SoundHound AI Prepares for Q3 Earnings Report: Invest Smartly?

SoundHound AI (SOUN) is all set to disclose its third-quarter earnings for 2024 on November 12.

The market analysts seem optimistic, as the Zacks Consensus Estimate puts the expected revenue at $23.68 million, indicating a remarkable increase of 78.47% compared to the same period last year.

On the other hand, analysts forecast that the company will report a loss of 8 cents per share, which remains unchanged from estimates made two months ago. To compare, SOUN reported a higher loss of 9 cents per share during the same quarter last year.

In recent quarters, SoundHound has managed to surpass the Zacks Consensus Estimate in just one out of the last four quarters, while missing out twice, with an average negative surprise of 5%.

Insights Into SOUN’s Q3 Earnings Influencers

SoundHound specializes in conversational intelligence through its innovative Voice AI solutions, supporting over 25 languages in both cloud-enabled and hardware-embedded formats. The company is likely benefiting from the increased demand for its AI capabilities, driven by the popularity of Generative AI and large language models.

There are several key elements contributing to SoundHound's anticipated success. The company boasts a robust product portfolio and a solid partnership network that extends its reach. Particularly, the rising need for AI customer service solutions, especially in the restaurant and automotive sectors, is expected to significantly uplift SOUN’s performance this coming quarter.

Among its various offerings, products like Smart Ordering, Employee Assist, and Smart Answering have positioned SoundHound to capitalize on market demand, driving revenue growth in Q3.

Smart Answering, designed to serve multiple industries, has unlocked substantial market opportunities in customer service, likely enhancing SOUN’s revenue for the past quarter.

As reported at the end of the second quarter in 2024, SOUN had a remarkable $723 million in total subscriptions and bookings backlog, nearly double from the previous year and with a notable average contract duration of about seven years. This indicates a strong demand for SOUN’s solutions, which should further bolster its Q3 results.

SOUN Stock Performance Compared to Sector Trends

Investors have seen a significant surge in SOUN shares, increasing by 227.8% year-to-date, far surpassing the broader Zacks Computer & Technology sector’s growth of 31.1% and the Zacks IT Services industry’s 14.2% rise.

In addition, SoundHound has outperformed its industry rivals, including ServiceNow (NOW), Infosys (INFY), and Vertiv (VRT), which have seen their stock values climb by 44%, 17.8%, and 153.7%, respectively.

Annual Performance Overview

Despite these encouraging developments, SOUN stock is currently not considered cheap, with a Value Style Score of F that indicates a potential overvaluation at this time.

Presently, SoundHound is trading at a forward 12-month Price/Sales ratio of 17.58, which is considerably higher than its median of 15.33 and the Zacks Computer & Technology sector's 6.41 ratio.

SOUN's Expansion and Future Potential

Looking ahead, SoundHound AI stands to gain from an extensive target market exceeding $140 billion, spanning various sectors such as automotive, restaurants, customer service, entertainment, Smart TVs, and Internet of Things devices. The company possesses over 270 patents, including 155 granted and 115 pending.

In the second quarter of 2024, SOUN’s AI services were implemented by established restaurant partners like Jersey Mike’s, in addition to several new client acquisitions. Notably, Beef ‘O’ Brady’s has successfully launched SOUN’s voice AI ordering system in all corporate locations, with expansion plans to reach 20 states.

The automotive sector represents a significant expansion opportunity for SoundHound. Currently, the Total Addressable Market (TAM) for the global light vehicle market is estimated at around 88 million units, projected to grow to 95 million by 2028. The restaurant market TAM is estimated at approximately $3.3 trillion, expected to increase to $4.4 trillion by 2028, providing substantial growth potential for SoundHound AI.

Moreover, SOUN has made noteworthy advancements in the automotive field by integrating its SoundHound Chat AI voice assistant, powered by ChatGPT, into various vehicles from brands like Peugeot, Opel, Vauxhall, Alfa Romeo, Citron, and DS Automobiles in 11 European markets, including Austria, France, Germany, Italy, Spain, and the U.K. Collaborations with tech companies such as NVIDIA, ARM, Perplexity, Olo, and Oracle have further enriched its product array.

In the second quarter, SOUN entered a new agreement, marking the first time to integrate ChatGPT-like features into in-vehicle voice assistants across Latin America.

With the acquisition of SYNQ3 earlier this year, SoundHound has strengthened its market position in the restaurant sector, positively affecting its revenue mix and customer base. Additionally, acquiring key assets from Allset, an online platform connecting restaurants with local customers, enhances its Voice AI capabilities. In the long run, SOUN aims to create a voice commerce ecosystem that allows customers to place food orders and complete transactions hands-free from their cars, phones, and smart devices.

Wrapping up Q2, SOUN also disclosed its acquisition of conversational AI leader Amelia, which is anticipated to expand its client base to roughly 200 high-profile customers. This merger is expected to positively affect earnings by the second half of 2025, focusing on synchronizing Amelia’s recurring revenue strategies while boosting underperforming segments of the portfolio.

Final Thoughts

Investing in SoundHound AI comes with its risks, especially given the relatively uncharted territory of Voice AI. However, with its innovative product lineup, SOUN is well-prepared to benefit from the growing market opportunities presented in the global automotive and restaurant sectors.

Currently, SOUN holds a Zacks Rank #3 (Hold), indicating that investors may want to wait for a more opportune moment before acquiring the stock.

Earnings, Investment, Growth