C3.ai delivered a mixed second-quarter performance, with a miss on the revenue line but a bottom-line beat.
These will be largely overshadowed by the company’s lowered profitability guidance as it continues ramping up its investments to capitalize on the Generative AI opportunity currently playing out across industries, analysts at Wedbush Securities said in a client note.
Revenue for the quarter of $73.2 million fell short of the Street’s estimate of $74.3 million. However, subscription revenue of $66.4 million was above the Street’s expectation of $63.6 million as the company continues expanding its pipeline with elevated use cases for enterprise AI applications despite weakness in performance in the EMEA region and elongating sales cycles in the quarter.
While they maintained their outperform rating on the stock, the analysts lowered their 12-month price target to $35 from $42 to reflect the “pushout of profitability and deal choppiness.”
The company did well with bookings in the federal sector, including the Department of Defense, the intelligence community, civilian government agencies, and logistics agencies.
It also reiterated its full-year 2024 revenue guidance as it continues seeing traction with its Generative AI across multiple sectors.
However, it adjusted its operating income guidance lower as it prepares for the upcoming AI opportunity by investing in lead generation, application development model engineering, heightened brand awareness, and customer success for Generative AI solutions.
Its gross margin is also expected to be relatively flat or weaker as the number of pilots rises over the next few quarters.
“While this quarter will be seen as a bump in the road for C3, we continue to believe C3.ai is in a great position to capitalize on the rapidly expanding Generative AI market through partnership expansion along with its proprietary suite of enterprise AI applications despite a murky macro-backdrop,” the analysts wrote.
“We view this investment strategy as a short-term pain for a long-term gain as C3 seeks to build a stronger pipeline and generate increased demand for its entire product suite.”
C3.ai's shares were down 11% at $26 on Wednesday afternoon following the release of its results.
Contact the author at stephen.gunnion@proactiveinvestors.com