C3.ai (NYSE:AI) Misses Q2 Sales Targets, Stock Drops

Jabin Bastian /
2023/12/06 5:06 pm EST

Artificial intelligence (AI) software company C3.ai (NYSE:AI) missed analysts' expectations in Q2 FY2024, with revenue up 17.3% year on year to $73.23 million. Next quarter's revenue guidance of $76 million also underwhelmed, coming in 2.2% below analysts' estimates. It made a GAAP loss of $0.59 per share, improving from its loss of $0.63 per share in the same quarter last year.

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C3.ai (AI) Q2 FY2024 Highlights:

  • Revenue: $73.23 million vs analyst estimates of $74.33 million (1.5% miss)
  • EPS (non-GAAP): -$0.13 vs analyst estimates of -$0.18
  • Revenue Guidance for Q3 2024 is $76 million at the midpoint, below analyst estimates of $77.68 million
  • The company reconfirmed its revenue guidance for the full year of $307.5 million at the midpoint
  • Free Cash Flow was -$55.13 million compared to -$8.90 million in the previous quarter
  • Gross Margin (GAAP): 56.1%, down from 66.7% in the same quarter last year

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.

Data Infrastructure

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 mediocre over the last two years, growing from $58.26 million in Q2 FY2022 to $73.23 million this quarter.

C3.ai Total Revenue

Even though C3.ai fell short of analysts' revenue estimates, its quarterly revenue growth was still up 17.3% year on year. On top of that, its revenue increased $867,000 quarter on quarter, a strong improvement from the $48,000 decrease in Q1 2024. This is a sign of acceleration of growth and very nice to see indeed.

Next quarter, C3.ai is guiding for a 12.3% year-on-year revenue decline to $76 million, a further deceleration from the 4.4% year-on-year decrease it recorded in the same quarter last year. Looking ahead, analysts covering the company were expecting sales to grow 17.8% over the next 12 months before the earnings results announcement.

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Cash Is King

If you've followed StockStory for a while, you know that we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can't use accounting profits to pay the bills. C3.ai burned through $55.13 million of cash in Q2 , increasing its cash burn by 28.4% year on year.

C3.ai Free Cash Flow

C3.ai has burned through $119.4 million of cash over the last 12 months, resulting in a negative 43.2% free cash flow margin. This low FCF margin stems from C3.ai's poor unit economics or a constant need to reinvest in its business to stay competitive.

Key Takeaways from C3.ai's Q2 Results

Although C3.ai, which has a market capitalization of $3.55 billion, has been burning cash over the last 12 months, its more than $762.3 million in cash on hand gives it the flexibility to continue prioritizing growth over profitability.

We struggled to find many strong positives in these results. Although the company brought in more subscription revenue than expected, its revenue missed Wall Street's estimates. Furthermore, its guidance for next quarter underwhelmed, with its revenue outlook slightly below analysts' estimates and its projected adjusted operating margin missing significantly. Overall, the results could have been better. The company is down 7.8% on the results and currently trades at $26.9 per share.

C3.ai may not have had the best quarter, but does that create an opportunity to invest right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.

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