Rosetta Stone, Bridgepoint Education Set to IPO

Two IPOs with different spins on the education market are set to make their debut in the U.S. this week, with deals from Rosetta Stone Inc. and Bridgepoint Education Inc. creating the busiest period for new stocks since August.

Morgan Stanley and William Blair lead underwrote the Rosetta Stone IPO. Credit Suisse and JPMorgan joint were lead underwriters for Bridgepoint Education

Rosetta Stone, which makes self-study foreign-language software, aims to raise as much as $106 million in its initial public offering of stock, while online college Bridgepoint seeks $216 million. Both are scheduled to list on the New York Stock Exchange, with Rosetta trading under the symbol RST and Bridgepoint under BPI.

Both companies are young, technology-centered and fast-growing. Their business models also include a key revenue driver that any tech investor looks for: scalability, or the ability to add new customers at low cost.

For Bridgepoint, it is less expensive to enroll new online students than in a traditional classroom-based setting, thanks to little bricks-and-mortar overhead and a faculty that is skewed primarily to part-time adjuncts.

Lower costs allow the college to "price its courses attractively, so it can grow its student base quickly," says Richard Birge, a Morningstar stock analyst.

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; most sales are made directly through its call centers and Web sites, limiting expense.

Rosetta has gained visibility through an advertising blitz and its kiosks in airports and malls. Revenue rose by 52% and earnings were up fivefold 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.

The company is gearing up for more expansion both domestically and internationally; only 5% of its sales in 2008 were generated outside of the U.S. "There's plenty of market share that's up for grabs," says Morningstar analyst Brady Lemos.

Bridgepoint Education, which has two small traditional college campuses and 98% of its students attending exclusively online, generated more than twice the revenue and eight times the earnings in 2008 versus 2007, ending the year with $26.4 million in profits. It has more students, faster enrollment growth and a higher operating profit margin, at 15%, than the last online college that went public, Grand Canyon Education Inc.