The adoption of public cloud services across enterprises has grown significantly since the onset of the COVID-19 pandemic. Organizations are accelerating their digital business activities by shifting to the cloud, driving the demand for Software as a service (SaaS).
According to a report by SkyQuest Technology, the global SaaS market is expected to reach $7720.44 billion by 2028, growing at a CAGR of 25.9%. Also, according to Gartner, cloud application services remain the largest public services market segment, expected to reach $208.08 billion by 2023.
However, the concerns over rising inflation, the Federal Reserve’s monetary policy tightening, the ongoing Russia-Ukraine war, and the possibility of an economic slowdown have dampened the investment sentiment and caused a massive sell-off in tech stocks this year. The recent tech rout has adversely affected the shares of SaaS companies.
Given the weak financials, history of losses, and unfavorable analyst estimates, it could be wise to avoid or sell short shares of SaaS companies C3.ai, Inc. (AI) and Alteryx, Inc. (AYX).
C3.ai, Inc. (AI)
AI is an enterprise artificial intelligence (AI) software company that operates in North America, Europe, the Middle East, Africa, the Asia Pacific, and internationally. The company provides a C3 AI application platform to design, develop, and deploy enterprise AI applications, C3 AI Ex Machina for analysis-ready data, and C3 AI Data Vision that visualizes and leverages the relationships between data entities.
In addition, AI offers integrated turnkey enterprise AI applications for oil and gas, chemicals, manufacturing, financial services, aerospace, healthcare, and telecommunications industries.
AI's operating expenses increased 72.9% year-over-year to $111.48 million in the fiscal 2022 fourth quarter ended April 30, 2022. The company's non-GAAP loss from operations amounted to $20.72 million, widening 34.2% from the year-ago value. Its non-GAAP net loss came in at $22.61 million, worsening 45.1% from the prior-year period.
Furthermore, the company’s non-GAAP net loss per share attributable to common shareholders came in at $0.21, widening 40% year-over-year.
Analysts expect AI’s loss per share to widen 6.1% from the prior-year period to $0.24 for the fiscal 2023 first quarter (ending July 2022). Also, the $0.15 consensus loss per share estimate for the third quarter (ending January 2023) represents a worsening of 120.4% year-over-year.
The stock has declined 42.6% year-to-date and 64.9% over the past year to close the last trading session at $18.54.
AI’s POWR Ratings are consistent with this bleak outlook. The company has an overall rating of D, which translates to a Sell in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
AI has a grade of D for Momentum and Stability. Within the F-rated Software-SAAS industry, it is ranked #23 of 23 stocks. Click here to see AI’s POWR Rating for Growth, Value, Sentiment, and Quality.
Alteryx, Inc. (AYX)
AYX engages in analytic process automation business in Asia-Pacific, Europe, the Middle East, Africa, Latin America, and internationally. The company’s analytics platform allows organizations to enhance the business outcomes and productivity of their business analysts, data scientists, and data engineers. Also, it offers technical support, instruction, and customer services.
The company serves retail, consumer products, telecom and cable, media and entertainment, food services, financial services, public sector, manufacturing, and hospitality.
In the fiscal 2022 first quarter ended March 31, 2022, AYX’s operating expenses increased 70.7% year-over-year to $233.44 million. Its loss from operations widened by 2,675.7% year-over-year to $29.78 million. The company’s non-GAAP net loss and loss per share came in at $27.33 million and $0.40, worsening 723.1% and 700% from the prior-year period, respectively.
Analysts expect AYX’s loss per share to widen 645.9% from the prior-year period to $0.60 for the fiscal 2022 second quarter (ended June 2022). Furthermore, the consensus loss per share estimate for the current year (ending December 2022) is expected to come in at $0.55, worsening 246.3% year-over-year.
The stock has plunged 22.2% year-to-date and 38.1% over the past year to close the last trading session at $48.56.
AYX’s POWR Ratings reflect this poor outlook. The stock's overall D rating equates to a Sell in our proprietary rating system.
AYX has a D grade for Growth and Momentum. Within the Software-SAAS industry, it is ranked #16. Click here to access additional POWR Ratings (Quality, Sentiment, Value, and Stability) for AYX.
AI shares were trading at $18.45 per share on Friday afternoon, down $0.09 (-0.49%). Year-to-date, AI has declined -40.96%, versus a -12.50% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
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