MW C3.ai is still 'extremely unprofitable' so don't buy the stock, analyst says

By Tomi Kilgore

J.P. Morgan raised its stock price target after earnings, but the new target implies more than 35% downside

C3.ai Inc. investors have been on a wild ride since the company reported quarterly results, as investors appeared to struggle with the fact that the results beat expectations - but, unlike its peers, the company continues to lose money.

The business software and artificial-intelligence play released its fiscal second-quarter report minutes after Monday's closing bell.

The stock (AI) had jumped as much as 19% in Monday's after-hours session to a three-year high, as the company reported a narrower-than-expected loss and revenue that beat expectations by the widest margin in nearly two years.

But the stock started heading south before Tuesday's open, and was down as much as 14.5% at the intraday low, before bouncing.

It was up 5% in recent afternoon trading.

See related: As C3.ai's stock sinks, the CEO sees a 'misunderstanding.'

J.P. Morgan analyst Pinjalim Bora gave the company credit, saying that C3 appears to have solved for end-to-end AI at scale, as the company is the preferred AI-application provider on Microsoft Corp.'s $(MSFT)$ Azure cloud-computing platform.

Bora raised his stock price target after the earnings report to $28 from $19 - but that new target implies about 36% downside from current levels. He reiterated the neutral rating he's had on the stock for at least the past 21/2 years.

He believes C3's stock should trade at a "significant discount" to its peer group, "because of a couple of reasons":

-- Revenue growth is similar to its peers, but it's at a "much smaller scale" for C3.

Revenue for the latest quarter rose 29% from a year ago, to $94.3 million. And the FactSet consensus for full fiscal-year revenue of $387.8 million implies 25% growth.

Bora said that compares with the median growth of C3's peer group of 24% - but C3 is 80% smaller than the median scale of that group.

-- C3 is "extremely unprofitable" when compared with its peers.

The company has never missed bottom-line expectations but has reported a net loss for every quarter since going public in December 2020. And the quarterly losses are expected to continue at least for the next six quarters.

Read: C3.ai loses less money than expected, but stock dives after results.

Meanwhile, C3's peers reported a net profit in their latest quarter and are expected to report a full-year net profit.

For Bora, the peer group includes CrowdStrike Holdings Inc. $(CRWD)$, Snowflake Inc. (SNOW), Datadog Inc. (DDOG), Cloudflare Inc. $(NET)$, Zscaler Inc. (ZS), CyberArk Software Ltd. $(CYBR)$, GitLab Inc. $(GTLB)$ and SentinelOne Inc. $(S)$

The median market capitalization of those eight companies is about $34.8 billion, compared with C3's market cap of about $5.6 billion.

-Tomi Kilgore

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December 10, 2024 13:37 ET (18:37 GMT)

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