Will UiPath’s share price growth match Q4 revenue?

The UiPath share price has had a torrid time since the company’s IPO with investors seemingly more concerned with tech stock valuations than the soaring demand for automation. That could perhaps change if adoption of automation continues in the coming quarters despite the end of Covid restrictions.

UiPath [PATH] is expected to report a 28.5% rise in sequential revenues when it releases its Q4 figures on 30 March. The numbers are boosted by a “robust demand environment” and “ongoing labour shortages” increasing the need for automation, said Matthew Hedberg analyst at RBC Capital Markets. Comparable year-on-year numbers were not available.

Wall Street analysts expect UiPath to report revenues of $284m with annually recurring revenue of $902.5m, up from $818.4m in Q3 – in itself a 58% increase year-over-year – and earnings per share of $0.03 per share, up from a $0.23 loss.

UiPath expects recurring revenue in the range of $901m to $903m and revenues in the range of $281m to $283m.

Analyst firm Zacks believes the growth is owing to new customers and multimillion contracts spanning several years with existing clients in areas such as subscription business, software robots and automation cloud.

Ashim Gupta, UiPath’s chief financial officer, said at the company’s Q3 announcement: “We expect that the innovation we are delivering in [the web application] UiPath 2021.10, our most recent platform release, coupled with investments in our teams and strategic partnerships will further accelerate customer success and platform adoption.”

UiPath share price bucks revenue trend

The UiPath share price has failed to mirror its rising revenues. Since it floated in New York last April, the share price has plunged 63% from the end of May last year, to sit at around $29 in late March in 2022.

In part UiPath was hit by the market churn from growth to value stocks and the concern that up-and-coming tech stocks are vulnerable to higher inflation and interest rates. The automation firm had a market cap of $16.2bn as per the close on 28 March.

Fears post-Covid that the tech budgets of some SME businesses may have shrunk as they focus on strengthening their balance sheets rather than spending also seem to have hurt the UiPath stock..

“[UiPath’s] appeal is obvious. Firms are paying high salaries to office workers for their unique skills and education. Ideally, it would make sense to have them doing tasks that can’t be automated,” wrote Ian Bezek in Investor Place. “But UiPath has been in the wrong place at the wrong time. That is to say, UiPath’s sector is dramatically out-of-favour right now. There have been 50% to 75% drops virtually across the board for all sorts of small innovative technology companies.”

Market beating track record

In its third quarter UiPath reported revenues of $220.8m. This compared with company forecasts between $207m and $209m.

Its UiPath 2021.10 platform helped spur demand as it made it easier for developers to build automations and allow artificial intelligence to be applied to every facet of work.

“Our continued growth at scale was driven by customers across verticals and geographies who recognize that the power of automation not only increases efficiency, but also drives
revenue growth and creates a significant competitive advantage,” said Daniel Dines (pictured above), UiPath co-founder and CEO.

However, its share price still slipped 17% in the week after the results.

New products and external forces

Analysts will be watching the company’s guidance for financial year 2023. Instrument in that will be the outlook on demand for its products as customers look to improve their efficiencies and increase digitalisation. Any new products or service developments will add to sentiment.

Yet, a lot will also depend on external factors such as aggression from competitors to gain market share. Companies like Pegasystems and Automation Anywhere will be looking to grab market share. Popularity of UiPath is also dependent on sustained labour shortages, especially with pandemic related lockdowns and stimuli being weaned off.

According to MarketScreener, analysts are cautiously optimistic about the UiPath stock with a consensus ‘outperform’ rating and a target price of $57.18.

Hedberg of RBC Capital cut share price target to $37, down from a previous $47 over “peer multiple compression,” adding that, “Though the automation market is fragmented and competitive, UiPath appears to be leading the pack and is well-positioned as a long-term strategic enterprise automation vendor.”

Analysts at TipRanks describe UiPath as a fantastic firm and a market leader in robotic process automation, with a large platform and significant scale. “UiPath has a history of delivering excellent top-line growth, and if the company can sustain that strong revenue growth in the future, investors could see strong long-term gains,” they said.