Sound Hound AI (NASDAQ:SOUN) The stock has been on fire over the past month, gaining a staggering 254%, and Nvidia has played a major role in this remarkable growth. Investors rushed to buy Soundhound AI stock after Nvidia disclosed a stake in the company.
However, Soundhound AI’s spectacular run came to a halt following the release of its fourth quarter 2023 results, which were released on February 29. Let’s look at why that was, and check if savvy investors should consider buying SoundHound AI stock. After his latest pullback.
SoundHound AI’s impressive progress wasn’t enough to appease Wall Street.
SoundHound AI, a provider of voice artificial intelligence (AI) solutions, reported revenue of $17.1 million in the fourth quarter of 2023. That was an impressive 80% jump from the prior-year period, but down slightly from $17.7 million. The consensus estimate topline was below the midpoint of SoundHound AI’s guidance range of $16 million to $20 million for the quarter.
More importantly, SoundHound’s gross margin increased six percentage points to 77 percent last quarter. This allowed the company to narrow its net loss to $0.07 per share from $0.15 per share in the year-ago period. However, SoundHound’s loss was a penny higher than Wall Street’s expectations.
For the full year, SoundHound AI’s revenue grew 47% to nearly $46 million. Its net loss fell to $0.40 per share from $0.74 per share in the previous year. The good news is that SoundHound AI expects its solid growth to continue in 2024 and 2025.
The company expects 2024 revenue to come in between $63 million and $77 million, which would translate to 52.5% growth at the midpoint. This would be an acceleration compared to its 2023 revenue growth.
Even better, SoundHound AI is forecasting at least $100 million in revenue by 2025. However, management pointed out that growth should pick up in 2025, so it wouldn’t be surprising to see the company exceed its current forecast next year. It’s also worth noting that SoundHound AI’s revenue estimates for 2024 and 2025 are slightly higher than Wall Street forecasts.
Overall, the company’s latest quarterly results ticked almost all the boxes, but a slight dip in the top and bottom lines for Q4 forced investors to hit the panic button. Again, this isn’t surprising, considering SoundHound AI is trading at 30 times sales after its massive rally over the past month, so investors may have thought to book some profits. .
However, SoundHound AI stock could regain its mojo with better-than-expected results in the coming quarters if investors take a look at the company’s massive booking backlog.
Investors should not miss the forest for the trees.
Soundhound AI completed 2023 with a backlog of gross subscriptions and bookings of $661 million. That was a big jump over the $342 million backlog in the third quarter of 2023 and double the reading in the same period last year. The company’s current backlog is sufficient to help meet its revenue targets for 2024 and 2025.
This is because the booking backlog refers to “customer contracts” held by SoundHound AI. Meanwhile, subscription backlog refers to “potential revenue for a company with existing customers where the company is the leading or exclusive provider.” That probably explains why analysts are raising their earnings growth expectations for the company.
That’s why investors looking for a growth stock can consider using SoundHound AI’s pullback to buy more shares, as the company could start to move higher thanks to this large backlog.
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Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool has positions and recommends Nvidia. The Motley Fool has a Disclosure Policy.
Is Soundhound AI Stock a Buy Now? Originally published by The Motley Fool.