SoundHound AI's (SOUN 5.77%) stock plunged 19% on March 1, after the speech and audio recognition software developer posted its fourth-quarter earnings report. Its revenue rose 80% year over year to $17.1 million but missed analysts' expectations by $0.6 million. It narrowed its net loss from $30.9 million to $18.0 million, or $0.07 per share, but it still missed the consensus forecast by a penny.
SoundHound narrowed its loss according to adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) from $18.8 million to $3.7 million, but it also missed its goal of turning profitable on an adjusted EBITDA basis by the fourth quarter.
Image source: Getty Images.
All of that bad news weighed down its stock, but it's still up nearly 170% since Nvidia acquired 0.7% of its outstanding shares in mid-February. Could SoundHound AI still generate millionaire-making gains over the next decade?
What does SoundHound AI do?
SoundHound's namesake app enables its users to identify songs by playing a few seconds of audio or merely humming a tune. Its Houndify developer platform, which drives most of its growth, allows companies to develop their own voice-recognition services that aren't tethered to a major tech giant such as Microsoft, Alphabet's Google, and Apple.
Houndify has already been used to develop in-vehicle voice recognition tools for automakers Hyundai and Stellantis, smart TV controls for Vizio, and drive-through ordering tools for White Castle and Church's Chicken. SoundHound believes the market's demand for its services will continue climbing as generative AI technologies become even more sophisticated.
How fast is SoundHound AI growing?
SoundHound AI went public by merging with a special purpose acquisition company (SPAC) in April 2022. During its pre-merger presentation, it claimed it could grow its revenue at a compound annual growth rate (CAGR) of 96% from $13 million in 2020 to $98 million in 2023. It also expected its gross margin to rise from 55% to 77%.
But in reality, SoundHound's revenue reached only $46 million in 2023 -- which represented a three-year CAGR of only 52% -- as its gross margin expanded to 75%. That growth was still impressive, but it disappointed a lot of investors by missing its lofty long-term targets. That's why its stock still trades about 60% below its all-time high.
|
Metric |
2022 |
2023 |
|---|---|---|
|
Revenue growth |
47% |
47% |
|
Gross margin |
69% |
75% |
|
Adjusted EBITDA margin |
(233%) |
(78%) |
Data source: SoundHound AI.
SoundHound expects its revenue to rise to a range of $63 million to $77 million in 2024 and exceed $100 million in 2025, which implies it will grow at a CAGR of at least 47% over the next two years. But it pushed back its goal of achieving a positive adjusted EBITDA to 2025 as it integrates its acquisition of the restaurant solutions provider SYNQ3 and ramps up its other investments.
By 2025, analysts expect SoundHound to generate $102 million in revenue with a positive adjusted EBITDA of $2 million. That's a promising outlook, but its stock still looks expensive, at 27 times its 2024 sales and 19 times its 2025 sales.
Could SoundHound AI generate millionaire-making gains by 2030?
If you invest $50,000 in SoundHound today at $6 a share, its stock would need to rise 20-fold to $120 to turn that investment into $1 million by the end of the decade. If it's still trading at about 20 times its forward sales by 2030, it would need to generate about $1.9 billion in revenue by the beginning of the final year to deliver a 20-bagger gain.
To reach that target, it would need to grow its revenue at a CAGR of 79% from 2025 to 2030. But if it trades at a more reasonable 10 times sales, it would need to grow at an even higher CAGR of 106% to generate a 20-bagger return.
SoundHound probably can't deliver those breakneck numbers, and its underlying markets aren't expanding fast enough to support that growth. From 2023 to 2030, Grand View Research expects the voice and speech recognition market to grow at a CAGR of 14.9%, while Fortune Business Insights expects the generative AI market to expand at a CAGR of 47.5%.
Therefore, SoundHound might be well positioned to generate millionaire-making gains over the next few decades, but it probably won't hit that target by 2030. So for now, it remains a high-risk, high-reward play on the AI market that could eventually attract a stampede of bulls if it successfully scales up its business and narrows its net losses.
