Zynga 2015 Annual Report Download - page 86

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Table of Contents
Advertising
We have contractual relationships with agencies, advertising brokers and certain advertisers for advertisements within our games. We generally report our
advertising revenue net of amounts retained by advertising networks, agencies, and brokers because we are not the primary obligor in our arrangements, we do not
set the pricing, and we do not establish or maintain the relationship with the advertiser. Certain advertising arrangements that are directly between us and end
advertisers are recognized gross equal to the price paid to us by the end advertiser since we are the primary obligor and we determine the price.
We recognize advertising revenue for branded virtual goods and sponsorships, engagement advertisements and offers, mobile advertisements and other
advertisements as advertisements are delivered to customers as long as evidence of the arrangement exists (executed contract), the price is fixed or determinable,
and we have assessed collectability as reasonably assured. Certain branded in-game sponsorships that involve virtual goods are deferred and recognized over the
estimated life of the branded virtual good or as consumed, similar to online game revenue. Price is determined to be fixed and determinable when there is a fixed
price in the applicable evidence of the arrangement, which may include a master contract, insertion order, or a third party statement of activity. For branded virtual
goods and sponsorships, we determine the delivery criteria has been met based on delivery information primarily from third parties. For engagement advertisements
and offers, mobile advertisements, and other advertisements, delivery occurs when the advertisement has been displayed or the offer has been completed by the
customer, as evidenced by third party verification reports supporting the number of advertisements displayed or offers completed.
Multiple-elementArrangements
We allocate arrangement consideration in multiple-deliverable revenue arrangements at the inception of an arrangement to all deliverables based on the
relative selling price method, generally based on our best estimate of selling price. We offer certain promotions to customers from time to time that include the sale
of in-game virtual currency via the sale of a game card and also other deliverables such as a limited edition in-game virtual good.
CostofRevenue
Amounts recorded as cost of revenue relate to direct expenses incurred in order to generate online game revenue. Such costs are recorded as incurred. Our
cost of revenue consists primarily of hosting and data center costs related to operating our games, including depreciation, consulting costs primarily related to third-
party provisioning of customer support services, payment processing fees, licensing fees, salaries, benefits and stock-based expense for our customer support and
infrastructure teams. Cost of revenue also includes amortization expense related to purchased technology of $23.9 million, $21.4 million and $11.3 million for the
years ended December 31, 2015, 2014 and 2013, respectively.
CashandCashEquivalents
Cash equivalents consist of cash on hand, money market funds, commercial paper, corporate bonds and U.S. government-issued obligations with maturities
of 90 days or less from the date of purchase.
MarketableSecuritiesandNon-MarketableSecurities
Marketable securities consist of U.S. government-issued obligations and corporate debt securities. Management determines the appropriate classification of
marketable securities at the time of purchase and evaluates such determination at each balance sheet date. The fair value of marketable securities is determined as
the exit price in the principal market in which we would transact. Based on our intentions regarding our marketable securities, all marketable securities are
classified as available-for-sale and are carried at fair value with unrealized gains and losses recorded as a separate component of other comprehensive income, net
of income taxes. Realized gains and losses are determined using the specific-identification method and are reflected as a component of other income (expense), net
in the consolidated statements of operations when they are realized.
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