Shares of the artificial intelligence software firm C3.ai traded sharply lower on Thursday after the company’s latest financial results left the Street seriously disappointed, spurring a flurry of analyst price target cuts and at least one downgrade.
For its fiscal second quarter ended October 31, C3.ai (ticker: AI) posted subscription revenue of $47.4 million, up 32% on the year—and slightly below Street forecasts.
On Thursday, C3.ai shares tumbled 17.3%, to $27.98, after setting a record intraday low at $27.90.
Overall revenue was $58.3 million, up 41% from a year ago, and slightly above both the company’s guidance range of $56 million to $58 million and the Wall Street analyst consensus at $56.9 million. On a non-GAAP basis, the company lost 23 cents a share in the quarter, narrower than the Street consensus forecast at a loss of 28 cents. Under generally accepted accounting principles, the company lost 55 cents a share.
There was some noise around remaining performance obligations, or RPO, which were $465.5 million, up 74% from a year ago, and 60% higher sequentially. The strong number was, however, almost entirely due to an expansion of the company’s relationship with the oil service firm Baker Hughes . The company said it expanded its overall contract by $45 million to $495 million, with guaranteed revenue of $357 million over the next 3.5 years. The company said it now has 104 customers, up 63% from a year ago.
BofA Global Research analyst Brad Sills cut his rating on C3.ai shares on the news to Underperform from Neutral, with a new target price of $40, down from $65. Sills writes in a research note that subscription revenue was lighter than expected. He also says that when you back out the expanded Baker Hughes deal, remaining performance obligations actually fell 16% from the July quarter. The analyst writes that “sales execution challenges stemming from an unsuccessful sales reorganization” affected both subscription and RPO growth, and he sees risks to consensus revenue growth estimates.
J.P. Morgan analyst Mark Murphy, who already had an Underweight rating on the stock, cut his target price to $43 from $53. He cited the same factors Sills listed: The company conceded that a sales reorganization failed to provide the expected lift to the business, resulting in disappointing subscription revenue growth.
“While we are constructive on C3’s technology and long-term opportunity, we think investors will be focused on digesting a noisy Q2 and monitoring for the potential to see a rebounding bookings performance for Q3,” he writes.
For the January quarter, the company is projecting revenue of $66 million to $68 million, with a non-GAAP loss from operations of $26 million to $30 million. For the April 2022 fiscal year, C3.ai sees revenue of $248 to $251 million, with a non-GAAP loss from operations of between $100 million and $108 million.
Write to Eric J. Savitz at eric.savitz@barrons.com
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December 02, 2021 at 11:34PM
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