UiPath is the Latest Robotic Process Automation Stock
The way venture capitalists (VCs) look at business ventures depends on which stage they’re coming in at. American television show Shark Tank gives us a glimpse of what VCs look for in the earliest stages of a business – signs of traction, which usually comes in the form of revenues. “We did $700,000 in sales out of our living room in 8 months,” is the sort of response that you’ll see raise some shark eyebrows. Once VCs know someone will buy what you’re selling, they then want to know how large the opportunity is, usually referred to as total addressable market (TAM).
If people are lining up to buy what you’re selling and the TAM is giant, you may have a run-rate growth chart that looks like this.
That’s the sort of growth that gets VCs excited, even more so that it’s a Software-as-a–Service (SaaS) business model which commands a premium in the market. It’s that sort of growth that gives a startup lots of leverage in the funding relationship which can lead to overvaluations. That’s why when UiPath says they’ve filed for an IPO, we’re going to be really cautious about all the hype that might surround that offering. Just weeks ago, UiPath took in funding at a valuation of $35 billion which gives us somewhere to start.
Enterprise AI SaaS Offerings
We’ve written extensively about why robotic process automation (RPA) is something that companies need to adopt if they want to compete. In a nutshell, it’s about using artificial intelligence (AI) to enable office workers to automate mundane tasks. If you’ve spent time in corporate America, you know that offices are full of roles which involve sifting through mundane tasks.
Enter RPA, where a small pilot project often leads to a company-wide deployment, because computers are so much better at mundane tasks than humans. The success stories seem almost too good to be true, except they are true, and that’s why we’re keen to get exposure to RPA, or general enterprise AI stocks for that matter. At the moment, there are at least a handful of companies with enterprise AI offerings. Here are some in order of size (we’re using UiPath’s last valuation of $35 billion as a proxy for market cap).
It’s likely that UiPath will begin trading at a valuation that’s higher than what they were last valued at two weeks ago – $35 billion – because today’s growth-hungry Robinhood weekday warrior doesn’t know what the word valuation means. (Investors in C3.ai are finding this out the hard way as shares have halved in the several months since IPO.)
When it comes to the TAM for RPA, research firm IDC estimates the market for Intelligent Process Automation (one of the many terms used for RPA), is estimated to reach $17 billion this year growing at a four-year compound annual growth rate (CAGR) of approximately 16% to $30 billion by the end of 2024. And they’re only looking at RPA. There are plenty of other niches in the enterprise AI space that have barely scratched the surface. Here’s a look at revenue trends for some companies we follow that would be considered “enterprise AI stocks.”
There’s plenty of room for multiple players in the RPA space and/or enterprise AI space. The question is, how much of this future growth is already priced in? Since nobody actually cares come IPO time, we’re going to let the dust settle before making any investment decisions here. Today, we want to see if we can find any red flags in the UiPath S-1 filing.
A Look at the UiPath S-1
We always look for revenue concentration risk, and that’s not a problem for UiPath. Revenues are distributed nicely across nearly 8,000 customers, 12.5% of which are contributing more than six-figures a year. A 145% “net retention rate” means they’re able to upsell clients over time – the old land-and-expand strategy. It makes a lot of sense why they’re taking that approach.
Businesses are initially skeptical of RPA, so they sign on for a small pilot project. When the pilot is a resounding success, management takes notice, and spending increases on the vendor solution that saved them money. More success stories beget more boardroom wankathons about “working smarter, not harder,” and soon every department in the firm is clamoring to adopt the vendor’s solution. The proper term for this compounding effect is “flywheel,” and it’s always best accompanied by some graphical abomination such as this one:
If it wasn’t readily apparent, UiPath sells their solution through lots of channel partners, namely consultants who love talking about success journeys, citizen developers, and flywheels.
Whatever success journey UiPath is selling, everyone seems to be buying it. Reference customers include 80% of the Fortune 10 and 63% of the Fortune Global 500, spanning various industries and including names like Adobe, Applied Materials, Chevron, Chipotle, CrowdStrike, CVS Health, Deutsche Post, Ernest and Young (EY), Takeda Pharmaceuticals, and Uber. Regarding revenue concentration, no single customer or channel partner accounts for more than 10% of revenues:
As of January 31, 2021, we had 1,002 customers with ARR of $100,000 or more and 89 customers with ARR of $1.0 million or more, which accounted for 75% and 35% of our revenue, respectively, for the fiscal year then ended.Credit: UiPath
There aren’t many concerns we have over UiPath other than the valuation they’ll come tearing out of the gates at.
A Romanian Success Story
What Salesforce did for sales teams, UiPath does for operations teams that span just about every industry there is. They’re currently vying with Automation Anywhere for the title of “my blue dot is further right and higher than yours” on the Gartner Magic MBA Quadrant thingy which shows four companies leading the charge in the RPA space:
Like Hoia Baciu Forest, UiPath’s growth is nothing short of magical. The CEO’s letter talks about how 10 people in an apartment in Romania have created a truly global company with clients in 30 countries. Being one of the fastest-growing enterprise software companies ever is a double-edged sword because now people expect that growth to continue, growth that becomes more difficult to achieve as one scales. (Instances where growth falls short of Wall Street’s lofty expectations are usually great buying opportunities.)
There’s another thing for tech investors to note here. Buried in UiPath’s S-1 are numerous examples of just how impactful their solution is. We don’t need to list these, because their success is spelled out in their astronomical growth. What stood out was the success story that involved EY, a 270-000 person strong consulting firm that uses UiPath and sells UiPath. Here’s what UiPath said about EY:
They used UiPath as an overlay on top of systems such as SAP in order to enhance usability, accelerate processing time, improve accuracy, and upskill employees in using automation technologies.
You don’t have to work in software engineering to find this hilarious. Just several years ago, EY was “recognized as a leader in SAP implementation services.” Here they are using SAP in their own firm, and having to make sense of it using UiPath. Perhaps SAP wasn’t the best solution to implement if you need to use UiPath robots to make it usable. EY will quickly argue “there’s room for both,” but the writing is on the wall for legacy firms like $148 billion enterprise software vendor SAP that have fallen behind the times with platforms that are both difficult to deploy and use. Nimble platforms like UiPath leverage modern technologies such as computer vision and machine learning to run circles around vendors who haven’t figured this stuff out yet.
In August of last year, we wrote about The Best Pure-Play Robotic Process Automation Stock. That decision took into account all available players at the time, which weren’t many. Today, we have one of the leading RPA firms out there going public, which means we need to make a decision. Do we continue to hold the RPA stock we’re holding now, or do we look to pivot into holding UiPath? We’ll only be able to answer that question when the dust settles following the UiPath IPO.
Should the IPO go through as planned, shares of UiPath will trade under the ticker PATH.
Want to see which five AI stocks we’re holding right now? Become a Nanalyze Premium subscriber and find out today.
Blue Prism Vs UiPath financial:
Valuation (per latest founding round – pre IPO): $35B
Market cap: £1.2B
So based on that UIPath is currently valued 6.8 times more than BluePrism. Obviously there are reasons for it: UiPath is growing faster: 80% revenue growth comparing to BluePrism 40% revenue growth. Other important thing: UIPath is now USA based (they moved from Romania to USA in 2017) and get easy funding in US while BluePrism is UK based and UK listed.
Blue Prism chief executive and chairman Jason Kingdon said his £1.3 billion AI company could be worth two-to-five times more if it was listed in the US, and its share price would be far less volatile, with a deeper volume of shares and more investors to hold them there.
Thanks for pointing this out. We always prefer to invest in the undervalued companies. Also note that Blue Prism won’t suffer from “the ARK effect,” birds of a feather move together.
I see ARK keeps buying it but it still keeps falling since end of May. Imagine what happens next when ARK stops buying.
I think that stock will have a larger correction in the near future and I closed my position. I may buy it afterwards.
It’s all about time in the market, not timing the market.
ARK has a position of $1B in UiPath (no 10).
I think it is likely the stock will fall more. I would be willing to buy it at around $50.
$47 is where we had said before it would be back on our radar. We’ll be keeping an eye on this.
ARK’s UIPath position is now at no 6: $1B. For comparison ARK’s Tesla position at no 1 is worth $1.9B. So clearly ARK is going big on UIPath. P/S ratio is now 24 (at share price $41). UiPath is the biggest ARK buy in December. So clearly ARK sees an opportunity now. PATH price is over $41 now.
PATH has been on a long slow slide for a while now. Calling the bottom is pointless. Just keep slowly adding and you’ll bring down your costs basis and be stoked if shares continue to fall. As for ARK, trying to mimic the behavior of an active portfolio manager is futile. Come up with your own methodology, refine it, improve on it over time, and make sure you have a sufficient amount of objectivity embedded within.
That’s what we’ve done anyways: https://nanalyze.com/nanalyze-premium-articles/
Barron’s: UiPath Stock Sinks as Revenue Outlook Below Forecasts.
UiPath shares were sinking in premarket trading Thursday after the robotic-process automation software company reported a wider-than-expected loss in the fourth quarter and issued a first-quarter revenue forecast that also was below Wall Street expectations.
UiPath (ticker: PATH) posted a loss of 12 cents a share in the quarter vs. analysts’ expectations that called for a loss of 7 cents. Revenue in the quarter rose 39% from a year earlier to $289.7 million and topped expectations of $283 million. Net new annual recurring…
Today PATH pre-market -14%.
We sent an alert to paying subscribers (including yourself 😉 on this. The 28% dip seemed like a huge overreaction by the market when the only real confirmed bad thing that happened was 2023 guidance dropped by less than 5%.
UIPath is currently ARK’s no 8 position with the size $870M. So the above bad news and PATH fall is going to hurt ARK.
ARK is immune to pain. You have to be in their line of work.
On 31th March ARK bought around 1.5 mln shares of PATH. So they remain a big believer in UIPath and took advantage of recent big price fall. ARK comments:
“We maintain high conviction in UiPath’s ability to integrate Robotic Process Automation (RPA) into many business processes across large enterprises around the world. UiPath provides a suite of RPA products that automate complex processes under specified compliance and governance standards”.
UiPath is an easy buy now, especially when I see Nanalyze, ARK and myself agree on it and the current price ($22.18) is very near 52 week low (yesterday at $21.12).