Rosetta Stone ends up 40 percent, best debut in a year
Thursday April 16, 2009, 4:51 pm EDT
By Phil Wahba

NEW YORK (Reuters) - Rosetta Stone Inc (NYSE:RST - News) shares finished their first day of trading up nearly 40 percent Thursday, following the company's initial public offering, making it the strongest start of a new stock in nearly a year.

Rosetta Stone, which provides language instruction products, opened trading at $25, on the morning after it priced its IPO at $18, exceeding the estimate range.

Rosetta Stone shares closed at $25.12 on the New York Stock Exchange, making its 39.6 percent jump the strongest first-day performance since fertilizer maker Intrepid Potash Inc (NYSE:IPI - News) rose 58 percent in its debut in April 2008.

Arlington, Va.-based Rosetta Stone sold 6.25 million shares, netting proceeds of $112.5 million in its initial public offering on Wednesday.

Backed by a group of private equity investors, Rosetta Stone's IPO is the first buyout-backed offering in five months, according to Thomson Reuters data.

The strong performance raises the question as to whether the company could have priced its IPO more aggressively, a notion Rosetta Chief Executive Tom Adams dismissed on Thursday.

"We are a long-term oriented group and we deliberated ... it's hard to pick the right price, but we're comfortable with it," Adams told Reuters in an interview.

Despite the small size of the stock float and the high demand for the stock, the company has no plans for now for a follow-on, or for acquisitions, Adams said.

MARKETING TOOL

The IPO will net Rosetta Stone about $48 million (half the deal's total proceeds are going to existing shareholders), but the greater benefit of the deal will be higher brand recognition, Adams said.

"Large institutions, companies and government agencies will have more trust in a publicly listed company and that will help business," Adams said. "It elevates our profile. We have a dominant brand and this will strengthen it."

Building recognition is central to its efforts to strengthen international sales, which account for only 5 percent of business, but which analysts say are crucial to maintaining its growth.

In 2008, Rosetta Stone's revenues rose 52 percent to $209.4 million from 2007, with net income of $13.9 million, according to a regulatory filing.

Rosetta Stone's successful pricing came a day after college operator Bridgepoint Education Inc (NYSE:BPI - News) had to settle for 30 percent less than its original estimate to get the deal done.

But Bridgepoint, a growing, profitable company, faces stiffer competition than Rosetta Stone, which is the first stand-alone language training company, an analyst said.

"People are starved for companies that have good internal growth and positive cash flow," said Francis Gaskins, president of research firm IPO Desktop. "But Rosetta benefited from a lack of publicly held competitors."

Rosetta Stone, which provides instruction services in 31 languages to individuals, companies and schools primarily through CD-ROMs, has attracted attention through an advertising campaign that has featured U.S. Olympic swimming gold medal swimmer Michael Phelps.

The IPO's underwriters were led by Morgan Stanley (NYSE:MS - News) and William Blair & Co.

Rosetta Stone's IPO is the fourth so far on a U.S. exchange in 2009 and the third in April, making it the busiest month for new stock flotations since July 2008, raising hopes the IPO market is reopening.

"It's cause for optimism," said Scott Cutler, the head of listings at New York Stock Exchange's parent NYSE Euronext Inc (NYSE:NYX - News).

"We have deals of similar size that will be launched soon -- that doesn't mean floodgates are open but there is a good foundation for more IPOs," Cutler added.

Still, there have only been three IPOs by U.S. companies -- a fourth IPO was by Chinese video game maker Changyou.com Ltd (NasdaqGS:CYOU - News) so far, the fewest number since 1975.

There are currently no other IPOs on the calendar.