Veritone shows that being an AI company just doesn’t cut it anymore
Towards the end of April AI unicorn Veritone Inc. (NASDAQ: VERI) decided to give a go at upsizing its issuance. Veritone doubled the size of the initial offering and allowed investors to buy more. But now, looking at the company’s shares almost a month down the line you have to wonder if it was all worth it.
Veritone lost most of its investors at its website. One of the first things an investor will ask before going into business with you is ‘what do you do?’ Your answer to this question is supposed to be easy to understand. You say you develop this or that, or sell this or just promote that. But if you go to Veritone website, you find a whole lot of jargon that gets you confused. Maybe there are those who just didn’t invest in the company because Veritone is just too complicated to understand. And if you can’t understand what a company does, how are you going to know how you’ll get your money back?
Veritone also had a high valuation, one that most investors were not buying into. Post-IPO, the firm estimated that its price/share multiple would be 22.5x. That’s extremely high for any industry an investor might be looking into. But that isn’t the worst part. The worst part is that Veritone has little to show for it. In the few odd years that the company has been in operation, Veritone has gotten a total of $65 million in funding, most of it from the PAE Acacia. The company has made very little returns from this backing. In the last two years, Veritone has raked in only $22.8 million in sales revenue.
Similarly, Veritone trots itself to investors as an AI firm. Most people would disagree with that assessment seeing as how the firm uses third party search engines to do its work. The AI platform that the company has access to is a very small part of its operations, accounting for less than one percent of Veritone’s total revenue in 2015 and 2016.
According to Veritone, the purpose of its IPO was to raise funds to grow this AI division. A few years ago, during the dot-com boom, such an announcement would have had investors flocking to put their money in the firm. But investors are just not that eager anymore. Even with excellent growth projections owing to a boost of the AI platform Veritone stock is not doing well. The firm debuted on the market with a $15 tag to each of the 2.5 million shares on offer. Veritone shares are now trading below the red zone, going for $14 apiece.
Of course, you could argue that the firm’s stock is not performing the way the company management expected it to because of the firm’s declining financial performance. Between 2015 and 2016 the company lost up to 39% of its revenue stream. But Veritone is not the only AI company that is feeling the hit. Rocket Fuel (NASDAQ: FUEL) is an AI firm that specialized in ad placement slotting. Since Rocket Fuel launched its IPO, the stock price has gone down by almost 91%.