Aterian Is in a Downward Spiral With Little Hope of Escape
- Aterian (ATER) stock is hoping to transform the e-commerce led consumer products industry.
- The company’s operating results continue to be lackluster, however.
- A short squeeze is unlikely, and further stock dilution may be coming in the intermediate future.
Aterian (NASDAQ:ATER) presents itself as a tech-powered consumer products company. Aterian’s special differentiator is supposed to be its artificial intelligence marketplace ecommerce engine (AIMEE) system which gives it profound insights into customer behavior and helps predict which products will perform well in online marketplaces.
Aterian decided to pursue a roll-up strategy, buying up small consumer products companies. With the power of AIMEE, Aterian was going to supercharge the sales of the companies which it acquired.
However, AIMEE has failed to deliver on that promise. Aterian’s revenues have steadily missed the mark, and the value of ATER stock has collapsed over the past year. And make no mistake, even at almost $3, things can get a lot worse.
Horrendous Q1 Earnings Report for ATER Stock
On May 10, Aterian released its first-quarter earnings report. And it was a massive bust. The company lost 78 cents per share, which was way in excess of the 26 cent loss that analysts had projected. On top of that, revenues plunged double-digits year-over-year, missing estimates badly.
Here’s Aterian’s quarterly revenues as of late:
- Q1 2021: $48 million
- Q2 2021: $68 million
- Q3 2021: $68 million
- Q4 2021: $63 million
- Q1 2022: $42 million
As you can see, the company stalled out last summer and has since been in dramatic decline. Sales dropped from Q3 to Q4, which is never a good sign for a company which should have seen a substantial boost in sales from holiday shopping. Then, this quarter, the wheels fell off entirely with revenues plunging by a third sequentially.
Aterian never managed to reach profitability even in 2021 during the e-commerce shopping boom. Now, with revenues plummeting and costs soaring thanks to inflation and supply chain disruptions, things will go from bad to worse. You can see that in the company’s earnings per share figure, which was far worse than had been expected.
Watch Out For More Dilution
Given Aterian’s shrinking business and unenviable profitability metrics, it seems likely that Aterian will need more capital sooner or later. The company burned $13 million in cash from operations last quarter and had $44 million left as of that latest report. This suggests Aterian could run low on funds around the end of the year.
And indeed, CFO Arturo Rodriguez hinted that there could be more dilution for stockholders. On the latest conference call, responding to a question about the company’s balance sheet through year-end 2022, Rodriguez responded as follows:
“And assuming we continue to hit our forecast and all that, we think we’re well capitalized. That said, if we decide to do M&A and other strategic moves like that, we probably would need to do equity raises.”
Given that Aterian just missed estimates this quarter, there’s little reason to assume that Aterian will hit its forecasts going forward.
More broadly, over the past two years, Aterian’s share count has already risen from fewer than 20 million to greater than 55 million shares today. That’s a near tripling of the amount of ATER stock in circulation. If the company issues more with shares down here in the low single digits, it could have a devastating effect to current shareholders.
ATER Stock Verdict
I’ve been harsh on ATER stock in previous articles. And now, even with the share price down a lot more, the call has to be to remain bearish. I’m just not convinced there is a working business model here.
For all the talk about the company’s advanced artificial intelligence, there’s little sign of it in the company’s operations. And, more broadly, buying up a bunch of disparate consumer products companies to sell through online marketplaces just doesn’t seem like a business idea with much moat or defensibility.
I’d be happy to be proven wrong. But, unfortunately for ATER stock owners, the Q1 earnings report was more of the same from the company. More revenue declines, more operating losses, and more excuses about why the strategy isn’t working. Until that changes, steer clear of ATER stock.
On the date of publication, Ian Bezek did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
