Shares of Rosetta Stone Inc (NYSE:RST) are rallying this morning, up as high as 21%. The massive jump comes as the company disclosed that it had received an “expression of interest” from RDG Capital. Management thus far has only said that they will evaluate the communication from RDG Capital. The investment firm’s interest comes during a period that has been particularly rocky for Rosetta Stone. Former CEO Stephen Swad resigned from his post in March after leading the company to poor performance over the past three years.
Rosetta Stone reported terrible first quarter earnings earlier in May
On May 6, Rosetta Stone reported first quarter earnings loss of $0.95 per share on revenue of $58.4 million. Analysts were estimating earnings per share loss of $0.69 on revenue of $44.08 million. Revenue was -4% year over year, adjusted EBITDA showed a loss of $14.5 million, and free cash flow for the quarter was -$15.7 million. Consumer sales business saw revenue decline 18% during the quarter, but the Enterprise & Education business saw revenue grow 30% year over year. Overall, the quarter was poor and things are certainly a mess at Rosetta Stone. The company continues to stick to restructuring plans, in the hope that the new focus will help revive Rosetta Stone’s outlook.
Downgrade and insider selling plague Rosetta Stone post-earnings
After Rosetta Stone released their poor first quarter earnings, analysts and investors continued to worry about the company’s outlook due to the fact that management no longer releases guidance figures. Barrington Research downgraded shares of Rosetta Stone on May 8th from an outperform to market perform rating. In the report, analysts detailed that the company has not given shareholders a clear path to the major transitions within the company. Furthermore, the downgrade comes as Barrington Research analysts found a lack of near term catalysts for Rosetta Stone, but still liked its long term prospects. Meanwhile, interim CEO John Hass, sold of 1,710 shares of Rosetta Stone on 5/11/15, according an SEC filing. The average share price Hass sold at was $7.20 and total value of the shares sold comes to $12,329. Hass still has 43,890 Rosetta Stone shares.
Overall, it is still in the early stages what RDG Capital’s intent with Rosetta Stone is, but there is likely more details to come over the next several weeks. The standard operating procedure at Rosetta Stone is not a recipe for success and it is likely that the company will need to guidance of a hedge fund, be it a takeover, activist, taking company private, etc. The bottom line here is that Rosetta Stone needs to get back on the pavement and RDG Capital could have the solution.
Disclosure: None
