Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



Rosetta Stone: the Good, the Bad, and the Ugly

Watch stocks you care about

The single, easiest way to keep track of all the stocks that matter...

Your own personalized stock watchlist!

It's a 100% FREE Motley Fool service...

Click Here Now

I've been writing for The Motley Fool for eight months. In that time, I've been following Rosetta Stone (NYSE: RST  ) closer than any other company on my radar. What started out as a bullish thesis, morphed into cautious optimism, and then turned to skepticism.

Monday night's earnings release leaves me unchanged: I'm holding my shares for now, but I'm taking a skeptical view of what were mixed results from the company. Below, I'll go over the good, the bad, and the ugly from the company's first quarter.

The good

  • The international and institutional segments of the company continue to fire on all cylinders. Revenue for these two segments combined was up 35% year over year. The opening up of offices in Sao Paolo, Brazil, and the release of an English language program in Korea are positive signs that growth will continue.
  • The company is actively pursuing methods to help shore up its U.S. consumer business. CEO Tom Adams stated that the company is specifically trying to lower the entry-level price for first-time users. In essence, this is akin to how a company like Netflix (Nasdaq: NFLX  ) hooks users by giving them their first month of membership for free and offering tiered upgrade paths for existing users looking for more value out of the service. It also offers a competitive price versus the language-learning products offered by CBS' (NYSE: CBS  ) Pimsleur, Disney's (NYSE: DIS  ) Publishing Worldwide, and McGraw Hill (NYSE: MHP  ) .
  • Rosetta is entering the tablet sphere, with a program for Apple's (Nasdaq: AAPL  ) iPad set to become available in the coming weeks.

The bad

  • No surprise here: The U.S. consumer market is still very weak. Sales bookings were down 28% year over year, showing accelerating losses on the home front.
  • The company sees educational spending being light in the second quarter, meaning that it actually expects institutional bookings to take a dip during the second quarter.  This to me is a dangerous prospect. As a former teacher, I see huge educational value in Rosetta's product, and I was counting on schools to adopt the program. I'm waiting to see third-quarter numbers, though, since that's where I think most K-12 purchases should show up.

The ugly

  • The company recently restructured some incentive programs for executives. The new plan delivers these rewards based on stock price. Although the plan requires executives to hold their shares over a two-year vesting period after being issued, I've never been a fan of incentivizing based on stock price. Instead, I feel much better when a company decides to take operating measures -- like sales or free cash flow -- and use those as determining factors in compensation packages.

Foolish takeaway
As I said above, I won't be buying or selling shares -- just holding. The company is transitioning from individual U.S. clients to institutional and international ones. That can take time. My own time frame for the company is the third quarter of this year. By then, I believe the company should have made significant strides in shoring up its U.S. consumer business, as well as continued its expansion abroad.

If you want to keep up with the latest news on Rosetta Stone, add it to your watchlist.

Fool contributor Brian Stoffel uses Rosetta Stone to keep up on his Spanish. He owns shares of Apple, Netflix and Rosetta Stone. Apple, Walt Disney, Netflix, and Rosetta Stone are Motley Fool Stock Advisor recommendations. Alpha Newsletter Account, LLC has bought puts on Netflix. Motley Fool Options has recommended a bull call spread position on Apple. The Fool owns shares of Apple, and Rosetta Stone.

Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Read/Post Comments (1) | Recommend This Article (7)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On May 11, 2011, at 9:09 PM, prginww wrote:

    I love MF, but this never seemed like a long term story to me. The number of people who want to learn a language enough to buy their package does not seem expandable much beyond the business market. How hard is it to envision the eventual meld, 5-10 years tops, between voice recognition software and translation by smart phone? Am I too optimistic?

Add your comment.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1493290, ~/Articles/ArticleHandler.aspx, 10/22/2016 11:36:23 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 1 day ago Sponsored by:
DOW 18,145.71 -16.64 -0.09%
S&P 500 2,141.16 -0.18 -0.01%
NASD 5,257.40 15.57 0.30%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/21/2016 4:02 PM
RST $7.35 Down -0.16 -2.13%
Rosetta Stone CAPS Rating: *
AAPL $116.60 Down -0.46 -0.39%
Apple CAPS Rating: ****
CBS $57.66 Up +1.17 +2.07%
CBS CAPS Rating: ***
DIS $93.03 Up +1.00 +1.09%
Walt Disney CAPS Rating: *****
NFLX $127.50 Up +4.15 +3.36%
Netflix CAPS Rating: ***
SPGI $123.99 Up +1.87 +1.53%
S and P Global CAPS Rating: ****