Even as many tech stocks soared, Sept. 7 was a dreadful day for investors of robotic process automation specialist UiPath (PATH 5.63%). The share price, already significantly down from its $85 peak from last year, shed 11.2% in a single trading session.
Adding insult to injury, Mizuho immediately downgraded UiPath, with analysts claiming they hadn't "yet seen enterprises prioritize automation in a potential recessionary environment." Fair enough, but perhaps investors have gone too far in pricing in worst-case scenarios and writing UiPath off as another growth stock representing an unprofitable business venture. Caution is certainly advised, but astute investors might consider three points before crossing UiPath stock off their tech-focused buy-on-the-dip wish list.
NYSE: PATH
Key Data Points
UiPath's Q2 results exceeded expectations
You wouldn't know it from the sell-off, but UiPath, whose software uses bots to automate business processes, actually beat Wall Street's fiscal 2023 second-quarter estimates. Analysts were expecting quarterly revenue of $230.7 million and an adjusted loss of $0.11 per share. However, UiPath handily beat those forecasts with revenue up 24% year over year to $242.2 million and a loss of $0.02 per share.
The company also reached a major milestone in the fiscal second quarter, passing the $1 billion mark in annual recurring revenue (ARR). More precisely, UiPath recorded $1.04 billion in ARR, up 44% year over year.
The guidance shouldn't be a deal breaker
In light of those beats, what prompted the selling (besides Mizuho's recessionary concerns)? It seems investors focused most on UiPath's top-line guidance, which fell short of Wall Street's expectations.
Specifically, UiPath offered fiscal third-quarter revenue guidance of $243 million to $253 million, admittedly well below the analysts' consensus estimate of $269.6 million. On the other hand, UiPath's guidance is still 25% higher versus the year-ago quarter at the midpoint, so robust growth is anticipated. Did Wall Street simply expect too much from UiPath?
Some investors may have been spoiled into believing that two consecutive quarters of 24% to 25% year-over-year revenue growth just isn't fast and furious enough. Maybe they ought to put things into perspective. As UiPath co-CEO Robert Enslin put it, the company "delivered a solid second quarter fiscal 2023 despite increasing FX headwinds and macro uncertainty."
Snowflake partnership was almost completely ignored
Probably because the press release came out on the same day as the company's earnings report, UiPath's collaboration with data-cloud giant Snowflake went largely unnoticed. In short, Snowflake Data Cloud functionality will be incorporated into UiPath automations, with UiPath's robots connecting "data directly to business processes in the Data Cloud without using complex code, speeding up time to value."
Thus, UiPath's automation processes could now be more data-enriched with "increased quality, access, analytics, and business insights." Moreover, automated workflows can incorporate Snowflake query activities like "native search" for quicker and more targeted workflows.
Dhruv Asher, senior vice president of business development and product alliances at UiPath, expects a seamless collaboration between the two companies and their products. Yet, the potential synergies meant little to a market often obsessed with a single quarter's guidance. In time, what may have been an overreaction could result in investors reconsidering their positions, and if they come to their senses, buying back into the stock.
