The AI software developer’s business is gradually stabilizing.
BigBear.ai (BBAI 4.86%) hasn’t impressed too many investors since its public debut. The developer of AI modules went public by merging with a special purpose acquisition company (SPAC) in December 2021, and its stock opened at $9.84 on the first day.
But today, BigBear.ai’s stock trades at less than $3. The company missed its own ambitious targets, racked up steep losses, and struggled as rising rates compressed its valuations. It’s also on its third CEO since its public debut, and it delayed the filing of its annual report this March to restate some of the financial statements related to its convertible notes which mature in 2026.
Those headwinds are making it an easy target for the bears in this volatile market. But could it bounce back over the next 12 months? Let’s review its near-term challenges and catalysts to decide.
Image source: Getty Images.
What happened to BigBear.ai after its public debut?
BigBear.ai develops three AI modules (Observe, Orient, and Dominate), which can be plugged into a company’s edge networks to optimize, automate, and accelerate certain tasks. It’s been a small player in the AI market since its founding in 1988, but it extended its reach by sharing its data with bigger analytics companies like Palantir (NASDAQ: PLTR).
Before it went public, BigBear.ai predicted its revenue would triple from $182 million in 2021 to $550 million in 2024. But in reality, its revenue only rose from $146 million in 2021 to $158 million in 2024.
It blamed the challenging macro environment, tough competition from bigger AI companies, and the bankruptcy of its top customer, Virgin Orbit, for that slowdown. Its net loss more than doubled from $124 million in 2021 to $257 million in 2024.
CEO Reggie Brothers, who had led the company since 2020, resigned in October 2022. His successor, Mandy Long, drove the company to stabilize its spending and acquire the AI vision company Pangiam in an all-stock deal in March 2024 to boost its revenue. Pangiam’s co-founder and CEO, Kevin McAleenan, replaced Long as BigBear.ai’s CEO this January.
McAleenan was an acting secretary of the Department of Homeland Security (DHS) during the first Trump Administration, and his appointment sparked hopes for fresh government contracts.
Did BigBear.ai stabilize its business over the past year?
The company’s year-over-year growth rates look dismal. But on a sequential basis, its revenue grew for three consecutive quarters, its gross margin expanded significantly in the fourth quarter, and its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) turned positive over the past 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’s rising gross margins indicates it’s retaining its pricing power in its niche market, while Long’s cost-cutting stabilized its adjusted EBITDA. Its year-end cash and equivalents rose from $32.6 million in 2023 to $50.1 million in 2024.
BigBear.ai, Palantir, and other government-driven companies could face some unpredictable headwinds from the Trump Administration’s spending cuts. However, BigBear.ai has already secured three new government contracts since McAleenan took over as its CEO: a contract for the U.S. Navy’s SeaPort Next Generation program, a Department of Defense (DoD) contract for analyzing foreign media reports, and another contract for the DoD.
Where will the stock be in a year?
Those contracts sound promising, but they’ll only slightly boost BigBear.ai’s near-term revenue. For 2025, it expects its revenue to grow from 1% to 14% to $160 million to $180 million. It also says it expects to post a “negative single-digit adjusted EBITDA” for the year — which would merely be comparable to its negative adjusted EBITDA of $2.4 million in 2024.
With an enterprise value of $837 million, BigBear.ai doesn’t seem particularly cheap at five times this year’s sales. It’s also increased its number of outstanding shares by 113% since its public debut, while its insiders sold more than 30 times as many shares as they bought over the past 12 months. All of those factors, along with the unpredictable macro and government spending environment, could limit its upside potential over the next 12 months.
Analysts expect revenue to rise 8% to $170 million in 2025 and grow 13% to $192 million in 2026. They also expect its adjusted EBITDA to turn positive in 2026. That outlook seems stable, but it probably won’t attract a higher valuation because it’s still a slower-growth underdog in a market filled with higher-growth leaders.
If the company matches analysts’ expectations through 2027 and still trades at five times forward sales, its enterprise value could rise about 15% to $960 million over the next two years. That would be a decent return, but it could still underperform other higher-growth AI stocks and the S&P 500, which has delivered an average annual return of more than 10% since BigBear.ai’s inception.