Enterprise AI Adoption And VDR Will Drive Future Success

Key Takeaways

• Veritone's AI focus, bolstered by public sector contracts and strategic partnerships, positions it for substantial revenue and earnings growth.
  
• Divestiture from legacy operations enhances resource allocation toward high-margin AI offerings, improving net margins and operational efficiency.
  
• Declining revenue and profitability challenges, coupled with reliance on large contracts, could impact Veritone's financial health and strategic growth efforts.

Catalysts

Engages in the provision of artificial intelligence (AI) computing solutions and services in the United States, the United Kingdom, France, Australia, Israel, and India.

• The exponential growth in enterprise-wide AI adoption and the processing of over 10 petabytes of unstructured data position Veritone for significant revenue expansion through its aiWARE platform. This growth is bolstered by a burgeoning sales pipeline and strategic focus on AI solutions, impacting future revenue positively.
  
• Recent divestiture of the legacy advertising agency has allowed Veritone to concentrate resources on high-margin AI software and services, potentially enhancing net margins and operating efficiencies by focusing on core competencies.
  
• The launch and swift adoption of the Veritone Data Refinery (VDR) indicate significant revenue growth potential in 2025. The platform is gaining traction with large hyperscalers and generative AI companies, contributing notably to revenue growth and improving gross margins over time.
  
• Expanded public sector initiatives, including contracts with the Department of Defense and other federal agencies, are anticipated to drive substantial revenue growth. The iDEMS applications have created an elevated product offering for law enforcement, promising 100% to 150% growth in the sector and improved overall earnings.
  
• Strategic partnerships and renewals with major commercial entities such as CBS News, coupled with product expansions, are expected to stabilize and grow Veritone's recurring revenue base, supporting long-term profitability and strengthening earnings growth.

Veritone Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Veritone's revenue will grow by 20.5% annually over the next 3 years.
• Analysts are not forecasting that Veritone will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate Veritone's profit margin will increase from -104.0% to the average US Software industry of 12.0% in 3 years.
• If Veritone's profit margin were to converge on the industry average, you could expect earnings to reach $19.5 million (and earnings per share of $0.36) by about April 2028, up from $-96.3 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 18.9x on those 2028 earnings, up from -1.0x today. This future PE is lower than the current PE for the US Software industry at 29.6x.
• Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 11.02%, as per the Simply Wall St company report.

Veritone Future Earnings Per Share Growth

Risks

• Veritone's software products and services revenue declined significantly, attributed largely to a decrease in consumption-based customers and non-recurring revenue from 2023, which could continue to impact future revenue growth.
  
• The company reported a loss from operations despite cost reductions, highlighting ongoing challenges with profitability that could hinder net margins and overall earnings.
  
• There is reliance on high-impact government contracts and large-scale projects, which, if delayed or unobtained, could substantially impact forecasted revenue and financial health.
  
• Non-GAAP gross margin declined in 2024, and while anticipated to improve, further compression, especially in new product offerings like VDR, could negatively impact cost structure and financial margins.
  
• The company is transitioning focus from non-core business divestitures and could face challenges in successfully capturing new opportunities and sustaining current momentum, risking projected revenue and strategic growth.

Valuation

• The analysts have a consensus price target of $5.0 for Veritone based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $6.0, and the most bearish reporting a price target of just $3.5.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $162.1 million, earnings will come to $19.5 million, and it would be trading on a PE ratio of 18.9x, assuming you use a discount rate of 11.0%.
• Given the current share price of $2.14, the analyst price target of $5.0 is 57.2% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.