In filing paperwork for an initial public offering, Twitter offered a glimpse at its financials going back to 2010, when the startup was just starting to earn real money. But for two prior years, Twitter exercised its right to remain silent.
The lack of disclosure is perfectly legal, thanks to a new law that eases regulations on certain companies going public. Nevertheless, it raises an obvious question: What happened to Twitter in 2008 and 2009?
Those were tumultuous years for the startup, which launched in 2006 and became its own company in 2007. By 2008, Twitter was struggling to keep up with its rapid user growth, and service outages were frustratingly common.
Amid the growing pains, Jack Dorsey was ousted as CEO in October 2008—”It was like being punched in the stomach,” he later said—and replaced by his co-founder Ev Williams. The company’s short-term focus, Williams said, would be to improve the product rather than make money.
Other investors were more antsy to see financial success after Twitter generated no revenue in 2008. The company may, in fact, have achieved slight profitability in 2009 after signing deals with Google and Microsoft that were estimated to be worth $25 million. But it was always clear that the company’s largest potential business was advertising, which Williams was reluctant to pursue. By October 2010, he had agreed to step aside in favor of Dick Costolo, who remains the CEO.
In short, Twitter’s books for 2008 and 2009 probably don’t look very good. But it’s hardly a secret that the company struggled in those years, nor is it uncommon for a technology startup to spend its infancy with little or no revenue. So why did Twitter elect to keep those financial data out of its IPO filing?
The company doesn’t have to say. It’s permitted to skirt some traditional regulations because of the JOBS Act, which went into effect last year. For instance, that’s how Twitter was able to keep its IPO filing secret for more than two months while it made revisions based on feedback from regulators.
The law also allows companies with under $1 billion in annual revenue to include in their IPO filings just two years of audited financial statements (instead of three) and two years of top-line financial data like revenue, expenses, and profit (instead of five). Twitter took advantage of both provisions, revealing two years of audited financial statements and three years of top-line financial data.
Certainly, one advantage of that decision may be cost-savings, since it can be expensive to compile historical financial data, especially those that need to be audited. But there’s also a risk that investors or analysts could look skeptically at the move and question what Twitter has to hide.
Given that this article appears to the very first even to mention Twitter’s selective disclosure, that fear may be overblown.