Private companies mulling the big move to the Nasdaq should take a look at Rosetta Stone’s five-day stock chart. The language-learning software company had been one of the higher flying IPOs of the year since it priced in April, leading to all sorts of speculation that a much-touted e-learning boom was finally upon us. The stock was so high-flying in fact, that its VCs Norwest Equity Partners and ABS Ventures announced their intentions to finally cash out and sell 4.3 million shares to the market.
That plan– announced just last week– was suddenly scrapped this week when the company announced its third quarter profits will be some ten cents less per share than expected. The company cited higher than expected sales, marketing and development costs. Note that this isn’t economy related. The sales didn’t fall off– expenses just weren’t managed well. CFO Brian Helman referred to a pretty big screw up from the marketing department in Rosetta Stone’s press release:
“In the current quarter, we experimented with a significant amount of internet and television test marketing programs and we did not expeditiously terminate certain of those programs that were not yielding acceptable results.”
In other words, the business is fine. The management team just looks like a bunch of clowns now. I’m assuming the VCs are annoyed and so are Rosetta Stone’s bankers. William Blair & Co. publicly lashed out about the incident to a Wall Street Journal reporter, saying it reflected poorly on Rosetta Stone and the bank that was going to lead the follow-on round.
This is bad news for more than just Rosetta Stone. It’s possible the deal sours the budding resurgence in sub-$500 million market cap companies too. As we wrote about last week, a small initial float of shares can help a new IPO’s stock hold up well, but it also means VCs and insiders can’t easily sell without crashing the stock.
In the case of Rosetta Stone the float was about 11 million shares, with insiders and investors holding the balance of the roughly 20 million shares outstanding. Liquidity was already going to be tough given a thin average trading volume of 328,000 or so per day. Thanks to this snafu, Norwest Equity Partners and ABS Ventures won’t be getting any liquidity from the company anytime soon. And with how few analysts follow small-cap public companies these days, investors may walk away from Rosetta Stone and never remember to return.
It’s a shame. I’m a huge fan of Rosetta Stone’s products, as I’m currently using them to learn Mandarin and Portuguese. The software has an impressive user interface that makes the drudgery of learning a new language actually feel more like playing a game. I can actually lose myself for hours on Rosetta Stone, invariably leading to an angry email from Arrington asking where some post is. When you find yourself suddenly speaking and understanding a new language, it’s that special kind of high-tech magic.
Over the last few months, I’ve been testing out the hosted version of Rosetta Stone, which had some annoying microphone glitches a few months ago, but has worked brilliantly since I downloaded a newer version. Perhaps the management team needs its own upgrade.
Market and financial analysis on this site is a joke. Stick to discussing the products and services.
ditto.
Please. Rosetta Stone doesn’t do anything the $50 software programs don’t do. The only different is you’re not paying for all their TV commercials where a poor country farm boy tries to pick up an Italian supermodel.
Any examples of the fifty dollar programs in mind?
http://www.phrasebase.com does the same thing with matching images to words and phrases, and it’s free.
BYKI is an excellent program. Topix sells in stores and it does a great job. I like Rosetta Stone but you’re paying a lot of money for their worldwide ad campaigns.
There are even a bunch of free sites that do the same thing, such as Livemocha.com and Busuu.com.
However, to the extent they mimic Rosetta Stone, they suffer from the same problems as Rosetta Stone. I discussed some of those in my review of Livemocha here:
http://www.stre...e-speakers.html
I love the accompanied image. Classic.
…and your jealous detractors need to find a hobby…or a girlfriend.
The problem is that Rosetta Stone software sucks. I used it to learn french and hated it. I ended up using Berlitz instead.
I’ve found sites like http://www.italki.com and livemocha to be useful in peer-to-peer language learning. They also have classroom and video learning offerings, all at about 1/10th the price of Rosetta stone.
Even if they come in at the high end of their full year 2009 guidance, the company would have a forward P/E of 40.17 based on today’s closing price.
With an expected 18.44% increase in revenue (once again using the high end of their revenue guidance) and an expected decline in FY 2009 earnings year-over-year, I don’t see how the stock can go anywhere but lower from here.
correction: The SEC filing was made by Norwest Equity Partners, not Norwest Venture Partners. http://www.nep.com. They are a subsidiary of Wells Fargo and a PEG not a VC. It states that pretty clearly in the press release.
livemocha.com is a free clone of RosettaStone anyways, that allows immersion with native speakers in a social [networkingish] sort of way.
I’m using it to learn Italian and Spanish.
I’m not a spammer, just some dude that found the site and loves and is helping spread the word, because a lot of people don’t know about it for some reason!
Dude, its OK. No one is saying you are a spammer.
Nah, one deal can’t spoil IPO momentum just like one deal can’t create it. Just because OPEN had a great IPO, it didn’t mean there was a sudden rush of filings (I wish!). I think next year, we will see a series of HIGH quality tech companies go public.
I see a tremendous backlog building. They will have strong revenue growth and profits. There will also be a lot of competition. Bankers will be busy. But I also don’t think valuations will be as nutty as we have seen in the past.
This comment is spot on. It’s not thoughtful to suggest that one deal makes or breaks the IPO market. Investors evaluate each company that comes along (well, other than during bubbles) separately.
Rosetta Stone did the right thing and will likely be better off in the future for having taken some short term pain now.
The article’s contention that this may have an impact on other IPOs is really much ado about absolutely nothing.
I find it both refreshing and encouraging that the company tells it like it is.They tried something new and it didn’t work. Did it affect their costs? Yepp. Did it affect their revenues? Nope. Are they taking necessary actions to correct their mistakes? Looks like it.
Language learners nowadays have a number of options outside of the “Stone”:
http://www.livemocha.com – Referenced above. It rocks and 100% free.
http://www.smart.fm (formerly http://www.iknow.co.jp) – Also rocks and totally free.
http://www.babbel.com – Cool language learning platform with free and premium services.
http://www.busuu.com – Social network for language learners similar in nature to LiveMocha.
http://www.edufire.com – We offer unlimited live online language classes for $29/month and a whole host of free live classes.
I’m sure none of us wish Rosetta Stone ill but at the same time we’re more than happy to point people to all the alternatives that out there so people are aware of all the options for learning.
Keep an eye on this new multi-media search engine launching soon.Heard about it and it looks promising.
It will be connected to all mobile networks worldwide(source of revenue) and partnering up with the biggest brands known to mankind,interms of revenue this will be the biggest on the net.Can’t wait to see how this turns out.See demo site below:
http://www.yaffflezone.com
look at website like http://www.arabicollege.com
they have 24 hours live with native teacher + they have same prodcut like Rosetta stone. they are much cheaper only they have problem they teach Arabic for non Arab, no other languages
@phill @techcrunch
You need a “spam” button next to each comment to report crap like the above, which your spam filter is missing.
Just my 2 cents
+1
Will aa.com try to kill their stock? This guys are the biggest cabrones on earth! Dealing with these people can get you suicidal. It makes dealing with AT&T a charm! Their employees are like robots. I rather pay +500 at another airline.
SpanishDict (http://www.spanishdict.com) is a great site for trying to learn Spanish. They’ve got basically everything Rosetta Stone has, and it’s free!
This makes me wonder how the FaceBook offering will do.
Here’s the real issue with Rosetta Bone …. ooops excuse me, Rosetta Stone.
http://wp.me/pAnF7-1x
Check out langlearner.com – it’s a new online language learning platform that puts Rosetta Stone to shame.
You need to be very motivated to learn from scratch only with a language software like Sarah did. Where is the teacher or trainer in the RS learning process or even her point of view in this article + replies?
Looks like a lot of competitors out there who are hungry to have the same media exposure than Rosetta Stone, reading all the comments…