If ever there was a company in desperate need of “growing into its valuation,” it’s C3.ai.
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While the world has been focused on the remarkable recent public market debuts for DoorDash and Airbnb, the real fireworks in the tech IPO market has been around the astonishing reception for C3.ai, a provider of artificial intelligence software.
C3.ai (ticker: AI) has generated some serious buzz, thanks in no small measure to founder and CEO Tom Siebel. An early Oracle (ORCL) exec, Siebel built the pioneering customer-relationship-management software category with Siebel Systems, which Oracle acquired for $5.85 billion in June 2006. Adding to C3.ai’s appeal were a pair of high-profile private placements at the IPO price— Microsoft (MSFT) invested $50 million, and an arm of Koch Industries took a $100 million stake.
C3.ai went public on Dec. 8 at $42 a share; the stock opened at $100. Over the past five trading days, the stock has rallied almost 70%, driving the company’s market cap into the stratosphere. (What’s above the stratosphere?) C3.ai has a little over 97 million shares outstanding, if you assume the underwriters exercise the green shoe on the stock offering. There are another 42 million deep-in-the-money employee stock options with an average strike price of $5.57 a share. Throw those into the mix, and there are about 139 million fully diluted shares outstanding.
At $170 a share, the stock is worth a remarkable $23 billion.
Keep in mind that C3.ai had revenue for the six months ended Oct. 31 of $81.8 million, up 10.9% from the comparable period a year earlier. In the April 2020 fiscal year, the company posted 71% growth to $156.7 million. So what’s the right assumption on growth? When I talked to Siebel a few weeks ago, here’s what he said:
“In the February, March, April, May time period, we hit a speed bump the size of the Empire State Building. It was not a business cycle issue. This [the pandemic] was an act of God. It was apocalyptic. Business came to a screeching halt. Our revenue continued to grow, because we have a backlog, but it grew at a slower rate. But once you got to July, August, September, with what’s happening in digital transformation and AI, it’s blowing and going. Our pipeline is growing at a greater rate than it ever has grown. Coming out of this, you will see a company growing not at 70% or 80%, ain’t no way no how, but we’ll be growing in the top decile of software companies.”
Let’s say the company’s growth rate in the second half of the fiscal year rebounds to 30%; that would suggest April 2021 fiscal-year revenue in the $200 million range. And that suggests the company is trading somewhere north of 100 times current-year sales. That’s comparable to the valuation on Snowflake (SNOW), which is trading at about 100 times the Street’s estimated sales for the January 2022 fiscal year but growing a lot faster, around 100% at the top line.
No question that C3.ai is addressing a large market, but it also has just a few dozen customers—all large enterprises—and a recent history of lumpy revenue growth. If ever there was a company in desperate need of “growing into its valuation,” this would be it.
The company couldn’t immediately be reached for comment on the stock activity on Tuesday.
C3.ai was up 5.4%, at $169.72, in recent trading, and has traded as high as $179. The S&P 500 was down 0.2%.
Write to Eric J. Savitz at [email protected]
