Get ready for a value boost

UiPath Inc. NYSE: PATH is a leader in robotic process automation (RPA) and business process automation (BPA). The company has been working with artificial intelligence (AI) for years, using it to help customers complete tasks and automate manual software processes. However, UiPath’s stock price plunged 34% immediately after the release of its Q1 2025 results, shocking investors about the company’s future.

UiPath: A cash-only value play

The company is ramping up its efforts in generative AI (GenAI) and introducing more features to help customers more efficiently code processes for automation. The question is whether the sell-off was an overreaction that created a bargain opportunity, with shares trading at levels last seen in late 2022. UiPath has $1.9 billion in cash, which alone accounts for 25% of its market cap.

Double blow to the gut for investors: resignation of UiPath CEO

While quarterly results were decent, lowered guidance for the second quarter and full-year 2025 surprised investors. To make matters worse, new CEO Rob Enslin resigned two days later without giving a reason after just three months on the job. This uncertainty was the final nail in the coffin. The position was filled by its founder and former CEO Daniel Dines.

UiPath operates in the business services sector and competes with software companies such as Pegasystems Inc. NASDAQ: PEGA, Salesforce Inc. NYSE:CRMAnd C3.ai Inc. NYSE: AI.

Macroeconomic uncertainty led to review of UiPath deal

UiPath noticed a significant shift in March and April when large, multi-year contracts came under increased scrutiny. Macroeconomic changes caused companies to be more cautious about large contracts and either delay them or reduce their volume, leading to a drastic reduction in forecasts. The company acknowledges that there were also execution errors due to changes in compensation and sales force shortages, but these have been addressed moving forward.

Salesforce and Palo Alto Networks also came under scrutiny for their deals, but their shares recovered

The uncertain macroeconomic climate was a common theme among other software companies such as Salesforce and Palo Alto Networks Inc. NASDAQ: PANWSalesforce made a similar comment in the April quarter, when deal momentum slowed as clients’ budgets came under more scrutiny due to extended sales cycles. It’s also worth noting that both Salesforce and Palo Alto Network shares initially sold off following their report, but have since recovered. Salesforce shares fell to a low of $212.00 and then recovered to $263.19, while Palo Alto shares fell to a low of $286.58 since its announcement and then recovered to $345.55.

Can GenAI give UiPath a boost?

UiPath shares had risen on the assumption that GenAI would be a growth driver. However, based on projections, the initial opportunity may have been too high. After all, automation theoretically fits well with the secular AI tailwind. Microsoft Co. NASDAQ: MSFT has expanded its partnership with UiPath to integrate its business automation platform with its AI Copilot for Microsoft 365.

PATH stock attempts to recover above gap-fill level

The daily candlestick chart for PATH shows a breakout of the market structure low (MSL) through the $11.97 trigger, causing shares to breach their gap-fill price level at $12.69. The gap-fill levels formed on the 34% price plunge following the release of Q1 2025 earnings from $18.08 to $12.69. The first part of the gap-fill attempt is underway as shares are recovering back above the lower gap-fill level at $12.69 toward the upper gap-fill level at $18.08. The daily relative strength index (RSI) has risen to the 45 band. Pullback support levels are at $12.69, $11.97, $11.07, and $10.40.

Key takeaways from UiPath’s Q1 2025 earnings report

UiPath reported first quarter 2025 earnings per share that were one cent above consensus estimates of 12 cents. Revenue increased 15.7% year-over-year to $335.11 million, still beating consensus estimates of $333.08 million. Annual recurring revenue (ARR) increased 21% year-over-year to $1.508 billion, with net ARR of $44 million. The company has $1.9 billion in cash and cash equivalents.

Net customer retention rate on a dollar basis was a respectable 118%, meaning customers are happy and upselling opportunities continue to exist, albeit at a lower rate, down 1% from the previous quarter. Non-GAAP gross margins were 86%, one of the highest rates in the software industry. For example, Salesforce’s non-GAAP gross margins are 76% and Microsoft’s are 70%.

UiPath’s forecast was the bombshell that shocked investors

UiPath surprised investors with its downward guidance. For the second quarter of fiscal 2025, UiPath expects revenue between $300 million and $305 million, versus a consensus estimate of $342.32 million. For the full year 2025, the company lowered its revenue expectations to $1.405 billion to $1.410 billion, compared to previous guidance of $1.555 billion to $1.56 billion, versus a consensus estimate of $1.56 billion. CEO Rob Enslin also resigned, effective June 1, 2024. Former CEO and founder David Dines will resume the role of CEO.

Ashim Gupta, CFO of UiPath, commented: “In the first quarter, we saw increased deal scrutiny and lengthening of sales cycles on large, multi-year deals. We have taken these factors, the current macroeconomic environment and our leadership transition into account in our updated guidance for the remainder of the year.”

Gupta concluded, “While our revenue and operating margin guidance will be impacted by contract timing and duration, we are confident that we will be able to deliver sustainable, scalable ARR growth and meaningful non-GAAP adjusted free cash flow.”

Analyst ratings and price targets for UiPath are at MarketBeat. PATH stock has a consensus price target of $18.06, implying an upside potential of 36.4%.

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