Here's one way to think about the sorry state of IPO disclosure: Uber vs. Microsoft
For those sitting at their desks this past week paralyzed by dread of reading Uber's 395-page S-1, it wasn't always like this.
Microsoft’s 1986 IPO prospectus weighed in at 52 pages cover to cover. At 48 pages, the "risk factors” section of Uber’s S-1 by itself is almost as long (Microsoft offered a page and a half of “certain factors”). And it’s not like the Microsoft IPO wasn’t a big deal at the time.
It would be one thing if the Uber prospectus’s 8x bulk came from underwriters just data-dumping attachments of calorie-rich source documents and detailed segment operating statements. But instead the whole length of it is a highly-processed feat of imprecision. The words-to-numbers ratio is numbing. And the work it took the poor underwriters to translate the truth of Uber's business into the current vogue of S-1 platitudes and gobbledygook will be multiples of the brain damage investors incur attempting (in vain) to translate it back out again.
On balance, Microsoft’s tight brevity made a complex proposition (“systems and applications microcomputer software” for PCs that few people had or wanted at the time) seem straightforward while Uber’s lawyerized ponder made a dead-simple concept (“tap a button and get a ride”) nebulous. But it’s not only the bulk and calorie-density of the disclosure that’s changed. The playbook for building world-altering, category-dominating, billionaire-creating companies seems to have changed, too. For example:
Microsoft had been in business about ten years when it went public, as has Uber.
Microsoft’s annual revenue growth rate was 44%, vs. Uber’s 42%.
Microsoft put 4.5 years of financials in its prospectus and showed healthy EPS in every period, with an LTM operating margin of 33%. Uber’s last full-year operating loss was about $3 billion, or a negative 27% operating margin.
Microsoft’s retained earnings at IPO were $67.1 million (LTM revenues were $162.6m). Uber’s accumulated deficit is $7.9 billion (with annual revenue of $11.3b).
So ten years in, Uber is a precarious big business while Microsoft was a seasoned good business.
And while the Microsoft figures seem tiny by comparison, the company went on from its IPO to make its founders some of the richest humans ever.
Two other things are worth noting about the Microsoft IPO for what they say about changes in market structure:
Microsoft raised $58.7 million in its IPO and it took a syndicate of 114 underwriters to get that done. More than half of those underwriters are gone today. Uber lists 29 underwriters to raise a reported $10 billion – so there is Wall Street consolidation for you in one anecdote. Who says Gramm-Leach’s dispatch of Glass-Steagall was no big deal?
Bill Gates sold shares in the offering, as did Paul Allen and Steve Balmer. Liquidity is ok! It’s one of the legitimate reasons to go public! But it’s easy to see now that the IPO for Microsoft was a fundraising event for a growth company, part of a rational capital-formation continuum that looks quaint but enviable today.