Twitter is required to disclose the stakes of anyone who owns more than 5% of the company as well as any member of its board and certain top executives. For a startup that has raised more than a billion dollars in private funding and is no longer run by its founders, the list of principal shareholders ought to be revealing.
Other sections of the S-1 that are typically interesting include “executive compensation,” but that may not appear in Twitter’s filing—or could be limited—because, yet again, the JOBS Act makes it optional.
It will also be interesting to see whether CEO Dick Costolo includes a letter to investors, which isn’t necessary but has become typical of IPOs by technology companies that want to convey certain values. Google’s S-1 is where founders Larry Page and Sergei Brin introduced the motto, “Don’t be evil.” Facebook CEO Mark Zuckerberg used to his letter to make clear he was not interested in “simply maximizing profits.”
What happens after that
Once Twitter files its S-1, it has to wait at least three weeks before it can begin a “road show,” which is when a company going public typically markets itself to potential large investors. As we’ve reported previously, Twitter’s road show has already begun, in a sense, because the JOBS Act loosens regulations around talking to investors. The company intends to keep its official road show short and sweet.
The upshot is that investors, journalists, and onlookers will have 21 days—and not much longer—to assess whatever Twitter reveals in its S-1.
It’s also likely that Twitter will revise its S-1 after the first filing. The amendments could fill in holes from the first version, adjust the pricing and volume of shares, make new disclosures, or add more mundane information as the company gets closer to its first day of trading.
The initial public offering usually happens the day before shares starting trading in public and is generally limited to large and well-connected investors. Those shares are sold at the “IPO price.”
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.
This article is from the archive of our partner The Wire.