Summary
Culper Research, an activist short seller known for uncovering discrepancies in hyped companies, has released a critical report on SoundHound AI, Inc. (NASDAQ: SOUN). The report casts serious doubts on SoundHound's AI technology, its restaurant business viability, and the validity of its reported contract backlog.
Who is SoundHound AI, Inc.
SoundHound AI, Inc. is a 17-year-old company specializing in voice AI technology, particularly marketing AI solutions for phone and drive-thru ordering in the restaurant industry. Publicly traded on NASDAQ under the ticker SOUN, the company has accumulated significant financial deficits exceeding $500 million and is focusing heavily on expanding its restaurant business and leveraging a large contract backlog to drive future revenue.
Key Points from Report
The Faltering Restaurant Business
- SoundHound claims quick scaling across restaurant fleets post-onboarding, but only White Castle remains as a named customer with just 3 out of 300+ locations using the AI after three years.
- Sonic Drive-In partnership touted earlier has vanished entirely from current investor communications, indicating a failed relationship.
- The AI technology exhibits high error rates, with internal sources estimating 30-50% incorrect order completions, far above the industry tolerance of less than 10%.
- Customer reviews reveal frequent order errors and frustration, undermining claims of a seamless AI system.
- Contrary to public claims of fully autonomous AI, SoundHound routes failed AI orders to human-operated call centers which also reportedly occur without direct revenue benefit to the company.
Ineffective AI Application and User Experience
- SoundHound's Chat AI app, marketed as a generative AI voice assistant, fails to deliver accurate or relevant responses, including factual errors and incorrect search results.
- Claims of reducing AI hallucinations by 90% are contradicted by real-world user experience and test queries.
Dubious Bookings Backlog and Financial Concerns
- The company reports a $336 million bookings backlog with an average contract length of 6.5 years, but analysis shows inconsistencies making the backlog figures unreliable.
- SoundHound’s revenue guidance for 2023 was drastically cut from $110 million to around $43-50 million, despite backlog growth, indicating poor conversion to actual revenue.
- Former employees reveal that backlog figures include vague potential revenue, not only signed contracts, raising risk over realization.
- SoundHound has promoted partnerships that appear to have failed or disappeared, including with Deutsche Telekom and Netflix.
- The auditor, Armanino LLP, has a controversial history overseeing problematic audits including FTX US and has recent accounting deficiencies, adding further risk to SoundHound’s financial reporting integrity.
- The company is burning cash rapidly ($16.3 million in Q2 2023) despite reassurances of approaching profitability, with insider stock sales suggesting lack of confidence.
Activ8 Finance Analysis
The Culper Research report highlights multiple red flags for SoundHound AI, Inc., including questionable technology performance, stagnant business development in key verticals, and significant financial transparency issues. These findings raise concerns about the sustainability of SoundHound’s business model and the reliability of its reported metrics, especially regarding backlog and revenue conversion.
Investors following this report should consider the implications of the company’s high cash burn, ongoing losses, and internal doubts from former employees. While SoundHound positions itself as a leader in voice AI for restaurants and devices, the evidence presented by Culper Research suggests substantial operational and financial risks that warrant careful scrutiny.