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Rosetta Stone

Mock IPO Valuation

Matt Frischmon

on 4 April 2013

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Transcript of Rosetta Stone

Linsey Rosetta Stone IPO Valuation Issuing 6.25 Million Shares

Company Information (Last 5 Years)
725% Increase in Revenue
625% Increase in NI Discount Rate Calculation Best Efforts IPO Offering Estimate an unlevered beta using competitors:
Risk Profiles
Target Markets
Growth Rates
Market Cap

Weighted Average Beta: 0.89 Discount Rate Assumptions Tax Rate: 38%
Market Risk Premium: 6.5%

Risk-Free Rate: 3.26% Discount Rate Analysis Used a 9.03% Discount Rate

Sensitivity analysis shows a range of 7.1% - 11.4% depending on MRP & beta Growth Expectations Analysts have differing opinions of future long term growth

Revenue growth projections decrease from 2008-2018 with 2018 at 5% growth

Decided to use 3% growth rate Growth Sensitivity Cash Flows 30 Year Treasury - 30 Year Term Premium Chose to use lower MRP Tax Shield Enterprise Value Valuation & Offer Price 8.2% Tax Discount Rate

7.5% Cost of Debt

Terminal Value: $21.25M

PV of Tax Shield: $13.68M Total Enterprise Value: $671.28M

Value of Debt: $10M

Value of Equity: $661.37M

PPS: $38.48

EV/EBITDA: 14.91 Price/EPS: 28.95 Learning Outcomes in Online Education Compared to Face-to-Face: 2003 - 2009 Competitor Multiples Our Price Valuation: $38.48

Original price projection: $15 - $17

Our offering price: $26

Issuing 6.25M Shares Lowest short term growth projections reduce enterprise value by 42% Long Term Growth Rates Used the higher company growth estimates for our analysis

Terminal Value: $1,042.98M

PV Unlevered Cash Flows: $657.6M Revenue

2006 - $81M
2007 - $137M
2008 - $210M Self Study Industry

Worldwide - $32B

US - $2B (95% of Rosetta Stone Revenue) QUESTIONS?
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