The company that allows you to “start learning a new language in less than 5 minutes” is having trouble communicating its message to Wall Street. During the third quarter Rosetta Stone Inc. (RST) booked revenue of $67.2 million and earnings of $0.29 per share. The result showed growth over the same quarter last year, but failed to revive investor confidence which had been falling for several months.

In August, ZachStocks discussed marketing expenses at Rosetta, explaining that the company was “purchasing sales” by exorbitant spending on sales and marketing in order to reach target revenue rates. While the targets were being hit, profit margins suffered and the stock took a significant hit when third quarter guidance was issued on August 17th. Last week when the company issued the actual third quarter report along with guidance for the fourth quarter, the stock once again gapped lower, this time violating the $18 IPO price.

Analysts ended up with a bit of egg on their face last week when Genoptix Inc. (GXDX) reported earnings. In August we took a look at the company, noting that new customers were leading to significant revenue growth. The trend has continued with Q3 revenue coming in at $33.5 million – good for a 47% increase over last year. Analysts had been expecting earnings of $0.34 which were blown away by the actual $0.53 per share figure.

Management didn’t stop with an excellent historical record. The company issued guidance for the fourth quarter with full year revenue expected at $180 million and EPS of $1.60. This guidance caused analysts to jump to adjust their models and several research desks had to increase their estimates for 2009 earnings. In addition, the company expects to see 2010 revenue grow to $235 million – good for a 30% annual increase.

What if I walked up to you this afternoon and asked you personally for a loan? I know, we probably haven’t met and already you are uncomfortable with my overt start to our conversation. But let’s run with this for a few minutes… Assuming you had the money to lend, and I appeared to be a legitimate borrower with every intention to repay the loan, you might actually consider the transaction. After all, loaning someone money can be a benefit to both the borrower and the lender – I would have the capital needed for whatever project I was undertaking, and you would negotiate a reasonable return for the capital you trust me with.

Treasury securities are not all that different. In fact, a good friend and colleague of mine likens treasury liabilities to Loans to Congress. Essentially, buyers of these securities are allowing the US government to borrow capital, and Congress is the body primarily responsible for spending that money. So let me pose my original question to you from a different standpoint. If your congressman walked up to you this afternoon and asked you personally for a loan – would you consider lending him money? Would your answer change if he offered the full faith and credit of the United States as a guarantee on your principal? Well, many investors today are saying “yes” to this request – possibly without fully understanding the risks involved.

While major equity markets gyrate in mixed trading after the payroll report, investors in The Blackstone Group LP (BX) are pushing the stock decidedly higher. Blackstone reported earnings Friday morning and while the official numbers showed a loss for the quarter, it appears that trends are turning higher for the private equity firm. Revenue and earnings figures for this company are particularly difficult to analyze because of the partnership accounting surrounding many of the firm’s managed alternative investments, but the statistics from the earnings release were certainly encouraging.

Many of the firms hedge funds have seen significant increases over the past two quarters as asset prices have become more liquid and risk premiums have increased. Unfortunately, quite a few of these funds have “high water marks” which have yet to be eclipsed. A high water mark simply means that the fund must make up losses for investors before Blackstone as a management company can collect the rich incentive allocations as part of its compensation. As these high water marks are reached, the profitability of Blackstone will likely increase geometrically as the firm is able to participate in the profits funded by its investors.

Investors in Blue Nile Inc. (NILE) are cheering the third quarter earnings release. For the period ending September 30, the company grew revenue by 2.4% and turned in earnings of $0.17 per share. The profit represented 13% growth over the same period last year as the company noted specific strength in bridal jewelry and international sales.

Any consumer discretionary company growing sales and earnings in this environment deserves a certain degree of respect. While the third quarter of 2008 was no picnic, retail companies are finding it difficult to convince penny pinching consumers to open their wallets. Blue Nile is capturing market share from competitors during the difficult economic period with the expectation that the recovery will bring substantial revenue and earnings growth.

The Federal Open Market Committee (FOMC) concluded its two day meeting Wednesday with its customary announcement at 2:15 PM. The statement concluded (as everyone expected) that the Fed would leave rates unchanged at a target of 0% to 0.25%. More importantly, the committee said that it plans to keep rates exceptionally low for the foreseeable future – a very popular stance with the masses, but one which could lead to significant trouble down the road.

Essentially, it looks like the committee is trying to have its cake and eat it too. The official posture is that the economy is improving and capital markets are once again functioning. To back up this assumption, the Fed points to improving consumer spending, and home buying activity. Now those two areas have been artificially propped up by two major government programs… The “cash for clunkers” measure, along with the first time homebuyers tax credit.

The market melt-down caused a significant decline in the number of IPO transactions over the past two years. While a typical year used to include more than 200 major offerings, there were less than 50 such offerings in 2008 and so far I count 44 major transactions for 2009. However, the pace of deals has picked up as markets once again offer liquidity, and private equity investors and corporations are using that liquidity to cash out and raise capital.

The health of the most recent deals will have a major effect on both the pricing and frequency of upcoming deals. If investors are willing to take on risk and the market has a speculative tone, then underwriters will likely have little trouble in pricing deals and getting top dollar for the selling shareholders. But as we start to see a shift to more caution on the street, underwriters will have to adjust terms in order to get shares sold. This doesn’t necessarily mean the rate of deals will decline, but it may mean that sellers will have to settle for lower prices and for selling smaller allocations in order to match market demand.

Stanley Inc. (SXE) traded sharply higher Friday after reporting earnings for the fiscal second quarter. ZachStocks featured SXE last month noting that the company’s government contracts would likely drive growth in earnings. Investors are quickly competing to buy shares after the announcement which not only showed strong growth for the quarter, but included strong guidance from management.

For the second quarter (ending in September) the company logged revenue of $217.1 million which was 14% higher than the same quarter last year. The majority of this growth was organic, although three of the percentage points were due to an acquisition made earlier in the year. Earnings were also strong with EPS coming in at $0.49, an increase of 32% above last year’s levels.

This week LogMeIn Inc. (LOGM) reported earnings for the first full quarter that the company was public. The stock has been a rousing success with the initial investors receiving stock on July 1 at a price of $16. Initially, the stock began trading near $20 for a 25% initial premium to the deal price. As is usually the case, the stock backed off a bit once the hype of the deal dissipated, and by August the stock was testing the $16. IPO level. By the middle of this month the stock had successfully tested the initial price and broke to new highs in the low $20’s which is where the stock was positioned coming into the earnings announcement.

The third quarter looked very positive with the company reporting revenue of $19 million which is up 32%. Earnings were also strong with non-GAAP earnings per share of $0.12 compared to $0.05 last year. During the quarter the company generated operating cash flow of $7.1 million compared to $4.3 million last year, so the business model is certainly strong with the only question being how quickly and effectively management can scale in the future.

Over the past two months, the IPO market has heated up, allowing companies and private investors to access liquidity by selling new shares to the public. While the performance of these deals have varied from company to company, Verisk Analytics (VRSK) turned out to be one of the better managed, more profitable transactions for investors. The stock was offered to the public on October 7th at $22 per share and closed above $28.50 on Tuesday for an attractive gain of nearly 30%

The deal was underwritten by Bank of America (BAC) and Morgan Stanley (MS) along with a syndicate of supporting cast. Although Bank of America was not considered one of the top tier underwriters for the majority of this decade, their acquisition of Merrill Lynch during the financial meltdown has given them access to a large pool of retail and institutional investors which makes placing IPOs and secondary offerings a bit easier.

Shares of AECOM Technology Corporation (ACM) got a lift Monday after the company announced a weekend acquisition. Ellerbe Becket which is an architectural, interiors and engineering firm has been bought by AECOM who continues to build out its portfolio of product offerings by buying out the competition. The ZachStocks Growth Model has a long position in ACM which has taken more time than expected to mature, but it now appears that the company may be building a strong fundamental base which could lead to a sharp rally in the stock.

It is a bit unusual to see the acquiring firm stock rise on the day that the acquisition is made, because usually investors are wary that the acquiring company may have paid a premium in order to take over the target company. However, ACM rose more than 12% on a day when the market was experiencing a significant decline. Volume was roughly double the average number of shares indicating that institutional investors may have been at work building large positions. The initial strength after the transaction is a positive sign and is likely to point to this being an accretive deal for AECOM.

An extensive article in the Wall Street Journal Online today points out some of the challenges that Tiffany & Co. (TIF) is facing as the company struggles to remain competitive in the current global economy. The company has increasingly turned to integrating a larger portion of its supply chain by taking interests in overseas miners and opening factories for cutting and polishing its diamonds. The strategic decisions over the past few years have led to difficulty as the global demand begins to dry up at the same time that Tiffany has built a costly supply structure.

Tiffany is one of the featured shorts in the ZachStocks Retail Fail sector report. As the market continues to make new highs on a weekly basis, investors should begin to develop defensive strategies for protecting gains. Many professional investors initiate short positions in sectors in which prices have advanced much more quickly than the fundamental improvement seen in the businesses. This strategy can be effective in protecting gains that have been accumulated as the market has rapidly advanced.

First Cash Financial Services (FCFS) reported earnings Tuesday morning and the stock responded by trading sharply higher. The strength certainly benefited the ZachStocks Growth Model which currently has a 4% position in the stock. ZachStocks published a positive article on FCFS earlier this spring and while it has been a bumpy ride, it appears that the company is making some good strategic decisions and realizing attractive growth.

Earnings for the third quarter came in at $0.35 per share, above consensus expectations and 21% above the third quarter of 2008. More importantly, management increased their guidance slightly for the year and it appears both revenue and earnings growth remain solid. Revenue came in at $94.6 million which is up 20% when taking currency fluctuations into consideration.

Ebix Inc. (EBIX) has been an incredible investment this year. The shares began 2009 trading in the mid-20’s before hitting a low of $17.12 in the early days of March. Since that time, the stock has rallied 279% to its most recent close of $64.91 and the stock could still have farther to go. Estimates for earnings continue to be ratcheted higher, and even yesterday after an incredible rally, the valuation still looks relatively attractive.

The software and services company has developed a strong business serving the needs of insurance companies across the United States. Their solutions cover a wide range of technology needed by groups and independent agents, and the expertise has allowed the company to carve out quite an attractive niche and grow market share. Now that the company has proven successful and grown into a market leader, Ebix has its sights set on a much larger target market.

The housing market may be dead in the US, but in China there is still significant activity. As a massive population continues its transition to a higher standard of living, millions of rural Chinese citizens are moving to large cities and are in need of housing. A real estate bubble may be in the works, but it is certainly a long way from popping.

E-House Holdings (EJ) is a leading real-estate company serving this growing need. The firm currently operates a large real estate agency with brokerage services. It also has a consulting and information services business which allows clients to have access to a huge database of information. This information will be spun off to investors in a complicated transaction this week. The new IPO will be China Real Estate Information Corp (CRIC).

Recently, the company announced results for its fiscal second quarter (Red Hat operates with a February fiscal year end). The results came in ahead of expectations with the company posting earnings of $0.20 per share from revenue of $184 million. Sales were up 12% above the same quarter last year, which indicates that businesses are willing to invest in technology even while the purse strings are held tight for many other expenditures.

1. Forward Metrics Strengthening – A growing backlog of business appears to ensure that the company will be able to maintain revenue growth for quite some time.
2. Upsell Thesis Playing Out – The company is seeing its premium products (with higher margins) move off the shelf with 23 of the top 30 renewals opting for higher margin products
3. Share Gain Potential – There are quite a few high profile competitor renewal contracts that will come up over the next three years. Merrill estimates $240 million of potential new business from these contracts.

Protectionism is alive and well and the Chinese government is tightening pressure on foreign investment. Most recently the country’s lucrative online gaming industry is seeing tougher regulations aimed at protecting local gaming companies who are finding it difficult to compete with larger players.

On Saturday, the China regulatory body, the General Administration of Press and Publication issued an announcement which bans foreign investors from participating in profits from the country’s online gaming business. These investors are not allowed to participate in wholly owned investments, joint ventures, or any other manner in which they could profit from the thriving business.

The Blackstone Group LP (BX) is cashing in. The private equity company which manages alternative investments for affluent and institutional investors is apparently ready to begin selling some key positions. Recent market strength has been a boon for existing private equity investments and may provide an attractive exit point for several timely purchases made by individual fund managers.

Investors in funds managed by Blackstone received a letter on Friday explaining that the company was close to listing eight of its portfolio companies. Typically this type of transaction is very lucrative for private equity firms as well as for investors in their individual funds. Listing these private positions on the market allows Blackstone to mark these investments to a legitimate market value which in turn allows them to book a realized (and unrealized) profit on the position. Since the majority of Blackstone’s income comes from incentive fees tied to profitable trades, listing its positions through an IPO transaction can immediately raise profits for the parent company.

An article on the front page of the Wall Street Journal “Money and Finance” section yesterday this morning brings up some disturbing analysis of the commercial real estate market. The story discusses the danger that many banks face as they continue to hold commercial mortgages which are growing weaker by the day.

In particular, the article notes that banks with the most exposure to commercial real estate have dwindling loss reserves to the point where only 38 cents are set aside for every dollar in bad loans. In 2007 this level was at $1.58 so there has been a significant deterioration over the past two to three years. Much of this debt will need to be financed in the next few years which creates a problem for both borrowers and banks. As property values drop and vacancies mount, many borrowers will simply not have the resources to refinance these loans.

The first shot of a new war has been fired. Yesterday markets were scrambling in reaction to the rate decision by the Reserve Bank of Australia. In a surprise move, the country’s overnight rate has been raised from 3.0% to 3.25% in the apparent first inflation fighting move among leading nations.

In early pre-market trading, the S&P 500 looks to open higher by about 1% while commodities are adding to their gains. Silver futures contracts for December are currently crossing above $17.00 per ounce with the corresponding SLV trading at $16.70. Similarly, gold futures are up about 1% to 1,026 per ounce and the GLD fund is now in triple digits at $100.71.