Software firm C3.ai skyrockets % after $ million IPO
- Software company C3.ai leaped as much as % on Wednesday during its first day of public trading on the New York Stock Exchange.
- The company raised $ million in its initial public offering on Tuesday, selling shares at $42 each. C3.ai previously expected to price its stock between $36 and $
- The post-IPO pop comes as other firms aim to ride strong demand in their own trading debuts. DoorDash rallied as much as 78% on Wednesday as investors bet on the newly public firm.
- Watch C3.ai trade live here.
Software company C3.ai spiked as much as % higher on Wednesday in its first day of public trading.
The firm - founded by ex-Oracle executive Tom Siebel - raised $ million in its initial public offering. The firm sold million shares for $42 each, exceeding the previously forecasted range of $36 to $ Shares traded as high as $ on Wednesday before paring gains and wavering just below $
The $36 to $38 range was already higher than the firm's initial plans to price shares between $31 and $ C3.ai's post-IPO rally brought its market cap to nearly $10 billion.
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C3.ai focuses on enterprise artificial-intelligence software. The firm posted a $ million net loss in the fiscal year that ended in April, more than double the $ million loss it posted the year prior. Revenue totaled $ million over the period, up year-over-year from $ million. Subscription sales grew 75% from the year-ago period and now account for 86% of the company's revenue.
The firm's debut comes amid overwhelming investor demand for IPOs. DoorDash surged as much as 78% on Wednesday after it too made its trading debut. Airbnb is set to begin trading publicly on Thursday, and IPOs from Wish-parent ContextLogic and Roblox are expected to take place before the end of the month.
C3.ai trades on the New York Stock Exchange under the ticker "AI." The company's IPO was organized by Morgan Stanley, Bank of America, and JPMorgan.
Shares traded at $ at p.m. ET.
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Here's Why This Hot Artificial Intelligence IPO Stock Isn't Worth Buying
C3.ai(NYSE:AI) was one of the hottest tech IPOs of The enterprise artificial intelligence company priced its IPO at $42 a share on Dec. 8, but the stock opened at $ the following day and subsequently surged to about $
C3.ai raised $ million in its IPO, and it now has a market cap of about $ billion, or 85 times its fiscal revenue. That frothy valuation indicates investors are still thrilled about C3.ai's growth prospects -- but the bulls are ignoring some obvious weaknesses, and pricing too much growth into this high-flying stock.
What does C3.ai do?
C3.ai's founder and CEO is Thomas Siebel, who previously co-founded Siebel Systems, the enterprise software company Oracle(NYSE:ORCL) acquired for $ billion in
Image source: Getty Images.
Siebel founded C3.ai in The company initially offered its cloud-based AI tools to energy companies, but it now serves a wide range of organizations across the commercial, industrial, and government sectors.
C3.ai's top customers include the machinery maker Caterpillar, the oil and gas services giant Baker Hughes(NYSE:BKR), and the European energy company Engie(OTC:ENGIY). It notably generated 36% of its revenue from Baker Hughes and Engie in fiscal , which ended in April.
These organizations all use C3.ai's software to streamline their operations, cut costs, and make data-driven decisions. Its software helps Caterpillar optimize its inventories, Baker Hughes streamline its maintenance routines, and Engie modernize its energy infrastructure.
C3.ai expands via a "lighthouse" strategy, in which it secures a top "lighthouse" customer in a sector to attract its industry peers. These lighthouse customers include 3M, Royal Dutch Shell, and the U.S. Air Force.
How fast is C3.ai growing?
C3.ai generated 86% of its revenue from subscriptions and the rest from professional services last year. Its revenue rose 88% in , 48% in , and another 71% to $ million in fiscal But in the first quarter of , its revenue only rose 16% year over year to $ million as COVID disruptions throttled its growth.
Image source: Getty Images.
C3.ai says it generates "uncommonly high" contract values, thanks to the "high-value outcomes" its AI tools produce. As a result, its average contract was worth $ million in fiscal , which the company calls a "high-water mark for the applications software industry."
C3.ai tries to grow its revenue per customer with a "land and expand" strategy, wherein it locks in customers with a smaller contract, then signs them onto additional contracts. Its initial contract is worth about $13 million, but it believes it can boost that figure to $39 million via additional contracts. Its average contract lasts for about three years.
But like many other cloud service companies, C3.ai is unprofitable. Its net losses widened over the past three years, and it ended with a net loss of $ million -- compared to a loss of $ million in It generated a slim profit of $, in the first quarter of , due to lower operating costs during the pandemic, but it probably won't stay in the black for the rest of the year.
C3.ai's customer concentration is a major risk, and it could still face competition from public cloud leaders like Amazon(NASDAQ:AMZN) Web Services (AWS) and Microsoft(NASDAQ:MSFT) Azure, even though it classifies these tech giants as technological partners.
C3.ai's AI services run on top of AWS, Azure, and other cloud platforms -- but AWS and Azure also offer their own integrated AI services. C3.ai claims its services are cheaper, more efficient, and more customizable than those integrated AI solutions, but Amazon and Microsoft could still develop new AI services to compete against C3.ai in the future.
Don't pay the wrong price for the right company
C3.ai has a promising business model, and it could have plenty of room to grow. It estimates the total addressable market for AI tools will grow from $ billion in to $ billion in -- and its "land and expand" strategy could boost the average values of its contracts as that market grows.
Unfortunately, C3.ai's stock is simply too hot to handle at 85 times last year's sales. Even if it doubles its revenue this year, it would still be pricier than other bubbly tech stocks like Palantir and JFrog -- which both trade at roughly 30 times next year's sales.
I'd consider buying C3.ai's stock if a market crash cuts its price in half, but there's far too much optimism baked in at these prices. The market's near-term momentum might carry it slightly higher, but I'm not interested in paying the wrong price for the right company.
C3.ai IPO adds to enterprise software deal boom with %-plus gains in opening day trade
C3.ai was launched in by Tom Siebel, who started customer relationship management software firm Siebel Systems and sold it to Oracle in for $6 billion. C3.ai's software can read massive amounts of data and tell its owners — companies in industries such as aerospace, financial services, health care, retail and utilities — if something is about to break down, or the most efficient ways to use sensor data in their supply chain management. The company began life as a software venture for the energy industry. But after the recession, when spending on software in the energy industry had all but dried up, Siebel course-corrected.
Over the past year, the company has announced a strategic partnership with Microsoft to bring enterprise AI technology to the energy industry via Azure's cloud computing platform. Microsoft made a quick profit on the IPO.
C3.ai also has Bank of America, Koch Industries, AstraZeneca, the U.S. Air Force, Army Aviation and the military's U.S. Strategic Command as customers.
"The markets will do what the markets will do," Siebel said. "This is a financing event for C3 to enable us to meet the needs of rapidly expanding demand for what we do and we're very pleased to be able to participate. This is a testament to the great work that the employees of C3 have done over the least decade and now we're ready to expand this business to global scale."
The company has made the CNBC Disruptor 50 list multiple times and most recently ranked No. 37 on the Disruptor 50 list. It is the fifth company from the list to make its Wall Street debut, a group which also includes DoorDash. Another multiple-time CNBC Disruptor company, Airbnb, is expected to go public at a value as high as $42 billion after investors had cut its valuation to as low as $18 billion during Covid
IPOs have priced year-to-date, on pace for the most IPOs since when there were IPOs, according to Renaissance Capital, with total proceeds up over 60% from last year at $ billion and on pace for the most proceeds raised since when $ billion was raised.
The largest deal year-to-date before DoorDash was enterprise software company Snowflake with a deal size of $ billion. On Wednesday, DoorDash opened $ after pricing its IPO at $
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