Shares of C3 AI (NYSE: AI) plunged 22.7% to $7.97 in premarket trading on Thursday after the enterprise AI software provider issued a fourth-quarter revenue forecast that came in well below analyst expectations.
The company provided guidance for fourth-quarter revenue in a range of $48 million to $52 million, a figure materially lower than the analyst estimate of $77.47 million.
In the wake of the guidance update, at least three brokerages moved to lower their price targets on the stock. One of those brokerages, D.A. Davidson, attributed the revenue shortfall to reduced demonstration license revenue and weakening subscription trends. D.A. Davidson described growth as "elusive," and said it lowered its price target while now anticipating an even steeper revenue decline.
Alongside the revenue warning, C3 AI announced a reduction in its workforce, cutting 26% of its global staff. The company said it expects to record approximately $10 million to $12 million in pre-tax charges in the fourth quarter related to the workforce reduction, according to a filing with the Securities and Exchange Commission.
The combination of a substantially lower revenue outlook and a sizable headcount reduction prompted the rapid sell-off in early trading as investors reassessed near-term prospects.
Context and implications
The revenue guidance shortfall immediately prompted analyst reactions and downward revisions to stock targets. D.A. Davidson specifically pointed to the loss of demonstration license revenue and sliding subscriptions as drivers of the miss, and the brokerage warned that revenue could fall further than previously expected. The announced workforce cuts and related charges signal an effort by the company to reduce expenses in light of the weaker revenue outlook.
All figures and company statements above are drawn from the company guidance, broker commentary, and the company's filing with the Securities and Exchange Commission.