Rosetta Stone, Inc.: Pricing the 2009 IPO

Michael J. Schill

University of Virginia ­ Darden School of Business

October 12, 2010

Darden Business School Working Paper No. 2026599

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: 1. Review the institutional aspects of the equity issuance transaction. 2. Explore the costs and benefits associated with public share offerings. 3. Develop an appreciation for the challenges of valuing unseasoned firms. 4. Hone corporate valuation skills, particularly using market multiples. 5. Evaluate the received explanations of various finance anomalies, such as the IPO underpricing phenomenon.

Number of Pages in PDF File: 23

Keywords: IPO Valuation Case

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Date posted: March 22, 2012  

Suggested Citation

Schill, Michael J., Rosetta Stone, Inc.: Pricing the 2009 IPO (October 12, 2010). Darden Business School Working Paper No. 2026599. Available at SSRN: http://ssrn.com/abstract=2026599 or http://dx.doi.org/10.2139/ssrn.2026599

Contact Information

Michael J. Schill (Contact Author)
University of Virginia ­ Darden School of Business ( email )
P.O. Box 6550
Charlottesville, VA 22906-6550
United States
434-924-4071 (Phone)
434-243-7676 (Fax)
HOME PAGE: http://www.darden.virginia.edu/faculty/schill.htm
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