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August 10, 2022
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UiPath shares declining despite market leader position and positive earnings surprise

Market commentary by eToro analyst for Romania, Bogdan Maioreanu

 

 

UiPath (PATH), the first Romanian-born unicorn and the leader of the RPA – Robotic Process Automation market, has seen its shares price drop by more than 40% in the last 6 months.

Even after beating analysts’ expectations with its Q3 2022 earnings report, the shares continued to fall, being now 15% below their April IPO price of 56 dollars a share as analysts expect competition to tighten in the future, with the likes of Microsoft entering the RPA market.

UiPath Inc. reported Wednesday night better-than-expected results in the latest quarter as more companies turned to the firm to help with automation efforts. Revenue totaled $220.8 million, up from $147.3 million a year earlier, better than analysts’ expectations of $208.3 million. The company reported a net loss of $122.8 million in the third quarter, widening from a loss of $70.8 million a year earlier. On a per share basis, the company booked a loss of 23 cents but was break-even on an adjusted basis beating again analysts expectations of an adjusted loss of 4 cents a share. Annual recurring revenue was $818.4 million, up 58% from a year earlier. Analysts were expecting that metric to be $797.9 million. Total operating expenses were $294 million, compared with $192.9 million a year earlier, as the company spent more on sales and marketing and research and development – R&D.

Daniel Dines, UiPath Inc CEO mentioned that the company R&D efforts will continue as part of the overall investment strategy of the company meant to keep itself ahead of the market.  “I can tell you our strategy for hiring into R&D was to hire like there is no tomorrow. We are joking internally saying we don’t have a budget for R&D. And I’m really happy to tell you that despite the pressure in the market, Q3 was one of our best quarters for hiring into R&D,” mentioned Dines.

Despite the financial results beating the analysts expectations, the company shares continued their decline from a high of 90 dollars per share to around 47 dollars on investors’ concerns related to the market crowding with better integrated and more powerful entrants. UI Path has been placed by Gartner’s Magic Quadrant in the Leaders sections. But in an adjacent Gartner Magic quadrant, the Visionaries, lies Microsoft (MSFT). A huge company with big budgets, Microsoft is already introducing RPA services to its customers, mostly tied to its own ecosystem, and using Azure as the cloud backbone and at very low prices. According to Gartner, “This may disrupt the broader RPA market by compelling many vendors to offer similarly competitive pricing.” And this might be a threat for UiPath.

Dines is not worried. “Our own data, if we take into account the deals where Microsoft is participating versus the deals where Microsoft is not participating, we are not seeing material changes in our winning rate. So right now, I can say Microsoft doesn’t have a meaningful impact on our ability to win customers.” In the future, Dines does not see Microsoft “derailing” UiPath from their growth trajectory.  But, as I warned three months ago, the market is crowding with other big names like ServiceNow (NOW), Salesforce (CRM), IBM, and SAP aiming to offer RPA integrated services into their platforms. However the RPA market is big, according to analyst Keith Weiss from Morgan Stanley, roughly $2 billion currently, but it could reach as much as $56 billion, making UiPath, with its 32% market share according to IDC, and recent price retracement, an interesting company for investors.

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Bogdan Maioreanu, eToro analyst and markets commentator, has over 20 years of experience in financial services and investments and a strong background in journalism. He held different Corporate Banking management positions in both Raiffeisen Bank and OTP Bank, before moving to business consultancy roles working for IBM Romania among others. Bogdan is an Executive MBA from Asebuss and Washington University.

About eToro

eToro is a multi-asset investment platform that empowers people to grow their knowledge and wealth as part of a global community of successful investors. eToro was founded in 2007 with the vision of opening up the global markets so that everyone can trade and invest in a simple and transparent way. Today, eToro is a global community of more than 24 million registered users who share their investment strategies; and anyone can follow the approaches of those who have been the most successful. Due to the simplicity of the platform users can easily buy, hold and sell assets, monitor their portfolio in real time, and transact whenever they want.

 

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