Robotic process automation (RPA) software provider UiPath (PATH 0.26%) has notched a stellar rebound. Since the start of 2023, share prices are up over 80%, and the quarterly update for the fourth quarter of fiscal 2024 (for the three months ended January 2024) helped support the run higher. The company posted its first-ever profit based on generally accepted accounting principles (GAAP), on top of growing quarterly revenue by 31% from the year prior.
UiPath's management shake-up last summer paid off handsomely, and in a new era of artificial intelligence (AI), the company's RPA platform looks like it is poised to keep delivering the goods to shareholders. Here's what investors need to know.
A new era of growth and profitability
In the wake of the U.S. Federal Reserve's interest rate hike scheme in 2022-2023 to try to tame inflation, investors collectively demanded that software businesses work at boosting their profit margins -- even small "grow-first" companies like UiPath. It wasn't the fastest to reach the GAAP profitability milestone. Nevertheless, UiPath turned profitable on all counts to close out its last fiscal year.
|
UiPath Metric |
Q4 Fiscal 2024 |
Q4 Fiscal 2023 |
Change (YOY) |
|---|---|---|---|
|
Revenue |
$405 million |
$309 million |
31% |
|
Annualized recurring revenue (ARR) |
$1.46 billion |
$1.2 billion |
22% |
|
GAAP net income (loss) |
$33.9 million |
($27.7 million) |
N/A |
|
Full-year free cash flow (loss) |
$292 million |
($33.8 million) |
N/A |
Data source: UiPath. YOY= year over year.
In addition to turning the page on profitability, UiPath has also begun a share buyback plan to offset the effects of employee stock-based compensation (SBC). In the second half of 2023, $103 million worth of stock was bought back, partially offsetting the $372 million in employee SBC last year -- which, importantly, was held flat compared to the year prior. There's room for margins to head much higher for UiPath in the years to come as it scales its software business.
Is UiPath the best AI and "robotics" stock?
As management has been pointing out all along, the advent of the new AI era is really all about automation -- helping businesses do more with the same or fewer resources. UiPath is in a prime position to help on this front. Its software-based robots are already hard at work in the cloud and installed in many organizations' on-premises operations, and they're delivering big returns on investment.
One prime example of that is UiPath's Test Suite service, which can automate the quality checks and testing of new software and processes before they go live. CEO Robert Enslin said on the earnings call that, according to one of UiPath's studies, its Test Suite customers get back what they paid for the service in a mere six months' time.
The usefulness of this robotic software platform continues to show up in the company's growth guidance. Enslin and the top team see full-year fiscal 2025 (the 12-month period that will end next January) revenue to be about $1.56 billion, which would represent a 19% increase. Annualized revenue (ARR) exiting the fiscal year in January 2025 is expected to be about $1.73 billion, up about 18% from the recently concluded quarter.
If UiPath continues to raise the bar on its profitability along the way, all the better. At just over 50 times trailing-12-month free cash flow, and 40 times Wall Street analysts' consensus for GAAP earnings per share this year, I still view this as a great dollar-cost average stock right now -- as both a bet on the cloud computing and robotics automation industries.
