UiPath has seen a large chunk of its value wiped out following its Q4 earnings call, but is it time for investors to assess their position?
Shares in automation software developer UiPath (NYSE: PATH) sank by 7.5% yesterday and are trading down a further 14% pre-market following its fourth-quarter earnings call. As has become typical this earnings season, positive results were vastly overshadowed by a less than stellar outlook for the coming year.
How did UiPath’s earnings call go?
Adjusted earnings per share of $0.05 beat analyst expectations of $0.03, and revenue of $289.7 million also outpaced the analysts’ mark of $283 million. These figures provided a mixed bag despite beating predictions, with revenue growing by 39% year-over-year (YoY), but earnings shrinking by over 44% for the same period.
UiPath’s future outlook is what proved to be its undoing, however. The company is expecting revenue of between $1.08 billion and $1.09 billion for the year, while analysts were expecting $1.26 billion.
What does this mean for UiPath investors?
Reading into such a significant share-price drop immediately after an earnings call can be difficult. Particularly this year, investors have been extremely reactionary to any form of weaker-than-expected outlook. Many companies have suffered similar sell-offs in the 24 hours directly after an earnings call, only for the losses to be at least partially recouped over the following week.
Instead of overreacting to a poor outlook, it pays to assess the company’s fundamentals instead. In UiPath’s case, however, there are some worrying aspects to be assessed. A fourth-quarter loss of $63.1 million, especially compared to net income of $26.3 million in the year-ago period, is certainly cause for concern.
But, importantly, the firm has also made significant strides in increasing its annualized renewal run rate (ARR) — a metric often used to assess how much subscription-based revenue software-as-a-service companies are making. ARR increased by 59% YoY in the fourth quarter, and is forecasted to outpace analyst estimates for the coming year. According to Chief Business Officer Chris Weber,
“The UiPath team delivered a strong finish to fiscal year 2022 with fourth quarter net new ARR reaching a record $107 million, an increase of 72 percent year-over-year. We believe this is a testament to our highly differentiated end-to-end platform”
Despite some notable concerns, UiPath still has plenty of attractive underlying metrics for investors. The next number of weeks could be particularly telling. Should the stock begin to recover quickly, shareholders can take solace in attributing the decline to a knee-jerk reaction. However, if the slide continues, investors may need to examine the figures further to determine the firm’s true value going forward. It’s certainly a company I plan to keep my eye on over the coming quarter.