On Thursday, Canaccord Genuity adjusted its stock price target for c3.ai (NYSE:AI), reducing it to $23 from the previous $30 while retaining a Hold rating on the stock. The adjustment follows c3.ai's first-quarter fiscal year 2025 results, which showed a year-over-year revenue increase of 20.5%, marking the sixth consecutive quarter of year-over-year acceleration.
Despite the growth, subscription revenue displayed a slight downturn, growing 19.7% year-over-year but falling $6.4 million from the previous quarter. The company's professional services revenue aligned with management's expectations, accounting for 10%-20% of the total revenue for the quarter. This performance indicates a shift from the previous fiscal years, where professional services had seen a year-over-year decline.
C3.ai (NYSE:AI) also reported an impressive number of signed agreements and pilot programs, with 71 agreements and 52 pilots doubling year-over-year, largely due to strong partner contributions and new deals with state and local organizations.
Canaccord Genuity anticipates that while c3.ai's revenue might continue to grow at approximately a 20% rate, the number of new customer agreements is expected to decrease in the second and third quarters, considering the high benchmark set by the first quarter's robust performance. The firm also noted improvements in operating margins, which increased by 790 basis points to (19.1%) in the quarter, as c3.ai continues to invest heavily in what is seen as a significant opportunity in the enterprise AI sector.
On a growth-adjusted basis, c3.ai's shares appear somewhat attractive, trading around 6 times the estimated calendar year 2025 sales based on low-20's growth. Canaccord Genuity emphasized that while growth prospects are a major factor in their valuation methodology, profitability remains an important consideration.
The revised price target of $23 reflects this valuation, equating to approximately 6 times the estimated calendar year 2025 sales, down from the previous 9 times estimate.
In other recent news, C3.ai reported strong financial performance for the first quarter of fiscal year 2025, surpassing expectations with a 21% increase in year-over-year revenue. The company announced a total revenue of $87.2 million, with subscription revenue, which saw a 19.7% year-over-year growth, accounting for a significant 84% of this total.
However, BofA Securities maintains an underperform rating on C3.ai, despite a slight increase in the company's subscription revenue and a rise in the number of pilot deals. The firm has adjusted its price target for the company to $20 from the previous $24. The unchanged forecast for fiscal year 2025 does not indicate that the company is significantly benefiting from the current momentum in artificial intelligence adoption.
C3.ai's partner ecosystem has also seen growth, with 72% of the 71 new agreements closed through partners. The company's pre-built AI applications and generative AI solutions have been central to customer satisfaction and value delivery, as demonstrated by successful deployments with industry leaders such as Holcim (SIX:HOLN), Shell (LON:SHEL), and Con Edison. These are recent developments in the company's performance and outlook.
InvestingPro Insights
As c3.ai (NYSE:AI) navigates through its fiscal year 2025 with a keen focus on revenue growth and operational efficiency, real-time data from InvestingPro provides a deeper financial perspective on the company's market position. With a market capitalization of $2.92 billion, c3.ai demonstrates significant scale in the enterprise AI sector. The company's revenue growth remains robust at 16.41% for the last twelve months as of Q4 2024, slightly underpinning the 20.5% year-over-year increase reported in the first quarter of fiscal year 2025.
InvestingPro Tips highlight that c3.ai holds more cash than debt on its balance sheet, which is a strong indicator of the company's financial stability. Moreover, 6 analysts have revised their earnings upwards for the upcoming period, suggesting a positive outlook on the company's future performance. This optimism is tempered by the fact that analysts do not expect c3.ai to be profitable this year, and the stock price has seen a significant decline over the last three months, dropping by 24.71%.
Investors considering c3.ai's stock should note that the company trades at a high revenue valuation multiple, with a price/book ratio of 3.34 as of the last twelve months ending Q4 2024. With the company not paying dividends to shareholders, growth and capital gains remain the primary potential rewards for investors. Those interested in additional InvestingPro Tips can find more insights on c3.ai, including further financial metrics and analyst projections, on the InvestingPro platform.
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