Artificial-intelligence software firm C3.ai fell short of expectations on some secondary measures.
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C3.ai stock is trading sharply lower as the Street digests the company’s first earnings report as a public company. The core financial results were fine, but the artificial-intelligence software company fell short of expectations on some secondary measures, including billings and “remaining performance obligations,” a measure of work contracted for but not yet delivered. With the stock trading at an ethereal multiple of sales, there is little room for error.
For the fiscal third quarter ended Jan. 3, C3.ai (ticker: AI) posted revenue of $49.1 million, a little ahead of the Wall Street analyst consensus at $47.3 million, and up 19% from a year ago. The company lost 23 cents a share, wider than the Street consensus estimate for a loss of 19 cents.
For the April quarter, C3.ai projected revenue of $50 million to $51 million, slightly above the previous Street consensus forecast at $48.4 million. For the April 2021 fiscal year, the company sees revenue of $180.9 million to $181.9 million, ahead of the previous Street consensus at $177.1 million.
Analyst reactions to the results were muted.
Canaccord Genuity’s David Hynes on Tuesday repeated a Hold rating on the shares, cutting his price target to $120 from $140. “We’d characterize C3.ai’s fiscal Q3 results as fine, not great,” he writes in a research note. Hynes notes that on an adjusted basis, remaining performance obligations, or RPO, were up 16% in the quarter on a year-over-year basis, decelerating from the previous quarter. He thinks the RPO number disappointed, and explains the sell-off in the shares.
Hynes writes that C3.ai is “the type of story that you either buy into or you don’t,” and that quarterly results are likely to be lumpy. “That means you need to fall back on the big picture here, almost giving a pass on the occasional quarterly blip, which is unnerving,” with the stock trading at 48 times his estimated calendar 2022 revenue. He adds that there will “almost certainly be a time to own this stock, and while the pullback brings us closer, we still think the right thing to do is to wait for a better entry point.”
Morgan Stanley analyst Sanjit Singh repeats his Underweight rating and $100 target price. Singh writes that the sequentially weakening in RPO “suggests lingering impacts on bookings due to the pandemic.” And Singh adds that while some of the right pieces are falling into place, with new strategic partnerships and new products, he thinks it will take time for the new initiatives to get traction. Singh writes that the risk/reward balance skews unfavorable.
J.P. Morgan analyst Mark Murphy maintains his Underweight rating on C3.ai stock and $84 target. Murphy notes that billings were down 10% year over year, compared with Street expectations for 14% growth, while RPO on a GAAP basis was down 6% from a year ago and 7% sequentially. “We continue to see unfavorable risk/reward at current levels given the relatively poor growth plus margin profile, vertical, and customer concentration and the potentially lumpy bookings cadence,” he writes.
Wedbush analyst Dan Ives is more upbeat. He maintains his Outperform rating, but trims his price target to $175 from $200, noting that C3.ai missed expectations on billings. Ives says he’s not troubled, though, asserting that C3.ai is “one of the more disruptive enterprise software vendors in the last decade with the company laser focused on the convergence of AI, big data, and cloud computing.”
C3.ai went public in December at $41 a share, and opened for trade at $100. The stock set an intraday high of $183.90 on Dec. 23. On Tuesday, C3.ai stock is down 14.2%, to $103.89.
Write to Eric J. Savitz at [email protected]
