Automation software company UiPath (NYSE:PATH) reported Q3 CY2024 results beating Wall Street’s revenue expectations, with sales up 8.8% year on year to $354.7 million. The company expects next quarter’s revenue to be around $424.5 million, close to analysts’ estimates. Its non-GAAP profit of $0.11 per share was 47.9% above analysts’ consensus estimates.
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UiPath (PATH) Q3 CY2024 Highlights:
- Revenue: $354.7 million vs analyst estimates of $347.7 million (8.8% year-on-year growth, 2% beat)
- Adjusted EPS: $0.11 vs analyst estimates of $0.07 (47.9% beat)
- Adjusted Operating Income: $49.72 million vs analyst estimates of $27.07 million (14% margin, 83.7% beat)
- ARR Guidance for Q4 CY2024 is $1.67 billion at the midpoint, roughly in line with what analysts were expecting
- Revenue Guidance for Q4 CY2024 is $424.5 million at the midpoint, roughly in line with what analysts were expecting
- Adjusted Operating Income Guidance for Q4 CY2024 is $100 million at the midpoint, well above analyst estimates of $86 million
- Free Cash Flow Margin: 6.5%, down from 15.3% in the previous quarter
- Annual Recurring Revenue: $1.61 billion at quarter end, up 16.6% year on year (slight beat vs analyst estimates of $1.60 billion)
- Market Capitalization: $8.43 billion
“Our customers’ response to the agentic automation vision and roadmap that we announced at FORWARD has been energizing and reinforces our leading position in the AI-powered automation market,” said Daniel Dines, UiPath Founder and Chief Executive Officer.
Company Overview
Started in 2005 in Romania as a tech outsourcing company, UiPath (NYSE:PATH) makes software that helps companies automate repetitive computer tasks.
Automation Software
The whole purpose of software is to automate tasks to increase productivity. Today, innovative new software techniques, often involving AI and machine learning, are finally allowing automation that has graduated from simple one- or two-step workflows to more complex processes integral to enterprises. The result is surging demand for modern automation software.
Sales Growth
A company’s long-term sales performance can indicate its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Over the last three years, UiPath grew its sales at a decent 20.3% compounded annual growth rate. Its growth was slightly above the average software company and shows its offerings resonate with customers.
This quarter, UiPath reported year-on-year revenue growth of 8.8%, and its $354.7 million of revenue exceeded Wall Street’s estimates by 2%. Company management is currently guiding for a 4.7% year-on-year increase in sales next quarter.
Looking further ahead, sell-side analysts expect revenue to grow 8.4% over the next 12 months, a deceleration versus the last three years. This projection is underwhelming and suggests its products and services will see some demand headwinds.
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Annual Recurring Revenue
While reported revenue for a software company can include low-margin items like implementation fees, annual recurring revenue (ARR) is a sum of the next 12 months of contracted revenue purely from software subscriptions, or the high-margin, predictable revenue streams that make SaaS businesses so valuable.
UiPath’s ARR punched in at $1.61 billion in Q3, and over the last four quarters, its growth was impressive as it averaged 19.4% year-on-year increases. This alternate topline metric grew faster than total sales, which likely means that the recurring portions of the business are growing faster than less predictable, choppier ones such as implementation fees. That could be a good sign for future revenue growth. 
Customer Acquisition Efficiency
The customer acquisition cost (CAC) payback period measures the months a company needs to recoup the money spent on acquiring a new customer. This metric helps assess how quickly a business can break even on its sales and marketing investments.
UiPath’s recent customer acquisition efforts haven’t yielded returns as its CAC payback period was negative this quarter, meaning its sales and marketing investments outpaced its revenue. The company’s inefficiency indicates it operates in a competitive market and must continue investing to grow.
Key Takeaways from UiPath’s Q3 Results
ARR was only in line, but revenue beat expectations this quarter by 2%. Adjusted operating income beat by a more convincing amount. Looking ahead, next quarter's ARR and revenue guidance were only in line with expectations, but adjusted operating income guidance was well ahead. Zooming out, we think this was a fine quarter. The market seems to be punishing software companies not beating and raising on topline metrics, though, and the stock traded down 1.3% to $14.75 immediately following the results.
So do we think UiPath is an attractive buy at the current price? The latest quarter does matter, but not nearly as much as longer-term fundamentals and valuation, when deciding if the stock is a buy. We cover that in our actionable full research report which you can read here, it’s free.
