There's nothing subtle about this market reaction.
Shares of Nuance Communications (NASDAQ:NUAN) took a 19% dive on Friday, following the release of first-quarter results. Sales jumped 28% year over year to $462 million, but fell short of Wall Street's $490 million target. On the bottom line, non-GAAP earnings increased by a penny per share, landing at $0.35. That was just short of analysts' $0.36 EPS estimates.
Adding to Nuance's pain, revenue guidance for the second quarter was roughly in line with the analyst consensus, but earnings targets came up short. And even if Nuance hits the top end of its full-year targets, it'll still miss the Street's average numbers.
CEO Paul Ricci explained that European sales are sagging under another round of macroeconomic worries. North America is doing alright, particularly in the enterprise segment. In Asia, mobile deals kept the train rolling. And Ricci pointed out that the current quarter seems a little extra risky compared to the full year, because several large orders in his pipeline may or may not close by the end of this period. But he does expect them to materialize before the end of the year.
This stock has been riding the mighty coattails of Apple (NASDAQ:AAPL) since the iPhone 4S turned out to have Nuance technology inside the Siri personal assistant feature. But Cupertino giveth, and Cupertino taketh away. At least partly, thanks to Apple's slowing smartphone growth, Nuance shares had fallen 16% over the last year before this report, and 32% today.
I don't think that's a totally fair reaction. Nuance sells voice and character recognition tools not only to other mobile computing giants, but also to a number of completely different sectors. This helps sales and earnings achieve steady climbs in the long term, even if share prices don't always follow suit.
Health-care sales are growing faster than mobile revenue, and already dwarf the mobile division, with 64% higher sales. In the last three years, no single customer of any kind has accounted for more than 10% of Nuance's sales. Nope, not even Apple.
So, Nuance is much more diverse than many investors give it credit for, and hooked into the health-care megatrend in a big way. If management takes a conservative tack on guidance due to macroeconomic softness, I don't see how that's a bad thing. My bullish long-term CAPScall on this stock isn't going away today. In fact, this looks more like a buy-in window than a signal to panic and sell.