Rosetta Stone Case Summary

Case Background

Rosetta Stone, Inc. is a company that is involved in creating and marketing language learning software to people across the world. The company’s goal is to create a program that surrounds their customers with language without translation. This proprietary teaching method is called Dynamic Immersion and has been the key factor for the company’s recent growth.

Primary Problem

The financial crisis of 2008 had adversely affected many companies across the U.S and the world. During 2009, there were some signs that pointed to a recovery but many analysts predicted that it wasn’t over. During this recession, the company was trying to expand their business growth with the issuance of shares to the general public through an initial public offering or IPO.

Case Perspective

The case is positioned from the viewpoint of an inside analyst who proposes to make a valuation of Rosetta Stone’s IPO.

Decision Alternatives

An IPO is a long process that is very expensive to start. In addition to a financial burden, there are increased reporting requirements that can give competitors useful information. Rosetta Stone has stable cash flows and a low debt level. An IPO may not be the only option for the company. A partnership with a major software company such as Microsoft, Google, and Apple may possibly give it the financial freedom to remain competitive. Another alternative to an IPO is a merger. Rosetta Stone could merge with another competitor to gain market share without the process of going public.

Analyses and methodologies

One way to price the IPO is to use comparable industry averages. Since Rosetta Stone’s model is a combination of two industries, its price will be similar but will not mirror a single industry’s