Premium Essay

Rosetta

In: Business and Management

Submitted By slicknic07
Words 4232
Pages 17
ROSETTA STONE: pricing the 2009 IPO Teaching Note

This case examines the April 2009 decision of Rosetta Stone management to price the initial public offering of Rosetta Stone stock during one of the most difficult periods in capital-raising history. The case outlines Rosetta Stone’s unique language-learning strategy and its associated strong financial performance. Students are invited to value the stock and take a position on whether the current $15 to $17 per share filing range is appropriate. The case is designed to showcase corporate valuation using discounted cash flow and peer-company market multiples. The epilogue details the 40% first-day rise in Rosetta Stone stock from the $18 offer price. With this backdrop, students are exposed to a well-known finance anomaly—the IPO underpricing phenomenon—and are invited to critically discuss various proposed explanations.

The case provides opportunities for the instructor to develop any of the following teaching objectives:

* Review the institutional aspects of the equity issuance transaction. * Explore the costs and benefits associated with public share offerings. * Develop an appreciation for the challenges of valuing unseasoned firms. * Hone corporate valuation skills, particularly using market multiples. * Evaluate the received explanations of various finance anomalies, such as the IPO underpricing phenomenon.

Study Questions

1. What are the advantages and disadvantages of Rosetta Stone going public? 2. What do you think the current market price is for Rosetta Stone shares? Justify your valuation on a discounted-cash-flow basis and a market multiples basis. 3. At what price would you recommend that Rosetta Stone shares be sold?

Supplementary Material

Although the context of the discussion is mergers, the Darden technical note “Methods of...

Similar Documents

Free Essay

Rosetta Stone

...The opening 'estion is designed to allo) stdents to pt p the rele(ant!ac"grond of the important managerial decisions facing Rosetta Stonemanagement% In particlar the discssion shold focs on the decision togo p!lic and the price at )hich Rosetta Stone shares shold !e sold%2% Tell me a!ot the economics of the Rosetta Stone !siness% Is this a!siness that $o expect )ill generate interest among in(estorsThis 'estion in(ites stdents to explore the Rosetta Stone !sinessmodel its competiti(e strengths and its potential to sstain a strong gro)thand profita!ilit$ tra4ector$% ase Exhi!it K can !e a sefl exhi!it inhighlighting the financial performance of the !siness% T$picall$ stdentsagree that Rosetta Stone is a (er$ interesting !siness )ith strong potentialfor in(estors to participate in attracti(e financial pside potential%;% 1hat do $o thin" the crrent mar"et price is for Rosetta Stone sharesPoll the class for their !est#gess estimates of the mar"et price of RosettaStone shares% As" for an explanation for the (ariation in estimates% 6ra)ot the o!ser(ation that there is a s!stantial amont of ncertaint$ )ith(aling start#p !sinesses% The (ariation in class estimates is li"el$ de todifferences in 4dgment across thefd class as )ell as some possi!letechnical errors in the (alations% EmphasiJe that althogh there are nodo!t man$ sond estimates there are also s!stantial opportnities for error% An important o!4ecti(e of the discssion is to......

Words: 551 - Pages: 3

Premium Essay

Rosetta Stone

...CASE #2 – “Rosetta Stone: Pricing the 2009 IPO” Group 2 will have to make a presentation before the entire class during the synchronous session on Monday, November 23, 2015. In April 2009, the Rosetta Stone management had to price the initial public offering of Rosetta Stone stock during one of the most difficult periods in capital-raising history. The case outlines Rosetta Stone’s unique language-learning strategy and its associated strong financial performance. Students are invited to value the stock and take a position on whether the current filing range is appropriate. The case is designed to showcase corporate valuation using discounted cash flow and peer-company market multiples. Answer the following questions in your report: 1. What is going on at Rosetta Stone? 2. Describe the economics of the Rosetta Stone business. Is this a business that you expect will generate interest among investors? What do you think the current market price is for Rosetta Stone shares? Justify your valuation on a discounted-cash-flow basis and a market multiples basis. • What are the pros and cons of using a market-multiples approach in valuation? • Consider a discounted-cash-flow model for valuing Rosetta Stone. Are you comfortable with the financial forecast in case Exhibit 8? What are the key assumptions? Is the length of the forecast period reasonable? • What discount rate is appropriate for the cash-flow forecast? • What was your approach for terminal value? How do......

Words: 285 - Pages: 2

Premium Essay

Rosetta Stone

...ROSETTA STONE: PRICING THE 2009 IPO A Brief History Mission statement: Our mission is to deliver the best technology-based solutions for learning languages. Every day, our innovation help people improve their lives and make the world a better place. Stoltzfus and Fairfield founded Fairfield Language Technologies in Harrisonburg, Virginia, in 1992. The emergence of CD-ROM technology in the 1990s made the project feasible. The company released its first retail language training software product in 1999 under the name Rosetta Stone. After focusing initially on school and government sales, the company began aggressively pursuing the retail market in 2001. Following the death of Stoltzfus in 2002, the company hired an outsider, 31-year-old Tom Adams, as chief executive. Adams got right to work by entering new markets and scaling up the current busi- ness; from 2004 to 2005, the revenues of the company nearly doubled, from $25 million to $48 million. Economic Conditions The previous year had been a dramatic one for the world economy. Prices on global credit and equity markets had been in free fall. The U.S. equity market was down over 50% from its peak in October 2007 In February and March of 2009, there had been some evidence of improvement in financial and economic conditions. Wholesale inventories were in decline. New- home sales were beginning to rise. The equity market had experienced a rally of over 20% in recent weeks. Going public Despite the uncertainty of......

Words: 567 - Pages: 3

Premium Essay

What Are the Advantages and Disadvantages of Rosetta Stone Going Public?

...Rosetta Stone What are the advantages and disadvantages of Rosetta Stone going public? The main advantages of Rosetta Stone going public are that an IPO would allow them the capital to expand their business into new markets as well as build on the Rosetta Stone brand. The IPO would also help them establish business credibility as a public firm. As a public company, Rosetta could enhance their image and reputation with newfound capital. It may also be advantageous to proceed with an IPO as the market has shown encouraging signs after the crisis of 2008. Changyou.com, a video game developer recently went public at 6.5 times EBITDA. Likewise, Bridgeport Education has recently considered going public and estimates that they could do so at a range of 10-12 times EBITDA. This may indicate that an IPO would behoove Rosetta Stone as it would be a successful business decision. Furthermore, the language learning industry largely consists of self-study learning as it counts for $32 billion of the $82 billion industry. Going public would allow Rosetta to be a major market presence in a booming industry. Another advantage of taking Rosetta Stone public is Adams’ concern of a takeover. Adams is worried that the limited amount of capital and resources they could get from private sources leave them vulnerable to a takeover. An IPO would quell those fears. There are, however, a few disadvantages associated with going public. For one, the process is quite arduous and......

Words: 901 - Pages: 4

Free Essay

Rosetta

...ORBIT: Rosetta has a complex trajectory which includes four gravity assist maneuvers (3 x Earth, 1 x Mars) before finally reaching the comet. On arrival at 67P Rosetta will enter orbit around the comet and stay with it as it journeys in towards the Sun. MILESTONES: To study the origin of comets, the relationship between cometary and interstellar material, and its implications with regard to the origin of the Solar System. The measurements to be made to achieve this are: Global characterisation of the nucleus, determination of dynamic properties, surface morphology and composition. Determination of the chemical, mineralogical and isotopic compositions of volatiles and refractories in a cometary nucleus. Determination of the physical properties and interrelation of volatiles and refractories in a cometary nucleus. Study of the development of cometary activity and the processes in the surface layer of the nucleus and the inner coma (dust/gas interaction); Global characterisation of asteroids, including determination of dynamic properties, surface morphology and composition. Comets are important to study -- because their ice probably contains the same molecules present at the start of the solar system -- and also difficult to land on, because of their speed. The comet that Philae landed on is traveling around the sun at about 84,000 miles per hour. Even though it's only about 300 million miles away, the probe traveled about 4 billion miles to reach it,......

Words: 528 - Pages: 3

Premium Essay

Management Informtion System

...Nigat Rahinour Khan Mohammed Rahman Faculty: Sunil Samanta Table of Contents Contents Abstract 2 Company Background 3 Business Problem 4 High Level Solution 5 Benefits of Solution 6 Revenue from New Translation Department 7 Cost Reduction 7 Financial Benefit Analysis: 8 Business Process Changes 10 Technology Used 11 High-Level Implementation Plan 12 Summary, Conclusions & Recommendations 13 References 15 Abstract The main objective of this project is to propose a technological solution which will provide Rosetta Stone Inc. a platform where it can be not only a High Performance Organization but also an organization which can lead the industry of language learning to another level. The objective is to create a new bit of software based on VoIP and Video Conferencing for the tutors and students to interact in a live session. The project is focused on the Research and Development Department of Rosetta Stone Inc. where the new service will be developed. Implementation of this service will require the use of relational database management system (RDBMS) in a cloud. The intent is to use PostgreSQL, an open-source database which is employed by many large firms like Amazon and Skype. The project is being expected to fully implement in about 3 years of operation. During these 3 years, the service will go through conception, planning, execution, testing, performance & control and distribution & sales. The project is expected to at least double......

Words: 3015 - Pages: 13

Premium Essay

Significance of Cultural Sites

...Today is a sad day for the world. Unidentified terrorists have bombed the Rosetta Stone which has been housed in the British Museum since 1802. Unidentified terrorists have significantly damaged the stone, which is most famously known as being the vital piece of information to decipher Egyptian hieroglyphics. While the damage to the Rosetta Stone is significant, it has not destroyed it completely; however, much of the original Greek, Demotic, and Ancient Greek text has become in comprehensible due to the explosion. In speaking with the recovery team that is currently working at the British Museum, it is evident that the terrorists were seeking to damage only the Rosetta Stone. No other pieces in the museum were damaged. While it remains unclear as to the exact intentions of the terrorists, it is believed that the act was in response to the current political situation in Egypt. The world has given the current Egyptian political scene much attention over the past few months, and in damaged the Rosetta Stone, terrorists believe that they have discouraged those around the world who wish to use objects of cultural value for national gain. People around the world have expressed much grief and anguish over the act of terrorism, and yet many organizations have begun to restore what is left of the Rosetta Stone. As of today, it has been established that much of the hieroglyphic text was destroyed in the explosion. The fact that the bomb targeted the ancient Egyptian text, again......

Words: 288 - Pages: 2

Premium Essay

Rosetta Stone

...UNIVERSITY OF OREGON INVESTMENT GROUP 4-30-2010 Consumer Goods Rosetta Stone Inc. RECOMMENDATION: BUY Stock Data Price (52 weeks) Symbol/Exchange Beta Shares Outstanding Average daily volume (3 month average) Current market cap(M) Current Price Valuation (per share) DCF Analysis Comparables Analysis Current Price Target Price $16.06- 32.97 RST / NYSE .65 19.9 287,505 $569 $26.25 $31.88 (50% weight) $37.10 (50%) $26.25 $34.49 Summary Financials 2009A ($M) Revenue Net Income Operating Cash Flow $252 $13.4 $41.1 CORPORATE SUMMARY Rosetta Stone Inc. (RST) joined the public markets in the spring of 2009. As of the end of their fiscal year 2009 they reported $252 million in sales, while also growing profits at 54 percent year over year. The company’s goal is to create a program that surrounds their customers directly with the language, without translation. Their proprietary teaching method called Dynamic Immersion has been the key driver for the company’s recent growth. They offer courses in 31 languages to a large customer base, ranging from government officials to armed forces. RST has offices in Virginia, London, Tokyo, Colorado and other various locations around the world. The focus point going forward is to keep up with growing international demand whiling continuing to enhance their proprietary curriculum. Covering Analyst: Matthew Hollands Email: Mhollan1@uoegon.edu The University of Oregon Investment Group (UOIG) is a student run organization whose purpose is......

Words: 5281 - Pages: 22

Free Essay

Rosetta Stone

...IPO project: Throughout the semester, I will assign several component parts of a research project regarding a company that recently went public via an IPO. The objective of this project is to integrate the various parts of the course and to see how the concepts apply in practice. The project can be either an individual project or group project (no more than three to a group, but all members of the group must contribute). Please select a company that had an IPO sometime in 2014, preferably one with a relatively short operating history. Your selection is due Feb. 2 and your submission (on Sakai dropbox) should identify the company you have selected, a brief description of the business model, and should indicate whether the company was profitable at the time of the IPO. In addition, please find the fraction of the shares that are issued in the IPO are primary vs. secondary. You can find historical information on the company from the company’s website and/or the SEC’s website (sec.gov) using EDGAR. You should look for reports like 10-Ks (annual reports), 10-Qs (quarterly reports), and S-1 or S-1A (prospectus), and proxy statements. Check carefully before making your selection to ensure that the documents have the financial information you need. Other important points to note while selecting a company: • The prospectus normally has up to three years of historical financial data from before the IPO. • After the IPO, quarterly and annual reports are available on......

Words: 288 - Pages: 2

Premium Essay

Rosetta Stone

...Worldwide Paper Company ------------------------------------------------- An Analysis of Blue Ridge Mill Ebha Agrawal, Elizabeth Collins, Sagar Jain, Ross Manfre, Joshua Newby Financal Management 7010 October 6, 2015 Executive Summary: In 2006 Worldwide Paper Company, a leader in the paper production industry, is faced with a challenging question. Should they build their own on-site longwood woodyard or continue to purchase from another mill? Blue Ridge Mill, a subsidiary of Worldwide Paper Company, is considering this strategic move to save on operating costs and enter a new market on the recommendation from Bob Prescott, the controller of the mill. With production set to begin in 2008, Worldwide Paper Company would see an operating costs savings of $2.0 million in 2008 and $3.5 million per year in the years after. This savings comes from producing their own shortwood product versus purchasing from Shenandoah Mill. The addition of the on-site woodyard also allows Worldwide Paper Company to capitalize on the increased production capacity to enter the shortwood market to now compete with its former business partner expecting to reach sales at $10 million in 2009 and continue until 2013. Is this a good investment for Worldwide Paper Company to enter? The following analysis will consider following: net present value,......

Words: 751 - Pages: 4

Premium Essay

Rosetta Stone Summary

...The non-fictional story written by James Cross Giblin is about how the Rosetta stone was discovered and the deciphering of the secret Egyptian hieroglyphics. In the first chapter the author introduces the theme of the Rosetta stone by describing the museum in which it lays. He describes the mystery of the Rosetta stone by explaining the small carvings in the stone. He starts off by telling the story in the seventh century A.D. He summarizes how Greek scholars sailed up the Nile River to find out what the hieroglyphs meant but nobody was able to decipher them. The author then goes on to write about other scholars who have tried to understand the hieroglyphs but have come up with nothing but silly accusations. The next two paragraphs make you feel disappointed because travelers and tourists do not yet understand the history of the Egyptians. Then the last paragraph in chapter brings you hope as you read that the Rosetta stone was discovered by Napoleon Bonaparte and his troops when they invaded Egypt. In the second chapter he starts off by going more in depth into the war in 1798 and describes the environment there. While Napoleon went back to France, the french army and the scholars stayed behind in Egypt. A package had been delivered to scholars and it...

Words: 607 - Pages: 3

Premium Essay

Rosetta Stone Case Study

...disadvantages of Rosetta Stone going public? II. Conduct your own analyses to estimate the value of Rosetta Stone. How do these values compare with the current range? III. If you were part of the underwriting syndicate, what price would you recommend for the offering? IV. Should Mark invest in the IPO? V. What alternatives to the IPO might be available to the company? I. Advantages & Disadvantages of Going Public The main advantages of Rosetta Stone going public are that an IPO would allow them the capital to expand their business into new markets as well as build on the Rosetta Stone brand. The IPO would also help them establish business credibility as a public firm. As a public company, Rosetta could enhance their image and reputation with newfound capital. It may also be advantageous to proceed with an IPO as the market has shown encouraging signs after the crisis of 2008. Changyou.com, a video game developer recently went public at 6.5 times EBITDA. Likewise, Bridgeport Education has recently considered going public and estimates that they could do so at a range of 10-12 times EBITDA. This may indicate that an IPO would behoove Rosetta Stone as it would be a successful business decision. Furthermore, the language learning industry largely consists of self-study learning as it counts for $32 billion of the $82 billion industry. Going public would allow Rosetta to be a major market presence in a booming industry. Another advantage of taking......

Words: 1463 - Pages: 6

Premium Essay

Rosetta Stone Report Plan

...Rosetta Stone Report Plan Donavan Crews ENG315, Professional Communications Professor Adelia Cozant-Amos Strayer University August 12, 2012 The proposed report plan is a recommendation to introduce Rosetta Stone as a learning tool to hospital personnel that are unable to comprehend or converse with patients due to a language barrier. This will provide excellent customer service to the Spanish speaking patients that do not have the availability of a translator on their hospital visits. The client is the English speaking employees of the organization that need to brush up on their Spanish speaking or barely comprehend and would are interested in learning to improve the service of their organization’s customer service. The report will be directed at upper management, along with department managers who are aware of the language barriers between hospital personnel and the current patient population. These decision makers can budget for and plan accordingly for the targeted hospital personnel to take an active part in this necessary learning tool. The report will contain information on how the ability to speak another language is becoming a key determinant in individual and organizational success. Rosetta Stone equips employees with language skills to overcome communication and business challenges. To provide upper management and department managers within the organization, with detailed information, the report will include: * Description of the product for......

Words: 359 - Pages: 2

Premium Essay

Rosetta Stone: Pricing the 2009 Ipo

...Rosetta Stone: Pricing the 2009 IPO In the following case study we intend to analyse Rosetta Stone’s 2009 IPO. The main purpose is to come up with a reasonable estimate of the price at which the firm’s shares should be initially offered. This estimation is preceded by a general consideration of the advantages and disadvantages that going public might have for Rosetta Stone. Following this qualitative analysis, we then estimated the price at which Rosetta Stone’s shares should be offered in the 2009 IPO. In order to do so, we first determined the current market price for shares of the firm by employing a market multiples as well as discounted cash flow valuation. On the basis of these values, we estimated the IPO price and then gave a final recommendation regarding the price in which we also considered factors beyond the pure numbers, such as the difficult market environment. 1. Advantages of going public First of all, the IPO would help Rosetta Stone raise equity, giving the company the opportunity for further investment with the aim of establishing its brand globally and expanding its geographic outreach. As a publicly traded company, Rosetta Stone will receive more exposure to both national and the international capital markets, creating the opportunity to reach more investors. For example, the planned stock market listing would allow institutional customers, who currently represent 20% of Rosetta Stone’s customer base, to buy shares. Another important advantage of......

Words: 1722 - Pages: 7

Premium Essay

Rosetta Stone: Pricing the 2009 Ipo

...UNIVERSITY OF OREGON INVESTMENT GROUP 4-30-2010 Consumer Goods Rosetta Stone Inc. RECOMMENDATION: BUY Stock Data Price (52 weeks) Symbol/Exchange Beta Shares Outstanding Average daily volume (3 month average) Current market cap(M) Current Price Valuation (per share) DCF Analysis Comparables Analysis Current Price Target Price Summary Financials 2009A ($M) Revenue Net Income Operating Cash Flow $252 $13.4 $41.1 $16.06- 32.97 RST / NYSE .65 19.9 287,505 $569 $26.25 $31.88 (50% weight) $37.10 (50%) $26.25 $34.49 CORPORATE SUMMARY Rosetta Stone Inc. (RST) joined the public markets in the spring of 2009. As of the end of their fiscal year 2009 they reported $252 million in sales, while also growing profits at 54 percent year over year. The company’s goal is to create a program that surrounds their customers directly with the language, without translation. Their proprietary teaching method called Dynamic Immersion has been the key driver for the company’s recent growth. They offer courses in 31 languages to a large customer base, ranging from government officials to armed forces. RST has offices in Virginia, London, Tokyo, Colorado and other various locations around the world. The focus point going forward is to keep up with growing international demand whiling continuing to enhance their proprietary curriculum. Covering Analyst: Matthew Hollands Email: Mhollan1@uoegon.edu The University of Oregon Investment Group (UOIG) is a student run organization whose purpose is...

Words: 5281 - Pages: 22