On the heels of an explosive rally, Sound Hound AI (the sound -18.67%) The stock is seeing a big pullback. The audio tech company reported its fourth-quarter earnings results after the market closed on Thursday and posted sales and earnings that fell short of expectations for the period.
Soundhound recorded a loss of $0.07 per share in Q4 on revenue of $17.15 million. Meanwhile, the average analyst estimate had called for the business to post a loss of $0.06 per share on revenue of about $17.21 million. By the end of the week, the company’s stock had fallen nearly 19 percent in the daily trading session.
With the stock quickly losing ground, is it too late to invest in SoundHound AI? Or is the recent devaluation a buying opportunity?
Was Soundhound AI’s Q4 report completely wrong?
Soundhound’s revenue grew 80.5% in Q4 year-over-year. Meanwhile, the company posted a gross margin of 77% in the period, up from 71% in the year-ago period. Thanks to improving margins, the business’s loss of $0.07 was significantly below the loss per share of $0.15 posted in the prior-year period.
Soundhound’s Q4 sales performance brought full-year revenue to $45.9 million, up 47 percent year-over-year. The company’s growth picked up significantly in the second half of the year, but there are some caveats. SoundHound’s revenue base is still relatively small, and the timeline for future customer additions and deal expansion is difficult to predict.
Soundhound’s Q4 results weren’t bad by any stretch of the imagination, but the company’s valuation was boosted by the excitement surrounding AI opportunities. Prior to the recent earnings release, the stock was priced to perfection — and it’s not surprising to see a significant pullback in SoundHound’s share price, even though sales are growing rapidly.
Will Soundhound AI return to stock?
Aside from the company’s Q4 sales and earnings falling short of Wall Street’s targets, investors can expect the company to reveal game-changing technologies and deals. NvidiaThe recent revelation that he has a small stake in the company helped send SoundHound’s stock soaring, and subsequent comments from CEO Kevan Mohajer helped fuel the idea that Big things are in the works and can be announced immediately.
Adding to the excitement surrounding the stock, the annual Mobile World Congress Expo took place this week. Announcements about next-generation telecommunications and AI technologies helped fuel excitement for developments that could open up new opportunities for SoundHound.
While Soundhound AI announced new deals with Church’s Chicken and an unnamed hamburger chain, the company’s earnings report and conference call didn’t come with the kind of earth-shattering announcements some investors had hoped for. .
But despite the big pullback for Soundhound AI stock today, the company’s share price is still up nearly 183% in 2024. While many factors have shaped the stock’s recent performance, I think the bullish case for the stock is best summed up by a recent statement. From Mohajer during the company’s Q4 conference call:
At SoundHound, we have two important predictions for the future of AI. The first is that AI customer service will be as essential to every business as Wi-Fi and electricity. Second, speech will become the primary way we interact with the devices around us.
Broadly speaking, Mohajer is probably right about the growing demand for AI-powered customer service and the rise of voice-based interfaces. These trends should help drive continued sales growth for the company.
Specifically, SoundHound says its backlog of total subscriptions and bookings more than doubled to $661 million at the end of the fourth quarter. But assuming the business had a backlog of about $330 million at the end of the prior-year period, the relatively slow rate at which orders were converted into sales over the past year is significant.
Much of the unrealized revenue is likely due to the nature of production scaling in the automotive space. For example, SoundHound’s Q4 report noted the signing of a deal with a major auto original equipment manufacturer (OEM) to “expand and expand unit volume through 2037” through 2023. As a major business development. Revenue growth could indeed accelerate dramatically, but right now it’s difficult to map SoundHound’s future sales and earnings trajectory.
After today’s pullback, SoundHound is valued at about 22 times this year’s expected earnings.
SOUN PS ratio (forward) data by YCharts. PS ratio = price to sales ratio.
While it’s possible that SoundHound’s incredible rally could resume and its share price rise from current levels, the company remains a speculative bet despite the recent valuation pullback. Given the stock’s highly growth-dependent valuation and uncertain outlook, investors should understand that the stock is a high-risk, high-reward play, even with AI tailwinds at its back.