Rosetta Stone’s IPO (RST) is better than Bridgepoint Education’s IPO (BPI)

March 22, 2020

IPO Analysis, Grading, Scoring from
Rosetta Stone IPO:
Bridgepoint Ed IPO:
both scheduled for April 13wk

(1) Both are educational stocks
. Rosetta Stone provides language learning software
. Bridgepoint Ed provides post-secondary online education

(2) Both report revenues for 2008 in the $200mm range & both were profitable in 2008

(3) Both have good internal growth track records

(4) The trailing 12 mos P/E ratios are in the same range at price range mid-points: 23.4x for Rosetta; 29.7x for Bridgepoint

(1) Rosetta is a market segment leader with a differentiated product

(2) 95% of Rosetta’s sales are in the US, and growth plans are set for international expansion

(3) Rosetta’s gross margin is higher, 87% versus 71% for Bridgepoint

(4) Price-to-book value is more favorable for Rosetta: 2.7 versus 20.8 for Bridgepoint

(5) Online comparables to Bridgepoint suggest it is fairly priced (trailing 12 months) relative to Capella Education (CPLA) at 28x and Strayer Education (STRA) at 29x. The range is wide, however, with Apollo (APOL) at 15x ($10bb market cap) and Grand Canyon (LOPE) at 93x ($677mm market cap).

Notice that post-secondary online ed stocks sold off 15-17% since March 31, so there are some headwinds in the sector.

Rosetta Stone IPO:
Bridgepoint Ed IPO:
Disclosure: No positions

IPO Pulse: When Numbers Make the News

March 10, 2020

On Wall Street, numbers rule. Investment bankers were very busy last week. And they have the numbers to prove it.

So let’s take a look at last week’s IPO traffic:

  • 10 companies announced new terms for their pending IPOs. (This is a sign a deal is starting to move from the inactive IPO pipeline to the active IPO calendar.)
  • 4 companies withdrew their plans to go public.
  • 4 companies filed plans to go public.
  • 2 IPOs were postponed.
  • 7 IPOs were priced.

That’s busy by any standard. On top of that, bankers placed another 15 IPOs on this week’s new-issues calendar. From all outward appearances, the IPO Express looks to be barreling down the tracks. But here is where it starts to get a little funky.

Last week’s IPO Graduating Class was a break-even bunch. It started to reflect an overall weakness in the underlying stock market. For the record, the Nasdaq Composite Index closed on Friday, Feb. 4, 2005, at 2,086.66, — DOWN 4.08 percent for the year.

Four of last week’s seven deals had their offering prices cut to get out the door. This resulted in a negative impact on their overall aftermarket performances. There is how the week ended:

  • Three IPOs closed ABOVE their initial offering prices.
  • Three IPOs closed BELOW their initial offering prices.
  • One IPO was unchanged from its initial offering price.
  • The average gain was 2.8 percent.

The sloppy aftermarket performance of last week’s IPOs prompted some people to raise an eyebrow.

Consider this: The Nasdaq Composite Index ran from its August 12, 2004, low for the year of 1,752.49, up to 2,178.34, its 2004 high, on Dec. 30, 2004. That’s a gain of 24.3 percent.

During that four-month run, bankers priced 99 of the year’s 238 deals. That averaged 25 IPOs a month, compared with an average of 17 IPOs for the previous eight months. The conclusion: IPOs swim with the tide, not against it. When the stock market rallies, here come the IPOs! When the stock market pulls back, where are the IPOs?

Since the Nasdaq Composite Index hit its recent high (on Dec. 30, 2004, at 2,178.34), it has slipped into what can be politely called “a period of consolidation.” To be labeled a bear market, the Nasdaq Composite would have to experience a sell-off of 20 percent. That would put the Nasdaq at 1,742.67. It got nowhere near there.

Here’s the reality. The Nasdaq hit its recent low of 2,008.70 on Jan. 24. That was down 7.79 percent from its recent high. It closed Friday, Feb. 4, at 2,086.66. That was still down on the year, but up 3.88 percent from its 2005 low.

This week’s new-issue calendar lists 15 IPOs. Another four IPOs are lined up for the week of Feb. 21, 2005. But don’t start reading negative thoughts into the apparent drop-off in the number of deals. The week of Feb. 21 is shortened by the Presidents Day holiday on Monday.

For the Last 100 (from Sept. 29, 2004)

Number of IPOs priced: 99 (*)

Number Up: 77

Number Down: 21

Number Unch: 1

Percentage Change From Issue Price: 21.60%

Percentage Change for The Nasdaq Composite from Sept. 29, 2004: 10.18%

(*) Three IPOs were priced on Sept. 29, 2004)