By Wallace Witkowski
UiPath Inc. shares dropped to a record low Thursday, nearly 80% off their initial public offering price, extending a decline from the previous session after disappointing Wall Street with its path forward in an investor-day presentation.
On Wednesday, analysts expressed concern about UiPath’s /zigman2/quotes/226284328/composite PATH +4.30% sales reorganization, which executives hope will allow the software-robot provider’s sales force to dig deeper into its largest enterprise customers, but which will weigh on the company’s near-term performance.
The result was a weaker-than-expected forecast for the 2024 fiscal year, which begins in February 2023. Analysts were especially focused on management’s projected annualized renewal run rate of about $1.36 billion for that year. Annualized renewal run rate, or ARR, is a metric often used by software-as-a-service, also known as SaaS, companies to show how much revenue a company can expect based on subscriptions.
Mizuho analyst Siti Panigrahi, who had downgraded the stock early in September to neutral with a price target of $14 , foresaw that the ARR forecast would be affected by the sales reorganization.
“While we are positive on UiPath’s transition to a platform business (which expands the [total addressable market] from $61B to $93B) and the company’s refined go-to-market motion (which should drive increased traction within enterprise customers), the financial guidance for FY24 is weaker than expected and reflects the challenges due to restructuring and change in [go-to-market strategy] during an uncertain macro environment, while balancing growth and profitability,” Panigrahi said.
UiPath shares fell more than 6% to an intraday low of $12.12 Thursday, or 78% below their April 2021 IPO price of $56 a share , and were down nearly 4% for the week. In 2022, shares have fallen more than 70%, while the S&P 500 index /zigman2/quotes/210599714/realtime SPX +0.75% has declined more than 23% and the tech-heavy Nasdaq Composite Index /zigman2/quotes/210598365/realtime COMP +1.13% has dropped more than 31%.
In a preview of fiscal 2024 during the Tuesday event, Ashim Gupta, UiPath’s chief financial officer, told analysts that while up to 25% year-over-year revenue growth was possible, he expected software-as-a-service headwinds of about 500 basis points and foreign-exchange headwinds of about 200 basis points result in an anchor forecast of 18% growth, or about $1.19 billion in revenue.
“That accounts for the choppy macroenvironment which we’re in,” Gupta told analysts. “It also accounts for the repositioning, which still takes times to execute.”
By mid-Wednesday, the Wall Street consensus for revenue had declined to $1.22 billion, down from a previous $1.24 billion on Monday, and the ARR forecast from analysts on average declined to $1.41 billion, down from a previous $1.43 billion, according to FactSet data.
JPMorgan analyst Mark Murphy, who has a neutral rating and an $18 price target, said investors were focused on the below-consensus ARR forecast in addition to the “choppy macroeconomic environment.”
“Though management emphasized a focus on ‘reaccelerating’ growth, we believe it will take time and there is some wood to chop given the expected deceleration in its medium-term ARR trajectory,” Murphy said, adding, “[We] see a material improvement in the company’s glide path taking multiple quarters to materialize, particularly as the competitive landscape continues to evolve.”
Choppiness — or perhaps “chopping-ness” — has become the norm this year for UiPath. Earlier in September, the company trimmed its annual revenue outlook of between $1 billion and $1.01 billion and ARR of $1.15 billion to $1.16 billion, compared with its previous forecast of revenue around $1.09 billion and ARR of $1.22 billion to $1.23 billion for the year.
Read about the June chop: UiPath stock rallies as results, outlook surpass Wall Street consensus
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Evercore ISI analyst Kirk Materne, who has an in-line rating and a $19 price target, stressed that he is bullish about UiPath as a “long-term opportunity” and that executives gave “a compelling presentation” on Tuesday, but he underscored that the organizational changes under way “remain an overhang.”
“The company is also repackaging its offerings to help drive more adoption across the platform and realigning its sales motion to better tie automation with business outcomes,” Materne said. “All of these undertakings are sensible when taking a long-term view; however there are some obvious risks in the near-term as it relates to execution and this is reflected in the initial FY24 revenue guidance.”
He continued: “We believe that some of the near-term headwinds on growth were already baked in heading into this event, but investors are going to need some patience as these changes take hold.”
Of the 22 analysts who cover UiPath, 11 have buy-grade ratings, 10 have holds, and one has a sell rating. Eight lowered their price targets, resulting in an average target price of $18.23, down from a previous $27.98 at the end of August, according to FactSet data.