The Amelia acquisition could be a game changer.
SoundHound AI (SOUN -3.29%) shares were strong last week after the company reported solid second-quarter revenue growth and a significant transaction.
A transformative acquisition
SoundHound's strong second-quarter results were overshadowed by an acquisition it announced before the company reported its results: It was buying enterprise artificial intelligence (AI) software company Amelia for $80 million in cash and stock, as well as assuming Amelia's debt and receiving future earnouts if it hits certain revenue targets.
Amelia is known for its conversational and generative AI platform that powers customer service, employee onboarding and back-office operations. The acquisition will enable SoundHound to expand into other industries, including financial institutions, insurance, retail and healthcare. The company said the acquisition will also open up new avenues for monetization, with many new cross-selling and upselling opportunities.
The combined company is expected to generate more than $150 million in revenue next year, with Amelia accounting for more than $45 million of that. Following the acquisition, the company will have $160 million in cash and $39 million in debt on its balance sheet.
Meanwhile, on the revenue side, SoundHound's second quarter revenue increased 54% year over year to $13.5 million. However, the company continues to post losses. Adjusted losses improved to $0.04 per share from a loss of $0.07 a year ago, but adjusted EBITDA losses widened to $13.8 million from $10.1 million. Meanwhile, cumulative subscriptions and bookings nearly doubled year over year to $723 million. This is outsourced revenue that is expected to be realized over the next few years.
The company continues to make progress in two key areas: automobiles and restaurants. In automobiles, the company announced that five new Stellantis brands have entered full production with AI voice assistants. Overall, six of Stellantis' 14 brands are now equipped with the system. SoundHound also announced that an unnamed U.S. electric vehicle (EV) manufacturer will soon begin production with an AI voice assistant installed in all of its vehicles. The company has also expanded its relationships with European EV manufacturers.
In the restaurant business, SoundHound signed a contract with one of the world's largest pizza chains for a phone ordering service, and two coffee chains introduced employee assistance solutions. Meanwhile, Beef O' Brady's, a sports pub chain with about 140 stores in 21 states, has introduced SoundHound's AI voice ordering system to all of its stores.
The company now expects full-year revenue to exceed $80 million in 2024, jumping to more than $150 million next year.
Image source: Getty Images.
Is it too late to buy stocks?
SoundHound's stock has been volatile this year, initially soaring on news that Nvidia had invested in the company, then plummeting, with shares more than halving after quadrupling in less than three months. Still, the stock is up more than 140% year to date.
The company has been successful in closing deals in its core automotive industry and has a large backlog of orders, while continuing to establish itself in the restaurant industry. The acquisition of Amelia will see the company expand into other industries where it can leverage its AI voice technology for both customer service and employee assistance solutions, as proven in the restaurant industry.
From a valuation perspective, SoundHound is trading at a price-to-sales multiple of about 16 times analysts' 2025 estimates, which doesn't yet factor in Amelia's contribution. Based on management's 2025 guidance for the combined company, that multiple falls to closer to 12 times.
Data by YCharts.
Notably, SoundHound is acquiring Amelia for less than double next year's revenue, which gives an indication of the premium that SoundHound shares are commanding.
SoundHound continues to inspire great expectations, but it remains highly speculative given its valuation and short track record.
Jeffrey Saylor has no position in any of the stocks mentioned. The Motley Fool owns shares in and recommends Nvidia. The Motley Fool recommends Stellantis. The Motley Fool has a disclosure policy.
