Following reports indicating DoorDash is aiming for an IPO valuation potentially reaching $27 billion, C3.ai has also recently submitted its initial S-1 filing, providing a preliminary estimate of the company’s potential value following its public offering.

C3.ai has established an initial IPO price range of $31 to $34 per share, projecting a sale of 15.5 million shares within that range. In addition to the public offering, the enterprise artificial intelligence company is also selling $100 million in stock to Spring Creek Capital and an additional $50 million to Microsoft, both at the IPO price. Furthermore, 2.325 million shares are allocated for the underwriters.

Considering the total number of shares C3.ai will have in circulation after the IPO share sale, the purchases by Spring Creek and Microsoft, and the underwriters exercising their option, the figure amounts to 99,216,958 shares. Based on this share count and the initial IPO price range, the company’s valuation would fall between $3.08 billion and $3.37 billion.

However, these figures would decrease by approximately $70 million and $80 million, respectively, should the underwriters choose not to exercise their option.

Does this IPO represent a positive outcome for the company at these price points? And is it beneficial for all stakeholders in C3.ai? Interestingly, the answer appears to be both affirmative and negative. Let's delve into the reasons behind this assessment.

Slowing growth, rising valuation

Examining C3.ai’s revenue performance in segments reveals a growth narrative, as the company increased its revenue from $73.8 million across the two quarters concluding July 31, to $81.8 million during the corresponding period in 2020. This represents a year-over-year increase of just under 11%, a modest but positive result.

However, between the three-month periods ending January 31, 2020 and October 31, 2020, C3.ai experienced virtually no revenue growth. The company’s revenue during these dates increased by less than $100,000, moving from $41.283 million to $41.341 million. Notably, both figures were lower than the $41.618 million achieved in the quarter ending April 30, 2020.

Concerningly, C3.ai’s revenue in both the quarters ending July 31, 2020 and October 31, 2020 was less than in a preceding period, a rather unusual situation.

After a detailed review of the company’s financial results, which left me somewhat puzzled, I was eager to see how its initial public offering (IPO) would be priced. Determining the valuation of a tech company that is not yet profitable and has reached a revenue standstill presented a challenge. I had no prior expectation of the outcome.

For C3.ai, based on trailing twelve months’ revenue of $164.7 million, or an annualized run-rate of $165.4 million in its most recent quarter, the valuation landed between $3.08 billion and $3.37 billion. This equates to a multiple of 18.6x at the lower end and 20.5x at the higher end.

These multiples are generous when considering historical SaaS valuations, and even current market conditions to some extent. Therefore, C3.ai has successfully persuaded investors that its recent growth difficulties are temporary and that it will soon resume strong top-line expansion. Alternatively, investors are adopting a more optimistic outlook regarding C3.ai’s future prospects. This suggests a favorable and risk-tolerant IPO environment, which is encouraging for startups, founders, and venture capital firms.

However, is the situation entirely positive for the company and its investors? Not quite.

While the pricing appears favorable given C3.ai’s recent performance, PitchBook data indicates the company was valued at $3.30 billion following its last $50 million investment in September. That investor might only recoup their initial investment at the IPO price. (The company is poised to raise substantial capital to invest in its growth and explore new opportunities, potentially benefiting that investor if they maintain their position for a period.)

The C3.ai pricing presents a mixed picture, with both positive and negative interpretations. The multiples suggest an optimistic valuation, but compared to its previous private valuation, the price range appears less impressive.

Nevertheless, one could argue that currently, unprofitable unicorns can successfully go public with minimal recent growth and still justify a multibillion-dollar valuation. This demonstrates a decidedly bullish market sentiment.