Should SoundHound AI Stock Investors Worry About the Short Report?

Couch Investor
22 Mar 202417:35

TLDRSoundHound AI's stock plummeted over 15% following an analyst downgrade and a critical short report. Despite a market cap under $2.5 billion and a significant year-to-date gain due to AI interest and an Nvidia partnership, concerns about its high valuation, customer loss, and accounting practices have led to skepticism. The company's future profitability remains uncertain, and its stock performance has been influenced by optimistic projections and industry competition.

Takeaways

  • 📉 SoundHound AI's stock price crashed over 15% due to various factors, including an analyst downgrade and a short report questioning the company's practices.
  • 💹 Despite the crash, the stock is still up over 200% year-to-date, driven by AI hype and investment and partnership with Nvidia.
  • 🚀 SoundHound's valuation is considered extremely high, with a price-to-sales ratio of 35.4 times in the next 12 months, which is closer to 40 times for some projections.
  • 🔍 The company's business model and financials have been scrutinized, with concerns about its opaqueness, decelerating organic growth, and lack of customer retention.
  • 📊 SoundHound has been accused of hiding the loss of major customers like Mercedes-Benz, Deutsche Telecom, and Netflix, which could impact its future revenue.
  • 🤖 SoundHound's AI technology is said to be a commodity service, competing with comparable products from tech giants like Amazon, Google, Microsoft, and Apple.
  • 💬 The company has been criticized for not providing detailed metrics about device usage and market penetration, raising red flags about its transparency.
  • 📉 The stock's decline was also influenced by a double downgrade from an analyst, who cut the price target from $5.8 to $4.9, citing concerns about the company's business model and growth prospects.
  • 📈 SoundHound's projected revenue growth for fiscal years 2024 and 2025 is expected to be significant, but there are doubts about the accuracy and sustainability of these projections.
  • 🔧 The company's auditor, Armanino LLP, resigned after being associated with known fraud cases, raising questions about the reliability of SoundHound's financial statements.
  • 💰 SoundHound's use of 'bookings' as potential future revenue has been criticized as misleading, as it is based on management projections rather than existing orders or contracts.

Q & A

  • What happened to SoundHound AI's stock on Thursday?

    -SoundHound AI's stock crashed, experiencing a drop of over 15% and even further to 4.49% after hours.

  • What is SoundHound AI's current market cap?

    -SoundHound AI's market cap is now under $2.5 billion.

  • How has SoundHound AI's stock performed year to date despite the recent crash?

    -Year to date, SoundHound AI's stock is still up over 200% due to AI hype, investment from Nvidia, and a partnership with Nvidia.

  • What are the concerns regarding SoundHound AI's valuation based on its enterprise value to sales ratio?

    -SoundHound AI's enterprise value to sales ratio is extremely high, at 35.4 times for the next 12 months, which is considered very expensive even for high growth companies.

  • What is the expected growth rate for SoundHound AI's sales according to the company's own outlook?

    -SoundHound AI's sales are expected to increase by 51% in fiscal year 2024 and another 47.8% in fiscal year 2025.

  • Why did an analyst downgrade SoundHound AI's stock?

    -The analyst downgraded SoundHound AI from overweight to underweight and cut the price target from $5.8 to $4.9 due to the infancy of the business, opaqueness of its operating model, decelerating organic growth, lack of cap expense, loss of customers, and growing competition from Big Tech.

  • What is the main criticism in the short report from Capibara Research about SoundHound AI?

    -The short report accuses SoundHound AI of being a failing company, peddling lies and deception, and questions the legitimacy of its AI product and business practices.

  • What did the short report reveal about SoundHound AI's AI product?

    -The short report claims that SoundHound AI's product searches Wikipedia and returns scripted content, which is not significantly different from what other companies offer.

  • What concerns were raised about SoundHound AI's customer base?

    -The short report highlights that SoundHound AI has lost some of its biggest customers, including Mercedes-Benz, Deutsche Telecom, and Netflix, and questions the company's transparency about its customer relationships.

  • What issues were pointed out regarding SoundHound AI's accounting practices?

    -The report questions the validity of SoundHound AI's bookings, which are presented as likely future revenue but are actually based on management's fictional projections rather than existing orders or contracted purchases.

  • What happened with SoundHound AI's auditor in 2023?

    -In 2023, SoundHound AI's auditor, Armanino LLP, resigned and quit auditing public companies, which is a red flag as the firm had previously been associated with known frauds and failed stocks.

  • What is the criticism regarding the financial ties between SoundHound AI and some analysts?

    -The criticism is that out of six analysts who revised and issued price targets following a disastrous report, all of them have direct financial ties with SoundHound AI, suggesting potential bias in their evaluations and recommendations.

Outlines

00:00

📉 SoundHound AI's Stock Performance and Valuation Concerns

The paragraph discusses the significant stock price decline of SoundHound AI, highlighting a drop of over 15% and a market cap falling under $2.5 billion. Despite the stock's year-to-date increase of over 200% due to AI hype and investment from Nvidia, concerns about its high valuation and sales multiples are raised. The company's future profitability is uncertain, with a history of burning money over its 16 years of existence. The paragraph also mentions a double downgrade by an analyst, cutting the price target from $5.8 to $4.9, and points out issues such as the company's opaque business model, decelerating organic growth, and increased competition from Big Tech.

05:00

🚫 Criticisms and Short Report on SoundHound AI's Business Practices

This paragraph focuses on a short report by Capibara Research that criticizes SoundHound AI's business practices, accusing the company of lying and deception. The report questions the company's AI capabilities, comparing them to a simple Wikipedia search, and points out that SoundHound's speech recognition technology faces stiff competition from major tech companies. It also alleges that SoundHound has lost significant customers like Mercedes-Benz, Deutsche Telecom, and Netflix, and criticizes the company's accounting practices, particularly regarding its reported bookings and backlog, which the report suggests are speculative and misleading.

10:02

🔍 Detailed Analysis of SoundHound AI's Financials and Customer Relations

The paragraph delves into SoundHound AI's financial health and customer relationships. It discusses the company's auditor resignation, the impact of share dilution on EPS, and the significance of the company's reliance on one-time contract modification payments to inflate revenue. The paragraph also highlights the company's removal of customer names from its 10K report, suggesting a possible loss of key clients. Furthermore, it examines the company's R&D spending in comparison to its competitors and the potential implications of these financial practices on the company's long-term sustainability.

15:03

📉 SoundHound AI's Stock Movements and Market Perception

This paragraph analyzes the stock movements of SoundHound AI, noting its performance relative to moving averages and the potential impact of the recent short report and analyst downgrades. It discusses the company's future prospects, acknowledging the legitimacy of its technology through partnerships with Nvidia, while cautioning about the stock's high valuation and the company's unprofitability. The paragraph concludes with advice for investors who may be facing losses due to the stock's decline, emphasizing the importance of recognizing the company's challenges and making informed decisions about their investments.

Mindmap

Keywords

💡SoundHound AI

SoundHound AI is the central subject of the video. It is a company specializing in speech recognition technology and artificial intelligence. The video discusses its stock performance, business model, and controversies surrounding its valuation and operational transparency. The company's stock price crash is a significant event discussed, highlighting the volatility and investor sentiment towards AI companies.

💡Stock Performance

Stock performance refers to the changes in the market price of a company's stock over a period of time, reflecting investor confidence and the market's perception of the company's financial health. In the context of the video, SoundHound AI's stock performance is poor, with a significant drop in value, which is attributed to multiple factors including an analyst downgrade and concerns about the company's business practices.

💡Market Cap

Market capitalization, or market cap, is the total value of all a company's outstanding shares of stock. It is calculated by multiplying the stock's current price by the number of shares outstanding. Market cap is a key metric used by investors to size up a company's scale and is an indicator of a company's value in the market. In the video, SoundHound AI's market cap shrinking to under $2.5 billion is highlighted, signifying a decrease in the company's perceived value.

💡AI Hype

AI hype refers to the excessive enthusiasm and optimism surrounding artificial intelligence companies, often leading to inflated expectations and overvaluation in the market. The video discusses how the initial hype around SoundHound AI's AI capabilities contributed to a temporary increase in its stock price, but subsequent events, such as an analyst downgrade and critical reports, have led to a crash in the stock value.

💡Nvidia Partnership

The Nvidia partnership is a strategic alliance between SoundHound AI and Nvidia, a leading company in the GPU and AI technology sector. Such partnerships are often formed to leverage the strengths of both companies, enhance product offerings, and accelerate innovation. In the context of the video, the partnership with Nvidia is presented as a positive development for SoundHound AI, potentially offering legitimacy to its AI claims and future growth prospects.

💡EV/Sales Ratio

Enterprise value (EV) to sales ratio is a financial metric used to evaluate a company's value relative to its sales. It compares a company's total enterprise value to its annual sales, providing insight into how much investors are willing to pay for each dollar of sales generated. A high EV/sales ratio can indicate that a company is overvalued, especially if it is not generating profits. In the video, SoundHound AI's high EV/sales ratio is cited as a concern, suggesting that the market may be overvaluing the company given its lack of profitability.

💡Short Report

A short report is a critical analysis or commentary on a company's stock, often highlighting negative aspects or potential risks associated with the investment. Short sellers, who bet against a company's stock price, may publish such reports to support their investment thesis. In the video, a short report on SoundHound AI is discussed, which includes allegations of deception and questionable business practices, contributing to the stock's decline.

💡Analyst Downgrade

An analyst downgrade refers to a situation where a financial analyst lowers their rating or price target for a company's stock. This typically indicates a negative view on the company's future performance and can influence investor sentiment and stock price. In the video, SoundHound AI experienced a double downgrade, which contributed to the stock's decline.

💡Business Model

A business model describes the strategy and rationale behind how a company creates, delivers, and captures value. It encompasses aspects such as target customers, value proposition, revenue streams, and cost structure. In the context of the video, SoundHound AI's business model is scrutinized for its sustainability and transparency, with concerns raised about the company's revenue recognition practices and customer retention.

💡Fiscal Year 2024 Sales

Fiscal Year 2024 Sales refers to the projected revenue that a company expects to generate during the 2024 fiscal year. This projection is important for investors as it provides insight into the company's expected financial performance and growth trajectory. In the video, SoundHound AI's projected sales for FY 2024 are discussed, with expectations of significant growth, but also skepticism due to the company's past performance and the reliability of its revenue projections.

💡Accounting Red Flags

Accounting red flags refer to warning signs in a company's financial statements that may indicate potential financial mismanagement, fraud, or other issues. These can include unusual accounting practices, unexplained changes in financial metrics, or discrepancies between reported numbers and industry norms. In the video, SoundHound AI's accounting practices are questioned, with the company's booking and backlog figures being highlighted as potentially misleading.

Highlights

SoundHound AI's stock crashed over 15% on Thursday.

The market cap of SoundHound AI is now under $2.5 billion.

Year to date, the stock is still up over 200% based on AI hype and investment from Nvidia.

The company's valuation is considered extremely expensive with a P/S ratio of 35.4 times in the next 12 months.

SoundHound AI's sales are projected to increase 51% in fiscal year 2024 and another 47.8% in fiscal year 2025.

An analyst downgraded SoundHound AI from overweight to underweight and cut the price target from $5.8 to $4.9.

Capibara Research released a short report on SoundHound AI, criticizing the company and setting a price target of $1.

SoundHound AI's AI product searches Wikipedia and returns scripted content.

SoundHound has lost some of its biggest customers, including Mercedes-Benz, Deutsche Telecom, and Netflix.

The company's management was unwilling to answer questions about the company's performance during the fiscal year 2023 earnings call.

SoundHound AI's bookings are presented as likely future revenue, but they are based on fictional projections rather than existing orders.

The company's auditor, Armanino LLP, resigned and quit auditing public companies.

SoundHound AI's stock price may be affected by the market realizing its high valuation and lack of profitability.

Despite the challenges, SoundHound AI has legitimate technology, especially with its recent partnership with Nvidia.

Investors who bought SoundHound AI stock under $2 are still in a profitable position, while those who bought at higher prices may face losses.

The video encourages viewers to do their own due diligence and not take financial advice from strangers on the internet.

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