Shares of robotic process automation software platform UiPath (PATH 0.26%) rallied 25.7% in December, according to data from S&P Global Market Intelligence.
The automation software company reported a stronger-than-expected result for its fiscal third quarter on Nov. 30, propelling the company to strong December gains. While some have questioned whether artificial intelligence (AI) would help or hurt UiPath, it appears that, at least as of today, UiPath is reaping benefits.
Solid ARR growth defies expectations of a greater slowdown
For the third quarter, UiPath grew revenue by 24% to $324 million, with adjusted (non-GAAP) earnings per share of $0.12, both figures beating out analyst expectations.
The enterprise software-as-a-service sector has gone into a bit of a slowdown since the inflationary surge of 2022, but there seem to be signs that software spending has bottomed. Companies have cut back about as much as they can and now must continue to invest in digital transformation.
The good news is that UiPath's automation platform allows enterprises to actually save time and money. UiPath's document and task-mining software identifies manual processes that can be automated before UiPath builds an AI-powered automation software tailored to a business's people and established systems. Therefore, while the overall sector has definitely slowed, UiPath included, the company still generated 24% annualized recurring revenue (ARR) growth last quarter.
While that's a deceleration from the 36% ARR growth in the year-ago quarter, 24% growth is still pretty darn good for a quarter that could be a bottom or near-bottom in demand. Importantly, UiPAth's dollar-based net retention rate was 121%, meaning existing customers purchased 21% more products from UiPath last quarter than in the year before. That shows customers are benefitting from UiPath's automation suite.
Will gen AI help or hurt?
There's an ongoing debate about companies such as UiPath and whether generative AI (gen AI) will help or hurt its business. On the one hand, UiPath has the opportunity to incorporate gen AI into its platform, which is already viewed as a leader in the enterprise automation space. On the other hand, gen AI also has the potential to somewhat commoditize some of UiPath's offerings.
But CEO Daniel Dines remains confident, saying on the recent conference call with analysts:
A lot of our customers, after the initial -- a little bit of a pause around how AI is going to help me with my automation, they realize that they need a powerful automation platform in order to harvest the power of AI. And going forward in -- on a longer-term basis, we at UiPath are in one of the best positions to build the next-generation foundational model that understand the processes, tasks, screens, and documents, a type of multimodal that is built in in order to drive automation.
It certainly seems that in the near term, gen AI won't solely be able to overcome more powerful task-specific software platforms like UiPath. So, it appears UiPath has the potential to make gen AI a plus, not a minus.
However, this is far from certain over the long term, and UiPath must continue to innovate. Investors need to stay on top of the AI story with regard to UiPath and other enterprise SaaS companies to see how these products evolve.
