Drilling down-C3.AI (AI) IPO
C3.AI(AI) IPO with $4 billion valuation
Interesting IPO in Artificial Intelligence space C3.AI, let’s take a deeper look.
What a launch!, from $42 price per share for an IPO and started trading at $100 per share. We will be focusing on key take away’s for you, from preliminary prospectus filed with SEC, and general review for investors.
“Investors should remember that excitement and expenses are their enemies.”- Warren Buffet
Let’s clear the cloud
(not the internet cloud :D)
About C3.AI (AI)
C3.AI is Enterprise AI platform company (AI as the Stock Symbol), founded in 2009, Redwood City, CA- HQ, by Thomas Siebel. C3.AI supports deployment at enterprise level to make better decisions. It is enterprise artificial intelligence software company, primarily focusing on three solutions: C3 AI Suite- Comprehensive application development and runtime environment, C3 AI Applications-industry-specific and application-specific turnkey AI solutions that can be immediately installed, and C3.ai Ex Machina-no-code solution that provides secure, easy access to analysis-ready data. Few of the customers are 3M, U.S. Air Force, Shell, Baker Hughes and many more.
Revenue Track Record Filed with SEC
Below are as revenue stated by C3.AI in SEC filing. For detailed financials look at page 14 & 15 of the prospectus.
C3.AI’s 86% of the revenue is generated by sales of non-cancelable and non-refundable subscriptions to their customers. From that 86% of revenue, 17% averages for government contracts. Rest of the revenue is generated from their professional services provided to support, implement, train, project management, etc., based on the level of effort required.
Based on the current situation of COVID-19 and global economic slowdown, C3.AI’s revenue has increase from ~$91,000 to ~$156,000 (in thousands), which is a good sign, but we have to wait and see, does revenue withstands the economic slowdown, and by how much it increases or decreases in 2021.
Underwriters
C3.AI filing is underwritten by Morgan Stanley & Co. LLC, J.P. Morgan Securities LLC, BofA Securities, Inc., Deutsche Bank Securities Inc., Canaccord Genuity LLC, JMP Securities LLC, KeyBanc Capital Markets Inc., Needham & Company, LLC, Piper Sandler & Co., Wedbush Securities Inc. The estimated expenses related to the underwriting, are approximately $7.5 million. In addition, up to $35,000 will be reimbursed for expenses relating to clearance of this offering with the Financial Industry Regulatory Authority. Underwriters have been granted an option, exercisable for 30 days from the date of this prospectus, and purchase up to 2,325,000 additional shares of Class A common stock at the public offering price listed on the cover page of this prospectus. “We anticipate that the initial public offering price will be between $36.00 and $38.00 per share.”
Underwriters and investors made the money, now it is time to wait and watch. As of now, C3.AI (AI) share price is at $130 (subject to change based on market).
Risk factors as per C3.AI (AI)
Although, C3.AI mentioned, that they are first-movers “We believe we enjoy a significant first-mover advantage in Enterprise AI” & “We are not aware of others who have made as much progress as we have in this space.” but at the same time C3.AI states a risk saying “We face intense competition and could lose market share to our competitors, which could adversely affect our business, financial condition and results of operations.”
There are other vital risk factors, a must read before your decide to invest (Page 20).
Offerings
Quick Snapshot of C3.AI (AI) offering.
Use of Proceedings
“The principal purposes of this offering and the concurrent private placements are to increase our capitalization and financial flexibility and create a public market for our Class A common stock.”
& the funny part
“you will not have the opportunity as part of your investment decision to assess whether the net proceeds are being used appropriately.” (pg.46)
Executive Compensation
What we think
Underwriters and Microsoft as an investor made the money on the C3.AI (AI)IPO. Unless, there is huge hype about the product in the market, and huge pond of customers are lined up, long term investors might have to invest more time researching on future earnings. With current volatility, day traders might be interested to invest and see some gains from it. Thomas Siebel being the CEO, brings some credibility to the business, but for how long his charm is going to continue, we still need to wait and see future projections.
One of the most important thing for a company, are the customers, as C3.AI revenue is subscription based, sustaining the customers could be a challenge. It is bit concerning for an investor, when only 3 entities accounts for 34 to 44% of the revenue from 2019 to 2020. In addition, net loss of ~$69.4 million for April 30, 2020 fiscal year, another alarming factor.
Recognizing need for upgrading existing technology, organizations are taking steps to develop internal solutions and self-support their artificial intelligence requirements & digitalization of processes. Although C3.AI faces an intense competition, there is still huge potential in developing product for direct consumers. Few applications where C3.AI can prove to be a game changer are insurance premiums for direct consumers, scanning data from documents and many more.
Before investing, we recommend you to do your due diligence.
“Beware the investment activity that produces applause; the great moves are usually greeted by yawns.”-Warren Buffet
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