Cerence CRNC is set to release fourth-quarter fiscal 2024 results on Nov. 21.
The company anticipates fourth-quarter fiscal 2024 revenues between $44 million and $50 million.
The Zacks Consensus Estimate for revenues is pegged at $48.14 million, indicating a decline of 40.39% from the year-ago quarter’s reported figure.
The consensus mark for loss has been steady at 32 cents per share in the past 30 days. Cerence reported earnings of 9 cents per share in the year-ago quarter.
CRNC’s earnings surpassed the Zacks Consensus Estimate in three of the trailing four quarters, missing once, the average surprise being 83.64%.
Cerence Inc. Price and EPS Surprise
Cerence Inc. price-eps-surprise | Cerence Inc. Quote
Find the latest EPS estimates and surprises on Zacks Earnings Calendar.
Let’s see how things are shaping up prior to this announcement.
Key Factors to Note for CRNC’s Q4 Earnings
Cerence’s strong position in the generative AI (GenAI) domain, an expanding clientele, and a strong partner network are expected to have benefited top-line growth.
CRNC’s innovative product portfolio helps expand its clientele, which includes Volkswagen, Audi, Seat, and BMW Group, among others. Its rich partner base that includes NVIDIA NVDA and Microsoft MSFT strengthens its presence in the automotive industry.
However, fourth-quarter fiscal 2024 results are expected to suffer from lower License, Connected Services and Professional Services revenues. The top line is expected to have suffered from sluggish demand for Cerence’s technology among automotive OEMs.
In third-quarter fiscal 2024, CRNC shipped 11.7 million cars with its technology, down 6.2% year over year but up 3% on a sequential basis. The trend is expected to have continued in the to-be-reported quarter.
Cerence doesn’t expect any additional fixed License revenue in the to-be-reported quarter. Cost reduction efforts that are part of the transformation initiative are expected to have hurt fourth-quarter fiscal 2024 results.
The Zacks Consensus Estimate for License revenues is pegged at $19.70 million, indicating a 54.3% plunge from the figure reported in the year-ago quarter.
The consensus mark for Connected Services is pegged at $10.88 million, suggesting 43.2% decline from the figure reported in the year-ago quarter.
CRNC expects Professional Services revenues to be flat to down year over year. The Zacks Consensus Estimate for Professional Services is pegged at $17.57 million, indicating a 5% drop from the figure reported in the year-ago quarter.
CRNC Shares Underperform Sector, Industry
Cerence shares have declined 85.1% year to date (YTD), underperforming the Zacks Computer & Technology sector’s appreciation of 25.7% and the Zacks Computers IT Services industry’s return of 12%.
Year-to-Date Performance Chart
Image Source: Zacks Investment Research
Cerence stock is not so cheap, as the Value Score of C suggests a stretched valuation at this moment.
CRNC shares are trading below the 50-day and 200-day moving averages, indicating a bearish trend.
CRNC Shares Trade Below 200-day SMA
Image Source: Zacks Investment Research
CRNC’s Expanding Auto Clientele Boosts Prospects
Cerence’s prospects ride on an expanding automotive clientele. In the third quarter of fiscal 2024, CRNC secured eight new OEM design wins, including partnerships with major automakers, which showcased the growing adoption of its AI-powered solutions.
It also saw a significant increase in the number of cars equipped with Cerence’s technology, with the usage of connected services rising 19% over the trailing 12-month period.
In June, CRNC announced that Audi, part of the Volkswagen Group, will deploy its GenAI, Cerence Chat Pro, to enhance in-car assistant capabilities in Audi vehicles equipped with the MIB 3 infotainment platform and future models.
Its collaboration with Skoda, a well-known Volkswagen brand, is noteworthy. The deal aims to enhance the driving experience by integrating Cerence Chat Pro with Skoda’s in-car voice assistant, Laura.
Skoda drivers and passengers can interact conversationally with their in-car assistant powered by Cerence Chat Pro. This integration offers accurate responses to queries and simplifies navigation, enabling drivers to quickly and safely access essential features.
Rich Partner Base Aids CRNC’s Top-Line Growth
Cerence’s collaboration with Smart aims at developing AI-powered solutions for enhanced in-car experiences in Concept #5, leveraging GenAI to create intuitive, voice-controlled features for Smart’s next-generation vehicles.
The introduction of the Cerence Automotive Large Language Model (CaLLM), powered by NVIDIA, transforms in-car computing platforms by tackling automaker challenges and enhancing user experiences through advanced generative AI capabilities.
CRNC’s collaboration with Microsoft further amplifies its technological edge by integrating OpenAI’s ChatGPT model into vehicles via Microsoft Azure. This integration aims to enhance in-car user experiences by combining Cerence’s automotive technology with Microsoft’s cloud capabilities.
Tuya TUYA recently announced a partnership with Cerence to provide multilingual text-to-speech for its cloud developer platform designed specifically for two-wheeled vehicles, including motorcycles, e-bikes, and more.
CRNC Shares: Buy, Sell or Hold Pre Q4?
Cerence’s transformation initiatives are noteworthy, with net annualized cost savings expected between $35 million and $40 million in fiscal 2025. CRNC’s revenue framework is now pegged at $237 million excluding legacy revenues from Toyota. A lower mix of Professional Services in the revenue is expected to boost the gross margin profile.
Cerence targets positive adjusted EBITDA in the single-digit margin range in the near term.
However, CRNC’s shares have been suffering from intense competition across the automotive voice assistance domain. Its stretched valuation is a concern despite a growing partner base and an expanding clientele.
Cerence currently has a Zacks Rank #3 (Hold), suggesting that it may be wise to wait for a more favorable entry point to accumulate the stock.
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