Behind C3.AI's explosive IPO

Yahoo Finance’s Julie Hyman, Myles Udland, and Brian Sozzi discuss C3.AI’s IPO, and Oracle’s Q2 earnings with Futurum Research Principal Analyst, Daniel Newman.

Video Transcript

JULIE HYMAN: There's another IPO that happened this week that was not as large. It didn't get as much notice. But the stock did just as well on its first day. It was up about 120%. I'm referring to C3.AI. This is the enterprise software company that has quite a pedigree. It was started by Tom Siebel, formerly of Siebel Systems, who then sold his company eventually to Oracle.

And this is an enterprise software company that focuses on AI and analyzing large amounts of data for its clients. Daniel Newman is joining us now. He's Futurum Research Principal Analyst. And again, Daniel, this isn't one that got as much attention, because it's not something that we all are using on a regular basis. But what's your take on this sort of IPOs frenzy, which seems to be affecting everything?

DANIEL NEWMAN: Yeah, there's kind of two stories here. I mean, the jumps that all of these companies are seeing immediately, to what Brian said, is pretty much leaving the average retail investor almost out of the mix. It's crazy to watch. I think I saw the start of something like 19 IPOs this year doubled out of the gate, whereas over the past three years prior, it was only four total.

So we're seeing this huge explosion of stock prices coming up and blowing up from the minute these stocks go public, leaving very little opportunity. In terms of C3.AI I and the attention it's getting, I think this is a really interesting one. It's a company that's driving about 150 million years and its most recent-- $150 million in its most recent fiscal year.

It's doing something that's really unique. There's a reason that Microsoft, IBM, Adobe, and other companies have started to partner straight away with Tom Siebel and C3.AI, and that's because data is hard. And in volume and in scale, it's very, very tricky. And in order to use AI and ML across all these different vertical industries effectively, there was room and there's an opportunity.

So in terms of the IPOs themselves, I think it's very, very difficult, and there's going to be a lot of economists that are going to have to look back at this. But in terms of C3.AI and the excitement, I can understand it. It's a company that's doing something in a space, being AI, that people are very interested in and that businesses really need to be able to tap into.

BRIAN SOZZI: So Daniel, coming into this session, C3 had gained 210% in his first two days of trading. To me, that move would suggest that this company is going to change the world. Do you think this company will change the world?

DANIEL NEWMAN: I think this company has the opportunity-- I mean, Brian, that's a huge question. Does any individual tech company change the world? I mean, look, Facebook and Google, these companies didn't see these kinds of runs straight away.

Do enterprises have a massive challenge of being able to utilize all the data that is being created, both internal to their systems, but more importantly, outside of their systems to be able to deliver better solutions, better experiences to their customers? And whether it's oil and gas and manufacturing or retail, I mean, there is an opportunity here to basically democratize AI.

MYLES UDLAND: You know, Daniel, I think when you think about the democratization of AI, and we talked to someone from HPE during yesterday's program, about the amount of computing that is now available to smaller enterprises, and I think that certainly challenges a larger enterprise that I know that you are following closely. And that also is Oracle.

I mean, this is a business that is certainly in a new phase of its growth. But how are you seeing Oracle's place, I guess, in the new tech stack, as we are reimagining it with all of these upstarts and all of this computing power that is now suddenly available to everybody? And I think that certainly challenges an incumbent like an Oracle.

DANIEL NEWMAN: Yeah, first of all, I saw that segment yesterday. I believe it was Peter Angara. And he did a really nice job. The company HP had a very interesting announcement around its HPC, high performance computing offerings. In terms of Oracle, earnings came yesterday. The company once again was able to deliver just above expectations, both on its earnings and on its revenue.

But there was a couple areas that stand out to me. Look, the legacy Oracle business is continuing to plod along. It was impacted by COVID-19, a lot more similarly to IBMs, Dells, HPE, Ciscos than it was able to capture the traction of an AWS or, say, Microsoft. However, there are parts of Oracle's business that are much more robust and have much more scale.

So you heard in the comments yesterday from Larry, there's really two areas I'm watching closely that I think Oracle investors and people couldn't be more excited about. And that's their Fusion ERP and their Netsuite ERP. These are SAS offerings. And they're growing in double digits right with the market, at 20% to 30% a quarter, each quarter.

And that's kind of more where Microsoft's Dynamics 365 and even Salesforce is seeing growth for its core platforms. The one area that Larry really pointed to, though, was its Gen 2 Cloud. And that grew 138%, I believe. And now, Cloud as a whole is still a really fast growing business.

And so why I think AWS and I think Azure have a really strong position in these markets, there are opportunities for Oracle to still grow, because we're still only at 20%, 25% of workloads in the public cloud right now. So there are some definite areas to be excited about. The legacy business that's seen slower growth, some of the licensing and hardware within Oracle, those are areas that they're going to have to look at innovating and to continue to drive demand on.

But with hundreds of thousands of customers, I do believe Oracle does have the trajectory, does have the commitment of its customers because of how many are just tied to the company and how many are going to need to continue to have their data and their systems managed by Oracle.

JULIE HYMAN: Yeah, for those who aren't yet on the cloud, certainly they're going to feel a lot of pressure to get there. Daniel Newman, thank you so much. Good to talk to you, Futurum Research Principal Analyst.