Where will the C3.ai stock be in 3 years?

Where will the C3.ai stock be in 3 years?

C3.ai (IA 1.25%) was one of the hottest tech debuts of 2020. But today, shares of the enterprise artificial intelligence (AI) software company are trading nearly 70% below its stock price. initial public offering (IPO). C3.ai faded as investors worried about its slowing growth, continued losses and high valuations. Rising interest rates have exacerbated this pain. But could this disadvantaged stock recover over the next three years?

What are the biggest problems with C3.ai?

C3.ai expects its revenue to increase by only 1% to 7% in fiscal 2023, which ends next April. This would represent a significant slowdown from its growth of 38% in fiscal 2022 and 17% in fiscal 2021.

The company attributes the slowdown primarily to macroeconomic headwinds. Indeed, it provides most of its AI algorithms, which can be integrated into an organization’s existing software infrastructure or sold as standalone services, to large customers in the macro-sensitive energy and utility sectors. ‘industry.

Image source: Getty Images.

However, C3.ai also generates much of its revenue from a joint venture (JV) with the energy giant hugue baker. About a third of C3.ai’s revenue through fiscal 2025 is likely to come from Baker Hughes, based on Wall Street expectations and current joint venture terms. This agreement, which was renegotiated for an additional year extension last October, will expire in fiscal year 2025.

Three troubling signs indicate that this partnership could be in trouble: Baker Hughes already renegotiated lower revenue commitments to extend the deal last year, he sold his own stake in C3.ai and he invested in Augury instead, the competitor of C3.ai. If Baker Hughes leaves the joint venture, C3.ai’s revenues will drop.

To diversify away from Baker Hughes and other large clients, C3.ai aggressively pursues smaller contracts with smaller clients. It also recently announced it would be moving away from subscriptions to a usage-based model that only charges customers when they access its services.

However, this strategic shift has raised eyebrows because enterprise software vendors typically prefer to pursue larger, higher-revenue customers and lock them in with persistent subscriptions. C3.ai has also gone through three CFOs since its IPO, and each CFO has slightly changed their methods of counting customers and other key growth indicators.

C3.ai’s slowing growth, client concentration, management issues, mixed strategies and continued losses have all convinced investors that its stock does not deserve a higher valuation. At its peak at the end of 2020, C3.ai was valued at $17 billion, or 93 times the sales it would actually generate in fiscal year 2021. Today, it’s worth just $1.4 billion, five times that year’s sales.

According to C3.ai, what will happen in the long term?

On C3.ai’s latest conference call in late August, CEO Tom Siebel warned that his customers “seem to be expecting a recession” as they cut orders. Siebel also warned that the potential downturn “could be significant” and strangle its near-term growth.

Siebel estimates that after growing just 1% to 7% in fiscal 2023, C3.ai’s revenue will “return to historic annual growth rates” of more than 30% in fiscal 2024. “and beyond”. Chief Financial Officer Juho Parkkinen, who took over in February, says his shift to smaller, usage-based contracts will stabilize his long-term growth. A recent expansion of its partnership with AlphabetGoogle Cloud, which bundles C3.ai’s artificial intelligence services with the tech giant’s cloud services, could also boost sales.

Yet analysts are not so optimistic. They expect C3.ai revenue to grow 3% in FY2023, 21% in FY2024, and 19% in FY2025. growth are still robust relative to its current price-to-sales ratio, but its sales could decline further. off a cliff in fiscal year 2026 if Baker Hughes ends its closely watched partnership.

Where will C3.ai stock be in three years?

Assuming C3.ai matches analysts’ expectations for revenue of $376 million in fiscal 2025, and still trades at around five times sales by then, it could worth around $1.9 billion in three years, which would represent a nearly 40% gain from its current price, but still well below its valuation of around $4 billion.

Shares of C3.ai could rise even more if investors are willing to pay a higher premium again, but I don’t see that happening until it renews its deal with Baker Hughes, significantly reduces the weight of the energy giant on its turnover, will stop changing CFOs. and reporting methods, and proves that its pursuit of smaller, usage-based customers actually makes sense.

Suzanne Frey, an executive at Alphabet, is a board member of The Motley Fool. Leo Sun has positions in Alphabet (A shares) and C3.ai, Inc. The Motley Fool has positions in and recommends Alphabet (A shares) and Alphabet (C shares). The Motley Fool recommends C3.ai, Inc. The Motley Fool has a Disclosure Policy.

Similar Posts

Leave a Reply

Your email address will not be published.