Shares of C3.ai, a prominent player in enterprise artificial intelligence software, fell sharply by 20% in premarket trading on Thursday after the company reported disappointing subscription revenue. The decline was driven by slower-than-expected conversions of pilot customers amid a challenging economic environment.
C3.ai reported subscription revenue of $73.5 million for the first quarter, falling short of LSEG estimates, which had projected $79.1 million. Subscription revenue, which includes software licenses, Software-as-a-Service (SaaS) offerings, pilots, trials, and consumption-based pricing, is a key metric for the company. Analysts at D.A. Davidson noted that C3.ai experienced a decrease of approximately $6.5 million in subscription revenue compared to a $9.5 million increase in the previous quarter and a $5 million increase in the same period last year.
Despite the revenue shortfall in subscriptions, C3.ai posted total revenue of $87.2 million for the quarter, a 21% increase year-over-year and surpassing estimates of $86.9 million. However, the broader financial picture was marred by the subscription revenue miss.
C3.ai's management attributed the revenue pressure to a higher mix of pilot programs, which incur greater costs during their early phases. This has contributed to expected short-term pressure on gross and operating margins. CFO Hitesh Lath highlighted that additional investments in the company’s salesforce, research and development, and marketing are anticipated to impact operating margins in the near term.
The company also faces broader economic challenges, including high interest rates and cautious enterprise spending, which have contributed to slower revenue growth.
C3.ai's shares, which more than doubled in value last year, are now facing significant losses in market valuation. If the current losses persist, the company's market valuation, which stands at $2.97 billion, could decline by more than $600 million. The market's reaction reflects concerns about the company’s ability to maintain growth and manage its financial pressures effectively.
Overall, while C3.ai continues to show growth in total revenue, the underperformance in subscription revenue and ongoing economic uncertainties are posing significant challenges for the company.
