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Why Veritone Trades Like A Roller-coaster

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Veritone (VERI - Free Report) is trading down 16% at about $55 per share right now. This is a steep sell-off from the previous close, but even worse from the high of the day which was just short of $75.

So what happened?

First, let me review that the stock is a Zacks Rank #4 (Sell) and it earned that rank due to the steep drop in earnings estimates.  Take a look at this table to see the move I am speaking to:

That looks pretty scary to fundamental investors, but keep in mind that this ia a rather young company with only a few earnings reports under its belt.

Is this the reason the stock has soared higher and then crashed lower?  No.


I am an investor that relies much more on the fundamentals than I do on the technicals.  The simple fact is that lines on charts just don't do it for me, but that doesn't make technical traders or investors wrong.  There are a million ways to skin the cat, and this is no one way to do things -- because if there were, then we would all do it that way.

The simple truth is that VERI is expected to have revenue of $5.1M this quart and around $19M in revenue this year.  There is some pretty big growth happening here, with the CY2017 revenue growth expected to come in at 111% and then growth will continue into 2018 at a rate of 103%.

Doubling revenues like that will certainly juice a stock, but is that the reason that this stock rank from $16 to $75?  No.


As I noted above, I am not big on the technical or even what they mean, so here is a chart for you do draw some lines on and then label some support and some resistance.  

So clearly I don't use the technical indicators, but I am not saying they are wrong.  I just would rather not say anything rather than prove that I am super foolish.


So how about tweets, do tweets move stocks?  

Well today we are seeing that Citron Research sure can move a stock with a tweet.  

Here is the tweet:

A quick hit on this one and the suggestion that it should move back to $20 -- a move lower of ~$55 -- without much more than evidence what you would find in a paper bag.

This is clearly just an opinion and not one that is supported by the usual deep dive in due diligence that Andrew Left is known for.  Take for example his most recent other big short call on Ubiquiti Networks (UBNT - Free Report) and the video he put out on that.  No such video for VERI, or really anything other than this tweet.

Did this tweet move the market?  Yes.  Did holders of the stock sell as a result?  They sure did.  Is this the reason this stock moves so violently?  NOPE.

The Real Reason

This stock has been running hard for the last few weeks, and it was up 12% or so this morning as it reached a new 52 week high of $74.92.  But what was really happening here?

First the spread on this stock was rather large.  It also CONTINUES to be pretty big.  I normally see spreads of a few pennies on most stocks, maybe 5 cents on those that trade by a nickel... but this one had a spread of 60 to 80 cents... sometimes I think I even saw a dollar.

What does that mean?  Well the investor that wants to buy will pay the ask price, and the investor that wants to sell will get the bid price.  The difference between the two is the spread.  When there is a lot of shares trading, you often see the spread tighten... but that is not the case here.

Shares Outstanding And Float

Google Finance - which I will no longer be relying on past mid-November because they are removing their portfolio feature - lists the shares outstanding as just about 15M.

I see in the S-1A that Acacia Research Group owns about 4.8M of those shares, insiders own 5M and another venture entity holds about 3M.  The company sold 2.5M in the IPO... and I am guessing there was a lockup. 

That lockup expires on November 8, so until then there is really only 2-3M shares out there to trade.  We call this the float.  Sure other sites will lost a float of about 12M, but I highly doubt that is the case.


So a super thin float, the idea of being the next hot space in tech contribute to the run up.  Good growth prospects play a role too.  Tweets from Citron have a negative impact on the stock... but at the end of the day, it is all about supply and demand.

There is a supply and demand imbalance here, and it will happen again with this stock.  Sure the pros can short it, but the retail crowd that trades via ETrade of TDAmeritrade cannot access shares.  At some point the shorts will cover, and that could already be the case.

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