Twitter continues to march toward its highly anticipated initial public offering. Sources told Quartz that the social media platform could make its S-1 filing public as early as this week, a move that could prime the investment pump with critical data about the company’s business model and financial condition. Adding fuel to the speculative fire is a report from Reuters that revealed that Goldman Sachs (NYSE:GS), the lead underwriter of the IPO, sent an email to to private shareholders asking that they commit to a six-month lockup.
Early investors in a company are often asked to agree to a lockup period ahead of an IPO. This ensures that those investors — who usually have large stakes in the company — don’t use the IPO as an opportunity to exit their position all at once, flooding the market with shares and driving down the price as a result.
Twitter announced via a tweet on September 12 that it had confidentially filed its S-1 document, but insiders revealed that the company actually submitted the paperwork to the Securities and Exchange Commission in July. Twitter was able to submit its filing privately thanks to the Jump Start Our Business Startups Act (JOBS Act), which was passed in 2012 in an attempt to encourage small businesses to seek public funding through the markets.
Although somewhat controversial, the JOBS act has allowed companies like Twitter to test the waters without necessarily disclosing any sensitive information to the public. A confidential filing allows Twitter to court large investors and grapple with the issues of demand for equity and valuation in private before pulling back the curtain, which could help reduce volatility when shares ultimately go public.
And the JOBS act isn’t the only way Twitter is protecting itself ahead of the IPO. A document published by the SEC shows that the regulatory agency “will not object if Twitter does not comply with the registration requirements of Section 12G of the Securities Exchange Act of 1934 with respect to restricted stock units granted and to be granted pursuant to Twitter’s 2007 Equity Incentive Plan.”
Typically, companies with more than $10 million in total assets and with more than 2,000 individual shareholders or 500 accredited investors are required to disclose information almost as if they were a publicly traded company. This requirement his attracted a fair share of criticism over the past few years and reared its head with the Facebook (NASDAQ:FB) IPO. Many companies — particularly Internet and technology companies — are keen on keeping as much information about their business model out of the public spotlight for as long as possible (hence the JOBS act).
The SEC has said that Twitter will not have to disclose additional information because of Section 12G, which will allow it to keep things under wrap until the social media giant is ready to disclose on its own terms.
The big specter that haunts many conversations about Twitter’s IPO is the mess that was the Facebook IPO. Facebook’s IPO has earned a place in history as an example of what an IPO should not look like. The IPO — launched on the Nasdaq, the exchange operated by the Nasdaq OMX Group (NASDAQ:NDAQ) — was plagued with technical errors. Combined with a huge amount of hype and a valuation that was, at the time, perhaps too generous, it was a recipe for disaster.
Facebook launched its IPO on May 18 with shares priced at $38 a pop, and some combination of deflating hype, technical malfunction, and market voodoo drove shares down more than 32 percent by June 5. By September, the stock had lost more than 50 percent of its value. The Facebook IPO could be one reason that Twitter has reportedly chosen to list on the New York Stock Exchange, which is operated by NYSE Euronext (NYSE:NYX). NSYE Euronext has worked hard recently to gain more major tech listings, and Twitter could be a trophy addition to its growing lineup.
Twitter is expected to sell between 50 million and 55 million shares priced between $28 and $30, raising between $1.4 billion and $1.65 billion whether it lists on the Nasdaq or NYSE Euronext. Such a sale would value the company somewhere between $15 and $16 billion, higher than the $10 billion estimate that was tossed around a few months ago.
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