Shares of C3.ai (AI 3.02%) fell 4% on Monday following a Bloomberg report that the AI software company implemented a fresh round of job cuts last week. But even if you're bullish on the stock -- and noting C3.ai implemented similar job cuts only six months ago -- the news shouldn't be entirely surprising.
To be fair, Monday's decline is barely a blip in the radar given C3.ai's nearly 170% year-to-date rally -- which includes a more than 40% pullback from its 52-week high in June. As of this writing on Wednesday (Nov. 22), the stock has also nearly recouped the dip after C3.ai announced a new Generative AI offering available on the Amazon Web Services (AWS) marketplace.
C3.ai has sustained profitability in its sights
Still, the report of C3.ai's job cuts raises the question: Why is an leading AI stock that's enjoying such apparent success in its niche reducing its workforce in the first place?
Put simply, C3.ai is laser-focused on achieving cost-efficient growth. Recall only a few months ago I highlighted C3.ai founding Chairman and CEO Tom Siebel's prediction that the company will reach adjusted (non-GAAP) profitability and sustained positive free cash flow by the fourth quarter of this fiscal year (ending April 30, 2024).
Indeed, according to Bloomberg, rather than framing the latest cuts as layoffs executives cited a combination of individual employee performance and the need to reduce costs as the company scales.
It's unclear exactly how many employees were affected this time. And according to Bloomberg's sources, many of those fired received only one month of severance pay.
For perspective, the company had 914 employees at the end of April, according to disclosures in its latest annual report, up from 704 and 574 employees at the same points in 2022 and 2021, respectively. And leadership has every intention of continuing build that headcount on a net basis going forward.
"C3 AI continues to hire and fill open positions to fuel our strategic areas," a spokesperson said in a statement, noting the company currently has jobs posted for 109 open positions. "Like many high-performance companies, we regularly manage out lower performance employees," they added.
Job cuts aren't without risk
C3.ai's performance-based job cuts are unsurprising and understandable. Gone are the days, after all, that Wall Street blindly accepts tech companies' propensity for pursuing top-line growth at all costs. But these kinds of cuts aren't entirely risk-free.
The company is obviously dealing with the fallout of negative public perception from implementing such a cut-throat move, for one. And fostering this kind of high-stress environment means some employees will almost certainly suffer going forward from a combination of survivorship guilt and persistent worries that their jobs might be next.
That's also nothing new with Tom Siebel -- a well-known figure in tech circles who founded, built, and sold his software company Siebel Systems to Oracle in 2006 for $5.8 billion -- at the helm. Siebel has already faced previous criticism in recent months for product delays and micromanagement at C3.ai.
But the momentum of C3.ai's business is also undeniable; the company seems to be announcing new and expanded partnerships and product launches every few weeks, most recently including an expanded collaboration agreement with Amazon Web Services unveiled just last week. Its new C3 Generative AI Suite has been well-received across all market verticals and customer segments, and Siebel asserted last quarter that they've seen a particularly "massive uptick" in recent adoption among defense and intelligence customers.
What's next for C3.ai stock?
As it stands, investors will receive fresh color on that momentum when C3.ai releases fiscal second-quarter 2024 results (the period ended Oct. 31) two weeks from now on Dec. 6. The midpoint of the company's latest guidance calls for solid full fiscal-year 2024 revenue growth of just over 15% -- though it's worth noting C3.ai has made a habit of underpromising and overdelivering on its outlook ranges in recent quarters.
In any case, I don't think investors should interpret C3.ai's recent job cuts as a sign of weakness. They're simply more of the same from the company as it works to pursue efficient growth. As such, I'm perfectly content continuing to hold my shares as I watch this growth story play out.
