The robotic process automation company faces some major challenges.
UiPath‘s (PATH 1.57%) stock plunged 34% on May 30 after the company released its latest earnings report. For the first quarter of fiscal 2025, which ended on April 30, the automation software provider’s revenue rose 16% year over year to $335 million and beat analysts’ estimates by $2 million. Its adjusted EPS climbed $0.02 to $0.13 and cleared the consensus forecast by $0.01.
Those headline numbers looked healthy, but UiPath also lowered its full-year guidance and announced the abrupt resignation of its CEO Rob Enslin. That double whammy of bad news resulted in the stock’s worst single-day drop since its public debut in 2021, and it now trades nearly 80% below its IPO price. So should contrarian investors still buy this hated stock?
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Why is UiPath’s growth cooling?
UiPath is the world’s largest provider of robotic process automation (RPA) services. Its software robots can be plugged into a company’s existing software infrastructure to automate repetitive tasks like entering data, processing invoices, and onboarding customers. Its revenue surged 81% in fiscal 2021 (which ended in January 2021) and grew 47% in fiscal 2022 as the pandemic drove more companies to cut costs, replace human workers, and accelerate their digital transformations.
But in fiscal 2023 its revenue only increased 19% as inflation, rising interest rates, geopolitical conflicts, and other macro headwinds forced many companies to rein in their spending on big software upgrades. In fiscal 2024, its revenue increased 24% as it lapped that slowdown and the macro environment gradually stabilized.
At the end of fiscal 2024, UiPath estimated its revenue would rise 19% in fiscal 2025. But in the first quarter, it cut that outlook to just 7%-8% growth. During the conference call, CFO Ashim Gupta attributed the reduction to “increased deal scrutiny” and a “longer sales cycle” for its multiyear deals. It also reduced the midpoint of its full-year adjusted operating margin forecast from 19% to 10% — compared to its adjusted operating margin of 18% in fiscal 2024.
UiPath claims its problems are cyclical, but it faces stiff competition from cloud giants Microsoft (MSFT 0.11%) and Salesforce (CRM 7.54%), which both integrate RPA tools into their own software. UiPath’s declining sales also coincide with the explosive growth of generative AI platforms, which could potentially replace its automation tools in the future.
The sudden departure of its CEO raises more red flags
Rob Enslin joined UiPath in 2022, and initially shared a co-CEO role with founder Daniel Dines. But in February 2024, Dines vacated the co-CEO position, transitioned to the Chief Innovation Officer role, and handed the reins over to Enslin.
That’s why Enslin’s departure was so shocking. He lasted less than four months in the CEO seat without Dines, and he also stepped down from the board. No reasons were provided for his sudden resignation, and Dines hastily returned as its CEO.
During the conference call, Dines admitted the company’s prior investments in reaccelerating its revenue growth had backfired and made it “less agile in responding to customer needs and created short-term pressure on operating margins.” Dines also said he didn’t “expect the macro environment to improve materially in the near term” and that management’s sudden leadership transition might “create some short-term disruption.”
On the bright side, Dines expects generative AI platforms to generate long-term tailwinds instead of headwinds for the company. Like Enslin, Dines wants UiPath to upgrade its own software robots with more generative AI tools so they can automate and analyze tasks more efficiently than its existing RPA services. But for now, we can’t tell if UiPath is putting on a brave face or actually expects to profit from the secular expansion of the AI market.
It isn’t cheap enough to be considered a value play
UiPath’s stock is trading at a steep discount to its IPO price, but it can’t be considered a bargain right now at about four times this year’s sales. I once considered UiPath to be a promising play on the AI market, but its steep guidance cut and abrupt CEO change make it a tough stock to recommend. Simply put, investors should stick with more reliable tech stocks unless UiPath’s management sets a clearer path for its long-term growth.
Leo Sun has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Microsoft, Salesforce, and UiPath. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.