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Thursday, June 30, 2022

Looking Closely at the Growth Curve for UiPath Inc. (PATH)

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UiPath Inc. (NYSE: PATH), a provider of automation software solutions, is currently trading about 70% below its 52-week high. Investors were initially impressed with the company’s rapid growth, but the gradual slowdown caused the stock price to decline. Will the business be able to grow again in the near future?

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UiPath Inc. (PATH) prices rose in early June after the company posted strong growth in the first quarter of fiscal 2023. Revenue rose 32% year-over-year to $245 million, over above Wall Street’s estimate.

The company reported an adjusted net loss of $17.5 million, compared with an adjusted net income of $11.7 million a year earlier. However, even the strong first-quarter results were not enough to recoup the losses.

UiPath’s flagship product consists of software solutions to automate routine processes such as invoice processing, inventory management, customer registration, data entry, emailing, etc. As one of the pioneers in this field, PATH has captured the attention of customers.

The average cost of an enterprise software subscription is between $420 and $1,930 per month for small businesses, while more expensive services are typically offered to larger customers. In fact, UiPath Inc. (PATH) helps streamline workflows and reduce headcount.

After strong double-digit and even triple-digit growth in the 2020-22 financial year, growth has slowed this year. UiPath Inc. (PATH) attributed this to geopolitical difficulties and a strong dollar, which is putting pressure on sales. That said, the stock trades at 10 times its estimated revenue, making UiPath more expensive than other software companies with comparable sales growth.

At the same time, the company’s net income remains in the red: GAAP net loss fell from $520 million in the fiscal year 2020 to $92 million in the fiscal year 2021 but fell to $525 million in fiscal 2021. Analysts expect GAAP net loss to decline only slightly to $403 million in fiscal 2023.

A large portion of these losses came from post-split compensation costs, which consumed approximately 41% of revenue in the first quarter of fiscal 2023. As a result, PATH’s total weighted average stake increased 152% from year to year. Also, UiPath’s gross margin is not improving.

Therefore, a slowdown in earnings growth and a very high stock price could delay UiPath’s return to growth. However, at the same time, the company has a high customer retention rate of around 138%. UiPath Inc. (PATH) also ended the quarter debt-free with $1.8 billion in cash and cash equivalents. UiPath is doing good business, although it takes time to regain investor confidence.

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