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Why Cerence Stock Is Crashing Today

By Rich Duprey – Nov 22, 2021 at 12:56PM

Key Points

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The conversational AI stock just had a head-on collision with the auto industry's outlook.

What happened

Shares of Cerence (CRNC 1.63%) were plummeting almost 18.8% as of 11:58 a.m. ET Monday after the auto-focused software company reported fiscal fourth-quarter earnings that offered guidance that was below Wall Street's expectations. 

Although Cerence beat analysts' top- and bottom-line forecasts, its outlook for the coming fiscal first quarter was well below the mark. The software specialist guided for a range of $91 million to $96 million, short of the $101.3 million Wall Street anticipated.

A driver in a car pushes a digital button that activates autonomous driving.

Image source: Getty Images.

So what

Fiscal fourth-quarter revenue for Cerence of $98.1 million just squeaked past analyst forecasts of $97.9 million, while adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of $0.66 per share handily trounced the consensus view of $0.56 per share.

While the beat showed Cerence grew faster than the industry as a whole, guidance indicated the auto industry headwinds were going to hit it harder than expected. The computer chip shortage would continue ravaging car maker production with the market analysts at IHS forecasting auto production will tumble 21% in the calendar fourth quarter.

Still, CEO Sanjay Dhawan said in a statement, "Our total company revenue grew 17% compared to the auto production growth of 9% over the same time-period, which is testament to the secular tailwinds, as well as, the innovative products and services we continue to bring to market."

Now what

Dhawan maintains Cerence is well positioned to continue gaining competitive advantages in the sector, but noted a newly signed contract with one of the world's foremost elevator manufacturers gave it the chance to break into a new vertical. Cerence will deliver voice artificial intelligence technology and connected services in a bid to help it create the next generation of elevators.

For fiscal 2021, Cerence sees revenue growing 12% compared to flat auto production while adjusted EBITDA will be in a range of $144 million to $163 million.

The new business opportunity is hopeful, but the software specialist looks like it's going to find some rough road still with its legacy auto market.

Rich Duprey has no position in any of the stocks mentioned. The Motley Fool recommends Cerence Inc. The Motley Fool has a disclosure policy.

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