Should Investing in BigBear.ai's Shares be Considered at Present?
Revised Base Article
BigBear.ai (BBAI), a developer of AI-driven analytics tools, entered the public stage three years ago via a merger with a special purpose acquisition company (SPAC). The combined entity's shares started trading at $9.84, peaked at $12.69 on April 13, 2022, only to plummet below $1 by year's end.
Many SPAC-backed startups faced similar challenges as rising interest rates sent investors fleeing from speculative and unprofitable ventures. BigBear.ai wasn't spared, but those who took the contrarian view at the stock's lowest point two years ago have reaped sizable returns. Let's delve into why this volatile stock rebounded and whether it's still a worthwhile investment today.
An underdog in the AI data mining and analytics market
BigBear.ai distinguishes itself in the crowded AI-oriented market by running its services on edge networks instead of core networks, and by offering its services as flexible and scalable standalone modules that integrate with existing software infrastructure.
Despite revenue predictions of $388 million in 2023 during the pre-merger presentation, BigBear.ai only managed $146 million in 2021, $155 million in 2022, and a flat $155 million in 2023. The gross margin even dropped to 26%, far from the intended 50%.
BigBear.ai blamed its disappointing performance on external hurdles, such as macroeconomic issues, competition, and the collapse of major client Virgin Orbit in 2023. However, it struggled to articulate remedies for these challenges. Investors, therefore, headed for the exits.
A new chapter for BigBear.ai
CEO Reggie Brothers stepped down in October 2022, handing over the reins to former IBM executive Mandy Long. Under Long, BigBear.ai executed an all-stock takeover of AI vision tech company Pangiam, secured new government contracts, and embarked on a cost-cutting drive to bring its adjusted EBITDA and cash flows back to the positive in the second half of 2023.
For 2024, BigBear.ai expects its revenue to expand between 6% and 16%, resulting in figures of $165 million to $180 million. Analysts predict its revenue to rise 8% to $168.3 million, and its adjusted EBITDA to approach break-even levels. In 2025, they expect revenue to surge 14% to $192.5 million with a positive adjusted EBITDA of $4.8 million.
This growth is expected to stem from government contracts, such as a five-year $165 million deal with the U.S. Army, as well as its data-sharing partnerships with bigwigs like Amazon Web Services and Palantir Technologies. Pangiam's presence in the nascent AI vision market could also expand.
Is it the optimal time to buy BigBear.ai's stock?
Since the SPAC merger, BigBear.ai's share count increased by 85% due to its acquisition of Pangiam, stock-based compensation, and new stock offerings. However, it boasts a robust cash reserve of $65.6 million, presumably sufficient to withstand any financial strains before breaking even.
With an enterprise value of $1.35 billion, BigBear.ai isn't exactly a bargain at 7 times next year's projected sales. Insider sales of over 80.5 million shares over the past three months indicate skepticism, as no shares were bought during that period.
BigBear.ai has enjoyed a remarkable resurgence from its penny stock lows, but upcoming tech stocks with stronger growth prospects likely offer more appealing valuations for now. So, invest in BigBear.ai only if it demonstrates long-term viability for its business model.
- Investors may have questioned BigBear.ai's financial stability due to its reliance on money from finance sources, as its revenue fell short of predictions and its gross margin dropped below the intended level.
- The merging of BigBear.ai with Pangiam, an AI vision tech company, was seen as an appealing move, as it secured new government contracts and embarked on a cost-cutting drive to improve its financial performance.
- Despite BigBear.ai's stock price rebounding from its low points, investors might be hesitant to invest due to the company's overpromised revenue and the high enterprise value associated with stocks in the investing sphere.
- As BigBear.ai continues to explore opportunities in the stock market and venture into new sectors, such as the AI vision market, it will be crucial to evaluate its long-term potential and financial viability before making any investing decisions.
