Why UiPath (PATH) Shares Are Falling Today
What Happened:
Shares of automation software company UiPath (NYSE:PATH) fell 5.9% in the morning session after the company reported second-quarter earnings results. A big-picture challenge was that net new ARR (annual recurring revenue) continued to decline and fiscal 2025 ARR guidance implied that this problem might persist. During the earnings call, management also struck a cautious tone and highlighted macro challenges, which are more pronounced in the lower-end market.
On the other hand, it was good to see UiPath beat analysts' revenue and adjusted operating profit expectations. Looking ahead, the company raised its full-year ARR, revenue, and adjusted operating guidance. Big picture, a 'beat and raise' quarter typically results in a move up in the stock. This reaction signals that there is some skittishness about the health of business amid recent management changes and amid automation and AI technology that is fast-evolving. It also doesn't help that tech stocks were broadly down following the most recent (August 2024) jobs report.
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What is the market telling us:
UiPath’s shares are very volatile and over the last year have had 21 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 3 months 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.
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 Chief Innovation Officer Daniel Dines reassumed the CEO role.
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 49.6% since the beginning of the year, and at $12.01 per share it is trading 55.3% 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 $174.01.
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