Artificial intelligence (AI) software company C3.ai (NYSE: AI) announced better-than-expected revenue in Q1 CY2025, with sales up 25.6% year on year to $108.7 million. The company expects next quarter’s revenue to be around $104.5 million, close to analysts’ estimates. Its non-GAAP loss of $0.60 per share was significantly below analysts’ consensus estimates.
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C3.ai (AI) Q1 CY2025 Highlights:
- Revenue: $108.7 million vs analyst estimates of $107.9 million (25.6% year-on-year growth, 0.8% beat)
- Adjusted EPS: -$0.60 vs analyst estimates of -$0.20 (significant miss)
- Adjusted Operating Income: -$31.17 million vs analyst estimates of -$35.18 million (-28.7% margin, 11.4% beat)
- Revenue Guidance for Q2 CY2025 is $104.5 million at the midpoint, roughly in line with what analysts were expecting
- Adjusted Operating Loss Guidance for Q2 CY2025 is -$28.5 million at the midpoint, better than expectations of -$35.2 million
- Operating Margin: -81.8%, up from -95.1% in the same quarter last year
- Free Cash Flow was $10.33 million, up from -$22.38 million in the previous quarter
- Market Capitalization: $3.18 billion
Company Overview
Founded in 2009 by enterprise software veteran Tom Seibel, C3.ai (NYSE: AI) provides software that makes it easy for organizations to add artificial intelligence technology to their applications.
Sales Growth
A company’s long-term sales performance can indicate its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Over the last three years, C3.ai grew its sales at a 15.5% compounded annual growth rate. Although this growth is acceptable on an absolute basis, it fell slightly short of our standards for the software sector, which enjoys a number of secular tailwinds.
This quarter, C3.ai reported robust year-on-year revenue growth of 25.6%, and its $108.7 million of revenue topped Wall Street estimates by 0.8%. Company management is currently guiding for a 19.8% year-on-year increase in sales next quarter.
Looking further ahead, sell-side analysts expect revenue to grow 17.9% over the next 12 months, an acceleration versus the last three years. This projection is admirable and implies its newer products and services will spur better top-line performance.
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Customer Acquisition Efficiency
The customer acquisition cost (CAC) payback period measures the months a company needs to recoup the money spent on acquiring a new customer. This metric helps assess how quickly a business can break even on its sales and marketing investments.
It’s very expensive for C3.ai to acquire new customers as its CAC payback period checked in at 159.6 months this quarter. The company’s slow recovery of its sales and marketing expenses indicates it operates in a highly competitive market and must invest to stand out, even if the return on that investment is low.
Key Takeaways from C3.ai’s Q1 Results
Revenue and adjusted operating income both beat in the quarter. Looking forward, revenue guidance for next quarter was roughly in line with Wall Street's estimates, but operating income guidance for the period was nicely above expectations. Finally, "C3 AI and Baker Hughes renewed and expanded their strategic partnership through a multi-year agreement", and this is a relief to the market as it is the largest partnership for the software company. Overall, this was a solid quarter. The stock traded up 15.1% to $26.51 immediately following the results.
Big picture, is C3.ai a buy here and now? The latest quarter does matter, but not nearly as much as longer-term fundamentals and valuation, when deciding if the stock is a buy. We cover that in our actionable full research report which you can read here, it’s free.
