Companies have plenty of ways to make sales and obtain revenues from customers. They can charge a one-time fee. They can provide financing for a larger item, or for long-term services. Or, for services, they can charge a recurring fee.
Wall Street loves companies that charge recurring revenues. Unlike building a business off of one-time sales, recurring revenues show the strength of ongoing relationships. That’s why subscription-based service companies can see big moves higher or lower as they report results.
While the subscription model is best known for streaming, it can be used for all kinds of business or personal services. In the AI space, companies like C3.ai (AI) provide subscription revenues.
The company’s latest earnings report showed some weakness on the subscription side, leading to a big drop. However, overall earnings reported a strong beat.
It’s likely the market overreacted, as it has gotten more skeptical about the AI trend. But as long as C3.ai can continue to beat earnings estimates and improve profitability, shares should trend up over time.
Action to take: Investors looking for a beaten-down AI play may have one here, and should look to accumulate shares in the months ahead.
For traders, the January 2025 $25 calls can likely see mid-double-digit returns or better as shares look to rebound from their post-earnings drop. The options last traded for about $1.45.
Disclosure: The author of this article has a position in the company mentioned here, and may further trade after the next 72 hours. The author receives no compensation from any company mentioned in this article.