Facebook is supposed to file IPO documents with the SEC this week, thereby beginning a several months long run-up to an actual offering, probably sometime in May.This filing, called an S1, might even come today.
Before Facebook files it, however, there are two things CEO Mark Zuckerberg and his bankers absolutely have to do.
1. Read it out loud. This will help catch any typos.
2. Take a bucket of hot wax and remove ALL HAIR from the ENTIRE document.
An explanation: When a company filing to go public produces an S1 that does not use 100 per cent standard accounting metrics, analysts will then complain that there is “hair on the deal.”
(Not even Google knows why this expression is used. Our guess is that whoever first used this expression was trying to say that seeing non-standard accounting metrics gave him the same feeling of disappointment as finding a piece of hair on an otherwise appetizing meal at a restaurant.)
Anyway, lots of tech companies that have recently IPO’d did in fact have “hair”—all over the place. Groupon, Zynga, and Demand Media all went public in 2011, and each used non-traditional accounting metrics. Groupon and Demand Media screwed around with “capital costs” in order to spruce up profits. Zynga had a bizarre definition for “revenues.”
Know what else all three companies have in common? They’ve each been a disappointment since their IPO.
LinkedIn, meanwhile, went to strenuous lengths not to have any “hair” at all anywhere on its S-1, and it’s done relatively well since its mid-2011 offering.
Probably there is a great deal of correlation to go along with causation going on here.
If a company is going to use non-standard accounting in its S1, it’s probably because standard accounting metrics would make the business look not as healthy and robust.
The hair is meant to disguise a business’s failings. But it doesn’t work. Like a twisty, scraggly piece of hair stuck to a rib eye steak, it’s just gross.
So, for Facebook’s sake—its employees, its investors, and its executives—here’s hoping the S1 has standard accounting, and that the bankers who put it together were never tempted to do anything else.