Citron Target Veritone Says Its Stock Isn't a Short, It's Still CheapBy
CEO Chad Steelberg says shares are undervalued after 300% gain
Artificial Intelligence firm faces test as lockup date looms
Veritone Inc., the cloud-based artificial intelligence company whose shares quadrupled over the past two months, has drawn criticism from short sellers like Citron Research who say the gains are overblown.
Chad Steelberg, Veritone’s co-founder and chief executive, sees it differently. Not only is the stock a bad short, it’s still undervalued.
The market opportunity for Veritone’s technology is huge, Steelberg said. The company, which went public in May, has built a platform to analyze raw audio and video data using artificial intelligence algorithms. He envisions thousands of companies using applications on that platform for everything from assessing ad efficiency to gathering insights on the competition.
“Our general solution can be applied to so many problems,” Steelberg said in an interview. “It clearly shows that our stock is undervalued given the use cases being leveraged by our partners.”
That’s a tough sell for skeptics, who see an unprofitable company trading at almost 30 times estimated 2017 sales of $18.8 million. Veritone reported $8.9 million in revenue in 2016. That number is expected to rise to $37.6 million in 2018, according to estimates compiled by Bloomberg.
“The technology is absolutely flipping transformative,” said Brian Alger, an analyst who covers Veritone for Roth Capital Partners LLC, in an interview. He said a $1 billion market cap -- which Veritone nearly reached at its record high close of $65.91 on Sept. 26 -- could prove to be a conservative target given Veritone’s revenue growth potential. The stock closed at $37.03 on Friday.
Veritone has platform agreements with CBS Radio and iHeartMedia Inc. The company has similar deals with some of the largest television broadcasters but can’t disclose which ones, Steelberg said. Veritone plans to announce an agreement in Brazil this week.
The company is also pursuing acquisitions in the media, legal and public safety markets. Veritone has identified more than a dozen software-as-a-service targets that range from small "acqui-hire” deals to companies that could cost close to $100 million, according to Steelberg. Veritone plans to do at least one deal this year and potentially as many as three.
“We believe that an active M&A strategy to identify large pools of content that can be transformed to the platform is a healthy way for us to expand revenue faster than we could organically,” Steelberg said.
With $66 million in cash on the balance sheet, Veritone says it may consider selling shares to fund acquisitions.
A key test for the stock will come on Nov. 8, when the initial offering lockup period expires. Only 3.1 million of 15 million shares outstanding are currently available to trade, according to Bloomberg data. With company insiders sitting on large gains, some may be tempted to sell.
More shares will also be available for short sellers to borrow. Short interest was 15 percent of free float as of Oct. 5, down from a high of 19 percent on Oct. 3, data from IHS Markit show.
Veritone’s stock gains have been shown to be fragile. A negative tweet from Citron Research last month knocked $300 million off the company’s market cap.
Steelberg is undeterred.
“There is a lot of skepticism of how important this technology will be,” he said. “As time goes on and people become more educated about what we’re doing, we will have more buyers for our stock than sellers.”