Here are the secret edits Twitter made to its IPO filing, hoping investors wouldn’t notice

Taking a #knife to the filing.
Taking a #knife to the filing.
Image: Scott Beale/Laughing Squid
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Twitter secretly submitted four drafts of its IPO prospectus to regulators before making public the version that drew so much attention yesterday. The changes made in the interim expose concerns about how much advertising Twitter can show its users and whether it can effectively grow outside the United States.

The drafts also reveal that Twitter hired about 300 people in the second quarter of this year, growing from 1,697 employees to “approximately 2,000.”

Some of the edits were subtle but telling. Whereas Twitter originally described itself as a “platform,” the official filing changed many of those references to “global platform.” And this sentence was added to the introduction: “We aim to become an indispensable daily companion to live human experiences.”

But the most significant changes concerned Twitter’s advertising revenue. The second draft of the IPO prospectus, submitted on August 21, added a disclosure that the cost of advertising on Twitter had declined and could continue to drop. The third draft, on September 9, noted that Twitter’s ability to display ads within its mobile applications is more limited than on desktop computers, but people increasingly prefer to use Twitter on mobile.

And in the fourth draft, submitted on September 26, Twitter added several more references to the risk that “ad engagement”—essentially, whether people clicks on paid tweets—could decline. Here’s what one of those edits looks like (addition in green, deletion in red):

If we fail to grow our user base, or if user engagement or the number of paid engagements with our pay-for-performance Promoted Products, which we refer to as ad engagements, on our platform declines, our revenue, business and operating results may be harmed.

Ordinarily, these kinds of changes to an IPO filing would play out in public, helping investors better understand the company. For instance, when Facebook was going through this process, an amendment to its prospectus that warned about mobile advertising revenue put a spotlight on a critical weakness in the company. The changes usually reflect comments from regulators at the US Securities and Exchange Commission (SEC) who are trained to scrutinize these filings.

But Twitter was able to avoid much of that attention by invoking a new law, called the JOBS Act, that allows companies with less than $1 billion in annual revenue to get feedback on their IPO filings in confidence. The law requires that Twitter ultimately disclose its earlier drafts, which it did yesterday soon after the official S-1 was revealed, but because they aren’t filed piecemeal, they won’t generate headlines—like, say, this one, from last year: “Facebook Amends IPO S-1 To Admit Advertising Biz Hurt By Increasing Shift To Mobile.”

If Twitter weren’t able to edit its IPO prospectus in secret, its various amendments might have led to headlines such as:

  • Twitter admits its ad rates are falling—and it might not stop
  • New risk to Twitter IPO: Mobile users aren’t as lucrative
  • 5% of Twitter’s users aren’t real, company confesses in new filing

Alas, all of those changes happened quietly, instead, which was exactly Twitter’s intention in using the JOBS Act. It’s hoping to avoid the kind of overheated anticipation that have tripped up other IPOs by technology companies.

Twitter submitted its first draft to the SEC on July 12, and managed to keep that a secret until the company itself revealed what it was up to on September 12. It continued to edit the document until the official filing yesterday, October 3. Twitter will make at least one more amendment before its IPO because it has to fill in a few blanks, including the stock exchange on which the company will list it shares.

In another major disclosure that was added after the first draft, Twitter said it faced significant challenges outside the US, where most of its users reside. “Differences in the competitive landscape in international markets may impact our ability to monetize our products and services,” began a very long paragraph that was added to the second draft.

Twitter’s hiring spree in the second quarter, when its headcount grew by about 300, may have cost it a lot of stock options. The first draft of the IPO prospectus said the company had issued about 66 million stock options as compensation since July 2010. By the time of the official filing, that number had grown to about 93 million.

Other small changes could point to interesting backstories. A reference in the official filing to “an entity affiliated with Rizvi Traverse,” which is a private equity firm with a large stake in Twitter, was more specific in earlier drafts: Institutional Associates Fund. A long disclosure about 1.5 million stock options granted to Alex Macgillivray, who was Twitter’s general counsel, didn’t make it into the final cut, likely because Macgillivray left the company.

You can read through all of Twitter’s drafts—and yesterday’s official filing—here. In the weeks after Twitter starts trading as a public company, the SEC will reveal what feedback it gave to Twitter this summer.

The photo above, from Twitter’s new headquarters, is by Scott Beale/Laughing Squid and used under a Creative Commons license.

You can follow all of Quartz’s coverage of Twitter here.