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    C3.ai Inc. (AI) Disappoints on Guidance, Near-low Share Price an Entry Point or Not?

    By Gule Rukhsar

    Jun 02,2022

    1:58 AM UTC

    Shares of the artificial intelligence software company, C3.ai Inc. (AI) are severely down after the company’s recent earnings, disappointed in guidance. The company has been growing by leaps and bounds since its founding with a meteoric 40% revenue growth over the past few years. However, the latest guidance suggests a sequential decline in revenues over the upcoming quarters and a steep growth decline in annual revenue. Thus, following the earnings release for the fourth quarter and fiscal 2022 on June 2, AI stock plunged by 23.18% in the pre-market. The stock was then trading at $14.25 a share, near its 52-week low of $13.37. Shares have plummeted by more than 40% this year and nearly 73% in the past twelve months.

    Source: FreshBooks

    Previously, the company was expected to continue its monumental growth track and a further decline in share price was marked the best entry point. But now comes a confusing situation as the share price is significantly down, but so is its outlook. Let’s have a look at the company’s performance and future outlook.

    AI’s Latest Earnings Report

    For the fourth quarter of fiscal 2022, which ended on April 30, AI posted a nice 38% YOY increase in its revenue. The quarterly revenue came at $72.3 million against the analysts’ prediction of $71.3 million. The quarterly subscription revenue grew by 31% to $56.3 million.

    Moreover, the company’s adjusted net loss was 21 cents per share while analysts had the quarterly loss pegged at 29 cents. This compares to an adjusted net loss per share of 15 cents in the year-ago period.

    Gross profit improved by 35% and non-GAAP remaining performance obligations increased by 50%. At the end of the quarter, the company had cash reserves of $992.2 million.

    For the full fiscal 2022, revenue came at $252.8 million (up 38%) which came above its own guidance of $251 million for the year. Adjusted net loss was 73 cents per share for the year against the comparable 49 cents a share. Customer count went up to 223 from 151, marking a YOY increase of 48%.

    The Disappointing Guidance

    For the fiscal first quarter of 2023, the company expected revenues of $65-$67 million with adjusted loss from operations between $23 and $28 million. For the full year, the company projected revenues of $308-$316 million and losses from operations of $76-$86 million. The company forecast suggests a growth decline of 25% or less from the previous year. And the management did not provide any reason for the expected decline in growth as they focused on the Q4 performance in the earnings report.

    Analysts, on average, were guiding first-quarter revenue of $71.6 million and annual sales of $333.9 million.

    AI Company’s Quick Overview

    C3.ai is a leader in AI for enterprises with solutions across data and network security, customer engagement, fraud detection, as well as supply chains. The company has expanded its target market beyond just enterprises and now includes businesses of all sizes. Its envious customer list boasts the U.S. Air Force, Department of Defense, and Fortune 500 companies.

    Due to its fast growth rate, the company has been named as one of The Financial Times’ List of Fastest Growing Companies for two consecutive years.

    Artificial Intelligence Market

    According to Fortune Business Insights, the global AI market is expected to register a CAGR of a whopping 20.1% between 2022 and 2029. Estimated at $328.34 billion in 2021, the market is anticipated to reach $1.39 trillion by 2029. Artificial Intelligence is taking the central place at a fast pace as its adoption across all industries continues. Its applications are widespread in every leading industry, including transport, healthcare, media, security, and many others. The rise of automation, cloud computing, cyber security, 5G, and expanding databases are also leading developments in AI. Therefore, the market is huge and full of opportunities for the company to capitalize on.

    Takeaway

    Given that management gave no reason for the weak guidance and growth decline, it seems the wider macroeconomic conditions might be responsible. The geopolitical and economic conditions are deteriorating by the day, with rising inflation and piquing interest rates wreaking havoc on the stock market. Furthermore, growing at such a fast pace over the recent years, the company ultimately had to enter a more stabilized growth rate. However, the guidance suggests a steep decline in the annual growth while previously it was expected to grow revenue by 33% in fiscal 2023.

    But the near-term growth decline might just be a play from the high volatility due to the market conditions as the company has some strong points to suggest future growth. The larger market is bullish, but concerns remain over its profitability as well. Hence, it seems the company needs some more monitoring before bets are placed.

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