eResearch | This week, C3.ai, a U.S. enterprise artificial intelligence (“AI”) software provider, listed on the New York Stock Exchange (“NYSE”) under the ticker “AI”.
C3.ai offered 15.5 million shares to the public for its initial public offering (“IPO”), which was priced at $42.00 per share, valuing C3.ai at $4 billion. C3.ai raised net proceeds of approximately $651 million.
In a concurrent private placement, Spring Creek Capital, an affiliate of Koch Industries, and Microsoft (NASDAQ:MSFT), are expected to invest $100 million and $50 million, respectively. The private placement is planned to be priced at C3.ai’s IPO offering price.
C3.ai was launched in 2009 by Tom Siebel, a billionaire tech entrepreneur best known for starting Siebel Systems, which was bought by Oracle (NYSE:ORCL) in 2005 for $6 billion. Mr. Siebel pioneered the development of Customer Relationship Management (“CRM”) software.
According to PitchBook, C3.ai was valued at $3.3 billion last year after raising $50 million from BlackRock (NYSE:BLK). In 2018, C3.ai raised $100 million in an investment round led by TPG Growth.
On its Form S-1, C3.ai stated,
“We believe we enjoy a significant first-mover advantage in Enterprise AI, based on our significant investment in our products and technology over the last decade of development. We are not aware of others who have made as much progress as we have in this space. We believe that we have the world’s most extensive Enterprise AI production footprint”.
Lead book-running managers for the IPO include Morgan Stanley (NYSE:MS), JPMorgan Chase & Co. (NYSE:JPM), and BofA (NYSE:BAC).
C3.ai
C3.ai is focused on leveraging its proprietary model-driven architecture to support customers’ predictive data analytics used to optimize various operational metrics. C3.ai supports several industry verticals with multiple applications including:
- Energy Management
- Predictive Maintenance
- Fraud Detection
- Anti-money Laundering
- Inventory Optimization
- Predictive CRM
According to Allied Market Research, the global enterprise AI market generated $5 billion in 2018, and is forecasted to reach $53 billion by 2026, growing at a CAGR of 35%.
Traditional enterprise AI applications require complicated open source components, which can be slow, costly, and ineffective. C3.ai’s proprietary model-driven architecture speeds up development by a factor of 26, while reducing the amount of code that must be written by up to 99%.
FIGURE 1: C3.ai Model-Driven Architecture
C3.ai operates 4.8 million machine learning models that collect data from 622 million sensors, which provide over 1.1 billion predictions per day. Through 770 uniquely sourced data integrations, C3.ai reaches over 50 million businesses and consumers daily.
Software applications offered by C3.ai can be deployed on Azure, Amazon Web Services, IBM Cloud, Google Cloud Platform, or on-premise. C3.ai has two product offerings for its enterprise AI applications, provided through term subscriptions with an average term of three years.
C3.ai product offerings:
- C3 AI Suite – allows clients to design, develop, and deploy enterprise AI applications of any type using C3.ai’s core technologies.
- C3 AI Applications – provides industry-specific turnkey AI solutions that can be installed and deployed immediately.
Fortune 500 companies from various industries have already leveraged C3.ai’s predictive analytics capabilities to enhance and improve operations. Three already deployed use-case examples:
- Fortune 50 Bank – $14 billion in additional daily trades deployed in 52 weeks by optimizing securities lending processes.
- Fortune 500 Healthcare Manufacturer – 300% increase in unit production deployed in four weeks by optimizing production processes.
- Fortune 500 Oil and Gas Company – $28 million per year in avoided shutdowns deployed in 38 weeks, through the predictive maintenance of offshore oil rigs.
Market Entry Strategy and Partnerships
C3.ai’s market entry strategy is to establish high-value “lighthouse” customers across a range of industries. The success of the use-cases from these lighthouse customers is expected to provide credibility and proof for C3.ai to expand into multiple industry verticals.
FIGURE 2: C3.ai “Lighthouse” Customers
To support expansions into multiple industries, C3.ai created global alliances with Amazon (NASDAQ:AMZN), IBM (NYSE:IBM), Intel (NASDAQ:INTC), and Microsoft to jointly market, sell, and service integrated solutions.
C3.ai also partnered with Industry-specific technology companies to target specific markets, including:
- Baker Hughes (NYSE:BKR) – Global oil and gas market.
- Fidelity National Information Services (NYSE:FIS) – Financial services market.
- Raytheon Technologies (NYSE:RTX) – U.S. defense and intelligence communities.
- Microsoft and Adobe (NASDAQ:ADBE) – Customer relationship management.
Financials
C3.ai generates most of its revenue through subscription fees for its enterprise AI software, which accounts for approximately 86% of its total revenue. In addition, C3.ai receives monthly runtime fees based on CPU-hour consumption and professional services fees for training customers.
For the six months ended October 31, 2020, C3.ai generated revenue of $72 million, a 12% increase from the same period last year, and a net loss of $15 million compared with $29 million from the same period last year.
In F2020, for the year ended April 30, 2020, C3.ai reported revenue of $157 million, a 71% increase year-over-year, and a net loss of $69 million compared with $33 million in the prior year.
The average contract value of C3.ai’s 15 largest customers is approximately $13 million. Most of C3.ai’s 15 largest customers extended their contracts, adding an average of $26 million in contract value per customer.
FIGURE 3: C3.ai Revenue Growth Chart (2017-2020)
Enterprise AI Software Market
The enterprise AI software market is expected to grow rapidly as it supports the growing need for analysis and interpretation of large amounts of data across various industries.
However, the adoption of enterprise AI software is held back due to the lack of training and the complexity of products and services.
It will be interesting to see if C3.ai can facilitate confidence for enterprise AI solutions in different industry verticals through the success of its lighthouse customers.
Other industry-related articles:
- November 2020: Cloud-Driven Advertisement Platform PubMatic to IPO on the NASDAQ
- November 2020: EQ Works – Data Revenue Surges by 81% in Quarter as Advertising Revenue Recovers from COVID-19 Hit
- October 2020: CloudMD Continues Telehealth Expansions with Acquisitions of Benchmark Systems, iMD Health, and Snapclarity
- September 2020: Healthcare Companies Investing in AI – Medtronic, Health Catalyst, and Cognetivity Leverage Machine Learning to Enhance Patient Care
Notes: All numbers in USD unless otherwise stated. The author of this report, and employees, consultants, and family of eResearch may own stock positions in companies mentioned in this article.
