In a year when practically any company associated with artificial intelligence (AI) has seen its stock rise, UiPath (PATH +1.56%) has done the opposite. 2024 has been a disaster for investors so far with the stock down 49%.
While the lion's share of this tumble came following its latest earnings announcement on May 29, the stock had already been steadily declining in the lead-up to that report. However, the sell-off is way overblown, and the stock is an attractive value right now.
UiPath integrates AI with its base offerings
UiPath provides its customers with robotic process automation (RPA) software. In other words, it helps users automate repetitive tasks, improving worker productivity and morale in the process.
Strictly speaking, UiPath isn't an AI company, but it does have several AI applications that boost the functionality of its product. And it has add-ons that can mine data from digital communications and understand legal documents, in addition to a generative AI feature that can create responses to product inquiries.
NYSE: PATH
Key Data Points
RPA software usage is expected to expand significantly in the next few years. The global RPA market opportunity will increase from about $3 billion in 2023 to nearly $31 billion by 2030, according to Grand View Research. That's a substantial rise, and UiPath is well positioned to claim its share of the market.
However, not much of UiPath's long-term prospects seemed to matter after it released its fiscal 2025 first quarter earnings report.
The Q1 earnings report was a disaster for UiPath
For UiPath, a key metric investors watch is annualized renewal run-rate (ARR). While revenue is still a useful figure, it's skewed by quarter-to-quarter changes that occur when a customer launches a new product since UiPath provides the technical support to get them up and running. Instead, ARR represents the annualized value of invoices for subscription customers.
In March, management guided for first-quarter ARR of $1.508 billion to $1.513 billion. Actual results came in at the low end of that range with ARR of $1.508 billion. While this was disappointing, what was even more concerning was management's decision to slash its full-year outlook. UiPath cuts its previous ARR guidance of $1.725 billion to $1.730 billion down to a range of $1.660 billion to $1.665 billion.
This implies full-year ARR growth of 14% instead of 18%. Additionally, management cut its full-year adjusted operating income projection from $295 million to just $145 million.
Alongside these downward revisions to guidance, UiPath made a major leadership change. CEO Rob Enslin stepped down after only four months in the role. Before that, he was co-CEO with founder Daniel Dines for nearly two years. Dines is replacing him, but the market was troubled by the uncertainty in the executive team.
The combination of updates led UiPath stock to fall 34% the day following the earnings announcement.
But did investors go too far? I think so.
While there are good reasons to be worried about the CEO shakeup and latest guidance, I believe the company is being extremely conservative. In the earnings call, management said it saw a lot of variability in Q1 deals and wanted to be cautious with its outlook. This could set the stage for a beat and raise in fiscal Q2.
Data by YCharts.
Meanwhile, the stock is trading close to its lowest valuation ever. Investors are overlooking the fact this is still a company growing at a healthy pace, and the RPA market should rapidly expand over the next decade.
With that in mind, this stock is too cheap to ignore, and investors should consider scooping up shares before the rebound begins.
