October 2, 2023

C3.ai bounces off disappointing sales outlook after rallying on AI hype

(Bloomberg) — C3.ai Inc. plunged 20% in extended trading after providing revenue guidance for the fiscal year that fell short of analyst estimates, fueling concerns that the artificial intelligence software company is not living up to investor enthusiasm as its stock price has more than tripled this year.

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Revenue will increase 11% to 20% to a midpoint of $307.5 million in the fiscal year ending April 2024, the Redwood City, Calif.-based company said in a statement Wednesday. Analysts estimate an average of $317 million, according to data collected by Bloomberg. The company projected an adjusted loss of $50 million to $75 million in the fiscal year, which is in line with estimates.

Shares fell as low as $31.10 in extended trading after closing at $40.01 in New York. As investors have developed an insatiable appetite for AI, the company’s stock is up 258% this year, making it the best performing stock in the S&P North American Expanded Technology Software Index. C3.ai is up 45% since Nvidia Corp’s blockbuster earnings. last week, boosting a basket of AI-related stocks.

Still, many are betting against the company. According to data from S3 Partners, short-term interest was about 29% of shares available to the public on May 24. Activist investors have accused the company of chasing trends and employing poor accounting practices. Former employees said C3.ai has historically exaggerated the readiness of its technology, even though founder and chief executive officer Tom Siebel has defended his company’s products and practices.

“The C3 AI platform is increasingly recognized as the gold standard in enterprise AI,” Siebel said in the statement. “We have more than 40 AI applications for manufacturing companies that provide the market with fast time-to-value.”

Much of the investor interest is based on C3.ai’s new generative artificial intelligence “product suite,” which debuted in March. The company said it signed AI application agreements with Georgia-Pacific, Flint Hills Resources and the US Department of Defense Missile Defense Agency in the quarter. Earlier this month, it announced that it had three customers when it announced preliminary quarterly results.

Read more: C3.ai criticized for product delays, Tom Siebel’s Micromanaging

“We’re a little shocked at the response we’ve had to C3 generative AI,” Siebel said on a conference call after the results were released. The company’s products and relationships should help it capitalize on the new AI interest, Gil Luria, an analyst at DA Davidson, wrote in a note.

Not all analysts are convinced that the new technology will be groundbreaking for C3.ai.

“The results confirm that C3.ai is likely to have very little revenue exposure to generative AI or large language models,” Bloomberg Intelligence’s Mandeep Singh said of the three limited-revenue pilots. “C3 is still heavily focused on the energy vertical and I don’t see it expanding across industries given competition from hyperscale cloud vendors and other major application software vendors.”

C3.ai has struggled to win new large customers and has recently moved from consumer pricing – paying for software based on usage rather than on a fixed subscription basis – to court companies hesitant to commit to large contracts. The company said it signed 43 deals in the quarter, including 19 pilots, and praised the average sales cycle shortening to 3.7 months from 5 months in the year-ago period.

Chief Financial Officer Juho Parkkinen said the company still expects to be profitable on an adjusted basis by the fourth quarter of 2024. He added that C3.ai expects to “invest aggressively in generative AI initiatives in the first half of the year “.

(Updates with comments from executives beginning with the sixth paragraph.)

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