BigBear.ai (NYSE: BBAI) has not met investor expectations since going public. The AI module developer completed its merger with a special purpose acquisition company (SPAC) in December 2021, debuting at $9.84 per share. However, its stock price has now plummeted to under $3.

The company has struggled to achieve its ambitious goals, posting significant losses and facing a challenging market as rising interest rates pressured valuations. Additionally, BigBear.ai has seen leadership instability, with its third CEO appointed since the public launch. In March 2024, it delayed filing its annual report to restate financial statements regarding convertible notes due in 2026.

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These challenges position BigBear.ai as a target for pessimistic investors in a volatile market. The question remains: can it recover in the next year? An analysis of its current difficulties and potential catalysts is essential.

Image source: Getty Images.

The Post-Debut Journey of BigBear.ai

Founded in 1988, BigBear.ai specializes in three AI modules—Observe, Orient, and Dominate—that optimize and automate processes within companies’ edge networks. Despite being a minor player in the AI space, it gained visibility by partnering with larger analytics firms such as Palantir (NASDAQ: PLTR).

Before its public offering, BigBear.ai aimed for revenue growth from $182 million in 2021 to $550 million by 2024. In contrast, its actual revenue increased only from $146 million in 2021 to an estimated $158 million in 2024.

The firm attributed its slowdown to a tough macroeconomic environment, fierce competition from larger AI companies, and the collapse of its primary customer, Virgin Orbit. Correspondingly, its net loss more than doubled, rising from $124 million in 2021 to $257 million in 2024.

In October 2022, CEO Reggie Brothers resigned after leading the company since 2020. Mandy Long, his successor, initiated spending stabilization measures and oversaw the acquisition of AI vision company Pangiam in an all-Stock deal in March 2024. Kevin McAleenan, Pangiam’s co-founder, took over as CEO in January 2024 after Long’s departure.

McAleenan’s background as an acting Secretary of Homeland Security generated optimism for new government contracts for the company.

Has BigBear.ai Stabilized Its Business?

While the company’s year-over-year growth rates have been poor, its sequential revenue showed growth over three consecutive quarters. In the fourth quarter, its gross margin also significantly expanded, and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) turned positive in the last two quarters.

Metric	Q4 2023	Q1 2024	Q2 2024	Q3 2024	Q4 2024
Revenue	$40.56 million	$33.12 million	$39.78 million	$41.51 million	$43.83 million
Gross margin	32.1%	21.1%	27.8%	25.9%	37.4%
Adjusted EBITDA	$3.67 million	($1.63 million)	($3.68 million)	$950,000	$1.96 million

Data source: BigBear.ai.

BigBear.ai has managed to improve its gross margins, indicating its ability to maintain pricing power within its niche. Long’s cost-containment efforts have led to a stabilization in adjusted EBITDA. Furthermore, cash and equivalents rose from $32.6 million in 2023 to $50.1 million in 2024.

Amid potential challenges due to expected spending cuts from the Trump Administration, BigBear.ai has secured three government contracts since McAleenan took over, including a contract with the U.S. Navy and a Department of Defense contract for foreign media analysis.

Future Projections for BigBear.ai

While these contracts may offer some promise, they are not expected to significantly increase BigBear.ai’s near-term revenue. For 2025, the company predicts revenue growth between 1% and 14%, estimating revenues of $160 million to $180 million. It also anticipates a “negative single-digit adjusted EBITDA” for the year, similar to its projected negative adjusted EBITDA of $2.4 million in 2024.

With an enterprise value of $837 million and a valuation of five times this year’s sales, BigBear.ai does not appear undervalued. Additionally, the firm has increased its number of outstanding shares by 113% since going public, while insiders sold over 30 times as many shares as they purchased in the past year. Such developments, along with the unpredictable macroeconomic and government spending conditions, might restrict its potential growth in the next year.

Analysts forecast an 8% increase in revenue to $170 million in 2025, further growing 13% to $192 million in 2026. They also expect BigBear.ai’s adjusted EBITDA to turn positive by 2026. Although this outlook seems steady, it is unlikely to improve the company’s market valuation due to its status as a slower-growth option in a sector dominated by faster-growing competitors.