Rosetta Stone: Sees Profits Once Again In Coming Future

Apr. 12, 2016 7:14 PM ETRosetta Stone Inc. (RST)11 Comments
Michael Post profile picture
Michael Post


  • Rosetta Stone is successfully transforming into a simpler and more profitable business.
  • Rosetta Stone will continue to embrace higher overall profit percentages as the transition is finalized.
  • Rosetta Stone is a good long term opportunity for growth seeking investors.


Rosetta Stone (NYSE:RST) is successfully transitioning into a lower cost, higher profit margin business model. By electing to phase out of the consumer product segment and shift towards educational subscription services, RST will soon be positioned for high revenue growth and positive earnings. (See the 10-K for reference.)


Rosetta Stone is widely respected for its highly effective instructive language learning software. After Q4 of 2015, RST celebrated the achievement of growing its educational subscription segment to greater than 50% of the overall company in terms of revenue. This major milestone was significant because it was the long term vision of management and the highest profit margin segment of the company. Now that the transition process is more than half way complete, RST and investors can expect to begin seeing improved financials in the upcoming quarterly reports, and greater value creation from less invested capital. As the business transition continues its course, RST will enjoy a long period of steady growth and higher profitability.

Consumer Product Segment

The consumer product segment was once a profitable operation until it became heavily dependent on marketing in order to sustain consistent growth. The major problem was that product sales were one time transactions that required a new buyer every time. The isolated costs associated only with this segment are manufacturing, packaging, storing inventory, and shipping. These costs were affordable and offset by high product prices but this only added to the growing difficulty RST was having maintaining positive sales growth. Management realized that this segment was becoming unmanageably expensive to promote, and decided to stop spending the extremely high capital on sales and marketing expenses for product sales. Instead, Rosetta Stone made the decision to phase out of product sales and move towards a virtual education subscription service company. The breakdown below shows the product consumer segment in the last 5 years, its diminishing

This article was written by

Michael Post profile picture
I am young and currently enjoying success as an equity analyst for the Siena College Invesment Fund. I perform thorough analysis on sectors, companies, and macroeconomic factors to make investment decisions with high expected returns.

Disclosure: I am/we are long RST. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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