Summary: This post basically states that voice technology has leapfrogged early product innovators and onto the early adopting consumers via Siri and Dragon software, both of which is developed by Nuance Communications (NUAN). The demand for these products have never been higher and most likely will continue to grow where an individual will be speaking instructions to their microwave. The -13% drop on Febuary 10th was caused from the company revising first and second quarter earnings lower. The CEO however maintained that they are still expecting to hit their year-end projections because they had to delay major revenue recognition due to "broader and more extensive engagements with partners." The stock is a volatile growth stock that will drop fast if the general equity market sells off. Which I do expect given the early market run-up and the current situations with oil, Iran, and Europe. If this stock reaches the $22.40 range and finds support, I would be a buyer of some call options. Or one could easily buy shares and put a trailing-stop of 8%, if they wanted to limit their risk. Mark your calendars for a possible entry late summer/early fall.
NEW VOICE TECHNOLOGY
The addition of Siri, the talking phone personal assistant, in the release of the iPhone 4S saved the launch from being a complete dud. Siri has a sense of humor, is responsive, and can guess what you're intentions are behind your words. Other than Siri the iphone 4S doesn't have anything the 4 doesn't. But with witty replies like the one pictured to the left, more and more consumers have jumped on board, greatly shortening the early adopter phase of a product's life cycle. For those of you who believe that Siri was bought by Apple and Nuance has nothing to do with it, I refer you to this article. Basically the Siri app people licensed, Nuance technologies to create Siri and in fact Nuance is the back-end serviceman for Siri. Nuance also appears to be under a non-disclosure agreement that they cannot comment on what services they provide for Apple.
In conjunction with Siri, the Dragon text-to-speech software is being snatched up by companies across the continents because it improves costs and efficiency. More and more users are turning towards "speaking" their emails out versus typing so they can look at other things besides a computer screen.
With these two products on their way to being used by the early majority within the next couple of years, more and more products like them will be licensed from Nuance. Think about having batmobile-like Siri assistant in a new Cadillac CTS coupe, or a microwave that starts heating up your food while you share a few jokes. This is the future of technology and Nuance is right in the middle of it.
NUANCE THE COMPANY
Nuance Communications is the leader in speech recognition. Nuance has 4000 speech patents, none which will not expire within the next 15 years. They employ 200 speech scientists, and are leaders in text-to-speech, dictation, multi-level commands, voice intentions, and concurrent processes. When cooperating with other companies, their revenue drivers are through contractual agreements where Nuance receives a pre-determined contract sum regardless of how many units are sold. So the "New iPad" containing Siri recently unveiled by Apple will not fluctuate Nuance's bottom line to an extent. Nuance cannot legally disclose what Apple is paying them for their technology, but it seems to be enough to where Nuance will keep quiet.
They boaster and impressive list of clients featuring the FBI, the city of Zurich, Apple, Xerox, Motorola, HTC, HP, Canon, Dell, Tom Tom, Ford, Audi, BMW, Garmin, The Cleveland Clinic, Wells Fargo, Bank of America, the US Army, IBM and others.
They have four distinct lines of business where Health Care is actually their number one leader, followed by Mobile & Consumer (cell phones, cars), Enterprise (business voice integration), and Imaging document business that they bolstered in 2011 with an acquisition of Equitrac which is mainly used by law firms to save paper costs.
Earnings have been growing 12-25% in the last 5 years in an ascending fashion mirrored by sales growing the 8-20% in the same time period. It has debt level of 34% which it gained to acquire any worthwhile company that was a player in their markets over the last couple of years. They have acquired 15+ companies and cool technologies like Swype texting and other voice technology rivals. With all the latest acquisitions Nuance Communications is, by definition, the voice technology market.
Current Stock Price
If one takes a look at the 1 year NUAN price chart that the stock can run-up quickly and it can also get hammered quickly.
If an investor takes the stance that the market will continue it 2012 bull trend into the end of the year, then its current price range of $25-27 looks to be a great entry point. Again it looks attractive because the Third Quarter sales are expected to blast through expectations because of state revenue recognition problems due to the new and longer agreements with companies like Apple. Those kinds of deals require many forms and legal proceedings that were not able to have been completed by their latest earnings report. It seems like they will not be ready until the third quarter.
If an opposing investor thinks that a large negative event will push the general market into a correction, then the $22.40 support line I outlined on the chart seems to be a safe entry if it holds. I currently share the view that this rally has run its course as evidenced by rising prices with record low trading volume. The macro-events of the possible complications with Israel/Iran, oil's record high seasonal levels, and the European recession/debt contagion also hint at a market correction.
Jonathan Sheets is not a registered investment professional and only a student looks to get credit for a blog post in his BA201 class. In any case that his advice is taken, losses are not his responsibility. However, if there are gains, it is mandatory that you buy him a drink if you see him out.
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