Is C3.ai Stock About to Turn the Page?

C3.ai (AI 0.09%) appears to show promise, but there's still work ahead in improving its revenue growth. In this clip from "IPO & SPAC Show" on Motley Fool Live, recorded on April 11, Motley Fool contributor Jason Hall discusses the AI company's key metrics, and specifically assesses both its customer growth and revenue growth.

Jason Hall: If you listen to any national public radio programming, NPR, you've heard their advertisements describing their business as C3.ai is enterprise AI solving previously unsolvable problems. So far, they have yet to solve the problem of being a positive return for investments and also being a cash-flow positive business. This is the sad poor performance of the stock. As you can see at IPO, toward the end of 2020, this was one that was right in the middle of the absolute height of exuberance around IPOs. This is one that the IPO price doubled at least once and then I think may have doubled again. Then the first day of trading, the stock price was up 30% or 40% and, as you see here at the peak, was up I think 70% or 80% within a month before what we've seen what's happened along the way down. What I want to do here with C3, if you give me just a moment to find the right slide, is I wanted to talk about just a few key metrics and their business and what they report, and some things that I have some concerns about. You look across the board here and you say, well, revenue in that kind of an odd fiscal year doesn't line up with the calendar year. In the third quarter, revenue was up about 42%. That's good, and they said that's our strongest and largest quarter in history. Then you look at RPO, which is remaining performance obligation, which is essentially contracted services that it will be able to recognize revenue for in the future. It's basically what's leftover on long-term contracts, I guess is the best way to think about it. That grew 81% on an adjusted basis and up 90% on a GAAP basis. Hey, that's growing faster than revenue. That's generally a really positive sign. A billion dollars in the bank. Some good things here. Customer growth, we're going to talk about that one in the second. Shows 82% here, but bear with me, we'll talk about that in a second. Looks like revenue growth, again, you see revenue go up, stabilize, and revenue go up and then stabilize and revenue go up. There's some good things that are happening. I also want to point out, guys, that Tom Siebel founded this company in 2009. This company is more than a dozen years old. This isn't a company that was started five years ago. Within that context, it's doing $70 million in quarterly revenue and it's been around for a decade and a half in a couple years. This is not a brand new company. Let's talk about revenue mix and then, after talking about this, I promise, we're going to talk about that customer growth thing because it's really important. You see there's two buckets. The gray bucket here is professional services revenue. This is a lot of one-time hits in revenue. This is what really matters. Subscription revenue. This is the big brass ring. This is the one that we're reaching for here. This number grew 34%. That's not as great as that overall revenue number. This is what I have concerns with. The company made some changes in how they quantify a customer and how they quantify a new customer. It just so happened when they did that, it roughly doubled this number. Based on the old metric, it would've been something around 40-something percent, maybe 42-43%. Now it's showing 82%. I'm always very leery when companies start moving the goalposts in ways that are very beneficial to telling the story and not necessarily beneficial to what's really going on with the business. Again, this gets back to revenue growth. Revenue is growing 42%, customer growth of 82%. That's a pretty big disparity. Now you could say, well, hey, you just told me RPO. Let's look at that RPO number. That's up big. The point is that it's scattershot. It's all over the place. I think that's something I'm really watching really closely is making sure, are they focusing on reporting the metrics to make the company look best? Or, the ones that give us the best measure of how the company is performing? I think that's really important. We also have a company that, like I said, is very cash burn. You think about the revenue, the operating expenses here and their operating expenses as a percentage of revenue is growing. A year ago, it was basically every dollar that came covered OpEx. Now it's 8% above the revenue that's coming in, that's on top of how much revenue grew. Revenue grew 42%. Operating expenses grew at an even higher rate. I think to a certain extent, there's a lot of intentional growth in costs that is happening. Again, this is a company with a billion dollars in the bank. Tom Siebel, the founder, has a long history of running tech companies, knows how to lever and grow. I do think there is some intent that's happening here. But at some point, you want to see it start going the other way. Even as the company continues to spend on operations, you want to see revenue growth exceeding that.