Veritone: AI Story Stock, Little More

Summary

• Veritone has positioned itself for a story stock. One that could benefit from AI.
• However, the company's near-term prospects don't appear to align with its story. For one, its growth rates are decelerating.
• Secondly, management struggles to accurately guide for 2022 bottom line profitability.
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salihkilic

Investment Thesis

Veritone (NASDAQ:VERI) has dramatically outperformed the S&P500 in the past month, as investors latch onto the AI theme.

However, under the surface, the business' prospects do not appear to be congruent with investors' recently found excitement.

Frankly, the business is not expensive at 2x sales. But aside from a compelling AI narrative, there's little else to support investor enthusiasm.

Time to Get Excited about AI?

In the last few weeks, we've seen tech stocks with exposure to AI go higher, substantially higher. In the chart that follows I highlight some names with exposure to the AI theme.

Data by YCharts

Irrespective of size and technology, they have all outperformed the S&P500. Why?

Because there's a belief that there's a new technological paradigm that will see an increase in the predictive capabilities of technological platforms.

Think about reducing friction in your decision process. Knowing what movie you'll be interested in watching next or what merchandise would suit your desire. In these two examples, I've highlighted digital content and physical products, to give you a snapshot of what's possible.

What we're ultimately talking about is less time spent thinking. How to increase consumer productivity output? How to influence your next decision? This technology could be extremely valuable in a wide array of settings.

For instance, we've already seen predictive technology exhibited in the social media platform TikTok (BDNCE), and how Meta (META) and YouTube (GOOGL)(GOOG) had to deploy billions of dollars to adopt a similar offering or be left behind.

Revenue Growth Rates Are Decelerating

VERI revenue growth rates

Now let's turn to discuss Veritone. What we see here is a reminder that irrespective of all the buzz around AI, Veritone does not appear to be a growth company.

In fact, Veritone's revenue growth rates are rapidly decelerating. Even if we consider that Q4 2021 was a particularly high hurdle to cross, I believe that 2023 as a whole will probably struggle to grow at 50% CAGR.

That being said, now consider what analysts are expecting for VERI.

SA Premium

The analyst community believes that VERI will struggle to report even mid-teens revenue growth rates.

From this, we can surmise, that Veritone may have ample opportunities in the future, but right now those future prospects are not translating into much near-term traction.

And I believe that management recognizes this as well.

Right Sizing Veritone

Veritone recently stated to investors that in 2023 it will put in place actions to reduce its headcount and cut back on its operational costs. The cost-saving actions will lead to a culmination of approximately $12 to $15 million of annualized savings.

Furthermore, let's look at Veritone's bottom-line guidance to see if we can discern a pattern? Here are the high-end full-year 2022 non-GAAP net income guidance provided at the time:

• Q4 2021: Positive $20 million
• Q1 2022: Positive $17 million
• Q2 2022: Negative $6 million
• Q3 2022: Negative $14 million

It appears to me that Veritone has struggled to figure out where its business is headed. And not only that, but its expectations at the start of the year and where Veritone is now likely to finish are two very different places.

On the surface, Veritone is not expensive at 2x price to sales. The problem though is that its revenue growth rates are decelerating.

And then, to further confound matters, its profitability profile is not moving in a positive direction.

The Bottom Line

The rapid summary is this, there is a lot of excitement for VERI. But I believe this stock will struggle to find the fundamentals that support the buzz from investors for this stock.

That being said, there's significant insider ownership here.

VERI proxy statement

After all, the two brothers who co-founded this business still hold significant stock in the company. So, I would surmise that they are highly motivated to see their business flourish.

In conclusion, as I've alluded to throughout, there is a lot of excitement for VERI. But, the company must first figure out some way to grow its intrinsic value to support investor excitement.

Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.