2225

UiPath (NYSE:PATH) Q3 Sales Beat Estimates But Stock Drops


Full Report / December 08, 2021
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Automation software company UiPath (NYSE:PATH) announced better-than-expected results in the Q3 FY2022 quarter, with revenue up 49.9% year on year to $220.8 million. The company expects that next quarter's revenue would be around $282 million, which is the midpoint of the guidance range. That was in roughly line with analyst expectations. UiPath made a GAAP loss of $122.7 million, down on its loss of $70.7 million, in the same quarter last year.

UiPath (PATH) Q3 FY2022 Highlights:

  • Revenue: $220.8 million vs analyst estimates of $209.2 million (5.53% beat)
  • EPS (non-GAAP): $0 vs analyst estimates of -$0.04 ($0.04 beat)
  • Revenue guidance for Q4 2022 is $282 million at the midpoint, roughly in line with what analysts were expecting
  • Free cash flow was negative $7.67 million, compared to negative free cash flow of $3.46 million in previous quarter
  • Gross Margin (GAAP): 80.4%, down from 88.1% 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 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 exceptional over the last year, growing from quarterly revenue of $147.2 million, to $220.8 million.

UiPath Total Revenue

And unsurprisingly, this was another great quarter for UiPath with revenue up 49.9% year on year. On top of that, revenue increased $25.2 million quarter on quarter, a very strong improvement on the $9.3 million increase in Q2 2022, and a sign of re-acceleration of growth.

Analysts covering the company are expecting the revenues to grow 32.8% over the next twelve months, although estimates are likely to change post earnings.

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 80.4% in Q3.

UiPath Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.80 left to spend on developing new products, marketing & sales and the general administrative overhead. Despite it going down over the last year, this is still 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 Q3 Results

With a market capitalization of $24.1 billion, more than $1.87 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 impressed by the exceptional revenue growth UiPath delivered this quarter. And we were also excited to see that it outperformed Wall St’s revenue expectations. On the other hand, there was a deterioration in gross margin and the guidance for the next quarter has not exceeded analysts' expectations. Overall, we think this was a decent quarter, that should leave shareholders feeling positive. But considering the valuation is still quite high, investors might have been expecting more and the company is down 5.63% on the results and currently trades at $45.03 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 exceptional, over the last two years. On top of that, its impressive gross margins are indicative of excellent business economics, and its efficient customer acquisition is better than many similar companies.

The market is certainly expecting long term growth from UiPath given its price to sales ratio based on the next twelve months is 23.6x. There is definitely a lot of things to like about UiPath and looking at the tech landscape right now, it seems that it doesn't trade at an unreasonable price point.

The Wall St analysts covering the company had a one year price target of $69.3 per share right before these results, implying that they saw upside in buying UiPath even in the short term.

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