Twitter’s IPO filing: Why so secretive?

Since the 2012 Jumpstart Our Business Startups, or JOBS Act, a business with yearly revenues which do not exceed US$ 1 billion can now file their initial public offering (IPO) confidentially.

A number of companies have so far used this route to go public – and Twitter is the latest.

Twitter announced the fact to the world via in inauspicious tweet at 17:00 on the 12th of September. It stated that the company had confidentially submitted an S-1 with the Securities and Exchange Commission (SEC).

The JOBS legislation

By filing its IPO under the new JOBS Act, Twitter is able to keep its financial information under wraps until it begins actively marketing to investors.

More specifically, it means the San Francisco-based company isn’t required to disclose all of its financial miniature until 21 days before the stock will be listed, meaning it can start creating interest for its shares without revealing too much.

Yet some in the industry are stipulating that revealing its IPO at all has eroded the benefits of confidentiality.

This is because a big part of the rationale for using the JOBS Act is to test the waters, without fear of repercussions, and determine whether going public is the right option.

In Twitter’s case that possibility is gone, but the question remains: What exactly are they hiding?

What’s the secret?

One theory is that the JOBS Act allows for lighter disclosures around areas such as compensation for executives.

The pause also gives the company time to consult with the SEC.

Yet is may simply be a case of learning from the mistakes of others – namely Facebook.

Facebook’s IPO legacy

Twitter’s solitary tweet announcing its plans to begin selling stocks is in stark contrast to Facebook’s flashy (at least in tech firms terms) announcement in February 2012.

Facebook gave everybody – investors, the public and media alike – an exceptionally revealing look into its financial performance. Every public filing after this garnered increasing amounts of publicity and intense scrutiny across the board, including concerns about its lack of mobile ad revenue.

In May 2012, Facebook sold US$ 16 billion to investors – with the media labelling it as a ‘cultural touchstone’ – only to see its share price drop following doubts it could make a profit from users.

Twitter is now likely to price its shares less confidentially than Facebook did – giving it plenty of wiggle room to grow once it goes public. It may also offer a smaller percentage of the company than Facebook did.

Additionally, Twitter’s confidential IPO filing means it can give the public a cleaner initial look at its financial status and growth outlook. This is what investors will ultimately be judging their interest on.

By keeping its cards close to its chest, and delaying the bestowal of information until the company is ready, Twitter may simply be trying to escape the kind of chaotic IPO Facebook endured.


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