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Why Rosetta Stone Shares Dropped

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Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

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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9/29/2016 4:02 PM
RST $8.22 Up +0.20 +2.49%
Rosetta Stone CAPS Rating: *