Aterian Inc: A Small-Cap Tech Stock with Big Upside?

This Tech Stock Looks Interesting

E-commerce platforms like Amazon.com, Inc. (NASDAQ:AMZN) and Shopify Inc (NYSE:SHOP) have enjoyed astronomical growth over the years. But they aren’t the only companies benefiting from the e-commerce boom.

Today, I’d like to bring your attention to a small-cap company that’s also been capitalizing on the online-shopping trend: Aterian Inc (NASDAQ:ATER).

Aterian provides a consumer products platform that builds, acquires, and partners with e-commerce brands by using its proprietary software and an agile supply chain to create top-selling consumer products.

The company, which has been around since 2014, used to go by the name of Mohawk Group Holdings, Inc. It changed its name in April 2021.

On most financial web sites, you can find Aterian Inc under the consumer electronics industry of the technology sector.

What really defines the company is its cloud-based platform called “Artificial Intelligence Marketplace E-commerce Engine” (“AIMEE”). This platform uses machine learning, natural language processing, and data analytics to streamline the management of products at scale across different e-commerce platforms, including Amazon, Shopify, and Walmart.com.

In an era when consumers’ purchasing decisions are increasingly based on search results, ratings, product details, and reviews—and not on brand value alone—Aterian Inc’s platform could be the secret to success in the consumer products business.

The company has thousands of stock-keeping units (SKUs) across 14 owned-and-operated brands. Its products span multiple categories, including consumer electronics; beauty; home and kitchen appliances; and health and wellness.

With a market capitalization of about $486.0 million, ATER stock is a small-cap stock. But the company has been churning out some big growth numbers.

In 2020, the company generated $185.7 million of net revenue, representing a 62.3% increase from 2019. Its gross margin was 45.6% for the year, marking a sizable expansion from 39.4% in 2019. (Source: “Mohawk Group Reports Fourth Quarter & Full Year 2020 Results,” Aterian Inc, March 8, 2021.)

Of course, one might argue that e-commerce sellers had an extraordinarily good year in 2020 because people were stuck at home due to the COVID-19 pandemic. But even as the economy reopens, Aterian is continuing its growth momentum.

In the first quarter of 2021, the company’s net revenue surged by another 88% year-over-year to $48.1 million. Its gross margin for the quarter was 54.1%, representing another substantial expansion compared to 40.2% in the first quarter of 2020. (Source: “Aterian Reports First Quarter 2021 Results,” Aterian Inc, May 6, 2021.)

Aterian is adding new products and categories through strategic acquisitions. The company recently closed its previously announced acquisition of Photo Paper Direct Ltd., a leading online seller of printing supplies. It also announced the acquisition of Squatty Potty, LLC, a leading online seller of health and wellness products.

Management is currently evaluating a pipeline of potential merger and acquisition targets that, in total, have trailing 12 months net revenue of more than $600.0 million.

Thanks to the announced acquisition of Squatty Potty, Aterian Inc has lifted its financial outlook. For full-year 2021, management expects the company’s net revenue to be between $360.0 and $390.0 million. Considering that this small-cap stock generated $185.7 million of net revenue last year, triple-digit-percentage top-line growth could be a possibility this year.

Last but certainly not least, Aterian Inc announced on June 1 that some of its key shareholders, including co-founder and chief executive officer, Yaniv Sarig, had entered a voluntary lock-up agreement. (Source: “Aterian Announces Voluntary Lock-up Agreements with CEO, Other Co-Founders & Key Stockholders,” Aterian Inc, June 1, 2021.)

In particular, Sarig has agreed to lock up all the shares of Aterian stock that he controls through January 1, 2022, while the other key ATER stockholders agreed to lock up a portion of the shares that they own through December 1, 2021.

The agreement involves approximately 4.1 million shares of Aterian common stock, or 13.3% of the total outstanding shares.

Commenting on this voluntary lock-up, Sarig said, “The lock-up agreements announced today reflect the continued confidence that I and other large Aterian stockholders have in the long term prospects of the Company.” (Source: Ibid.)

The voluntary lock-up is best viewed in the context of ATER stock’s performance.

Aterian Inc (NASDAQ:ATER) Stock Chart

Chart courtesy of StockCharts.com

Analyst Take

Even though Aterian Inc isn’t a company that makes headlines, its shares actually went on a roller-coaster ride over the past year (as the above chart shows). After retracing most of its earlier gains, Aterian stock seems to be looking for direction.

Given how fast the company is growing—and management’s vote of confidence through voluntary lock-up—this could be a good time for investors to consider ATER stock.