Nuance (NUAN) – A World Leader in Voice Recognition

With many early-stage disruptive technologies, it’s tough for retail investors to find pure-play stocks to invest in. They can either wait for IPOs, or just buy shares of Google and pretty much invest in every technology known to man. Voice recognition is a disruptive technology that isn’t exactly early stage, but the applications for it are beginning to emerge everywhere with Amazon’s Echo and Apple’s Siri being two very good examples. Most people probably don’t know that the company that provides the voice recognition technology that powers Apple’s Siri, Nuance (NUAN), is a publicly-traded stock and a world leader in voice recognition.

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Nuance started out in 1992 with a core business in optical character recognition (OCR) and document imaging. Over the years they have made strategic acquisitions and investments to complement and broaden their portfolio, including entering the speech and natural language market which is the space in which they operate today. With a market cap of just over $4 billion, Nuance hasn’t exactly been wowing investors lately. If you have held Nuance shares for the past 5 years, you’d be down -25% on your investment so far. A cursory look at revenues and profitability over the past 5 years tells a story of slowing revenue growth and a departure from profitability:

Nuance Voice Recognition FinancialsIf we look at what exactly Nuance does, we see that they’re operating in 4 segments with a revenue percentage breakdown as follows:

  • Healthcare (50%) – A great example of the many efficiency gains resulting from the use of artificial intelligence in healthcare. Includes dictation software for electronic medical records (EMR), transcription services for physicians, and cloud-based personal assistants for the healthcare industry.
  • Mobile (19%) – This segment includes automotive solutions so you can give commands while driving, virtual assistants who do things for you, and the Dragon consumer product line which allows you to create content with your voice like we did when reviewing the world’s best voice recognition software.
  • Enterprise (18%) – These solutions help enterprises reduce or replace human contact center agents with conversational systems, across voice, mobile, web and messaging channels. With massive amounts of call center revenues coming from the Philippines and India, call center agents in these countries need to watch this space closely.
  • Imaging (12%) – This segment covers the documentation solutions that were the Company’s bread and butter when they were first founded. We would expect this segment to keep decreasing over time as voice recognition solutions dominate Nuance’s focus.

One thing to note as well is that Nuance has 25% of revenues coming from outside the U.S. which helps diversify their income streams. Nuance is definitely a play on voice recognition, and they’ve been spending millions on restructuring which includes cost-cutting measures like layoffs. It’s important that they return to profitability soon because they lost $115 million in 2015 and have just $310 million in cash on hand. Just last week, they took on an additional $300 million in debt and with $2.3 billion in long term debt now on their balance sheet, the need for additional financing may require them to issue shares and dilute existing shareholders or take on even more debt. Investors who are thinking about making an investment in Nuance should tread carefully.

Pure-play disruptive tech stocks are not only hard to find, but investing in them is risky business. That's why we created “The Nanalyze Disruptive Tech Portfolio Report,” which lists 20 disruptive tech stocks we love so much we’ve invested in them ourselves. Find out which tech stocks we love, like, and avoid in this special report, now available for all Nanalyze Premium annual subscribers.

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