C3.ai shares fell more than 25% on Tuesday after short-seller Kerrisdale Capital alleged “serious accounting and disclosure issues” at the company.
The company used “highly aggressive accounting to inflate its income statement metrics in order to meet sell-side analyst estimates for revenue and certain profit metrics, and to conceal significant deterioration in its underlying operations,” Kerrisdale’s chief investment officer Sahm Adrangi alleged in a letter to Deloitte & Touche LLP, C3.AI’s auditor, per a Bloomberg report.
The letter alleged there was “highly conspicuous growth in unbilled receivables" to abnormal levels for a software company, alleging that the company’s accounts receivables have soared while revenue declined in its most recent quarter.
C3.ai’s disclosures related to its biggest customer and strategic partner Baker Hughes were “opaque, confusing, and highly concerning," the short-seller also claimed.
"It appears to us that C3.ai is booking fictional revenue in order to meet consensus analyst estimates and cover up the fact that, in reality, its products are unable to get traction with customers and its business is failing,” the letter concluded.
C3.ai is yet to address the allegations. Shares of the company had fallen 25.7% to US$25.17 in the early afternoon on Tuesday.
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