Trade Desk, Inc. Fair Value Disclosure
Note 6—Fair Value Measurements
Cash equivalents, consisting of money market funds and time deposits, of $172.1 million and $5.0 million at December 31, 2018 and 2017, respectively, were classified as Level 1 of the fair value hierarchy and valued using quoted market prices in active markets. The Company had no other material financial instruments that were measured at fair value at December 31, 2018 and 2017.
The Company’s preferred stock warrants are recorded at fair value and were determined to be Level 3 fair value items. The changes in the fair value of preferred stock warrants are summarized below (in thousands):
|
Balance at December 31, 2015 |
|
$ |
6,927 |
|
|
Change in value of preferred stock warrants recorded in other expense, net |
|
|
9,458 |
|
|
Reclassification to convertible preferred stock upon net exercise of Series Seed warrant in February 2016 |
|
|
(3,789 |
) |
|
Conversion of preferred stock warrants to common stock warrants upon the closing of the Company’s IPO on September 26, 2016 |
|
|
(12,596 |
) |
|
Balance at December 31, 2016 |
|
$ |
— |
|
In connection with the IPO in September 2016, outstanding warrants exercisable for 1,382,505 shares of convertible preferred stock were automatically converted into warrants exercisable for 460,834 shares of Class B common stock and net exercised resulting in the issuance of 448,545 shares of Class B common stock based on the IPO price of $18.00 per share and taking into account the 1-for-3 reverse stock split. The aggregate fair value of these warrants upon the closing of the IPO was $12.6 million, which was reclassified from liabilities to additional paid-in capital.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2018 | Feb 22, 2019 | Showing above |
| 2017 | Feb 28, 2018 | |
| 2016 | Feb 16, 2017 | |
About Fair Value Disclosures
Fair value disclosures classify all assets and liabilities measured at fair value into a three-level hierarchy: Level 1 (quoted market prices), Level 2 (observable inputs like yield curves), and Level 3 (unobservable inputs requiring management estimates). The proportion of Level 3 assets directly reflects how much of the balance sheet depends on internal models rather than market evidence.
Key signals: a growing Level 3 balance relative to total fair-value assets increases valuation uncertainty and earnings volatility risk. Watch for transfers between levels — assets moving from Level 2 to Level 3 often signal deteriorating market liquidity. Unrealized gains and losses on Level 3 positions flow through earnings or other comprehensive income, so large swings deserve scrutiny. For financial institutions, examine the sensitivity disclosures that show how Level 3 valuations change under alternative assumptions. Compare the fair value of debt against its carrying amount to gauge hidden leverage.