Ladenburg Thalmann Starts SoundHound AI Inc. (SOUN) at Buy, 'Putting Voice AI to the Fullest Possible Use'

Ladenburg Thalmann analyst Glenn Mattson initiates coverage on SoundHound AI Inc. (NASDAQ: SOUN) with a Buy rating and a price target of $4.00.

The analyst comments "SoundHound AI Inc. (SOUN) has combined its disruptive voice products with Generative AI and leading Large Language Models (LLMs) to create a disruptive voice platform for a variety of uses. Voice systems released to date typically require a rigid question and answer format that lends itself to keyword web search. SoundHound has developed a “speech-to-meaning” voice technology over the past two decades that understands speech as it is normally spoken between humans. They have combined this software with internal AI and external LLMs to create specific use cases such as in automobiles and restaurants. Channeling the power of LLMs into specific use cases can greatly enhance their utility and SOUN is using its voice platform to drive that outcome. The company generates most of its current revenue from the automobile space. SOUN has 20 brands representing 25% of total autos sold globally. That said, the penetration into that customer set only amounts to 1-2% of global sales, leaving significant room for growth within the current customer base as well as growth from adding new brands. With voice enabled units expected to grow to 70% of shipments by 2026, this represents a significant growth opportunity, in our view. The company also provides restaurants with an automated voice platform. The platform works across all small businesses in the services space, with restaurants the first to scale. Recently SOUN began adding larger chain quick-serve restaurants (QSRs) including White Castle, Jersey Mike’s and Krispy Kreme. The offering is proving to work more effectively than humans and can alleviate the labor shortage issues that hamper the industry. Recent wins from large chains bring the total potential ARR from the existing customer base to $25 million acording to the company. The recent acquisition of Synq3 adds another large customer base to sell into. Model: We look for the low-end of the guidance range for 4Q:23 and a modest loss on an EBITDA basis. In 2024, we see solid gains of about 40% on the top line, in part supported by the $342 million backlog. In services the company is seeing increased traction as it adds more chain restaurants to its services offering. While implementation can happen quickly, large chains are typically testing the solution at a few locations, before broad deployment. This along with new logo wins drives faster gains in 2025 (47% top line). We look for gross margins of around 69% in F:24 down 400 bps as it integrates the acquisition, followed by a return to 73% in 2H:F25. Cost cuts implemented in 2023 should help keep expenses in check over the next two years. The result is an adjusted EBITDA loss of $13.5 million in F:23 and a gain of $3.9 million in F:25. The company has $110 million in cash and $83 million in debt. We initiate coverage with a Buy rating and $4.00 PT. Should our forecast prove correct and SOUN is able to grow within its existing customer set and gain new logos, we see a company that could exit F:25 as a rule of 40 SaaS company (combined margins and growth profile of at least 40), with a significant end-market opportunity. Rule of 40 SaaS companies trade at a premium multiple which is typically in the low double digits on an EV/Rev basis. We use the low end of that range at 10x to account for timing and uncertainty over the coming 24 months. The result is our $4.00 price target and Buy rating."

For an analyst ratings summary and ratings history on SoundHound AI Inc. click here. For more ratings news on SoundHound AI Inc. click here.

Shares of SoundHound AI Inc. closed at $1.88 yesterday.

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