Nuance Communications Inc (NASDAQ:NUAN)

CAPS Rating: 4 out of 5

A provider of speech and imaging solutions for businesses and consumers. The Company's technologies, applications & services are transforming the way people create, use and interact with information & make the experience of its end users more convenient.

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Member Avatar germanjuggler (68.90) Submitted: 7/1/2014 7:15:11 AM : Underperform Start Price: $23.33 NUAN Score: +67.65

NUAN is a fake innovative company they delivered nothing on their early promises after scansoft takeover etc.
the speech recognition engine of Nuance Comm. is lousy.
You can throw more money into the b-h.. but it makes it more worse for a single reason former employees of NUANCE have already left the sicking boat to Apple Inc.

Apple Inc. needs to wait until the implosion of non-sense (NUANCE) is perfect after all Apple Inc. will perhaps grab the patents.

NUAN target below 1 buck a share next 12 month!

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Member Avatar MNDLBRT (45.12) Submitted: 6/3/2014 2:36:43 PM : Outperform Start Price: $16.21 NUAN Score: +10.11

Speech recognition technology is in its early stages and will be everywhere in 5 to 10 years. It is already big in medical, and NUAN appears to be showing a maturing (read profitable) business model there. Right now, NUAN appears to be leading and their technology, which is behind SIRI is impressive. GOOG or AAPL or you name it could decide to do this on their own, so that is the risk to watch for. One other point of note is that Carl Icahn is involved, and that indicates a thorough fundamental study of cash flows into the future has been undertaken, and possible more so, that management will not be allowed to take investor money as their own. These factors, I believe, limit the downside.

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Member Avatar badheart (< 20) Submitted: 6/2/2014 6:08:29 PM : Outperform Start Price: $16.25 NUAN Score: +9.54

I purchased this stock when Mötley fool listed it as a stock to watch. My price was around $3.45/share. The stock increased 1,268%. Never having a stock increase like that I was quite nervous,it would drop,and I would lose my gains. I sold 50% of my holding and still hold them. The stock is now 653% over my purchase price.

I am no great typist, I had purchased a program after a friend informed me of its wonders. I knew this program had great potential and a great market. Telemarketers were and phone centers when calling in such as accredit card customer service center. Voice reconnection has really exploded and will continue to grow. The company has not turn much in profits, because it has a high appetite for acquisitions.

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Member Avatar dpelleratgmail (41.59) Submitted: 4/3/2014 10:34:20 AM : Outperform Start Price: $17.43 NUAN Score: -0.12

Amazon just opened a new market for its technology that could drive implementation into every TV, auto and elevator in use.

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Member Avatar someboy0808 (< 20) Submitted: 3/21/2014 5:42:34 PM : Outperform Start Price: $16.75 NUAN Score: +3.12

19 dollars soon

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Member Avatar motleypool (24.84) Submitted: 3/10/2014 6:57:32 PM : Outperform Start Price: $15.18 NUAN Score: +13.53

Who enjoys typing? Not me. And Dragon understands me. Soon the Dragon and its ilk will hide in many more devices from cars to fridges.

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Member Avatar JoeChristmas (50.86) Submitted: 2/25/2014 2:54:54 AM : Underperform Start Price: $15.30 NUAN Score: -12.42

Worst executive management team possible. Deluded CEO and his band of hand picked lackeys. So much potential, such a terrible waste.

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Member Avatar AdanLozanoJr (31.58) Submitted: 2/16/2014 11:50:45 PM : Outperform Start Price: $14.80 NUAN Score: +15.97

It's companies like Nuance Communications (NUAN) that makes our world of computing and gaming a little more pleasant. This stock will outperform any of its peers.

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Member Avatar sbarnes69 (26.76) Submitted: 1/31/2014 1:48:18 PM : Underperform Start Price: $15.33 NUAN Score: -8.53

Technologies that Nuance have invested in are becoming commodity offerings by Google and Apple.

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Member Avatar McRCN (44.02) Submitted: 1/28/2014 5:22:59 PM : Outperform Start Price: $15.08 NUAN Score: +9.67

buy on pullback

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Member Avatar mooneybluesj (< 20) Submitted: 1/24/2014 7:08:58 PM : Outperform Start Price: $14.99 NUAN Score: +10.61

There is growing demand for voice technology

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Member Avatar notoogreedy (< 20) Submitted: 1/24/2014 4:25:06 PM : Outperform Start Price: $15.50 NUAN Score: +7.32

The company has run it's course with Ricci and he has been over paid for his substantial contributions. The company has great patents and products and they will survive the change in compensation structures. However, the real kicker will be Icahn's pressure and resulting move by the company to split itself up and sell the parts for greater than it's whole.

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Member Avatar Nbajpayee (< 20) Submitted: 12/20/2013 8:07:19 PM : Outperform Start Price: $14.49 NUAN Score: +16.51

Still holding, its long hold for outerperform

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Member Avatar DRovito (89.73) Submitted: 12/12/2013 9:29:56 PM : Outperform Start Price: $13.19 NUAN Score: +29.19

Growth stock that plunged to its 4 year low in the midst of a prolonged Bull market . . . Carl Icahn owns close to 20% of the company, at higher price/share than me. TMF1000 also owns it at about equal price/share. One third for long term, two-thirds for trading . . .

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Member Avatar TMF1000 (99.67) Submitted: 12/2/2013 10:19:30 AM : Outperform Start Price: $13.59 NUAN Score: +24.98

NUAN was added to my CAPS at $13.59.
I usually don't place on Caps stocks that have no net income. And NUAN doesn't have positive cash flow if you factor in acquisitions either. And they just bought Varolii for $100 million in October, 2013, so the acquisitions keep on rolling. Debt or share count or both will go up more when they announce the first quarter results.
Conclusion:

The stock price fell $2.89 the day after the earnings report to close at $13.10 on November 26, 2013. The stock price hasn’t been that low since September 10, 2009. NUAN first entered The Motley Fool universe as a recommendation on 12/22/2005. It closed the day at a price of $7.34. Annual sales for fiscal 2005 were $232.388 million and they were losing ($0.05) per share.

Today, eight years later, annual sales have grown to $1.86 billion. That represents annual growth of 29.69% compounded growth. The price of the stock is has compounded over that 8 year period by only 7.93% per year. They have grown the many business segments served by acquiring many companies, which has allowed them enter a variety of new markets. Acquisitions increase sales, but they don’t always increase net income per share.

In 2005, they had 128.616 million shares outstanding. Today they have 310.994 million. The number of shares outstanding has compounded at an annual rate of 11.67%, a rate greater than net income per share growth.

Stock based compensation for fiscal 2005 was $2.996 million or 1.3% of sales. Today stock based compensation is 8.57% of sales and that is down from last year when it was 10.58% of sales. Stock based compensation rose to 5.8% of sales in 2006 and then 8% of sales in 2007. During the recession years of 2008 and 2009, stock based compensation 7.9% and 7.5% of sales respectively. In 2010 and 2011, stock based compensation hit 9% and peaked at 11.2% respectively. Stock based compensation has since 2006 been high to very high. They require sales people to sell their software and part of their compensation is stock based compensation. This problem isn't going away soon. We hope that as sales increase, the need of a greater number of sales personnel will decrease.

I don’t always avoid companies with high stock based compensation, but when I buy them I expect to do more trading than holding. My core position, the position I will hold forever, will be smaller than my trading positions. I own INFN and the shares I own has been paid for by trading a few times over and I expect to trade it again in time. If it becomes a tech superstock, the little I own as a core position will do just fine for me. I could see doing the same thing with NUAN, while waiting for GAAP profitability, which doesn't look to be in the picture until 2015 or later, barring more tax benefits.

Not all companies that have high stock based compensation, low earnings growth, and periods of negative net income do badly.

Look at Salesforce.com (CRM). Stock based compensation for 2012 was $379.35 million or a whopping 12.44% of sales. Fiscal 2012 net income per share was a loss of ($0.48) down from a loss of ($0.02) in 2012. But during the same period sales grew 34.5%. Like NUAN they are growing sales, but losing money. CRM’s TTM sales are $3.75 billion compared to NUAN’s 1.86 billion. CRM shares outstanding are 600.467 million compared to NUAN’s 311 million. PS ratio for CRM and NUAN are 8.35 and 2.26. NUAN is much cheaper.

Even though, CRM numbers aren’t much better than NUAN, they have during the last 8 years grown the price of the stock at a compounded rate of 24.75%. Their net income per share peak for CRM happened in 2010 when they hit a whopping $0.16 per share. The companies represent two very similarly financial histories with two totally different stock price outcomes. It has always been my opinion that CRM will fall unless net income improves soon. Investors will become impatient watching management getting rich while shareholders suffer from eventual stock price decline. So far that decline hasn’t happened for CRM. Maybe it won't. I keep watching their numbers and trying to understand how the price continues to rise. (Is it the JDSU effect?)

Both Companies CRM and NUAN produce tons of cash flow, provided you ignore acquisitions. CRM generates far more cash flow than NUAN. In fiscal 2013, CMR generated $561.296 million, but they spent $579.745 million for acquisitions up from $422.699 million the previous year. CMR balance sheet isn’t any better than NUAN. They have $1.1 billion in cash and $1.875 billion of debt for net debt of $775 million compared to net debt of $750 million for NUAN. They have very similar numbers with two very different outcomes.

The above are just observations. NUAN outcome was unfortunate compared to CRM. It is also interesting to note that NUAN was able to report net income peak of $0.65 per share last year, but that was due to a tax benefit. Net income for both companies is at best anemic when present at all.

NUAN has never been able to report steady income growth. They have always had high stock based compensation, at least since 2006. So why invest in them? I haven’t invested any money in them, but I do see the importance of speech recognition. Perhaps the introduction of smart watches and the acceleration of smart watch sales will be a needed catalyst.

Carl Icahn, who owns 16.7% of NUAN shares, tweeted this: "Happy to have reached an agreement with Nuance Communications where Dave Schechter and Brett Icahn will join the board of directors," Icahn tweeted. "I'm optimistic their impact at NUAN will be similar to HAIN, where stock went from $20.20 to $79.56 over the 3 years they sat on the board."

He tweeted the above after the poison pill from NUAN. October 8, 2013, said, “I strongly believe in the potential of Nuance”.

David Schechter said in August of 2013:
“As it becomes more ingrained in consumer behavior to navigate the phone by voice, as opposed to touch, we expect that will lead to a significant acceleration of Nuance’s business model,” said David Schechter, who has partnered with Icahn’s son Brett to manage the Nuance investment.

I really don’t like investing in companies that have high stock based compensation, but I do sometimes buy them. I like it less when they cannot grow net income due to acquiring companies that don’t add immediate value. Acquisitions can generate future value, but the potential of that future value is an unknown. I don’t own NUAN, but if I did, I certainly wouldn’t sell it based on this recent drop in price, especially since Icahn has gotten two board seats. I might be more interested in buying some so to benefit if Icahn can pressure them to take steps to benefit shareholders. I would keep my investment in them low compared to what I would invest in companies with significant net income and cash flow.

I don’t think Icahn did anything to help HAIN. HAIN was in good shape when he invested in them, he just bought them cheap, which is a good thing. He recognized value. Of course he bought them, everyone knew about it, I am sure many followed the trade, but HAIN was performing well. He sold half of his position and HAIN continues to advance. He bought Apple cheap, he fed the press that Apple should return more money to shareholders, Apple ignored him, the price has been going up anyway as we approach the holidays, no big surprise there. Icahn invests in NUAN, NUAN creates their poison pill to keep him and his partners from easily buying over 20% of the company, the stock price falls. Nevertheless, Icahn and Company has bought about 16.9% of NUAN, so they see something of value there and that might be worth a small investment.

NUAN doesn’t make money and has had only a few profitable years. So I don’t like investing much money in companies that make no GAAP net income or insignificant net income. I think it increases the risk. But they do have good products and that can at some point in time translate into greater net income and high quality cash flow. They make a lot of cash flow, excluding acquisitions, and they could be profitable if they paid a lower percentage of stock based compensation. They also report a high amount of depreciation expense. Deferred revenue is soaring too. These things would lead me to believe that at some point GAAP net income should rise, but in the short-term I question if net income will increase enough to benefit the stock price.

Will depreciation expenses fall? As long as they continue to acquire companies at their present pace, depreciation expenses will continue to be high and exceed their own personal capex requirements. I wish I could tell if the many acquisitions created any real value or will create future value, but I can’t. The acquisitions helped them expand into new markets, but have yet to create value. They helped increase sales, but so far, no corresponding profit. Interest expense helps eat away at profits and as they expand into new markets, they increase their sales force which require greater compensation hurting any chance for a profitable report.

Cash flow is destroyed by acquisitions, so although they are reporting strong free cash flow, they spend it on acquisitions, every quarter without any pause to integrate these companies. Can the integration on the fly work for them? So far it hasn't if we define 'work for them' as increased GAAP profitability.

Let’s take healthcare. In fiscal 2013 they reported $911.6 million in sales up 36.18%, but even in this segment much of the sales growth is from acquisitions, so its difficult to say whether value is being created or not. If they stopped acquiring companies for one year, we might know, perhaps even a few quarters, we might know.

So whether you invest in Nuance or not should depend on your belief that these many acquisitions will help them develop better products that will keep them ahead of the competition. But unless you are just a philanthropist, you must also believe th

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Member Avatar karlsmq (< 20) Submitted: 11/27/2013 11:24:47 AM : Outperform Start Price: $13.30 NUAN Score: +28.17

LEADING TECHNOLOGY WILL ONLY GROW

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Member Avatar FoolinSD (71.14) Submitted: 11/26/2013 1:01:20 PM : Outperform Start Price: $13.46 NUAN Score: +26.30

As more devices add voice command & dictation into their feature list. Nuance will profit from its ip & libraries.

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Member Avatar SES0 (20.02) Submitted: 11/16/2013 9:27:42 AM : Outperform Start Price: $16.26 NUAN Score: +2.61

NUAN should continue to benefit from changes in health care documentation and transcription. Also, leader in a sector that I feel is poised to transform the ways we can interact with devices and they ways in which devices can "learn" about localized individual communication and situations. This may play a major role tailoring user experience to be more responsive to the user, and an important element in user-centered design.

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Member Avatar mario60045 (85.78) Submitted: 10/30/2013 2:18:30 PM : Outperform Start Price: $15.98 NUAN Score: +1.80

There's a reason Icahn has invested so heavily in this stock and Apple.

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Member Avatar ajr930 (< 20) Submitted: 10/29/2013 12:38:10 AM : Outperform Start Price: $16.29 NUAN Score: +0.09

has the necessary tools needed to implement future growth

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