IPOs: Bridgepoint & Rosetta Stone

This week two IPOs who have altered the education market are set to make their debut on the U.S. markets. The two companies are Rosetta Stone Inc. and Bridgepoint Education Inc. whose deals have created the busiest period for new stocks since August. Bridgepoint the online college seeks $216 million and is schedule to list on the New York Stock Exchange under the symbol BPI. Rossetta Stone, the self-study foreign-language software, aims to raise $106 million and will to list on the New York Stock Exchange under the symbol RST.  Both these companies are young, technology-centered, and very fast-growing. The business models set in place have key revenue drivers in scalability, the ability to add new customers at low cost. This is a key indicator tech investors always look for in young upcoming companies. As for the outlook for each company, Bridgepoint, it is less expensive to enroll new online students than in a traditional classroom-based setting. These lower costs will allow Bridgepoint to price its courses attractively, so it can grow its student base rapidly. As for Rosetta, the fact that its language courses don’t rely on translation means that the software can be expanded to different countries with minor alteration. As of right now most of its sales are made directly through its call centers and Web sites, limiting expense. Rosetta Stone has gained visibility through advertising and its kiosks in airports and malls. In recent times, revenue rose by 52% and earnings were up in 2008 to $13.9 million. A weaker economy and slower airport and mall traffic could affect its results, but it still delivered a strong fourth quarter in 2008 so I look for them to continue to grow. One reason I have strong long-term outlook for Rosetta Stone is that only 5% of its sales are made overseas. This leaves large room for growth, especially now when more and more people are learning dual languages to succeed in the global economy. Yes these companies are launching during slow economic times yet due to the recent market rallies I expect them to do quite fine with high possibility of posting double digit gains in debut.