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Arlington's Rosetta Stone Pulls Off Successful IPO: How?

Rosetta Stone, the Arlington-based language-learning business whose ads feature Olympic swimmer Michael Phelps, staged a successful initial public offering on Wall Street this morning, becoming only the third business to do so this year and the first to sell above its pricing.

IPOs, which seemed to come one-per-day in the early part of this century, have effectively dried up, as the recession has dragged on, credit has dried up and private investor money has remained on the sideline in safe harbors such as CDs, bonds and even bank accounts.

In short, no one has wanted to take a flier on an IPO.

How did Rosetta Stone do it? Did the company speak the right language?

First, Rosetta Stone took advantage of its high-tech teaching approach, its high-profile ad campaign and the lack of publicly held competitors. Berlitz uses a similar no-translation teaching technique, but Berlitz is a privately held company.

Second, Rosetta Stone's IPO was helped by its relatively low float number, or shares available for purchase.

Finally, investors also liked Rosetta Stone's vision for the future.

Rosetta Stone chief executive Tom Adams said earlier this month that his company will use part of the IPO proceeds to expand overseas and to add a social-networking feature: the company plans to create an online "socialization environment" to allow customers to practice their new languages with each other.

Which all translated, so to speak, to shares of Rosetta Stone beating its IPO pricing target.

Initial shares of Rosetta Stone were priced at $15 to $17 by Morgan Stanley and William Blair & Co. but sold for $18 per share.

During morning trading, the shares -- which are trading as "RST" -- sold for more than $26. They closed up more than 40 percent on the day.

By comparison, on Tuesday, Bridgepoint Edcuation -- an online and higher-ed company -- had a terrible IPO and was forced to reduce its share price by 30 percent to get its IPO to market.

Earlier this year, China's Changyu.com, a game maker, staged a U.S. IPO and was able to sell near the high end of its share pricing, but not like Rosetta Stone.

Does Rosetta Stone's successful IPO signal a flood of startups and private companies into the public sphere? Is it 1999 all over again? Probably not. But it does suggest that the markets, as bad as they are, still find money for products they like.

-- Frank Ahrens
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By Frank Ahrens  |  April 16, 2009; 4:36 PM ET
Categories:  The Ticker  | Tags: IPO, rosetta stone  
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