Cerence Inc: AI Stock Up 280% Since March, Just Getting Started

Cerence Inc: AI Stock Up 280% Since March, Just Getting StartedCerence Inc: Automotive Tech Stock Has Lots of Room to Run

Cerence Inc (NASDAQ:CRNC) is a leading automotive artificial intelligence (AI) company that has seen its share price soar since the broader market experienced a COVID-19-fueled correction back in March.

Since bottoming on March 18, Cerence stock has soared 280%. CRNC stock was already bullish before the pandemic, up 90% since the start of 2020 and up 65% year-over-year.

Yes, Cerence Inc’s shares have already made eye-watering gains over the last few months, but there’s plenty of reason for investors to remain bullish on Cerence stock long-term.

The company’s industry-leading voice- and AI-based automotive assistants are being used by virtually every major vehicle manufacturer. Furthermore, Cerence recently signed its largest contract in history and reported exceptionally strong second-quarter financial results.

Advertisement

While COVID-19 has certainly put a dent in vehicle sales, this too shall pass. Thanks to Cerence’s bookings and strategic wins, it is poised to emerge as an ever stronger company once the auto industry begins to recover.

CRNC Stock Overview

Cerence Inc makes it more fun and safe to drive. The company provides AI, augmented reality, gaze and touch, and voice recognition technologies for the global auto industry. (Source: “Cerence,” Cerence Inc, last accessed June 24, 2020.)

The Burlington, Massachusetts-based company’s on-board systems have been installed in 325 million vehicles, is available in more than 70 different languages, and is protected by 1,250 patents. (Source: “Investor Presentation, June 3, 2020,” Cerence Inc., last accessed June 24, 2020.)

You may not see the Cerence name when you sit in a vehicle, but its technology is likely there. The company has more than 65 global automotive customers and partners, including Ferrari NV (NYSE:RACE), Ford Motor Company (NYSE:F), General Motors Company (NYSE:GM), Tesla Inc (NASDAQ:TSLA), and Toyota Motor Corp (NYSE:TM).

Despite its already huge market penetration, the company’s automotive footprint is always growing.

Just before the COVID-19 pandemic shut down the global economy, Cerence announced that it had signed the largest contract in its history, a $125.0-million deal with a large European car manufacturer for its voice and AI automotive assistants. (Source: “Cerence Signs Largest Contract in Its History for Voice- and AI-based Automotive Assistants,” Cerence Inc, March 4, 2020.)


Chart courtesy of StockCharts.com

Second-Quarter Revenue Up, Net Income Soars

On May 7, Cerence announced that its revenue for the second quarter of 2020, ended March 31, increased about 23% year-over-year to $86.5 million. Bookings for the first half of fiscal 2020 reached a record $533.0 million, topping the number of bookings from all of fiscal 2019. (Source: “Cerence Announces Second Quarter 2020 Results,” Cerence Inc, May 7, 2010.)

Cerence reported second-quarter net income of $12.5 million, or $0.33 per share, a huge improvement over the second-quarter 2019 net income of $500,000, or $0.01 per share.

Adjusted net income was $16.1 million, or $0.43 per share, a 42.5% increase over the $11.3 million, or $0.31 per share, recorded in the same prior-year period.

Adjusted earnings before interest, tax, depreciation, and amortization (EBITDA) came in at $29.0 million, a 55% increase over the second-quarter 2019 adjusted EBITDA of $18.7 million.

Cerence ended the second quarter with cash and cash equivalents of $95.6 million.

Sanjay Dhawan, CEO, stated,

We delivered excellent financial results for our second fiscal quarter, exceeding most of our guidance metrics despite the initial impact of COVID-19 on the global economy in general, and the automotive market specifically. We had several significant wins in the quarter, including a major European OEM that represented the two largest contracts in the company’s history, one for license and one for cloud-connected services…

(Source: Ibid.)

Because of COVID-19 and ongoing economic uncertainty, Cerence is, like many companies, not providing guidance for the third quarter or remainder of the year.

Analyst Take

Cerence stock has been on a wild ride, soaring more than 200% since the stock market bottomed back in March.

While some of those gains are a result of exuberant, broad-based investor optimism, there is reason why investors should consider CRNC stock for the long term.

Cerence Inc’s business model is supported by significantly increased market penetration of AI technology and the increasing market penetration of cloud-connected services.

Moreover, the company has been reporting strong revenue growth, it’s highly profitable, it has announced strategic wins, and it recently reported record bookings. All of that points to Cerence’s long-term growth potential.