To The Moon

$UiPath(PATH)$

UiPath Inc. shares dropped over 18% in premarket trading on Thursday following a weaker-than-expected revenue forecast for fiscal 2026.

Earning Overview

(PATH) reported its financial results for the fourth quarter of fiscal year 2024, which ended on January 31, 2024. The automation software company reported fourth-quarter revenue of $424 million, slightly missing analysts' estimates of $425.27 million. However, adjusted earnings per share (EPS) came in at $0.26, surpassing expectations of $0.20.

For the first quarter, UiPath projected revenue between $330 million and $335 million, significantly below the consensus estimate of $367.4 million. The full-year revenue outlook of $1.525 billion to $1.53 billion also fell short of Wall Street's expectation of $1.59 billion.

The company achieved an adjusted earnings per share (EPS) of $0.26, surpassing analysts' expectations. Revenue for the quarter rose by 4.5% year-over-year to $423.6 million, slightly below forecasts. Despite the positive EPS, UiPath provided a cautious outlook for the upcoming fiscal year, projecting current-quarter revenue between $330 million and $335 million, and fiscal 2026 revenue between $1.525 billion and $1.530 billion. These projections fell short of analysts' expectations of $369.6 million and $1.59 billion, respectively. The company cited uncertainties in the macroeconomic landscape, particularly in the U.S. public sector, as factors influencing this guidance.

In response to the earnings report and the conservative outlook, UiPath's stock experienced a significant decline, trading 14% lower at $10.15 and hitting an all-time low of $9.50, marking a nearly 60% loss in value over the past year.

Fundamental Analysis

PATH has recently reported improvements in its earnings per share (EPS). In its fiscal fourth quarter, the company posted an adjusted EPS of $0.26, surpassing analysts' expectations of $0.20. Despite this positive EPS performance, UiPath's revenue for the quarter was $423.6 million, slightly below forecasts and reflecting a modest 4.5% year-over-year increase. The company has also issued a revenue forecast for the upcoming quarter that falls short of analysts' predictions, citing uncertainties in U.S. government spending and broader macroeconomic challenges as contributing factors.

Following these announcements, UiPath's stock experienced a significant decline, reaching an all-time low of $9.50, marking a nearly 60% decrease over the past year. Overall, while UiPath has demonstrated improvement in its EPS, challenges such as revenue shortfalls and economic uncertainties have impacted its stock performance.

Annualized recurring revenue (ARR) is expected to range from $1.686 billion to $1.691 billion in Q1 and reach between $1.816 billion and $1.821 billion by the end of fiscal 2026. The company also anticipates a non-GAAP operating income of approximately $45 million for Q1 and $270 million for the full year.

Analysts at D.A. Davidson noted that UiPath's results introduced "new uncertainties," particularly from U.S. federal customers, which could impact private sector spending as well. They pointed out that the full-year guidance suggests a weak first half of fiscal 2026, requiring a strong acceleration in the second half to achieve 9% ARR growth.

Guidance

Path has recently provided revenue guidance that fell short of analysts' expectations, leading to a significant decline in its stock price. The company projects revenue between $330 million and $335 million for the current fiscal quarter, below the anticipated $367.5 million. For fiscal year 2026, UiPath forecasts revenue in the range of $1.525 billion to $1.530 billion, compared to analysts' estimates of $1.59 billion.

This cautious outlook is attributed to uncertainties in U.S. government spending, particularly due to budget cuts under the Trump administration's Department of Government Efficiency (DOGE). These developments have raised concerns about UiPath's future growth prospects, contributing to the stock's decline. Despite these challenges, UiPath continues to focus on expanding its automation and AI capabilities. The company's recent acquisition of U.K.-based AI platform Peak aims to enhance its product offerings and strengthen its position in the market.

Meanwhile, Bank of America downgraded UiPath shares following the report, cutting its price target from $18 to $10 due to the "disappointing FY26 outlook."

Free Cash Flow

Fiscal Year 2024 (ended January 31, 2024): The company reported net cash flow from operations of $299 million, a significant increase from the previous fiscal year's outflow of $110 million.

First Quarter of Fiscal Year 2025 (ended April 30, 2024): UiPath reported net cash flow from operations of $100 million, indicating continued strong cash generation.

Second Quarter of Fiscal Year 2025 (ended July 31, 2024): The company reported net cash flow from operations of $46 million.

Risks and Challenges

Weak Revenue Outlook & Growth Slowdown

UiPath's fiscal 2026 revenue guidance fell below analysts' expectations, signaling a potential slowdown in demand. The company's reliance on strong second-half acceleration to meet its annual targets creates uncertainty.

Dependence on U.S. Federal Spending

UiPath has noted uncertainties in U.S. government spending, particularly with federal budget cuts. A slowdown in government contracts could impact overall revenue and investor confidence.

Competitive Market & Pricing Pressure

The automation and AI sectors are highly competitive, with strong rivals like Microsoft, Automation Anywhere, and ServiceNow. UiPath may face pricing pressure, reducing its ability to maintain high margins.

Execution Risks & Customer Spending Cuts

Enterprises are becoming cautious with IT spending, particularly in uncertain economic conditions.UiPath must continue expanding its customer base while maintaining retention and renewal rates.

Valuation

UiPath isn’t staying idle. The company recently announced the acquisition of Peak, a UK-based AI-native firm, aimed at strengthening its industry-specific automation solutions. Dines described the deal as a strategic move to enhance UiPath's AI capabilities and sharpen its competitive edge. The company is also doubling down on AI innovations such as Autopilot and Agent Builder, key components for future growth. With these efforts in place, UiPath is positioning itself as a long-term leader in automation, despite facing short-term macroeconomic challenges.

Looking ahead, UiPath projects annual recurring revenue to reach between $1.816 billion and $1.821 billion by fiscal 2026, indicating steady but not explosive growth from its current $1.66 billion. Management is adopting a cautious approach, factoring in ongoing economic volatility and shifting corporate budgets. The larger question remains whether UiPath can weather these challenges and prove that its AI-driven automation strategy is sustainable in the long run. With strategic acquisitions, product innovation, and enterprise adoption still in motion, the company has ample resources to rebound. Investors will be keen to see if UiPath can turn the situation around.

Market sentiment

After issuing a weaker-than-expected fiscal 2026 revenue forecast, UiPath now anticipates revenue between $1.525 billion and $1.53 billion, well below Wall Street’s $1.58 billion target. CEO Daniel Dines attributed the outlook to macroeconomic uncertainty, foreign exchange fluctuations, and delays in government contracts. Despite a 5% year-over-year revenue increase to $424 million and adjusted EPS of $0.26, which beat expectations, investors were not satisfied. The result? A market sell-off that erased much of UiPath's recent gains.

Negative Sentiment:

Weak Guidance and Revenue Forecast: The fiscal 2026 revenue outlook was weaker than expected, causing concern among analysts and investors. UiPath's forecasted Q1 revenue (between $330M and $335M) fell short of the consensus estimate ($367.4M), adding to worries of slower growth.

Uncertainty from U.S. Government Spending: Analysts have expressed concerns about U.S. Federal customers, which have faced budgetary constraints. This uncertainty could negatively impact UiPath’s ability to grow in the public sector.

Stock Price Decline: The company’s stock has faced significant volatility, dropping more than 18% in premarket trading due to disappointing guidance. This price slump indicates diminished investor confidence, particularly in the short term.

Conclusion

The sentiment is currently bearish, as investors remain cautious about the company's short-term prospects due to weaker-than-expected guidance and concerns over macroeconomic conditions. However, there’s still optimism in the long-term potential of UiPath’s automation solutions, particularly if it can overcome current headwinds.

Disclaimer: I want to make it clear that I am not a financial advisor, and nothing I say is intended to be a recommendation to buy or sell any financial instrument. Additionally, it's important to remember that there are no guarantees or certainties in trading or investing, and you should never invest money that you can't afford to lose.

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