C3 AI 1Q24: Conman Cubed?
A pure AI story stock, far from a business model validation with a mgmt team that shows more interest in stock pumping than actual fundamental progress. Valuation downside is probably 50% or more.
Yesterday, C3 AI 0.00%↑ announced their 1Q24 financial results (for the period May-July 2023). Revenues came in at $72.4m, 11% higher than 1Q23. The operating loss amounted to $74.1m, flat year-over-year. FY24 revenue guidance was reduced from >$340m to $295-320m.
Markets did not like it for obvious reasons. The company is pretty much selling one Dollar for two Dollars and all of that is supposed to generate a meager 15% revenue growth this year in the middle of the biggest AI capex boom ever. The stock finished today down 12%.
I believe this is a decent short candidate. The company is far away from validating its business model by reaching profitability and cash flow break-even. There are significant corporate governance issues as evidenced in the short seller reports issued over the past two years. Management’s pitiful attempts to paint the Company as an AI pure play makes me wonder whether they are actually serious in generating real shareholder value.
They are not demonstrating any meaningful operating leverage. That is unusual for a software company and suggests their business is likely closer to a plain IT consulting practice.
If markets arrive at that conclusion and price this stock more in line with traditional IT consulting players, there is likely more than 50% downside ahead for the stock from current levels even if the Company gets to breakeven soon and won’t lose too much money until then.
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