This blog is an extension of our blog on Financial Modeling Leading to Valuation Case Study of Twitter, Inc.
A Case Study of Twitter, Inc.
Before we get in to the actual S – 1 filed by Twitter, Inc. (“Twitter” or the “Company”), let’s understand:
1. What is the S – 1 form?
2. Why is it required to be filed?
3. What is its prescribed format?
4. What does it contain and other such details?
Facts we need to know about Form S – 1:
1. Also known as the "Registration Statement under the Securities Exchange Act of 1933"
2. The initial registration form for new securities required by the Securities and Exchange Commission (SEC) for public companies
3. Must be filed before shares can be listed on a national exchange.
4. Requires companies to provide information on the planned use of capital proceeds, detail the current business model and competition, as well provide a brief prospectus of the planned security itself, offering price methodology, and any dilution that will occur to other listed securities
5. Contains disclosure of any material business dealings between the company and its directors and outside counsel
6. Can be amended as material information changes or general market conditions cause a delay in the offering.
What’s there for an investor in S – 1?
1. Investors can view S-1 filings online to perform due diligence on new offerings prior to their issue.
2. The S-1 contains the basic business and financial information on an issuer with respect to a specific securities offering.
3. Investors may use the prospectus to consider the merits of an offering and make educated investment decisions.
4. A prospectus is one of the main documents used by an investor to research a company prior to an initial public offering (IPO).
Please find below a snap shot of Form S – 1:
Now that we know what S – 1 is, let’s go through the S – 1 filing of the Company under discussion. Please note that the Company had filed two amendments after their initial filing. It’s better to go through the last amendment titled “Amendment no. 2 to Form S – 1” filed on 22nd October 2013.
Let’s ponder for a while…What should be our objectives while scanning the filing?
1. Please note that the main objective is to locate the core information you require for your financial modeling. One should not be overwhelmed with the information provided.
2. It’s an approximately 400 pages long document and we definitely do not want to go through it again and again to locate the information as and when we require it.
3. We therefore start reading it and noting down the page number where relevant information appears so that we can revisit them again when required. Ideally we should start with a format presented below in an excel file:
4. Remember, the best and accurate source for information about a company is its own filings. You may prefer reading a research report to S – 1 filing but please understand that the analyst would have ultimately picked up the information from the filing. So, why not read the base source instead?
Now let’s start reading and populating this format on the way. After scanning the filing for about half an hour, we have come through an index. A glimpse of which appears below:
This is just a snapshot. We have noted some 100 – 125 such items in the Company filing that we will come back to and read before we start modeling.
While reading the filing, constantly:
1. Evaluate whether what you are reading on Page x will be required to be revisited before moving on to the next page
2. Check whether you are getting a sense of how your model will look like
3. Cross check to see if you are comprehending what’s written there…if not, slow down a bit but read with comprehension
4. Feel happy if you come across something you were not aware about
5. Feel happy if you start falling asleep. S – 1 filing of a company can be very boring. It has the potential to be prescribed as a cure for insomnia)…this simply reflects that you are behaving normal!
6. Keep yourself enthused even if you don’t understand anything…remember you won’t understand everything…nor do you need to
7. Endeavour to locate the information you may require for your financial modeling
Do you have some tips for making the experience of reading an S – 1 more pleasant? Please feel free to share with us!
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