Is C3.ai Stock an IoT Stock or an AI Stock?
“Set it and forget it” was a tagline made popular by Ron Popeil, a fast-talking infomercial salesman who peddled everything from the Flowbee Haircutting System to the Ronco Pocket Fisherman. That famous slogan also applies to those who hope to become successful investors. It was Fidelity who famously found out that those self-directed investors who did best were those who forgot about their brokerage accounts.
We like to take the same approach to stocks we invest in, though it’s a lot easier to do so with dividend growth stocks than it is with volatile tech stocks. Regarding the latter, you’ll sleep much better at night if you ignore short-term price fluctuations and keep your eyes on the 10-year horizon. When a stock gets beaten down, add shares if your thesis hasn’t changed. If it soars to the moon, trim a bit. About once a year, check in to see what’s happening. Given it’s been about a year since we first began accumulating C3.ai (AI), we decided to check in.
From C3 Energy to C3 IoT to C3.ai
The first time we came across C3 was back in October 2016 when we wrote about C3 IoT – A Full-Stack IoT Platform for Everyone. That’s right, the company used to be called “C3 IoT,” and they claimed to be developing a “full-stack development platform for the Internet of Things.” Earlier that year, C3 had rebranded from C3 Energy to C3 IoT. (We initially became confused when looking at the C3 press release announcing the name change to “C3 IoT.” That’s because someone from investor relations went through and renamed every instance of “C3 IoT” to “C3.ai.” Here’s the original press release.)
The next name change for C3 came in 2019 when C3 IoT became C3.ai, the name it holds today. The company makes it a point to emphasize their role as an “enteprise AI company,” from their stock ticker – AI – to the very first thing you see when arriving at their new website.
Does it really matter whether C3 is an AI company or an IoT company? Yes, for several reasons. The first is how we classify them in our own tech stock portfolio (we classify them as IoT), and the second is because we want to make sure we fully understand what they actually do.
C3.ai – A Platform-as-a-Service
Scroll down the C3 homepage and the next thing mentioned is ‘849 unique enterprise and extraprise source data integrations.” This hints at the core of C3’s value proposition – a platform that can store tremendous amounts of data and process transactions at an unimaginable scale. It’s something we talked about in last year’s piece on C3.ai – An Enterprise Artificial Intelligence Stock which talked about how 80% of Europe’s smart meters were talking to the C3 platform.
To manage that much information, C3 was achieving 1.5 million transactions a second on their platform. To put that number in perspective, Amazon processes about 426 transactions a second during the busiest of times.
The ability to capture, process, and make sense of data from every source imaginable is something that hasn’t been possible until now. What C3 has developed that nobody else has is a platform that allows them to capture all the data exhaust being thrown off by billions of IoT sensors and make sense of it. An excellent article by Tiernan Ray at ZDNet discusses the industry shortcomings that led to this.
While C3.ai claims to be an AI company, its patented technology is really a platform-as-a-service for the Internet of Things with some fairly standard AI mixed in.
C3.ai has built a platform that accepts big data from 846 different data integrations and they’re now running 4.6 million AI models that generate 1.7 billion predictions a day using over 24 trillion data points. They’ve successfully built a platform-as-a-service. And as clickbait articles like to say, you won’t believe what happens next.
From C3.ai to C3 CRM
Tom Siebel knows a thing or two about customer relationship management (CRM), having founded Siebel Systems which had an estimated 45% market share of the CRM software market before he sold the company to Oracle for $5.8 billion. What he learned was that early in the cycle of any new technology, companies often take a “do it yourself” approach and try building things themselves. This happened when Oracle first debuted relational database management systems in the 1980s, and the same thing happened with CRM systems in the 1990s. Even giant tech companies committed these sins. Hewlett-Packard, IBM, and Compaq, repeatedly failed at internally developed CRM projects. All ultimately became successful Siebel Systems CRM customers.
What Mr. Siebel sees today is the same thing happening with enterprise AI. Any number of vendors are selling any number of solutions that enterprises are trying to cobble together. The end result is a digital transformation wankathon that only ends when the Chief Information Officer (CIO) is replaced and the new blood decides to buy instead of build. Right now, the biggest competitor to C3.ai just might be CIOs who think they can build enterprise AI solutions themselves.
C3 AI CRM
Today’s CRM applications are backward-looking systems of record. But what businesses require are forward-looking, predictive systems of intelligence that provide real-time, data-driven insights to deliver the optimal customer experience.
Credit: Ed Abbo, President and Chief Technology Officer at C3.ai
AI-enabled CRM is about integrating CRM system data with every type of data you can possibly think of. Mr. Siebel thinks that’s the way forward, and his firm partnered with Microsoft and Adobe last year to make that happen. He thinks Microsoft Dynamics solution is the leader in CRM and Adobe Experience Cloud is the leader in marketing automation. Those platforms will live on top of Microsoft Azure (Microsoft’s cloud computing service) and C3’s platform-as-a-service will sit on top of it all.
We’re not going to lie and say we fully understand the “CRM meets AI” vision being proposed. A few M(BA)s sitting around in their underwear smoking a joint and poring through SEC filings on a lazy Sunday afternoon can only achieve so much. To a certain extent, we’ll need to trust the vision of C3’s fearless leader – Tom Siebel – who has a track record of building a successful CRM business and selling it for billions of dollars. At the very least, we’re now beginning to better understand how C3 differs from Palantir (PLTR).
Just last week, C3.ai announced general availability of “C3 AI CRM.” Implemented and fully operational in as little as 60 days, it “works seamlessly with Microsoft Dynamics, Salesforce, Siebel, Veeva, ServiceNow, Vlocity, and SAP to fully AI-enable organizations’ existing CRM investments.” Now, it’s time to execute.
It’s All About Execution
C3 has focused on establishing key reference clients in each industry they operate in – what they call “lighthouse customers.” These large implementations ensure their platform scales. In the case of Baker Hughes, it also provided a mechanism to use someone else’s salesforce to secure additional customers. Now, it’s all about opening up the platform to companies of all sizes.
We see this happening with C3’s average total contract value continuing to fall over time – from $12.1 million in 2021 to $7.2 million in 2020. The number of customers – 96 – is slowly increasing as well. That’s great, because they need to get rid of their customer concentration risk (31% of 2021 revenues came from two clients – Baker Hughes and Engie). Mr. Siebel should have plenty of experience dealing with Wall Street so we can be sure he’s giving guidance that he’s certain to hit – at least $243 million in 2022 – a 33% year-over-year growth and a number we wouldn’t kick out of bed for eating crackers.
With over $1 billion of cash and short-term investments on their balance sheet, C3 has plenty of dry powder to fuel expansion in the years to come.
Trading at around $50 a share, C3 stock is down -72% from the price of $177 a share it traded at shortly before Christmas of last year.
Is now a good time to add some shares to our portfolio? If and when we do, Nanalyze Premium annual subscribers will be the first to know via email alert.
C3 is an IoT stock in respect to their platform that can capture, process, and store the world’s big data that’s increasing exponentially as billions of IoT sensors are being deployed. They’re an enterprise AI stock in that they’ve built a solution which CIOs can buy instead of build. And the next step in C3’s transformation is to become a CRM stock, the point in time where it all comes together, and the focus gets placed on the stakeholder that matters the most – the customer.
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