Please ensure Javascript is enabled for purposes of website accessibility

Rosetta Stone Disappoints in Any Language

By Rick Munarriz – Updated Apr 6, 2017 at 1:17AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Sales are doing well. The bottom line is on the bottom line.

Every language has different words and phrases to express disappointment. Rosetta Stone (NYSE:RST) is hearing them all this morning, after the language-software specialist scrapped a secondary offering and warned of a gloomy near-term outlook.

The peculiar nugget in Rosetta's miss missive is that sales are humming along just fine. The interactive educator is still expecting $245 million to $248 million in revenue this year, well ahead of the $209.4 million it rang up in 2008.

Rosetta's shortcomings are on the bottom line, where it is now expecting non-GAAP earnings to clock in between $1.14 and $1.18 a share. The new range is $0.08 per share lower than its original guidance. Marketing missteps, costlier development, and a general lack of cost containment will be pressuring margins this year.

Rosetta should have gotten its act together before going public earlier this year. Investors don't like to be let down by market rookies. Shares were off by as much as 30% this morning, despite what's technically a mere 6% to 7% miss on the bottom line.

IPOs need to come out of the gate running. Fellow 2009 debutantes OpenTable (NASDAQ:OPEN), Bridgepoint Education (NYSE:BPI), and Changyou.com (NASDAQ:CYOU) have delivered better-than-expected results in their initial quarters as public companies. Anything less is a confidence killer.

Rosetta seemed to be making all of the right moves. It soared after going public at $18 a share back in April. It topped Wall Street's profit targets in its first quarterly report as a public company. It also turned heads last month, when it charged Google (NASDAQ:GOOG) with trademark infringement and sued the search giant, on the basis that it was profiting from Rosetta's brand.

However, now the push for a secondary offering so close to the IPO appears flat-out greedy. The secondary was being withdrawn this morning, and that move is just another alert for the market. Rosetta Stone just wasn't ready for prime time.

The whole thing is a disappointment, in all of the 30 languages that Rosetta covers.

Some interesting ways to profit from the IPO void:

Google and OpenTable are Motley Fool Rule Breakers recommendations. Try any of our Foolish newsletter services free for 30 days. They'll help you brush up on the language of money.

Longtime Fool contributor Rick Munarriz is a fan of new stocks, and he has even recommended several fresh IPOs to newsletter readers in the past. He owns no shares in any of the companies mentioned in this story and is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Alphabet Inc. Stock Quote
Alphabet Inc.
GOOGL
$98.74 (-1.40%) $-1.40
OpenTable, Inc. Stock Quote
OpenTable, Inc.
OPEN

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
329%
 
S&P 500 Returns
106%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 09/24/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.