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C3.ai (NYSE:AI) Q1 Sales Beat Estimates But Stock Drops


Radek Strnad /
2021/09/01 4:20 pm EDT
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Artificial intelligence (AI) software company C3.ai (NYSE:AI) reported Q1 FY2022 results beating Wall St's expectations, with revenue up 29.4% year on year to $52.4 million. C3.ai made a GAAP loss of $37.4 million, down on its profit of $150 thousand, in the same quarter last year.

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C3.ai (AI) Q1 FY2022 Highlights:

  • Revenue: $52.4 million vs analyst estimates of $51.2 million (2.21% beat)
  • EPS (GAAP): -$0.37
  • Revenue guidance for Q2 2022 is $57 million at the midpoint, above analyst estimates of $56.1 million
  • The company reconfirmed revenue guidance for the full year, at $245 million at the midpoint
  • Free cash flow of $11 thousand, up from negative free cash flow of -$32.19 million in previous quarter
  • Gross Margin (GAAP): 75.1%, down from 77.5% previous quarter

“We began our fiscal year 2022 with strong results in the first quarter, including year-over-year increases of 29% in revenue and 31% in gross profit,” said CEO Thomas M. Siebel.

Founded in 2009 by enterprise software veteran Tom Seibel, C3.ai (NYSE:AI) provides software that makes it easy for organizations to add artificial intelligence technology to their applications.

We are still in the early stages of an AI adoption cycle and coupled with the shortage of talent and the enormous costs of developing AI technology from scratch, the demand for platforms that make implementing AI-based technology easier is expected to continue to grow.

Sales Growth

As you can see below, C3.ai's revenue growth has been strong over the last year, growing from quarterly revenue of $40.4 million, to $52.4 million.

C3.ai Total Revenue

This quarter, C3.ai's quarterly revenue was once again up a very solid 29.4% year on year. But the growth did slow down compared to last quarter, as the revenue increased by just $122 thousand in Q1, compared to $3.17 million in Q4 2021. We'd like to see revenue increase by a greater amount each quarter, but a one-off fluctuation is usually not concerning.

Analysts covering the company are expecting the revenues to grow 35.1% over the next twelve months, although we would expect them to review their estimates once they get to read these results.

There are others doing even better than C3.ai. Founded by ex-Google engineers, a small company making software for banks has been growing revenue 90% year on year and is already up more than 400% since the IPO in December. You can find it on our platform for free.

Profitability

What makes the software as a service business so attractive is that once the software is developed, it typically shouldn't cost much to provide it as an ongoing service to customers. C3.ai's gross profit margin, an important metric measuring how much money there is left after paying for servers, licences, technical support and other necessary running expenses was at 75.1% in Q1.

C3.ai Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.75 left to spend on developing new products, marketing & sales and the general administrative overhead. Despite the recent drop, this is still a good gross margin that allows companies like C3.ai to fund large investments in product and sales during periods of rapid growth and be profitable when they reach maturity.

Key Takeaways from C3.ai's Q1 Results

Since it has still been burning cash over the last twelve months it is worth keeping an eye on C3.ai’s balance sheet, but we note that with a market capitalization of $5.35 billion and more than $1.09 billion in cash, the company has the capacity to continue to prioritise growth over profitability.

It was good to see C3.ai deliver strong revenue growth this quarter. And we were also glad that the revenue guidance for the next quarter exceeded analysts' expectations. On the other hand, it was less good to see the pretty significant deterioration in gross margin. Zooming out, we think this was still a decent, albeit mixed, quarter, showing the company is staying on target. The company is down -5.01% on the results and currently trades at $50.44 per share.

Should you invest in C3.ai right now? It is important that you take into account its valuation and business qualities, as well as what happened in the latest quarter. We look at that in our actionable report which you can read here, it's free.

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The author has no position in any of the stocks mentioned.