Rosetta Stone: Pricing the 2009 IPO

Rosetta Stone is one of the leading language-learning international software companies with sales in over 150 countries world-wide. They offer over 30 different languages through compact disc and online tutorials. The company was founded in 1992 as Fairfield Language Technologies by Allen Stoltfus when he became frustrated by the slow pace he experienced learning Russian via a traditional classroom setting. He discovered a faster way of learning German through immersion in the culture. In 2006, the company was sold to ABS Capital Partners and Norwest Equity Partners and the name was changed to Rosetta Stone- it’s signature product. Rosetta Stone’s main sources of revenue are consumer sales and institutional sales. Consumer sales are through one of the following channels: direct-to-consumer, kiosk, retail and home school sales. Institutional sales are through their institutional sales group.

Revenue is also reported as “product” and “subscription services”. In comparison to the 9 months ending September 30, 2010, Rosetta Stone’s revenues for the same period in 2011 show a minor increase of 1.8% which is attributed to their growth in international markets. There was a decrease in the sales of their products (such as software) of approximately 12.6% while revenue from subscription services increased by approximately 74.7% The growth in subscription services comes from increased market presence within large corporations and other institutions who prefer to license the Rosetta Stone product to offer to their employees and other personnel. The company recently started bundling time-based subscriptions during this 9 month period in 2011 and as a result, 10-25% of the sales from these bundles are deferred.