Fair Value Measurement of Assets and Liabilities

3 Months Ended

Mar. 31, 2024

Fair Value Measurement of Assets and Liabilities

The following tables present our financial assets and liabilities measured at fair value on a recurring basis as of the dates indicated (in millions):


	March 31, 2024		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Cash, cash equivalents and restricted cash
Cash and cash equivalents	$	2,130	$	2,130	$	—	$	—
Customer accounts	448		448		—		—
Restricted cash included in other current assets	79		79		—		—
Restricted cash included in other assets	4		4		—		—
Total cash, cash equivalents and restricted cash	2,661		2,661		—		—
Equity investment in Adevinta	4,240		4,240		—		—
Derivatives	542		—		29		513
Short-term investments:
Corporate debt securities	1,270		—		1,270		—
Government and agency securities	473		—		473		—


Total short-term investments	1,743		—		1,743		—
Long-term investments:
Corporate debt securities	575		—		575		—
Government and agency securities	446		—		446		—
Equity investment under the fair value option	329		—		—		329
Total long-term investments	1,350		—		1,021		329
Total financial assets	$	10,536	$	6,901	$	2,793	$	842

Liabilities:

Derivatives	$	7	$	—	$	7	$	—


	December 31, 2023		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Cash, cash equivalents and restricted cash
Cash and cash equivalents	$	1,985	$	1,985	$	—	$	—
Customer accounts	481		481		—		—
Restricted cash included in other current assets	23		23		—		—
Restricted cash included in other assets	4		4		—		—
Total cash, cash equivalents and restricted cash	2,493		2,493		—		—
Equity investment in Adevinta	4,474		4,474		—		—
Derivatives	396		—		32		364
Short-term investments:
Corporate debt securities	2,162		—		2,162		—
Government and agency securities	371		—		371		—


Total short-term investments	2,533		—		2,533		—
Long-term investments:
Corporate debt securities	328		—		328		—
Government and agency securities	271		—		271		—
Equity investment under the fair value option	335		—		—		335
Total long-term investments	934		—		599		335
Total financial assets	$	10,830	$	6,967	$	3,164	$	699

Liabilities:
Other liabilities	$	10	$	—	$	—	$	10
Derivatives	$	33	$	—	$	33	$	—

Our financial assets and liabilities are valued using market prices on both active markets (Level 1), less active markets (Level 2) and little or no market activity (Level 3). Level 1 instrument valuations are obtained from real-time quotes for transactions in active exchange markets involving identical assets. Level 2 instrument valuations are obtained from readily available pricing sources for comparable instruments, identical instruments in less active markets, or models using market observable inputs. Level 3 instrument valuations typically reflect management’s estimate of assumptions that market participants would use in pricing the asset or liability. We did not have any transfers of financial instruments between valuation levels during the three months ended March 31, 2024.

Other financial instruments, including accounts receivable, funds receivable, accounts payable and funds payable, are carried at cost, which approximates their fair value because of the short-term nature of these instruments.

Fair value measurement of derivative instruments

The majority of our derivative instruments are valued using pricing models that take into account the contract terms as well as multiple inputs where applicable, such as equity prices, interest rate yield curves, option volatility and currency rates. Our warrant, which is accounted for as a derivative instrument, is valued using a Black-Scholes model. Key assumptions used in the valuation include risk-free interest rates, Adyen’s common stock price, equity volatility and common stock outstanding, exercise price, and details specific to the warrant. The value is also probability adjusted for management’s assumptions with respect to vesting of the remaining three tranches which are each subject to meeting processing volume milestone targets. These assumptions and the probability of meeting processing volume milestone targets may have a significant impact on the value of the warrant. Refer to “Note 6 — Derivative Instruments” for further details on our derivative instruments.

The following table presents a reconciliation of the opening to closing balance of assets measured using significant unobservable inputs (Level 3) as of the dates indicated (in millions):


	March 31, 2024		December 31, 2023
Opening balance at beginning of period	$	364	$	214

Change in fair value	149		150
Closing balance at end of period	$	513	$	364

The following table presents quantitative information about Level 3 significant unobservable inputs used in the fair value measurement of the warrant as of March 31, 2024 (in millions, except percentages):

Fair value

Valuation technique

Unobservable Input (1)

Range (weighted average)

Warrant

513

Black-Scholes and Monte Carlo

Probability of vesting

0.0% - 95.0% (81.2%)

Equity volatility

(38%)

(1) Probability of vesting was weighted by the unadjusted value of the tranches. For volatility, the average represents the arithmetic average of the points within the range and is not weighted by the relative fair value or notional amount.

Fair value measurement of equity investments

Certain equity investments are measured at fair value on a recurring basis, including our equity investment in Adevinta and equity investments under the fair value option.

Our equity investment in Adevinta is accounted for under the fair value option and classified within Level 1 in the fair value hierarchy as the fair value is measured based on Adevinta’s closing stock price and prevailing foreign exchange rate at each balance sheet date.

Our equity investment in Gmarket is accounted for under the fair value option.

The following table presents a reconciliation of the opening to closing balance of the equity investment in Gmarket measured using significant unobservable inputs (Level 3) as of the dates indicated (in millions):


	March 31, 2024		December 31, 2023
Opening balance at beginning of period	$	335	$	431

Change in fair value	(6)		(96)
Closing balance at end of period	$	329	$	335

This investment is classified within Level 3 in the fair value hierarchy as valuation of the investment reflects management’s estimate of assumptions that market participants would use in pricing the asset. The following table presents quantitative information about Level 3 significant unobservable inputs used in the fair value measurement of the equity investment in Gmarket as of March 31, 2024 that may have a significant impact on the overall valuation (in millions, except multiples):

Fair value

Valuation technique

Unobservable Input (1)

Range

Equity investment in Gmarket

329

Market multiples

Revenue multiple — GPC method

0.6x — 1.8x

Revenue multiple — GMAC method

1.0x — 3.2x

(1) The primary unobservable inputs used in the fair value measurement of our equity investment in Gmarket under the fair value option, when using the Guideline Public Company (GPC) method and the Guideline Merged and Acquired Company (GMAC) method under the market multiple approach, are the respective revenue multiples. Significant increases (decreases) in the revenue multiples in isolation would result in significantly higher (lower) fair value measurement. The market multiples are derived from respective groups of guideline public companies and guideline merged and acquired companies.

Certain other immaterial equity investments under the fair value option aggregating to $47 million as of both March 31, 2024 and December 31, 2023 are measured at fair value using the net asset value per share (or its equivalent) practical expedient, and have not been classified in the fair value hierarchy.

Refer to “Note 5 — Investments” for further details about our equity investments.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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