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C3.AI’s and Salesforce’s Earnings Reports Summarized

Plus500 | Thursday 01 June 2023

On Wednesday, May 31st, both AI giant C3.AI (AI) and cloud computing company Salesforce (CRM) reported their quarterly earnings data after the ring of the bell. While their earnings beat expectations, it appears that these two ended the trading day on a less positive note.

So what might have pushed their stocks downward and what was revealed in their earnings reports? Here’s a brief recap of C3.AI’s and Salesforce’s financial data:

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Did the AI Hype Not Suffice?

It is no secret that big tech companies from Microsoft (MSFT) to Alphabet (GOOG) have been making the headlines for their involvement in AI. In addition, more recently, NVIDIA (NVDA)’s earnings on May 24th, revealed that the company’s AI demand and advancement was growing exponentially, causing the company to soar almost 24% up till now and even hit $1 trillion in the market cap for a while. 

As such, being an AI-focused company that takes pride in being a leading AI software provider that aims to advance AI enterprises and applications, some may have naturally expected C3.AI’s stock to keep pace with its AI peers. However, although on Wednesday’s earnings report, C3.AI beat expectations, indeed driven by the AI boom, the company slid 20% in after-hours trading.

Whereas the company’s revenue surpassed analyst predictions and stood at $72.4 million versus the expected $71 million, and its adjusted loss per share came in at $0.13 versus $0.17, it appears that the AI bonanza did not fuel the company’s stock as much as some may have hoped. 

This is because while analysts predicted its fiscal year sales to reach $317 million, the earnings outlook suggests that its sales will only reach about $307.5 million. Accordingly, C3.AI’s fiscal year outlook may suggest that the AI hype is not enough to sustain the company’s growth. 

Some analysts even commented that these numbers highlight C3.AI’s inability to keep pace with larger software enterprises. One analyst also claimed that “the results confirm likely has a very small revenue exposure to generative AI or large language models.”

What’s Next for C3.AI?

In addition to the fears assuming that C3.AI may be unable to keep pace with its AI peers, it may be worth noting that it has also been facing difficulties in attracting new customers and has recently transitioned to a consumption-based pricing model. This means that customers pay for software based on their usage instead of a fixed subscription fee.

This shift is meant to attract new customers that do not want to sign large contracts. So far the company has successfully secured 43 agreements, comprising 19 pilot programs. The company also emphasized the reduction in the average sales cycle, which decreased from 5 months to 3.7 months compared to the corresponding period last year. Accordingly, it may be interesting to see how this new endeavor affects the company’s trajectory.

Moreover, despite Wednesday’s less-than-stellar performance, C3.AI had astounding growth thus far this year as it skyrocketed by a whopping 260.4% since the beginning of the year. The company’s CFO, Juho Parkkinen also said that the company predicts more profits in Q4 of 2024 and will “invest aggressively to generative AI initiatives during the first half of the year.” Whether or not these hopeful predictions will hold true is yet to be confirmed. (Source:Yahoo Finance)

Salesforce: Software Giant Struggles

Another market mover on Wednesday was software giant, Salesforce, which also slid following better-than-expected earnings. The company reported an adjusted EPS of $1.69 vs. the predicted $1.61 and its revenue came in at $8.25 billion, vs. the expected $8.18 billion. Salesforce also raised its full-year earnings forecast for fiscal 2024. Accordingly, its adjusted EPS forecast is $7.41 to $7.43 and its revenue is expected to come in at $34.5 billion to $34.7 billion. 

However, despite these rosy forecasts and figures, its stock slid by 7% in after-hours trading as these results may have not satisfied some traders and investors. This may be because Salesforce revealed that it is experiencing more challenges in closing new deals as clients take longer to scrutinize them.

According to the company’s COO, Brian Millham, there was a decline in demand for multiyear transformations in the professional-services business during the quarter. He also revealed that some projects were delayed as customers focused on achieving quick wins and fast time-to-value. 

Salesforce's CFO, Amy Weaver, also stated that "one of the things that we are seeing right now is not only professional services as a whole seeing pressure, but more customers are choosing to contract on the time and materials basis," and that the company expects their hurdles to persist. 

Furthermore, the company’s increased capital costs may have also deterred some traders from its stock yesterday as these reached $243 million in the quarter, which is above the expected $205 million.

Nonetheless, in spite of yesterday’s worries and drops, all in all so far the company had a good year as it rose by 66.3% so far and it also dabbling into generative AI through the development of Einstein GPT which aims to help salespeople, agents, and marketers do their jobs more efficiently. Therefore, it may be worth keeping an eye on this technology to see if it can help Salesforce sustain this year’s growth. 

All in all, yesterday’s earnings results may only serve as a reminder of the markets’ unpredictability and volatility. For this reason, it may be worth keeping track of any news related to these companies to see what else lies on the horizon.

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