Putting Facebook’s revised S-1 to the test…

March 30, 2012

Given that we spend so much of our time delving into SEC filings — seemingly endless mountains of text that are particularly bountiful at this time of year — we’re always on the lookout for things that just might make our lives easier. So when we heard that some smart folks that we know were using a product called Alpha-Sense, we decided to check them out and were pretty impressed with what we found, particularly when it came to finding those all important new nuggets in a filing.

Our test case was the revised S-1 that Facebook filed earlier this week. We wanted to see if the technology used by Alpha-Sense was any better than what we’ve been using for years, the Compare Wizard feature of Morningstar Document Research (nee 10KWizard). Of course, we’d be remiss if we didn’t point out that footnoted is also owned by Morningstar.

While both services did catch many of the same changes, Alpha-Sense found somewhat more changes. It also has a bit of an edge because it was able to find changes in both Facebook’s footnotes and its tables. We’re not entirely clear on the technology challenges here, but as we understand it, finding changes in text is a bit easier than finding changes in tables and footnotes. Both services also handle the changes somewhat differently: MDR highlights the changes in blue while Alpha-Sense grays out anything that isn’t a new disclosure. While the blue highlighting gives MDR the edge in terms of readability, Alpha-Sense seemed to catch more new disclosures.

For example, Alpha-Sense picked up as new a disclosure about 1.9 million shares of Class B stock subject to RSUs granted between Jan. 1 and March 26 of this year. The service also picked up a disclosure on an increasingly litigious climate for Facebook as it gets closer to going public with this disclosure, which it bolded as new:

We presently are involved in a number of other lawsuits, and as we face increasing competition and gain an increasingly high profile, including in connection with our initial public offering, we expect the number of patent and other intellectual property claims against us to grow. Defending patent and other intellectual property litigation is costly and can impose a significant burden on management and employees, and there can be no assurances that favorable final outcomes will be obtained in all cases.

MDR only caught pieces of that as new. Alpha-Sense also caught this sentence as being new: “To effectively manage our growth, we must continue to improve our operational, financial, and management processes and systems and to effectively expand, train, and manage our employee base.”

Not all of these differences are dramatic of course, and it would take more extensive comparison testing to be sure which one has the edge. But AlphaSense has some good features. Plus, we also believe that competition tends to improve products all around — and that’s a good thing for everyone who reads filings.

Image source: Facebook like via Shutterstock

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Over on footnotedPro, we scour corporate disclosures to find warning signs and hidden opportunities before the rest of the market. To see what you’re missing in the filings, or to inquire about a trial subscription, please contact us.

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