C3.ai Shares Drop 22% Following Earnings Shortfall and Reduced Forecast

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TLDR

  • C3.ai (AI) shares declined approximately 22% in after-hours trading after reporting third-quarter revenue and earnings below estimates
  • Revenue was $53.3 million, compared to an expected $77.6 million; EPS was a loss of $0.40 versus a consensus loss of $0.29
  • The company reduced its fourth-quarter revenue forecast to a range of $48 million to $52 million, significantly under the $77.72 million consensus
  • C3.ai unveiled a restructuring initiative aimed at cutting $135 million in costs, which involves reducing its workforce by 26%
  • Following the report, Citizens downgraded the stock to Market Perform

C3.ai released third-quarter financial results that significantly missed Wall Street’s forecasts, causing the stock to drop about 22% in after-hours trading on Wednesday.

The quarter’s revenue totaled $53.3 million, falling short of the $75.6 million consensus estimate. The company also posted a non-GAAP loss per share of $0.40, which was greater than the anticipated $0.29 loss.

This revenue number marks a 46% decrease compared to the same period last year—a sharp acceleration from the 20% decline recorded in the previous quarter.

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Subscription revenue, which constitutes most of the company’s business, was $48.2 million. This represents a 44% year-over-year drop and missed the $68.5 million estimate by a substantial amount.

Free cash flow was negative $56.2 million, versus a consensus expectation of negative $30.8 million.

CEO Stephen Ehikian was direct. “Fiscal third quarter results were clearly inadequate and well below our objectives,” he stated during the post-earnings conference call. “We failed to close business as planned.”

He identified sales execution as the core issue, particularly in North America and Europe. “I was going to say simply sales execution, full stop,” Ehikian informed analysts. “That falls on me full stop. I own that, and I’m going to fix that.”

Restructuring and Cost Cuts

In response to the underperformance, C3.ai announced a restructuring plan designed to reduce expenses by $135 million. This includes $60 million linked to a workforce reduction of 26%.

The company indicated that the workforce changes are mostly finished. CFO Hitesh Lath stated the cost savings are projected to be fully effective beginning in the second half of fiscal year 2027.

The restructuring also involves streamlining the sales organization and accelerating development by focusing on Agentic AI throughout its business units.

Guidance Comes in Far Below Estimates

For the fourth quarter, C3.ai provided revenue guidance of $48 million to $52 million. Analysts had been expecting $77.72 million—representing one of the company’s most substantial guidance shortfalls recently.

Full-year revenue is now projected to be between $246.7 million and $250.7 million, compared to a prior consensus of $298.74 million.

One segment that remained strong was the federal business. Federal bookings surged 134% year-over-year and accounted for 55% of total bookings for the quarter. New customer acquisitions included the U.S. Department of Agriculture, U.S. Department of Energy, NATO, the Royal Navy, GSK, Thales, ExxonMobil, and U.S. Steel.

Ehikian highlighted that 90% of the quarter’s revenue was derived from subscriptions, with no non-recurring subscription revenue included.

Citizens acted swiftly after the earnings release, downgrading C3.ai to Market Perform from Market Outperform. The stock had already decreased 23% year-to-date prior to the earnings announcement, while the Russell 3000 index rose 2% over the same period.

Over the last twelve months, C3.ai is down 61%. The company’s market capitalization is approximately $1.45 billion. With a beta of 2.0, the stock is highly volatile—and Wednesday evening proved to be no different.