Twitter has taken great care in submitting its filing to the U.S. Securities and Exchange Commission (SEC). It has taken advantage of the JOBS Act which loosened regulation on small businesses that wish to raise capital.
Twitter has declared that it is an emerging growth company with revenue of less than $1 billion. This means that its draft documents could be filed with the SEC outside of the public eye. It submitted four drafts before its final S-1 and could take advantage of confidential feedback on its filing.
This feedback has enabled Twitter to produce a document that has comprehensively covered all of its perceived risks. It has added over 500 words to the risk factors section compared to the second draft it submitted.
The additions primarily clarify its position on Restricted Stock Units (RSUs) and its allocations to its employees. Amendments also clarify how it estimates the number of false and spam accounts and adds its organisational requirement under Delaware law.
In looking at specific risks around technology, I found that Twitter has shown a level of maturity about the factors that could affect its business.
It recognises its dependence on mobile app stores, browser manufacturers, software vendors and ISPs.
It recognises that although it is not yet pervasive around the world, it has thoroughly considered its options.
When I look at risk factors concerning Twitter’s users and employees I see a different picture. Twitter is still very much at the mercy of spam attacks and loss of reputation.
It also has concerns that its users might leave to use a different social network — especially in places such as South Korea and Japan.
Shareholders could group together to change the direction of Twitter’s business or take the business over. Although Twitter has tried to guard against this happening, a takeover could still be a real possibility.
There is strong competition to hire talent in the San Francisco Bay area and Twitter could find that 180 days after IPO, its talent could move to another company. Twitter could also be acquired by a much larger organisation and disappear without trace. It is a big risk to a successful organisation.
It is moving quickly from a small startup to a publically traded organisation and will be subject to strict frameworks, governance and accountability to its users, shareholders, advertisers and investors.
Twitter has quite a few risks when it considers its growth. User account growth is slowing in the US. Currently it is here where Twitter generates most of its revenue. Finding new international users and local influencers to use the service will increase international user growth and revenue.
It needs to generate higher revenue in countries outside of the US. Opportunities to increase its user base in China have been blocked by the Chinese authorities.
There are risks for Twitter investors too.
Stock markets are volatile and share values go down as well as up. Long term investors usually find that their stock portfolios rise over time. Investors that buy to sell on the same day can also realise a profit on their investment.
There was a huge media frenzy around the Facebook IPO. Many reporters did not thoroughly evaluate the prospectus before speculating on the viability of the purchase. Facebook stock eventually climbed back to its initial offering price. This scenario could also happen to Twitter.
When I looked at risk factors that are out of Twitters control, I saw a lot of risks that could apply to anyone living within an earthquake or fire zone.
Governments change, taxes change, wars bubble up around the world. None of these are in our — or Twitters control. However they are still a risk to anyone considering buying shares.
Twitter is trying to make its investors fully aware of every risk factor. It relies on positive media coverage to influence its potential new shareholders.
Twitter seems to be — to me at least — in a better, calmer, more stable position as it moves towards IPO. It certainly has shown a maturity that would befit a much larger and much older organisation.
I am a casual investor. I have has no career history working for a financial services organisation, nor any expertise in financially analysing S-1 filings. I have made my own decision. I have read the prospectus carefully – as all investors should do.
I have focused on the risk factors carefully in my last five posts as I believe that this information will give me the best indication what Twitter really thinks about the factors affecting its business.
So when Twitter finally offers its shares for sale, I would certainly buy.