BigBear.ai (NYSE:BBAI) went public on December 8, 2021 after merging with a special purpose acquisition (SPAC) company. The data mining company’s stock price began trading at $9.84 and rose to an all-time high of $16.12 on April 6, 2022.
But the stock is currently trading at about $2 per share. His $10,000 investment on the first day of trading in BigBear.ai has now shrunk to just over $2,100. Let’s take a look at why the company initially impressed bulls, how it disappointed, and where the stock is headed.
Why did BigBear.ai impress the bulls?
BigBear.ai laid out some ambitious growth goals in its pre-listing, pre-merger presentation. The company achieved a compound annual growth rate (CAGR) of 40%, increasing its gross margin from 30% to 50% and maintaining adjusted earnings before interest and taxes, from $140 million in 2020. It claimed that it could achieve revenue of $388 million in 2023. , depreciation and amortization (EBITDA) margins are in the low teens. He then aimed to further double his revenue to $764 million by 2025.
Management organically expanded the company’s Observe, Orient, and Dominate modules (used to aggregate data from disparate sources) to address “important and high-growth market areas such as business intelligence and We believed that we could achieve that growth trajectory by targeting Analytics tools, AI data management, and next-generation cybersecurity platforms.
BigBear.ai is especially integrated PalantirFoundry services will be incorporated into the company’s three main modules in the second half of 2021. A partnership with Palantir, a much larger data mining company that serves many U.S. government agencies and a wide range of corporate customers, perhaps convinces bulls that BigBear.ai has superior capabilities. may have been helpful. future.
BigBear.ai itself had secured partnerships with the U.S. Department of Defense and other government agencies, allowing clients to integrate modules into their existing software infrastructure rather than locking them into a larger platform. . This flexible approach has allowed the company to carve out a small niche in a crowded analytics market.
Why did the Bears destroy BigBear.ai stock?
BigBear.ai’s prospects looked promising, but it fell well short of its rosy pre-merger goals. From 2020 to 2023, the company’s revenue only grew to $155 million at a CAGR of 3.5%, far short of its original goal of $388 million. Gross profit margin fell to 26% last year, and adjusted EBITDA margin turned negative in 2022 and 2023.
The company blamed the downturn on macroeconomic headwinds, slowing government spending and the bankruptcy of major customer Virgin Orbit in early 2023. CEO Reggie Brothers resigned in October 2022 amid the economic downturn and was replaced by his predecessor, Mandy Long. IBM Executive.
BigBear.ai has long abandoned pre-merger revenue growth targets and focused on cutting costs and right-sizing its core business. As a result, adjusted EBITDA and cash flow turned positive in the second half of 2023, giving the company room to acquire visual AI technology developer Pangiam in an all-stock deal in March of this year.
In the company’s latest letter to shareholders, Long candidly acknowledged that BigBear.ai “has had to work very hard to get its house in order” throughout 2023 as it overhauls its entire business. Ta. However, management expects sales to increase by 26% to 39% in 2024 compared to flat growth in 2023 as the macro environment stabilizes and Pangiam is integrated.
While these are steps in the right direction, investors don’t seem confident that BigBear.ai can maintain its momentum after completing the Pangiam acquisition. Analysts expect sales to grow 31% in 2024, but slow to 13% in 2025. The company will continue to lose money under generally accepted accounting principles (GAAP), but it still has $194 million in long-term debt, even though it only owns $33. The balance sheet at the end of 2023 had cash and equivalents of $1 million.
Where is BigBear.ai stock heading?
BigBear.ai’s slow growth, persistent losses, and ugly balance sheet made it an easy target for bears. The company remains too reliant on strict government contracts and lacks a meaningful moat against large data-mining competitors.
On the bright side, the company’s valuation has fallen to 2.4x this year’s sales, and insiders have actually bought almost 3x as much stock as they’ve sold in the past three months. Additionally, nearly 23% of the stock’s float remained short as of February 29, so any positive news could trigger short interest and drive the stock price higher. Its low valuation of $670 million may even make it an attractive takeover target for larger technology companies.
However, such speculative considerations are no substitute for strong fundamentals, and BigBear.ai is expected to remain unsupported. The company may stabilize its business over time, but it may have a hard time standing out in a crowded market favoring larger players who can leverage economies of scale to maintain pricing power.
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Leo Sun has no position in any stocks mentioned. The Motley Fool owns a position in and recommends Palantir Technologies. The Motley Fool recommends International Business Machines. The Motley Fool has a disclosure policy.
“How much would you get today if you invested $10,000 in BigBear.ai in 2021” was originally published by The Motley Fool
