SoundHound AI (NASDAQ:SOUN) announced on June 10 that it pre-paid $100 million in debt. The move saves the company $55 million in interest, one of many reasons to like SoundHound AI stock.
With the debt reduction, SoundHound has $180 million in cash and no outstanding debt.
Founder Seth Klarman’s Baupost Group bought 1.1 million shares in the AI voice solutions provider in May. Baupost owns 0.15% of SoundHound. The largest owner is Nvidia (NASDAQ:NVDA), which accounts for 3.06% of the outstanding stock. Whatever happens, Nvidia CEO and co-founder Jensen Huang will be informed of the changes.
With Nvidia and Jensen Huang on the prowl, SoundHound AI stock is attractive. Here’s why.
Q1 2024 Earnings Were Good
In May, SoundHound reported Q1 2024 results that included a 73% increase in revenue to $11.6 million, a 66% gross margin and a non-GAAP adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) loss of $15.4 million, up slightly from a loss of $14.9 million a year earlier.
“As an AI company, we combine our 20+ years of technology innovation and billions of customer interactions to create the best voice AI technology on the market. Across automotive and customer service, global brands are increasingly looking to us to provide an exceptional experience,” stated SoundHound CEO and co-founder Keyvan Mohajer.
In the first quarter, the company added several new QSR (quick-service restaurant) clients, including Church’s Chicken and Applebee’s.
In its May 2024 presentation, the company estimated that its total addressable market is over $140 billion. The company expects to generate over $100 million in revenue in 2025 and have positive adjusted EBITDA.
The remainder of 2024 is looking good for continued growth.
Three Pillars of Revenue
SoundHound has three revenue streams: Products, Services and Advertising/Commerce.
In the products silo, it generates royalties from licensing its voice-enabled products to manufacturers of cars and trucks, smart TVs and IoT (internet of things) devices. Services such as voice-enabled food ordering come from monthly subscriptions, usage-based fees and revenue per query. Lastly, it monetizes its ads and commerce business with revenue from customers who already use its products and services.
Its current auto customers produce 25 million units annually in the products segment. It has 3-5% of this output. By 2028, its customers are projected to produce 45 million units, with SoundHound grabbing 40-45% of these vehicles. By 2028, annual car production is expected to reach 95 million worldwide.
The U.S. restaurant TAM is $800 million in the services segment, growing to $1.1 billion by 2028. Globally, it expects the TAM to be $4.4 trillion by the end of 2028. With its acquisition of SYNQ3 — it completed the $28 million acquisition in January — it added 10,000 locations to its restaurant customer base.
As it builds relationships in the first two segments, it can help these customers monetize their products and services through Voice AI.
Analysts Like It
Six analysts cover SoundHound’s stock at the moment, with five rating it a Buy with an $8 target price. This is despite analysts expecting SoundHound to lose $0.30 a share in 2024 and $0.21 in 2025.
The company is no overnight sensation. Founded in 2005, its Voice AI products and services have been built for years. The perseverance has paid off, as the company now has over 155 patents and more than 115 pending.
“‘Just a few days ago, we reached the milestone of being a public company for two years,’ Mohajer said during the company’s analysts call. ‘While the tough external conditions of the last two to three years have weakened or eliminated many organizations, we have become stronger,’” TheStreet.com reported in May.
Wedbush analyst Dan Ives, a big supporter of Apple (NASDAQ:AAPL), believes SoundHound is in a good position to gain market penetration for AI chatbots and the entire voice-enabled ecosystem.
As penny stocks go, SOUN stock is a buy.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
