SoundHound AI (SOUN)

Voice AI technology company SoundHound AI (NASDAQ:SOUN) reported Q3 CY2025 results topping the market’s revenue expectations, with sales up 67.6% year on year to $42.05 million. Its GAAP loss of $0.27 per share was significantly below analysts’ consensus estimates.

Company Overview

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.

The whole purpose of software is to automate tasks to increase productivity. Today, innovative new software techniques, often involving AI and machine learning, are finally allowing automation that has graduated from simple one- or two-step workflows to more complex processes integral to enterprises. The result is surging demand for modern automation software.

SoundHound AI competes with major tech companies that offer voice assistant technology such as Google (NASDAQ: GOOGL) with its Google Assistant, Amazon (NASDAQ: AMZN) with Alexa, Apple (NASDAQ: AAPL) with Siri, and Microsoft (NASDAQ: MSFT) with Cortana, as well as specialized conversational AI providers like Nuance Communications (acquired by Microsoft) and Cerence (NASDAQ: CRNC).

Examining a company’s long-term performance can provide clues about its quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Thankfully, SoundHound AI’s 64.5% annualized revenue growth over the last four years was incredible. Its growth beat the average software company and shows its offerings resonate with customers, a helpful starting point for our analysis.

We at StockStory place the most emphasis on long-term growth, but within software, a stretched historical view may miss recent innovations or disruptive industry trends. SoundHound AI’s annualized revenue growth of 97% over the last two years is above its four-year trend, suggesting its demand was strong and recently accelerated.

This quarter, SoundHound AI reported magnificent year-on-year revenue growth of 67.6%, and its $42.05 million of revenue beat Wall Street’s estimates by 2.7%.

Looking ahead, sell-side analysts expect revenue to grow 34.4% over the next 12 months, a deceleration versus the last two years. Despite the slowdown, this projection is healthy and implies the market sees success for its products and services.

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 $40.65 million in Q3, and over the last four quarters, its growth was fantastic as it averaged 131% year-on-year increases. This alternate topline metric grew faster than total sales, meaning the company collects cash upfront and then recognizes the revenue over the length of its contracts - a boost for its liquidity and future revenue prospects.

The customer acquisition cost (CAC) payback period measures the months a company needs to recoup the money spent on acquiring a new customer. This metric helps assess how quickly a business can break even on its sales and marketing investments.

SoundHound AI’s recent customer acquisition efforts haven’t yielded returns as its CAC payback period was negative this quarter, meaning its incremental sales and marketing investments outpaced its revenue. The company’s inefficiency indicates it operates in a competitive market and must continue investing to grow.

For software companies like SoundHound AI, gross profit tells us how much money remains after paying for the base cost of products and services (typically servers, licenses, and certain personnel). These costs are usually low as a percentage of revenue, explaining why software is more lucrative than other sectors.

SoundHound AI’s gross margin is substantially worse than most software businesses, signaling it has relatively high infrastructure costs compared to asset-lite businesses like ServiceNow. As you can see below, it averaged a 39.7% gross margin over the last year. Said differently, SoundHound AI had to pay a chunky $60.25 to its service providers for every $100 in revenue.

The market not only cares about gross margin levels but also how they change over time because expansion creates firepower for profitability and free cash generation. SoundHound AI has seen gross margins decline by 33.7 percentage points over the last 2 year, which is among the worst in the software space.

SoundHound AI’s gross profit margin came in at 42.6% this quarter, down 6 percentage points year on year. SoundHound AI’s full-year margin has also been trending down over the past 12 months, decreasing by 20.9 percentage points. If this move continues, it could suggest a more competitive environment with pressure to lower prices and higher input costs.

While many software businesses point investors to their adjusted profits, which exclude stock-based compensation (SBC), we prefer GAAP operating margin because SBC is a legitimate expense used to attract and retain talent. This metric shows how much revenue remains after accounting for all core expenses – everything from the cost of goods sold to sales and R&D.

SoundHound AI’s expensive cost structure has contributed to an average operating margin of negative 218% over the last year. Unprofitable, high-growth software companies require extra attention because they spend heaps of money to capture market share. As seen in its fast historical revenue growth, this strategy seems to have worked so far, but it’s unclear what would happen if SoundHound AI reeled back its investments. Wall Street seems to be optimistic about its growth, but we have some doubts.

Analyzing the trend in its profitability, SoundHound AI’s operating margin decreased by 73.9 percentage points over the last two years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability. SoundHound AI’s performance was poor no matter how you look at it - it shows that costs were rising and it couldn’t pass them onto its customers.

This quarter, SoundHound AI generated a negative 276% operating margin.

In the coming year, Wall Street expects SoundHound AI to shrink its losses but remain unprofitable. Analysts are expecting the company’s trailing 12-month operating margin of negative 218% to rise to negative 47.9%.

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because 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 75.4%, meaning it lit $75.40 of cash on fire for every $100 in revenue.

SoundHound AI burned through $34.66 million of cash in Q3, equivalent to a negative 82.4% margin. The company’s cash burn was similar to its $35.54 million of lost cash in the same quarter last year.

Over the next year, analysts predict SoundHound AI will continue burning cash, albeit to a lesser extent. Their consensus estimates imply its free cash flow margin of negative 75.4% for the last 12 months will increase to negative 25.4%.

As long-term investors, the risk we care about most is the permanent loss of capital, which can happen when a company goes bankrupt or raises money from a disadvantaged position. This is separate from short-term stock price volatility, something we are much less bothered by.

SoundHound AI burned through $111.9 million of cash over the last year. Although the company has $4.82 million of debt on its balance sheet, we think its $269.9 million of cash gives it enough runway (we typically look for at least two years) to prioritize growth over profitability.

It was encouraging to see SoundHound AI beat analysts’ revenue expectations this quarter. On the other hand, its EBITDA missed. Overall, this quarter could have been better. The stock remained flat at $14.19 immediately following the results.

Updated: December 4, 2025 at 10:44 PM EST

When considering an investment in SoundHound AI, investors should account for its valuation and business qualities as well as what’s happened in the latest quarter.

SoundHound AI’s business quality ultimately falls short of our standards. Although its revenue growth was exceptional over the last four years, it’s expected to deteriorate over the next 12 months and its declining operating margin shows it’s becoming less efficient at building and selling its software. On top of that, the company’s operating margins reveal poor profitability compared to other software companies.

SoundHound AI’s price-to-sales ratio based on the next 12 months is 22.5x. This valuation tells us it’s a bit of a market darling with a lot of good news priced in - you can find more timely opportunities elsewhere.

Wall Street analysts have a consensus one-year price target of $16.94 on the company (compared to the current share price of $12.79).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.