2225

UiPath (NYSE:PATH) Delivers Strong Q2 Numbers But Stock Drops


Full Report / September 07, 2021
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Automation software company UiPath (NYSE:PATH) announced better-than-expected results in the Q2 FY2022 quarter, with revenue up 40.2% year on year to $195.5 million. UiPath made a GAAP loss of $100 million, down on its profit of $4.98 million, in the same quarter last year.

UiPath (PATH) Q2 FY2022 Highlights:

  • Revenue: $195.5 million vs analyst estimates of $186.7 million (4.71% beat)
  • EPS (non-GAAP): $0.01 vs analyst estimates of -$0.06 ($0.07 beat)
  • Revenue guidance for Q3 2022 is $208 million at the midpoint, roughly in line with what analysts were expecting
  • Free cash flow was negative $3.46 million, compared to negative free cash flow of -$20.14 million in previous quarter
  • Customers: 9,100, up from 8,500 in previous quarter
  • Gross Margin (GAAP): 81.7%, up from 73.6% previous quarter

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 push to increase productivity in the workplace is expected to drive the rapid adoption of automation software solutions in the coming years.

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 incredible over the last year, growing from quarterly revenue of $139.3 million, to $195.5 million.

UiPath Total Revenue

And unsurprisingly, this was another great quarter for UiPath with revenue up an absolutely stunning 40.2% year on year. On top of that, revenue increased $9.3 million quarter on quarter, a strong improvement on the $21.6 million decrease in Q1 2022, and a sign of acceleration of growth, which is very nice to see indeed.

Analysts covering the company are expecting the revenues to grow 34% over the next twelve months, although we would expect them to review their estimates once they get to read these results.

Customer Growth

You can see below that UiPath reported 9,100 customers at the end of the quarter, an increase of 600 on last quarter. That is quite a bit better customer growth than last quarter and quite a bit above the typical customer growth we have seen lately, demonstrating that the business itself has good sales momentum. We've no doubt shareholders will take this as an indication that the company's go-to-market strategy is working very well.

UiPath Customers

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, licences, technical support and other necessary running expenses was at 81.7% in Q2.

UiPath Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.81 left to spend on developing new products, marketing & sales and the general administrative overhead. Significantly up from the last quarter, 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.

Key Takeaways from UiPath's Q2 Results

With a market capitalization of $32.2 billion, more than $1.89 billion in cash and the fact it is operating close to free cash flow break-even, we're confident that UiPath has the resources it needs to pursue a high growth business strategy.

We were very impressed by the strong improvements in UiPath’s gross margin this quarter. And we were also excited to see the really strong revenue growth. Overall, we think this was a good quarter, that should leave shareholders feeling very positive. The market expectations around the company are very high and UiPath is down -6.52% on the results and currently trades at $58.39 per share.

Is Now The Time?

UiPath may have had a good quarter, but investors should also consider its valuation and business qualities, when assessing the investment opportunity. We think UiPath is a good business. We would expect growth rates to moderate from here, but its revenue growth has been exceptional, over the last two years. And while its customer acquisition costs are higher than we like to see, the good news is its impressive gross margins are indicative of excellent business economics.

UiPath's price to sales ratio based on the next twelve months of 33.4x indicates that the market is certainly optimistic about its growth prospects. There are definitely things to like about UiPath and there's no doubt it is a bit of a market darling, at least for some. But when considering the company against the backdrop of the tech stock landscape, it seems that there is a lot of optimism already priced in and we are wondering whether there might be better opportunities elsewhere right now.

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