UiPath (NYSE:PATH) Q4 Sales Beat Estimates, Stock Jumps 13.6%

Automation software company UiPath (NYSE:PATH) reported Q4 FY2023 results topping analyst expectations, with revenue up 6.51% year on year to $308.5 million. The company expects that next quarter's revenue would be around $271 million, which is the midpoint of the guidance range. That was roughly in line with analyst expectations. UiPath made a GAAP loss of $27.7 million, improving on its loss of $63.1 million, in the same quarter last year.

Started in 2005 in Romania as a tech outsourcing company, UiPath (NYSE:PATH) makes software that helps companies automate repetitive computer tasks.

A lot of jobs involve repeating the same rules-based tasks, requiring only simple decision making and little creativity. Not only do these tasks become tedious over time, resulting in a loss of productivity and errors but with the rising cost of labour are also becoming more expensive to perform.

UiPath’s robotic process automation (RPA) software uses technologies such as artificial intelligence and machine learning to learn how users perform regular tasks. Then, the software creates bots that replicate these tasks such as copying and pasting data, filling out forms, and clicking through user interfaces. For example, using UiPath’s software, a bookkeeper can automatically extract financial data from digital invoices, attach any other necessary information, arrange the output in a folder and send it to his manager at a specific time daily. Given the many tasks that can be automated with UiPath, it drives significant value to businesses by cutting down processing time, reducing errors, and enabling workers to focus on higher value (and more engaging) work.

UiPath became Romania's first technology unicorn, despite several challenges in its early years. Its rapid pace of innovation has led to a lot of success in the automation software space, with founder Daniel Dines being nicknamed the “first bot billionaire” by Forbes. The initial seed round investment in the company by the Czech VC firm Credo Ventures was called the greatest ever European venture bet.

The whole purpose of software is to automate tasks to increase productivity. Today, innovative new software techniques, often involving AI and machine learning, are finally allowing automation that has graduated from simple one- or two-step workflows to more complex processes integral to enterprises. The result is surging demand for modern automation software.

Other players in the automation software space include Microsoft (NASDAQ: MSFT), Blue Prism, IBM (NYSE: IBM), and SAP (NYSE: SAP).

Sales Growth

As you can see below, UiPath's revenue growth has been very strong over the last two years, growing from quarterly revenue of $207.9 million in Q4 FY2021, to $308.5 million.

UiPath's quarterly revenue was only up 6.51% year on year, which might disappoint some shareholders. We can see that the company increased revenue by $45.8 million quarter on quarter re-accelerating up on $20.5 million in Q3 2023.

Guidance for the next quarter indicates UiPath is expecting revenue to grow 10.6% year on year to $271 million, slowing down from the 31.6% year-over-year increase in revenue the company had recorded in the same quarter last year. For the upcoming financial year management expects revenue to be $1.26 billion at the midpoint, growing 18.6% compared to 18.6% increase in FY2023.

Profitability

What makes the software as a service business so attractive is that once the software is developed, it typically shouldn't cost much to provide it as an ongoing service to customers. UiPath's gross profit margin, an important metric measuring how much money there is left after paying for servers, licenses, technical support and other necessary running expenses was at 84.5% in Q4.

That means that for every $1 in revenue the company had $0.85 left to spend on developing new products, marketing & sales and the general administrative overhead. This is a great gross margin, that allows companies like UiPath to fund large investments in product and sales during periods of rapid growth and be profitable when they reach maturity. It is good to see that the gross margin is staying stable which indicates that UiPath is doing a good job controlling costs and is not under pressure from competition to lower prices.

Cash Is King

If you have followed StockStory for a while, you know that we put an emphasis on cash flow. Why, you ask? We believe that in the end cash is king, as you can't use accounting profits to pay the bills. UiPath's free cash flow came in at $91.8 million in Q4, turning positive year on year.

UiPath has burned through $33.8 million in cash over the last twelve months, resulting in a negative 3.19% free cash flow margin. This below average FCF margin is a result of UiPath's need to invest in the business to continue penetrating its market.

Key Takeaways from UiPath's Q4 Results

With a market capitalization of $7.94 billion UiPath is among smaller companies, but its more than $1.4 billion in cash and the fact it is operating close to free cash flow break-even put it in a robust financial position to invest in growth.

We were impressed by how strongly UiPath outperformed analysts’ revenue expectations this quarter. ARR was also ahead. Additionally, this was the first positive free cash flow quarter since Q1'21. Lastly, we were glad that the revenue guidance for the rest of the year exceeded expectations. Overall, this quarter's results seemed very positive, and shareholders can feel optimistic. The company is up 13.6% on the results and currently trades at $16.66 per share.

Is Now The Time?

When considering UiPath, investors should take into account its valuation and business qualities, as well as what happened in the latest quarter. We think UiPath is a good business. We would expect growth rates to moderate from here, but its revenue growth has been strong, over the last two years. On top of that, its impressive gross margins are indicative of excellent business economics, and its very efficient customer acquisition hints at the potential for strong profitability.

The market is certainly expecting long term growth from UiPath given its price to sales ratio based on the next twelve months is 6.7x. There is definitely a lot of things to like about UiPath and looking at the tech landscape right now, it seems that the company trades at a pretty interesting price point.

The Wall St analysts covering the company had a one year price target of $17.5 per share right before these results, implying that they saw upside in buying UiPath even in the short term.

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