C3.ai (NYSE:AI) Q4 Sales Beat Estimates But Stock Drops 20% On Weak Guidance

Adam Hejl /
2022/06/01 4:27 pm EDT
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Artificial intelligence (AI) software company C3.ai (NYSE:AI) reported results ahead of analyst expectations in the Q4 FY2022 quarter, with revenue up 38.3% year on year to $72.3 million. However, guidance for the next quarter was less impressive, coming in at $66 million at the midpoint, being 7.84% below analyst estimates. C3.ai made a GAAP loss of $58.4 million, down on its loss of $24 million, in the same quarter last year.

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C3.ai (AI) Q4 FY2022 Highlights:

  • Revenue: $72.3 million vs analyst estimates of $71.2 million (1.44% beat)
  • EPS (non-GAAP): -$0.21 vs analyst estimates of -$0.29
  • Revenue guidance for Q1 2023 is $66 million at the midpoint, below analyst estimates of $71.6 million
  • Management's revenue guidance for upcoming financial year 2023 is $312 million at the midpoint, missing analyst estimates by 6.56% and predicting 23.4% growth (vs 37.6% in FY2022)
  • Free cash flow was negative $14.7 million, compared to negative free cash flow of $56.1 million in previous quarter
  • Gross Margin (GAAP): 75.9%, down from 77.5% same quarter last year

“Our fourth quarter results showed continued strength across the business and came in ahead of expectations, with revenue growing 38% year over year,” 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.

Generating insights from system level data is an increasing priority for most businesses, but to do so requires connecting and analyzing piles of data stored and siloed in separate databases. This is the demand driver for cloud based data infrastructure software providers, who can more readily integrate, distribute and process information vs. legacy on-premise software providers.

Sales Growth

As you can see below, C3.ai's revenue growth has been very strong over the last year, growing from quarterly revenue of $52.2 million, to $72.3 million.

C3.ai Total Revenue

And unsurprisingly, this was another great quarter for C3.ai with revenue up 38.3% year on year. But the growth did slow down compared to last quarter, as the revenue increased by just $2.54 million in Q4, compared to $11.5 million in Q3 2022. We'd like to see revenue increase by a greater amount each quarter, but a one-off fluctuation is usually not concerning.

Guidance for the next quarter indicates C3.ai is expecting revenue to grow 25.9% year on year to $66 million, slowing down from the 29.4% year-over-year increase in revenue the company had recorded in the same quarter last year. For the upcoming financial year management expects revenue to be $312 million at the midpoint, growing 23.4% compared to 37.6% increase in FY2022.

In volatile times like these we look for robust businesses with strong pricing power. Unknown to most investors, this company is one of the highest-quality software companies in the world, and their software products have been the default standard in critical industries for decades. The result is an impressive business that is up an incredible 18,152% since the IPO. You can find it on our platform for free.


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, licenses, technical support and other necessary running expenses was at 75.9% in Q4.

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. Significantly up from the last quarter, this is 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 Q4 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 $2.01 billion and more than $960.1 million in cash, the company has the capacity to continue to prioritise growth over profitability.

We enjoyed seeing C3.ai’s impressive revenue growth this quarter. And we were also happy to see it topped analysts’ revenue expectations, even if just narrowly. On the other hand, it was unfortunate to see that C3.ai's revenue guidance for the full year missed indicates quite a significant slowdown in growth. Overall, this quarter's results could have been better. The company is down 20% on the results and currently trades at $14.82 per share.

C3.ai may have had a tough quarter, but does that actually create an opportunity to invest 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.

One way to find opportunities in the market is to watch for generational shifts in the economy. Almost every company is slowly finding itself becoming a technology company and facing cybersecurity risks and as a result, the demand for cloud-native cybersecurity is skyrocketing. This company is leading a massive technological shift in the industry and with revenue growth of 70% year on year and best-in-class SaaS metrics it should definitely be on your radar.

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