2 Reasons to Like SOUN and 1 to Stay Skeptical

The past six months have been a windfall for SoundHound AI’s shareholders. The company’s stock price has jumped 57.1%, hitting $16.20 per share. This was partly due to its solid quarterly results, and the run-up might have investors contemplating their next move.

Is it too late to buy SOUN? Find out in our full research report, it’s free.

Why Does SOUN Stock Spark Debate?

Born from the idea that machines should understand human speech as naturally as people do, SoundHound AI (NASDAQ:SOUN) develops voice recognition and conversational intelligence technology that enables businesses to integrate voice assistants into their products and services.

Two Positive Attributes:

1. Billings Surge, Boosting Cash On Hand

Billings is a non-GAAP metric that is often called “cash revenue” because it shows how much money the company has collected from customers in a certain period. This is different from revenue, which must be recognized in pieces over the length of a contract.

SoundHound AI’s billings punched in at $38.13 million in Q2, and over the last four quarters, its year-on-year growth averaged 202%. This performance was fantastic, indicating robust customer demand. The high level of cash collected from customers also enhances liquidity and provides a solid foundation for future investments and growth.

2. Customer Acquisition Costs Are Recovered in Record Time

The customer acquisition cost (CAC) payback period represents the months required to recover the cost of acquiring a new customer. Essentially, it’s the break-even point for sales and marketing investments. A shorter CAC payback period is ideal, as it implies better returns on investment and business scalability.

SoundHound AI is extremely efficient at acquiring new customers, and its CAC payback period checked in at 0.5 months this quarter. The company’s rapid recovery of its customer acquisition costs indicates it has a highly differentiated product offering and a strong brand reputation. These dynamics give SoundHound AI more resources to pursue new product initiatives while maintaining the flexibility to increase its sales and marketing investments.

One Reason to be Careful:

Cash Burn Ignites Concerns

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

SoundHound AI’s demanding reinvestments have drained its resources over the last year, putting it in a pinch and limiting its ability to return capital to investors. Its free cash flow margin averaged negative 85.8%, meaning it lit $85.80 of cash on fire for every $100 in revenue.

Final Judgment

SoundHound AI’s merits more than compensate for its flaws, and after the recent surge, the stock trades at 34.8× forward price-to-sales (or $16.20 per share). Is now a good time to buy despite the apparent froth? See for yourself in our comprehensive research report, it’s free.

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