C3.ai Shares Plummet Following Revenue Shortfall

By Harshita Mary Varghese

(Reuters) – Shares of C3.ai (NYSE:AI), a company specializing in enterprise artificial intelligence software, dropped nearly 15% on Thursday. This decline came in response to squeezed subscription revenue amidst slow conversions of pilot customers.

High interest rates alongside an uncertain economy have caused enterprises to spend cautiously, tightening their budgets.

For the first quarter, C3.ai reported subscription revenue of $73.5 million, falling short of the LSEG estimate of $79.1 million. Subscription revenue includes software licenses, Software-as-a-Service offerings, pilots, and consumption-based pricing, recognized over time.

Analysts from D.A. Davidson noted, “C3.ai had weakness in subscription revenue which decreased by ~$6.5 million quarter-on-quarter compared with adding ~$9.5 million last quarter and ~$5 million in the same period last year.”

Management indicated continued pressure on gross margins due to a higher mix of pilots that carry greater costs during the early customer life cycle.

Finance chief Hitesh Lath mentioned in a post-earnings call that short-term pressure on the operating margin is expected due to increased investments in the business, including in salesforce, R&D, and marketing.

C3.ai, whose shares more than doubled last year, could see a loss of over $400 million from its $2.97 billion market valuation if the trend continues.

For the reported quarter, total revenue was $87.2 million, an increase of 21%, surpassing estimates of $86.9 million.