C3.ai (NYSE:AI) Posts Q2 Sales In Line With Estimates But Stock Drops 16.3%

Artificial intelligence (AI) software company C3.ai (NYSE:AI) reported results in line with analysts’ expectations in Q2 CY2024, with revenue up 20.5% year on year to $87.21 million. The company expects next quarter’s revenue to be around $91.1 million, in line with analysts’ estimates. It made a non-GAAP loss of $0.05 per share, improving from its loss of $0.09 per share in the same quarter last year.

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“We had a solid start to the fiscal year, with rising demand for Enterprise AI driving our sixth consecutive quarter of accelerating revenue growth,” said Thomas M. Siebel, Chairman and CEO, C3 AI.

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

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Sales Growth

As you can see below, C3.ai’s 18.6% annualized revenue growth over the last three years has been mediocre, and its sales came in at $87.21 million this quarter.

This quarter, C3.ai’s quarterly revenue was up a very solid 20.5% year on year, above the company’s historical trend. However, its growth did slow down compared to last quarter as the company’s revenue increased by just $623,000 in Q2 compared to $8.19 million in Q1 CY2024. While we’d like to see revenue increase by a greater amount each quarter, a one-off fluctuation is usually not concerning.

Next quarter’s guidance suggests that C3.ai is expecting revenue to grow 24.4% year on year to $91.1 million, improving on the 17.3% year-on-year increase it recorded in the same quarter last year. Looking ahead, analysts covering the company were expecting sales to grow 24.2% over the next 12 months before the earnings results announcement.

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Cash Is King

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

While C3.ai posted positive free cash flow this quarter, the broader story hasn’t been so clean. C3.ai’s demanding reinvestments have drained its resources over the last year. Its free cash flow margin was among the worst in the software sector, averaging negative 22.8%.

C3.ai’s free cash flow clocked in at $7.12 million in Q2, equivalent to a 8.2% margin. This quarter’s result was nice as its cash flow turned positive after being negative in the same quarter last year

Over the next year, analysts predict C3.ai will continue burning cash, albeit to a lesser extent. Their consensus estimates imply its free cash flow margin of negative 22.8% for the last 12 months will increase to negative 2%.

Key Takeaways from C3.ai’s Q2 Results

Although this quarter's revenue and earnings beat analysts' expectations, the company's full-year sales and adjusted operating income guidance fell short of estimates. Overall, this was a mediocre quarter due to the weaker outlook. The stock traded down 16.2% to $19.28 immediately after reporting.

So should you invest in C3.ai 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.