C3.ai Stock Rallies as Results Top Guidance
C3.ai AI +33.65% shares spiked Friday after the provider of artificial intelligence software posted better-than-expected earnings.
Investor interest in C3.ai has surged in recent weeks as the market scrambles for ways to play the emerging artificial intelligence trend.
Built by Siebel Systems founder Thomas Siebel, C3.ai provides AI applications for large businesses and government agencies. The company recently announced C3 Generative AI for Enterprise Search, a tool that includes technology from ChatGPT creator Open AI. The new search tool will be included in the company’s applications starting this spring.
In an interview with Barron’s, Siebel said he sees his company as an aggregator of AI technology, rather than the primary innovator. The CEO sees Microsoft and Open AI, Google, and IBM as the key technology developers. “We just take advantage of whoever has the hottest technology, and take advantage of that, like we do in encryption and machine learning services,” he says.
Siebel says the company’s secret sauce is the “orchestration layer” that pulls together applications and services from various providers into a coherent whole.
Siebel says C3.ai is finding widespread enthusiasm for its new search tool, which uses a Google-style search box interface to access content from enterprise applications that are often harder to master. The company is including the new search capability in all C3.ai applications, but Siebel notes the search feature works with third-party apps as well. The company could make the tool available to firm that aren’t running any C3.ai applications, he says, but concedes “we have not figured it out yet.”
For its fiscal third quarter ended Jan. 31., C3.ai (ticker: AI) posted revenue of $66.7 million, down 4% from a year ago, but ahead of the company’s guidance range of $63 million to $65 million, and above the Street consensus forecast at $64.3 million. On an adjusted basis, the company recorded a loss from operations of $15 million, narrower than the forecast range of a loss between $25 million and $29 million.
C3.ai shares surged 29% to $27.52 in midday trading Friday.
The company said it has successfully shifted most customers to a subscription-based business mode. Subscription revenue in the quarter was $57 million, or 85% of overall revenue. Non-GAAP gross margin was 76%. Remaining performance obligations were $403.2 million.
“We are seeing tailwinds from improved business optimism and increased interest in applying C3 AI solutions to address an increasing range of applications across a broad range of industries,” Siebel said in an earlier statement. “The overall business sentiment appears to be improving. This is a dramatic change from what we experienced in mid-2022.”
The company said it remains on track to be cash positive and non-GAAP profitable by the end of fiscal 2024. Siebel says the company’s high gross margins—in the 78% to 80% range—suggest a clear path to profitability as revenues rise and the company spends less on a percentage basis on sales, marketing, and R&D. The company, unlike other tech companies, isn’t cutting staff, and continues to hire, he adds.
For the fiscal fourth quarter, C3.ai projects revenue of between $70 million and $72 million, a little ahead of Wall Street at $69.9 million, with a non-GAAP loss from operations of $24 million to $28 million.
For the full year, the company now sees revenue of between $264 million and $266 million, with a non-GAAP loss from operations of between $69 million and $73 million. Previous guidance called for revenue of $255 million to $270 million, and a loss ranging from $90 million to $98 million.
As for the recent explosion of interest in AI software, Siebel says the story is just getting started: “We’re in the first half of the first inning and the first guy is at bat.”