Twitter: An “Emerging Growth Company”
On September 12, 2013, Twitter announced its initial public offering (IPO) filing through its own Twitter feed: “We’ve confidentially submitted an S-1 to the SEC for a planned IPO. This Tweet does not constitute an offer of any securities for sale.” ((@twitter, Twitter (Sept. 12, 2013, 2:00 PM), https://twitter.com/twitter/status/378261932148416512.)) At the time, this tweet was the “only public information from the company about its planned IPO.” ((Steven Davidoff, An Initial Filing, in Fewer than 140 Characters, DealBook (Sept. 12, 2013, 9:25 PM), http://dealbook.nytimes.com/2013/09/12/an-initial-filing-in-fewer-than-140-characters/.)) Twitter was able to submit its draft registration statements with the Securities and Exchange Commission (SEC) confidentially under the Jumpstart Our Business Startups Act (JOBS Act) as an “emerging growth company.” ((See generally Jumpstart Our Business Startups Act, Pub. L. No. 112-106,126 Stat. 306, Title I (2012).)) An emerging growth company is one whose total annual gross revenues are “less than $1 billion during its most recently completed fiscal year.” ((Jumpstart Our Business Startups Act Frequently Asked Questions, U.S. Sec. & Exch. Comm’n , http://www.sec.gov/divisions/corpfin/guidance/cfjjobsactfaq-title-i-general.htm (last visited Sept. 4., 2013.))
The JOBS Act
The JOBS Act has reduced the regulation, and therefore the burdens, on smaller public companies in a number of ways. According to some, de-regulation of emerging growth companies is a good thing because the expense of internal controls often hits smaller public businesses the hardest. As a result of these burden-lifting provisions of the JOBS Act, there has been a “notable increase in small and midsize companies going public and designating themselves as ‘emerging growth companies’ to take advantage of the exemptions under the law.” ((John Berlau, Twitter IPO a Vindication of Bipartisan JOBS Act, OpenMarket.org (Oct. 4, 2013), http://www.openmarket.org/2013/10/04/twitter-ipo-a-vindication-of-bipartisan-jobs-act/.))
However, others are hesitant about one provision in particular – emerging growth companies’ ability to submit their initial filings with the SEC confidentially, as Twitter did with its IPO. As a result of Twitter’s status as an emerging growth company, its SEC filings were released to the public approximately three weeks after its initial IPO announcement. Although the emerging growth company’s financial statements must be disclosed eventually and prior to the offering date, Teresa Tritch suggests the decreased transparency allowed by the JOBS Act is still problematic. ((See Teresa Tritch, The Twitter I.P.O.: Investor Beware, N.Y. Times (Sept. 13, 2013), http://takingnote.blogs.nytimes.com/2013/09/13/the-twitter-i-p-o-investor-beware/.)) The problem stems from the hype a company like Twitter is able to generate by its access to the media. Now that Twitter’s filings are public, there is some speculation about its valuation. But the Twittersphere has been exploding with tweets about the IPO, excitement from well-known investors and even those who recommend attempts at increasing Twitter’s valuation prospects prior to the initial offering date.
Is Delayed Transparency Enough?
Now, investors have the opportunity to assess Twitter’s financial statements through its SEC filings. They will find that Twitter “has not yet turned a profit” and has, in fact, “been steadily losing money” despite recent increases revenue. ((Vindu Goel & Michael J. De La Merced, Twitter Opens Up with I.P.O. Filing, DealBook (Oct. 3, 2013, 5:09 PM), http://dealbook.nytimes.com/2013/10/03/twitter-discloses-its-i-p-o-plans/.)) While this may not necessarily be detrimental to Twitter’s valuation, Twitter’s financial statements may be undermined by the buzz it has been generating over the last three weeks. While the Twitter IPO has been dubbed by many as one of the biggest IPOs since Facebook, analysts suggest a number of reasons to be wary of comparisons in valuation and performance to Facebook. ((See Peter Eavis, Twitter Puts Numbers to Its I.P.O. Talk, DealBook (Oct. 3, 2013, 9:03 PM), http://dealbook.nytimes.com/2013/10/03/twitter-puts-numbers-to-its-i-p-o-talk/?src=dlbksb.))
Although Twitter’s SEC filings are now available, the company must wait at least three weeks before starting its publicity campaign. The government shutdown may slightly interfere with Twitter’s ability to complete the IPO process by Thanksgiving, as currently planned.
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