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C3, UiPath Results Show AI Profitability Is Still Not Here

Published 09/07/2023, 08:55 AM
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  • UiPath and C3.AI both offered conservative outlooks despite the company’s management talking up demand for their AI services
  • While UiPath shares reacted positively to the latest quarterly earnings report, C3.AI stock was down about 10%
  • The latter said it won’t be able to be non-GAAP profitable before 2025 as it continues to invest in GenAI
  • Automation software developers C3.AI (NYSE:AI) and UiPath (NYSE:PATH) both reported results that showed that monetization of AI services will be more difficult than earlier anticipated.

    C3 said that it will continue to invest in GenAI technology, which means that its profitability target won’t be met before 2025. As a result, shares traded nearly 10% lower in early Thursday trade.

    On the other hand, UiPath shares were seen higher on Thursday despite offering an outlook that will do little to boost overall market sentiment. Still, the stock was up 6% on the second-quarter earnings beat.

    C3 Disappoints Again

    While C3.AI’s management has been talking about the potential of AI technology for years, it seems that the company’s portfolio isn’t as well positioned as the company itself thought it would be for the AI-dominant era.

    CEO Thomas Siebel noted in the earnings release that C3 “has spent the past 14 years preparing for this opportunity.”

    C3.AI reported an FQ1 adjusted loss per share of 9 cents, which was better than the expected loss of 17 cents per share. Revenue increased by 11% year-over-year to $72.4 million, just ahead of the expected $71.6 million.

    The company generated $61.4 million from subscriptions, up 7.6% YoY and ahead of the analyst expectations. Another $11 million was generated via professional services, which was in line with the consensus.

    The remaining performance obligations (RPO) were $334.6 million, while cRPO (current remaining performance obligations” was $170.6 million. The company generated a negative free cash flow of $8.9 million during the quarter.

    C3.AI sees second-quarter revenue of $72-76.5 million, while analysts were looking for $73.81 million. Despite the fact that the midpoint of the range came in ahead of the consensus, investors were likely expecting a bigger boost from AI demand.

    “It is difficult to describe the scale of the increasing interest that we are seeing globally in enterprise AI adoption,” said Siebel. “We are experiencing strong traction with our enterprise AI applications and especially C3 Generative AI.”

    C3.AI said it closed 8 new agreements for its C3 Generative AI product across industries like Agriculture, Consumer Packaged Goods, Defense, Intelligence, Manufacturing, State and Local Government, and Utilities.

    To date, the company has closed 12 generative AI agreements, in addition to a pipeline of more than 140+ qualified C3 Generative AI enterprise opportunities.

    It names Nucor (NYSE:NUE), Roche, Shell (LON:SHEL), Tyson Foods (NYSE:TSN), and the U.S. Department of Defense as some of its customers

    Partners include Google (NASDAQ:GOOGL), Amazon (NASDAQ:AMZN), Microsoft (NASDAQ:MSFT), etc. C3.AI also announced the immediate availability of the new C3 Generative AI Suite including 28 new domain-specific generative AI solutions.

    “The market response to our Generative AI offerings is staggering. C3 Generative AI provides fine-tuned tailored Generative AI solutions that address the crippling problems that prevent widespread industry adoption of LLMs,” Siebel added.

    Full-year revenue is expected in the range of $295 million to $320 million, in line with the market consensus of $308.2 million. C3.AI shares were further hit after the company said it is not expecting to be non-GAAP profitable in FQ4 as it “will be investing in our Generative AI solutions.”

    UiPath Bit Better but Still Not There

    Another AI-focused company reported its second-quarter earnings yesterday. UiPath said it earned 9 cents per share in the quarter, while analysts were looking for just 4 cents. Revenue rose 19% YoY to $287.3 million, just ahead of the expected $282.2 million.

    Subscription revenue jumped to $160 million, outpacing analyst expectations by nearly $8 million. Another $119.3 million was generated via license sales.

    Overall, the company reported $247 million in adjusted gross profit for the quarter, yielding a gross margin of 86%, which topped analyst expectations by 240 basis points.

    ARR (annual recurring revenue) rose 25% YoY to $1.308 billion, including a net new ARR of $59 million.

    “We delivered second quarter fiscal 2024 ARR growth of 25 percent while executing on our strategic initiatives and driving operational excellence across the company,” said Rob Enslin, UiPath Co-Chief Executive Officer.

    For this quarter, the company sees its third-quarter revenue at $315.5 million (up or down $2.5 million), in line with the consensus of $315.3 million.

    Full-year sales are expected to be between $1.273 billion and $1.278 billion, a forecast closely aligned with the estimate provided by Ben Zogby of the online trading community HighStrike, which was $1.27 billion.

    ARR is seen in the range of $1.359 billion and $1.364 billion as of October 31, and between $1.432 and $1.437 billion as of January 31, 2024.

    “Looking to the second half of the year, momentum is building across the business as customers recognize the need for efficiency in the current operating environment and the long-term structural advantages of automation.”

    Daniel Dines, co-founder and co-CEO of UiPath, added that the company’s automation platform allows its customers “to operationalize the promise of AI today with an integrated set of capabilities that combines our Specialized AI and governance with the creative power of Generative AI to unlock the almost limitless value this powerful combination creates.”

    UiPath shares rose about 6% in response to the Q2 earnings report. The sentiment was boosted by the company’s Board of Directors approvement of a new $500 million stock repurchase program.

    Going forward, the AI-focused company will “continue to balance growth at scale with meaningful increases in profitability and cash flow,” commented Ashim Gupta, UiPath’s Chief Financial Officer.

    During the quarter, UiPath announced the general availability of GenAI and other specialized AI offerings. It also delivered new AI-powered features and developer experiences to accelerate automation.

    The company has been positioned by research firm Gartner (NYSE:IT) as a Leader in the 2023 Gartner Magic Quadrant for Robotic Process Automation.

    ***

    Shane Neagle is the EIC of The Tokenist. Check out The Tokenist’s free newsletter, Five Minute Finance, for weekly analysis of the biggest trends in finance and technology.

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