Proactive Investors - C3.ai were down another 15% on Wednesday after short-seller Kerrisdale Capital came after the firm with allegations of “serious accounting and disclosure issues” yesterday.
The company used “highly aggressive accounting to inflate its income statement metrics” to meet sell-side analyst estimates for revenue and certain profit metrics, and to conceal “significant deterioration in its underlying operations,” according to Kerrisdale.
The allegation spooked other AI investors. Shares of data analytics firm BigBear.ai lost 7% and conversation intelligence company SoundHound AI were down 4%.
Other allegations in the Kerrisdale report included “highly conspicuous growth in unbilled receivables" to abnormal levels for a software company.
The firm said that the company’s accounts receivables have soared while revenue declined in its most recent quarter.
C3.ai’s disclosures related to its biggest customer and strategic partner Baker Hughes were “opaque, confusing, and highly concerning," the short-seller also claimed.
"It appears to us that C3.ai is booking fictional revenue in order to meet consensus analyst estimates and cover up the fact that, in reality, its products are unable to get traction with customers and its business is failing,” the letter concluded.