A mix of internal and external headwinds in Q1 (Apr) has significantly impacted UiPath (PATH, Financial), causing a sharp decline in its growth trajectory. Despite exceeding analyst earnings and sales forecasts, the robotic process automation software developer now faces lackluster growth for the rest of the year. The company has issued downbeat Q2 (Jul) revenue estimates and slashed its FY25 (Jan) sales outlook. Additionally, the CEO transition from Rob Enslin to founder Daniel Dines has added to the turmoil.
What happened?
- Multiple factors hit PATH hard in Q1:
- A challenging macroeconomic environment since March hurt PATH's mid-market customer base. Customer behavior shifted, especially around large multi-year deals, leading to reduced deal sizes.
- This situation mirrors what Salesforce (CRM, Financial) experienced in AprQ, with elongated deal cycles, deal compression, and increased budget scrutiny.
- Internal issues also contributed to PATH's struggles. Management admitted to execution failures on large contracts and sales compensation changes, which they are working to address.
- PATH's growth products showed positive results but were not scaled appropriately. Investments to reaccelerate growth fell short, compressing margins and hindering agility. Consequently, PATH's Q1 adjusted EPS of $0.13 barely exceeded analyst forecasts.
- PATH's guidance was disappointing. Q2 revenue is projected at $300-305 million, a modest 5.3% year-over-year increase, far below the 15.7% growth in Q1. FY25 revenue guidance was lowered by around $150 million to $1.405-1.410 billion, reflecting a 7.8% year-over-year increase, a significant slowdown from the 23.6% jump in FY24.
As shares hit their lowest level since January 2023, the future of PATH remains uncertain. The company has potential upside due to its automation software and a secular AI trend. PATH recently expanded its partnership with Microsoft (MSFT, Financial), integrating with its AI Copilot. The return of the founder as CEO could boost employee morale. However, investors may remain cautious until the buying climate improves.
