Rosetta Stone Case Study Essay

1474 Words Nov 20th, 2012 6 Pages
I. What are the advantages and 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
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Despite these concerns, it may be advantageous to issue the IPO as analysts believe Rosetta is one of the few firms who would be successful going public. As exhibit 8 shows, taking the firm public would lead to increases in gross profit over the next several years.

II. Analyses Used for Estimation
By using comparable industry averages, we are able to create a starting point by which we can price Rosetta Stone. Because Rosetta Stone is a combination of industries, its price will be similar to other industries, but will not mimic a single industry’s comparables. K12 is mentioned to be a close comparable, but still not quite the same as Rosetta Stone. K12 has a market of parents buying its product for students in kindergarten through 12th grade. Rosetta Stone’s target market has an unlimited age range, and therefore has a higher likelihood of sustained growth than K12, and thus is able to charge a higher price for its IPO. After Rosetta Stone’s roadshow, the book was more than 25 times oversubscribed, which gives preliminary pricing data that there is an exponentially higher demand for the stock at Rosetta Stone’s initial pricing. Based on such analysis, Rosetta Stone could theoretically set its prices 25% higher, but such a large increase in price is too risky in fragile economic times, so we would recommend an increase in price by a lesser percentage of 10%.
As shown in Exhibit 1, our team compiled