Warren Buffet famously said to invest only in what you know, which sounds especially good in today’s ICO and NFT world. No matter how complex a technology is, the provider should be able to explain it simply. The inability to clearly articulate a value proposition is a big red flag, and Veritone (VERI) is a company it represents.
About four years ago, we published a piece titled How much “AI” is there on Veritone’s IPO? About five months later, we asked the question, Veritone and ITUS Corp. are AI Pump and Dumps? based on the fact that Veritone’s shares skyrocketed + 357% in a single month. It turned out to be a pretty timely call, as stocks grew shortly thereafter, going from $ 56 per share to $ 10 per share in a year. In early 2020, the stock price has fallen below $ 2 per share. Today, stocks are trading at around $ 20 per share, which means we are facing an extremely volatile stock.
Our original criticism of Veritone was that they talked a lot about artificial intelligence (AI), but their revenue didn’t seem to reflect that. Now that has changed. After some recent news about the acquisition of PandoLogic, we decided to take another look.
About Veritone Stock
Of all the companies we’ve analyzed, none have proven to be more confusing than Veritone. At the highest level, the company says they have built “an operating system for AI” called aiWare that has “more than 300 AI engines in six cognitive categories, including text, voice, vision, voice, data, biometrics, and audio. “. They’re helping companies make sense of all the unstructured data in the world, which seems useful enough, but it’s all coming down.
What does Veritone do?
Trying to understand what the company does based on the 15 applications they present is futile. There is an app that helps California police officers gather information on stop data and an energy supply that helps buy, sell, and ship energy. There is a smart contact center solution and a tool that helps you write sensitive information within tests based on audio, video and images. At best, the list is a bad attempt to demonstrate several use cases without any common themes appearing, except, of course, the AI operating system. Then we came across this slide that breaks it all down vertically.
This makes a little more sense, but not when we compare the above with the revenue segmentation provided in the company’s latest 10-K.
We have now been given three new categorizations to find out what it means to be back in the first place.
In 2016, most of Veritone’s revenue came from “media placement services performed under advertising contracts with our media customers,” and it remains so today. During 2020, Veritone placed approximately $ 257.8 million in multimedia advertising for its advertising customers. It seems intuitive to use AI to explore video content for placements. According to the company, “during 2020, ten advertising clients accounted for approximately 58% of our total advertising services revenue.” Your advertising contracts can generally be canceled by your customers with 30 to 90 days written notice, which means that these revenue streams can change very quickly. Even worse, the risk of customer concentration extends to their other lines of business.
AiWARE SaaS Solutions
Veritone lists several KPIs that track your SaaS business, but does not include the most important SaaS metrics you expect to see, such as “annual recurring revenue” or “withholding rate.” One of their metrics is “total accounts on the platform,” which they say is 1,896 accounts. They then say: “During 2020, ten customers accounted for approximately 53% of the total revenue from our aiWARE SaaS solutions.” It makes you wonder how the rest of your SaaS revenue is distributed among the other 1,886 accounts. Not including typical SaaS metrics is a big red flag, not to mention when they say that “our aiWARE SaaS solutions revenue from customers in certain markets, particularly in government, legal and compliance markets, is often project-based and is affected by the project schedule “. This is not how SaaS business models work.
Licensing of aiWARE content and multimedia services
Clients include major sports networks, advertising agencies, and film production companies that require high-value content for their broadcasts and projects. During 2020, ten customers accounted for approximately 38% of total revenue from content licensing services. The 2020 decline was linked to the cancellation of sporting events due to The Rona.
There is always the temptation to ignore what a company does and focus on one of the most important metrics that demonstrate traction: revenue. For Veritone, its annual revenue growth and steady quarterly revenue growth don’t look half bad.
Previous revenue will rise sharply as Veritone recently announced the acquisition of a contracting technology company.
Veritone acquires Pando
In 2017, we speculated that Veritone would probably start acquiring companies to increase its artificial intelligence capabilities, and in fact it did. In the same year they acquired “intellectual property and technology for data analysis” from a company called Atigeo, and then in 2018 they acquired three more companies.
- Performance Bridge – A podcast advertising agency that has become one of the largest full-service audio-based advertising agencies in the world. Total undisclosed financing and acquisition price.
- Machine box – Machine learning models prepared and ready for production inside Docker containers. Total undisclosed financing and acquisition price.
- Older digital – Digital asset management content licensing services. It raised more than $ 70 million and was acquired by Veritone for $ 15 million.
The biggest purchase to date from Veritone was announced last month. Founded in 2007, New Yawk’s own PandoLogic grew $ 22.7 million in disclosed funding to build “programmatic procurement advertising” solutions that have been used by more than 125,000 different entrepreneurs. Its fully automated platform provides job listings to all major search recruitment sites, such as Indeed, CraigsList, LinkedIn, Monster, CareerBuilder, ZipRecruiter, and more. The advertising aspect of PandoLogic joins the advertising activities carried out by Veritone, although it is not clear how they plan to segment their revenue after the acquisition which was completed with a combination of cash and shares (The total consideration will dilute existing shareholders by up to 7.8%.)
The following table shows how PandoLogic will provide an additional $ 50 million in SaaS revenue for Veritone.
Maybe now they’ll start including the kind of metrics we’d expect to see from a SaaS company. We would also reiterate our previous concern about how their existing “SaaS revenue” is usually “project-based”.
With a market capitalization of $ 682 million, Veritone falls below our $ 1 billion market capitalization threshold, so stocks would be off our radar just in terms of size. Unfortunately, part of your SaaS business, even after the acquisition of PandoLogic, will only account for about half of its revenue, there is a high risk of customer concentration and the business strategy seems scattered and difficult to follow. Veritone is not a company that will spend our limited resources trying to control them in the future, unless they can better articulate what exactly they are doing.
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