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On Thursday, KeyBanc Capital Markets adjusted its outlook on c3.ai (NYSE:AI) shares, reducing the price target from $29.00 to $21.00 while maintaining an Underweight rating. The stock, currently trading at $26.44, has experienced significant volatility, declining over 11% in the past week and 23% year-to-date. According to InvestingPro data, 12 analysts have recently revised their earnings expectations downward for the upcoming period. The adjustment followed the company’s fiscal third-quarter results, which KeyBanc analysts found to be a mix of hits and misses. Although total revenue for the quarter was in line with expectations, the composition of that revenue raised concerns, as it was significantly bolstered by growth in demonstration licenses.
The report from KeyBanc highlighted that demonstration licenses, which are considered non-recurring revenue, surged approximately 50% quarter over quarter and nearly fivefold year over year. This contrasts with the subscription revenue, which, when excluding demonstration licenses, is estimated to have experienced a low double-digit percentage decline year over year. While overall revenue growth stands at 21.7% for the last twelve months, InvestingPro analysis shows the company maintains strong liquidity with a current ratio of 7.52 and more cash than debt on its balance sheet. The analysts expressed caution over this trend, pointing to the accelerating decrease in non-demo subscription revenue as a worrying sign for the company’s core business stability.
Looking ahead, c3.ai’s guidance for fiscal fourth-quarter revenue was deemed satisfactory, with projections aligning with analysts’ expectations. Furthermore, the company’s margin forecasts were reported to be above prior estimates. Despite these positive aspects, KeyBanc chose to revise its estimates downward, taking into account the faster-than-anticipated decline in the company’s non-demo subscription revenue.
KeyBanc’s analysis was encapsulated in the statement provided by the firm’s analyst, Eric Heath, who reiterated the Underweight rating. Heath’s commentary drew attention to the mixed results of the fiscal third quarter, emphasizing the substantial growth in demonstration licenses but also the concerning drop in other subscription revenues.
The new price target of $21.00 set by KeyBanc reflects the firm’s adjusted expectations for c3.ai’s stock performance, taking into account the current revenue trends and the potential implications for the company’s financial health moving forward. With a market capitalization of $3.4 billion and trading at a high revenue multiple, InvestingPro analysis suggests the stock is slightly overvalued at current levels. Investors seeking deeper insights can access the comprehensive Pro Research Report, which provides detailed analysis of c3.ai’s financial health, valuation metrics, and growth prospects, along with 10 additional exclusive ProTips.
In other recent news, C3.ai reported its third-quarter fiscal year 2024 earnings, showing mixed results. The company achieved non-GAAP earnings per share of ($0.12), surpassing the consensus estimate of ($0.25), while revenue reached $98.8 million, slightly above the expected $98.1 million and marking a 26% year-over-year increase. Despite these positive figures, C3.ai’s guidance for the upcoming quarters did not meet investor expectations, leading to a 10.4% decline in after-hours trading. Subscription revenue, accounting for 87% of total revenue, grew 22% year-over-year to $85.7 million.
Analysts from Citizens JMP adjusted their price target for C3.ai to $50 from $55, maintaining a Market Outperform rating, while Canaccord Genuity lowered their target to $30 from $40, retaining a Hold rating. The revisions reflect cautious views on C3.ai’s financial performance, particularly concerning its cash flow and growth prospects. C3.ai’s free cash flow deficit was larger than expected at ($22.4 million) compared to the anticipated ($18.4 million). The company also highlighted its expanded partnerships with Microsoft (NASDAQ:MSFT), AWS, and McKinsey QuantumBlack as significant growth drivers. Despite the recent financial outcomes, analysts remain optimistic about the company’s potential, as evidenced by the maintained ratings.
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