Veritone – Too High To Enter?

by Trefis Team
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After a 700% rally from 23rd March, we believe Veritone’s stock (NASDAQ: VERI)  does not have room to grow based on its valuation. Veritone’s stock has rallied from $2 to $17 off the recent bottom compared to the S&P which moved 38%. The recovery was first seen after the company announced that it will be releasing an update for its aiWARE services that would support real-time artificial intelligence processing. The AI-powered software, specialized for analyzing video and audio files, will now also enable enterprises to sort large amounts of data in a short time period. The rise in the previous week was seen after the company announced a new agreement with Collab, a digital entertainment network.

Veritone’s stock has partially reached the level it was at in 2017. In reality, demand and revenues will likely be lower than last year, despite which we believe the stock could see a potential upside post the coronavirus crisis.

Some of the drop over the last 2 years was offset by the 2.5x rise seen in Veritone’s revenues from 2017 to 2019, while its losses declined from $64 million in 2017 to $62 million in 2019.

The company has seen a steady revenue rise over recent years, but its P/S multiple has fallen. A key factor behind the trend is the fact that the company’s losses are higher than its revenues. We believe the stock has little room to grow after the recent rally and the potential weakness from a recession driven by the Covid outbreak. Our dashboard What Factors Drove -27% Change In Veritone Stock Between 2017 And Now? has the underlying numbers.

The company’s P/S is now 7x but there is a possible downside when the current P/S is compared to levels seen in the past years. P/S of 1x at the end of 2019 and 3x as late as 2018.

Effect of Coronavirus

The global spread of coronavirus has led to lockdown in various cities across the globe, which has affected industrial and economic activity. Due to the stay-at-home orders there is reduced discretionary spending which has adversely affected consumption as consumers focus on essentials. In addition, there have likely been supply disruptions in China and elsewhere from the global Coronavirus crisis. We believe Veritone’s Q2 results will confirm a further hit to its revenue.

However, over the coming weeks, we expect continued improvement in demand and subdued growth in the number of new Covid-19 cases in the U.S. to boost market expectations. Following the Fed stimulus — which helped set a floor on fear — the market has been willing to “look through” the current weak period and take a longer-term view. With investors focusing their attention on 2021 results, the valuations vs historic valuations become important in finding value.

While Veritone’s stock seems to have hit its peak, which S&P 500 component stocks have the best chance of outperforming the benchmark index? Our 5 In the S&P 500 That’ll Beat The Index: TWTR, ISRG, NFLX, NOW, V look promising.

 

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