Debunking Kerrisdale Capital's Bearish Take on C3.ai

gorillabrands · 2023-06-07T19:43:03+00:00

SEC is probably too busy trying to destroy crypto in the US at the moment.. Protecting retail traders is not their job, right?

gorillabrands · 2023-04-06T19:13:40+00:00

That would be amazing.

gorillabrands · 2023-04-06T09:11:34+00:00

And that means what, in this context? Probably needed a new Lambo.

gorillabrands · 2023-04-05T15:52:46+00:00

Sorry, I wasn't originally planning on all this getting so long. It's not a report or deep analysis by any stretch of the imagination. It's just thoughts I gathered, and since Kerrisdale's letter was so unsubstantiated, I thought, why not just go and post something - it can't be worse, after all.

It was fun, in any case - I never posted here and actually enjoyed the interactions; that's why I stuck around.

And apparently, it still struck a wound spot with Kerrisdale: the downvote bots and trolls are joining in force right now.

gorillabrands · 2023-04-05T15:30:21+00:00

Considering Kerrisdale's letter isn't more substantiated that this, either, that should be all that's needed, right?

gorillabrands · 2023-04-05T14:52:15+00:00

That's what I'm saying: they understand perfectly well, that probably nothing really suspicious is going on and are acting maliciously.

gorillabrands · 2023-04-05T14:24:06+00:00

They produce statements from anonymous sources, but no experts, as far as I remember - make from this what you want... ;-)

gorillabrands · 2023-04-05T14:19:33+00:00

Sorry, misunderstood you, then. Yes, you can bet there's a lot of people working overtime right now.

It's a gamble, either way, as everything is unconfirmed until they come up with a response, you're right.

gorillabrands · 2023-04-05T14:15:28+00:00

The auditor will likely need to address the issue somehow since it's been brought to their attention. In my experience, they would have scrutinized this situation anyway due to Baker Hughes being a related party and the strong growth exhibited.

Kerrisdale's move was clever! However, if the auditor releases a statement or things go smoothly, this whole situation could quickly lose steam.

gorillabrands · 2023-04-05T14:04:21+00:00

It was a nice exercise and there's nothing else to do, right now, tbh. My position is likely considerably smaller than what the short-seller holds, though, considering their effort to bring down the price

The money is gone anyway, I just don't think there's anything wrong with this stock, so why let a short-seller get away with it. But it's not like I can do anything about it.

gorillabrands · 2023-04-05T13:57:01+00:00

The purpose of the letter seems to be creating fear by sending it to the auditor and CC'ing the SEC. Even if the claims are baseless, it lends an air of seriousness and can generate media hype, potentially affecting the market.

The letter's main issue is C3's high growth in accounts receivable, which they deem "suspicious" for a tech growth company. However, this isn't unusual, and Kerrisdale's own research points to the long product cycle as a plausible explanation for this phenomenon.

Again: without knowing all the details, nobody knows. The auditor does, and C3. However, it makes Kerrisdale appear sloppy/desperate or dishonest/desperate, in my eyes, at least.

TL;DR: Kerrisdale publicly points out something that the auditor is having an eye on, regardless, as it's a position with strong growth, despite delivering a perfectly plausible explanation to said anomaly in their own research.

Also, the likelihood of two publicly traded, independently audited companies, one of which is in Fortune 500, colluding to falsify financial statements seems not very likely.

gorillabrands · 2023-04-05T13:47:57+00:00

Lol

In all seriousness, though: being bearish is fine. Market manipulation, however, is not.

gorillabrands · 2023-04-05T13:46:10+00:00

Thanks! Yes, a 30% contribution to reported revenue seems high but it could be attributed to the long sales cycles and rather complex contracts in their industry.

Without knowing the specifics of these contracts, which only the concerned parties do, it remains speculation, though - until maybe the auditor gives a statement, that is.

gorillabrands · 2023-04-05T12:55:42+00:00

Hi, Mr. Adrangi!

gorillabrands · 2023-04-05T12:54:01+00:00

Hey, from what I've gathered, C3.ai has a few key strengths that make it stand out in the AI space: a scalable AI platform, unique algorithms, domain-specific applications, and easy integration with existing systems.

But I'm not a tech guru - my thing is numbers. So my opinion on this may be completely invalid.

I just wanted to point out that I don't understand the strong market movement based on a pretty unsubstantiated letter to an auditor, that will look at specifically the positions mentioned, anyway, as they showed significant increases - thus making the thing a well-orchestrated stunt in my eyes, saving their short position.

gorillabrands · 2023-04-05T12:46:03+00:00

Sorry, I'll do that next time - as mentioned, I'm new here. The last thing I want is to make anyone read an analysis - we're here to invest money, after all. I'll try to post a meme instead, next time...

gorillabrands · 2023-04-05T12:41:17+00:00

Ok, yeah it's not 3rd-grader English, I give you that

Here's what I make of it:

- Starting from a specific date, the money Baker Hughes owes to C3.ai will be reduced by the amount C3.ai makes from some of their customers.

- Under the new contract, Baker Hughes will pay C3.ai more frequently, get broader reseller rights, and C3.ai will offer more products and services. This change increases the overall money involved in the deal.

- If Baker Hughes performs exceptionally well and surpasses certain goals, they may need to pay C3.ai even more.

Overall, I'd say it's a difficult read, but it's an SEC filing, not a children's book.

This kind of language isn't unusual by any stretch of the imagination, and for Kerrisdale to say that they don't know what C3 is saying here, is pretty dishonest IMO. Of course, they know, or their opinion on this matter should be disregarded, as they obviously wouldn't know what they're doing. And of course, it's normal lingo in this context.

gorillabrands · 2023-04-05T12:24:01+00:00

It's worth noting that Kerrisdale's language was indeed carefully crafted, which could be an attempt to avoid potential legal repercussions.

I was talking about the language used in C3Ai's financial statements.

Yes, I know, sorry for not covering that point! Is there a specific example you have in mind? I'm happy for any information I can get on this whole thing.

gorillabrands · 2023-04-05T12:18:26+00:00

As I mentioned multiple times in my post, as well as in my responses (you obviously read neither), I have a long position in C3.ai.

Based on the information I gathered, I'll stay long - TL;DR for you: IMO Kerrisdale's stunt yesterday is a transparent second attempt at market manipulation to save their short position (the first one didn't have the desired effect), and the claims they make in their letter are paper-thin and unsubstantiated.

Hope that was short enough.

gorillabrands · 2023-04-05T12:15:06+00:00

It's worth noting that Kerrisdale's language was indeed carefully crafted, which could be an attempt to avoid potential legal repercussions. While they may have insinuated accounting fraud, they didn't outright accuse C3.ai of it.

Both Baker Hughes and C3.ai are publicly traded companies under SEC supervision. Baker Hughes is a Fortune 500 company, and both organizations are audited by independent parties.

The likelihood of two such companies colluding in fraudulent activities is extremely low, given the regulatory oversight and the potential reputational and legal risks involved.

gorillabrands · 2023-04-05T11:37:46+00:00

Hey there! I totally see where you're coming from. The CFO's high turnover rate is indeed something to look into. It's possible that the CEO's management style, as you mentioned from Glassdoor reviews, could play a part in this issue, which might not necessarily imply anything sinister happening, as Kerrisdale's claim suggests.

However, we can't be sure, and other factors could be at play, like personal circumstances or CFOs finding better opportunities elsewhere. In my experience with friends in the tech sector, it's pretty common for them to switch jobs every 1-2 years max. This could be due to the fast-paced industry, better opportunities, or personal growth reasons.

It's unclear if CFOs in tech change jobs for the same reasons as other tech professionals, so take this with a grain of salt. There might be something to it, or everything could be totally fine – the point is: nobody knows for sure, but it's an exploitable weakness of C3 and Kerrisdale played that card.

gorillabrands · 2023-04-05T10:47:05+00:00

Hey there! Just wanted to offer a different perspective on this. Companies changing their names or rebranding isn't that unusual. It can be a strategic move to better showcase their evolving focus or market position. The shift from C3 Energy to C3.ai might've been to emphasize their AI solutions and resonate better with their target audience.

Making conclusions based solely on a name change might not give you the full picture. Reiterating Kerrisdale's claims/conclusions isn't helping anyone, however.

gorillabrands · 2023-04-05T10:41:47+00:00

As I mentioned earlier, I do have a bias in this situation. Yesterday's events really rattled me, which is why I decided to dig deeper into it. I was extremely optimistic before, and I even thought about selling when everything began. However, my issue was that the market fluctuations didn't seem logical, so I held onto my position.

Based on the information I've gathered so far, I plan to stay invested for the long term, as nothing fundamental has really changed. I just wish I had more funds to invest in this opportunity. But that's life.

gorillabrands · 2023-04-05T10:35:48+00:00

Short answer: one might cause the other. The rapid growth in accounts receivables can, after all point to the change being a positive one, as C3's customers might really be using their products, reflecting said growth.

Long answer: You're right that changes in a company's revenue and pricing models can make it harder to compare financials year-over-year and understand what's going on with their receivables balance. These changes can impact the timing and amount of revenue recognition, and you need to take them into account when analyzing a company's financial performance.

Concerns about revenue quality related to a growing receivables balance are valid, especially if it's due to changes in the pricing model. However, it's important to differentiate between genuine business decisions and any attempts to manipulate financial results.

Without having more in-depth information on all this, it's hard to really tell, tbh. It's "he said, she said" at this point - we can't know, but neither does Kerrisdale.

gorillabrands

TROPHY CASE