Why Rosetta Stone Shares Dropped

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 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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The article Why Rosetta Stone Shares Dropped originally appeared on Fool.com.

Fool contributor Jeremy Bowman has no position in any stocks mentioned. The Motley Fool recommends Rosetta Stone. The Motley Fool owns shares of 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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