What happened
Shares of C3.ai (AI 2.50%) tumbled out of the gate Thursday, plunging as much as 18.7%, though the stock recovered somewhat, ending the day down just 11.2%.
The catalysts that sent the provider of enterprise artificial intelligence software lower were financial results that revealed a chink in the company's armor.
So what
For the fiscal second quarter (ended Oct. 31), C3.ai delivered revenue of $58.3 million, up 41% year over year, driven by subscription revenue of $47.4 million, up 32%. This resulted in a loss per share that widened to $0.55, worsening from the loss of $0.39 in the prior-year quarter.
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To put those numbers in context, analysts' consensus estimates were calling for revenue of $57 million and a loss per share of $0.29.
The company's remaining performance obligation (RPO), which consists of contractually obligated sales that have yet to be recognized as revenue, surged to $465.5 million, up more than 74% year over year, suggesting that business will continue to thrive for the foreseeable future.
C3.ai increased its customer count to 104, up 63% year over year, across 14 industries, doubling over the past year.
Management also significant increased its outlook for the remainder of fiscal year and is now guiding for revenue growth of 36% at the midpoint of its guidance, up from just 17% last year.
Now what
Given that C3.ai beat on both the top and bottom lines and raised its full-year guidance, why did the stock get clobbered? The devil, as they say, is in the details.
The increase in the company's RPO was the result of an expanded contract with Baker Hughes Company (BKR +0.84%). Not only did C3.ai extend the contract term from five to six years, but it also significantly increased the dollar value of the agreement from $45 million to $495 million.
Therein lies the rub. When you back out the expanded deal with Baker Hughes, C3.ai's RPO actually declined 16% sequentially, which raises questions about the effectiveness of its sales team. As a result, several analysts downgraded the stock or cut their price targets.
Time will tell if this is the beginning of a trend or a one-time occurrence. For now, long-term investors should simply relax.
