Unicorn Startup Veritone doubles size of IPO

Tech companies’ trends are some of the most unpredictable because there’s almost always somebody coming up with a something new every day. The various IPOs of businesses spanning different sectors of the tech industry has shown just how true that is. Snap Inc. was one of the first to launch this year, and it did fairly well in its IPO. On the other hand, cloud storage tech magnate Cloudera’s issuance came off to a disappointing start. There’s also Yext to think about; it had a successful IPO but still, struggles to make it in the market. With those firms in mind, it is then a wonder what made AI and cloud storage Veritone (NASDAQ: VERI) decide to turn up its IPO offering. It seems like such a big gamble.

Initially, the Newport, CA-based company offered 1.25 million of its common stock at the range of $14 to $16 per share. This deal would have enabled the company to raise $18.75 million at the midpoint, bringing its market capitalization to $200 million. Now Veritone has set its sight on a more ambitious public offering: selling twice the number of shares at the same price range to double its proceeds. The fully diluted market value at this juncture would be almost a tenth higher than the original market cap estimate. Veritone made the decision with Wunderlich Securities acting as its lead manager and advisor.

To be honest, the atmosphere was not favorable for a Veritone issuance to begin with. Over the past two years, Veritone had shown significant losses and drops in revenue. The company’s revenue was $9 million in 2016, a solid 1% drop from the earnings of the previous year. Similarly, the company reported a good margin in 2016, but the gross profit margin was still moving downwards from 2015. In the 12 months ended December 31st, 2016 the firm reported margins of 82% to the 86% of 2015.

The Steelberg brothers, who head the company and are majority shareholders for Veritone, attributed the concerning losses to a plan of expansion for the company. In short, the lost revenue in 2016 was not because the market was unfavorable but because proceeds were used in the advancement of the firm’s proprietary AI software. That brings up another point of contention as far as investors go. Veritone, for all the good service it provides, has very few proprietary rights in the tech industry. This fact makes investors question how the company will survive in the fiercely competitive AI and cloud storage industries. At the moment Veritone makes use of third-party search engines such as Google (GOOGL) and IBM (IBM) to scour for digitally relevant data for its clients’ advertisements. The ‘scouring’ is done by the only proprietary technology that the firm has claim to.

As Veritone moves further into the tech market, it faces competition from bigger companies like Cisco (CSCO), Genetec and Aventura Technologies. The company can compete favorably, but only if it can license the AI property it’s planning on advancing with the IPO proceeds. All in all, the future doesn’t look very promising for Veritone.