10. Stockholders’ Equity

Common Stock

Our three classes of common stock are Class A common stock, Class B common stock and Class C common stock. The following are the rights and privileges of our classes of common stock:

Dividends. The holders of outstanding shares of our Class A, Class B and Class C common stock are entitled to receive dividends out of funds legally available at the times and in the amounts that our Board of Directors may determine.

Voting Rights. Holders of our Class A common stock are entitled to one vote per share, holders of our Class B common stock are entitled to seven votes per share and holders of our Class C common stock are entitled to 70 votes per share. In general, holders of our Class A common stock, Class B common stock and Class C common stock will vote together as a single class on all matters submitted to a vote of stockholders, unless otherwise required by law. Delaware law could require either our Class A common stock, Class B common stock or our Class C common stock to vote separately as a single class in the following circumstances:

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If we were to seek to amend our Certificate of Incorporation to increase the authorized number of shares of a class of stock, or to increase or decrease the par value of a class of stock; and

•

If we were to seek to amend our Certificate of Incorporation in a manner that altered or changed the powers, preferences or special rights of a class of stock in a manner that affected its holders adversely.

Liquidation. Upon our liquidation, dissolution or winding-up, the assets legally available for distribution to our stockholders would be distributable ratably among the holders of our Class A common stock, Class B common stock and Class C common stock.

Preemptive or Similar Rights. None of our Class A common stock, Class B common stock and Class C common stock is entitled to preemptive rights, and neither is subject to redemption.

Conversion. Our Class A common stock is not convertible into any other shares of our capital stock. Each share of our Class B common stock and Class C common stock is convertible at any time at the option of the holder into one share of our Class A common stock. In addition, after the closing of the initial public offering, upon sale or transfer of shares of either Class B common stock or Class C common stock, whether or not for value, each such transferred share shall automatically convert into one share of Class A common stock, except for certain transfers described in our amended and restated certificate of incorporation. Our Class B common stock and Class C common stock will convert automatically into Class A common stock on the date on which the number of outstanding shares of Class B common stock and Class C common stock together represent less than 10% of the aggregate combined voting power of our capital stock. Once transferred and converted into Class A common stock, the Class B common stock and Class C common stock may not be reissued.

Stock Repurchases

In October 2015, we authorized the 2015 Share Repurchase Program. In the fourth quarter of 2015, we repurchased 37.9 million shares of our Class A common stock under the repurchase program at a weighted average price of $2.60 per share for a total of $98.9 million. In the first quarter of 2016, we repurchased 42.2 million shares of our Class A common stock at a weighted average price of $2.40 for a total of $101.9 million, completing the repurchase plan put in place during the fourth quarter of 2015. All of our stock repurchases under the under the program were made through open market purchases under Rule 10b5-1 plans.

In November 2016, we authorized the 2016 Share Repurchase Program. In the fourth quarter of 2016, we repurchased 12.3 million shares of our Class A common stock under the repurchase program at a weighted average price of $2.76 per share for a total of $34.2 million.

Equity Incentive Plans and Stock-Based Expense

In 2007, we adopted the 2007 Equity Incentive Plan (the “2007 Plan”) for the purpose of granting stock options and ZSUs to employees, directors and non-employees. Concurrent with the effectiveness of our initial public offering on December 15, 2011, we adopted the 2011 Equity Incentive Plan (the “2011 Plan”), and all remaining common shares reserved for future grant or issuance under the 2007 Plan were added to the 2011 Plan. The 2011 Plan was adopted for purposes of granting stock options and ZSUs to employees, directors and non-employees. The number of shares of our Class A common stock reserved for future issuance under our 2011 Plan will automatically increase on January 1 of each year, beginning on January 1, 2012, and continuing through and including January 1, 2021, by 4% of the total number of shares of our capital stock outstanding as of December 31 of the preceding calendar year.

The following table presents the weighted-average grant date fair value of stock options and the related assumptions used to estimate the fair value in our consolidated financial statements:

	Year Ended December 31,
	2016			2015			2014
Expected term, in years		6			6			5
Risk-free interest rates		1.53	%		1.65	%		1.31	%
Expected volatility		50	%		53	%		56	%
Dividend yield		—			—			—
Weighted-average estimated fair value of options granted during the year	$	1.30		$	1.51		$	3.44

We recorded stock-based expense related to grants of employee and consultant stock options, restricted stock and ZSUs in our consolidated statements of operations as follows (in thousands):

	Year Ended December 31,
	2016		2015		2014
Cost of revenue	$	3,720	$	4,547	$	4,623
Research and development		84,236		94,548		83,673
Sales and marketing		7,254		7,501		5,927
General and administrative		12,251		24,979		35,010
Total stock-based expense	$	107,461	$	131,575	$	129,233

As of December 31, 2016, total unamortized stock-based expense relating to ZSUs amounted to $130.0 million over a weighted-average recognition period of 3.0 years.

Stock-based expense for performance-based ZSUs granted in connection with our executive compensation plan is recorded based on the achievement of certain performance milestones. In 2016, no expense was recorded in connection with shares granted under our executive compensation plan.

As of December 31, 2016, total unrecognized stock-based expense of $26.2 million and $1.7 million related to unvested stock options and restricted shares of common stock, respectively, is expected to be recognized over a weighted-average recognition period of approximately 4.43 and 0.16 years, respectively.

The following table shows stock option activity for 2016 (in thousands, except weighted-average exercise price and remaining contractual term):

	Outstanding Options
				Weighted-		Aggregate		Weighted-
				Average		Intrinsic Value of		Average
				Exercise		Stock Options		Contractual Term
	Stock Options			Price		Outstanding		(in years)
Balance as of December 31, 2015		23,215		$	1.93	$	35,949		5.36
Granted		21,300			2.63
Forfeited and cancelled		(3,635	)		6.33
Exercised		(4,022	)		0.34
Balance as of December 31, 2016		36,858		$	2.08	$	26,411		6.81
As of December 31, 2016
Exercisable options		15,768		$	1.30	$	24,892		3.28
Vested and expected to vest		27,521		$	1.88	$	25,815		5.89

The aggregate intrinsic value of options exercised during 2016, 2015 and 2014 was $8.1 million, $9.1 million, and $25.1 million, respectively. The total grant date fair value of options that vested during the years ended December 31, 2016, 2015, and 2014 was $6.0 million, $10.2 million, and $6.6 million, respectively.

The following table shows a summary of ZSU activity for 2016 (in thousands, except weighted-average fair value and remaining term):

	Outstanding ZSUs
				Weighted- Average Grant Date		Aggregate Intrinsic Value of
				Fair		Unvested
	Shares			Value		ZSUs
Unvested as of December 31, 2015		62,436		$	3.06	$	167,328
Granted		42,260			2.41
Vested		(32,357	)		2.74
Forfeited and cancelled		(12,887	)		3.59
Unvested as of December 31, 2016		59,452		$	2.66	$	152,792

2011 Employee Stock Purchase Plan

Our 2011 Employee Stock Purchase Plan (“2011 ESPP”), was approved by our Board of Directors in September 2011 and by our stockholders in November 2011 and amended in August 2012. On December 31, 2016, the maximum number of shares of our Class A common stock that were authorized to be issued under our 2011 ESPP was 73.3 million shares. The number of shares of our Class A common stock reserved for future issuance under our 2011 ESPP will automatically increase on January 1 of each year, beginning on January 1, 2012, and continuing through and including January 1, 2021, by the lesser of 2% of the total number of shares of our capital stock outstanding as of December 31 of the preceding calendar year or 25,000,000 shares.

Our 2011 ESPP permits participants to purchase shares of our Class A common stock through payroll deductions up to 15% of their earnings. Unless otherwise determined by the administrator, the purchase price of the shares will be 85% of the lower of the fair market value of our Class A common stock on the first day of an offering or on the date of purchase. The ESPP offers a twelve-month look-back. The ESPP contains an automatic reset feature such that if the fair market value of our Class A common stock has decreased from the original offering date, the offering will automatically terminate and all participants will be re-enrolled in the new, lower-priced offering. Participants may end their participation at any time during an offering and will be refunded their accrued contributions that have not yet been used to purchase shares. Participation ends automatically upon termination of employment.

As of December 31, 2016, there were $2.4 million of employee contributions withheld by the Company. In 2016, the Company recognized $1.9 million of stock-based expense related to the 2011 ESPP.

Common Stock Reserved for Future Issuance

As of December 31, 2016, we had reserved shares of common stock for future issuance as follows (in thousands):

	December 31, 2016
Stock options outstanding		36,858
ZSUs outstanding		59,452
2011 Equity Incentive Plan		99,447
2011 Employee Stock Purchase Plan		78,013
		273,770

Accumulated Other Comprehensive Income (loss)

The components of accumulated other comprehensive income, net of taxes, were as follows (in thousands):

	Foreign Currency Translation			Unrealized Gains (Losses) on Available- for-Sale Securities			Total
Balance as of December 31, 2014	$	(28,781	)	$	(394	)	$	(29,175	)
Other comprehensive income (loss) before reclassifications		(23,480	)		307			(23,173	)
Amounts reclassified from accumulated other comprehensive income (loss)		—			(40	)		(40	)
Net current-period other comprehensive income (loss)		(23,480	)		267			(23,213	)
Balance as of December 31, 2015	$	(52,261	)	$	(127	)	$	(52,388	)
Other comprehensive income (loss) before reclassifications		(76,410	)		105			(76,305	)
Amounts reclassified from accumulated other comprehensive income (loss)		—			(1	)		(1	)
Net current-period other comprehensive income (loss)		(76,410	)		104			(76,306	)
Balance as of December 31, 2016	$	(128,671	)	$	(23	)	$	(128,694	)