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Why Rosetta Stone Shares Dropped

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What: Shares of Rosetta Stone (NYSE: RST  ) were getting lost in translation today, tumbling 18% after a disappointing earnings report.

So what: The language-software maker saw revenue fall 5%, to $60.9 million, well below estimates of $70 million, as sales in Japan and Korea fell sharply. The bottom line also missed expectations, as the company finished with a per-share loss of $0.12, against the consensus at $0.10. Finally, full-year guidance missed the mark as the company said it now expects revenue of $270 to $280 million, and adjusted EPS of -$0.12 to -$0.01. Wall Street had been looking for $286.5 million in sales, and a $0.01 profit per share.

Now what: CEO Steve Swad touted the company's improvements in its SaaS business and Enterprise & Education segment, but there are two fundamental components working against Rosetta Stone. Americans are largely unwilling to learn foreign languages, and have little need to do so, and mastering a foreign language is difficult enough through immersion, but nearly impossible through computer programs alone. That may be one explanation for why this 21-year-old company is operating at a loss, and why it's unlikely to make a meaningful move into the win column anytime soon.

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  • Report this Comment On November 09, 2013, at 9:05 AM, killatree wrote:

    The biggest problem with Rosetta Stone is the price of their products. The perception of three digit prices on software is that it's for professionals. Most people looking for a hobby or a diversion are not going to pay that much, and so the market for it is severely limited. RST needs to find a way to offer a $50-75 program for the masses.

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Jeremy Bowman
TMFHobo

Fool since 2011. I write about consumer goods, the big picture, and whatever else piques my interest. Follow me on Twitter to see my latest articles, and for commentary on hot topics in retail and the broad market.

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7/31/2015 4:02 PM
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