INVESTMENTS (Notes)

9 Months Ended

Sep. 30, 2020

Investments, Debt and Equity Securities [Abstract]

The following table summarizes, by major security type, the Company's investments at September 30, 2020 (in millions):


	Cost		Gross Unrealized Gains /Upward Adjustments		Gross Unrealized Losses /Downward Adjustments		Carrying Value











Long-term investments:
Investments in private companies:
Debt securities	$	250	$	—	$	—	$	250
Equity securities	501		3		(100)		404
Other long-term investments:
Debt securities:




Trip.com Group convertible debt securities	525		—		(32)		493
Equity securities	461		2,064		—		2,525
Total	$	1,737	$	2,067	$	(132)	$	3,672

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


	Cost		Gross Unrealized Gains/Upward Adjustments		Gross Unrealized Losses/Downward Adjustments		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.

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 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 "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. During the nine months ended September 30, 2020, the Company realized $2.2 billion in cash from the sales and maturities of its investments in government and corporate debt securities.

Investments in Trip.com Group

At September 30, 2020, the Company had $525 million invested in convertible senior notes issued at par value by Trip.com Group maturing in September 2022 and December 2025. The strategic investments in Trip.com Group convertible senior notes were classified as "Long-term investments" in the Consolidated Balance Sheet at September 30, 2020. In May 2020, the Company's May 2015 investment of $250 million in Trip.com Group's convertible notes was repaid upon maturity. At September 30, 2020, the estimated fair values of the Company’s investments in the convertible notes were lower than their respective amortized cost basis. At September 30, 2020, the Company did not have the intent or a requirement to sell its investment in Trip.com Group convertible notes 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 September 30, 2020 expects recovery of the amortized cost basis of the investments.

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 option 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.

At December 31, 2019, the Company had $655 million invested in Trip.com Group American Depositary

Shares ("ADSs") with a fair value of $726 million, which is reported in "Long-term investments" in the Consolidated Balance Sheet. During the nine months ended September 30, 2020, the Company sold its entire investment in these ADSs for $525 million. "Net gains (losses) on marketable equity securities" in the Unaudited Consolidated Statement of Operations for the nine months ended September 30, 2020 includes a net realized loss of $201 million related to the sale of ADSs. "Net gains (losses) on marketable equity securities" in the Unaudited Consolidated Statements of Operations included a net unrealized loss of $165 million and a net unrealized gain of $48 million for the three and nine months ended September 30, 2019, respectively, related to these ADSs.

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 $2.5 billion and $1.1 billion at September 30, 2020 and December 31, 2019, respectively, which is included in "Long-term investments" in the Consolidated Balance Sheets. Net unrealized gains of $727 million and $1.4 billion for the three and nine months ended September 30, 2020, respectively, and net unrealized gains of $116 million and $371 million for the three and nine months ended September 30, 2019, respectively, related to this investment, are included in "Net gains (losses) 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 September 30, 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, as of March 31, 2020, on the investment in Didi Chuxing. The Company recognized an impairment charge of $100 million during the three months ended March 31, 2020, resulting in an adjusted carrying value of $400 million at March 31, 2020 and September 30, 2020 (see Note 6). No additional impairment indicators were identified as of September 30, 2020.

Debt Securities

The Company had $250 million invested in preferred shares of private companies, including Grab Holdings Inc. ("Grab"), with an aggregate estimated fair value of $250 million at both September 30, 2020 and December 31, 2019. 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 estimated fair value of the Company's investment in Grab was $200 million at both September 30, 2020 and December 31, 2019. 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, in "Accumulated other comprehensive loss" in the Consolidated Balance Sheets (see Note 6).