C3.ai (NYSE:AI) has experienced a significant surge in its stock price following its strong fiscal fourth-quarter earnings report, with shares rising over 20%. Despite this recent rally, the stock remains down over 30% for the past year.
The company reported robust revenue growth, particularly in subscription revenue, which increased by 41% during the quarter. However, C3.ai is still not profitable, reporting adjusted earnings per share of -$0.11.
Looking ahead, the company issued upbeat guidance for fiscal Q1 and the full fiscal year, projecting revenue growth of 16% to 23% for the quarter and 18% to 27% for the full year. It’s worth noting that C3.ai is transitioning from a subscription model to a consumption-based model, which may lead to more unpredictable revenue streams.
While the company’s growth prospects are promising, there are some concerns to consider. C3.ai’s gross margins are relatively low compared to other software companies, and its aggressive spending on sales and marketing, as well as high stock-based compensation, raise questions about its efficiency and profitability.
Given these factors and the stock’s current valuation, which trades at a forward price-to-sales ratio of over 9, some investors may prefer to stay on the sidelines for now. Despite the accelerating growth, there are potential risks associated with the company’s business model and financial metrics that warrant caution.
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