Why C3.ai Stock Is Sinking After Earnings
C3.ai stock is spiraling Thursday after the enterprise AI software company beat top and bottom-line estimates but fell short on subscription revenue.
C3.ai (AI) stock is tumbling in Thursday's session after the artificial intelligence (AI) application software company beat top- and bottom-line estimates for its fiscal first quarter but came up short of expectations on one key metric.
In the three months ended July 31, C3.ai's revenue increased 20.5% year-over-year to $87.2 million, thanks in part to a 20% surge in subscription revenue growth to $73.5 million. Its net loss per share improved to 5 cents from 9 cents in the year-ago period.
"We had a solid start to the fiscal year, with rising demand for enterprise AI driving our sixth consecutive quarter of accelerating revenue growth," said C3.ai CEO Thomas Siebel in a statement. "C3.ai is the original enterprise AI company. Our unwavering commitment to solving the most challenging problems in the enterprise has led us to what we believe are the highest levels of customer satisfaction in the industry."
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The headline results beat analysts' expectations. Wall Street was anticipating revenue of $86.9 million and a net loss of 13 cents per share, according to Barron's. However, subscription revenue came in well below expectations of $79.2 million.
For the second quarter of fiscal 2025, C3 AI said it anticipates revenue to arrive between $88.6 million to $93.6 million. The midpoint of this range, $91.1 million, matches what analysts are guiding for. The company added that it continues to expect revenue of $370 million to $395 million for the full fiscal year.
Is C3.ai stock a buy, sell or hold?
C3.ai had a strong start to 2024, and was up nearly 30% for the year to date in late February. However, shares quickly turned tail and are now down roughly 30% since December 31. Unsurprisingly, Wall Street is on the sidelines when it comes to the AI stock.
According to S&P Global Market Intelligence, the average analyst target price for AI stock is $25.40, representing implied upside roughly 20% to current levels. Meanwhile, the consensus recommendation is Hold.
Financial services firm Needham is one of those with a Hold rating on the tech stock.
"We assigned a Hold rating to C3.ai's shares following the company's announcement it would shift from a subscription model to a consumption model," says Needham analyst Mike Cikos. "Historically, these transitions have been difficult to navigate from an execution standpoint. Revenue is depressed near-term as new customers are onboarded and [it] typically take three to four quarters to ramp consumption levels. Meanwhile, profitability suffers as the operating expenses base builds customer success initiatives."
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