After a disastrous performance following its early 2022 IPO-via-SPAC, SoundHound AI (SOUN -0.45%) continues its pursuit of revenue-generating products and solutions. Its latest move is the acquisition of a "voice AI for restaurants" start-up called SYNQ3 Restaurant Solutions. What in the world is voice AI for restaurants? And is SoundHound stock a buy for 2024 as its rally this past year keeps picking up steam?
Help wanted: AI revenue partners
SoundHound of course is best known for its voice-based assistant, often used to find the name of a song and artist playing (at least that's the extent I've used it for). But SoundHound has been in pursuit of more robust revenue-generating uses for its AI-powered voice assistants. There's obviously a world of ways an AI-based product (including new generative AI) like this one could make money. SoundHound just needs to sniff them out.
The company has been building some momentum, generating $13.3 million in sales in Q3 2023, up 19% year over year and up 52% from the prior quarter. Nevertheless, SoundHound only counts a few customers for most of its revenue, likely from a handful of automakers (in-cabin voice assistants for infotainment systems) and an integration with Qualcomm's Snapdragon processors.
However, as management pointed out on the last earnings report, SoundHound products have been finding their way into the restaurant industry. New partners Jersey Mike's and Krispy Kreme signed on for in-store customer ordering automation. An AI-assistant integration was struck with online restaurant ordering software Olo. And SoundHound said Samsung would be using its AI tech to power new drive-thru displays that feature AI-powered voice commands. Hamburger chain White Castle would be an early user of Samsung's Houndify-infused display tech.
SoundHound clearly wants to lean in on this market with the announced acquisition of start-up SYNQ3 Restaurant Solutions. In a prepared statement, the company says SYNQ3 is being used in over 10,000 restaurant locations in the U.S., and together with SoundHound's existing customers, will bring its total restaurant chain user base to "more than 25" names.
The technology is aimed at solutions for everything from drive-thrus to in-store ordering. SoundHound-plus-SYNQ3 AI will free up the need to have an employee manually take orders from guests. And with the use of generative AI, it can make for a better user experience as guests can speak their order rather than click through a digital menu display.
Does it make financial sense?
SoundHound is paying $25 million for SYNQ3, plus up to an additional $4 million over the next few years if growth targets are met. If it drastically expands the customer base and fires up growth in 2024, it could be a wise use of cash.
Speaking of cash, though, SoundHound doesn't have a lot of it. As of the end of September 2023, the balance sheet had just $96 million in cash and equivalents, but $83 million in long-term debt. This includes cash proceeds after management issued more stock for sale earlier this year. With the purchase of SYNQ3, plus SoundHound continuing to bleed due to money-losing operations, another raise of cash is imminent.
The company's bigger bet on the restaurant industry probably makes sense operationally, but that doesn't make this stock an obvious buy.
Data by YCharts.
SoundHound AI currently has a market cap of more than $520 million, despite generating just over $30 million in sales and no profit over the last year. Perhaps SoundHound can carve out a bigger chunk of the growing AI market in the years ahead, but it's not readily apparent a more robust growth trajectory is coming just yet.
Suffice to say, this stock should be treated as a highly speculative bet at best right now. In the meantime, I believe there are better AI stocks or cloud software stocks to invest in for the long term.
