Rising AI pressure, weak Q3 performance weigh on Capillary shares

Capillary Technologies India has seen a significant decline in its stock price, dropping 35% from its peak in three months and 15% since reporting disappointing December quarter results. The company's net profit fell by 30% due to increased depreciation and non-operating expenses, raising concerns about its ability to maintain revenue growth amid the rising influence of artificial intelligence (AI) in customer engagement solutions. Despite these challenges, management believes that AI disruptions could enhance their analytics and campaign management capabilities. Capillary's unique ledger approach integrates deeply with client systems, creating high switching costs that may mitigate the impact of AI competition. The firm, known for its SaaS offerings, serves notable brands such as Puma and Domino's, with North America being its largest market. The company has reported a steady growth in its order book, recently acquiring SessionM from Mastercard for $20 million to bolster its loyalty programs. Although the stock currently trades at a lower price-sales multiple compared to its IPO, investors are advised to monitor profit and margin trends closely in the coming months, as the stock may remain under pressure amidst changing market dynamics.