Is There a Glimmer of Hope for This Technology Company?

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Investors in Rosetta Stone (NYS: RST) have had a lot to cheer about since the company recently announced earnings. Shares are up almost 10% over the past five trading days. So does this mean you should jump in right now -- or is it just a fool's rally?

Just the numbers
Rosetta Stone has handily beaten analyst expectations for the past three quarters. That would be great news, except for the fact that in all three quarters, the company was still posting a loss. To get a clearer view of how the company is performing, here's a breakdown of its different divisions.

 

Q4 2011 Revenue Growth

Percent of All Revenue

U.S. Consumer5%65%
International Consumer(4%)17%
World Wide Institutional7%18%

Source: Rosetta Stone.

While beating estimates is always a good thing, these numbers are a far cry from what investors who bought in years ago were hoping for. International and institutional customers were supposed to make up the bulk of revenues by now, as they had been growing at very fast clips in the past.

But weakness in the Asian markets from English language learners as well as a failure to get major educational and government contracts have dashed those hopes. That said, the middle ground of management's outlook for first-quarter revenue predicts growth of more than 4% over the previous year.

But we're ignoring the really big news
I don't own shares of Rosetta Stone anymore, and I'm not buying back yet. Competition with other providers such as Berlitz, CBS' (NYS: CBS) Pimsleur, and offerings by Disney's (NYS: DIS) Publishing Worldwide and McGraw-Hill Publishing (NYS: MHP) won't be getting any easier.

But there is one huge source of positive news investors should be excited about: Tom Adams is finally out as CEO, and former CFO Steve Swad is now in charge. I know it's a little unusual for a CFO to assume CEO responsibilities, but as anyone who's been listening to Rosetta's conference calls knows: Steve is the man for the job. He consistently demonstrates that he, more than anyone else, understands what it will take for the company to fulfill its potential.

I'll be keeping an eye on Rosetta, and if Steve can right the ship, I'd be willing to jump back on board. In the meantime, I'm looking to other areas for investing -- like mobile technology. We've recently put out a special free report on the one company set to benefit the most from this revolution. To find out which company it is, get your report today absolutely free!

At the time this article was published Fool contributor Brian Stoffel does not own shares in any of the companies mentioned. You can follow him on Twitter, where he goes by TMFStoffel.The Motley Fool owns shares of Rosetta Stone. Motley Fool newsletter services have recommended buying shares of Walt Disney 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.

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