Update: C3.ai is live and trading on TD Ameritrade
Dec. 9, 2020 at 11:54 a.m. ET
Update: C3.ai stock now indicated to open $84-$87, or 100%-107% above IPO price
Dec. 9, 2020 at 11:38 a.m. ET
Update: C3.ai stock now indicated to open $78-$81, or 85.7%-92.9% above IPO price
Dec. 9, 2020 at 11:16 a.m. ET
Update: C3.ai’s stock indicated to open $70-$73, or 66.7%-73.8% above $42 IPO price
Dec. 9, 2020 at 11:00 a.m. ET
Initial public offering, or IPO for some, if familiar with the term you might be skeptical or just plain exhausted from how many company’s have gone IPO during 2020. C3.ai is founded by its CEO, Tom Siebel in 2009, a Chicago native (U of I Alumni). Siebel has quite the track record and has provided the company with several notable board members such as Condoleezza Rice (Former United States Secretary of State) and Richard C. Levin (CEO of Coursera, Past President of Yale University for a twenty-year term).
Without focusing too much on Tom Siebel, a small background is after working for Oracle ($ORCL), he went on to create a CRM Software called Siebel Systems, which sold to Oracle for $5.8b in 2005. Tom does own 30% of the company the way the company is currently set up — he does have over 70% voting power most importantly.
“We provide software-as-a-service, or SaaS, applications that enable the rapid deployment of enterprise-scale AI applications of extraordinary scale and complexity that offer significant social and economic benefit. All C3.ai software applications can be deployed on Azure, Amazon Web Services, or AWS, the IBM Cloud, Google Cloud Platform, or on-premise.”
C3.ai (NYSE: $AI) has filed to raise $589 million (changed due to the change of IPO price from $31-$34 to $36-$38 recently) in an IPO to be offered tomorrow, December 9th, 2020 with a roughly $4.1b valuation. The company has created a company that can hire some of the best talent due to the atmosphere created within and voted as one of the best places to work with a 5 star rating. $AI intends to sell 15.5m shares of Class A common stock at a midpoint price of $37.00 per share for gross proceeds of around $504m, this does not include any sale of customary underwriter options. Spring Creek Capital and Microsoft ($MSFT) has agreed to purchase shares of $100m and $50m, priced at the IPO price in concurrent private placement.
“Listed underwriters of the IPO are Morgan Stanley, JPMorgan, BofA Securities, Deutsche Bank Securities, Canaccord Genuity, JMP Securities, KeyBanc Capital Markets, Needham & Company, Piper Sandler, and Wedbush Securities.”
C3.ai provides three software solutions: C3 AI Suite, C3 AI Applications, and C3.ai Ex Machina. They basically account for each type of client, the one who wants to develop and design from the floor up, to the one who needs something cookie cutter to deploy, and the final being one that requires no code at all.
The market that they serve — let’s not forget this company has been private for 10 years, is estimated to be worth $174b in 2020 and could possibly grow to $271b by 2024. This is viewed as a very large and rapid growth market opportunity. With clients and partnerships such as AstraZeneca, Microsoft, Adobe, Raytheon Technologies, and even the US Air Force to name a few, it’s no doubt that they have the market, but the question is will they keep expanding?
“The sale of these shares to Spring Creek Capital LLC and Microsoft Corporation will not be registered in this offering and will be subject to a market standoff agreement with us for a period of up to 365 days after the date of this prospectus and lock-up agreement with the underwriters for a period of up to 180 days after the date of this prospectus”
C3.ai has acknowledged in their prospectus that they do not see any type of serious competition and that most of it is largely do-it-your-self or custom developed and company specific.
“The next generation of CRM is through innovation.”
“Salesforce is not growing through innovation but acquisitions. — With technology out of date by decades.” — Tom Siebel
Initially I thought maybe that since Microsoft was investing into C3.ai that maybe this was their response to Salesforce acquiring Slack in order to compete with their Team messaging application, but it is not. C3.ai’s main source of revenue comes from “predictive analytics” modeling. In my opinion, if anything Salesforce may even compliment or work together with C3.ai for some type of integration or module.
Compared to Palantir (NYSE: $PLTR) in terms of valuation, which is isn’t a perfect company to compare, C3.ai is asking IPO investors to pay roughly half the Enterprise Value/Revenue multiple of Palantir. Palantir did IPO recently at just under $10 a share and has great success since. C3.ai is growing revenue at a lower rate of growth than Palantir. Again, both may not be the best to compare, but perhaps they may even work together into the future. It definitely could be interesting.
There are many functions that this company does offer, one for large financial institutions is “AI Anti-Money Laundering, an AI-enabled, workflow-centric application that uses comprehensive machine learning techniques to increase true Suspicious Activity Report identification while reducing false positive alerts.
Besides financial, they also look to be integrated through manufacturing as well beyond just energy management and inventory management but with their “AI Sensor Health”. This ensures the operational health and optimal deployment of IoT sensor devices, using machine learning to predict failures and identify network health issues with a high degree of precision in order to fully operate online to the clients best ability. Other sectors that may be used or is being used within include utilities, oil & gas, aerospace and defense, healthcare, and telecom.
TLDR: While up 71% year over year in 2020 and posting revenue of $157m with 75% gross margin. Last year their net loss was $71m on $157m in revenue, which is a bit much to be spending but because they’re pushing forward, the spending is viewed as investment to further the company. With the culture, management team in place currently and the company with a pretty wide moat, it’s hard not to pay attention to this IPO company due to the future of AI and big data. With the justified valuation (unlike other recent IPO’s) and the assumption that the p/s ratio will expand fast once public.
I will definitely be adding this company to my watchlist (and possibly portfolio) to see and understand where they will excel within the market.
As always don’t invest everything you have into something with the intention of it never pulling back at all and likewise don’t invest at all if it’s money you’re not willing to loose. There are substantial amounts of risk involved with an initial public offering because of most unknowns of how the market and company will react following it.
My prediction (within my own opinion, and not advice) due to this IPO event becoming a marketing event for those who have never heard of this company — this will more than likely breach the $50+ price target, in return yielding a nice 25%-30% return if you plan your trade and trade your plan.
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(Limited Time 12/01/2020 — 12/14/2020)
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