Soundhound AI (NASDAQ: SOUN) The stock has been on the rise over the past month, gaining an impressive 254%. Nvidia played a major role in this incredible surge. Investors rushed to buy SoundHound AI stock after Nvidia took the company public.
However, SoundHound AI’s impressive performance came to a halt after the company announced its fourth quarter 2023 financial results on February 29th. Let’s take a look at why this is so and see if smart investors should consider buying SoundHound AI stock in the wake of the recent pullback.
SoundHound AI’s impressive growth wasn’t enough to satisfy Wall Street
SoundHound AI, which provides voice artificial intelligence (AI) solutions, reported fourth-quarter 2023 revenue of $17.1 million. This was an impressive 80% increase compared to the same period last year, but just shy of $17.7 million. Consensus estimate. The top line for the quarter was below the midpoint of SoundHound AI’s guidance range of $16 million to $20 million.
More importantly, SoundHound’s gross margin increased 6 points to 77% last quarter. As a result, the company was able to reduce its net loss to $0.07 per share from $0.15 per share in the same period last year. But SoundHound’s losses exceeded Wall Street expectations by a penny.
For the full year, SoundHound AI’s revenue increased 47% to approximately $46 million. Net loss decreased to $0.40 per share from $0.74 a year ago. The good thing is that SoundHound AI expects his strong growth to continue in 2024 and 2025.
The company expects 2024 sales to be between $63 million and $77 million, representing 52.5% growth at the midpoint. This will further accelerate sales growth in 2023.
Even better, SoundHound AI projects at least $100 million in revenue in 2025. However, management notes that growth should accelerate in 2025, so it wouldn’t be surprising if the company beats current expectations next year. It’s also worth noting that SoundHound AI’s 2024 and 2025 revenue estimates are slightly higher than Wall Street’s expectations.
Overall, the company’s latest quarterly results ticked almost all the boxes, but investors hit the panic button when the top and bottom lines for the fourth quarter were slightly off. Again, this is not surprising considering SoundHound AI is trading at a hefty 30x sales following an incredible rally over the last month. Therefore, investors may have wanted to secure some profit.
However, SoundHound AI stock could regain momentum with better-than-expected results in the coming quarters if investors take note of the company’s massive booking balance.
Investors should not miss the forest for the trees
SoundHound AI ended 2023 with a cumulative subscription and reservation backlog of $661 million. This significantly exceeds the backlog of $342 million for the third quarter of 2023 and double the amount from the same period last year. The company’s current backlog is sufficient to meet its 2024 and 2025 revenue targets.
That’s because the booking backlog refers to a “committed customer agreement” that SoundHound AI has. Subscription backlog, on the other hand, refers to “the potential revenue that a company with current customers could achieve if the company were the primary or exclusive provider.” Perhaps this explains why analysts are raising their revenue growth expectations for the company.
That’s why investors looking for growth stocks could consider taking advantage of SoundHound AI’s pullback to buy more shares. That’s because the company’s huge backlog of orders could start to move up.
Should you invest $1,000 in SoundHound AI right now?
Before buying SoundHound AI stock, consider the following:
of Motley Fool Stock Advisor Our analyst team has identified what they believe Best 10 stocks Things investors can buy right now…and SoundHound AI wasn’t among them. These 10 stocks have the potential to generate impressive returns over the next few years.
stock advisor We provide investors with an easy-to-understand blueprint for success, including guidance on portfolio construction, regular updates from analysts, and two new stocks every month.of stock advisor Since 2002, the service has more than tripled S&P 500 returns*.
See 10 stocks
*Stock Advisor returns as of March 8, 2024
Harsh Chauhan has no position in any stocks mentioned. The Motley Fool has a position in and recommends Nvidia. The Motley Fool has a disclosure policy.
Can I buy SoundHound AI stock now? Originally published by The Motley Fool
