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UiPath: Robotics Process Automation (RPA)
When I think of artificial intelligence, one of the first things that comes to mind is robotics process automation (RPA). To be clear, these two are not the same – but together, advanced AI skills can be integrated into robots to understand documents including structured and semi-structured data, visualizing screens, and comprehending speech. You can think of RPA as the last-mile delivery for artificial intelligence. In other words, what do you do with AI, ML and NLP – what’s the outcome? A popular choice will be to automate processes with robotics.
I’ll go into greater detail in the upcoming PDF report but the main takeaways from the S-1 Filing are:
· Revenue growth of 81% to $608 million
· Dollar-based net retention rate of 145%, ranking it in the top 5 among public SaaS stocks who disclose this metric
· Gross margins of 89% which are among the highest in the software industry
As the top line increases, the bottom line is improving.
Over its last 12 months, UiPath has a free cash flow margin of 4% to go along with a -18% operating margin. The -18% operating margin is a significant improvement from the -154% operating margin the company recorded in 2019.
UiPath logged a $92M net loss in its last fiscal year, an improvement from the $520M net loss the company announced the year prior.
At the time of its S-1, UiPath had a total of 7,968 customers, exceeding a 70% CAGR in customer growth over the last 2 years. Customers with over $100K+ ARR totaled 1,002. UiPath automates millions of repetitive tasks for an impressive list of customers that includes 63% of the Fortune 500 and 8 of the Fortune 10.
UiPath has an EV/NTM Revenue valuation of 35.9x using its 81% YoY growth run rate. Below is a comparison of UiPath to some other high growth software stocks. PATH currently ranks 3rd among the highest valuations in the software industry.
Caution: IPO lockup periods usually see a decline in price
We’ve stated many times in the past that IPOs are tricky and we tend to not participate. We patiently waited for Snowflake, for example. We did the same on Zoom as we were prepared to find our lowest entry post-IPO.
The reason a lock-up period is followed by a lower stock price, even when the company is fundamentally strong and will go on to make bigger gains, is because some investors need to exit and go find their next big win. These are seed round and Series A investors who made plenty in the public offering and prefer to go find new portfolio companies.
Therefore, if we enter UiPath, we could exit again prior to the lock-up period expiring. This isn’t because we don’t want a position in the company, rather it’s that we need to compete on performance, and to also be transparent so our subscribers are fully aware of how we navigate volatile tech growth.
Maybe UiPath will be the first to hold its opening price after lock-up. In the meantime, I want to give you a heads up in case the I/O Fund initiates before we release the deep dive research.