Ted Leonsis joins Rosetta Stone board

By Mike Musgrove
Washington Post Staff Writer
Tuesday, December 8, 2009

Former AOL executive Ted Leonsis has joined the board of Arlington-based Rosetta Stone, the language-learning software company that has struggled to meet the lofty expectations of Wall Street's analysts since going public this year.

Leonsis, the owner of the Washington Capitals and an investor in several technology-oriented companies, said he looks forward to helping guide Rosetta Stone as it "goes from being a product company to being more Internet-oriented."

"I thought it would be an honor to jump on board and be one of the first outside directors," said Leonsis, who said he thought Rosetta Stone could be a high-growth company.

Rosetta Stone went public in April, making it the first Washington area company to do so in a year.

The company said in the spring that it would use the cash from the stock offering to expand its international presence. Chief executive Tom Adams said Monday that overseas growth remains the company's largest opportunity. Currently, only about 5 percent of the company's sales come from outside the United States.

The company is also seeking to use the Web as a distribution mechanism. A new product launched this year lets language students log on to a virtual classroom taught by native speakers of a course's subject matter.

When Rosetta Stone went public, its shares were offered at $18, a price that soared to $26.27 during trading on its first day. Since then, the stock has sunk and now trades at less than its offering price.

Share prices took a 27 percent hit in August, when the company revised its third-quarter profit forecast downward and canceled a secondary stock offering. Last month, the company announced that revenue for the third quarter was $67.2 million, an increase of 12 percent, compared with $59.8 million the previous year. On Monday, the stock closed at $17.65.

In its filing, Rosetta Stone reported that consumer revenues had increased 20 percent for the first nine months of this year, a figure that matched an increase in the company's retail pricing. Year over year, unit sales for the consumer division, which accounts for most of the company's business, were flat.

Some analysts have downgraded the company in recent months. "Technically, they haven't missed any of their guided forecasts," said Ross MacMillan, an analyst with Jefferies & Co., "but I think the expectation was that they were going to beat forecasts more than they have."

In announcing Leonsis's appointment Monday, Adams said he was thrilled to have the Internet executive on the board.

"He's obviously one of the pillars of the business community here in Washington, D.C.," Adams said.

Leonsis said he is not only a board member now, but also a customer.

He said he is using Rosetta Stone to learn Russian, the mother tongue of his hockey team's star player, Alex Ovechkin.

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