Artificial intelligence (AI) software company C3.ai (NYSE:AI) reported Q3 FY2023 results that beat analyst expectations, with revenue down 4.45% year on year to $66.7 million. Guidance for next quarter's revenue was $71 million at the midpoint, which is 1.65% above the analyst consensus. C3.ai made a GAAP loss of $63.2 million, down on its loss of $39.4 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) Q3 FY2023 Highlights:
- Revenue: $66.7 million vs analyst estimates of $64.2 million (3.77% beat)
- EPS (non-GAAP): -$0.06 vs analyst estimates of -$0.22
- Revenue guidance for Q4 2023 is $71 million at the midpoint, above analyst estimates of $69.8 million
- Free cash flow was negative $71.7 million, compared to negative free cash flow of $77 million in previous quarter
- Gross Margin (GAAP): 66.6%, down from 75.1% same quarter last year
“As we enter Q4 FY 23, 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,” said Thomas M. Siebel, C3 AI CEO.
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.
As you can see below, C3.ai's revenue growth has been strong over the last two years, growing from quarterly revenue of $49.1 million in Q3 FY2021, to $66.7 million.
But this quarter C3.ai's revenue was down 4.45% year on year, which might be a disappointment to some shareholders.
C3.ai is guiding for revenue to decline next quarter 1.82% year on year to $71 million, a further deceleration on the 38.3% year-over-year decrease in revenue the company had recorded in the same quarter last year. Ahead of the earnings results the analysts covering the company were estimating sales to grow 13.9% over the next twelve months.
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 66.6% in Q3.
That means that for every $1 in revenue the company had $0.67 left to spend on developing new products, marketing & sales and the general administrative overhead. This would be considered a low gross margin for a SaaS company and it has been going down over the last year, which is probably the opposite direction shareholders would like to see it go.
Key Takeaways from C3.ai's Q3 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 $2.29 billion and more than $772.4 million in cash, the company has the capacity to continue to prioritise growth over profitability.
It was good to see C3.ai outperform Wall St’s revenue expectations this quarter. And we were also glad that the revenue guidance for the next quarter exceeded analysts' expectations. On the other hand, free cash flow burn continues. Zooming out, we think this was still a decent, albeit mixed, quarter. The company is up 9.3% on the results and currently trades at $23.28 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.