If you follow the market, you've been seeing some pretty crazy things going on lately. There was Hertz's share price jumping after the company declared bankruptcy. And then there was Nikola, a new electric truck company with no revenue, surging to a market capitalization rivaling that of Ford Motor.
Given these other weird moves, it may not be so hard to believe that, after hitting an all-time low of $1.22 per share on March 16, the price of Veritone's (NASDAQ:VERI) shares has shot up 1,000%. This is an amazing return in just three months, but like Hertz and Nikola, I do not think it will last.
What is Veritone, anyway?
Veritone is a provider of artificial intelligence (AI) services. It's the creator of aiWARE, "a proprietary AI operating system." The company's technology is able to "capture a wide range of unstructured data such as audio files, video files, images, and documents, from wherever they reside, to ingest them into our platform for further processing, actions and analytics," claims Veritone SEC filings.
Using this technology, the company is able to offer three types of services: advertising, content licensing, and software as a service (SaaS). The advertising and content licensing offerings appear to be standard services where the AI technology is used to enhance the service, whereas the technology itself is the product in the SaaS offering. The SaaS product provides clients with the ability to use the aiWARE platform to review and analyze large amounts of data quickly that in some cases would have otherwise had to be done manually. Uses for this product include facial recognition and analysis of evidence for government agencies and review and analysis of data as part of discovery in legal proceedings.
Advertising and content licensing are the company's largest sources of revenue and include clients like Uber Technologies, Amazon.com's Audible, and Microsoft's LinkedIn. Veritone's SaaS customers include the U.S. Department of Justice and the Anaheim Police Department.
Looking at the fundamentals, Veritone's revenues were growing prior to COVID-19, but as we might expect, the advertising and content licensing segments took a hit in the first quarter of 2020. The company has yet to earn a net profit or generate positive operating cash flow. To raise cash, it sells equity; the company has no long-term debt on its balance sheet.
Will Veritone's stock rise continue?
While it's possible that Veritone will continue moving higher, it's more likely that this is a temporary spike. For the move to be permanent, one would expect there to be a catalyst to explain it, but I haven't found one. There doesn't seem to be any news or change in the company's fundamentals that would warrant this move.
In fact, the company's fundamentals have slightly deteriorated so far this year due to lower revenues in the advertising and content licensing segments. And the continued uncertainty in the economy overall makes it difficult to know when the company will recover that revenue and return to its previous growth.
Finally, as long as Veritone is unable to generate positive operating cash flow, it will need to raise cash externally. Since the company has yet to issue debt, the assumption is that it will continue to sell shares in the equity market to meet its cash needs. However, this increases the number of shares outstanding and puts downward pressure on the price.
Veritone's run over the last three months is nothing short of remarkable. To have done what it has in a normal market would be incredible, and the fact that it was done under these conditions makes it really unbelievable. However, it's precisely because it was done under these conditions that I can't see it persisting. The near-term uncertainty surrounding its growth, the negative operating cash flows, and the absence of a positive catalyst strongly suggest that this is a temporary spike that will ultimately correct.