On Wednesday, Scotiabank adjusted its outlook on UiPath Inc. (NYSE:PATH), lowering the price target to $25 from the previous $30 while keeping a Sector Perform rating on the stock. The adjustment follows a noticeable decline in the company's shares, which have retreated over 20% since the fourth-quarter results were reported. Despite this pullback, the shares are trading at what Scotiabank considers a reasonable free cash flow multiple of approximately 21 times the CY25 projections.
The bank indicates a tempered expectation for annual recurring revenue (ARR) growth, anticipating results that align closely with consensus estimates. These estimates suggest a net new ARR (NNARR) of around $47 million, equating to a year-over-year increase of 5%. Scotiabank also forecasts a steady growth in fiscal year 2025 ARR at a constant currency growth rate of 18%, without expecting any significant upward revisions.
UiPath has been focusing on securing larger deals, which Scotiabank views as a positive development. This strategy is expected to provide some protection to the net revenue retention (NRR) rate, which has remained robust. The previous quarter's NRR was 119%, only a slight decrease from 123% the year before. Nevertheless, the guidance suggests that maintaining strong gross retention and achieving a recovery in new-customer ARR may be challenging due to the current economic climate.
Scotiabank also predicts an upside to margin estimates, with the consensus only projecting around a 100 basis point operating margin expansion for FY25. Nonetheless, ARR growth is seen as the key variable influencing the stock's future performance. The firm believes that investor sentiment towards UiPath could improve as the implications of its Generation AI (GenAI™) technology on robotic process automation and the broader automation market become clearer.
The report notes that UiPath has 1,000 customers currently evaluating its Autopilot features, and management is heavily focused on GenAI, having introduced new features at its AI Summit. While the second half of fiscal year 2025 might serve as a potential catalyst for the stock, once there is a better understanding of Autopilot's monetization capabilities, Scotiabank acknowledges the possibility that the stock may not experience significant downside if estimates remain largely unchanged in the near term.
InvestingPro Insights
UiPath Inc. (NYSE:PATH) has been under scrutiny following its recent stock performance, and analysts are watching closely. According to real-time data from InvestingPro, UiPath holds a market cap of $10.74 billion, with a notable gross profit margin of 85.09% over the last twelve months as of Q4 2024, highlighting its ability to maintain high profitability on its products and services. Despite not being profitable over the last twelve months, analysts are optimistic, predicting that the company will become profitable this year.
InvestingPro Tips for UiPath suggest that the company's financial health is underscored by the fact that it holds more cash than debt on its balance sheet, and its liquid assets exceed short-term obligations, providing the company with financial flexibility. Furthermore, UiPath's impressive gross profit margins are a testament to its efficient operations and strong pricing power. It's worth noting that while eight analysts have revised their earnings downwards for the upcoming period, the company's net income is expected to grow this year.
For investors seeking a more comprehensive analysis, there are additional InvestingPro Tips available at https://www.investing.com/pro/PATH. By using the coupon code PRONEWS24, readers can get an extra 10% off a yearly or biyearly Pro and Pro+ subscription, gaining access to an extended list of insights to inform their investment decisions.
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