What Happened:
Shares of automation software company UiPath (NYSE:PATH) fell 35.1% in the morning session after the company reported first quarter earnings results and lowered its full-year revenue guidance, falling significantly short of Wall Street's expectations. The company noted it saw, "increased deal scrutiny and lengthening sales cycles for large multi-year deals." In addition, it observed growth deceleration in the second half of March and into April due to a challenging macroeconomic environment and a change in customer behavior, which likely drove the weak guidance.
Lastly, the company said that the investments made to reaccelerate growth fell short of expectations, making it less nimble when responding to customer needs, and created short-term pressure on operating margins. Furthermore, CEO Rob Enslin unexpectedly resigned; Founder and current Chief Innovation Officer Daniel Dines will reassume the CEO role on June 1, 2024.
Following the disappointing results, multiple Wall Street analysts downgraded the stock's rating. For example, Bank of America downgraded the stock from Buy to Neutral and lowered the price target from $30 to $16, highlighting the weakening conviction in the near term given the execution and growth challenges. Overall, this was a weak quarter for the company, providing little reason for investors to stay positive.
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What is the market telling us:
UiPath's shares are very volatile and over the last year have had 27 moves greater than 5%. But moves this big are very rare even for UiPath and that is indicating to us that this news had a significant impact on the market's perception of the business.
The biggest move we wrote about over the last year was 9 months ago, when the stock gained 7.2% on the news that the company reported second quarter results with ARR (annual recurring revenue) roughly in line with estimates and revenue narrowly exceeding analysts' expectations. However, non-GAAP operating profit beat by a large magnitude, showing that expense leverage came in strong. We were also glad that its full-year guidance was raised across the board and came in higher than Wall Street's estimates, especially on non-GAAP operating profit.
Overall, it was a solid quarter, showing that the company is staying on track. As a reminder, the company has been going through a repositioning of its go-to-market strategy, and these results, especially the $1+ million customer net adds, show that there is strong progress being made. Lastly, the company announced a $500 million stock repurchase authorization. These tend to be positives, reserved for companies that are generating excess free cash flow and looking to return some to shareholders.
UiPath is down 50.3% since the beginning of the year, and at $11.84 per share it is trading 56% below its 52-week high of $26.88 from February 2024. Investors who bought $1,000 worth of UiPath's shares at the IPO in April 2021 would now be looking at an investment worth $171.52.
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