The company C3.ai (symbol AI) is in its biggest fall ever, after the investment management company Kerrisdale Capital accuses it of “serious accounting problems and hiding information”. Kerrisdale added that “the company used aggressive accounting to inflate its profit or loss statement in order to meet analysts’ expectations for certain revenue and profit metrics, and the discrepancy was significantly worse in its operations,” wrote Kerrisdale’s chief investment officer, Sam Adrangi.
The company’s shares fell 26% to $25 per share after the company recently enjoyed a jump in the share price following the heating up of the artificial intelligence field and the company’s share price more than tripled since the beginning of the year.
According to the data, the company treated the expenses related to the creation of customized software as research and development expenses instead of cost of income expenses in order to increase the profit margin. “This is part of the accounting practices that C3.ai used in order to present itself as a SaaS company with large profit margins, a software-as-a-service business and not a consulting-based one with lower margins,” they said in Crisdale, adding also about concerns about a jump in uncollected debt from one client , Baker Hughes & Co.
The C3.ai company issued a statement in response and said, “This is a creative and transparent attempt to reduce the share price, their accusations that the accounting report on Baker Hughes is incorrect reveals a basic lack of understanding of the principles of GAAP in the United States”, and added that the company’s accounting reports were reviewed by an external accounting firm .
Kerrisdale Capital is one of nearly 30 firms that profit primarily from short trading that have been investigated by the US Department of Justice for abuse. The company’s representative said earlier this year that there was no contact with the company from the government bodies regarding the investigations.
Recently, the Block company also went through a similar situation after the research company Hindenburg Research, which focuses on short transactions, also reported a fear of fraud at the Block company, which was later refuted by information disclosed by the company. Blok’s stock also reacted with sharp declines when the report was published.
The company’s stock has risen 142% since the beginning of the year and trades at a value of 2.7 billion dollars, after the decline. In its latest reports, the company recorded revenues of $66.6 million and a loss per share of $0.06, a much more positive figure than analysts’ expectations for a loss of $0.22 per share. The company has cash and cash equivalents in the amount of 941 million dollars as of the end of January.
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