Etsy 2015 Annual Report Download - page 86

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Etsy, Inc.
Notes to Consolidated Financial Statements
Fair Value of Financial Instruments
Management believes that the fair value of financial instruments, consisting of cash and cash equivalents, accounts receivable and accounts payable,
approximates carrying value due to the immediate or short-term maturity associated with its cash and cash equivalents, accounts receivable and accounts
payable.
Marketing
Marketing expenses consist primarily of targeted online marketing costs, such as product listing ads, search engine marketing, affiliate marketing and, to a
much lesser extent, offline marketing expenses. Marketing expenses also include employee-related costs, including stock-based compensation expense, for
our employees involved in digital marketing, seller development and growth, public relations and communications, brand marketing and design, product
marketing and marketing research activities. Marketing expenses are primarily driven by investments to grow and retain members on our platform.
Net (Loss) Income Per Share
Prior to the IPO, the Company followed the two-class method when computing net (loss) income per share as the Company had issued shares that met the
definition of participating securities. The two-class method determined net (loss) income per share for each class of common stock and participating securities
according to dividends declared or accumulated and participation rights in undistributed earnings. The two-class method required income available to
common stockholders for the period to be allocated between common stock and participating securities based upon their respective rights to receive
dividends as if all income for the period had been distributed. The Company’s convertible preferred stock contractually entitled the holders of such shares to
participate in dividends, but did not contractually require the holders of such shares to participate in losses of the Company. Accordingly, the two-class
method did not apply for periods in which the Company reports a net loss or a net loss attributable to common stockholders resulting from dividends,
accretion or modifications to its convertible preferred stock.
Upon the closing of the IPO on April 21, 2015, all outstanding shares of convertible preferred stock were converted into shares of common stock. For current
and future periods, the two-class method is not applicable to the computation of net (loss) income per share until shares of authorized preferred stock become
issued and outstanding.
Basic net (loss) income per share attributable to common stockholders is computed by dividing the net (loss) income attributable to common stockholders by
the weighted average number of common shares outstanding for the period. Diluted net (loss) income attributable to common stockholders is computed by
adjusting net (loss) income attributable to common stockholders to reallocate undistributed earnings based on the potential impact of dilutive securities,
including outstanding common stock options, convertible preferred stock and warrants to purchase common stock and convertible preferred stock. For
periods in which the Company has reported net losses, diluted net loss per share attributable to common stockholders is the same as basic net loss per share
attributable to common stockholders, because dilutive common shares are not assumed to have been issued if their effect is anti-dilutive.
Segment Data
The Company identifies operating segments as components of an entity for which discrete financial information is available and is regularly reviewed by the
chief operating decision maker, or decision-making group, in making decisions regarding resource allocation and performance assessment. The Company
defines the term “chief operating decision maker” to be its chief executive officer. The Company has determined it operates in one operating segment and
one reportable segment, as its chief operating decision maker reviews financial information presented on only a consolidated basis for purposes of allocating
resources and evaluating financial performance.
Foreign Currency
The Company has determined that the functional currency for each of its foreign operations is the local currency in which the operation is located. All assets
and liabilities are translated into U.S. dollars using exchange rates in effect at the balance sheet date. Revenue and expenses are translated using average
exchange rates during the period. Foreign currency translation adjustments are reflected in stockholders’ equity as a component of other comprehensive (loss)
income. Transaction gains and
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