ARLINGTON, Va. (TheStreet) -- Shares of Rosetta Stone (RST) - Get Report lost a quarter of their value Monday after the company, which went public in a high-profile IPO earlier this year, scrapped a planned secondary offering and issued a profit warning.
In a press release, the publisher of language-education aids blamed its diminished outlook on bloated sales and marketing costs.
There was regret on the part of Rosetta Stone's finance chief, Brian Helman, who said in a preparted statement, "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."
But the scarier news might have been the decision to scrap the share offering, which it only announced a week ago, on Aug. 10. The company would have sold a little more than 4 million shares, but the company appears to believe that its reduced outlook will depress the stock price to such a degree as to ruin the prospects of an offering.
The company nonetheless strove to point investors to the bright side. In explaining the profit warning, Helman also cited "accelerated product development expenses." Rosetta Stone's higher-level instruction products in English and Spanish have been such a hit, he said, that the company decided to bring similar products for other languages to market by the holiday season this year, earlier than it had planned.
Rosetta Stone stock was moving Monday afternoon at $21.32, down $7.03, or 25%, on volume of 2.4 million shares. Daily turnover averages 442,000 shares. The company had its initial public offering in April, selling 6.25 million shares at $18, making it the first IPO to price above its proposed offering price in almost a year.
But the company on Monday shed much of the good feeling that had helped inflated the stock since its debut. Rosetta cut back its earnings guidance for the third quarter and the full year. It now expects a bottom line (adjusted to exclude items) of $4.9 million to $5.3 million, or 25 cents to 27 cents a share. That's down by about 16% (on an EPS basis) from the previous target of $6.5 million to $6.9 million, or 30 cents to 32 cents a share.
Analysts as polled by Thomson financial were looking for third-quarter EPS at the top of that range.
For the year, the company now forecasts earnings of $9.7 million to $10.5 million, or $1.14 to $1.18 a share. Analysts were predicting EPS of $1.14.
Rosetta Stone left its revenue targets in place.
-- Written by Scott Eden in New York
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