UiPath Inc. (NYSE:PATH) is a leader in robotic process automation, a software technology that makes it easy to build, deploy, and manage software robots that emulate human actions. The technology is exciting to say the least, and Grand View Research expects the RPA (robotic process automation) market in North America to achieve a 37.6% CAGR through to 2030.
Given that UiPath has been the top dog in this emerging industry for a long time, it made sense for me to take a closer look at the company earlier this year – and it ticked many of the boxes I look for: very high switching costs, a founder-CEO with plenty of skin-in-the-game, and a resilient balance sheet. I outlined my full analysis of UiPath in a previous article.
Unfortunately, the last twelve months really haven’t gone to plan for investors in UiPath. Shareholders have suffered from the bursting of another tech bubble, combined with substantially slower-than-expected revenue growth from this business – a combination that the market has hated, with shares of UiPath falling over 75% in the past year.
Q2’23 results were particularly disappointing, with revenue only growing 24% YoY and management’s outlook for Q3 implying revenue growth of a meager 11% - not what investors in a ‘high growth’ business such as this would’ve been expecting.
UiPath’s Q3 earnings are scheduled for December 1, but the company released preliminary results last week that seemed to please the market, with shares jumping 16.5% on the news.
So, let’s take a look and see if these preliminary results indicate a turning point for investors.
It’s worth highlighting that these results are not finalised and could potentially change, and that UiPath only shared limited Q3 figures with investors in a recent SEC Filing.
Starting from the top, UiPath’s revenue grew by 17.7% YoY to reach ~$260m. This came in comfortably ahead of management’s guidance of $243-$245m, also beating analysts’ expectations of $247m.
Let’s not forget, however, that back in Q2 management had offered investors an extremely disappointing guide. This growth rate of 17.7% is certainly below what this robotic process automation leader should be achieving, especially in an industry that’s expected to achieve a CAGR of 37.6% through to 2030 in North America. On the plus side, UiPath’s share price has certainly pulled back to a level that indicates a lowering of expectations – but more on that later.
We don’t have any guidance yet for Q4; that won’t arrive until UiPath reports its full Q3 earnings, however management recently reiterated its FY24 revenue and ARR figures in its 2022 Investor Day, implying that investors will not be surprised when this company offers up Q4’23 guidance.
Moving onto ARR (Annualized Renewal Run-rate), as this figure was also provided for Q3 in the preliminary results. UiPath delivered ARR of $1,108m, which came in ahead of management’s guidance of $1,091-$1,093m, and also beat analysts’ estimates of $1,093m.
Eagle-eyed readers might have noticed consistent beats across the board for UiPath over the last few quarters, and may perhaps wonder why shares have been hit so badly?
Well, the problem with UiPath has been guidance over the past twelve months – it has been so pitifully low on a regular basis that, even though the company has gone on to beat estimates, it’s clear the company has not been delivering results that are good enough for a business with UiPath's growth potential.
Yet this quarter felt more comfortable than others, and the reiteration of management’s FY24 revenue and ARR outlook implies that UiPath’s earnings may have finally stabilised. Whilst investors won’t know any more information until the start of December, these preliminary results certainly should come as a welcome surprise.
UiPath shares would have also been boosted last week as the company announced plans to make a further 6% reduction to its global workforce this year (on top of an existing 5% reduction announced in June), which would be approximately 242 employees. This will result in increased one-off restructuring expenses of ~$30m in FY23, up from the previously estimated ~$15m, but should create a leaner, more efficient organisation.
Whilst it’s extremely disheartening to see share prices rise on such news, it’s a story that has been seen across the technology world in 2022. From Meta Platforms (META) to Shopify (SHOP), many companies have admitted to hiring too aggressively based on the spike in demand that occurred in 2020 and 2021.
Now, with the global economy facing a number of headwinds, demand has dropped sharply, and businesses have found themselves severely overstaffed, with revenue growth unable to keep up with the rising cost of additional employees – sadly, it appears that UiPath is in the same boat.
As with all high growth, disruptive companies, valuation is tough. I believe that my approach will provide me an idea about whether UiPath is insanely overvalued or undervalued, but valuation is the final thing I look at - the quality of the business itself is far more important in the long run.
I have changed a few assumptions from my previous article, based on management’s latest guidance. My biggest changes to the base case scenario involve a lower revenue growth rate (18% CAGR rather than 22% previously) and a slightly higher free cash flow margin, based on both management’s FY24 guidance and analysts’ FCF margin estimates.
The theses behind the bull and bear case scenarios remain the same. In the bull case scenario, I envision UiPath riding out the macroeconomic storm and then going on to fulfil its potential as the leader in this rapidly growing industry, with FCF margins that expand as the company scales up. The bear case scenario effectively assumes the opposite; that this pain is here to stay for UiPath, and that it is a company-specific problem rather than a macroeconomic issue.
Put all that together, and I can see shares of UiPath achieving a CAGR through to 2027 of 2%, 12%, and 29% in my respective bear, base, and bull case scenarios.
Right now, I believe UiPath’s financials have stabilised, and that investors should no longer see consistent cuts to revenue growth rates. The appointment of Robert Enslin as Co-CEO back in May should help the company to scale with enterprises as he starts to have more of an impact, combined with a macroeconomic environment that will eventually be less horrible.
Despite the difficult year, UiPath remains a brilliant technology company. It is still the undisputed leader when it comes to robotic process automation, and given the bright outlook for this industry, I for one would not bet against UiPath’s future success.
I had previously changed my rating from a ‘Buy’ to a ‘Hold’, and would remain in this position until seeing signs that UiPath’s downward spiral was easing up. Well, I believe I have seen enough signs in these preliminary results and in UiPath’s investor day, so I will upgrade my previous rating to a ‘Buy’.
This doesn't mean that I think the pain is over for UiPath; this pain may well continue. Yet I'm back at the point where I feel comfortable continuing to accumulate shares, for a minimum 3-year holding period.
Shares of UiPath (PATH 1.06%) recently jumped higher in response to third-quarter results that led to mixed messages from Wall Street analysts who follow the stock. Wells Fargo and Mizuho raised their price targets, while JPMorgan Chase and Truist Financial lowered theirs.
With all the ups and downs from the experts, individual investors are justifiably confused about whether UiPath is a good stock to buy now or not. Let's look at the company's accurate performance to see if buying its stock still makes sense.
In a nutshell, UiPath helps companies build software robots so their employees don't need to behave like robots. The service is popular, but it isn't growing as quickly now as it was a year ago.
The company has lots of international customers and it offers pricing in local currencies. This means a strengthening dollar isn't turning away business, but it is affecting the company's reported performance. Truist Financial analyst Terry Tillman lowered his target for UiPath from $25 to $20, citing currency exchange headwinds.
UiPath measures its top-line performance with a unique metric called annualized renewal run-rate (ARR) that highlights its ability to acquire new subscribers while maintaining and expanding relationships with existing customers. In its third quarter, ARR soared 36% year over year, or 38% if we ignore the effect of a strengthening dollar.
The 36% ARR growth that UiPath reported during its third quarter isn't anything to be embarrassed about, but business is decelerating. Since the first quarter of 2021, ARR has grown at a 51% compound annual rate.
Before getting too worked up about the deceleration, it's important to remember that COVID-19 lockdowns made 2021 a blowout year. In addition to difficult comparisons this year, UiPath had a significant operation in Russia that it had to shut down in response to the invasion of Ukraine.
I'll be keeping at least one eye on UiPath's growth rates in the quarters to come. For now, though, I'm impressed by the company's ability to attract new business and retain existing clients despite difficult macroeconomic conditions.
Shares of UiPath have fallen around 66% in 2022, but the stock isn't necessarily cheap. Right now, it's trading at more than 229 times forward-looking earnings expectations. This means any signs of trouble on the company's path to improving profit margins could lead to another stock market beatdown.
Despite a very high valuation, UiPath stock at accurate prices appears well worth the risk. Helping organizations manage automation programs is an industry in its very early days, and UiPath already has a leadership position. The Everest Group, a management consultant, recently ranked robotic process automation vendors. UiPath's platform scored first place both in terms of capabilities and market impact.
According to the Everest Group, UiPath's process automation platform even outperformed the enterprise software behemoth Microsoft (MSFT 1.75%). Instead of competing directly against UiPath, Microsoft has made it a preferred enterprise-automation partner that will help bring solutions powered by Microsoft Azure to market. This important partnership with a leading cloud service provider will help UiPath maintain its current lead in the process automation space.
I wouldn't criticize anyone for letting a nosebleed-inducing valuation turn them away from this stock. That said, adding some shares to a well-diversified portfolio at accurate prices looks like a very smart move to make right now.
JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Wells Fargo is an advertising partner of The Ascent, a Motley Fool company. Cory Renauer has positions in UiPath. The Motley Fool has positions in and recommends JPMorgan Chase &, Microsoft, and UiPath. The Motley Fool has a disclosure policy.
UiPath Inc.'s (NYSE:PATH) FQ3'23 release led to a post-earnings surge that sent bears fleeing. However, before we conclude that PATH bears have suffered from the post-earnings implosion, PATH bulls should think again.
The unprofitable robotics process automation (RPA) leader's stock posted a YTD total return of -67% and lost nearly 90% of its value at its November lows from its 2021 highs. Therefore, early buyers in PATH have been decimated. "Weak" holders who disembarked earlier are likely sneering at the "diamond hands" left holding the bag at its November bottom. Meanwhile, PATH bears sitting on significant gains could have used the post-earnings selloff to cut some exposure, taking well-rewarded profits off the table.
If a so-called market leader has found it so challenging to chart its path toward profitability since its founding in 2005, we urge investors to consider very carefully why it could be any different now.
Notwithstanding, PATH's valuation (in terms of its revenue multiples) has moderated significantly from its 2021 highs, as the market justifiably de-rated it.
Despite that, PATH's forward earnings multiples remain highly aggressive (and that's on an adjusted/non-GAAP basis), while free cash flow (FCF) margins are expected to remain relatively languid.
Hence, we believe investors looking to cut exposure should capitalize on the accurate post-earnings reversion. Moreover, with growth potentially slowing as UiPath embarks on its drive toward profitability, there are plenty of SaaS companies with stronger competitive moat, more robust profitability, and proven business models to invest in, given the tech bear market.
UiPath reported healthy growth in its pipeline of larger customers in FQ3. Accordingly, the company posted 1,711 large customers (>$100K in annualized renewal run-rate, or ARR) in FQ3, up from last year's 1,363.
Notably, UiPath has also been making solid gains in the larger enterprise customers (>$1M ARR), reaching 201 customers in FQ3, up from last year's 135.
The company also accentuated that it will continue to sharpen its edge and focus on its go-to-market (GTM) in more significant enterprise deals moving forward, seeing it as instrumental in its drive toward profitability. Co-CEO Robert Enslin articulated:
The majority of the churn is in the smaller customers. We are getting more success with more positive signs in the Global 2000, and that's going to continue to be our focus. And that's how the segmentation is actually set up. We'll move more over time into the distribution side with the smaller customers. We also mentioned that as we change the segmentation, we will start to use propensity and graduation. That will drive the deal sizes up. (UiPath FQ3'23 earnings call)
However, it's also critical for investors to note that even enterprise sales have moderated across the SaaS space in Q3, with the slowdown likely to continue.
UiPath's Q4 ARR guidance likely reflected worsening macro headwinds, as the company expects ARR growth to moderate to 27%, down from Q3's 36% uptick.
Furthermore, a focus on enterprise sales would likely elongate its sales cycle further as it reaches into larger deal values. Deal values could also be more volatile and less predictable as UiPath seeks to accelerate its path toward profitability by scaling faster through larger enterprise contracts.
Hence, we believe the consensus estimates (bullish) credible, as Wall Street analysts modeled for its revenue growth cadence to slow further.
However, the critical question is whether the market has priced in a potential inflection in its revenue growth from FY24 as UiPath laps less challenging comps next FY.
Coupled with its renewed drive toward profitability, which has seen relative success in FQ3, it could spur the return of stronger buying sentiments if UiPath could execute well.
We gleaned that PATH last traded at an NTM normalized P/E of nearly 140x. That's way above its direct peers' median of 22.8x (according to S&P Cap IQ data).
Hence, UiPath still has a significant growth premium embedded in its valuation. However, its drive toward profitability could crimp its revenue growth significantly. Based on the revised consensus estimates, Wall Street's modeling suggests that UiPath could deliver revenue growth of just 18% in FY24 and 19% in FY25.
With an estimated FY25 EBITDA margin of 11.2% or a free cash flow margin of 7.2%, we believe its FY25 normalized P/E multiple of 76.5x is unjustified.
If investors followed Wall Street's consensus Buy ratings since its May 2021 highs, they would have faced near-complete destruction at its November 2022 lows (down nearly 90%).
PATH buyers have attempted numerous attempts over the past year to force a recovery but to no avail. Its last significant endeavor led to a rejection from its July highs, which sent PATH down rapidly toward its November lows.
Hence, the positive post-earnings reaction last week was not a surprise, with PATH's price action suggesting some covering was in play.
However, we remain unconvinced of PATH's revised GTM motion while renewing its focus on driving profitability with potentially markedly slower topline growth.
UiPath's (PATH 1.06%) stock jumped 12% on Dec. 2 after the automation software provider posted its latest quarterly report. For the third quarter of fiscal 2023, which ended on Oct. 31, revenue rose 19% year over year to $263 million and beat analysts' estimates by $7 million. Its adjusted net income surged from $2 million to $27 million, or $0.05 per share, which also cleared the consensus forecast by $0.06.
Does that earnings beat indicate that UiPath has finally reached an inflection point after losing about two-thirds of its value over the past year? Let's see where its stock might be headed over the next 12 months.
UiPath develops robotic process automation (RPA) services that can be integrated into an organization's software infrastructure. These robots perform repetitive tasks like processing invoices, managing inventories, onboarding customers, entering large amounts of data, and sending out mass emails. It's the leader of the global RPA market, which Fortune Business Insights believes will have a compound annual growth rate (CAGR) of 23.4% between 2022 and 2029. That robust growth should be driven by the ongoing replacement of human employees with automated programs.
UiPath's revenue surged 81% in fiscal 2021 (which ended in January 2021) and grew another 47% in fiscal 2022. But this year, it expects its revenue to increase only 15% to $1.03 billion. During UiPath's third-quarter conference call, chief financial officer Ashim Gupta attributed that slowdown to a "choppy macro environment and pressure from foreign exchange."
Those comments aren't surprising, since the macro headwinds have forced many large companies to rein in their software spending over the past year. UiPath also generated 57% of its revenue outside of the United States in fiscal 2022, so a strong dollar has been significantly reducing its international sales.
Also, UiPath faces a growing number of competitors in the RPA space, including Salesforce's MuleSoft RPA, Appian RPA, AutomationEdge, and Automation Anywhere. These four rivals could fragment the niche RPA market just as its growth cools off.
When UiPath's stock closed at an all-time high of $85.12 last May, its enterprise value reached $41.3 billion -- or 46 times the revenue it would generate in fiscal 2022. That bubbly valuation became unsustainable as rising interest rates drove investors away from pricey growth stocks over the past year. But today, UiPath has a more reasonable enterprise value of $4.8 billion -- or four times next year's sales -- which makes it more comparable to blue chip tech stocks like Salesforce.
In the third quarter of fiscal 2023, UiPath turned profitable on a non-GAAP (generally accepted accounting principles) basis, which generously excludes its stock-based compensation and other one-time expenses. However, it still posted a non-GAAP net loss of $2 million in the first nine months of fiscal 2023, compared to a net profit of $18 million a year earlier. On a GAAP basis, its net loss narrowed year over year from $462 million to $301 million during the same period.
That narrower loss is a step in the right direction (after its net loss widened significantly in fiscal 2022), and the company was still holding $1.68 billion in cash, cash equivalents, and marketable securities at the end of the third quarter. Its low debt-to-equity ratio of 0.4 also gives it room to raise fresh cash at reasonable rates.
Unfortunately, UiPath's GAAP losses will likely keep the bulls at bay until interest rates cool off and the macro headwinds subside. UiPath's margins are also still being squeezed: Its non-GAAP gross margin fell by a percentage point year over year to 85% in the first nine months of fiscal 2023, while its non-GAAP operating margin dropped from positive 5% to negative 1%.
And its dollar-based net retention rate slipped 6 percentage points sequentially to 126% in the third quarter. Those weakening numbers all suggest that UiPath could be losing its pricing power in the market that it created.
Analysts expect UiPath's revenue to rise 14% this year and 19% in fiscal 2024. On a non-GAAP basis, they expect it to post a net loss this year, followed by a slim net profit of $0.06 per share in fiscal 2024. We should take those estimates with a grain of salt, since no one is sure how long the macro malaise will last or if UiPath can stay ahead of tough competitors like Salesforce, which can simply bundle its RPA tools with other software to grow its market share.
I believe that UiPath will keep growing, but that its unstable margins and steep losses will prevent the bulls from coming back. Therefore, I expect the stock to stagnate at these levels and underperform the market over the next 12 months.
Investors are always looking for stocks that are poised to beat at earnings season and UiPath PATH may be one such company. The firm has earnings coming up pretty soon, and events are shaping up quite nicely for their report.
That is because UiPath is seeing favorable earnings estimate revision activity as of late, which is generally a precursor to an earnings beat. After all, analysts raising estimates right before earnings — with the most up-to-date information possible — is a pretty good indicator of some favorable trends underneath the surface for PATH in this report.
In fact, the Most Accurate Estimate for the current quarter is currently at an earnings of 2 cents per share for PATH, compared to a broader Zacks Consensus Estimate of a loss of 4 cents per share. This suggests that analysts have very recently bumped up their estimates for PATH, giving the stock a Zacks Earnings ESP of +151.85% heading into earnings season.
UiPath, Inc. Price and EPS Surprise
UiPath, Inc. price-eps-surprise | UiPath, Inc. Quote
A positive reading for the Zacks Earnings ESP has proven to be very powerful in producing both positive surprises, and outperforming the market. Our accurate 10-year backtest shows that stocks that have a positive Earnings ESP and a Zacks Rank #3 (Hold) or better show a positive surprise nearly 70% of the time, and have returned over 28% on average in annual returns (see more Top Earnings ESP stocks here).
Given that PATH has a Zacks Rank #3 and an ESP in positive territory, investors might want to consider this stock ahead of earnings. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Clearly, accurate earnings estimate revisions suggest that good things are ahead for UiPath, and that a beat might be in the cards for the upcoming report.
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Shares of the business automation software firm UiPath Inc. pumped hard in extended trading after it posted third-quarter financial results that easily beat expectations.
On the bottom line, the company narrowed its overall loss. It also offered strong guidance for the coming quarter.
In its statement, UiPath reported earnings before certain costs such as stock compensation of five cents per share, easily surpassing Wall Street’s target of a four-cent-per-share loss. Revenue for the period rose 19% from a year ago, to $262.7 million, nicely ahead of the analysts’ forecast of $248.1 million.
Overall, UiPath reported a net loss of $57.7 million for the quarter, compared with a $122.8 million loss a year ago. Something is going right for UiPath’s management, as the company had also racked up a loss of $120.3 million just three months prior.
Investors were clearly satisfied, with UiPath’s stock rising more than 8% in the extended trading session, adding to a gain of more than 3% earlier in the day.
UiPath is a leader in the robotic process automation market, selling an RPA platform that helps companies reduce costs and operational errors by automating many repetitive work-related tasks such as data entry. Its platform is powered by artificial intelligence models that learn how employees perform common tasks in their business applications. Those models then build robots that are able to replicate those workflows, meaning they no longer need to be done manually.
UiPath co-founder and co-Chief Executive Daniel Dines (pictured, right) said the company continues to be differentiated by its platform approach, which is at the core of its success. “Our latest release further expands our competitive advantage with market-leading capabilities at every stage in the automation lifecycle, from discover to automate to operate.”
The strong results did not come as a huge surprise, since the company had unexpectedly published preliminary earnings guidance two weeks prior, saying its earnings and revenue would both exceed guidance. The results came in a regulatory filing that disclosed the company’s plans to lay off about 6% of its workforce, as part of a new growth strategy that seeks to balance market share expansion with profitability. They followed a round of layoffs announced in June that cut about 5% of UiPath’s staff.
Whether or not UiPath is able to achieve its stated goal of ending fiscal 2022 with a net loss of just $15 million remains to be seen, but investors will surely be encouraged by the company’s impressive growth over the last quarter. For instance, it said it managed to grow its annual recurring revenue by 36% to $1.11 billion, driven by net new ARR of $67 million added in the quarter. ARR is a key metric for UiPath because it shows how much revenue the company can expect to generate based on subscriptions.
“We are pleased with our third-quarter fiscal 2023 results as ARR grew by 36% year-over-year and we delivered meaningful non-GAAP operating margin expansion,” said UiPath’s other co-CEO Robert Enslin (left), a former Google Cloud executive who joined the company in April. “Our new go-to-market initiatives are driving results and resonating with customers. We closed several notable third quarter deals using this value-selling approach and are widely engaged with both new and existing customers as we head into the last quarter of fiscal year 2023.”
Constellation Research Inc. analyst Holger Mueller said UiPath was making good progress on its road to profitability, with the layoffs keeping its cost base constant and growing its revenue. “On the product side, UiPath is doing very well too, adding more partnerships with big players such as Microsoft,” the analyst continued. “Now it’s on the co-CEO duo of Dines and Enslin to keep that growth engine running in what is going to be an increasingly challenging market environment.”
Looking to its fiscal fourth quarter, UiPath said it’s expecting revenue of between $277 million and $279 million, well ahead of Wall Street’s target of $274.9 million.
During the quarter, UiPath staged its annual customer conference UiPath Forward, where it announced new innovations focused on helping workers transform themselves into citizen developers, and other initiatives.
The event was followed closely by theCUBE, SiliconANGLE Media’s mobile livestreaming studio, which landed an exclusive interview with Enslin and Dines:
NEW YORK, Dec. 2, 2022
NEW YORK, Dec. 2, 2022 /PRNewswire/ -- InvestorsObserver issues critical PriceWatch Alerts for AVXL, RMED, IOT, PATH, and SMAR.
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