The Twitter IPO is coming soon, very soon. The IPO detectives found a clause in the company’s prospectus that states that employees can begin selling their stock on February 15, 2014. IPO’s have a “lock up” period of 90 days from the date of first issue. By backing this date up 90 days we have November 15, 2013. The company’s prospectus states that employees will be given the opportunity to purchase shares in the IPO.
A company’s prospectus describes a profile of the company, how it operates, past performance, how it plans to use the monies from the IPO and forward- looking guidance. Here is where we have a gaping hole of information. There is no mention of what the company does, what processes it uses to generate revenue, how it plans to measure growth going forward, where their revenue is coming from and how it will use the money from the IPO. The company prospectus states: “We may invest or spend the proceeds of this offering in ways with which you may not agree or in ways which may not yield a return.”
From past performance we do know that 65% of its revenue comes from mobile devices. We do know that growth was up 44% in the three months ending June 30, 2013. However, this is down substantially from the 78% growth in the prior year during the same period.
We also know that expenses jumped 78% during the first six months of 2013.
Revenues come from business to business ads. There is no mention of the number of people in their sales force, nor how many they plan to add in the future. The prospectus does state: “We have incurred significant operating losses in the past, and we may not be able to achieve or subsequently maintain profitably.” The company has accumulated a $418.6 million deficit as of June 30, 2013.
The company can issue addition shares at the IPO. This would dilute the stock’s price. In addition, employee sales would also dilute it. Twitter also can issue preferred shares without shareholder approval. This is often done for founders to retain control of the company.
The question of valuation is equally confusing. The Investment Bankers will set the offering price. Analysts are busy sharpening their pencils trying to figure out what that valuation might be. Best estimates are for Fair Market Valuation of $12.8 billion, though it could be as high as $20 billion, $40 billion, even $60 billion. A $12.8 billion valuation would place an estimated opening price of $20.62. The prospectus does state: “The market price of our common stock may be volatile, and you could lose all or part of your investment.”
Twitter considers itself an emerging growth company. These companies usually have gross revenues of $1 billion or less during a given fiscal year. Emerging growth companies can give reduced reporting and disclosure information that would make them less attractive to investors.
Investors are trying to digest all this data, trying to decide whether or not to jump aboard.