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Audio and speech recognition companies still have a bright future.
AI company shows off futuristic drive-thru technology
SoundHound is showing off its AI software and what it looks like in a fast food drive-thru.
Cody Godwin, USA TODAY
Soundhound AI (NASDAQ: SOUN) It merged with a special acquisition purpose company (SPAC) and went public in April last year. The audio and speech recognition company’s stock price started at $8.72 and hit an all-time high of $14.98 in less than a month.
The growth of the generative AI market has sparked a buying frenzy in AI stocks, sending SoundHound stock soaring. The company was also carving out a niche with voice recognition services that didn’t confine users or clients to walled gardens. alphabetGoogle, microsoftand other tech giants.
But as of November, SoundHound’s stock was trading at about $2. Its luster has faded as revenue growth slows and the company racks up huge losses. SoundHound underperformed pre-merger expectations, but rising interest rates compressed valuations, compounding the pain.
So, does this unpopular AI stock have a chance of rebounding over the next 12 months?
What happened in the past year?
SoundHound’s 2022 revenue increased 47% to $31 million, exceeding the pre-merger forecast for 41% growth. However, over the past year, sales growth has slowed, gross profit margins have declined, and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) margins have remained negative.
Data source: SoundHound AI. YOY = change from previous year.
SoundHound primarily attributes the slowdown to macro headwinds that have caused many companies to rein in software spending. However, in the fourth quarter, the company expects sales growth to accelerate again, increasing by 68% to 111% year over year.
The outlook suggests that the company’s revenue will increase 44% to 57% for the full year. This is well below the pre-merger forecast of 245% sales growth in 2023, but is in line with prior forecasts of growth of “approximately 50%.”
SoundHound also claims adjusted EBITDA will turn positive in the fourth quarter as it streamlines spending. The company laid off 10% of its employees after going public, and about half of the remaining employees in early 2023.
What will SoundHound look like in 2024?
For the full year, analysts expect SoundHound’s revenue to increase 50% to $47 million, as adjusted EBITDA loss narrows from $73 million to $33 million. In 2024, he expects sales to increase 51% to $70 million and adjusted EBITDA loss to be $5 million. Based on these estimates and its $533 million enterprise value, SoundHound would be worth seven times next year’s sales.
In the latest conference call, Chief Financial Officer Nitesh Sharan said the company is “well prepared for the future” and has “a lot of runway going forward.” Ta. Despite dealing with “very thorny” transactions from large customers in a “dynamic” macro environment, Sharan said existing contracts provided “good prospects for future growth”. He said he remains “excited about our growth trajectory.” We will continue to build for 2024 and beyond. ”
CEO Keyvan Mohajer also predicted that SoundHound’s new large-scale language models will enable the platform to “reach new heights” as the generative AI market expands. We already provide custom services for key customers including: hyundai, Stellantis, VizioIt is likely to continue to grow as more companies, such as , White Castle, incorporate AI-powered voice recognition capabilities into their products and services.
Don’t overlook obvious weaknesses
While SoundHound’s future looks bright, investors shouldn’t overlook the company’s three biggest weaknesses. First, the company has customer concentration issues, with more than two-thirds of its revenue last year coming from its top three customers.
Second, it remains unprofitable under generally accepted accounting principles (GAAP), ending its most recent quarter with a high debt-to-equity ratio of 4.6. It had $83 million in long-term debt on its balance sheet and only $96 million in cash and equivalents. This deficit and high leverage could drive away bulls as long as interest rates remain high.
Finally, as of November, SoundHound insiders had sold over 10 times more shares than they had bought in the past 12 months. This lackluster insider sentiment suggests the company’s stock price won’t recover anytime soon.
What will SoundHound’s stock price be like in a year?
While SoundHound’s downside may seem limited, concerns about its weak balance sheet are likely to limit its upside in this tough market. The company’s stock could rise gradually over the next 12 months if it continues to grow quarterly sales by around 50% year over year and maintains its goals of positive adjusted EBITDA margins, but the market remains There is a possibility that the stock price will fall significantly below the stock price. Until the biggest long-term issues are resolved, we will continue to hit new highs.
Alphabet executive Suzanne Frye is a member of The Motley Fool’s board of directors. Leo Sun has positions in the alphabet. The Motley Fool has positions in and recommends Alphabet and Microsoft. The Motley Fool recommends Stellantis. The Motley Fool has a disclosure policy.
The Motley Fool is a USA TODAY content partner providing financial news, analysis and commentary designed to help people take control of their financial lives. Its content is produced independently of USA TODAY.
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