An easy way for a company to get bigger and add market share is to acquire other businesses. And many businesses rely on mergers & acquisitions (M&A) as a core part of their long-term growth strategy. But it isn't always easy to pull off, and it includes adding more employees and costs along the way.
SoundHound AI (SOUN +2.03%) is an example of a company that's leaned heavily on M&A. It's a small player in the voice artificial intelligence (AI) market, but it has acquired multiple companies in recent years. And in doing so, it's gotten a whole lot bigger. Its CEO believes it has things figured out when it comes to M&A. But is that really the case? After all, the stock is down more than 20% over the past year, despite the company achieving some impressive growth. Let's take a look at the numbers to see if M&A has been working well for SoundHound AI.
Integrating acquired businesses effectively and efficiently can be a challenge, as there needs to be synergies for the integration to pay off, and there's the uncomfortable part of eliminating redundancies and employees along the way. It can be a costly and time-consuming process. However, on SoundHound's recent earnings call, CEO Keyvan Mohajer was confident the company has things figured out when it comes to taking on struggling businesses and helping them grow.
We now have a proven track record when it comes to M&A--a repeatable formula of turning pre-merger decline to post-merger growth by taking complementary business models and technology stacks and integrating them with SoundHound AI, Inc.'s own, emerging together as a formidable force in conversational and agentic AI.
SoundHound recently announced its planned acquisition of LivePerson, a company involved in conversational AI. It has acquired multiple companies in recent years to grow its top line, including Amelia, which helped it drastically diversify and grow its customer base.
In 2023, the company's revenue totaled just under $46 million, and its business is almost at that level today, but on a quarterly basis. During the first three months of 2026, SoundHound's revenue topped $44 million. It's impressive how far SoundHound has come, as acquisitions have clearly helped.
But where the tech company has fallen short is on the bottom line. Its operating expenses this past quarter totaled more than $106 million, when excluding changes in the fair value of contingent acquisitions. That's more than twice its top line. And that's worse than a year ago, when it would have reported operating expenses of around $77 million, excluding changes in fair value. While acquisitions have helped it grow, they haven't made SoundHound a better, more financially sound business to invest in.
While there is a lot of excitement around AI these days, SoundHound's stock isn't taking off. And a big part of the reason is likely because investors aren't convinced of its strategy. While M&A can help grow revenue, it can also weigh down the bottom line with additional costs, which is what's happened with SoundHound.
This is why, despite the CEO's positive spin, SoundHound arguably hasn't shown that it has a winning strategy with respect to AI when considering all the numbers. Investors should continue to tread carefully with the stock as cash burn remains a problem, and continual stock offerings and dilution are an inevitable risk with this investment.