Twitter IPO Churns Out a Small Army of Millionaires
At the end of the September quarter, Twitter (NYSE:TWTR) reported that it employed over 2,300 people. That’s up from just over 100 in January of 2010 when Twitter was three years old. In that year, Twitter reported stock-based compensation expenses of $5.9 million, or about 6.1 percent of total costs. For the nine-month period ended September, Twitter reported stock-based compensation of $79.2 million, or about 14.4 percent of total costs. In its S-1 prospectus, Twitter also reported that it has 68.3 million shares of stock reserved for equity compensation plans.
“We face significant competition for employees, particularly engineers, designers and product managers, from other Internet and high-growth companies, which include both publicly-traded and privately-held companies, and we may not be able to hire new employees quickly enough to meet our needs,” Twitter explains under the risk factors section of its filing. “To attract highly skilled personnel, we have had to offer, and believe we will need to continue to offer, highly competitive compensation packages.”
That Twitter was liberal with equity handouts before its initial public offering is hardly a surprise — stock-based compensation is normal in every business — but it is worth pointing out that Twitter’s only offered about 80.5 million shares with its IPO. This is about 15 percent of the 544.7 million shares outstanding.
This means that because the majority of Twitter stock is held by employees and early investors, the company’s IPO was not just profitable for the funds that bought in at $26, but for all the other, early equity holders. According to PrivCo, Twitter’s IPO created 1,600 new millionaires and two billionaires.
Those billionaires: co-founders Evan Williams and Jack Dorsey. At its Monday opening price of $41.50, Twitter had a market cap of about $22.6 billion. Post IPO, Williams had a 10.4 percent stake in the company, Dorsey (who is currently Chair) had a 4.3 percent, and CEO Dick Costolo has a 1.4 percent stake. PrivCo estimates that Twitter’s millionaires face a collective tax bill of $2.2 billion, based off of an 8 percent tax rate in California and a 32 percent federal tax rate. Total windfall to the state: a much-needed $479 million. To the IRS: $1.72 billion.
To be clear, much of the stock owned by employees sits in lockup. Executives and directors, for example, won’t be able to sell for 180 days, and after that they may decide to hold on to their shares because prices may have declined (as many are expecting) or as a vote of confidence in the future success of the company.
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