BigBear.ai(NYSE: BBAI) has disappointed a lot of investors since its public debut. The artificial intelligence (AI) software company went public by merging with a special purpose acquisition company (SPAC) on Dec. 8, 2021, and its stock opened at $9.84 per share.
It then rallied to a record high of $12.69 on April 13, 2022, but it eventually sank to an all-time low of $0.63 just eight months later on Dec. 29. The bulls retreated as it missed its own growth targets and racked up steep losses.
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But today, BigBear.ai’s stock trades at about $3.40. Its shares bounced back as investors applauded its gradual stabilization under CEO Mandy Long, a former IBM executive who took the helm in October 2022.
A $1,000 investment in BigBear.ai’s stock at its record low would have blossomed to nearly $5,400 in just two years, yet it remains more than 70% below its all-time high at the time of this writing. Could this volatile stock rally and set new record highs over the next 10 years?
BigBear.ai develops AI-powered data-mining and analytics tools from a wide range of sources. These tools help its clients make faster and more informed decisions. That’s a crowded market, but BigBear.ai differentiates itself from its competitors in two ways. First, it provides its services as stand-alone “observe, orient, and dominate” modules, which can be plugged into an organization’s existing software infrastructure. Second, it develops its modules for edge networks instead of core networks. That flexibility makes it an appealing alternative to larger and stickier cloud-based analytics platforms.
Before it went public, BigBear.ai predicted its revenue would rise from $182 million in 2021 to $388 million in 2023. But like many other SPAC-backed AI start-ups, it overpromised and underdelivered. It only generated $146 million in revenue in 2021, and that figure only grew 6% in 2022 and flatlined at $155 million in 2023.
It mainly attributed that slowdown to the macro headwinds, competition, and the bankruptcy of its major customer, Virgin Orbit, in 2023. However, many other larger AI software companies — like Palantir and C3.ai — still grew at a faster rate than BigBear.ai even as they faced similar macro and competitive headwinds.
That slowdown, along with its crumbling gross margin 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 the AI vision-technology developer Pangiam in an all-stock deal, signed new government contracts, and reined in its spending to improve its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA). Those efforts boosted its near-term revenue and drove its adjusted EBITDA toward break-even levels.
For 2024, analysts expect its revenue to rise 8% to $168 million with a negative adjusted EBITDA of $1 million. For 2025, they expect its revenue to grow 14% to $193 million with a positive adjusted EBITDA of $5 million.
The bulls expect BigBear.ai’s new government deals, data-sharing partnerships with Palantir and Amazon Web Services (AWS), and the growth of Pangiam in the AI vision market to fuel its growth over the next few years. It also recently stabilized its balance sheet by swapping out $182 million of its convertible notes, which were due in 2026, for new notes (at the same 6% rate), which mature in 2029.
But there are still some uncertainties regarding its future. Pangiam’s founder, Kevin McAleenan, recently succeeded Long as BigBear.ai’s new CEO, and it’s unclear if McAleenan will continue Long’s strategies or introduce new ones.
If BigBear.ai can meet Wall Street’s expectations through 2025 and then grow its revenue at a steady compound annual growth rate (CAGR) of 10% over the following 10 years, it could generate $500 million in revenue by 2035. Assuming it still trades at 4 times its trailing sales, it would be worth $2 billion — which would be more than double its current market cap of nearly $800 million — by the end of 2035.
Yet a lot of its recent growth was driven by its acquisition of Pangiam instead of the organic growth of its core business. If it needs to make more acquisitions to stay afloat, it will likely dilute its investors with more all-stock deals. It’s already increased its share count by 85% since its public debut.
Moreover, BigBear.ai’s recent deals might not generate as much revenue as investors expect. Its biggest government deal, a new $165 million automation contract with the U.S. Army, is actually spread out over the next five years. Many of its other partnerships, data-sharing deals, and demonstrations aren’t generating any meaningful revenue yet.
BigBear.ai ended its latest quarter with $256 million in total liabilities, which gives it a high debt-to-equity ratio of 2.6. It’s punted a lot of that debt to 2029, but it could struggle to make those payments if it fails to keep growing organically.
BigBear.ai might still be around in 10 years, but it hasn’t proven its business model is sustainable yet. So for now, I’m still bearish on its future, and I don’t expect its stock to set new all-time highs within 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 has 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 10 Years? was originally published by The Motley Fool
