Financial Entrepreneurial Initiatives: Rosetta Stone IPO

Financial Entrepreneurial Initiatives
Rosetta Stone: Pricing the 2009 IPO

Table of Contents
INTRODUCTION......................................................................................................................................3
1.......................Key features of Rosetta Stone’s business model and explain its core business strategy
................................................................................................................................................................3
2. Advantages and disadvantages of Rosetta Stone undertaking an IPO...............................................4
2..........Evaluate the use of Market-Multiples approach for Rosetta Stone in determining an exit value
................................................................................................................................................................6
4 Calculation of suitable share price for Rosetta Stone’s IPO using Market-multiples approach and
considerations would need to be made...................................................................................................7
5. Reasonable rate of return on an investment in Rosetta Stone............................................................8
6. Free Cash Flow model to Rosetta Stone to arrive at a valuation.......................................................8
7. Offer price for the IPO.......................................................................................................................9
CONCLUSION........................................................................................................................................10
REFERENCES.........................................................................................................................................10

INTRODUCTION
Financial market are those in which financial securities, commodities and other fungible items
are traded at various costs (Madura, 2014). The securities traded in financial markets includes stocks,
bonds, commodities etc. Initial public offering is the crucial sources of raising funds from the market
through offering equity and preference shares even debentures to public (Chemmanur and Krishnan,
2012). This is an initiative taken by an organization to public its stock however, is a long process to
register a company for IPO.
The report herewith is based on a case scenario of an USA based global education technology
Software Company, “Rosetta Stone” which deals with Language-Learning solutions products. As per
the case, business entity is moved further to the deal of going public in 2009. Therefore, this
investigation represents the advantages and disadvantages of Rosetta Stone to undertake an IPO.
Including this, key features of Rosetta Stone’s business model and its core business strategy are
explained in this report. Furthermore, Market-Multiples approach for Rosetta Stone is used to
determine an exit value along with calculating reasonable rate of return on an investment and free Cash
Flow model is applied to arrive at a valuation.
1 Key features of Rosetta Stone’s business model and explain its core business strategy
Rosetta Stone is an USA based global education technology Software Company deals with
developing language, learning and brain-fitness software. The organization is significantly known for
its innovative Language-Learning solutions products.
Business model of Rosetta stone
From the beginning, organization has started seeking more natural learning methods, therefore,
business model of Rosetta Stone is to use commuter technology to simulate the way people learn their
native languages. Along with this, business entity uses pictures and sounds to impart learning to the
individuals. The core area of business model is that how computer can be used to facilitate language
learning. In 1992, Stoltzfus and Fairfield came with Fairfield language technology, further the
emergence of CD-ROM technology has supported business of the cited company. The business model
of cited Company is specifically designed to distinguish the firm from other language companies and to
create an environment conducive to learning language naturally. The business model of company was
flexible and focused towards innovation. Further, in the year 1999, the organization has released its first
retail language training software product. The organization is continuously using series of CD ROMs
which is emerged as an effective ways to impart new learning to the individuals.
Business strategy of Rosetta Stone

The core business strategy of Rosetta Stone is to combined in language learning software with
test, images, sounds to teach various vocabulary terms and grammatical functions, initially the company
has focused towards school and government sales then it moved towards retail market in 2001. The
mentioned company has announced hiring of Tom Adams, who is a businessman with international
experience, as a CEO, which is found be the core strategy for getting an international exposure. He
played an important role in guiding the company’s expansionary strategy. The core competences of the
business includes Pedagogy, Widgets, Speech, community and live features. The company is creating
new value in the economy through continuous innovations. The name of company was changed in
2006 to Rosetta Stone, Ltd as it converted business from an S to a C corporation. With a unique
business strategy of going public, the company has filed an Initial public offering with the Securities
and Exchange Commission, how, after 2009, the organization is listed New York Stock Exchange. In
2008, Rosetta Stone has won Deloitte's Technology Fast Award and in 2009, it was awarded with 9
Stevie Executive of the Year Award.
An a compirtiotive strategy, the company has expanded n manufactiring and distribution to reach to
success. The organization is commited to minimise costs by achieving efficient in mannufacting. The
sales channle have alos bene aranged to minimise the logistic cost.
2. Advantages and disadvantages of Rosetta Stone undertaking an IPO
Being a private company, Rosetta Stone is evident with limited corporate investment as from
private sources company was raising limited amount of capital. The risk of takeover by other company
with the needed resources, was there on Rosetta Stone. The private investors was also concerned about
recognising the gains achieved through investing in the mentioned company, however, there was a