Is C3.ai Stock Buy Now?

C3.ai‘s (Amnesty International 12.60%) The stock fell nearly 25% during after-hours trading on June 1 after the fourth-quarter earnings announcement. The artificial intelligence (AI) software company’s revenue rose 38% year-over-year to $72.3 million, nearly $1 million more than analysts’ expectations.

Its adjusted net loss widened from $33 million to $76.7 million, or $0.21 per share, but it still beat expectations by about $0.08. But according to generally accepted accounting principles (GAAP), its net loss ballooned from $55.7 million to $192.1 million. The company’s guidance for the current quarter and full year also disappointed investors.

The stock fell in the immediate aftermath of the report, but by Friday’s close, it was trading more than it was before the quarterly report was released. However, the stock is down 36% so far this year. Should investors bundle up some C3.ai shares after its latest report, or does this former high-flying stock have much more room to fall?

The back of the robot's head is shattering.

Image source: Getty Images.

What happened to C3.ai?

C3.ai development mainly artificial intelligence algorithms For clients of large institutions (especially in the energy and industrial sectors) and government agencies. Its algorithms can be integrated into an organization’s existing software infrastructure or accessed as stand-alone services, and can be used to improve operations, improve employee safety, reduce costs, and detect fraud.

C3.ai’s revenue rose 71% in fiscal 2020, which ended in April of that calendar year, but rose only 17% to $183.2 million in fiscal 2021 as the pandemic disrupted energy and industry markets. This slowdown also revealed C3.ai’s heavy reliance on a joint venture with Baker Hughes (NASDAQ: BKR)the energy giant that took nearly 31% of its revenue in fiscal 2021.

C3.ai’s slow growth, customer focus problem, and lack of profits have spooked bulls, and its stock has fallen from an all-time high of $177.47 in December 2020 to its mid-teens as of this writing.

A short recovery followed by a gloomy look

C3.ai revenue rose 38% to $252.8 million in fiscal 2022 as headwinds associated with the pandemic abated. End the year with 223 customers, up 48% over the previous year, Residual Performance Obligations (RPO) – the residual value of an existing contract not yet invoiced and recognized as revenue – and revenue has steadily improved over the past year:

Measure

Growth in the fourth quarter of 2021 (annualized)

Growth in the first quarter of 2022 (annualized)

Growth in the second quarter of 2022 (annualized)

Growth in the third quarter of 2022 (annualized)

Growth in the fourth quarter 2022 (annualized)

RPO (non-GAAP)

40%

28%

74%

81%

50%

he won

26%

29%

41%

42%

38%

Data source: C3.ai. YOY = year after year.

The recovery was encouraging, but the company said it expects revenue to rise only 24%-28% year-over-year in the first quarter of fiscal 2023 and 22%-25% for the full year. Analysts expected full-year revenue to rise by about 34%.

during the conference call With analysts, CEO Tom Seibel attributed the slowdown to “economic and political” uncertainty, “rampant market negativity,” late deals, and “excessive agglomeration” in the pipeline. However, Siebel still expects the company to return to 30%-35% “steady top-line growth” after “market conditions stabilize”.

We won’t know if C3.ai’s customer focus case improved in the fourth quarter until it provides more detail in its 10-K annual report, but we already know that its joint venture with Baker Hughes accounts for 39% of its revenue. Throughout the first nine months of fiscal year 2022.

There is no clear path to profitability

C3.ai’s non-GAAP gross profit rose 43% to $200.5 million in fiscal 2022, boosting its non-GAAP gross margin from 76% to 79%.

However, it increased its non-GAAP operating loss from $37.5 million to $80.7 million. In fiscal year 2023, it expects to report a non-GAAP operating loss of between $76 million and $80 million.

All this red ink goes against Siebel’s statement during the last conference call that C3.ai is a “structurally profitable company.” Siebel also said the company can generate “sustainable positivity free cash flow in eight to 12 quarters” — but that’s a far-fetched target, and actual free cash flow came in at minus $14.8 million in the fourth quarter.

On the bright side, C3.ai isn’t going to run out of money anytime soon. It closed the fourth quarter with $960 million in cash, cash equivalents and short-term investments, and its low debt-to-equity ratio of 0.2 gives it a chance to pick up additional liquidity through new debt offerings.

Is this the right time to buy C3.ai?

At $14 per share as of this writing, C3.ai is valued at about $1.5 billion, or about five times its estimated sales for fiscal year 2023. That’s Price to sales The ratio is reasonable for a company aiming for revenue growth of more than 20% this year, but the issue of customer focus and heavy losses is impossible to ignore.

Investors can easily find more stable technology stocks that are trading at similar prices in this market. sales forcewhich is larger, better diversified and more profitable than C3.ai, and plans to achieve revenue growth of approximately 20% this year, but is trading at 6 times that expected.

Simply put, C3.ai’s downside may be limited at these levels, but I expect it to stay in the box until it corrects its biggest problems.