Twitter prospectus edits will be worth following

September 18, 2013

By Richard Beales and Robert Cyran
The authors are Reuters Breakingviews columnists. The opinions expressed are their own.

New U.S. rules mean Twitter’s initial public offering paperwork, already filed with regulators, isn’t yet open to scrutiny.

When changes made in early versions of the document are disclosed, it will repay investors to comb through any modifications for red flags.

The ability to file confidentially reveals Twitter’s annual revenue to be under $1 billion. But how is it defined and how fast is it rising?

The Securities and Exchange Commission may balk, as with Groupon, if Twitter creates any overly flattering non-standard financial metrics.

What the regulator forces Twitter to say about mobile versus desktop matters. Until Facebook sorted out mobile, it was a big risk factor.

The company needs to nail down usage data early. The SEC queried Groupon’s statements about new users and attrition.

Super-voting stock for the company’s founders and bosses exists at Google, Facebook and elsewhere. It should concern long-term investors.

Any novel IPO process – like Google’s Dutch auction, say – could be a mixed blessing. If Twitter tries it, the fine print will need reading.

The company also now must keep quiet until it goes public. Groupon chairman Eric Lefkofsky got into trouble for saying too much.

So did Google founders Sergey Brin and Larry Page when a Playboy interview was published just as the company’s IPO went to market.

A valuation – probably well above $10 billion – will emerge as Twitter’s debut nears. If the hype approaches Facebook’s, investors beware.

Finally, it would be nice if Twitter and its lawyers drafted the prospectus in plain English using sentences of 140 characters or fewer.

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