UiPath: On The Right Path for 2022

It’s been rocky since its IPO last year. But the growth story looks solid.

In March, UiPath (PATH) pulled off one of the biggest IPOs for enterprise software companies. It raised $1.3 billion and the shares jumped 23% on the first day of trading. They would quickly climb to $90, but the good times would not last long. The shares of UiPath now trade at $42.49, which is well below the initial public offering price of $56.

Of course, the IPO market has crumbled during the past couple of months. About two-thirds of the deals are trading below their IPO prices.
A big part of this has been due to the tightening of Fed policy. Next year, there will likely to be multiple interest rate hikes.

But there are also other important factors that have weighed on IPOs. Let’s face it, the valuations got to lofty levels, especially with tech companies.
Yet there are some interesting opportunities emerging – and one of them is UiPath. So let’s take a closer look.

I am bullish on this stock.

Background

In 2005, ex-Microsoft (MSFT) employee Daniel Dines founded UiPath in Romania. He initially focused on software integration but the business proved extremely challenging.

By 2015, the company was on the verge of bankruptcy. But Dines still had hope and he pivoted to the RPA (Robotic Process Automation) market. This involved the creation of software bots to automate tedious and repetitive processes, such as with CRM (Customer Relationship Management) and ERP (Enterprise Resource Planning) software.

The moves were spot on and UiPath suddenly became a hyper-growth company. Within a year, the ARR (Annual Recurring Revenue) surged from $10 million to $100 million. A key to the growth was the innovation of the platform, which leveraged machine learning, computer vision, process mining, low code, and natural language processing (NLP).

UiPath had little difficulty raising substantial amounts of venture capital. Some of its investors included marquee firms like Sequoia, Tiger Global, CapitalG, Coatue, and Accel.

The Results

For the third quarter, UiPath reported a 58% spike in ARR to $818.4 million and the net ARR was up 42% to $91.9 million. The total revenues came to $220.8 million, up 50%.

UiPath has over 9,630+ customers and more than 1,300 generate $100,000+ in ARR. In other words, the UiPath platform has proven to be strategic for many companies.

True, the net cash used in operations was $25.4 million. But this is expected as the company continues to focus on the growth opportunities. Besides, the non-GAAP gross margin was 85 percent and there was $1.9 billion in the bank.

The Risks and Opportunities

UiPath certainly faces tough competition. Not only are there more than 70 startups in the sector, but various megatech companies are ramping up their RPA efforts. These include Microsoft, IBM (IBM) and SAP (SAP). There’s even buzz that Amazon (AMZN) and Alphabet (GOOGL) will make a play for the market.

But despite all this, UiPath has some clear advantages. First of all, the software provides for end-to-end automation. For example, Gartner has named UiPath the Magic Quadrant Leader in RPA for three consecutive years.

Next, the market opportunity is enormous. According to analysis from Forrester, the spending on automated technologies is expected to go from $17 billion in 2020 to $30 billion by 2025.

Wall Street’s Take

From Wall Street analysts, UiPath earns a Moderate Buy analyst consensus based on 10 Buy ratings, eight Hold ratings, and zero Sell ratings in the past three months. Additionally, the average UiPath price target of $64.12 puts the upside potential at 50.9%.

Summary and Conclusions

The growth story for UiPath continues to remain solid. RPA is one of the critical parts of digital transformation. As for UiPath, it has the advantage of significant scale and an extensive platform.

The stock price is also more attractive, given the recent sell off, although there could easily be more volatility. So UiPath is really for those investors with a longer-term perspective.

Disclosure: At the time of publication, Tom Taulli owned Microsoft shares.