Shares of SoundHound AI (NASDAQ: SOUND) fell following the release of its third-quarter results, despite the voting artificial intelligence (AI) company seeing rising revenue in the quarter. However, at the time of writing, the stock is still up about 200% on the year.
With the company reporting strong revenue growth, let’s take a closer look at the company’s most recent results to see if this is a good opportunity to buy the stock during this dip.
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Despite the stock price decline, SoundHound’s third-quarter results were actually quite strong. The company’s revenue rose 89% year over year to $25.1 million. Adjusted earnings per share (EPS) came in at a loss of $0.04, which was a nice improvement from the $0.06 loss a year ago. These figures exceeded the analyst consensus that called for revenues of $23 million and losses of $0.07, as compiled by Fact set.
It said the cumulative backlog in subscriptions and bookings, excluding the Amelia acquisition, was double the year-ago period. It said this number would exceed $1 billion, including Amelia, with an average contract term of about six years.
Within the automotive sector, the company said it saw double-digit auto unit growth this quarter, as well as double-digit unit price growth. Last year, the company noted that it had a large point-in-time deal with a major customer, but now has more software-as-a-service (SaaS)-like revenue given its scale and greater diversification. It also said it had won a deal with a new emerging electric vehicle manufacturer from the Middle East.
Within the restaurant industry, SoundHound now says it has seven of the twenty largest quick service companies as customers. It continues to expand its drive-thru, phone ordering and employee assistance services. It also noted that it recently signed a new major pizza chain from the top three in the world.
With the recent acquisition of Amelia, the company has also entered a number of other industries. During the quarter, deals were closed or extended in the areas of telecom, healthcare, insurance, retail and banking. It also renewed agreements with a branch of the US military and a leading multinational payment card services company.
SoundHound raised its full-year revenue guidance for both 2024 and 2025. For 2024, it now expects revenue to come in between $82 million and $85 million, which is higher than previous guidance that called for revenue of more than $80 million. Analysts expected revenue of $82.6 million.
For 2025, the company raised its expectations from a revenue forecast of more than $150 million to a range of $155 million to $170 million. The analyst consensus was for revenues of $152.1 million by 2025.
Image source: Getty Images.
By all accounts, SoundHound has had a very good quarter and delivered strong guidance. However, given the stock’s rise this year, investors may have wanted an even bigger boost in expectations.
Still, the company sounded conservative in its forecasts. The company is still in the process of integrating the Amelia business and it appears some parts of its lower-margin business will be jettisoned. However, Amelia is critical to the company as it helps close some technology gaps and allows it to expand into more vertical markets.
Both the automotive and restaurant industries remain ripe for growth opportunities, but SoundHound’s ultimate goal appears to be an AI voice ecosystem for all industries that can help organizations handle highly industry-specific, sophisticated interactions. The company is introducing its new Polaris base model, which it says is based on billions of real conversations, but I imagine adding Amelia information to future generations will help its AI models even more.
From a valuation perspective, SoundHound trades at a price-to-sales (P/S) multiple of 15 times analyst estimates in 2025, which isn’t particularly cheap.
SOUN PS Ratio (1 year ahead) data according to YCharts
This company is still in its infancy and offers enormous opportunities. If the company can become the AI voice leader across industries, then the sky is the limit. And while its valuation isn’t cheap, it’s not outrageous given its growth either.
Given the company’s position in its life cycle, I consider it a solid but speculative growth stock. Therefore, I think investors can take a small position in the stock during this pullback.
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Geoffrey Seiler has no position in any of the stocks mentioned. The Motley Fool holds and recommends FactSet Research Systems. The Motley Fool has a disclosure policy.
SoundHound shares sink despite rising sales. Is it time to buy stocks during a dip? was originally published by The Motley Fool
