Why Nuance Communications Shares Tumbled

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Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Nuance Communications plunged more than 18% Tuesday after the company reported solid quarterly results, but followed up with disappointing forward guidance.

So what: Adjusted quarterly sales rose to $490.4 million, which translated to adjusted net income of $95.2 million, or $0.30 per diluted share. Analysts, by contrast, were looking for adjusted earnings of just $0.29 per share on sales of $489.56 million.

However, Nuance also stated non-GAAP revenue for its fiscal first quarter 2014 to be between $477 million and $487 million, with non-GAAP earnings per share between $0.18 and $0.21. Analysts were modeling adjusted fiscal first-quarter earnings of $0.33 per share on sales of $494.74 million.

In addition, beginning with this report, Nuance is now including a bookings forecast to help investors more effectively track its transition away from perpetual license purchases and toward term-based and subscription pricing. In fiscal 2014, Nuance expects bookings to increase around 15% to between $2.15 billion and $2.25 billion.

Now what: It may serve as little consolation for shareholders who weathered today's plunge, but I agree with management's assertion this transition should serve to build for Nuance a more predictable, recurring revenue stream over the long-term. As it stands, though, the fickle market certainly doesn't appreciate the resulting near-term weakness.

That said, given today's drop, it looks like much of that pessimism is priced in. With shares now trading under 9 times next year's estimated earnings, I think shares of Nuance could turn out to be a bargain for patient long-term investors.

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The article Why Nuance Communications Shares Tumbled originally appeared on Fool.com.

Fool contributor Steve Symington has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Nuance Communications. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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