Shares of UiPath Inc. (NYSE: PATH) sank 4% yesterday after the company’s Board of Directors approved a 5% global workforce reduction to help bolster profitability.
UiPath provides robotic process automation software that enables companies to automate their routine work processes. PATH stock ended the day down 2.6% at $21.36 on June 27.
As per a regulatory filing, the 5% layoffs represent approximately 210 employees from its April 2022 ending employee strength of 4,200. The reduction will take place in the ongoing quarter and is expected to be completed by the end of the second quarter of fiscal 2023.
Commenting on the move, the company stated, “This workforce reduction is aimed at simplifying our go-to-market approach starting with an alignment that we believe will result in better market segmentation, higher sales productivity, and best-in-class customer experience and outcomes.”
Furthermore, the company expects to incur approximately $15 million in restructuring expenses, primarily related to “employee severance and compensation benefits, as well as contractual charges, consisting of lease termination and other related costs,” by the end of fiscal 2023.
Besides the headcount reduction plan, the filing also reiterated that the revenue guidance for Q2FY23 is expected to be between $229 million and $231 million (the consensus estimate is pegged at $231.05 million), and non-GAAP operating loss guidance is expected to be between $60 million and $55 million. Meanwhile, the company did increase its full-year fiscal 2023 non-GAAP operating income outlook to $15 million.
Analysts Weigh In
Reacting to the news, Cowen & Co. analyst Bryan Bergin noted that this move reflects the company’s commitment to profitability amid the increased pressure to perform on tech companies with limited profitability and free cash flows.
The analyst is waiting to see further steps by the newly appointed Co-CEO and Chief Business Officer. Bergin has a Buy rating on PATH with a price target of $27, which implies 26.4% upside potential to current levels.
Truist Financial analyst Terry Tillman has a rather highly optimistic view on the PATH stock and is excited to watch what further positive changes the new management will bring to boost the annualized renewal run-rate and overall operational execution.
Tillman reiterated a Buy rating on the stock with a price target of $45, which implies a whopping 110.7% upside potential to current levels.
Finally, RBC Capital analyst Matthew Hedberg lowered the price target on the stock to $22 (3% upside potential) from $27 while maintaining a Hold rating. He sees the workforce reduction plan as a measure to proactively dodge the change in demand or the environment.
Overall, Wall Street analysts are split on their view of PATH stock, with a Moderate Buy consensus rating based on 13 Buys and six Holds. The average UiPath price forecast of $30.24 implies 41.6% upside potential to current levels. Meanwhile, the stock has lost 51.3% so far this year.
Ending Thoughts
UiPath is undertaking workforce reductions to meet its profit targets, which is a good sign for shareholders. Moreover, as per TipRanks’ tools, hedge funds have increased their holdings of PATH stock by 4.5 million shares in the last quarter, and corporate insiders have bought shares worth $199,800 in the last 3 months, both of which reflect increased confidence from both investors and insiders about the company’s long-term growth potential.
