UiPath (PATH) once again delivered impressive quarterly financial numbers. The enterprise automation software vendors’ top and bottom lines came well ahead of the Street’s estimates and marked significant year-over-year improvement. (Read more: UiPath Posts Q2 Earnings Beat; Shares Tank 7%)
Despite the quarterly beat, UiPath stock closed 9.6% lower on Wednesday as the moderation in net ARR (Annualized Renewal Run-Rate) growth didn’t sit well with the investors. Moreover, UiPath stock has fallen about 18% since it went public in April 2021. (See UiPath stock charts on TipRanks)
Highlighting the deceleration in net ARR growth, Scott Berg of Needham stated that the “net new ARR decelerated meaningfully from +55% in 1Q to +33% in 2Q,” weighing heavily on the company’s license revenue growth rate.
It’s worth noting that UiPath’s license revenue growth rate marked sharp sequential deceleration. Its license revenues increased by 20% in Q2 compared to a 57% growth registered in Q1. Besides, its ARR marked an increase of 60% during the recently concluded quarter compared to a 65% growth in Q1.
Looking ahead, UiPath expects to report ARR between $796 million and $798 million in Q3. This translates into a net new ARR of $69.5 million to $71.5 million, which is lower than the $73.9 million reported in Q2.
Nevertheless, UiPath’s customers with $1 million plus ARR increased to 118 from 59, representing 100% growth year-over-year. Moreover, it raised the FY22 ARR projection to $876 million and $881 million from $850 million and $855 million, which is encouraging and reflects the continued demand for automation.
Equally good is the company’s net retention rate of 144%. Therefore I am bullish on UiPath stock.
In response to UiPath’s upbeat guidance, Berg stated that the guidance raise suggests “incremental ARR growth accelerates in 2H.” The 5-star analyst maintained a Buy rating on UiPath with a price target of $85 (50.6% upside potential).
On TipRanks, PATH stock has a Moderate Buy consensus rating based on 7 Buys, 9 Holds, and 1 Sell. The average UiPath price target of $74.13 implies 31.3% upside potential to current levels.
Disclosure: On the date of publication, Amit Singh had no position in any of the companies discussed in this article.
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