SoundHound AI (SOUN 0.25%) initially impressed a lot of investors when it went public by merging with a special purpose acquisition company (SPAC) on April 28, 2022. It developed audio and speech-recognition services that weren't tethered to tech giants like Alphabet's Google or Microsoft.
But like many other SPAC-backed companies, SoundHound overpromised and underdelivered. It only generated $46 million in revenue in 2023, compared to its optimistic target of $98 million which it provided during its pre-merger presentation.
Image source: Getty Images.
That slower-than-expected growth, along with its persistent losses, caused its stock to drop from a record high of $14.98 to about $4 today. But with a market cap of $1.4 billion, it still can't be considered a bargain at 20 times this year's sales.
SoundHound clearly faces a lot of near-term challenges, but could it bounce back over the long term and become a trillion-dollar stock by 2050? Let's see how its business might expand and evolve over the next few decades.
How fast is SoundHound AI growing?
SoundHound develops two main products: its namesake app for identifying songs and its Houndify developer platform for creating custom voice-recognition tools. A growing list of companies -- including Hyundai, Vizio, and Church's Chicken -- use Houndify to develop their own voice-recognition services. SoundHound missed its own pre-merger expectations, but it has still grown quickly over the past two years as it expanded its gross margins. It also narrowed its losses on an adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) basis.
|
Metric |
2022 |
2023 |
|---|---|---|
|
Revenue Growth |
47% |
47% |
|
Gross Margin |
69% |
75% |
|
Adjusted EBITDA Margin |
(233%) |
(78%) |
Data source: SoundHound AI.
Nvidia, which made a small investment in SoundHound prior to its public debut, also increased its stake in the company this February. That vote of confidence from the AI bellwether suggests its high-growth days aren't over yet.
SoundHound expects its revenue to rise 42% to 68% in 2024, but some of that growth will likely be driven by its recent acquisition of the restaurant solutions provider SYNQ3. Analysts expect its revenue to grow at a compound annual growth rate (CAGR) of 50% from 2023 to 2025. SoundHound expects its quarterly adjusted EBITDA to turn positive by 2025.
How could its business evolve and expand?
SoundHound's acquisition of SYNQ3 makes it the largest voice AI provider for restaurants with more than 10,000 active locations. That expansion should support its growth as more restaurants upgrade and automate their drive-thru services with its voice-recognition services. It's also partnering with Nvidia to integrate its voice-recognition tools into more vehicles, and it recently launched its generative AI chatbot, Chat AI, for Stellantis' vehicles in Japan.
SoundHound is also partnering with Perplexity, a developer of large language models (LLMs), to strengthen Chat AI. Those upgrades could help its chatbot answer requests more effectively across phones, cars, and Internet of Things (IoT) devices.
SoundHound still faces tough competition from Google, Microsoft, and other tech giants which are integrating voice-recognition tools into their own ecosystems. However many companies are still reluctant to send their data to those tech giants, and that growing reluctance could drive more customers to SoundHound's services.
How much could SoundHound be worth in 2050?
The global speech and voice-recognition market could grow at a CAGR of 25% from 2023 to 2030, according to Fortune Business Insights. If SoundHound merely keeps pace with the market, it could generate $165 million in revenue by the final year. If it hits that target and grows at a more modest CAGR of 20% from 2030 to 2050, it could generate $2.7 billion in revenue by the final year. If it's still trading at 20 times sales by then, it would be worth about $54 billion. That would represent a gain of more than 3,700% from its current price, but it definitely wouldn't be a trillion-dollar stock.
If SoundHound plays its cards right, it can carve out a defensible niche in the growing voice-recognition market. It needs to keep gaining new customers, rolling out new features, and marking smart acquisitions across the QSR, automotive, and IoT markets. It also needs to narrow its losses and demonstrate that its business model is sustainable. If it can check all of those boxes, it could become a solid growth stock even if it doesn't join the "four-comma club" by the middle of the century.
