C3.ai drops sharply due to disappointing sales

Shares of C3.ai (NYSE:AI) and Chewy (NYSE:CHWY) fell about 10% in morning trading Thursday after the companies reported weaker-than-expected September quarter sales. Results and forecasts disappointed investors and showed that macroeconomic headwinds continue to limit visibility.

AI enthusiasm not reflected in C3’s guidance

Shares of the enterprise AI software company were weak in morning trading Thursday after the company reported second-quarter revenue that fell short of average analyst estimates. Sales rose 17% year over year to $73.2 million, but fell short of the $74.3 million expected.

“We have seen unprecedented interest and traction for generative AI products. Importantly, our revenue growth is accelerating as we continue to transition to a consumption-based pricing model,” said Thomas M. Siebel, CEO and Chairman of C3 AI.

While management continues to emphasize customer interest in AI products, the guidance provided once again does not reflect that enthusiasm. C3.ai said it expects revenue to be between $74 million and $78 million, with the midpoint of its guidance below the $77.7 million consensus.

For the full year, C3.AI is currently seeing revenue between $295 million and $320 million, with the midpoint roughly in line with Street estimates of $307.9 million. The company also said it expects to record adjusted losses of $43 million and $125 million for the third quarter and full year, respectively.

For its second fiscal quarter, C3 reported an adjusted operating loss of $24.95 million, a loss of 13 cents per share, better than the expected loss of 18 cents. Subscription revenue increased 12% year-over-year to $66.4 million, beating expectations of $64.3 million. However, professional services revenue was only $6.78 million, while analysts had expected $10.2 million.

“Over the past four quarters, we have seen year-over-year peak revenue growth increase from -4% in Q3 FY23, 0% in Q4 FY23, 11% in Q1 FY24, and 17% in Q2 FY24.” Siebel added.

During the quarter, C3.ai said it signed 62 contracts, including 36 pilots. The company signed new contracts with major customers such as GSK, Indorama, and First Business Bank, and expanded contracts with Con Edison, Roche, Nucor Corporation, and Hewlett Packard Enterprise. C3 has also secured 40 contracts through its partner network consisting of AWS, Baker Hughes, Booz Allen, Google Cloud, and Microsoft.

As far as the company’s federal business is concerned, it was up nearly 187% in the second quarter compared to the previous year. The company has signed 20 new federal contracts, including five contracts for C3 Generative AI, including deals with the U.S. Navy, the Office of the Director of National Intelligence, and others.

C3.ai stock is up 160% so far this year amid widespread AI optimism.

Predicting chewy texture even in constant headwinds

Shares of online pet retailer Chewy fell after the company sharply lowered its net sales guidance for the year. The company said it now expects full-year revenue to be between $11.08 billion and $11.1 billion, which is lower than its previous forecast of $11.15 billion to $11.35 billion. Analysts expected FY revenue of $11.24 billion.

For this quarter, Chewy expects net sales of $2.79 billion, which is significantly weaker than the consensus of $2.93 billion. The company said the proposed outlook reflects “ongoing macro pressures observed across the industry.”

“Chewy continues to grow market share, with net sales growing in the single digits in the third quarter, 8% below industry growth,” said Sumit Singh, CEO of Chewy.

In the third quarter, Chewy’s revenue rose 8.2% year-over-year to $2.74 billion, in line with Street consensus. Loss per share was 8 cents, worse than the expected loss of 6 cents per share. Adjusted Ebitda increased 17% year over year to $82.1 million, with Ebitda margin increasing 20 basis points year over year.

Chewy stock was offered up to 11% lower on Thursday following the weak outlook. The company is preparing to host its first investor day in New York next week, an event that is likely to increase volatility in Chewy stock. Chewy also noted that the recession in recent months has resulted in a cooling consumer economy due to rising borrowing costs.

“Consumer spending behavior remains opportunistic in the current environment,” the company said.

In addition to its third-quarter earnings report, Chewy also announced that Greg Reeder, currently CFO of GlobalFoundries, will join the company next February, succeeding interim CFO Stacy Bowman, who will continue as chief accounting officer. Reeder previously served as CEO of Tower Hill Insurance Group.

As of Wednesday’s close, the stock had fallen 47.8% year to date.

summary

Chewy stock was trading lower on Thursday after the online pet retailer lowered its sales outlook for the year, citing ongoing macro headwinds. C3.ai shares also fell after the enterprise AI software company reported weak second-quarter revenue numbers and forecasts that trailed the average analyst estimate.

In summary, the fluctuating fortunes of companies like Chewy and C3.ai, as seen in their recent financial reports, highlight the ongoing challenges and uncertainty in the current economic environment. Looking ahead, however, there are signs that the U.S. stock market could experience significant growth in the coming year.