It’s the first app I launch in the morning, and the first I install on a new phone, and my most-visited web site. Which is strange, because I don’t much like most social media? I’m on Facebook only reluctantly; 90% of my posts there are automatic reposts from my tweet stream. I want to like Google+, but I keep failing. Twitter, though, is the hub of my online life.
Twitter’s IPO filing is ready, and the company intends to make it public this week, it may seem as though Twitter got things started on Sept. 12, when the company tweeted it had “confidentially submitted an S-1 to the SEC for a planned IPO.” But Twitter had actually made that submission about two months earlier, in July. The September announcement wasn’t required by law, but a source says Twitter intended to get out ahead of any press leaks and avoid frenzy later on by simply making a public filing with no warning.
Form S-1 is filled out by almost all companies going public in the United States. It’s a lengthy prospectus that details prior financial results, the structure of the business, risks posed by investing in the company, and more. Typically, the S-1 is filed publicly, and then government regulators provide feedback in public, as well.
Twitter’s IPO price is currently thought to be in the range of $28 to $30 a share, which would value the company between $15 billion and $16 billion. But those figures could still change quite a bit before the IPO.
Twitter will also make official which banks are facilitating the offering. Goldman Sachs is known to have secured the “lead left” position, which means it will collect more fees than the other lead banks, which are JP Morgan Chase and Morgan Stanley. That part is really a battle for bragging rights that few outside of Wall Street care about.
This is perhaps the juiciest section of any IPO filing, though also the hardest to predict. Much of the “risk factors” section is boilerplate that could apply to any investment, but some of it—probably the risks toward the beginning of the section—will be very specific to Twitter. In essence, the company is supposed to disclose anything that could go wrong and imperil its value, so it’s a good way of seeing what Twitter thinks is essential to its business.
If you think back to Facebook’s IPO, “risk factors” is where the company disclosed that its users’ rapid shift to mobile devices was hurting advertising revenue, which spooked investors. That’s not likely to be Twitter’s problem, but it may have to raise similar kinds of red flags about its potential to grow revenue.
There are often juicy data points hiding in this section, as well. Facebook, for instance, revealed that gaming company Zynga accounted for 12% of its revenue. That’s not something that would show up in a line item of a financial sheet, but it was an important disclosure.
When Twitter’s shares start trading the next day, undoubtedly under the ticker symbol TWTR, they could open higher or lower than the IPO price. A large “pop” above the IPO price is generally seen as a success, though too big a pop can be a sign that the bankers misjudged the company’s value. Conversely, if the company falls below its IPO price on the first day of trading, its bankers typically step in to prop up the stock.
All of those dubious traditions make IPOs seem more like a beauty contest than an investment. Twitter’s intention is to avoid a lot of that hype, but the thing about going public is that, by design, you give up at least some control over what happens to the company. If the market wants to treat Twitter’s stock irrationally, driving up its value to unjustifiable heights, it can do that. And it can turn on the company just as fast.
What actually matters is how Twitter trades in the long run and whether the pressure of public shareholders changes the soul of the company for better or worse.