BigBear.ai (BBAI -7.48%) stock has experienced significant volatility, marked by a dramatic rise fueled by enthusiasm for artificial intelligence (AI) last March, followed by a sharp decline. However, the stock rebounded with a remarkable 229% increase between the end of September and December 30, 2024.
Investment bank analysts are optimistic about BigBear.ai’s prospects. H.C. Wainwright’s analyst Scott Buck recently raised his price target for the stock to $7 per share, indicating a potential 46% increase from the closing price on December 30, 2024. This optimism is driven by growing demand for AI-related services spanning various sectors.
BigBear.ai stock rebounds but concerns linger over financial health
BigBear.ai develops data mining and analytics tools that integrate multiple data sources for clients in diverse industries, including national security, digital identity, and supply chain management. The company sets itself apart by offering modular services, allowing clients to incorporate smaller components into their existing software infrastructures. Additionally, BigBear.ai utilizes edge networking to minimize latency, enhancing its service offerings.
Recent developments have bolstered BigBear.ai’s position. In October, the newly appointed CEO, Mandy Long, announced a five-year contract worth $165 million with the U.S. Army, a contract substantial in relation to the company’s total revenue of $155 million in 2023. Furthermore, BigBear.ai’s biometric verification solution, veriScan, is now operational at the Denver International Airport’s departure gates.
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Despite positive indicators, BigBear.ai faces key challenges. The company has revised its revenue projections downward, now forecasting total revenue for 2024 to range between $165 million and $180 million, a decrease from an earlier estimate of $195 million to $215 million. The midpoint of the new guidance represents only an 11% growth compared to 2022 revenue.
BigBear.ai is experiencing slow growth and has recorded significant financial losses. By the end of September 2024, the company reported just $65.6 million in cash, having burned through $149 million during the first nine months of the year. Its gross profit for the same period stood at $28.8 million, insufficient to cover expenses, with interest costs consuming a considerable portion of its gross profit.
An impairment of an intangible asset generated an $85 million loss, which is nonrecurring. However, even when this loss is accounted for, the company’s financial challenges suggest it may need additional capital by the end of 2025. With considerable debt already, a dilutive secondary offering could be anticipated in the near future.
While BigBear.ai has reported developments that could facilitate a break-even performance in 2025, the company’s financial trajectory over the past two years raises concerns about its ability to achieve sustainable profits.
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Featured image credit: BigBear.ai
