SoundHound AI (SOUN +5.07%) has attracted a lot of attention in this new era of artificial intelligence (AI). The company makes voice recognition technology and voice assistants that are used by restaurants, the auto industry, television, and related industries. SoundHound has grown fast in recent years, but its growth has been driven in part by acquisitions, and the company is still significantly unprofitable, losing $22.2 million on revenue of $29.1 million, as based on adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA).
The stock has surged since 2023, and the company now has a market cap of $4.5 billion. However, shares trade at a premium valuation with a price-to-sales ratio of 41, while profitability still seems to be years away.
Keep reading to see two stocks that are likely to be more valuable than SoundHound AI in a year.
Image source: Getty Images.
1. Sezzle
Buy now, pay later (BNPL) company Sezzle (SEZL +8.81%) has been one of the biggest growth stories in the small-cap sector recently.
The company differentiates itself from larger competitors with a customer-first approach to BNPL, offering subscription products that allow customers to use its platform to shop virtually anywhere Visa is accepted. It has also come up with other tools like auto-couponing to automatically apply coupons for shoppers and a rewards program, giving customers points when they make payments on time. And the company manages its credit risk, cutting off customers after they miss a payment, stemming its potential losses.
NASDAQ: SEZL
Key Data Points
Sezzle's recent results speak for themselves. Revenue jumped 123% to $104.9 million as gross merchandise volume rose 64.1% to $808.7 million. Operating income jumped 261% to $49.9 million, showing the company is also highly profitable as its operating margins are now near 50%.
The company continues to roll out new product features, including Pay-in-5, giving customers the option of paying in five installments rather than four; new shopping tools like price comparison; and Money IQ, a reward system for consumers to build financial knowledge.
The company's growth is likely to moderate, but the opportunity in BNPL is still huge if it can continue to grab market share from credit cards and debit cards. At a market cap of $4.4 billion, Sezzle is only slightly less valuable than SoundHound, and it's much more profitable. It looks like a good bet to be more valuable than SoundHound in another year.
2. Magnite
Digital advertising is another industry that's taken off like BNPL and AI, and Magnite (MGNI +0.51%) has established itself as a leading supply-side platform (SSP), meaning it helps publishers like online newspapers and streaming television.
After languishing in the post-pandemic era, Magnite has started to build momentum, thanks in part to the growth in connected TV and the end of a rationalization period in the industry.
The company has forged partnerships with companies like The Trade Desk and Netflix, expanding its reach, and its margins are expanding.
NASDAQ: MGNI
Key Data Points
In its first quarter, revenue rose just 4% year over year to $155.8 million, but contribution, which is another measure of its core business, was up 12% to $145.8 million.
Adjusted EBITDA in the period was up 47% to $36.8 million, and adjusted earnings per share more than doubled from $0.05 to $0.12.
While the market in supply-side ad tech is much smaller than the demand side, Magnite is the largest sell-side advertising company, and those partnerships with The Trade Desk and Netflix put it in a good place to grow over the long term.
Magnite now has a market cap of $3.3 billion, so it would have to grow by about a third to top SoundHound AI if that stock doesn't move. That looks doable given those new partnerships and the broader growth in the connected-TV industry.
