C3.ai (NYSE:AI) was one of the hottest tech IPOs of 2020. The enterprise artificial intelligence company priced its IPO at $42 a share on Dec. 8, but the stock opened at $100 the following day and subsequently surged to…
C3.ai raised $651 million in its IPO, and it now has a market cap of about $13.4 billion, or 85 times its fiscal 2020 revenue. That frothy valuation indicates investors are still thrilled about C3.ai’s growth prospects — but the bulls are ignoring some obvious weaknesses, and pricing too much growth into this high-flying stock.
What does C3.ai do?
C3.ai’s founder and CEO is Thomas Siebel, who previously co-founded Siebel Systems, the enterprise software company Oracle (NYSE:ORCL) acquired for $5.85 billion in 2006.
Siebel founded C3.ai in 2009. The company initially offered its cloud-based AI tools to energy companies, but it now serves a wide range of organizations across the commercial, industrial, and government sectors.
C3.ai’s top customers include the machinery maker Caterpillar, the oil and gas services giant Baker Hughes (NYSE:BKR), and the European energy company Engie (OTC:ENGIY). It notably generated 36% of its revenue from Baker Hughes and Engie in fiscal 2020, which ended in April.
These organizations all use C3.ai’s software to streamline their operations, cut costs, and make data-driven decisions. Its software helps Caterpillar optimize its inventories, Baker Hughes streamline its maintenance routines, and Engie modernize its energy infrastructure.
C3.ai expands via a “lighthouse” strategy, in which it secures a top “lighthouse” customer in a sector to attract its industry peers. These lighthouse customers include 3M, Royal Dutch Shell, and the U.S. Air Force.
How fast is C3.ai growing?
C3.ai generated 86% of its revenue from subscriptions and the rest from professional services last year. Its revenue rose 88% in 2018, 48% in 2019, and another…
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