SEC Investigated IPO Claims from Twitter - The UpStream

SEC Investigated IPO Claims from Twitter

posted Saturday Dec 7, 2013 by Scott Ertz

SEC Investigated IPO Claims from Twitter

Between the time Twitter filed its Initial Public Offering with the Securities and Exchange Commission on July 12, 2013, and its official IPO announcement, an interesting conversation happened between the two organizations. In this time frame, it is fairly common for the filer and the SEC to discuss the details of the documents to clarify confusing or misleading information. In Twitter's case, however, the details in question were material to the valuation of the company.

For example, Twitter's 2012 financial statement showed a loss of $79 million, with a loss of $69 million in the first 2 quarters and $134 million in the first 3 quarters of 2013. Their initial filing, however, described a significant improvement in revenue instead of discussing the fact that the revenue cost more to earn. The SEC's response was,

We note your statement that you 'have experienced significant improvements in {your} operating results in recent periods.' Please revise this disclosure to address the fact that your net loss in the first quarter of 2013 was larger than the same period in 2012 and the two quarters immediately preceding it.

Twitter revised its filing to discuss the losses, but still emphasized the growth of revenue.

In addition, Twitter completely neglected to discuss the results of Facebook's acquisition of Instagram during its own IPO process. More importantly, they failed to discuss Facebook's decision to change their integration policy for Twitter.

We note that following Facebook's acquisition of Instagram, Instagram disabled photo integration with Twitter. Please describe the consequences of Facebook's decision in terms of your service and the user experience. In addition, identify any other material third-party integration that you believe is at risk for similar elimination and the potential consequences

Twitter's response was to claim that no further integration issues were known, though they did engage the topic of Instagram.

These were not the only issues raised by the SEC, but they were certainly the material information on the company. Without directly disclosing that the company has yet to make a dollar of profit in its existence and, instead, continues to lose money at an alarming rate changes the value of the company. Somehow, however, they still managed to have a fairly successful IPO.


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