BigBear.ai (BBAI +3.35%), a developer of data mining and analytics tools, went public by merging with a special purpose acquisition company (SPAC) on Dec. 8, 2021. Its stock opened at $9.84 and reached its all-time high of $12.69 on April 13, 2022. But today, BigBear.ai trades at less than $4 a share.
Its investors retreated as its growth cooled off, it broadly missed its pre-merger targets, and it racked up steep losses. Rising interest rates also compressed its valuations. So could this beaten-down artificial intelligence (AI) stock bounce back over the next 12 months? Let's review its business model, long-term challenges, and valuations to find out.
Image source: Getty Images.
What does BigBear.ai do?
BigBear.ai's data mining tools can gather information from disparate sources to help its government and commercial clients make smarter data-driven decisions. Unlike Palantir Technologies, which provides similar services through its Gotham (government) and Foundry (commercial) platforms, BigBear.ai provides its tools as modular services that can be plugged into an organization's existing software.
NYSE: BBAI
Key Data Points
In November 2021, BigBear.ai partnered with Palantir to integrate Foundry's services into its own Observe, Orient, and Dominate modules. That headline-grabbing partnership, along with the ambitious growth targets it set during its pre-merger presentation in June 2021, generated a lot of buzz for its SPAC-backed debut.
BigBear.ai initially claimed its revenue would rise at a compound annual growth rate (CAGR) of 40% from $140 million in 2020 to $388 million in 2023. It predicted its gross margin would expand from 30% to 50% as its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) margin would only dip slightly from 18% to 16%. But the company missed those estimates by a mile over the past three years.
|
Metric |
2020 |
2021 |
2022 |
9M 2023 |
|---|---|---|---|---|
|
Revenue (millions) |
$140 |
$146 |
$155 |
$115 |
|
Revenue growth (YOY) |
15% |
4% |
6% |
0% |
|
Gross margin |
30% |
23% |
28% |
24% |
|
Adjusted EBITDA margin |
18% |
3% |
(11%) |
(6%) |
Data source: BigBear.ai. YOY = Year over year.
For 2023, BigBear.ai expects to generate $155 million to $170 million in revenue, which would represent 0% to 10% growth from 2022, with a negative adjusted EBITDA margin. It mainly blamed that slowdown on the bankruptcy of its major customer Virgin Orbit and challenging macro headwinds for the commercial sector.
But Palantir, which serves many of the same industries as BigBear.ai, grew its revenue 17% to $2.23 billion in 2023 and stayed profitable on a generally accepted accounting principles (GAAP) basis over the past five consecutive quarters. Therefore, BigBear.ai might merely be struggling to expand its small share of the crowded data mining market.
On March 1, BigBear.ai closed its acquisition of the near-field vision AI technology developer Pangiam. That merger should inorganically boost its near-term revenue, but the $70 million all-stock deal will dilute its outstanding shares. Analysts expect its revenue to rise just 1% in 2023 but accelerate to 10% growth in 2024 as it integrates Pangiam. They also expect its adjusted EBITDA margin to rise to positive 1% as it reins in its spending.
So where will BigBear.ai's stock be in a year?
BigBear.ai's near-term growth rates look dismal, but it trades at just 4 times its estimated sales for 2024. That makes it seem cheaper than Palantir, which trades at 20 times this year's sales.
About 19% of its float was also being shorted as of Feb. 15. Over the past three months, insiders have also bought 62.19 million shares while only selling about 250,000 shares. That low valuation, warm insider sentiment, and high short interest might set it up for a big pop when it reports its fourth-quarter earnings on March 7.
But looking further ahead, BigBear.ai needs to prove that it can grow in the shadow of larger analytics companies like Palantir. Therefore, I believe BigBear.ai will endure some wild swings over the next 12 months -- but it could underperform Palantir, other data mining stocks, and the broader market until a few more green shoots appear.
