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JOBS Act

Will Twitter file a secret IPO?

Twitter is expected to file for an initial public offering in late 2013 or early 2014. That much is widely known. Less attention has been paid to whether Twitter will make a normal IPO filing or if, as new rules allow, the company will try to go public in secret.

The Jumpstart Our Business Startups (JOBS) Act, signed into US law last year, lets firms with less than $1 billion in annual revenue keep their IPO filings confidential up until three weeks before they start marketing shares to investors in a “road show.” It was largely proposed and pushed by venture capitalists in Silicon Valley, who said it would stem a decline in US IPOs by reducing the burdens of going public felt by smaller firms. Ordinarily, a company has to make public a lengthy discussion of its financials, strategy, and risks months before an IPO, giving investors—and competitors—more of a chance to evaluate the stock.

In the first nine months since the JOBS Act went into effect, 59% of eligible companies availed themselves of the option to keep their IPO filings secret, according to an Ernst & Young study reported today by the Wall Street Journal. Twitter is likely to be eligible: It made $350 million in revenue last year, and it’s not expected to hit $1 billion until 2014.

Keeping its IPO filing secret until the last minute could help Twitter avoid the overheated anticipation that Facebook had to deal with ahead of its disastrous IPO. It could keep its financial details away from rivals for a few extra months, as it grows a mobile advertising business that might compete with Facebook’s or LinkedIn’s. And if Twitter would rather keep some of its early history under wraps, it could avoid an outside audit and submit just two years of financial statements, as opposed to the customary five.

Of course, the move could also backfire spectacularly, adding to the intrigue when investors are still skeptical of tech IPOs after Facebook, Zynga, and others fell short of heightened expectations. And though the JOBS Act is coming up on its first anniversary, the harshly criticized law isn’t well known, and Twitter’s involvement could draw it some negative attention.

The law’s other controversial provisions include allowing hedge funds to advertise publicly and letting private companies raise money from ordinary investors in the style of “crowdfunding.” Invoking the JOBS Act might also rebound badly on Twitter, which with roughly 1,000 employees is not exactly the poster child for a law meant to help small startups.

So far, the most prominent company to make a confidential IPO filing under the JOBS Act is arguably Xoom, a provider of international money transfers, which started trading last week. Another highly anticipated IPO, from cloud storage company Dropbox, will likely come to market before Twitter and could also qualify for the JOBS Act’s laxer regulations. Twitter hasn’t discussed when it might go public, let alone the mechanics of how it might do so. A spokesman for the company told me today, “We don’t comment on speculation.”

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