SoundHound Stock Slides After Q3 Earnings Beat, But Should You Buy the Dip?

SoundHound AI (SOUN), a leader in voice artificial intelligence (AI) technology, delivered impressive third-quarter results on Nov. 12, surpassing Wall Street expectations. Despite the upbeat performance and guidance, SOUN stock is set to open more than 7% lower today as investors react to the report.

The company posted $25.1 million in revenue for Q3, an 89% increase year-over-year, comfortably topping analysts’ forecasts of $23 million. This marks another quarter in which SoundHound’s top-line growth exceeded 50%, underscoring its rapid expansion.

On the bottom line, SoundHound reported an adjusted loss of $0.04 per share, better than the anticipated loss of $0.08 per share. Moreover, this was an improvement from the $0.06 loss per share in the same period last year.

Management remains bullish, forecasting 2024 revenue between $82 and $85 million, with a midpoint of $83.5 million—slightly above Wall Street’s estimate of $82.6 million. The company projects 2025 revenue in the range of $155 to $175 million, with the midpoint of $165 million significantly outpacing the $152.1 million analysts expected.

SOUN stock has skyrocketed roughly 257% year-to-date, raising concerns about its valuation. However, any pullback in SOUN could present an attractive entry point for long-term investors.

SoundHound’s leadership in the voice AI sector and strong demand for its technology position it well for sustained growth. SoundHound’s solutions are finding increasing traction across industries, and its ability to consistently outpace revenue growth targets suggests a bright future. Let’s explore this further.

Key Drivers of Future Growth

SoundHound is expanding rapidly across key industries, positioning itself as a leader in the voice AI segment. The company's recent performance highlights several positive catalysts, especially as its diverse portfolio and strategic growth initiatives continue to gain momentum.

SoundHound has delivered impressive double-digit growth in automotive units, boosted by its advanced generative AI solutions. This has driven both unit growth and higher unit prices as the company capitalizes on its expanding product lineup. Its SaaS-like revenue model has been key in reducing dependence on large, one-off deals, offering greater stability moving forward.

A key shift this quarter is the company's impressive reduction in customer concentration risk. Last year, SoundHound’s top customer accounted for 72% of its revenue, a number that has dropped to just 12% in the most recent quarter. Similarly, the share of revenue from the top five customers decreased from over 90% to less than 33%. This shift highlights the success of SoundHound’s efforts to diversify its revenue streams, addressing a major concern for investors.

The company is gaining substantial traction in the restaurant segment, adding several top names to its customer roster. Notably, the company now serves seven of the top 20 quick-service restaurants (QSRs), a significant accomplishment. Recent acquisitions have aided the company’s expansion into this vertical, diversifying its customer base geographically and across industries.

Its solutions for drive-thru phone ordering and employee support are aiding this momentum, with its technology being adopted by both new brands and existing clients. As off-premise ordering continues to grow, mobile-based voice AI ordering presents a new and expanding channel, increasing the company's total addressable market.

In the enterprise conversational AI, SoundHound continues to scale rapidly. Its AI-driven solutions, particularly in customer service, are now embedded across hundreds of major enterprise brands. This wide-scale adoption is a strong indicator of the company’s growth potential, especially as it expands into high-growth markets, including those in AI-powered customer support.

SoundHound AI's market potential is growing quickly, thanks to its strategic focus on industries set to experience significant growth. One of the key areas of focus is the automotive sector, where SOUN is making strong progress in electric vehicles (EVs). The company recently landed a major contract with a new EV manufacturer in the Middle East. Overall, it has signed agreements with four EV companies, two of which already have SoundHound's technology up and running. This solidifies its position as a leading player in the fast-evolving EV market.

Wall Street’s Positive Outlook

Wall Street analysts are bullish on SOUN stock, with a “Strong Buy” consensus rating. Given the company’s impressive growth trajectory, diversified revenue model, and leadership in AI-driven solutions, SoundHound is well-positioned to capitalize on the booming markets in which it operates.

As SoundHound AI continues to scale its operations and strengthen its market position, it remains an attractive candidate for long-term investment.

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On the date of publication, Amit Singh did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.