The letter to shareholders has long been a staple of the IPO prospectus, although it’s usually been a pro forma affair. Leave it to a few cocky Internet companies to put their own twist on the tradition, starting in 2004 with Google’s “Letter from the Founders,” which it boldly subtitled “An Owner’s Manual for Google Shareholders.”
Twitter’s prospectus filed last Thursday runs 222 pages and carefully walks readers through its business model and risks. About halfway through is a “Letter from @Twitter” signed not by a founder or even an executive but by “@twitter.” The letter itself is 136 words, invoking the economy of a 140-character tweet. To understand what a profound departure Twitter’s filing really is, it must be compared to the modus operandi put forth by peers that went public before it.
Google’s letter, for instance, drew a few guffaws from jaded fund managers on Wall Street. Here were two Stanford grads, barely into their 30s, telling veterans managing billions of dollars what to do with the stock they planned to buy. But Larry Page and Sergey Brin were serious. “Google is not a conventional company,” they proclaimed in a 4,000-word letter. “We do not intend to become one.”
At the heart of Larry and Sergey’s letter was a reasonable and important point. The short-term expectations created by the quarterly earnings report too often pressures companies into abandoning long-term ambitions. Often companies, especially young ones relying on innovation, need to increase spending to invest in future growth, let alone fulfill lofty ambitions. It’s a tension that existed for decades between the aspirational culture of Silicon Valley and Wall Street’s relentless focus on shareholder return.
To its credit, Google has managed that tension admirably. Its stock has since risen tenfold over its $85-a-share offering price, even as it’s rolled out new products like Android and Glass. But it’s also abandoned high-minded rhetoric in its SEC filings such as “We run Google as a triumvirate,” “making the world a better place” and of course, “Don’t be evil.” All these words were as informative to fund managers as what lunches Google was serving in its cafeteria.
In June 2011, Groupon filed its prospectus with a friendly, 1,100-word letter from founder Andrew Mason about the company’s early wish “to empower the little guy and solve the world’s unsolvable problems” and how Groupon would invest in growth “regardless of certain short-term consequences.”
Around that time, Zynga filed with a 1,200-word letter from Mark Pincus, in which he told potential shareholders that, “We want to help the world while doing our day jobs” before listing core philosophies such as, “Put Zynga first, decisions for the greater good” before signing off with, “Let’s play.” Although both Groupon and Zynga have been rallying in recent months, they are significantly below their offering prices.
In May 2012, Mark Zuckerberg inserted his 2,200-word letter to Facebook’s prospectus. Although it was more practical-minded than the earlier letters, it began, “Facebook was not originally created to be a company. It was built to accomplish a social mission – to make the world more open and connected.” Zuckerberg went on to school investors on the definition of the word hacker.
Zuckerberg at least tied his letter back to the markets, discussing how a connected world would create a stronger economy and how “we don’t build services to make money; we make money to build better services.” But that core idea—that the company going public was about more than shareholder return, it was about changing the world for the better—was woven through the letter.
When people think of Facebook’s IPO, they don’t think of Zuckerberg’s ideals or his letter. They think about the missteps and glitches that caused the stock to languish for more than a year. Facebook has since rallied impressively, trading 33% above its $38-a-share offering price. That recovery is so strong it’s smoothed the path for Twitter to go public.
In tone, Twitter’s shareholder letter marks a departure from Groupon, Zynga and Facebook and it’s miles away from Google’s cocksure “Owner’s Manual.” It’s closer to the old-fashioned pro forma letter, although it slyly hints at the seat-of-the-pants management of its early days (“Twitter represents a service shaped by the people…”) and, of course, addresses the tension between profits and social mission.
“The mission we serve as Twitter, Inc. is to give everyone the power to create and share ideas and information instantly without barriers. Our business and revenue will always follow that mission in ways that improve – and do not detract from – a free and global conversation.”
The way @twitter states that promise is at once humble and vague. Which is important to keep in mind because, more than Google or Facebook, Twitter going to have to work harder to keep shareholders happy without alienating users. It’s going public without a proven ability to generate steady profits. And it’s resisted flooding its users with ads the way Facebook did on its desktop service.
As Twitter matures, it is proving to be a shrewd company. The tone it set in its prospectus has none of the nerviness of Google’s, or the goofiness of Groupon’s, or even the faux-idealism of Facebook.
But that may not mean shareholders will be patient with it as it develops its business model in the glare of the public markets. That old tension—between practicality and idealism, between profits and future business, between web startups and Wall Street investors—is going to be especially strong for Twitter. As brief and sober as its letter to shareholders was, Twitter is going to have its work cut out for it in trying to stick to its word.