Shares of SoundHound AI (SOUN -18.78%) traded much lower on Wednesday, following a robust third-quarter earnings report. The artificial intelligence (AI) expert beat the Street’s expectations across the board, but the stock was still down by 19.1% at noon ET. The earnings surprise wasn’t big enough to support an artificial price increase based on social media posts and classic meme-stock price-pumping action.
SoundHound AI’s earnings beat analyst targets
Your average Wall Street analyst firm had expected SoundHound AI to report a net loss of $0.07 per share on top-line revenues near $23 million.
The company easily cleared both hurdles. Sales jumped 89% year over year to $25.1 million, while adjusted net losses shrank from $0.09 to $0.04 per share.
The all-important backlog of order bookings and cumulative subscriptions wasn’t included in the earnings report. The recent acquisition of enterprise AI software maker Amelia adds plenty of value to this data point, and SoundHound AI’s management will include the consolidated backlog metric in the next report.
For now, management used the earnings call to note that the backlog is worth more than $1 billion, with an average contract duration of roughly six years. “This expansion into financial services, banking, healthcare, insurance, and more is a meaningful broadening to our customer portfolio and book-of-business,” CFO Nitesh Sharan said on the earnings call. As a separate company, Amelia measured its backlog differently, and it will take some time to reconcile the variations.
Excluding the Amelia contribution, the backlog “more than doubled” from $342 million in the year-ago report.
Why the stock drop looks healthy anyway
Looking ahead, SoundHound AI set up guidance targets slightly ahead of the current Street view for the end of 2024 and for fiscal year 2025. This is a strong business with promising growth prospects, and I would have said the same thing without the Amelia buyout.
But today’s price drop still makes sense. SoundHound AI’s investors got a much-needed reminder of the actual business trajectory, which looks strong but not bullish enough to support the recent speculation in social media channels.
I’m a SoundHound AI owner for the long haul, but I wouldn’t buy the stock again until it cools down to a more reasonable starting point. This attempt to unleash a price-boosting short squeeze appears to have failed, but it may take a few days before the stock lands at a stable valuation, with less of the silly social media buzz.
So take a look at SoundHound AI’s actual results and be ready to pounce on a more reasonable stock price. AI-powered voice controls should build lots of shareholder value in the long term. It’s a long-term investment, not a get-rich-quick lottery ticket.
Anders Bylund has positions in SoundHound AI. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
