C3.ai, Chewy Drop as Sales Disappoint

Shares in C3.ai (NYSE:AI) and Chewy (NYSE:CHWY) fell about 10% in early Thursday trade after companies reported weaker-than-expected sales for the September quarter. The results and forecasts disappointed investors and showed that macroeconomic headwinds continue to limit visibility.

AI Enthusiasm Fails to Reflect in C3’s Guidance

Shares in the enterprise AI software company were weaker in early Thursday trade after the business reported second-quarter revenue that fell short of the average analyst estimate. While sales rose 17% year-over-year to $73.2 million, the number fell short of the expected $74.3 million.

“We saw unprecedented interest and traction in our generative AI offerings. Importantly, we are seeing a return to accelerating revenue growth as we continue our transition to a consumption-based pricing model,” said C3 AI CEO and Chairman Thomas M. Siebel.

While the management continues to talk up the customer interest in its AI products, the offered guidance once again failed to reflect such enthusiasm. C3.ai said it expects its revenue to come in the range between $74 million and $78 million, with the midpoint of the guidance coming in below the consensus of $77.7 million.

For the full-year, C3.AI now sees revenue between $295 million and $320 million, with the midpoint arriving roughly in line with the Street estimate of $307.9 million. The company also said it expects to record an adjusted loss from operations of $43 million and $125 million for the third quarter and full-year, respectively.

For its second fiscal quarter, C3 reported an adjusted loss from operations of $24.95 million, which resulted in a loss per share of 13 cents, better than the expected loss of 18 cents. Subscription revenue jumped by 12% YoY to $66.4 million, topping the expected $64.3 million. However, revenue from Professional services came in at just $6.78 million, while analysts were looking for $10.2 million.

“In the trailing four quarters, we have seen top line year-over-year revenue growth increase from -4% in Q3 FY23, to 0% in Q4 FY23, to 11% in Q1 FY24, to 17% in Q2 FY24,” Siebel added.

During the quarter, C3.ai said it closed 62 agreements, including 36 pilots. The company entered into new agreements with GSK, Indorama, and First Business Bank, among other major clients, while expanding agreements with Con Edison, Roche, Nucor Corporation, and Hewlett Packard Enterprise, among others. C3 also closed 40 agreements through its partner network, comprising AWS, Baker Hughes, Booz Allen, Google Cloud, and Microsoft.

As far as the company’s federal business is concerned, the second quarter saw a nearly 187% increase from the previous year. The company signed 20 new federal agreements, including five agreements for C3 Generative AI, including deals with the U.S. Navy, the Office of the Director of National Intelligence, and others.

C3.ai shares are up as much as 160% year-to-date amid broader AI optimism.

Chewy Cuts Forecast Amid Persisting Headwinds

Chewy stock fell after the online pet retailer slashed its net sales guidance for the year. The company said it now sees full-year sales between $11.08 billion and $11.1 billion, lower than the previously expected $11.15-11.35 billion forecast. Analysts were looking for FY sales of $11.24 billion.

For this quarter, Chewy sees net sales at $2.79 billion, notably weaker compared to the consensus of $2.93 billion. The company said the offered outlook reflects “the continued macro pressures observed industry wide.”

“Chewy continues to gain market share, with third quarter net sales increasing 8% against industry growth in the low single digits,” said Sumit Singh, Chief Executive Officer of Chewy.

For the third quarter, Chewy saw revenue rise 8.2% YoY to $2.74 billion, which was enough only to match the Street consensus. A loss per share stood at 8 cents, worse than the expected loss per share of 6 cents. Adjusted Ebitda jumped 17% YoY to $82.1 million, while Ebitda margin rose by 20 basis points YoY.

Chewy shares were offered as much as 11% lower on Thursday following the soft outlook. The company is preparing to host its first ever Investor Day next week in New York, an event that is likely to increase volatility in Chewy stock. Chewy also noted a cooling in the consumer economy, attributing the slowdown in recent months to elevated borrowing costs.

“Consumer spending behavior remains opportunistic in the current environment,” the company said.

In addition to the Q3 earnings report, Chewy also announced that Greg Reeder, currently the CFO at GlobalFoundries, will join the company in February next year, taking over from interim CFO Stacy Bowman, who will continue as chief accounting officer. Reeder previously served as CEO at Tower Hill Insurance Group.

Shares were down 47.8% year-to-date through Wednesday’s close.

Summary

Chewy stock was offered lower on Thursday after the online pet retailer cut its sales outlook for the year, citing persistently strong macro headwinds. C3.ai shares were also seen lower following the enterprise AI software company reporting soft Q2 revenue figures and an outlook that trailed the average analyst estimate.

In summary, the fluctuating fortunes of companies like Chewy and C3.ai, as seen in their recent financial reports, highlight the ongoing challenges and uncertainties in the current economic landscape. However, looking ahead, there are indications that the broader US equity market could experience significant growth in the coming year.