term investments:
  Debt securities:
Trip.com Group convertible debt securities 25  (1)24 
  Equity securities463 2,649  3,112 
Total$1,240 $2,649 $(101)$3,788 

The following table summarizes, by major security type, the Company's investments at December 31, 2020 (in millions):
 CostGross
Unrealized Gains/Upward Adjustments
Gross
Unrealized Losses/Downward Adjustments
Carrying
 Value
Short-term investments:
Debt securities:
Trip.com Group convertible debt securities$500 $1 $ $501 
Long-term investments:
Investments in private companies:
  Debt securities$200 $ $ $200 
  Equity securities552 3 (100)455 
Other long-term investments:
  Debt securities:
Trip.com Group convertible debt securities 25  (1)24 
  Equity securities463 2,617  3,080 
Total $1,240 $2,620 $(101)$3,759 
 
The Company assesses the classification of its investments in the Consolidated Balance Sheets as short-term or long-term at the individual security level. Classification as short-term or long-term is based upon the maturities of the securities, as applicable, and the Company's expectations regarding the timing of sales and redemptions. Investments of a strategic nature that have been made for the purpose of affiliation or potential business advantage or in connection with a commercial relationship are included in "Long-term investments" in the Consolidated Balance Sheets, except in situations where the Company expects the investment to be realized in cash, redeemed or sold within one year.

The Company has classified its investments in debt securities as available-for-sale securities.  Preferred stock that is either mandatorily redeemable or redeemable at the option of the investor is also considered a debt security for accounting purposes.  Available-for-sale debt securities are reported at estimated fair value (see Note 6) with the aggregate unrealized gains and losses, net of tax, reflected in "Accumulated other comprehensive loss" in the Consolidated Balance Sheets. If the
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amortized cost basis of an available-for-sale security exceeds its fair value and if the Company has the intention to sell the security or it is more likely than not that the Company will be required to sell the security before recovery of the amortized cost basis, an impairment is recognized in the Unaudited Consolidated Statements of Operations. If the Company does not have the intention to sell the security and it is not more likely than not that the Company will be required to sell the security before recovery of the amortized cost basis and the Company determines that the decline in fair value below the amortized cost basis of an available-for-sale security is entirely or partially due to credit-related factors, the credit loss is measured and recognized as an allowance for expected credit losses along with the related expense in the Unaudited Consolidated Statements of Operations. The allowance is measured as the amount by which the debt security’s amortized cost basis exceeds the Company’s best estimate of the present value of cash flows expected to be collected. The fair values of these investments are based on the specific quoted market price of the securities or comparable securities at the balance sheet dates. Unobservable inputs are also used when little or no market data is available. See Note 6 for information related to fair value measurements.

Investments in equity securities include marketable equity securities and equity investments without readily determinable fair values. Marketable equity securities are reported at estimated fair value with changes in fair value recognized in "Other income (expense), net" in the Unaudited Consolidated Statements of Operations. The Company also holds investments in equity securities of private companies, over which the Company does not have the ability to exercise significant influence or control. The Company elected to measure these investments at cost less impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer.

Investments in Trip.com Group

At March 31, 2021, the Company had $525 million invested in convertible senior notes issued at par value by Trip.com Group including $25 million six-year convertible senior notes issued in September 2016 and $500 million ten-year convertible senior notes issued in December 2015. The $500 million convertible senior notes include a put option allowing the Company, at its option, to require a prepayment in cash from Trip.com Group at the end of the sixth year of the note. The $500 million convertible senior notes were classified as "Short-term investments" in the Consolidated Balance Sheet at March 31, 2021 and December 31, 2020 as the Company expects to exercise the put option and redeem the investment.

The Company determined that the economic characteristics and risks of the put option related to the $500 million convertible senior notes are clearly and closely related to the notes, and therefore did not meet the requirement for separate accounting as embedded derivatives. The Company monitors the conversion features of these notes to determine whether they meet the definition of an embedded derivative during each reporting period. The conversion feature associated with the $25 million convertible senior notes meets the definition of an embedded derivative that requires separate accounting. The embedded derivative is bifurcated for fair value measurement purposes only and is reported in the Consolidated Balance Sheets with its host contract in "Long-term investments." The mark-to-market adjustments of the embedded derivative are included in "Other income (expense), net" in the Company's Unaudited Consolidated Statements of Operations.

During the three months ended March 31, 2020, the Company sold a portion of its investment in Trip.com Group ADSs, with a cost basis of $124 million, for $94 million. "Other income (expense), net" in the Unaudited Consolidated Statement of Operations for the three months ended March 31, 2020 includes a loss of $40 million related to the ADSs sold during the period and an unrealized loss of $178 million related to the ADSs held by the Company at March 31, 2020. The Company sold the remaining investment in the ADSs during the three months ended June 30, 2020.

Investment in Meituan

In 2017, the Company invested $450 million in preferred shares of Meituan, the leading e-commerce platform for local services in China. The investment has been converted to ordinary shares and classified as a marketable equity security since Meituan's initial public offering in 2018. The investment had a fair value of $3.1 billion at March 31, 2021 and December 31, 2020, which is included in "Long-term investments" in the Consolidated Balance Sheets. For the three months ended March 31, 2021 and 2020, an unrealized gain of $29 million and an unrealized loss of $81 million, respectively, related to this investment, are included in "Other income (expense), net" in the Unaudited Consolidated Statements of Operations.
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Investments in Private Companies
Equity Securities without Readily Determinable Fair Values

The Company had $552 million invested in equity securities of private companies at March 31, 2021 and December 31, 2020, including $500 million invested in Didi Chuxing. These investments are measured at cost less impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer and are included in "Long-term investments" in the Company's Consolidated Balance Sheets.

During the three months ended March 31, 2020, the Company recognized an impairment charge of $100 million to its investments in Didi Chuxing due to the impact of the COVID-19 pandemic (see Note 1), resulting in an adjusted carrying value of $400 million at March 31, 2020, December 31, 2020 and March 31, 2021 (see Note 6). No additional impairment indicators were identified as of March 31, 2021.
    
Debt Securities

The Company had $200 million invested in preferred shares of Grab Holdings Inc. ("Grab"), with an estimated fair value of $200 million at March 31, 2021 and December 31, 2020. The investment in Grab is classified as a debt security for accounting purposes and categorized as available-for-sale. The preferred shares are convertible to ordinary shares at the Company’s option and are mandatorily convertible upon an initial public offering. The preferred shares also contain a redemption feature that can be exercised by the Company after certain points of time. The investment is reported at estimated fair value in "Long-term investments" in the Company's Consolidated Balance Sheets, with the aggregate unrealized gains and losses, net of tax, reflected in "Accumulated other comprehensive loss" in the Consolidated Balance Sheets. The Company recognized an unrealized loss of $20 million during the three months ended March 31, 2020 and an unrealized gain of $20 million during the three months ended June 30, 2020 related to the investment in Grab.

On April 13, 2021, Grab announced its intention to pursue a public listing of its shares in the U.S. through a merger with Altimeter Growth Corp. (“Altimeter”). The transaction is subject to certain closing conditions, including, the effectiveness of the relevant registration statement filed with the SEC and the approval of Altimeter and Grab shareholders. In furtherance of the proposed transaction, the Company has entered into voting support and lock-up agreements with Grab.

6.                                      FAIR VALUE MEASUREMENTS
 
Financial assets and liabilities carried at fair value at March 31, 2021 are classified in the categories described in the table below (in millions):
 Level 1Level 2Level 3Total
Recurring fair value measurements
ASSETS:   
Cash equivalents and restricted cash equivalents:
Money market fund investments$11,773 $ $