SoundHound's Shares Decrease Despite Soaring Revenue; Should Investors Consider Purchasing Stocks at Lower Prices?
The shares of SoundHound AI (SOUN) experienced a decline post its third-quarter earnings release, despite witnessing a substantial revenue boost during the quarter. The voice AI company recorded an 89% year-on-year revenue growth, reaching $25.1 million, and reported a reduced loss compared to the previous year. Despite the stock drop, it has managed to increase by approximately 200% in 2022 thus far.
With encouraging revenue growth, let's delve into the company's recent financial performance to determine if this dip is an opportune time to invest.
Impressive Revenues
Notwithstanding the stock's fall, SoundHound's Q3 figures were noteworthy. The company reported a 89% revenue surge year-over-year, amounting to $25.1 million. The net loss per share was $0.04, a significant improvement from the $0.06 loss recorded a year prior. These results surpassed analyst expectations, which had forecasted revenues of $23 million and a loss of $0.07.
The company shared that its cumulative subscriptions and booking backlog, excluding its acquisition of Amelia, observed a substantial increase, doubling that of the previous year. This number would amount to more than $1 billion, including Amelia, with a contract term average of around six years.
Automotive Growth
Within the automotive sector, SoundHound reported impressive double-digit growth in both unit sales and average pricing during the quarter. The company highlighted its large point-in-time deal with a significant client last year, but emphasized its transition towards software-as-a-service (SaaS) income due to its tumultuous size and diversified portfolio. Additionally, SoundHound announced a partnership with a new emerging Middle Eastern electric vehicle manufacturer.
Restaurant Expansion
In the restaurant industry, SoundHound has gained seven of the top 20 quick-service operators as clients. The company continues to expand its drive-thru, phone orders, and employee assistance services. It also disclosed the acquisition of a major top-3 international pizza chain as a new customer.
Amelia Acquisition
Since the Amelia acquisition, SoundHound has secured deals in various verticals such as telecom, healthcare, insurance, retail, and banking. The company also extended contracts with the United States military defense branch and a leading multinational payment card services company.
Revenue Outlook
SoundHound revised its full-year revenue projections for 2024 and 2025. For 2024, the company now expects revenues between $82 million and $85 million, an improvement from a prior outlook of revenues surpassing $80 million. The analyst consensus anticipated revenues of $82.6 million.
For 2025, the company escalated its revenue expectations from surpassing $150 million to a range of $155 million to $170 million. Analyst projections predicted 2025 revenues of $152.1 million.
Time to Invest in the Dip?
SoundHound performed exceptionally well during the quarter and issued optimistic future forecasts. Despite the stock's upsurge, investors might have anticipated a more substantial increase in guidance.
The company appears to remain conservative in its projections, as it continues to integrate the Amelia business and may consider jettisoning less profitable segments. Amelia is vital for the company as it assists in closing technological gaps and allowing expansion into new verticals.
Both the automotive and restaurant industries offer extensive growth potential, but SoundHound's objective is to establish an AI voice ecosystem across industries, capable of handling highly specific and complex interactions. The company is offering its new Polaris foundation model, which was constructed using billions of real conversations. Adding Amelia data to future generations will likely greatly enhance its AI models.
From a valuation standpoint, SoundHound has a 15x P/S multiple based on 2025 analyst estimates, which is not excessively cheap.
Although the company remains in its early stages with abundant potential, it's crucial to consider the risks associated with investing in growth stocks. As such, I recommend a strategic yet measured approach to this speculative investment, considering the stock's ongoing pullback.
Given the positive revenue growth and promising future forecasts, one could consider this dip as an opportunity to invest more in SoundHound AI, taking into account its potential in various industries and the advancement of its AI voice ecosystem. However, it's essential to remember the inherent risks associated with investing in growth stocks and approach this investment strategically.
With SoundHound's impressive financial performance and promising future prospects, investors might want to explore the possibility of allocating some money into the company, especially considering the upcoming growth opportunities in the automotive and restaurant sectors. It's crucial to consider the company's current valuation and potential returns before making any investment decisions.
