INVESTMENTS

3 Months Ended

Mar. 31, 2020

Investments, Debt and Equity Securities [Abstract]

The following table summarizes, by major security type, the Company's investments at March 31, 2020 (in millions):



	Cost		Gross Unrealized Gains		Gross Unrealized Losses			Carrying Value
Short-term investments:
Debt securities:
Corporate debt securities	$	164	$	—	$	—		$	164
Trip.com Group convertible debt securities	250		—		(2		)	248
Equity securities:
Trip.com Group equity securities	531		—		(117		)	414
Total	$	945	$	—	$	(119	)	$	826

Long-term investments:
Investments in private companies:
Debt securities	$	250	$	—	$	(20	)	$	230
Equity securities	501		—		(100		)	401
Other long-term investments:
Debt securities:
Trip.com Group convertible debt securities	525		—		(77		)	448
Equity securities	461		522		(6		)	977
Total	$	1,737	$	522	$	(203	)	$	2,056

The following table summarizes, by major security type, the Company's investments at December 31, 2019 (in millions):



	Cost		Gross Unrealized Gains		Gross Unrealized Losses			Carrying Value
Short-term investments:
Debt securities:
International government securities	$	109	$	—	$	—		$	109
U.S. government securities	138		—		—			138
Corporate debt securities	751		1		(1		)	751
Total	$	998	$	1	$	(1	)	$	998

Long-term investments:
Investments in private companies:
Debt securities	$	250	$	—	$	—		$	250
Equity securities	501		—		—			501
Other long-term investments:
Debt securities:
International government securities	68		—		—			68
U.S. government securities	136		—		(1		)	135
Corporate debt securities	963		2		(2		)	963
Trip.com Group convertible debt securities	775		—		(8		)	767
Equity securities	1,117		684		(8		)	1,793
Total	$	3,810	$	686	$	(19	)	$	4,477

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. At March 31, 2020, the Company reclassified $103 million of investments in debt securities with maturities greater than one year to short-term investments as the Company expects to sell the securities within one year. At December 31, 2019, these investments were classified as long-term investments. In addition, at March 31, 2020, $250 million of Trip.com Group convertible notes due May 2020 are classified as a short-term investment. At December 31, 2019, the investment was classified as a long-term investment based on the Company’s expectations at that time regarding the strategic investment. At March 31, 2020, investments in Trip.com Group American Depositary Shares ("ADSs") with a fair value of $414 million were reclassified to short-term investments as the Company expects to sell the securities within one year. At December 31, 2019, such investments were classified as long-term investments.

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 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 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 "Net gains (losses) on marketable equity securities" 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 has 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 Government and Corporate Debt Securities

The Company has classified its investments in international government securities, U.S. government securities and corporate debt securities as available-for-sale securities. The Company's investment policy seeks to preserve capital and maintain sufficient liquidity to meet operational and other needs of the business. At March 31, 2020, the weighted-average life of the Company’s investments in these debt securities, was approximately 0.8 years with an average credit quality of A+/A2/A.

At March 31, 2020, the Company recorded an impairment of $3 million for investments in certain corporate debt securities as their respective fair values were lower than their amortized cost basis and the Company had the intention to sell the securities. The difference between the fair value and the amortized cost basis of each of these securities was recorded in "Foreign currency transactions and other" in the Unaudited Consolidated Statement of Operations for the three months ended March 31, 2020. In addition, subsequent to March 31, 2020, the Company realized $164 million in cash from the sales and maturities of its remaining investments in corporate debt securities.

Investments in Trip.com Group

At March 31, 2020, the Company had $775 million invested in convertible senior notes issued at par value by Trip.com Group with maturity dates ranging from May 2020 to December 2025. The strategic investments in Trip.com Group convertible senior notes, excluding $250 million of convertible notes due May 2020, were classified as "Long-term investments" in the Consolidated Balance Sheet at March 31, 2020. At March 31, 2020, the fair values of the Company’s investments in the convertible notes were lower than their respective amortized cost basis. At March 31, 2020, the Company did not have the intent or a requirement to sell its investment in Trip.com Group convertible debt securities prior to their anticipated recovery. The Company believes that the decline in fair values of the investments are largely due to changes in market and economic conditions related to the COVID-19 pandemic (see Note 1), which had a negative impact on Trip.com's share price and other market conditions. The Company reviewed available information to evaluate Trip.com's financial solvency and at March 31, 2020 expects recovery of the amortized cost basis of the investments.

At December 31, 2019, the Company had $655 million invested in Trip.com Group ADSs with a fair value of $726 million, which is reported in "Long-term investments" in the Consolidated Balance Sheet. In the three months ended March 31, 2020, the Company sold a portion of its investment in the ADSs, with a cost basis of $124 million, for $94 million. "Net (losses) gains on marketable equity securities" 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. "Net (losses) gains on marketable equity securities" in the Unaudited Consolidated Statement of Operations for the three months ended March 31, 2019 includes a net unrealized gain of $360 million related to the ADSs.

Certain Trip.com Group convertible notes include a put option allowing the Company, at certain points of time, to require, at its option, redemption of the convertible notes and repayment in cash from Trip.com Group. The Company determined that the economic characteristics and risks of the put options 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 notes issued in 2016 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 "Foreign currency transactions and other" in the Company's Unaudited Consolidated Statements of Operations.

Subsequent to March 31, 2020, the Company sold its remaining investment in the ADSs, with a cost basis of $531 million, for $431 million.

Investment in Meituan Dianping

In 2017, the Company invested $450 million in preferred shares of Meituan Dianping, 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 Dianping's initial public offering in 2018. The investment had fair values of $972 million and $1.1 billion at March 31, 2020 and December 31, 2019, respectively, which is included in "Long-term investments" in the Consolidated Balance Sheets. For the three months ended March 31, 2020 and 2019, respectively, net unrealized loss of $81 million and a net unrealized gain of $91 million, related to this investment, are included in "Net (losses) gains on marketable equity securities" in the Unaudited Consolidated Statements of Operations.

Investments in Private Companies

Equity Securities without Readily Determinable Fair Values

The Company had $501 million invested in equity securities of private companies at March 31, 2020 and December 31, 2019, 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.

Considering the impact of the COVID-19 pandemic (see Note 1), the Company performed an impairment analysis on the investment in Didi Chuxing at March 31, 2020 and recognized an impairment charge of $100 million, resulting in an adjusted carrying value of $400 million at March 31, 2020 (see Note 6).

Debt Securities

The Company had $250 million invested in preferred shares of private companies, including Grab Holdings Inc. ("Grab"), with an aggregate fair value of $230 million and $250 million at March 31, 2020 and December 31, 2019, respectively. These investments are classified as debt securities 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. These features have been evaluated as embedded derivatives, however, they do not meet the requirements to be accounted for separately.

The fair value of the Company's investment in Grab was $180 million and $200 million at March 31, 2020 and December 31, 2019, respectively (see Note 6). The Company recognized an unrealized loss of $20 million related to the investment in Grab in "Accumulated other comprehensive loss" in the Consolidated Balance Sheets at March 31, 2020. At March 31, 2020, the Company did not have the intent or a requirement to sell its investment in Grab. The Company believes that the decline in fair value of the investment is largely due to changes in market and economic conditions related to the COVID-19 pandemic (see Note 1). The Company also reviewed other available information and at March 31, 2020, expects recovery of the amortized cost basis of the investment.