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This is the first time I've ever looked through an S-1 before, but in the Risks section they say: We have a history of losses and we are uncertain about ou

This is the first time I've ever looked through an S-1 before, but in the Risks section they say: We have a history of losses and we are uncertain about our future profitability Is it normal to go public when being uncertain if you'll ever be profitable?

mattj 10y ago
This kind of language is very standard. The risks section pretty much always contains obvious platitudes ("An earthquake might destroy all our computers," "All our employees may quit").
jeffmould 10y ago
I am by no means an expert here, and IANAL, but in my limited experience, yes it is very common to see statements like that in filings. They have to disclose any and all potential risks to investors, and as basic as it seems that is a risk.
ProblemFactory 10y ago
The Risks sections are always like that. Any advertisements for stocks must have disclaimers about a wide range of possible risks, and that despite promising historical data you could lose your entire investment. Otherwise they could face expensive lawsuits when future shareholders claim that they were misled and not informed of these risks. For example from Facebook's S-1: "Growth in use of Facebook through our mobile products, where we do not currently display ads, as a substitute for use on personal computers may negatively affect our revenue and financial results.", "We expect our rates of growth will decline in the future." Google's S-1: "We expect our growth rates to decline and anticipate downward pressure on our operating margin in the future.", "We are susceptible to index spammers who could harm the integrity of our web search results.", "New technologies could block our ads, which would harm our business."
- hawkice 10y ago
  I cannot disagree with your attitude more. This company is saying they have an existing threat to their ongoing operations that _will_ be fatal, that they are unsure will ever be solved. This is fundamentally different than saying ad blockers could impact Google's business. In a way, their honesty is unexceptional because they are required by law to be honest about their risks. But the level of risk is not usual.
  - hueving 10y ago
    Wide spread ad blocking would be fatal or nearly fatal to Google. The loss of the vast majority of their income and the resulting contraction that comes with that would probably tear apart the company.
    - rudolf0 10y ago
      Near-universal ad blocking (across all kinds of devices) would be fatal to so many different businesses and business models. Revenue primarily derived via ads seems kind of unsustainable at this point. And the same may even eventually be true of TV commercials.
  - deleted 10y ago
    [deleted]
joeblau 10y ago
That section seems to have a bunch of generally understood truths. When you read that line in context with the others it doesn't seem that bad.
jackgavigan 10y ago
Think of it as a standard disclaimer, to pre-empt potential lawsuits.
pbreit 10y ago
Many/most of the risks outline in an S-1 are boilerplate like this. Obviously future financial results are unclear.
pavs 10y ago
I don't have much knowledge here, but I always thought one of the main reasons to go public because you want to raise money to either expand or you are strapped for money. If anything I would be suspect of companies who are extremely profitable and doesn't need to raise money at all but going public.
- rpedela 10y ago
  Companies must go public if they have a certain number of shareholders. I think the number is 500 or more, but don't quote me on that.
  - SyneRyder 10y ago
    That number sounds correct. I've just been reading Pour Your Heart Into It (by the Starbucks CEO), which mentions "the SEC considers a company public if it has more than 500 registered shareholders", and that they had to request a special exemption from the SEC for their Bean Stock employee shares program.
matthewmcg 10y ago
The "risk factors" section is a required part of an S-1. The applicable SEC rule[1] says that the section should list "the most significant factors that make the offering speculative or risky." You do see some really interesting ones from time to time. For example, RSA's annual reports used to include the following math-related risk factor: "Our cryptographic systems depend in part on the application of certain mathematical principles. The security afforded by our encryption products is based on the assumption that the “factoring” of the composite of large prime numbers is difficult. If an “easy factoring method” were developed, then the security of our encryption products would be reduced or eliminated."[2] [1] https://www.law.cornell.edu/cfr/text/17/229.503 https://www.law.cornell.edu/cfr/text/17/229.503 [2] https://www.sec.gov/Archives/edgar/data/932064/000095013501000957/b38172rse10-k.htm https://www.sec.gov/Archives/edgar/data/932064/0000950135010...

mattj 10y ago

This kind of language is very standard. The risks section pretty much always contains obvious platitudes ("An earthquake might destroy all our computers," "All our employees may quit").

jeffmould 10y ago

I am by no means an expert here, and IANAL, but in my limited experience, yes it is very common to see statements like that in filings. They have to disclose any and all potential risks to investors, and as basic as it seems that is a risk.

ProblemFactory 10y ago

The Risks sections are always like that. Any advertisements for stocks must have disclaimers about a wide range of possible risks, and that despite promising historical data you could lose your entire investment. Otherwise they could face expensive lawsuits when future shareholders claim that they were misled and not informed of these risks. For example from Facebook's S-1: "Growth in use of Facebook through our mobile products, where we do not currently display ads, as a substitute for use on personal computers may negatively affect our revenue and financial results.", "We expect our rates of growth will decline in the future." Google's S-1: "We expect our growth rates to decline and anticipate downward pressure on our operating margin in the future.", "We are susceptible to index spammers who could harm the integrity of our web search results.", "New technologies could block our ads, which would harm our business."

hawkice 10y ago
I cannot disagree with your attitude more. This company is saying they have an existing threat to their ongoing operations that _will_ be fatal, that they are unsure will ever be solved. This is fundamentally different than saying ad blockers could impact Google's business. In a way, their honesty is unexceptional because they are required by law to be honest about their risks. But the level of risk is not usual.
- hueving 10y ago
  Wide spread ad blocking would be fatal or nearly fatal to Google. The loss of the vast majority of their income and the resulting contraction that comes with that would probably tear apart the company.
  - rudolf0 10y ago
    Near-universal ad blocking (across all kinds of devices) would be fatal to so many different businesses and business models. Revenue primarily derived via ads seems kind of unsustainable at this point. And the same may even eventually be true of TV commercials.
- deleted 10y ago
  [deleted]

joeblau 10y ago

That section seems to have a bunch of generally understood truths. When you read that line in context with the others it doesn't seem that bad.

jackgavigan 10y ago

Think of it as a standard disclaimer, to pre-empt potential lawsuits.

pbreit 10y ago

Many/most of the risks outline in an S-1 are boilerplate like this. Obviously future financial results are unclear.

pavs 10y ago

I don't have much knowledge here, but I always thought one of the main reasons to go public because you want to raise money to either expand or you are strapped for money. If anything I would be suspect of companies who are extremely profitable and doesn't need to raise money at all but going public.

rpedela 10y ago
Companies must go public if they have a certain number of shareholders. I think the number is 500 or more, but don't quote me on that.
- SyneRyder 10y ago
  That number sounds correct. I've just been reading Pour Your Heart Into It (by the Starbucks CEO), which mentions "the SEC considers a company public if it has more than 500 registered shareholders", and that they had to request a special exemption from the SEC for their Bean Stock employee shares program.

matthewmcg 10y ago

The "risk factors" section is a required part of an S-1. The applicable SEC rule[1] says that the section should list "the most significant factors that make the offering speculative or risky." You do see some really interesting ones from time to time. For example, RSA's annual reports used to include the following math-related risk factor: "Our cryptographic systems depend in part on the application of certain mathematical principles. The security afforded by our encryption products is based on the assumption that the “factoring” of the composite of large prime numbers is difficult. If an “easy factoring method” were developed, then the security of our encryption products would be reduced or eliminated."[2] [1] https://www.law.cornell.edu/cfr/text/17/229.503 https://www.law.cornell.edu/cfr/text/17/229.503 [2] https://www.sec.gov/Archives/edgar/data/932064/000095013501000957/b38172rse10-k.htm https://www.sec.gov/Archives/edgar/data/932064/0000950135010...