2014 IPO SEC comment letter trends: Technology

December 2014
2014 IPO SEC comment letter trends: Technology

At a glance

PwC’s technology sector publication Preparing for success: 2014 IPO SEC comment letter trends – Technology, provides a comprehensive analysis of recent SEC staff comments issued to technology companies filing their IPO registration statements.

The last two years have seen record levels of IPO activity in the U.S. equity markets. In this year’s edition of the publication, we have analyzed nearly 3,000 comments issued by the SEC staff to 49 technology companies whose IPO registration statements were declared effective between April 1, 2013 and June 30, 2014 and for which the IPO generated gross proceeds of at least $40 million. These companies represent the following subsectors: software & internet, computers & networking, and semiconductors. We have captured the areas that received the most comments from the SEC and provided examples of actual comments.

Click to see SEC staff comments by topical area

Click on the headings below to explore highlights of the publication.

We hope that the summary of trends from the SEC comment letters, along with specific examples of comments, will provide you with helpful insights and aid in your production of high-quality registration statements.


Emerging growth companies (EGCs) dominate the IPO market

The sustained high volume of domestic technology IPOs may be due in part to the simplified registration framework established in 2012 by the Jumpstart Our Business Startups Act (JOBS Act) which was designed to provide companies with easier, more cost-effective access to capital markets, spur economic expansion and encourage job creation. Since the enactment of the JOBS act in early 2012, most technology companies entering the U.S. equity market have met the definition of an EGC, which is not surprising considering that the majority of IPO filers reported annual revenues of less than $250 million. Read about the special accommodations available to EGCs and which ones are most popular among them.

Foreign IPO volume at highest level in years

Eight foreign technology companies completed their IPOs in the U.S. in 2013 compared to just one in 2012. This trend is continuing with nine foreign technology companies completing their IPOs in the U.S. market to September 2014. Technology IPOs of Chinese companies made a comeback in the last quarter of 2013 with seven IPOs in the past 12 months raising gross aggregate proceeds of $1.1 billion, which likely reflects the pent up demand resulting from the IPO freeze in China that was lifted by the Chinese Securities Regulatory Commission in late 2013. Take a look at this year’s edition of Preparing for success: 2014 IPO SEC comment letter trends – Technology for a comparison of the average offering size and average number of SEC staff comments for recent foreign and domestic technology IPOs.

Revenue recognition and cheap stock comments remain prevalent

Comments related to revenue recognition and stock-based compensation accounted for 17% of all SEC comments received by IPO registrants in the technology industry. Multiple-element arrangements, software licensing and services arrangements continue to be key areas of focus, but with continually evolving business models, SEC staff comments about gross or net revenue presentation are not unusual.

Early in 2014, the SEC staff revised the Financial Reporting Manual (FRM) guidance regarding a registrant’s critical accounting estimates disclosures related to stock-based compensation prior to its IPO. Consistent with the revised guidance, we have seen a reduction in the amount of disclosure, re-focusing on the most important areas such as the methods and material assumptions used by registrants in determining the fair value of the company’s common stock.