Twitter is hiding two years of financial data; Twitter’s Corporate Governance a Mixed Bag; Twitter Skips Some Pay Disclosures Using JOBS Act

Twitter is hiding two years of financial data

By Zachary M. Seward @zseward 7 hours ago

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 monthswhile 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.

October 4, 2013, 3:38 AM ET

Twitter’s Corporate Governance a Mixed Bag

MAXWELL MURPHY

Senior Editor

Corporate governance mavens have something to cheer and something to jeer following Twitter Inc.’s initial public offering filing late Thursday.

Unlike rival Facebook Inc., Twitter didn’t split its equity into two classes of stock. Dual-class structures can let founders or other shareholders retain control of the company even when their ownership falls below 50% of the outstanding shares, typically by giving one class more votes per share.

As CFO Journal wrote in February 2012, ahead of Facebook’s IPO, many hot Silicon Valley firms planning to go public have adopted dual stock classes, a trend inspired byGoogle Inc.’s 2004 IPO.

As a result of opting against dual classes of stock, Twitter won’t be eligible for the so-called controlled-company exceptions that Facebook enjoys. Controlled companies aren’t required to maintain a majority of independent directors on the board, though some do, and their boards can eschew the compensation committees required at other companies.

Because of its status, Facebook was able to appoint a board that raised eyebrows among governance watchers, as CFOJ noted after its IPO filing.

But Twitter will have a so-called classified board, in which elections of its seven directors will be spread out over a three-year period. Critics of the practice, including many activist investors, say that such staggered elections entrench management and the board by preventing a complete board shakeup in any given year.

Shareholders have put increasing pressure on companies to declassify their boards, with aid from Harvard Law School’s Shareholder Rights Project. According to the SRP, which is led by governance expert and Harvard Law professor Lucian Bebchuk,board declassification proposals represented over 11% of all governance proposals submitted to companies in the Russell 3000-stock index during the recent proxy season. It said nearly all of those proposals were submitted by pension funds that coordinated with the SRP.

Facebook in its IPO documents said that it will move to a classified board when its Class B, super-voting stock no longer represents a voting majority.

A Twitter spokesman couldn’t immediately be reached.

 

October 3, 2013, 6:05 PM ET

Twitter Skips Some Pay Disclosures Using JOBS Act

By Emily Chasan

Senior Editor

Twitter Inc. may have revealed its initial public offering Thursday, but it is still keeping some secrets: like the pay packages for its current and former chief financial officers.

The social media giant, which hopes to raise $1 billion with its stock sale later this year, is set to be one of the largest tests of the Jumpstart Our Business Startups Act of 2012. Twitter revealed its initial public offering filing on Thursday to the masses, after previously using a portion of the JOBS Act to file  confidentially with regulators.

According to Twitter’s IPO filing, it is taking advantage of JOBS Act rules that let it disclose compensation for only its top three named executive officers, rather than five, which is required for a larger company.

The company disclosed that Twitter CEO Richard Costolo received a compensation package valued at $11.5 million last year. Christopher Fry, senior vice president of engineering, was paid $10.3 million and Adam Bain, president of global revenue, received compensation worth $6.7 million, according to the filing. But the pay packages for CFO Mike Gupta and former CFO Ali Rowghani, who now serves as chief operating officer, of the company weren’t included.

Mr. Rowghani became chief operating officer last December, after serving as CFO of the company from March 2010 to December 2012. Mr. Gupta, a formerZynga Inc. executive, joined Twitter in November and took on the CFO role in December.