Shares of UiPath tank 28% on weak outlook

Posted: 31 March 2022 3:41 pm
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Management expects geopolitical uncertainty to lead to a slowdown in growth. Here’s what you need to know.

Shares of software company UiPath (PATH) plummeted by as much as 28% Wednesday on weak forward-looking guidance, despite topping the Street’s revenue and earnings estimates for the previous quarter.
UiPath stock closed Wednesday at $29.04 and sank 24% during extended trading. Shares opened Thursday at $23.70, recouped some of its losses during the early trading hours but faded lower throughout the trading day. At the time of this writing, UiPath stock was trading at $21.03.
The problem: The company said the Ukraine conflict could hurt growth, given its business in eastern Europe and Russia. It’s a concern that could crop up in a lot of reports in the next earnings season.

Why shares of UiPath are tanking

UiPath reported fourth-quarter and full-year fiscal 2022 financials Wednesday at market close with earnings and revenue that beat analyst estimates.
Revenue for the quarter grew 39% year over year to $289.7 million, compared to the $283 million estimated. UiPath reported quarterly earnings of 5 cents per share, down from 9 cents per share in the same quarter last year but topping analyst estimates of 3 cents per share.
License revenue grew 56% year over year to $174.1 million for the quarter, while subscription revenue climbed 6% to $103.4 million. UiPath’s professional services segment brought in an additional $11.7 million for the quarter.
UiPath also reported record fourth-quarter net new annual recurring revenue (ARR) — a metric used by subscription-based businesses — of $107 million. This was up 72% year-over-year and drove total ARR to $925 million, an increase of 59% year over year.

“We expect that by the end of fiscal 2023 we will have exceeded the $1 billion mark in ARR and revenue,” said UiPath cofounder and CEO Daniel Dines during a call with investors Wednesday.
UiPath’s non-GAAP operating margins expanded by 300 basis points year over year, from 17% last year to 14% in the fourth quarter of fiscal 2022. But for the year ahead, UiPath’s operating margins are expected to end at close to break-even.
UiPath CFO Ashim Gupta said during the company’s earnings call that they are facing a 300-basis-point headwind to non-GAAP operating margins in fiscal year 2023 relative to 2022 due to an amortization of sales compensation expenses in 2022. In short, the company’s profit margins are going to retrace their solid progress in last quarter.
Cash, cash equivalents, and marketable securities were $1.9 billion as of January 31, 2022.

Weakened outlook for 2023

For the year ahead, management said geopolitical uncertainty could lead to a slowdown in growth.
“Approximately 30% of our business is in Europe, and we serve customers across the eastern part of the region and in Russia,” said Gupta. “We also price in local currency, which has created FX headwinds, given the recent strengthening of the USS dollar. Both have a direct impact on our growth profile and guidance.”
For the first quarter of fiscal 2023, UiPath expects a $10 million to $15 million foreign exchange (FX) headwind, putting revenue in the range of $223 million to $225 million. Wall Street was expecting revenue for the quarter of between $229 million and $262 million. The company also expects an approximately $5.5 million reduction to first-quarter fiscal 2023 ARR due to the events in Ukraine.
For the full-year fiscal 2023, UiPath expects revenue in the range of $1.08 billion to $1.09 billion. Wall Street was expecting revenue for the year of between $1.14 billion and $1.21 billion.

Thinking of buying UiPath stock?

UiPath stock debuted on the New York Stock Exchange (NYSE) almost a year ago. After an initial rise to $83.40 in the month following, it’s been consistently setting new lows and is now down more than 75%, despite the growth it’s been seeing.
For more information and a five-year view of the performance of this stock, see the graph in our dedicated guide to UiPath stock.
UiPath has more than 10,100 customers globally as of the last quarter, up from 7,900 in the fourth quarter of fiscal year 2021. It’s also bringing on more customers who generate at least $100K in ARR. UiPath had 1,493 of these larger customers as of the previous quarter, up from 1,002 in the fourth quarter of fiscal 2021.
While geopolitical uncertainty could lead to a slowdown in growth in the short term, Wall Street seems confident the long-term outlook on the company remains strong.
Of the 25 analysts covering the stock, 17 give it either a Strong Buy or Buy, versus seven Holds, one Underperform and no Sells of any kind. Analysts give it a 12-months average price target of $55.91, which, if analysts are right, is a 177% premium over its current price.
Investors with a long-term outlook, then, may want to hold onto this one.
At the time of publication, Matt Miczulski owned shares of PATH.

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