SoundHound AI (NASDAQ:SOUN) has been a big beneficiary of the AI boom, with its stock soaring 192% year-to-date. However, investors showed little reason to celebrate after the voice recognition specialist released its Q3 results, as the shares have dropped 18% since then.
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At first glance, the sell-off seems puzzling, considering the headline numbers. Revenue climbed by an impressive 88.6% year-over-year, reaching a record $25.09 million, and beating the Street’s forecast by $2.06 million. On the earnings front, the adjusted EPS of -$0.04 beat expectations by $0.03.
And where many often stumble, SOUN also came good on its outlook, upping revenue expectations for the full year to the range between $82 – $85 million and for 2025 calling for revenue between $155 – $175 million. Analysts were expecting merely $82.6 million and $152.1 million, respectively.
So, what went wrong? It’s likely that the stock’s big runup leading up to the results set expectations unreasonably high, creating limited room for further upside but plenty of room for disappointment.
Another possible explanation is that the company offered no profitability guide for next year and taking into account operating and net losses increased year-over-year in the quarter (its per-share losses decreased, but this was due to a 49% increase in the number of shares compared to the same period last year), that could have disappointed investors.
Ladenburg Thalmann analyst Glenn Mattson also notes that adj. gross margin reached 59.7%, falling from 67% sequentially (Mattson was expecting 61%), as the company “begins to absorb some overhead from the Amelia acquisition.” Meanwhile, cash opex came in $1.5 million above the analyst’s forecast. Put those developments together and adjusted EBITDA was negative $15.8 million compared to Mattson’s expectation of negative $12.3 million.
Mattson has nice things to say about the company and considers voice to be “one of the key early applications for AI systems.” SOUN is a leader in this field and is providing valuable solutions for businesses seeking to implement AI capabilities, while the recent Amelia acquisition expands the company’s reach and adds “significant scale” to the business.
However, Mattson downgraded the stock from Buy to Neutral, citing the rapid share price appreciation and higher-than-anticipated losses. For now, Mattson’s price target stays at $7, indicating the stock has room for growth of 13% over the next year. (To watch Mattson’s track record, click here)
The other 4 other recent SOUN reviews split into 3 Buys and 1 Hold, all for a Moderate Buy consensus rating. Going by the $8.10 average price target, a year from now, shares will be changing hands for a ~31% premium. (See SOUN stock forecast)
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