October 6, 2022

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C3.ai’s stock tumbles on lower forecast and plan to revamp its business model

3 min read

Shares of artificial intelligence software provider C3.ai Inc. tumbled in after-hours trading today after the company cut its full-year revenue forecast and announced a major overhaul of its business model amid what it called an “economic downturn.” “

The company, which calls itself C3 AI, provided some mixed numbers for the first quarter. It reported a loss before certain expenses as stock compensation of 12 cents per share, beating Wall Street’s estimate of a loss of 24 cents per share. At the same time, it generated $65.3 million in revenue, up 25% from a year earlier and in line with its own guidance, though slightly below analysts’ consensus estimate of $66 million.

Overall, C3 AI posted a net loss of $71.8 million, nearly double the $37.4 million loss reported a year earlier.

While the numbers weren’t too bad, investors were clearly worried about the company’s guidance for the second quarter. C3 AI executives said the company was targeting revenue of between $60 million and $62 million for the second quarter, slightly below the Wall Street consensus of $71.7 million. For fiscal 2023, the company expects revenue between $255 million and $275 million, which is slightly below its previous guidance of $308 million to $316 million and also below Wall Street’s call for full-year sales of $310.5 million.

The company is a leading provider of enterprise AI development software. C3 AI’s application platform provides a comprehensive set of tools and services for companies looking to build enterprise-scale AI applications to accelerate their digital transformation. The company claims its platform enables teams to build AI applications more efficiently and at a lower cost than competing approaches.

Having already caught investors off guard with its lower guidance, C3 AI really put the cat among the pigeons when it announced the major change to its business model. CEO Thomas Seibel (pictured) said the company is now transitioning from its existing subscription model to a consumption-based pricing model. The move, he said, will bring C3 AI into line with what is now seen as the standard way of doing business for software-as-a-service providers.

“We have implemented a new pricing model, a new sales model, a new partner model and new applications to accelerate sales cycles, accelerate product adoption, increase market share and increase revenue growth and profitability in the medium and long term, Siebel announced.

The company justified the change, saying the consumption-based pricing model was used to great effect by Amazon Web Services Inc., Microsoft Azure, Google Cloud and Snowflake Inc. Consumption-based pricing is similar to how a company might pay its utility bills, with higher fees the more they use C3 AI’s services. Customers, Siebel said, will benefit from access to just one AI Enterprise application, with unlimited use of its platform, unlimited developer licensing, unlimited runtime licensing, and a concierge technical support and training program.

To implement the new model, C3 AI highlighted that it has “fundamentally reshaped” its sales team over the past few quarters, bringing in professionals with deep domain and technical expertise. At the same time, the recent launch of C3 AI Platform v8 integrates the necessary capabilities to ease the transition.

Siebel said the “economic downturn is real” and that customers are scrutinizing big deals like never before. Because of this, now is the perfect time for the company to switch to consumption-based pricing, he said. With the move, Siebel said he fully expects C3 AI to become profitable by fiscal 2024.

Unfortunately for Siebel and company, investors clearly don’t share his optimism about what is a pretty radical business change. After the announcement, C3 AI shares lost more than 16% of their value, adding to a 2% drop earlier in the day.

Photo: SiliconANGLE

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