C3.ai Shares Drop After Short-Seller Alleges ‘Accounting Issues’

Shares of C3.AI fell the most ever after short-seller Kerrisdale Capital alleged “serious accounting and disclosure issues” at the enterprise software developer.

(Bloomberg) — Shares of C3.AI fell the most ever after short-seller Kerrisdale Capital alleged “serious accounting and disclosure issues” at the enterprise software developer.

The company used “highly aggressive accounting to inflate its income statement metrics in order to meet sell-side analyst estimates for revenue and certain profit metrics, and to conceal significant deterioration in its underlying operations,” Kerrisdale Chief Investment Officer Sahm Adrangi wrote in a letter to Deloitte & Touche LLP, C3.AI’s auditor. 

C3.AI’s press office and media representatives, and a spokesperson for Deloitte didn’t immediately reply to requests for comment. 

Shares of Redwood City, California-based C3.AI fell as much as 23% to $26 on Tuesday in New York. C3.AI has benefited from a recent spike in investor interest in artificial intelligence, and its stock is up 135% this year. Kerrisdale said it is short shares of the company.

The company accounts for costs related to the production of bespoke software as research and development rather than cost-of-revenue in order to boost margins, Kerrisdale wrote in a letter posted on its website. This is among the accounting practices C3.AI uses to present itself as being in the high-margin, software-as-a-service business rather than one based on lower-margin consulting, according to the letter. It flagged concerns around a jump in unbilled receivables from one customer, Baker Hughes Co.

A spokesperson for Baker Hughes didn’t immediately reply to a request for comment. 

C3.AI was founded and is led by industry veteran Tom Siebel, known for his eponymous customer relations management company which was acquired by Oracle Corp. in 2006. The letter calls out “significant turnover” among chief financial officers, as four people have held the role since 2019.

More stories like this are available on bloomberg.com

©2023 Bloomberg L.P.