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Why Twitter Is Keeping Its Cards Close in 'Confidential' IPO

Methodically Laying the Groundwork With TV Ties and Mobile Ads

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With a tweet, Twitter announced Thursday that it filed for an initial public offering. But don't expect to learn much about Twitter's business anytime soon.

Twitter headquarters in San Francisco.
Twitter headquarters in San Francisco.

That's because Twitter opted for a so-called 'confidential' IPO, allowed under a provision of the Jumpstart Our Business Startups (or JOBS) Act designed to make it easier and less expensive for small, high-growth companies to go public.

It allows Twitter to run its financials by the Securities and Exchange Commission, which can raise red flags without exposing them publicly. The act also allows Twitter to keep every aspect of its filing out of public view until 21 days before the road show for potential investors.

While confidential IPOs have become common since the act was signed into law in April of 2012, disclosing that you've filed confidentially is unusual. Confidential filings have been particularly popular among ad tech companies with Rocket Fuel, Marin Software, Tremor and YuMe all filing confidentially before making their filings public.

Somewhat poetically, Twitter opted to make its intentions known on its own platform:

And followed it it up with:

Twitter is by far the highest-profile company to take advantage of the JOBS Act and therefore may have felt some obligation to let the world know it had filed. Indeed, announcing the filing negates one of the key advantages of filing confidentially: The ability for a company to avoid a stigma if it doesn't end up going public.

But that consideration is virtually nil for Twitter, observed Softbank Capital principal Matt Krna. Twitter is basically a lock to go public, he said, and it likely wanted to take advantage of the confidential filing process but also be able to control the story.

"It's such a high profile company, and I suspect the fear was that the information was going to be leaked anyway," he said.

"Basically Twitter knew it would leak and chose to acknowledge it instead of deny or not comment in order to show investors they have it under control," said one banker who has shares in Twitter and asked not to be named.

The downside is investors get less time to go over the company's financials than if there had been a public filing. "It doesn't lend itself to sober analysis," said Pivotal Research analyst Brian Wieser.

To file confidentially, a company must be considered an "emerging growth company," which means it has annual sales of less than $1 billion. Under the JOBS Act, reporting requirements are less stringent for such companies when filing to go public. For example, they can provide two years of audited financials as opposed to the usual three. However, many companies don't take advantage of the more lenient standards because investors might look at them more skeptically.

Twitter spokesman Jim Prosser declined to comment beyond the content of the tweet.

But the disclosure went off in the tech and financial worlds like a firecracker. Some marketers even attempted to piggy-back on the news by targeting Promoted Tweets at "Twitter IPO."

Twitter has been methodically laying the groundwork for an IPO for the last six months, including a spate of acquisitions to shore up its ad business, including Bluefin Labs, Trendrr, and its $300 million deal for MoPub, which closed earlier this week.

Twitter's roadmap is focused on two main themes: making a play for TV advertising dollars by positioning itself as the dominant second-screen, and building the infrastructure for a mobile ad business, a strategy that has worked well for over the past year for Facebook. Twitter showed its intention to chase revenue streams other than advertising last month with the hire of former Ticketmaster president Nathan Hubbard to be its first head of commerce.

Unlike Facebook when it filed last year, Twitter's estimated revenue comes in well under the JOBS Act threshold: $582.8 million in 2013, according to eMarketer, and $950 million in 2014.

- Cotton Delo and Tim Peterson contributed to this article.

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