BigBear.ai: Evaluating Recovery and Future Potential in the AI Market

BigBear.ai (NYSE: BBAI), known for its AI-driven analytics tools, went public three years ago through a merger with a special purpose acquisition company (SPAC). Following the merger, the stock opened at $9.84 per share and peaked at $12.69 on April 13, 2022, but fell below $1 by year-end.

Similar to many SPAC-backed startups, BigBear.ai faced challenges by setting ambitious expectations without corresponding results. The pressure intensified due to rising interest rates, which pushed investors away from companies seen as speculative and unprofitable.

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Today, shares trade around $4, suggesting that those who invested during its lows have seen significant gains. Let’s explore the reasons behind this recovery and determine if it’s a good investment now.

Image source: Getty Images.

Positioning Itself in the Competitive AI Landscape

BigBear.ai specializes in data mining and analytics to support clients in making timely and informed decisions. Although the AI market is highly competitive, BigBear.ai distinguishes itself in two key areas.

For one, it relies on edge networks instead of traditional core networks for many of its services. Secondly, it provides modular solutions that integrate easily with existing software environments, giving it an edge over more fixed cloud-based systems.

During its pre-merger presentation, BigBear.ai projected that its revenue would increase from $182 million in 2021 to $388 million in 2023. In contrast, its actual revenue figures were $146 million for 2021, followed by $155 million in both 2022 and 2023. Its gross margin stood at only 26% in 2023, significantly below its initial goal of 50%.

BigBear.ai attributed its slower growth to macroeconomic factors, increased competition, and the bankruptcy of its major client, Virgin Orbit, in 2023. Yet, the company did not effectively communicate how it plans to navigate these obstacles, prompting investor withdrawals.

Future Prospects for BigBear.ai

In October 2022, CEO Reggie Brothers resigned, handing leadership to former IBM executive Mandy Long. Under Long’s direction, BigBear.ai carried out an all-stock acquisition of the AI vision tech firm Pangiam and secured new government contracts aimed at boosting revenue. The firm also initiated aggressive cost-cutting measures to return adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) and cash flows to positive territory in the latter half of 2023.

Looking ahead to 2024, BigBear.ai anticipates revenue growth of 6% to 16%, predicting figures between $165 million and $180 million. Analysts project an 8% rise in revenue to approximately $168.3 million, nearing break-even on adjusted EBITDA. Revenue for 2025 is estimated to increase by 14% to $192.5 million, with positive adjusted EBITDA expected to be $4.8 million.

This projected growth is largely attributed to government contracts, including a notable five-year, $165 million deal with the U.S. Army and a partnership with the Federal Aviation Administration, as well as data-sharing initiatives with larger platforms like Amazon Web Services and Palantir Technologies. There may also be opportunities to expand Pangiam’s role in the burgeoning AI vision market.

Is Now the Right Moment to Invest in BigBear.ai?

Since its SPAC merger, BigBear.ai has seen its share count increase by 85%. This dilution mainly stems from the acquisition of Pangiam, stock-based compensations, and additional stock offerings. However, with $65.6 million in cash and equivalents reported at the end of the latest quarter, bankruptcy seems unlikely before positive adjusted EBITDA is achieved.

Nonetheless, with an enterprise value of $1.35 billion, BigBear.ai shares may not represent a great value at 7 times next year’s projected sales. Insider selling has also been notable, with over 80.5 million shares sold in the past three months without any buyers from within the company.

Although BigBear.ai has recovered significantly from its previous lows, higher-growth tech stocks currently trade at more appealing valuations. Therefore, it may be prudent to hold off on purchasing shares until the company demonstrates a sustainable business model.

A Second Chance at Potential Wealth

If you’ve ever thought you missed an opportunity to invest in leading stocks, you’ll want to pay attention.

Occasionally, our analysis team issues a “Double Down” stock recommendation for companies they believe are poised for considerable growth. If you’re worried you may have already missed your chance, now might be the best time to act before it’s too late. The results back this up:

• Nvidia: If you invested $1,000 when we doubled down in 2009, you’d have $348,216!*
• Apple: If you invested $1,000 when we doubled down in 2008, you’d have $47,425!*
• Netflix: If you invested $1,000 when we doubled down in 2004, you’d have $480,681!*

Currently, we are issuing “Double Down” alerts for three exceptional companies, and this opportunity may not present itself again soon.

See 3 “Double Down” stocks »

*Stock Advisor returns as of December 30, 2024

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 and Palantir Technologies. The Motley Fool recommends International Business Machines. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.