Immediately after the explosive rally, Soundhound AI (Thorn -18.67%) Stock prices have fallen significantly. The company announced its fourth-quarter results after the market closed on Thursday, with sales and profits for the period falling short of expectations.
SoundHound posted a loss of $0.07 on revenue of $17.15 million in the fourth quarter. Meanwhile, analysts’ average estimate was for the business to post a loss of $0.06 per share on revenue of approximately $17.21 million. By the end of the week, the company’s stock had plummeted nearly 19% in daily trading.
Is it too late to invest in SoundHound AI as the stock price is falling rapidly? Or is the recent drop in valuation a buying opportunity?
Was SoundHound AI’s Q4 report a complete failure?
SoundHound’s fourth quarter revenue increased 80.5% year over year. Meanwhile, the company posted a gross margin of 77% in the same period, up from 71% in the year-ago period. Due to improved margins, the business’s loss was $0.07, significantly lower than his loss per share of $0.15 in the year-ago period.
SoundHound’s fourth-quarter sales results resulted in full-year revenue of $45.9 million, an increase of 47% for the year. The company’s growth accelerated significantly in the second half of this year, but there are a few things to note here. SoundHound’s revenue base is still relatively small, and it is difficult to predict the timeline for future customer additions or business expansion.
SoundHound’s fourth-quarter results weren’t bad by any stretch of the imagination, but the company’s valuation was boosted by excitement around the AI opportunity. Ahead of its recent earnings release, the stock was priced in perfectly – it’s no surprise to see SoundHound’s stock price drop significantly despite rapidly expanding sales.
Will SoundHound AI stock recover?
In addition to the company’s fourth-quarter sales and profits falling short of Wall Street’s targets, investors may have been hoping the company would unveil innovative technology or deals. NvidiaSoundHound stock soared after CEO Keyvan Mohajer recently revealed that he has a small stake in the company, and subsequent comments from CEO Keyvan Mohajer suggest big things are on the way and could be announced soon. It helped promote the idea that there is.
The annual Mobile World Congress trade show took place this week, adding to the frenzy surrounding stocks. Announcements about next-generation communications and AI technologies helped build excitement about advancements that could open up new opportunities for SoundHound.
SoundHound AI announced new deals with Church’s Chicken and an unnamed burger chain, but the company’s earnings report and conference call did not contain the surprise announcements some investors had hoped for. It didn’t happen.
However, despite SoundHound AI stock’s steep decline today, the company’s stock is still up about 183% in 2024. Many factors have shaped the stock’s recent performance, but I think the bullish case for the stock is best summed up in recent statements. During the company’s fourth quarter conference call, he was told by Mohajer:
At SoundHound, we make two important predictions about the future of AI. The first is that AI customer service will be as necessary for every business as WiFi or electricity. Second, speaking will become the primary way we interact with the devices around us.
Broadly speaking, Mohajer seems right about the growing demand for AI-powered customer service and the rise of voice-based interfaces. These trends should help drive the company’s continued sales growth.
Notably, SoundHound said its cumulative subscription and reservation backlog doubled to $661 million at the end of the fourth quarter. However, given that the business had an order backlog of approximately $330 million at the end of the year-ago period, the relatively slow rate of order-to-sales conversion over the last year stands out.
Much of the unrealized revenue can be attributed to the nature of production scale-up in the automotive sector. For example, SoundHound’s fourth quarter report lists a major business development that occurred in 2023 as signing an agreement with a major automotive original equipment manufacturer (OEM) to “extend and increase unit sales through 2037.” is listed. The conversion of outstanding orders into sales is indicative of the company’s performance. Revenue growth could actually accelerate dramatically, but it’s hard to chart SoundHound’s future sales and profit trajectory at this point.
Even with today’s decline, SoundHound is still valued at about 22 times this year’s expected earnings.
SOUN PS Ratio (Forward) data by YCharts. PS ratio = price to sales ratio.
SoundHound’s incredible rally could resume and the stock price rise above current levels, but the company remains a speculative bet despite its recent valuation drop. Given the stock’s growth-dependent valuation and uncertain outlook, investors need to understand that it’s a high-risk, high-reward play, even with AI tailwinds.
