UiPath Inc. (NYSE:PATH) stock is a provider of robotic process-automation software with the big vision to automate enterprises. Having a software platform that uses artificial intelligence (AI) technology to perform tasks that require lots of time and effort from humans in the least possible by bots is a big deal.
It is the definition of efficiency. Investors however are not completely convinced about the dynamics of PATH stock as its shares have losses of nearly 14% year-to-date and down 31% in the past 3-month. Is smart money now in favor of this technology firm as in the past 5-day period there are considerable gains of about 14%?
A flashback is essential to support my thesis now and luckily I have written a previous article a few months ago.
Keep an Eye on UiPath’s Dec. 8 Earnings for Signs of Future Profitability
The above phrase was my title for a previous article on UiPath.
Back in early December 2021, I liked the business model, but my verdict was “Wait for better financial performance from this highly promising technology company. That will determine if it can really transform the digital world of business. Keep an eye on PATH stock earnings reported on Dec. 8 for progress on its financials.” Was there any progress of financial performance in its latest earnings report?
Third-Quarter Fiscal 2022 Financial Results
EPS Earnings-per-share GAAP of -$0.23 was a miss by -$0.11 and revenue of $220.82 million was a beat by $11.59 million.
The good news first was that ARR (annual recurring revenue) of $818 million increased 58 percent year-over-year, net new ARR of $91.9 million increased 42 percent year-over-year and revenue of $220.8 million increased 50 percent year-over-year.
However, the company reported a GAAP gross margin of 80% and wider operating loss and net income loss. Total operating expenses for third-quarter Fiscal 2022 rose to $293.63 million compared to $192.91 million in the same period a year ago.
Sales and marketing, research, and development expenses increased whereas general and administrative expenses declined year-over-year.
An interesting question to ask is the following one related to profitability. How is it possible for UiPath to report in Q3 FY 2022 a net loss of ($122.78 million) higher than the net loss of ($70.79 million) in Q3 FY 2021 and net loss per share attributable to common stockholders, basic and diluted to be less in the latest quarter? I have analyzed this outcome several times as it is all about stock dilution.
For the three months ended Oct. 31, 2020, UiPath reported weighted average shares of 171,280,000, and on Oct. 31, 2021, an amount of 531,718, 000.
Back to my verdict about my last article, is there an improvement in the fundamentals? If you focus on ARR and revenue, the answer is affirmative. Looking at the broader picture profitability, the answer is negative.
Analyst Upgrade for Further Clues
Brian Schwartz, an analyst at Oppenheimer has recently upgraded UiPath naming it an RPA market leader and arguing the firm is now “best asset” in the RPA category.
According to Schwartz, “given its already reached scale, is growing organically the fastest, and has the largest number of referenceable enterprise customers and a strong corporate culture.”
I do not argue with this analysis as it has a lot of degree of credibility based on facts. I continue though not to like shares of UiPath based on net losses and valuation concerns.
UiPath stock is still very pricey, trading at a Price/Sales valuation multiple (TTM) of 16.83 and a Price / Book value (TTM) of 10.41.
The median values for the Information Technology sector of Price/Sales and Price / Book value ratios are 3.87 and 4.17 respectively. Turning to forward valuation for these two ratios PATH stock continues to remain relatively overvalued.
The Bottom Line
Is UiPath an initial public offering (IPO) that can be considered a flop? Back in April 2021, its IPO price was $56 a share, valuing the company at more than $35 billion. Now the market capitalization is shy of $21 billion a drop of 40%. Judging by the cold numbers, I consider it not a successful IPO.
As a final thought, I want to mention the fact that the Internal Revenue Service (IRS) is a customer of UiPath. Between seriousness and fun, I consider this a trivial milestone. Using AI bots in Finance and Procurement, IRS hopes it will have better management results. Could AI bots discover cases of not reporting accurately income generated and have tons of drama for the unlucky U.S. citizens?
I see a lot of potential in the business model of UiPath. The path to profitability is challenging though and the company must find the solution on how to get there. I continue to consider it too pricey, and my previous article title gets another extension. Monitor future profitability closely for milestones achieved, avoid the stock now until this improvement materializes.
On the date of publication, Stavros Georgiadis, CFA did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Stavros Georgiadis is a CFA charter holder, an Equity Research Analyst, and an Economist. He focuses on U.S. stocks and has his own stock market blog at thestockmarketontheinternet.com/. He has written in the past various articles for other publications and can be reached on Twitter and on LinkedIn.