SAN FRANCISCO -- As soon as this week Twitter will make public its secret filing to sell stock to the public.
It’s called an S-1 filing, and it’s the form companies have to file before their shares can be listed on a stock exchange.
Twitter filed the S-1 in July under a provision of the JOBS Act that allows companies with less than $1 billion in revenue to file confidentially. That means it does not have to release detailed financial information until 21 days before it begins marketing the offering to investors.
So this is the first glimpse prospective investors will get into Twitter’s business. And they will be focusing on three numbers: revenue, profits and active users -- and how quickly each is growing.
Research firm EMarketer expects Twitter to make $582 million in revenue from online advertising this year, up from $288 million last year.
As important as the revenue is, it also matters where the revenue is coming from. EMarketer expects 83% of the revenue to come from the U.S., down from 90% last year. Therein lies a big opportunity and a challenge for Twitter: It’s hugely popular overseas, but it’s unclear if it can sell as many ads at the same prices outside the U.S.
Twitter has also faced questions over its mainstream appeal. It will detail for the first time in nearly a year how many monthly active users it has. Last December, it said 200 million people use the service at least once a month.
Investors will be comparing all of these figures to Facebook, which filed its S-1 in February 2012. By way of comparison, Facebook had $3.7 billion in sales in 2011, the year before its IPO, and 800 million users when it filed its S-1. Twitter is obviously far smaller than Facebook was at the time both in revenue and users, but the key will be if it’s growing as quickly as Facebook was.
Here are the sections of the S-1 that will have the information investors will be hunting for:
1. Calculation of the registration fee: This is how much money Twitter thinks it will raise (though this number can change during the process). Twitter’s IPO price is currently thought to be in the range of $28 to $30 a share. That would value the company between $15 billion and $16 billion.
2. Selected consolidated financial data: The company’s income statement for the most recent years and several years prior. Analysts will be looking here for trends in revenue, gross margins and net profit or loss.
3. Management’s discussion and analysis of financial condition and results of operations: Twitter will talk about its online advertising business, the cost of revenues and other expenses in more detail. It will also discuss user metrics, such as active users, how many access the service from mobile devices and where on the planet they hail from. Analysts are also hoping for stats about engagement, how active users are on the service. Twitter will also spell out how it makes money (online advertising) and will disclose cost of revenue and operating expenses including research and development, stock option compensation, marketing and sales etc.
4. Risk factors: This is the laundry list of challenges the business faces.
5. Executive compensation: What management earns in salary and other forms of compensation.
6. Principal and selling stockholders: Any shareholder who owns more than 5% of the stock will be listed here.
7. Letter from the CEO or founder: It’s not a requirement but most companies include a letter that outlines the company’s philosophy. None of three co-founders -- Biz Stone, Ev Williams or Jack Dorsey -- is involved in the day-to-day operations of the business so this would probably be written by Twitter Chief Executive Dick Costolo.
8. Description of capital stock and voting agreements: Will Twitter have a dual class of stock? Who will control the voting rights?
Finally, be sure to read the footnotes. Sometimes the most interesting information can be found scattered throughout the document.