Why UiPath (PATH) Shares Are Getting Obliterated Today

Kayode Omotosho /
2024/07/09 12:04 pm EDT

What Happened:

Shares of automation software company UiPath (NYSE:PATH) fell 8% in the morning session after the company announced a restructuring plan which includes the reduction of approximately 10% of its global workforce of approximately 4,200 as of July 1, 2024. Total restructuring cost is expected to be roughly $17M to $25M. 

The announcement casts more doubt about the company's growth strategy and management's ability to meet its near-term business target. This follows some of the growth concerns raised in the previous quarter, with management calling out "increased deal scrutiny and lengthening sales cycles for large multi-year deals." The company also anticipated "short-term pressure on operating margins." 

Overall, the update creates more uncertainty, which is likely to raise more concerns among investors and dampen the market's optimism in the near term.

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What is the market telling us:

UiPath's shares are very volatile and over the last year have had 23 moves greater than 5%. In context of that, today's move is indicating the market considers this news meaningful but not something that would fundamentally change its perception of the business. 

The biggest move we wrote about over the last year was about a month ago, when the stock dropped 35.1% on the news that 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 reassumed 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.

UiPath is down 49.7% since the beginning of the year, and at $11.96 per share it is trading 55.5% 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 $173.33.

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