In the last year, C3.ai (NYSE:AI) has done nothing but fall. After a short-lived spike to $76.15 on June 2, 2021, AI stock has fallen by $55.96 to $20.19 as of April 11. That means it has fallen by almost 73% in 10 months.
That usually means there is something wrong with the company. Will Ashworth of InvestorPlace recently wrote that AI stock is now facing a class-action lawsuit. He concluded the software company’s fortunes may turn around soon based on the company’s upbeat guidance.
I am not so sure about that. This is a software company that has very interesting government contracts that would normally be very profitable. After all, Palantir (NYSE:PLTR) is a similar company with government software contracts, but somehow it has figured out how to be profitable. Granted, Palantir is more than 10 times larger than C3.ai, but the point is that typically, government contracts tend to be very profitable.
The problem is C3.ai is still burning through lots of cash even though its revenue is rising. For example, in the last nine months ending Jan. 31, sales rose 37.8% to $180.4 million, but it still burnt through a lot of cash flow.
Its cash flow from operations was a loss of $73.3 million, down from a loss of $5 million last year. Moreover, after deducting $2.18 million in capex and $500,000 in software costs, its total free cash flow was negative $75.98 million.
Even though sales rose by $50 million, it managed to burn through $76 million in the nine-month period. You can’t hoodwink the stock market. It knows a loser when it sees it. Until the company figures out how to make positive free cash flow on normally lucrative government contracts, AI stock is going nowhere fast.
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