3823

C3.ai (NYSE:AI) Surprises With Q2 Sales, Provides Encouraging Quarterly Guidance


Kayode Omotosho /
2021/12/01 4:33 pm EST
Add to Watchlist

Artificial intelligence (AI) software company C3.ai (NYSE:AI) reported Q2 FY2022 results that beat analyst expectations, with revenue up 40.9% year on year to $58.2 million. Guidance for next quarter's revenue was $67 million at the midpoint, 2.07% above the average of analyst estimates. C3.ai made a GAAP loss of $56.7 million, greater than its loss of $14.9 million in the same quarter last year.

Is now the time to buy C3.ai? Access our full analysis of the earnings results here, it's free.

C3.ai (AI) Q2 FY2022 Highlights:

  • Revenue: $58.2 million vs analyst estimates of $56.9 million (2.3% beat)
  • EPS (GAAP): -$0.55 vs. analyst estimates of -$0.41 (34% miss)
  • Revenue guidance for Q3 2022 is $67 million at the midpoint, above analyst estimates of $65.6 million
  • The company lifted revenue guidance for the full year, from $245 million to $249.5 million at the midpoint, a 1.83% increase
  • Free cash flow was negative $19.8 million, down from positive free cash flow of $0.01 million in the previous quarter
  • Gross Margin (GAAP): 72.5%, down from 75.6% same quarter last year

“We closed another strong quarter, including a revenue increase of 41% from a year ago that exceeds our guidance and sell-side analysts’ expectations,” 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 $41.3 million, to $58.2 million.

C3.ai Total Revenue

This was a standout quarter for C3.ai, with the quarterly revenue up 40.9% year on year, which is above average for the company. On top of that, revenue increased $5.85 million quarter on quarter, a very strong improvement on the $0.12 million increase in Q1 2022, and a sign of acceleration of growth.

Analysts covering the company are expecting the revenues to grow 34% over the next twelve months, although estimates are likely to change post earnings.

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, licenses, technical support and other necessary running expenses was at 72.5% in Q2.

C3.ai Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.72 left to spend on developing new products, marketing & sales and the general administrative overhead. Despite it going down over the last year, this is still around the average of what we typically see in SaaS businesses. Gross margin has a major impact on a company’s ability to invest in developing new products and sales & marketing, which may ultimately determine the winner in a competitive market, so it is important to track.

Key Takeaways from C3.ai's Q2 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 $3.84 billion and more than $970.4 million in cash, the company has the capacity to continue to prioritize growth over profitability.

We enjoyed seeing C3.ai’s impressive 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. Overall, this quarter's results seemed pretty positive and shareholders can feel optimistic. The company is up 4.96% on the results and currently trades at $35.50 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.

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.