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Why UiPath Stock Dropped Today

By Joe Tenebruso – Sep 8, 2021 at 5:26PM

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A post-earnings sell-off could present investors with a buying opportunity.

What happened 

Shares of UiPath (PATH 5.95%) fell 9.6% on Wednesday, following the release of the automation software leader's fiscal 2022 second-quarter results. 

So what

Revenue surged 40% year over year to $195.5 million. A combination of new customer additions and higher sales to existing clients helped to fuel the gains.

UiPath's customer base grew to over 9,100 by the end of the second quarter, up from roughly 8,500 in the first quarter. Moreover, the company's dollar-based net retention rate, which measures sales to existing clients over a 12-month period, checked in at an impressive 144%.

In turn, UiPath's annualized renewal run-rate (ARR), a key metric for software companies that essentially estimates subscription-based revenue for the coming year, soared 60% to $726.5 million.

"Our land-and-expand go-to-market model delivered record net new ARR, a testament to our competitive differentiation and the power of our platform to drive meaningful return on investment for our customers," CFO Ashim Gupta said in a press release.

A person is pointing to a stock chart that rises sharply and then falls.

Despite posting solid revenue growth figures, UiPath's stock declined on Wednesday. Image source: Getty Images.

Still, UiPath is not yet profitable. The company generated a net loss of $100 million, or $0.19 per share. It also continues to burn through cash, producing operating cash flow of negative $6 million during the second quarter. 

Now what 

As a leader in robotic process automation technology, UiPath helps organizations become more efficient. By using software to automate repetitive and often mind-numbing tasks, companies can slash costs and boost the productivity and morale of their employees. It's a potentially massive market, one that UiPath pegs at a whopping $60 billion. 

With $1.9 billion in cash reserves, UiPath is wisely choosing to invest aggressively in its expansion. This spending is weighing on its current profitability, but more importantly, it's helping to position the company for sustained success within the rapidly growing business-automation market.

Traders' short-term expectations might have simply been too high, which likely contributed to today's sell-off. But more-patient investors might be better served by considering UiPath's intriguing long-term prospects, particularly if its stock continues to sell off in the coming days.

Joe Tenebruso has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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