Rosetta Stone Unlocks IPO Market for Language Learning

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Global Watchtower

Common Sense Advisory Blogs

Posted by Donald A. DePalma on April 21, 2009 in the following blogs: Translation and Localization, Market Data, Business Globalization, Best Practices
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Last week, language instruction company Rosetta Stone went public on the New York Stock Exchange, issuing 6,250,000 shares at US$18 and raising US$112.50 million in its initial public offering. On the day of the IPO, the stock closed at US$25.12, and, as of this posting, was trading at US$27.25. The company is a bright spot in an otherwise dismal market for public offerings (and stock markets in general). Rosetta Stone joins New Oriental, a Chinese language learning company that IPO'd on the NYSE in 2006.

Rosetta Stone was founded in the early 1990s by a professor at James Madison University and an entrepreneur. As Fairfield Language Technologies, the company grew slowly until around 2000 when it started hiring professional managers. In January 2006, Baltimore-based venture capital firm, ABS Capital, and Norwest Equity Partners, a buyout firm located in Minneapolis, acquired the company for US$62 million. Last year, Rosetta Stone booked US$209.4 million in revenue, up from US$137.3 million the year before. Profits rose from US$2.58 million to US$13.9 million.

The company will spend to develop non-U.S. markets. Rosetta Stone's biggest-selling languages in the States are Spanish and English for non-native speakers (ESL), while English dominates its sales in other countries. CEO Tom Adams said that the company will dedicate some of the cash to expand operations outside the United States; it first ventured abroad in 2007, and now has offices in England and Japan. It will use these countries as springboards into Europe and Asia, two markets with much greater potential than the U.S. where most of its sales occur today; Europeans learning English is a much bigger market than Americans learning a foreign language.

On-brand advertising has helped Rosetta grow. Expect a lot of its foreign market development spending to hone a message as evocative as its iconic hardworking farm boy learning Italian for his one chance to impress his supermodel paramour. That kind of advertising has resulted in very high brand awareness for Rosetta's trademark yellow boxes and kiosks -- and contributed to it status as the largest language education company in the U.S., surpassing long-time market leader Berlitz.

Rosetta Stone targets a growing worldwide market. Including courseware, textbooks and guides, instructor-led education, and web-based training à la Livemocha, the size of the language education opportunity rapidly ramps up to tens of billions of dollars worldwide. However, it remains a very fragmented, country-by-country market sector spread over a wide variety of instructional modes and many small suppliers. With its IPO cash in hand, Rosetta Stone can increase its share by selling into more countries. Its established software platform will let it quickly add languages and specialized content for consumers, students (K-12 plus university), corporations (employees), and government (especially the military and State Department under President Obama).

Most importantly, thinking outside its yellow box and developing products for the web, mobile phones, iPods, and even on Game Boys will open the door to many more prospective language-learners.

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