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C3.ai shares are taking a beating Friday, pressured by a negative research note from Deutsche Bank analyst Patrick Colville, who cut his rating on the stock to Sell from Hold, with a new price target of $18, down from $36.

A provider of artificial intelligence software applications for enterprise customers, C3.ai (ticker: AI) posted financial results earlier this week that were generally well received. For the January quarter, the company posted revenue of $69.8 million, up 42% from a year ago, and ahead of both the company’s outlook range of $66 million to $68 million, and the Street consensus projection for $66.8 million. C3.ai had an adjusted loss in the quarter of 7 cents a share, narrower than the Street consensus forecast for a loss of 27 cents a share.

C3.ai also inched up guidance for the April 2022 fiscal year – the company now sees revenues of $251 million to $252 million, with a non-GAAP loss of $90 million to $94 million; previous guidance called for revenue of $248 million to $251 million, and a loss ranging from $100 million to $108 million.

In connection with earnings, C3.ai also announced the resignation of Chief Financial Officer Adeel Manzoor, just a few months after he took the role in December. CEO Tom Siebel told Barron’s earlier this week that Manzoor resigned for reasons “highly personal and sensitive in nature,” that concerned “a personal relationship.” He said the departure had nothing to do with Manzoor’s role at C3.ai. The company named chief accounting officer Juho Parkkinen to immediately step in as CFO.

Siebel asserts that the company had a fantastic quarter. “We killed it,” he said in an interview. “We had an exceptionally strong quarter, exceeding everybody’s expectations.”

Patrick Colville takes a different view though.

The Deutsche Bank analyst writes that “all is not well at C3.ai.” He says that revenue from customers unrelated to the company’s work for the oil service firm Baker Hughes (BKR) declined sequentially in the third quarter, and he said that customer count and current remaining performance obligations – contracted work to be delivered in the next 12 months – both fell from the previous quarter.

Colville points out that Baker Hughes was 49% of the company’s January quarter revenues – and that revenue from other customers slipped to $36 million, from $38 million in the October quarter. He’s also troubled by the company’s CFO turnover, noting that the company is on the fourth CFO now in 2 years. “We question whether the lack of stability in top management increases risks around financial reporting,” he writes.

Not least, he thinks the company’s outlook for the April 2023 fiscal year is too high. Colville notes that C3.ai said it expects about 33% topline growth, which he notes would imply the addition of $84 million in new revenue. He’s skeptical that the company can reach the target, which he thinks leaves the stock at risk.

“Given the change in sentiment towards high growth, unprofitable, midcap software names – we argue that C3’s lack of profitability, with no clear sign of improved operating leverage, is highly problematic,” he writes. And Colville adds that even given the dramatic slide in the company’s stock over time – the risk is to the downside.

C3.ai priced its initial public offering in December 2020 at $42 a share, and opened for trading at $100. A few weeks later, the stock rose to as high as $183.90 on an intraday basis, but the stock has been gradually sinking ever since. On Friday, C3.ai shares are down 12%, to $20.61.

Source: finance.yahoo.com