Shares of SoundHound AI (SOUN 5.77%) dropped 21.4% in Thursday's after-hours trading, following the artificial intelligence (AI)-powered voice solutions provider's release of its fourth-quarter 2023 report.
The stock's decline is attributable to the quarter's revenue and earnings missing Wall Street's consensus estimates, along with the company pushing back the date at which it expects to achieve a positive result for adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA). Last quarter, management reaffirmed that it anticipated reaching this target in Q4 2023. That didn't happen -- this metric was negative $3.7 million in the quarter. Now it expects to achieve this goal in 2025.
It remains to be seen if the stock's sell-off is just a brief blip in its recent massive rally. SoundHound AI shares have surged following AI chip leader Nvidia's disclosure, via a Feb. 14 Securities & Exchange Commission (SEC) filing, that it owns a small stake in SoundHound. Specifically, Nvidia owns about 1.73 million shares, which gives it an ownership stake of less than 1%.
Image source: SoundHound AI.
SoundHound AI's key quarterly numbers
| Metric | Q4 2022 | Q4 2023 | Change |
|---|---|---|---|
| Revenue | $9.5 million | $17.1 million | 80% |
| GAAP operating income | ($29.0 million) | ($12.4 million) | Loss narrowed 57% |
| GAAP net income | ($30.9 million) | ($18.0 million) | Loss narrowed 42% |
| GAAP earnings per share (EPS) | ($0.15) | ($0.07) | Loss narrowed 53% |
Data source: SoundHound AI. GAAP = generally accepted accounting principles.
Year-over-year revenue growth accelerated significantly from the third quarter, when it was 19%.
Wall Street was looking for a loss of $0.06 per share on revenue of $17.75 million, so SoundHound missed both expectations, though neither by much. Revenue landed close to the lower end of the company's guidance range of $16 million to $20 million.
For full year 2023, SoundHound used cash of $68.3 million running its operations, an improvement from using cash of $94 million in 2022.
What the CEO had to say
Here's what CEO and co-founder Keyvan Mohajer had to say in the earnings release:
This was a breakthrough year in which SoundHound rapidly integrated powerful new generative AI capabilities. Our real-world voice AI applications are already live and driving consumer engagement across vehicles, devices, and customer service businesses. We also acquired SYNQ3, establishing SoundHound as the largest voice AI provider for restaurants. Our pace and agility amid this AI revolution has put us ahead of the field when it comes to delivering real commercial value.
SoundHound announced the SYNQ3 acquisition in early December. At that time, the company said that it expected to pay an upfront $25 million in an approximate 80% stock, 20% cash mix for this acquisition.
In that press release, SoundHound noted that SYNQ3 "will add large brands spanning drive thru, fast casual, casual segments, and convenience stores to SoundHound's fast-growing customer base -- bringing the total to more than 25 national and multinational chains."
2024 and 2025 guidance
For full year 2024, management guided for revenue of $63 million to $77 million, which equates to annual growth of 37% to 68%. This outlook, with a midpoint of $70 million, was in line with Wall Street's estimate of $69.7 million.
Management also issued an outlook for 2025:
- Revenue exceeding $100 million. Assuming the company's 2024 revenue falls within its guided range, the 2025 outlook equates to annual growth exceeding 30% to 59%.
- Positive adjusted EBITDA.
Worth watching
Last quarter, I wrote that SoundHound AI stock was worth watching, which remains my opinion. Reiterating my summation, with a couple of updates:
SoundHound AI's revenue increased [substantially], while its operating loss, net loss, and negative cash flow from operations all improved year over year. Another notable positive is that the company still forecast positive adjusted EBITDA in the fourth quarter. [This didn't happen in Q4, which slightly weakens the bullish thesis.]
The company operates in an artificial intelligence space that has powerful long-term growth potential. Along with its progress toward achieving profitability, this makes it worth watching. That said, it has tough competition, which includes several Big Tech companies.
Last quarter, I also advised investors to keep an eye on SoundHound's liquidity situation, as its cash-burn rate was quite high relative to its cash position. Investors still need to monitor liquidity, but this issue has considerably improved. At 2023's operating cash-burn rate alone of $68.3 million, the $109 million in cash the company had at the end of the year would only last about 1.6 years. However, in its earnings release, SoundHound said its current cash balance exceeds $200 million. At 2023's operating cash-burn rate, this cash would last at least 2.9 years.
