Citizens Financial Group moved to downgrade C3.ai to Market Perform from Market Outperform after the enterprise AI software vendor reported results for its fiscal third quarter that Citizens described as "very disappointing." The firm pointed to short-term new business headwinds and broader turnaround risks as the rationale for the downgrade.
C3.ai reported a non-GAAP loss per share of $0.40 for the quarter, wider than the consensus loss of $0.29. Revenue came in at $53.3 million, missing the $75.6 million consensus and representing a 46% year-over-year decline. That contrasts with a 20% revenue decline in the prior quarter.
Subscription revenue, a central indicator of product adoption and recurring customer commitments, fell 44% to $48.2 million, versus expectations of $68.5 million. Free cash flow was negative $56.2 million, compared with a consensus forecast for negative $30.8 million.
Market reaction was immediate: shares dropped roughly 22% in after-hours trading and were reported down 23% year to date, compared with a 2% gain for the Russell 3000 index.
The company also set guidance that missed analyst expectations. For the fiscal fourth quarter, C3.ai forecast revenue between $48 million and $52 million, which at the midpoint implies a 54% year-over-year decline and falls well short of the $77.7 million consensus. It expects a non-GAAP operating loss of $56 million to $64 million for the quarter.
Looking to fiscal 2027, management projected revenue of $246.7 million to $250.7 million, down 36% year over year at the midpoint, and a non-GAAP operating loss of $219.5 million to $227.5 million.
In its note, Citizens flagged several factors that raise concern: near-term difficulty winning new business, execution risks surrounding the company’s turnaround, the reduced day-to-day involvement of founder Thomas Siebel, and rising competitive pressure from other enterprise vendors. The competitors specifically cited were Snowflake, Salesforce, Microsoft and Palantir Technologies.
Citizens also observed valuation and balance sheet metrics in light of the weaker outlook. At about $8 per share in after-hours trading, the firm noted the stock was trading at roughly 2.3 times 2027 enterprise value to revenue, reflecting weaker growth and deteriorating financials, while the company held $622 million in cash on its balance sheet.
Summary
C3.ai reported a larger-than-expected non-GAAP loss, revenue and subscription shortfalls, and a cash flow deficit for the fiscal third quarter. Guidance for the fourth quarter and fiscal 2027 points to continued revenue contraction and sizable operating losses. Citizens downgraded the stock, calling out new business challenges, execution risk, reduced founder involvement, and heightened competition.
Key points
- Fiscal Q3 non-GAAP EPS loss of $0.40 versus consensus loss of $0.29; total revenue $53.3 million versus $75.6 million expected.
- Subscription revenue tumbled 44% to $48.2 million; free cash flow was negative $56.2 million against a negative $30.8 million consensus.
- Guidance shows further declines - Q4 revenue guided to $48 million-$52 million and fiscal 2027 revenue guided to $246.7 million-$250.7 million; Citizens flagged slowing new business and rising competition as concerns.
Risks and uncertainties
- Near-term new business challenges - weaker sales momentum could further pressure recurring subscription revenue and market adoption.
- Turnaround execution risk - reduced day-to-day involvement from founder Thomas Siebel is cited as a factor that could complicate recovery efforts.
- Competitive pressure - rising competition from major enterprise vendors may make customer retention and new deal wins more difficult.