Entering text into the input field will update the search result below

C3.ai: The Correction Has Further To Go

Mar. 08, 2021 3:29 AM ETC3.ai, Inc. (AI)20 Comments
Gary Alexander profile picture
Gary Alexander


  • Shares of C3.ai have dipped more than 40% from mid-February highs, especially following a very disappointing fiscal Q3 earnings release.
  • C3's small customer base and exposure to the oil and gas industry has pressured its growth amid the pandemic, with Q3 revenue growing at only 19% y/y.
  • Pro forma operating losses also continued to grow, raising questions about the company's ability to scale profitably.
  • Still sitting at a ~35x forward revenue valuation, C3.ai is still vulnerable to a deeper correction.
  • I do much more than just articles at Daily Tech Download: Members get access to model portfolios, regular updates, a chat room, and more. Learn More »

The tech rout of the past several weeks has been painful, but it should have communicated a very clear message to investors: many tech stocks that have been propped up on "stories" and hefty expectations of future growth are very susceptible to a correction. 2020 and 2019 were banner years for new IPOs: virtually every new issuance flew off the figurative shelves and reached nosebleed valuations. Least of all among these was C3.ai (NYSE:AI), an enterprise AI platform that went public only a few months ago at just $42 per share, and still today is sitting ~2x gains from the IPO price.

After C3.ai's recent Q3 earnings release, which underwhelmed the Street and sparked a selloff that was amplified by the broader market pullback, shares have declined ~40% from February highs:

Yet in my view, the correction in C3.ai shares still has quite a ways to go. I mentioned several of these red flags in my prior article on this company, but here are the key bearish items for investors to watch out for:

  • Pandemic has pressured C3.ai into a position of nearly no growth. A company of C3.ai's scale (~$200 million in annualized revenue) should be growing at 30-40% or more, if it was a healthy company. Examples of SaaS companies at this scale include Sumo Logic (SUMO) and Bill.com (BILL), the latter of which is growing at a ~30% y/y clip. C3.ai's Q3 revenue, meanwhile, grew at only 19% y/y - a reflection of the impact the pandemic has had on its customers, most notably its largest customer Baker Hughes.
  • C3.ai still has enormous customer concentration risk. Baker Hughes represented nearly half of C3.ai's revenue in fiscal 2020 (the year ending in April of 2020), and overall the company has only 30 customers. To me, this signals that

For a live pulse of how tech stock valuations are moving, as well as exclusive in-depth ideas and direct access to Gary Alexander, subscribe to the Daily Tech DownloadHighly curated focus list has consistently netted winning trades of 40%+.

This article was written by

Gary Alexander profile picture
With combined experience of covering technology companies on Wall Street and working in Silicon Valley, and serving as an outside adviser to several seed-round startups, Gary Alexander has exposure to many of the themes shaping the industry today. He has been a regular contributor on Seeking Alpha since 2017. He has been quoted in many web publications and his articles are syndicated to company pages in popular trading apps like Robinhood.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

Recommended For You

Comments (20)

Guraaf profile picture
Look where we got in a few months. What a great short this stock turned out to be.
I waited for this IPO and then institutional investors drove this stock from $42 to $100+ And I was no way Jose. I don’t mind getting in at $60s but growth needs to jump
@Gary Alexander at what price are you a buyer?
@Alpha Gainer - hmmm, CRICKETS.....
@New Adams

Seeing this company's revenue will only grow 15-30% YOY, in the current year, I don't think this stock deserves its current 40X sales multiple. I was under the operating assumption/understanding that only companies with growth rates above a certain threshold (i.e. 50%+ growth rates), may command the outrageous multiples. If we give it an average 15x sales multiple based on the $172.6MM in Seeking Alpha's TTM revenue for C3ai, that would put the price around $26, way below its IPO price of $42. Since Q4 earnings won't come around until May or June, let's be generous and round up to $200MM expected 2020 revenue. 15x sales on $200MM is about $31.50 per share.

If I assume they make $200MM in annual revenues for the current year and use their market cap of roughly $4B, at the time of their IPO price ($42), we still have a 20x sales multiple. Hence, the reason earlier in the article commentary, I said maybe I'd buy at $42.

I'd love to snap this company up but not at these prices holding the line at $60-$70, particularly given their weak pandemic growth, small customer concentration, and no big news currently informing us of its near-term outlook or guidance.
whitehead1 profile picture
When company is spending lot of money advertising it's stock on TV then it's products you know they have nothing going for it.
Fell bad for everyone who did not sell at lot higher price and still holding.
25 Mar. 2021
Gary Alexander was right. and i like this stock at the $65 price

Almost near the $42 IPO price, I'd pick some up at that price.
Guraaf profile picture
@emcee80 But why? IPO was and is a seller's market. The company has value at perhaps $10-12 levels. Nowhere close to $40. One of the best shorts in the market right now. When the music stops, c3.ai will be a poster-boy of 90% collapse from the peak.

Thanks for pointing out. 20% short interest. Yowsers.
I think it does the market good for fools to lose money on foolish investments. This WILL see its ipo price again and it will still be overpriced when that happens
-eddie- profile picture
Good products and business model, big investors’ support and an experienced CEO.... without a market crash I don’t see C3AI going to its IPO price...
Agree, would only consider AI below 30 (even then the 19% growth doesn't excite me)

PLTR is a much better pick in the data analytics space (still expensive but the recent cloud based ERP system with AWS sounds exciting).

I would even prefer AYX to AI as Alteryx is more diversified and the reason for their current slow growth is well known (Covid slows their on premises solution) and probably/ hopefully temporary.
09 Mar. 2021

~25% short interest as of today

There was no correction at all
I'll stick with Duck Creek Technologies for a small SaaS name with good execution. I'm surprised C3 is still trading as high as they are.
rodolfoavalos1 profile picture
I agree.. it "might" begin to call my attention below $40/share..
Guraaf profile picture
@rodolfoavalos1 I would get interested at $10/share. Weak company and pivoting to grab attention.
08 Mar. 2021
36% borrowing fee on the stock.

It's going full $GME mode... Zero borrowing available and reborrowing happen at higher interest.
08 Mar. 2021
Title is misleading, stock currently has zero borrowing available.

As well borrowing fee is 25%.

Stock not corrected but heavily shorted and author ignoring this fact spreading misleading data.
@xdire Sorry, but what does zero borrowing available imply?
Disagree with this article? Submit your own. To report a factual error in this article, . Your feedback matters to us!
To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.