BigBear.ai (BBAI -2.78%) has disappointed a lot of investors since it went public by merging with a special purpose acquisition company (SPAC) in December 2021. The data mining and analytics company's stock started trading at $9.84 on its first day and rose to an all-time high of $12.69 the following April, but now trades at about $2.
BigBear.ai initially dazzled the bulls with rosy long-term estimates before it closed its merger. But like many other SPAC-backed companies, it missed those estimates by a mile. The company claimed it could grow its revenue at a compound annual growth rate (CAGR) of 40% from $140 million in 2020 to $388 million in 2023. But in reality, its revenue only rose to $155 million in 2023 -- which represented an anemic CAGR of 3.5% over the past three years.
Image source: Getty Images.
It largely blamed that sluggish growth on the macroeconomic headwinds and the bankruptcy of its major customer Virgin Orbit, but it could also be facing too many similar competitors across the analytics market. I recently discussed these pressing challenges, but today I'll dig deeper and unearth five other facts that only the smartest investors likely know.
1. BigBear.ai expects its TAM to more than triple in 4 years
BigBear.ai mainly develops artificial intelligence (AI) modules for edge networks, computer vision systems, and tools for creating "digital twins" of real objects and places. These modules can be used to gather and analyze large amounts of data.
It expects the total addressable market (TAM) for those services to more than triple from $80 billion in 2024 to $272 billion in 2028, driven by growing adoption rates across the national security, supply chain management, and digital identity markets.
However, BigBear.ai's slowdown suggests it could struggle to keep pace with that expanding market. Bigger competitors like Salesforce (CRM 0.53%), which provide similar analytics services across more diversified cloud ecosystems, could also be better poised to profit from those secular trends than BigBear.ai.
2. It generates 32% of its revenue from fixed-price contracts
BigBear.ai generates a "substantial portion" of its sales by making competitive bids for big government and commercial contracts. But as a smaller player, it likely lacks the scale and pricing power of its larger data mining and analytics peers.
To make matters worse, it generated 32% of its 2023 revenue from fixed-price contracts, as opposed to more flexible contracts that calculate its payments from time, materials, and labor. In its latest 10-K filing, it admits it "can lose money on these contracts" if it underestimates the total costs. It also warns that fluctuating prices of raw materials, inflation, and supply chain issues can cause its fixed-price contracts to become "less favorable or even unprofitable" over the long term.
3. BigBear.ai generates nearly half of its revenue from 3 customers
In 2023, BigBear.ai generated 49% of its revenue from just three customers. It's already supported those top customers for more than five years, but it warns that each of them can "unilaterally elect" to terminate their existing contracts.
It expects to complete those three contracts from 2024 to 2026, and there's no guarantee they'll be expanded or renewed. If those contracts expire before it can meaningfully expand its customer base, its revenue growth could stall out.
4. It faces a wall of debt in 2026
BigBear.ai is trying to narrow its net losses, but it ended 2023 with a whopping $194.3 million in long-term debt and just $32.6 million in cash and equivalents. Most of that debt came from a $200 million convertible notes offering in December 2021. Those notes bear a high interest rate of 6%, and the company warns that it might not "have sufficient funds available" to pay off those notes when they mature on Dec. 15, 2026.
If it can't pay off that debt in cash in time, BigBear.ai's creditors can elect to convert their notes to its common stock. However, that move would severely dilute its existing investors since it currently only has a market cap of $520 million.
5. But BigBear.ai's insiders are net buyers
BigBear.ai faces some daunting challenges, but its insiders still bought 80% more shares than they sold over the past 12 months. They also bought 160% as many shares as they sold over the past three months.
That warmer insider sentiment, and the fact that the stock trades at less than three times this year's sales, suggests it's bottoming out. Its cost-cutting efforts under Mandy Long, a former IBM executive who took the helm as its new CEO in late 2022, could also right-size its business before its convertible notes mature.
That said, I wouldn't touch BigBear.ai's stock until a few more green shoots appear. It's a fertile market for AI stocks, but it doesn't make much sense for investors to buy BigBear.ai when other better-run companies are still firing on all cylinders.
