Down More Than 50% Since its IPO, Is C3.ai (AI) Worth Your Investment?
C3.ai (AI) is an artificial intelligence software company that provides software-as-a-service (SaaS) applications. The company has two families of software solutions: C3 AI Suite and C3 AI applications.
Its C3 AI Suite is an end-to-end platform-as-a-service allowing customers to design, develop, provide, and operate enterprise AI applications. Its C3 AI applications are a portfolio of turnkey cross-industry and industry-specific enterprise AI applications. This portfolio serves the needs of a list of vertical market segments including oil and gas, chemicals, utilities, manufacturing, financial services, defense, intelligence, aerospace, healthcare, and telecommunications.
The global artificial intelligence market is expected to expand rapidly, according to Facts and Factors market research report, at a compound annual growth rate (CAGR) of 35.6% from 2021 to 2026, reaching a total value of $299.6b.
In spite of that, AI has disappointed its shareholders since its listing in December 2020. The company’s share price has dipped more than 50% in this period, underperforming the NASDAQ 100, which delivered a year-to-date return of 16.68%.
Today, I will dive into AI’s financials and recent announcements to see if it is a worth investment.
AI’s top-line is surging, but the company is not profitable, as it burns too much cash
Since the beginning of the year, AI dipped significantly, losing more than 60% of its market capitalization and underperforming its benchmark the ARK Autonomous Technology & Robotics ETF (ARKQ) that gained 13% year-to-date.
AI’s top line growth has grown over the past years at a rapid pace and is expected to accelerate in the coming years. The artificial intelligence company’s net sales are expected to increase 16.6% in 2021 to $183m and AI’s top-line growth rate should accelerate to 34.4% in 2022 to $246m.
In spite of this rapid advance, the company is not yet generating a profit and is expected to post a negative EBITDA of $332m in 2021 and to decrease it to -106m in 2022. In addition, AI’s bottom line is even worse, with an expected net loss of $557m in 2021 and net loss of $161m in 2022.
However, AI does have a comfortable balance sheet for the time being. With a net cash position of $1.09b in 2021 the company should continue to invest to further develop and operate AI applications for the coming future. As its CAPEX should nearly double in 2022 to $242m in 2022, compared to its $163m in 2021.
In addition, the consensus of analysts have an average target price for AI of $75.14, corresponding to an upside of more than 54.6% compared to current levels.
However, AI’s valuation metrics are stretched. Moreover, in spite of the recent plunge of the stock, the company is still trading at a high 2022e P/B ratio of 6.11x and at a 2022 e EV/Revenue of 12.8x.
AI’s recent CRM solution announcement should multiply its business opportunities
Recently, AI announced the availability of its new CRM solution that should contribute to boost its growth profile going forward. The C3 AI CRM is designed to enable data integration of existing CRM systems with open source, such as Snowflake, SAP ERP, Oracle ERP, Ariba, Workday or NetSuite. In addition, the AI CRM is capable of integrating additional data, like news, social media activity, equity and commodity price feeds, and industry-specific econometric data sources.
The CRM’s mission is to provide rich natural language processing (NLP) capabilities that use the semantic information inherent in news, social media, texts, financial reports, and analyst reports. The aim is to feed the machine learning algorithms to improve customers’ workflow management, operating productivity and the overall visibility of the business at any given time. Also, the vertical integration of the AI CRM on Microsoft Azure, Google Cloud, AWS and IBM Cloud will enable AI to quickly deliver its solution that should contribute to sustain its strong sales growth.
AI’s shares took a beating since its IPO and its market capitalization more than halved during this period.
The company continues to lose money and its valuation metrics are high in spite of the stock price dip.
However, AI’s new CRM product might be a game changer going forward and should contribute to bringing the company afloat. Which is why I believe AI is a stock you should buy on the dip. Now could be a good entry point for investors looking to get exposure to the artificial intelligence space.