SoundHound AI (SOUN) dropped the beats on fourth-quarter earnings, handily topping Wall Street’s expectations. The stock is soaring 15% heading into noontime trading.
However, it’s a classic case of a company looking great on the surface, but hiding some ugly problems underneath. The voice AI tech firm is growing fast, but it’s still bleeding cash, and that’s a big red flag for anyone thinking about investing.
SoundHound AI makes voice recognition tech for things like cars, restaurants, and customer service. It reported revenue doubled to $34.5 million in Q4 and was up 85% for the full year. That kind of growth sounds amazing, but it’s not as good as it seems.
The company was making acquisitions last year, acquiring SYNQ3 in the first quarter and Amelia in the third. Last quarter management emphasized acquisitions were key to “transforming the company” and “expanding into new verticals,” hinting the acquisitions drove much of the Q4 spike, too.
It was making deals as well. Over 30% of the top 20 quick-service restaurants like Burger King and Whataburger are using its tech, and it’s in healthcare now with partners like Duke Health, plus automotive with Stellantis (STLA).
SoundHound CEO Keyvan Mohajer bragged about “major customer wins” and “groundbreaking generative AI innovation,” and the company raised its 2025 revenue outlook to $157 million to $177 million, aiming to double growth again.
The company’s narrative wants you to focus on the headline numbers, but acquisitions are a crutch. They’re buying revenue, not earning it through pure innovation or customer wins. It’s quite possible half of its revenue increase was organic, and that’s impressive, but it is not the same shiny bauble they’re dangling in front of investors.
This masks the deeper problem that SoundHound is not profitable. It lost $16.8 million in adjusted EBITDA in Q4, 367% worse than last year, and $61.9 million for the year, 72% worse year-over-year. They’re spending heavily on these acquisitions to look impressive, but it’s not sustainable if they can’t turn a profit.
Sure, they have $200 million in cash and no debt, which gives them some breathing room, but if organic growth doesn’t pick up, they’ll keep bleeding cash, meaning that money in reserves won’t last forever.
Non-GAAP gross margins were 52.1%, a drop of 177 basis points, so they’re not keeping much of that revenue after costs. It also pushed its goal of being profitable on an adjusted EBITDA basis to the end of 2025, which they already missed once after promising it for Q4 2023. That’s a broken promise, and it makes you wonder if they can really pull it off.
The lack of profitability shows SoundHound’s business isn’t sustainable yet. They’re growing by throwing money at acquisitions, but they’re not proving they can make money doing it. In a tough economy with inflation and potential spending cuts, customers might tighten budgets. They’re also up against big tech players like Google and Amazon (AMZN), who have deeper pockets and can afford to play the long game.
If you’re thinking of investing now, you’re betting on a promise, not reality. Wait for proof they can stop the cash bleed, or you might get burned.
