C3.ai Stock Rallies Despite CEO's Warning of 'Sales Reorg Chaos'
Shares climb as a smaller-than-expected loss and strong federal growth overshadow a 20% revenue decline and acknowledgments of internal turmoil.
Shares of C3.ai (NYSE: AI) surged in trading Wednesday, staging a surprising rally after the enterprise software company posted a narrower-than-expected quarterly loss and highlighted robust growth in its federal business. The investor optimism overlooked a steep 20% year-over-year revenue decline and frank admissions from its leadership about ongoing operational hurdles stemming from a turbulent sales organization restructuring.
The stock climbed more than 4% to close around $15.01, a counterintuitive move given the mixed financial results for its second fiscal quarter, which ended October 31. C3.ai reported quarterly revenue of $75.1 million, a significant drop from the prior year and slightly below some analyst forecasts. However, its non-GAAP net loss per share came in at $0.25, beating Wall Street's consensus estimate of a $0.33 loss and signaling better-than-feared cost controls.
The complex results paint a picture of a company in a deep transition. The market's positive reaction appeared to focus on bright spots, particularly an 89% year-over-year increase in federal bookings, which now account for 45% of the company's total bookings. In a statement, CEO Stephen Ehikian emphasized a “solid quarter driven by excellent performance in the Federal business and increased high-value deal activity.”
Beneath the surface of the earnings beat, however, lies a period of significant internal strain. In a recent interview, Ehikian acknowledged the lingering fallout from a major sales reorganization and leadership challenges related to founder and former CEO Thomas Siebel’s health crisis, stating plainly, “There’s work to be done.”
The comments follow a difficult transition for the company. During the leadership change in September, Siebel himself attributed an “unacceptable” financial performance to the “disruptive effect of a sales and services organization restructuring.” The current leadership is now tasked with navigating the aftermath of that overhaul while simultaneously shifting its business model from subscription-based to consumption-based pricing, a move intended to lower the barrier to entry for new customers but which has created revenue unpredictability.
For the quarter, subscription revenue—the company's core income stream—was $70.2 million, making up the vast majority of its total revenue. While C3.ai secured 46 agreements in the quarter, including with major firms like AMD and GSK, the overall revenue contraction highlights the challenge of replacing legacy contracts with new consumption-based deals.
Wall Street remains cautious on the company’s prospects. The consensus analyst rating is a “Moderate Sell,” with an average price target of approximately $14.80, slightly below its current trading level. Analysts cite the persistent revenue decline, substantial operating losses, and a difficult path to profitability as key concerns, according to data from MarketBeat.
Looking ahead, C3.ai provided third-quarter revenue guidance of between $72.0 million and $80.0 million, with the midpoint roughly in line with analyst expectations. The company also projects a full-year non-GAAP operating loss between $180.5 million and $210.5 million.
For investors, Wednesday’s rally highlights the central tension in C3.ai’s story: whether the promising growth in its federal division and an improving cost structure can ultimately outweigh the formidable headwinds of declining revenue and a complex, and at times chaotic, business transformation.