Rosetta Stone IPO Speaks to Investors, Despite Market Difficulties

Rosetta Stone (RST), a developer of language learning software, wowed the market with a successful IPO last week. While the initial price was $18.00, the stock has settled in at around $26. Is this the harbinger of a renewed IPO market? Only time will tell.

Business Overview (from prospectus)

We are a leading provider of technology-based language learning solutions. We develop, market and sell language learning solutions consisting of software, online services and audio practice tools primarily under our Rosetta Stone brand. Our teaching method, which we call Dynamic Immersion, is designed to leverage the innate, natural language learning ability that children use to learn their native language. Our courses are based on our proprietary interactive technologies and pedagogical content, and utilize a sophisticated sequencing of images, text and sounds to teach a new language without translation or grammar explanation. We believe our award-winning solutions provide an effective, convenient and fun way to learn languages. We currently offer our self-study language learning solutions in 31 languages. Our customers include individuals, educational institutions, armed forces, government agencies and corporations.

Offer Price: $18.00

Current Price: $26.10

Lead Underwriters: Morgan Stanley, William Blair, Jefferies

Financial Highlights: Revenue: Consumer revenue was $167.7 million for the year ended December 31, 2008, an increase of $60.6 million, or 57%, from the year ended December 31, 2007... Institutional revenue was $41.7 million for the year ended December 31, 2008, an increase of $11.5 million, or 38%, compared to the year ended December 31, 2007. Cost of Revenue: Cost of revenue for the year ended December 31, 2008 was $28.7 million, an increase of $8.0 million, or 38.6%, from the year ended December 31, 2007... Operating Expenses: Sales and marketing expenses for the year ended December 31, 2008 were $93.4 million, an increase of $27.9 million, or 43%, from the year ended December 31, 2007.

Competitors

Our competitors include Berlitz International Inc., Simon & Schuster, Inc. (Pimsleur), Random House Ventures LLC (Living Language), Disney Publishing Worldwide (DIS) and McGraw-Hill Education (MHP).

Additional Resources:

• Company website
• BusinessWeek: 'Winners of the Rosetta Stone IPO'
• WSJ Blogs: 'Rosetta Stone: How to Sell an IPO in Difficult Markets'
• Washington Post: Rosetta Stone Shines in IPO

Comments

[Mad Hedge F...:]

Here's a reason. Anyone who had doubts about where the future of equity investment lies, should check out international index moves since March 9. Although the US enjoyed a 26% leap, the best in 70 years, it ranked only 25th globally. The top performers list is dominated by emerging markets. The Ukrainian stock market was up 67%, followed by Puerto Rico, 53%, Romania, 49% and Peru, 49%. Next are Russia, Vietnam, Hong Kong, Pakistan, Egypt, Greece, India, the Czech Republic, Saudi Arabia, Spain, Singapore, Taiwan, Argentina, Mexico, Turkey, Israel, and Croatia. Granted, many of these markets moved so much because they are illiquid. But looking at the list, I get a strong whiff of commodities, energy, and international trade, themes I believe will dominate for the next decade. The new big trend has shown its hand. Do you want to own stock in a country that is growing 1%-2% a year, or 8%-10%? Smart investors will use this rally to lighten up on the US and increase holdings in higher growth emerging markets. Or you can buy the iShares MSCI Emerging Markets ETF (EEM). I wonder if Rosetta Stone (RST) offers a language program in Ukrainian?

Apr 23 02:16 PM

[buyforeclos...:]

Sorry but maybe obama stimulus has some impact but after that forget it....expensive and in a recession WHO is buying?


Good short I tinks...very good short

Apr 29 04:49 PM

[Lightway:]

I've used Rosetta Stone and it's a very good product. I would just like to see the "users" in the commercials give some examples of them speaking in the new language they have learned, instead of just saying, "hey I learned a foreign language."

May 11 01:54 PM