Veritone Inc: Why AI Play That’s Up 965% Is Still Worth a Look

Veritone StockVeritone Stock Is the Future of Artificial Intelligence

In the decades ahead, it will be amazing what new technologies—both in hardware and software—will be able to accomplish.

We’re beginning to see incredible possibilities with the rise in 5G, but another area that will drive technological innovation is artificial intelligence (AI) and machine-to-machine learning.

An intriguing play on the AI development space is Veritone Inc (NASDAQ:VERI), a provider of AI software and solutions that help developers build AI applications and intelligent process automation solutions.

In other words, Veritone provides the building blocks for AI.

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The market has rewarded VERI stock for the company’s potential. Veritone stock is up by a staggering 965% year-over-year at the time of this writing, largely due to the fact that its shares were trading at a lowly $1.22 during the March 2020 sell-off.

Veritone stock traded as high as $50.34 on February 10 before pulling back to the current $32.00 level. The rocket move to that high was excessive for VERI stock. The 36% retrenchment may still have more room to fall, but my view is that Veritone Inc has strong long-term prospects.

For VERI stock to justify its upward move, the company needs to improve its financials.

Chart courtesy of StockCharts.com

Improving Fundamentals Support Bull Case for VERI Stock

Veritone Inc’s strong double-digit revenue growth over the past three years was encouraging and should accelerate as AI becomes more mainstream.

The company generated an impressive compound annual growth rate (CAGR) of 37.5% for its revenues from 2015 to 2019.

Fiscal Year Revenues (Millions) Growth
2015 $13.9 N/A
2016 $8.9 -36.0%
2017 $14.1 61.7%
2018 $27.1 87.7%
2019 $49.7 83.6%

(Source: “Veritone Inc.” MarketWatch, last accessed March 5, 2021.)

The current revenue estimates for Veritone appear to be normalizing after the company’s spectacular growth.

On the plus side, the revenue estimates have been rising since October 2020. Veritone is expected to report revenue growth of 15% to $57.1 million for 2020, followed by growth of 19.6% to $68.3 million for 2021. (Source: “Veritone, Inc. (VERI),” Yahoo! Finance, last accessed March 5, 2021.)

It’s not surprising to see that Veritone has incurred earnings before interest, taxes, depreciation, and amortization (EBITDA) losses in the past few years.

Fiscal Year EBITDA (Millions) Growth
2015 -$5.7 N/A
2016 -$23.1 -303.4%
2017 -$46.5 -101.1%
2018 -$55.9 -20.1%
2019 -$58.0 -3.8%

(Source: MarketWatch, op. cit.)

A positive sign is that Veritone has narrowed its generally accepted accounting principles (GAAP) earnings-per-share (EPS) losses from 2017 to 2019.

Fiscal Year GAAP Diluted EPS GROWTH
2015 -$0.67 N/A
2016 -$2.12 -216.4%
2017 -$6.20 -192.8%
2018 -$3.48 43.9%
2019 -$2.85 18.1%

(Source: MarketWatch, op. cit.)

The narrowing of losses is expected to continue.

Analysts estimate that Veritone will cut its adjusted loss to $0.76 per diluted share in 2020, compared to an adjusted loss of $1.66 per diluted share in 2019. The loss is then expected to further narrow to $0.53 per diluted share in 2021. (Source: Yahoo! Finance, op. cit.)

Based on the first three quarters of 2020, Veritone appears to be on its way to another beat, after beating in all three quarters.

The company’s free cash flow has been negative, but it jumped 33.8% in 2019.

Fiscal Year Free Cash Flow (Millions) Growth
2015 $2.4 N/A
2016 -$36.8 -1,225%
2017 -$32.6 -21.6%
2018 -$45.9 -41.0%
2019 -$30.4 33.8%

(Source: MarketWatch, op. cit.)

Veritone, Inc will have time to execute its plan. The company’s balance sheet is strong, with no debt and with $54.3 million in cash. (Source: Yahoo! Finance, op. cit.)

Analyst Take

Institutional investors have been adding VERI stock to their portfolios. The number of institutions holding Veritone stock has increased from 53 in October 2020 to the current 92 institutions. The institutional ownership has broadened from 19.9% of the outstanding shares to the current 34.5%. (Source: Yahoo! Finance, op. cit.)

Insiders have also been buying VERI stock. Over the last six months, insiders have purchased 466,645 shares and have only sold 14,635 shares.

In my view, Veritone Inc has what it takes to succeed in the AI space. It will be all about the execution.