Updated from 11:52 a.m. EDT
should be very happy (or
, or even
) with the results from its initial price offering.
Bad jokes aside, Rosetta Stone's IPO is remarkable in that it is the first in nearly a year to price above its expected range. The language learning software provider said late Wednesday that the 6.25 million shares of common stock is it is offering priced at $18 a share, compared to the expected range of $15 to $17 a share.
was the last IPO to price above its expected range way back on May 8. Coincidentally, Colfax shares also priced at $18 a share after the company proposed a range of $15 to $17 a share.
Rosetta Stone raised a total of $112.5 million through 3,125,000 shares of common stock. Selling stockholders are offering the remaining 3,125,000 shares in the offering. The small amount of shares offered generated a lot of investor interest, as the stock surged $7.12, or 39.5%, to close at $25.12.
Rosetta Stone's IPO also helps mark the most successful period for IPOs since August. On April 1, Chinese video game maker
priced its IPO at $16 a share, and only Wednesday
shares rallied after being priced below its expected range.
In the first week of August, data hosting provider
and Chinese ad agency
China Mass Media
( CMM) made their respective debuts. Both IPOs came within weeks of
GT Solar International's
( SOLR) and
China Distance Education's
What remains to be seen is whether Rosetta Stone will see the same high returns as other recent share offerings. Changyou.com currently has a 70.6% return, and
Mead Johnson Nutrition
, the Evansville, Ind.-based baby-formula maker, which
on Feb. 10, currently has a return of 10.9%.
Grand Canyon Education
, which started the streak of winning IPOs after it priced its shares in November, has seen a return of 22.7%.
Morningstar equity analyst Brady Lemos says Rosetta Stone has a few advantages during times of economic turmoil, which could bode well for returns for investors.
"As a provider of educational software, Rosetta Stone is more resilient to economic slumps than many other software firms, in our opinion," Lemos said in a research note. "We think Rosetta Stone offers a relatively compelling value proposition (a typical three-level program costs about $500), particularly in a challenging consumer spending environment."
However, Lemos warns that Rosetta Stone's business model will likely face several challenges in the coming years.
"While we think its unique self-study program is scalable, niche software developers like this rarely enjoy success over the long term," he wrote. "In our opinion, the business lacks a sustainable competitive advantage over other software firms that might have far greater resources ... . There's little stopping another company from developing superior software or securing better distribution.
"Consequently, Rosetta Stone's long-term prospects hinge on its ability to adapt to competitive threats and consumer tastes," Lemos added.
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