SoundHound AI (SOUN 1.81%), an audio- and speech-recognition company founded 18 years ago, went public last April by merging with a special purpose acquisition company (SPAC). It started trading at $8.72 per share on its first day as a combined company, but it's only worth about $2 today.
Like many SPAC-backed companies, SoundHound lost its luster as its growth fell short of its pre-merger forecasts and rising interest rates popped its bubbly valuations. But could this fallen artificial intelligence (AI) stock bounce back over the next 10 years?
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Why did SoundHound disappoint the bulls?
The company's products include its music recognition app SoundHound, its voice-powered digital assistant SoundHound Chat AI, and its Houndify developer platform.
It competes against tech giants like Alphabet's (GOOG 1.75%) (GOOGL 1.68%) Google and Microsoft (MSFT 0.73%) in the voice recognition space, but its services can be customized for individual businesses and aren't locked into Google's and Microsoft's walled gardens. That's why restaurants like the White Castle hamburger chain, automakers like Hyundai, and smart-TV makers like Vizio all use SoundHound's services.
During its pre-merger presentation, the company claimed it could grow its revenue by 41% to $28 million in 2022 and 245% to $98 million in 2023. It actually grew its revenue by 47% to $31 million in 2022, but it only expects it to rise in a range of 39% to 61%, reaching $43 million to $50 million, in 2023. It blames the headwinds that forced many companies to rein in their software spending.
That slowdown likely invalidates the rest of its long-term forecast, which calls for its annual revenue to reach $939 million in 2026. To hit that target, it would need a compound annual growth rate (CAGR) of 141% from 2022 to 2026.
By comparison, analysts expect SoundHound's revenue to have a CAGR of 48% from 2022 to 2025. That growth rate is still impressive, but investors should note that it generated more than two-thirds of its revenue from its top three customers last year. The abrupt loss of any of those customers could severely throttle its long-term growth.
It also initially claimed it would turn profitable on the basis of adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) in 2024. However, analysts expect it to miss that milestone with an adjusted EBITDA loss of $3 million in 2024, even after it laid off nearly half of its workforce over the past year.
But that would still mark an improvement from its projected EBITDA loss of $32 million this year. Analysts expect it to generate positive adjusted EBITDA of $6 million in 2025.
Where will SoundHound be in 10 years?
The global market for speech and voice recognition could still see a CAGR of 25% from 2023 to 2030, according to Fortune Business Insights. If SoundHound keeps pace with its market and grows at the same rate, its annual revenue could rise from an estimated $46 million in 2023 to $220 million in 2030.
If SoundHound continues growing beyond 2030 but at a more moderate CAGR of 15% from 2030 to 2033, it could generate about $335 million in revenue by the final year. Assuming it still trades at about 10 times sales, it could be worth $3.35 billion by 2033, which would be a sevenfold increase from its current enterprise value of $460 million.
But lots of other things could happen over the next decade. Microsoft, Google, or another tech giant could buy SoundHound to beef up its own voice-recognition platform. More start-ups could fragment the market for independent and customizable voice-recognition services. SoundHound's overseas expansion could be derailed by tighter privacy laws across the world, or a global recession could strangle it before it scales up its business and meaningfully diversifies its customer base.
In other words, it's impossible to tell what will actually happen to SoundHound over the next 10 years. I believe it could still have plenty of room to grow as the voice recognition market expands. It certainly shot itself in the foot with its unrealistic pre-merger forecasts, but it still has a chance at redeeming itself over the next few years.
