UiPath (PATH)

Automation software company UiPath (NYSE:PATH) met Wall Street’s revenue expectations in Q4 CY2024, with sales up 4.5% year on year to $423.6 million. On the other hand, next quarter’s revenue guidance of $332.5 million was less impressive, coming in 10% below analysts’ estimates. Its non-GAAP profit of $0.26 per share was 34.1% above analysts’ consensus estimates.

Company Overview

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

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.

A company’s long-term performance is an indicator of its overall quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Over the last three years, UiPath grew its sales at a 17% annual rate. Although this growth is acceptable on an absolute basis, it fell slightly short of our standards for the software sector, which enjoys a number of secular tailwinds.

This quarter, UiPath grew its revenue by 4.5% year on year, and its $423.6 million of revenue was in line with Wall Street’s estimates. Company management is currently guiding for flat sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 10.9% over the next 12 months, a deceleration versus the last three years. Still, this projection is above average for the sector and suggests the market sees some success for its newer products and services.

While reported revenue for a software company can include low-margin items like implementation fees, annual recurring revenue (ARR) is a sum of the next 12 months of contracted revenue purely from software subscriptions, or the high-margin, predictable revenue streams that make SaaS businesses so valuable.

UiPath’s ARR punched in at $1.67 billion in Q4, and over the last four quarters, its growth was solid as it averaged 17.4% year-on-year increases. This alternate topline metric grew faster than total sales, which likely means that the recurring portions of the business are growing faster than less predictable, choppier ones such as implementation fees. That could be a good sign for future revenue growth.

The customer acquisition cost (CAC) payback period represents the months required to recover the cost of acquiring a new customer. Essentially, it’s the break-even point for sales and marketing investments. A shorter CAC payback period is ideal, as it implies better returns on investment and business scalability.

UiPath’s recent customer acquisition efforts haven’t yielded returns as its CAC payback period was negative this quarter, meaning its incremental sales and marketing investments outpaced its revenue. The company’s inefficiency indicates it operates in a competitive market and must continue investing to grow.

For software companies like UiPath, gross profit tells us how much money remains after paying for the base cost of products and services (typically servers, licenses, and certain personnel). These costs are usually low as a percentage of revenue, explaining why software is more lucrative than other sectors.

UiPath’s gross margin is one of the highest in the software sector, an output of its asset-lite business model and strong pricing power. It also enables the company to fund large investments in new products and sales during periods of rapid growth to achieve outsized profits at scale. As you can see below, it averaged an elite 82.8% gross margin over the last year. That means UiPath only paid its providers $17.21 for every $100 in revenue.

UiPath produced a 84.8% gross profit margin in Q4, marking a 2.2 percentage point decrease from 86.9% in the same quarter last year. UiPath’s full-year margin has also been trending down over the past 12 months, decreasing by 2.3 percentage points. If this move continues, it could suggest a more competitive environment with some pressure to lower prices and higher input costs.

While many software businesses point investors to their adjusted profits, which exclude stock-based compensation (SBC), we prefer GAAP operating margin because SBC is a legitimate expense used to attract and retain talent. This metric shows how much revenue remains after accounting for all core expenses – everything from the cost of goods sold to sales and R&D.

Although UiPath was profitable this quarter from an operational perspective, it’s generally struggled over a longer time period. Its expensive cost structure has contributed to an average operating margin of negative 11.4% over the last year. Unprofitable software companies require extra attention because they spend heaps of money to capture market share. As seen in its historically underwhelming revenue performance, this strategy hasn’t worked so far, and it’s unclear what would happen if UiPath reeled back its investments. Wall Street seems to be optimistic about its growth, but we have some doubts.

Over the last year, UiPath’s expanding sales gave it operating leverage as its margin rose by 1.2 percentage points. Still, it will take much more for the company to show consistent profitability.

In Q4, UiPath generated an operating profit margin of 7.9%, up 4.2 percentage points year on year. The increase was encouraging, and since its gross margin actually decreased, we can assume it was recently more efficient because its operating expenses like marketing, R&D, and administrative overhead grew slower than its revenue.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

UiPath has shown robust cash profitability, driven by its attractive business model that enables it to reinvest or return capital to investors while maintaining a cash cushion. The company’s free cash flow margin averaged 22.5% over the last year, quite impressive for a software business. The divergence from its underwhelming operating margin stems from the add-back of non-cash charges like depreciation and stock-based compensation. GAAP operating profit expenses these line items, but free cash flow does not.

UiPath’s free cash flow clocked in at $138.7 million in Q4, equivalent to a 32.7% margin. The company’s cash profitability regressed as it was 3.4 percentage points lower than in the same quarter last year, but it’s still above its one-year average. We wouldn’t read too much into this quarter’s decline because investment needs can be seasonal, leading to short-term swings. Long-term trends are more important.

Over the next year, analysts’ consensus estimates show they’re expecting UiPath’s free cash flow margin of 22.5% for the last 12 months to remain the same.

Businesses that maintain a cash surplus face reduced bankruptcy risk.

UiPath is a well-capitalized company with $1.63 billion of cash and $74.23 million of debt on its balance sheet. This $1.56 billion net cash position is 23.9% of its market cap and gives it the freedom to borrow money, return capital to shareholders, or invest in growth initiatives. Leverage is not an issue here.

Although UiPath beat analysts' EPS and adjusted operating income estimates, its full-year revenue guidance missed significantly, disappointing investors. Overall, this was a weaker quarter. The stock traded down 17.4% to $9.80 immediately after reporting.

Updated: May 19, 2025 at 10:13 PM EDT

When considering an investment in UiPath, investors should account for its valuation and business qualities as well as what’s happened in the latest quarter.

UiPath isn’t a terrible business, but it doesn’t pass our bar. To kick things off, its revenue growth was a little slower over the last three years, and analysts expect its demand to deteriorate over the next 12 months. And while its admirable gross margin indicates excellent unit economics, the downside is its customer acquisition is less efficient than many comparable companies. On top of that, its operating margins are low compared to other software companies.

UiPath’s price-to-sales ratio based on the next 12 months is 4.6x. Investors with a higher risk tolerance might like the company, but we don’t really see a big opportunity at the moment. We're pretty confident there are superior stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $12.13 on the company (compared to the current share price of $12.60).

Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.

To get the best start with StockStory, check out our most recent stock picks, and then sign up for our earnings alerts by adding companies to your watchlist. We typically have quarterly earnings results analyzed within seconds of the data being released, giving investors the chance to react before the market has fully absorbed the information. This is especially true for companies reporting pre-market.