C3.ai Falls 15% Due to Weak Quarterly Subscription Revenue, Reports Reuters

By Harshita Mary Varghese

Shares of C3.ai, a company specializing in enterprise artificial intelligence software, fell nearly 15% on Thursday due to a slowdown in subscription revenue stemming from slow conversions of pilot customers.

The impact of high interest rates and an uncertain economic climate has prompted enterprises to be more cautious with their spending, leading to tighter cost management.

In its report for the first quarter, the company announced subscription revenue of $73.5 million, which fell short of analyst expectations of $79.1 million. This subscription revenue primarily consists of software licenses, Software-as-a-Service offerings, pilot programs, trials of C3.ai applications or generative AI, and consumption-based pricing, where revenue is recognized over time.

Analysts from D.A. Davidson noted, "C3.ai experienced a decrease of approximately $6.5 million in subscription revenue quarter-on-quarter, contrasting with an increase of around $9.5 million last quarter and $5 million in the same period last year."

Company management anticipates that gross margins will continue to face pressure, primarily due to a higher mix of pilots, which incur greater costs during the initial phase of the customer life cycle. Additionally, Finance Chief Hitesh Lath indicated in a post-earnings call that short-term operating margin pressures are expected as the company invests more heavily in its workforce, research and development, and marketing efforts.

Although C3.ai’s shares had more than doubled in value last year, the latest developments could potentially lead to a loss of over $400 million in market valuation from its current $2.97 billion.

For the quarter in question, the company recorded total revenue of $87.2 million, marking a 21% increase and surpassing estimates of $86.9 million.