BigBear.ai (BBAI 1.05%) has been a wildly volatile stock ever since its public debut. The developer of enterprise AI software went public by merging with a special purpose acquisition company (SPAC) on Dec. 8, 2021. Its shares opened at $9.84 on the first day, hit an all-time high of $12.69 on April 13, 2022, but now trade at about $1.50.
Like many other SPAC-backed tech companies, BigBear.ai failed to meet its own lofty growth estimates. Rising interest rates also crushed its valuations while casting a harsh light on its persistent losses and messy balance sheet.
Image source: Getty Images.
But even after that steep decline, BigBear.ai is still a popular stock on Reddit's WallStreetBets subreddit. Let's see why some investors are still drawn to it as a meme stock -- and if it has any real potential as a growth stock.
What went wrong with BigBear.ai?
BigBear.ai develops data mining and analytics tools that run on edge networks. Its software can aggregate data from disparate sources to help organizations make faster and more informed decisions. Unlike other larger data mining platforms, it provides its services as smaller modules that can be plugged into its client's existing networks.
That technology sounded promising, and it seemed well-poised to profit from the secular expansion of the edge network, analytics, and AI markets. Unfortunately, it set the bar too high prior to its public debut and broadly missed its own forecasts.
|
Metric |
2021 |
2022 |
2023 |
|---|---|---|---|
|
Revenue (Estimated) |
$182 million |
$277 million |
$388 million |
|
Revenue (Actual) |
$146 million |
$155 million |
$155 million |
|
Gross Margin (Estimated) |
40% |
43% |
50% |
|
Gross Margin (Actual) |
23% |
28% |
26% |
Data source: BigBear.ai.
It mainly blamed that slowdown on the macro headwinds and the bankruptcy of its major customer Virgin Orbit in 2023. However, it also likely overestimated its own growth potential and the competitive challenges. That's why it wasn't surprising when its CEO Reggie Brothers resigned in Oct. 2022. That's also why its stock fell nearly 90% from its all-time high.
NYSE: BBAI
Key Data Points
Why are investors still interested in BigBear.ai's stock?
BigBear.ai's numbers look dismal, but some contrarian investors believe it could eventually bounce back for three reasons. First, its new CEO, Mandy Long, has been trying to stabilize its business in three ways: She orchestrated an all-stock takeover of the AI vision technology firm Pangiam this March to boost its near-term revenue, secured new government contracts, and aggressively cut costs to right-size its business. Those cost-cutting efforts boosted BigBear.ai's adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) and cash flow into positive territory in the second half of 2023.
For 2024, analysts expect its revenue to rise 28% to $199 million (driven by its takeover of Pangiam) as it narrows its adjusted EBITDA loss to $3 million. In 2025, they expect its revenue to rise 13% to $225 million as its adjusted EBITDA turns positive. We should take those estimates with a grain of salt, but they imply it isn't headed off a cliff yet. Based on those expectations, its stock looks cheap at 2 times this year's sales.
Second, BigBear.ai's insiders have been net buyers. They bought nearly three times as many shares as they sold over the past three months -- even as its stock declined nearly 30%. Lastly, more than 10% of BigBear.ai's float was still being shorted as of April 30 -- so any positive news might squeeze out those bears and drive its stock higher.
So, is BigBear.ai a meme stock or a growth stock?
BigBear.ai is attracting some attention on Reddit, but I wouldn't call it a meme stock because its business is stabilizing and its valuations are pretty low. Its stock price also isn't completely disconnected from its valuations like other meme stocks.
But at the same time, I'm reluctant to call it a growth stock because it's relying heavily on its acquisition of Pangiam to boost its near-term revenues. We'll need to see how it fares after it fully laps that acquisition in 2025 to gauge its longer-term growth potential. So for now, some investors might consider BigBear.ai to be an undervalued growth stock -- but it's still a highly speculative bet which faces a lot of unpredictable challenges.
