The decision by Rosetta Stone Inc. to cancel its public stock offering Monday triggers questions about companies’ efforts to raise money in the capital markets as long as investors remain skittish.
The language education company dropped the offering and cut its third-quarter and full-year profit forecasts, citing higher marketing and product development costs. The company, which went public in April, planned an additional offering of 4 million shares.
Still, despite Rosetta’s issues, investors should expect to see a flood of capital-raising efforts and initial public offerings as the economy recovers, said Scott Sweet, senior managing partner at IPO Boutique, an advisory firm.
“I do expect some big filings forthcoming,” Sweet said. “The climate, which was dark at one time for IPOs, is quite bright again.”
Fueling the optimism: the stock market’s recovery, and investors’ willingness to take risks again, especially in the case of IPOs, where companies are selling stock to the public for the first time.
So far this year, only 21 companies have launched initial public offerings, far from the hundreds that went public just a few years ago. But in the past month, the companies announcing IPO plans have included big names like Dole Food Co., Hyatt Hotels Corp. and Mirion Technologies Inc.
Meanwhile, executives at private equity firms are looking to reap big rewards by taking private companies public.
Although investors tend to be drawn to stock offerings in general, IPOs are particularly tantalizing to investors who are hoping the shares will prove to be as lucrative as Google Inc.’s five years ago. Google, which went public at $85 a share, quickly rose to a price in the hundreds.
Jay Ritter, a professor of finance at the University of Florida, said the pace of IPOs will likely rise to about three a week on average, as long as the economy remains stable and the market doesn’t deteriorate.
Those estimates come from comparable figures in 2003, a similar period to today when the economy was crawling back from the tech-bubble burst in 2001.
But, unlike previous times, investors now aren’t willing to get behind an IPO unless the company can demonstrate that it’s delivering rock-solid results, said Steven Kaplan, a finance professor at the University of Chicago’s Booth School of Business.
“It all comes down to how the company’s performing,” he said.
They’ve also delivered solid returns. On average, the stocks of companies that went public this year have risen about 28 percent, he said.
That’s only adding to investors’ interest surrounding the offerings.
“There is demand,” Sweet said, “and people are saying, you know, these are working.”
It was not clear if Rosetta Stone’s planned public offering, announced just a week ago, was canceled because of its lowered earnings expectations. The company said in a statement it now expects net income of 22 cents to 24 cents per share for the quarter ending in September, down from a previous forecast of 30 cents to 32 cents.
Company officials did not return calls requesting further comment.