Although we’re about three-quarters of the way through 2019, we still expect to see some more IPO activity before the year is up. Tech IPOs are big news, and one of the most newsworthy milestones on the road to an IPO is the public filing of an S-1 document.
What is an S-1 Filing?
For private companies planning to go public, or more specifically, register their securities with the Securities and Exchange Commission (“SEC”), they must file a registration statement – the S-1 – with the SEC. S-1 filings are of particular interest because once filed, the company enters a “quiet period” during which federal securities laws limit what information the company and its related parties can release to the public. The quiet period extends from the time the company files the S-1 until the SEC declares the registration statement effective. Luckily, S-1s are chock-full of pertinent information. The downside? If you don’t know what you’re looking for, they can be a bit overwhelming.
To better equip you to find what you’re looking for, we’re breaking down what all is in included in an S-1 and how to put it in context.
Where to Find an S-1
S-1 filings can be found on the SEC’s website. As an example, let’s look up Pinterest’s S-1. First, we’ll search “Pinterest,” then we’ll sift through similarly named companies to find the one we’re looking for.
Click on the correct company’s CIK number, and you’ll be brought to a page that has all of their SEC filings.
Scroll down until you find its most recent S-1 filing – this may be an “S-1” or an “S-1/A.” These S-1/A filings are simply amended versions of the initial S-1. A company may need to amend its S-1 as new pertinent information becomes available, such as new financial information, quarterly results, etc.
In this case, it looks like Pinterest amended their S-1 twice.
Click on “Documents” and select the one at the top.
Breaking Down an S-1
As you can see, S-1 filings are abundant in information and quite long. At a high level, an S-1 can provide a window into:
- A company’s financial performance
- Their business model
- Compensation data
- How much they plan to raise in their IPO
- How they plan to use the proceeds from their IPO
- What their competitive landscape looks like
Of course, the main purpose of an S-1 filing is to provide potential investors with all the information they need to decide as to whether or not they will invest come IPO. S-1 filings can also offer entrepreneurs valuable insights into a company that has scaled successfully.
Now, let’s jump into the major sections of interest in an S-1.
A good place to begin is the “Business” section. This section lays out:
- What the company does
- A brief history
- The business model
- Growth strategy
- The company’s place within the market
This section offers insight into how a company views itself, what its reason for being is, how it got here, and how it plans to continue growth.
Next up, check out the “Selected Consolidated Financial Data and Other Data.” Here, you will be able to peruse this and the last few years’ worths of financial statements. You’ll be able to see how much revenue they’re bringing in, the cost of that revenue, operating costs, profits, and more. An important thing to note with financial statements is that all values listed are in thousands. Again, using Pinterest’s S-1 as an example, under 2017 you’ll see that on the financial statement it lists their revenue as $472,852. This is actually $472,852,000.
Management’s Discussion and Analysis of Financial Conditions and Results of Operations
This section is exactly what it sounds like. It outlines which metrics are most important to the company and will go into detail about specific strategies, revenue sources, operating costs, and more. In Pinterest’s S-1, this section is 19 pages. Needless to say, it holds a lot of important information.
As an investor, it’s important to be informed of the potential risks of your investment. Warnings along the lines of “Our past performance may not be indicative of future growth” or “We may not be able to sustain revenue growth” are fairly standard fare under the Risks section. However, you may find some disclosures that give valuable insights into the business. Examples of such disclosures include risk of potential competitors, risk of technological impediments, etc.
Principal and Registered Stockholders & Description of Capital Stock
This “Principal and Registered Stockholders” section tells you who currently owns what as well as how much is registered for resale. The “Description of Capital Stock” lays out how much of each class of stock the company intends to sell in its public offering, dividend rights, voting rights, conversion provisions, and more.
While not completely necessary, if you’ve got the time, check out the footnotes. These can provide more detail and a wealth of interesting tidbits on a variety of subjects.
Companies have the option to file an S-1 confidentially, and the subsequent quiet period prevents those companies from answering any questions as to why they chose to file that way. A recent example of this is WeWork, which confidentially filed an S-1 in December 2018, amended it in April 2019, and finally released the filing publicly on August 14.
It’s also important to note that an S-1 filing does not guarantee that a company will offer its securities publicly. On October 19, 2018, Qualtrics International filed an S-1 ahead of what was anticipated to be the largest IPO in Utah history. Less than a month later, SAP announced that it had agreed to purchase the research and survey software company for $8 billion in cash.
For investors looking to stay in the know or data nerds who simply enjoy sifting through numbers, an S-1 filing holds an abundance of information. If you’re considering an investment, and are mostly interested in getting the gist of where a company stands before going public, these areas are good places to get started.
The information presented here is for general informational purposes only and is not intended to be, nor should it be construed or used as, comprehensive offering documentation for any security, investment, tax or legal advice, a recommendation, or an offer to sell, or a solicitation of an offer to buy, an interest, directly or indirectly, in any company. Investing in both early-stage and later-stage companies carries a high degree of risk. A loss of an investor’s entire investment is possible, and no profit may be realized. Investors should be aware that these types of investments are illiquid and should anticipate holding until an exit occurs.