BigBear.ai (NYSE: BBAI) has disappointed many investors since its public debut. The artificial intelligence (AI) software company went public by merging with a special purpose acquisition company (SPAC) on December 8, 2021, with shares opening at $9.84 per share.
It then rose to an all-time high of $12.69 on April 13, 2022, but ultimately fell to a low of $0.63 just eight months later on December 29. to lose.
But today, shares of BigBear.ai are trading around $3.40. Shares bounced back as investors cheered the gradual stabilization under former CEO Mandy Long IBM director who took over in October 2022.
A $1,000 investment in BigBear.ai stock at its low point would have risen to almost $5,400 in just two years, yet it remains more than 70% below its all-time high as of this writing. Could this volatile stock rebound and reach new all-time highs over the next decade?
BigBear.ai develops AI-powered data mining and analysis tools from a wide range of sources. These tools help its customers make faster and more informed decisions. That’s a crowded market, but BigBear.ai differentiates itself from its competitors in two ways. Primarily, it delivers its services as standalone ‘observe, orient, and dominate’ modules, which plug into an organization’s existing software infrastructure. Second, it is developing its modules for edge networks rather than core networks. That flexibility makes it an attractive alternative to larger and stickier cloud-based analytics platforms.
Before going public, BigBear.ai forecast that revenue would rise from $182 million in 2021 to $388 million in 2023. But like many other SPAC-backed AI startups, the company overpromised and underpromised. In 2021, it generated just $146 million in revenue, and that figure grew just 6% in 2022 and remained flat at $155 million in 2023.
It attributed this slowdown mainly to macroeconomic headwinds, competition and the bankruptcy of its major customer, Virgin Orbit, in 2023. Many other larger AI software companies – such as Palantir And C3.ai — still grew faster than BigBear.ai, even though they faced similar macro and competitive issues.
That slowdown, along with eroding gross margins and steep losses, convinced many investors that BigBear.ai simply wasn’t strong enough to survive the cutthroat AI software market.
Under Long, BigBear.ai bought AI vision technology developer Pangiam in an all-stock deal, signed new government contracts and limited its spending to improve adjusted earnings before interest, taxes, depreciation and amortization (EBITDA). These efforts boosted revenue in the near term and drove adjusted EBITDA to breakeven levels.
For 2024, analysts expect revenue to rise 8% to $168 million, with negative adjusted EBITDA of $1 million. For 2025, they expect revenue to grow 14% to $193 million, with positive adjusted EBITDA of $5 million.
The bulls expect new government deals from BigBear.ai, data-sharing partnerships with Palantir and Amazon Web Services (AWS) and Pangiam’s growth in the AI vision market will drive growth in the coming years. It also recently stabilized its balance sheet by swapping $182 million of convertible bonds, maturing in 2026, for new bonds (at the same 6% rate) maturing in 2029.
But there are still some uncertainties about its future. Pangiam founder Kevin McAleenan recently succeeded Long as the new CEO of BigBear.ai, and it is unclear whether McAleenan will continue Long’s strategies or introduce new ones.
If BigBear.ai can meet Wall Street expectations through 2025 and then grow its revenue at a stable compound annual growth rate (CAGR) of 10% over the next decade, it could generate $500 million in revenue by 2035. At four times trailing revenue, it would be worth $2 billion by the end of 2035 – which would be more than double its current market capitalization of nearly $800 million.
Yet much of the recent growth has been driven by the Pangiam acquisition rather than organic growth of its core business. If it has to make more acquisitions to stay afloat, it will likely dilute its investors with more stock deals. It has already increased its market share by 85% since its public debut.
Additionally, BigBear.ai’s recent deals may not generate as much revenue as investors expect. The largest government deal, a new $165 million automation contract with the U.S. military, is actually spread over the next five years. Many of the other partnerships, data sharing agreements and demonstrations are not yet generating significant revenue.
BigBear.ai ended the last quarter with $256 million in total liabilities, giving it a high debt-to-equity ratio of 2.6. The country has moved much of that debt to 2029, but it could struggle to make those payments if it fails to continue growing organically.
BigBear.ai may still be around in ten years, but it has not yet proven that its business model is sustainable. So for now, I’m still bearish on its future, and I don’t expect the stock to reach new all-time highs in the next decade.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Leo Sun has positions in Amazon. The Motley Fool holds positions in and recommends Amazon, International Business Machines, and Palantir Technologies. The Motley Fool recommends C3.ai. The Motley Fool has a disclosure policy.
Where will BigBear.ai stock be in ten years? was originally published by The Motley Fool
