How Nuance Communications Inc. Could See Earnings Soar

Nuance Communications (NASDAQ: NUAN  ) will release its quarterly report on Monday, and investors are still nervous after the big plunge in the company's shares back in November following the company's last earnings release. Yet, even as Nuance has had to deal with activist investor Carl Icahn, the voice-recognition specialist has sought to go beyond its prestigious relationship with Apple (NASDAQ: AAPL  ) to come out with other innovative products that can set it apart from its competitors and make it less reliant on any single customer.

Nuance is best known for its Siri voice-recognition program on Apple's iPhones. But the company makes plenty of other products, as well, ranging from Dragon TV systems that utilize voice biometrics to next-generation voice-activated interfaces for car and truck drivers. As technology progresses, Nuance has plenty of opportunities to boost its profits, even as it goes through a transition phase with its revenue arrangements that has pressured its revenue lately. Let's take an early look at what's been happening with Nuance Communications during the past quarter, and what we're likely to see in its report.


Nuance's Dragon TV. Source: Nuance Communications.

Stats on Nuance Communications

Analyst EPS Estimate

$0.21

Change From Year-Ago EPS

(40%)

Revenue Estimate

$485.15 million

Change From Year-Ago Revenue

(1.5%)

Earnings Beats in Past 4 Quarters

2

Source: Yahoo! Finance.

Will Nuance earnings grow faster this quarter?
In recent months, analysts have cut their views on Nuance earnings, reducing their December-quarter estimates by a third, and shaving between 19% and 23% from their full-year fiscal 2014 and 2015 projections. The stock has given up ground in response, falling 4% since early November, but recovering from much larger losses.

Nuance's September quarter results showed how sensitive shareholders are to disappointing guidance. The company posted better adjusted revenue and earnings than investors had expected for the quarter, but its December-quarter projections fell well short of the prevailing projections among analysts. Even though Nuance argued that part of the shortfall stems from its move toward subscription and term-based pricing models rather than one-time perpetual license purchases, investors punished the stock, sending it down 18%.

But Nuance has already given investors a more positive view of what happened more recently, with preliminary guidance for the December quarter late last month leading to a big jump in the stock. Although the increases in its sales and earnings guidance weren't enough to fully restore investors' expectations back to their pre-November levels, they nevertheless suggested that Nuance is doing a good job of navigating a difficult environment for technology companies generally.

Still, Nuance faces some major threats. Google's (NASDAQ: GOOGL  ) recent acquisition of DeepMind Technologies could give the online-search giant greater capabilities in artificial intelligence, helping to turn its Google Now voice-search application into a vital part of its Android ecosystem. Nuance has responded with its Project Wintermute artificial-intelligence system, which is aimed at becoming a cloud-based app for multi-platform use across smartphones, tablets, televisions, and other Internet-connected devices.

In the Nuance earnings report, take a close look at the company's lesser-known health-care business. With so many high-margin opportunities available in that industry, Nuance's future growth there could help give investors greater comfort that it won't be entirely reliant on mobile-device-related revenue in the future.

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Read/Post Comments (5) | Recommend This Article (11)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On February 07, 2014, at 9:44 AM, dp23peace wrote:

    I own Nuance, but I am a little worried that the Google voice on my Droid 4 is absolutely awesome. My brother and I have tested Siri and Google voice side by side and Google gets is right nearly every time, while Siri is way off many times. Are we comparing apples to apples, or am I missing something?

  • Report this Comment On February 07, 2014, at 11:15 AM, Sketch71 wrote:

    I also own Nuance, but my biggest concern is management. This is a great company with great products that can't seem to get out of its own way. If I had faith in Nuance's leadership, I would consider this stock a buy, but as it is I am quickly losing faith in their ability to execute, excellent products or not.

  • Report this Comment On February 13, 2014, at 2:08 PM, 8martini8 wrote:

    dp23 -- I'm among those perfectly happy with my Siri performance, but I'm sure many have found as you haven that Google voice is better in some ways at least. Having said that, I'll really only become concerned on Nuance's behalf when I see Google actually competing with Nuance in providing voice coalitions for third-party businesses. Right now the Google alpo is an app -- it's not even bult into Samsung Android phones as the default personal assistant (Samsung is a Nuance client). I've yet to hear of Google competing against Nuance for TV manufacturers like, again Samsung, or LG -- or auto manufacturers (Audio, BMW, Ford, Mercedes and several more are all working with Nuance). Ditto for enterprise phone support authentication systems (banks, insurers, retail, etc.).

    In short, if Google is looking to eat Nuance's lunch they better get started soon, and there's no evidence that I've seen that suggests they're doing so.

  • Report this Comment On February 13, 2014, at 2:09 PM, 8martini8 wrote:

    Sorry for the odd auto-corrections. "Voice Solutions" -- and also, not alpo.

  • Report this Comment On March 05, 2014, at 1:36 PM, BeanThere wrote:

    Having worked at Nuance as part of one of their acquisitions our world leading company was turned into a second rate provider by the constant changing management and their lack of concern for customer service. Yes they may have the best products but it is a case of the customer is in the way. If they Just paid attention to getting some consistency and grass root care then their income and profits would change over night. As someone that over achieved on quota you have to ask why leave. Easy there are only so many sorries you can say to your customer every day.

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