Rosetta Stone: Pricing the 2009 IPO
In the following case study we intend to analyse Rosetta Stone’s 2009 IPO. The main purpose is to come up with a reasonable estimate of the price at which the firm’s shares should be initially offered. This estimation is preceded by a general consideration of the advantages and disadvantages that going public might have for Rosetta Stone. Following this qualitative analysis, we then estimated the price at which Rosetta Stone’s shares should be offered in the 2009 IPO. In order to do so, we first determined the current market price for shares of the firm by employing a market multiples as well as discounted cash flow valuation. On the basis of these values, we estimated the IPO price and then gave a …show more content…

3. Market multiples valuation
The first step necessary to estimate Rosetta Stone’s value is to identify a set of firms that represent Rosetta Stone’s business model. Using current and forecast market multiples of these companies as well as historical and forecast key performance indicators of Rosetta Stone, we obtained a valuation for Rosetta Stone’s business.
Choosing comparable firms for the market-multiples valuation entails a trade-off between increasing reliability and decreasing relevance by adding more firms to the valuation that are gradually less representative for the valued firm. For our valuation, we took into account considerations on both industry and firm level in order to ensure a viable group of comparable firms. Ultimately, we included the following firms in our valuation:

American Public Education Inc. | For-Profit Education | Capella Education Company | For-Profit Education | ITT Educational Services, Inc. | For-Profit Education | K12 Inc. | For-Profit Education | Grand Canyon Education, Inc. | For-Profit Education | New Oriental Education & Tech. | For-Profit Education | Electronic Arts Inc. | Internet |
When looking at For-Profit Education firms, we included those that rely on technologies to teach and mostly reach their audience online. Moreover, we assume Electronic Arts to be a good comparison due to a similar cost