...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 going...
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...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...
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...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 your...
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...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 taking...
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...Begin Reading Table of Contents Photos Newsletters Copyright Page In accordance with the U.S. Copyright Act of 1976, the scanning, uploading, and electronic sharing of any part of this book without the permission of the publisher is unlawful piracy and theft of the author’s intellectual property. If you would like to use material from the book (other than for review purposes), prior written permission must be obtained by contacting the publisher at permissions@hbgusa.com. Thank you for your support of the author’s rights. For Isabella and Calista Stone When you are eighty years old, and in a quiet moment of reflection narrating for only yourself the most personal version of your life story, the telling that will be most compact and meaningful will be the series of choices you have made. In the end, we are our choices. —Jeff Bezos, commencement speech at Princeton University, May 30, 2010 Prologue In the early 1970s, an industrious advertising executive named Julie Ray became fascinated with an unconventional public-school program for gifted children in Houston, Texas. Her son was among the first students enrolled in what would later be called the Vanguard program, which stoked creativity and independence in its students and nurtured expansive, outside-the-box thinking. Ray grew so enamored with the curriculum and the community of enthusiastic teachers and parents that she set out to research similar schools around the state with an eye toward writing a book about...
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...ELLI, NOW, WDAY, MDSO, LOCK, FLTX, QLYS, RALY, MKTO, MRIN, MODN Big Data Index: EMC, TDC, INFA, MSTR, SPLK, DWCH, ATTUF, NTAP, SPLK, DATA, FIO, FALC Internet & Digital Media: 66 companies IT Infrastructure Index: VMW, CTXS, NTAP, CA, RHT, SWI, INFA, OTEX, CVLT, CPWR, QLIK, PEGA, MVSN, PRGS, JIVE, NTCT, BLOX, GUID, MGIC, FALC, FIO, GIMO, SSNI, CYNI, RALY © 2015, Centaur Partners │Confidential │ 2 Technology M&A Trends Key M&A Statistics Technology M&A – Transactions Since 2006 Number of Transactions 2,400 2,000 $165 1,600 1,441 $166 $150 1,281 1,216 1,200 $80 901 $83 $136 1,411 1,402 2,056 $177 200 160 1,448 120 $96 800 80 400 40 0 2007 2008 2009 2010 Number of Transactions Volume $160B $80B $80B 2011 2012 2013 0 2014 $140B $135B $166B $176.6 (1) AT&T Target DIRECTV Societe Francaise de. Whatsapp Value $65.2B $21.9B...
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