Proven Founder, Tom Seibel, led company. From the S-1 “Our singular focus is to leverage our technology leadership, first-mover advantage, and management leadership to establish and maintain a global leadership position in Enterprise AI. Should we succeed at that objective, we will have built C3.ai into one of the world’s great software companies.”
Like SNOW/PLTR, the question is really valuation. I took a full position in my portfolio.
It’s Thomas M. Siebel. Tom Siebel also founded Siebel Systems where he abused stock options like there was no tomorrow. Siebel Systems was acquired by Oracle.
From way back…
I used to be very much in favor of stock options and in my last business I gave the minority partners substantial options. But that was before I realized the amount of abuse that is being perpetrated with options. Remember Portal Software? Siebel? The problem with “expensing” options is that it throws the whole accounting into disarray, even more that it already was. One of these days someone will have to invent a new way to measure companies because this 15th century double entry system is no longer up to the task. It was designed for merchants, not for fabless purveyors of knowledge.
Was taking a look at C3.AI as it was interesting sounding and they were advertising a 71% YoY revenue growth rate. So check.
Not so fast. That advertised rate was for quarter ending April 2020. That is the accurate growth rate for that quarter. I took a look at their S-1. Their growth has not only ended but revenue is decreasing. Take a look at quarterly results of operations page 75 of their S-1 . July quarter growth rate was 17% YoY. Yikes. And subscription and total revenue decreased QoQ over April. CEO says they don’t expect to increase revenue growth anytime soon.
I read in interview the CEO gave to Barrons yesterday which I cannot access again now because they gave a one time free look without a subscription. Here is the link in case you can read it.
In the interview he said that they hit a wall starting in March due to Covid and sales growth fell to about 10% from March-July. Starting in August the growth is ramping again. He also said “no way no how” will growth continue at 70% but that their sales growth would be in the top quarter of their cohort of companies going forward.
I bought a 0.5% position yesterday, a “keeping my eye on you” purchase.
I heard his interview. Clearly, their current revenues have taken a short term hit because of Covid and because a number of their clients are in the energy industry. My take was his “no way 70% growth” related only to the short term - maybe just the next quarter or the next couple quarters. He sees very high growth in the future. (Apologies, my original post should have noted that recent growth was not 70% - I was pulling from S-1 which referred to end of fiscal year 2020.)
One thing to keep in mind. They have extremely large contracts. Their revenue may be very lumpy going forward. This includes initial contracts and large expansions. They also typically have 3 yr contracts (1yr for govt work). So, they have large amounts of deferred revenue. (It reminds me of trying to figure out what was going on with AYX revenues.) Profit margins remain solid. I believe they were operational cash flow positive last quarter (but these may fluctuate as well with lumpy revenues).
They issued 15,500,000 shares. Microsoft bought 1.2 million shares. Koch Bros bought 2.38 million. They collectively own about 23% of the float. Siebel owns C3 is partnering with Microsoft in the CRM space.
This is a one stop enterprise AI shop that is disruptive to a lot of players. Insiders own lots of stock. Tom Siebel controls it for better or worse (note he is 67). It is a high risk/high reward potential stock.
Here is Siebel talking broadly about the digital transformation. The first half of the interview offers the big picture of how Siebel sees change and then the second half is more focused on what is going on now and how AI fits. The interview gets more specific as it goes.
I was considering a position in C3.AI because it looks like to be a 60% grower.
After looking into it, however, one reason I won’t buy C3.AI:
From C3.AI S-1 Form, Go read it. Oil and Gas revenue was 1% in 2018 and increased to 29% in 2020. Not good. 29% is a big portion. It can have huge affect on total revenue growth rate for the next few year. Electrification is the future. Oil industry will struggle meaning stagnation or negative growth for the next several decades. Natural gas industry might do ok.
From S-1 form:
“For example, for the fiscal year ended April 30, 2018, revenue from customers in the financial services, oil and gas, aerospace and defense, manufacturing, and utilities industries represented 0%, 1%, 3%, 29%, and 67% of our total revenue, respectively, and in the quarter ended July 31, 2020, revenue from these customers represented 10%, 29%, 18%, 19%, and 24% of our total revenue, respectively.”
As pointed out in earlier threads, C3.ai is not a 60% grower. That was its annual YOY growth rate in April 2020 - the end of its last fiscal year. Its most recent YOY revenue numbers are probably closer to the 20% ballpark right now. It’s sales will likely be very lumpy for the net year or two. However, the do have a huge deferred revenue contract with Baker Hughes (energy sector - which I have no problem with).
While I do have a big position, AI is probably not ready to be seriously discussed on this board based on current financials.
